Financialization is amongst the most important phenomena experienced by advanced capitalist economies in the last decades. There are several authors who have been engaged in keeping track of its evolution and development, in particular since the eighties (Magdoff and Sweezy 1987, Epstein 2005, Palley 2007, Sawyer 2018). Recent contributions are also trying to relate it to longer time spans for the sake of figuring out the major features characterising its most recent phase (Panico et al. 2016, Kotz and Basu 2017). Among them, in the work by Fasianos et al. (2018) we find an attempt to set forward a detailed comparison among the various financialization phases. Drawing on this latter contribution, we want to carry out an analysis on the possible channels through which financialization may have impacted upon the normal rate of profit. In our opinion the study can contribute to the discussion of the influence of financial elements on distributive variables, in particular because the literature has concentrated thus far on the influence of financialization on income shares and inequality.

After this introduction, in order to prepare the ground for the enquiry, the analysis starts presenting the main features of the Pivetti (1991) and Panico (1988) approaches to a monetary determination of income distribution via exogenous fixation of the nominal interest rate operated by the monetary authorities. Both analyses are developed grounding on Sraffian lines. Still remaining within that realm, we try to cast the enquiry in light of Garegnani’s proposal to restate the Marxian determination of the profit rate hinging on given social product, available techniques and real wage in physical terms. We hence attempt at studying the issue of financialization by making use of his ‘integrated wage-goods sector’ (IWGS) methodology (Garegnani 1984, 1987). Our proposal arises from two considerations. First, the diverging trends of the increasing profit rate and the decreasing interest rate observed in the last decades, together with a stagnating real wage, might be better framed within this framework. Indeed, in the IWGS the inverse relationship between the real wage and the profit rate emerges immediately, and can account for the observed empirical trends. Second, at the institutional level the transition towards a ‘financialized’ capitalism, started at the end of the seventies, appears to have been accompanied by a reinforced pressure upon the real wage, with the interest rate mainly playing the role of an exogenous shock useful to back up the attack rather than a lasting direct support to profitability.

The first step that we have undertaken has been the separation, within the IWGS, between the industrial and financial spheres of production. We have therefore built two ‘profit-functions’, with the redistribution of the surplus value being carried out endogenously to ensure the uniformity for the profit rate among sectors. Then, we have analysed the impact on normal profitability of: a higher portion of the profit share captured by the financial sphere of production, the technical innovations in the financial sector and a rising household indebtedness. These have been the elements of major relevance that we found in the above-mentioned piece of Fasions et al. (2018). The remaining ones, which pertain more to the political shift towards a ‘pro-business’ economic environment, can in our opinion be gathered into a common ‘institutional’ element which is treated separately after the first three.

The higher mass of profits accruing to the financial sector has been deemed not capable of affecting the general rate of profit. Within the IWGS the share of profits which has to flow towards a sector is endogenously arrived at in order to warrant the profit rate uniformity. Therefore, a higher share flowing to the financial sector should not be seen as an indication for the movements of the general profit rate. On empirical grounds, the study of Duménil and Lévy (2004) appears to confirm the fact that, while the industrial and financial sectorial profit rates can temporarily diverge, in the long run they converge to a uniform value.

The technical innovations in the financial sector require an analysis to be carried over in two different respects. It is in fact important to detect which innovations affect the financial services’ productions entering the IWGS and which do not. We have in the first place analysed the impact of the first type of innovations. It has been supposed that an innovation in the financial sector takes the form of a single-coefficient reduction in a price equation, for a given real wage in physical terms. Therefore, following Samuelson (1957), Okishio (1961), we can be sure that the general rate of profit will be higher. Taking this consideration together with the fact that the rate of surplus value is given as well, we construct a schema that displays the relative impact of the innovation on the specific profit functions. Then, we look at the innovations that do not affect the price equations entering the IWGS. Starting from the insights of Barba and De Vivo (2012), we try to assess what could have been the impact of innovations in the production of derivative contracts, which have taken the centre of the stage during the process of financialization. In this case, we maintain that these kinds of improvements do not affect the general rate of profit, since they do not enter the direct and indirect production of wage-goods. However, this supposition needs qualification: if derivatives serve as an insurance against unpredictable future events, they concretely provide a productive service in the form of insurance. Nonetheless, it can be argued that during the decades of financialization, those instruments have played a destabilizing role, rather than the contrary. Among others, a case in which this is particularly evident is the production of agricultural commodities, which is paradigmatic in light of our attention to the wage-goods production processes. In the last decades it is recognizable a pattern for agricultural commodities prices that tends to be dramatically influenced by waves of financial speculation (Girardi, 2015). This has been discussed in connection with the necessary differentiation between the two types of financial innovations, therefore reinforcing the position looking at the second type as non-impacting on the general rate of profit.

The third aspect which has been scrutinized is the impact on the general rate of profit of the increasing households’ indebtedness. In order to carry out the analysis, we have built a simple model which is aimed at drawing a logical line of reasoning that starts from the private quest for loans and ends with the effect on the general profit rate. The intuition behind that formalization can be summarized in intuitive terms. Workers have a certain target real wage in mind, which is shaped, among other things, by the desire to emulate the consumption patterns of richer classes. In a period of starkly increasing inequality, the quest for a higher real wage can be brought about in different manners, depending on the bargaining power of the workers’ class. In a regime in which they can enjoy a sufficient bargaining strength, workers can attempt at raising nominal wages for the sake of obtaining higher real wages. In a regime in which workers do not have enough force, as in the last decades, they can substitute wage increases with loans. Consistently with Panico and Pinto (2018), the increase in borrowing stimulates production and employment, thereby enlarging the amount of profits. In addition, we show that additional employment calls forth an increase in the product of the IWGS, whose scope is to furnish the workers employed in the whole economy with wage-goods. Thus, while the economy is enlarged in size and the amount of surplus value is higher, the rate of surplus value is not. For given production techniques, the rate of profit is unchanged.

Concluding, the three major characteristics of the financialization process have been seen as not hinging on the general rate of profit, with the exception of the technical innovations occurring in the financial sector’s equations of the IWGS.

Another aspect which is separately treated is the institutional part of the subject, which is studied by presenting some diverse views about the relationship between financialization and income distribution. We find in the literature viewpoints maintaining that financialization is among the primary determinants of inequality, which is in turn due to increasing capitalists’ power (Stockhammer, 2015), opinions in favour of giving more weight to the attack launched by capitalists towards workers’ conditions in the late seventies (Shaikh, 2011), and authors advocating for a complementarity between the two directions (Tridico, 2018). Our discussion has pointed the attention towards the Marxist literature studying the “Social Structures of Accumulation”. We have pointed out the interesting case of some publication in the late eighties (Bowles et al. 1986, 1989), in which the authors want to assess if and how the ‘Reaganomics’ was having concrete effects on the US economic environment. According to us, what can be of interest is that those contributions are placed in a point in time in which, according to the most recent reconstructions, the period of financialization was well under its way, but at the time it was not yet a widespread analytical category. The authors point out how the effects of the conservative policies of that time were already being felt in terms of reacquisition of power from the capitalists’ part. Yet, they do not discuss the role of factors relating to what has been afterwards named financialization. We have tried to argue how this kind of studies may add some evidence about the primary relevance to be attributed to labour market conditions and class relative power in making room for the subsequent thrive of the financialization phenomenon.

Concluding, the work shows how the process of financialization can be fruitfully treated within a Classical-Keynesian scenario. After building an apt framework within which the analysis can be developed, we have shown that while the production conditions of the financial sector matters for the determination of the general rate of profit, financialization can be deemed as not having a noticeable effect on the general rate of profit. This of course holds only for the features that we have been lingering on, and additional research is needed to further the analyses herein conducted.