Hilferding, Rudolf 1877-1941
The economist Rudolf Hilferding was born in Vienna in 1877 to a liberal Jewish family. While studying medicine at the University of Vienna, Hilferding was influenced by his Marxian teacher Carl Grünberg (1861–1940). He abandoned medicine and, together with other Marxists, founded the Marx-Studien journal in 1904. He later moved to Berlin, where he became involved in politics and served twice as Germany’s finance minister (1923, 1928–1929). In 1933 Hilferding fled Germany and settled in Paris, but he was later arrested and was murdered by the Gestapo in 1941.
Hilferding became noted for his criticism of the Austrian economist Eugen von Böhm-Bawerk (1851–1914) with the publication in 1904 of his book Böhm-Bawerk’s Criticism of Marx. For Böhm-Bawerk, the market determines prices, and competition requires the freedom of capital and labor to yield equal profit rates. For Hilferding, in contrast, the market is conditioned by the relationship of surplus value to wages and its distribution among productive agents, while competition is a reciprocal relationship between products (Sweezy  1966, p. 191). For Böhm-Bawerk, labor is a disutility of work; for Hilferding, “labor is the social bond uniting an atomized society” (Sweezy  1966, p. 134).
Hilferding used Marxian schemata to criticize Böhm-Bawerk. He found different prices for each sector but the same total price and value for all sectors. To Hilferding, Böhm-Bawerk’s position equates price as equal to value. Hilferding underscored that Marx had modified value in a definite way, where the law of value passes to the law of motion through commodities. In the labor theory of value, commodities are exchanged for their values. This is not a condition of exchange in general. Changing historical conditions modify exchanged value, and “all that is necessary is that we should understand the course of prices to be a modification of the pre-existing course of prices. … Böhm-Bawerk’s mistake is that he confuses value with price” (Sweezy  1966, p. 156).
In Finance Capital (1910) Hilferding built on Marx’s work in the areas of joint stock companies and cartels, crises, and imperialism. Hilferding argued that as capitalist industries develop, they form cartels to avoid competition. At the same time a concentration of banking evolves as banks come to encompass huge financial capacity. Thus, as the banks’ capital is invested in industry, it becomes finance capital.
The high profits of cartels find their way into banks. Banks seek to export capital as investment opportunities decline at home and form general cartels. To foster exports, tariffs and protectionism are encouraged. As cartels and banks expand, finance capital becomes increasingly concentrated, creating a Marxian money-to-money circuit, M – M’. Hilferding’s unique contribution is that shareholders no longer rely on profits. They can be money capitalists relying on interest. He referred to this gain as promoter’s profits, where d is dividend, p is average profit, and Y is the yield of the enterprise. The formula shows a positive yield when a corporation transfers productive profit-yielding capital into interest-yielding capital (Hilferding  1981, pp. 114, 117).
Hilferding presented a crisis theory that is based primarily on proportionality between the capital-goods and the consumption-goods sectors. When a commodity plays the dual role of money (M ) and commodity (C ), a crisis is possible in the C 1 – M – C 2 circuit when money is hoarded. For Hilferding, “a crisis is simply the point at which the rate of profit begins to fall” (Hilferding  1981, p. 257). Marxian crises result from falling profits and underconsumption. Hilferding emphasized the disproportion in which commodities are produced and deemphasized the underconsumption theory. As the aggregate product is represented by the sum of constant capital, variable capital, and surplus value, the part of constant capital that is used up must be replaced, and if variable capital and surplus are consumed, proportionality is maintained, and production will be sustained.
Hilferding’s finance capital is marked by the highest level of concentration of economic and political power. This is due to mergers of corporations, which eliminate trade, create substantial profits that strengthen a firm against downswings, and allow financial capital controlled by banks to enter industries. At this stage capitalism has withered but is not dead, and economic power is transformed into state control. State power breeds international conflicts, while internal conflicts increase with the concentration of capital. The proletariat’s response to this imperialism is a demand for socialism. A country can maintain its capital only by increasing military operations. V. I. Lenin (1870–1924) considered this “a very valuable theoretical analysis” (Lenin  1973, p. 11). While in Lenin’s version competition and monopoly are maintained, in Hilferding’s version organized capitalism without competition and capitalist control ensues as in the socialist planned economy.
The American economist Paul Sweezy (1910–2004), a major critic of Hilferding (Sweezy  1970, p. 268), maintained that finance capital is a temporary phase, as many corporations obtain financing from their internal sources of funds, and that banks now have a less powerful role. In addition to pointing out that imperialism is not a necessary state of capitalism, the Austrian economist Joseph Schumpeter (1883–1950) considered Hilferding’s monetary theory to be old-fashioned (Schumpeter 1954, p. 881).
SEE ALSO Austro-Marxism; Capital; Capitalism; Economics, Marxian; Lenin, Vladimir Ilitch; Marxism; Nazism
Hilferding, Rudolf.  1981. Finance Capital: A Study of the Latest Phase of Capitalist Development, ed. To m Bottomore, trans. Morris Watnick and Sam Gordon. London: Routledge and Kegan Paul.
Lenin, V. I.  1973. Imperialism: The Highest Stage of Capitalism. Beijing: Foreign Language Press.
Sweezy, Paul M.  1970. The Theory of Capitalist Development: Principles of Marxian Political Economy. New York: Modern Reader.
Sweezy, Paul M., ed.  1966. Karl Marx and the Close of His System, by Eugen von Böhm-Bawerk; and Böhm-Bawerk’s Criticism of Marx, by Rudolf Hilferding. New York: Kelley.