Financialization and the US Economy

Financialization and the US Economy

New Directions in Modern Economics series

Özgür Orhangazi

Özgür Orhangazi brings together a comprehensive analysis of financialization in the US economy that encompasses the historical, theoretical, and empirical sides of the issues. He explores the origins and consequences of the dramatic rise of financial markets in the US economy and focuses on the impacts of this process of ‘financialization’ on the operations of the non-financial corporate sector.

Chapter 3: Historical Context

Özgür Orhangazi

Subjects: economics and finance, financial economics and regulation, political economy, politics and public policy, political economy


FINANCE CAPITAL AT THE TURN OF THE 19TH CENTURY The prominence of finance in the post-1980 world raises the question of similarities with the period of late 19th to early 20th century, as in this period too, finance was seen as the dominant force in the economy. Comparisons across eras may not be of too much use as there are too many factors to account for change and capitalism cannot necessarily be characterized by compartmentalized sub-epochs. However, these historical comparisons can still be useful in understanding the current forms of capital accumulation and institutional configurations. In this context, we can unravel the role of finance at different points in time and gain a better understanding of the continuous adjustments and restructurings in the system. When we look at the US economy at the turn of the 19th century, we see a period that was characterized by a large and powerful financial sector accompanied by a monopolization/oligopolization process in the economy. NFCs in the US were said to be under the influence (or under the control) of the Money Trust – an association of financial firms under the leadership of J.P. Morgan’s bank.1 This was the result of investment bankers responding to the cutthroat competition of the 1880s and 1890s by turning their attention to the financing of cartels, trusts and mergers (Heilbroner and Singer 1984: 208).2 For example, in 1904 a single firm or two firms that were put together by a merger controlled more than half...

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