Costas Lapavitsas (SOAS)

A crucial feature of financialisation is the extraordinary increase of financial profits in relation to non-financial and total profits. The reasons for this increase are not well understood. To tackle this issue this paper adopts a Marxist approach to financialisation as a distinct historical period in the development of mature capitalism. On this basis it builds a macroeconomic model with a non-financial and a financial sector which is also stock-flow consistent along the lines of Godley. The model shows that the ratio of financial to non-financial profits depends positively on the net interest margin and the non-interest income of banks, but negatively on the general rate of profit, the non-interest expenses of banks, and the ratio of the capital stock to interest-earning assets. The model is subsequently tested for the US economy showing that financial profits have varied mainly with respect to the net interest margin, while non-interest income has also played a significant role. The crisis of 2007-9 represents a turning point in this respect, ushering in a period of weaker financial profits.

Costas Lapavitsas is Professor in Economics at the SOAS Department of Economics.

Speakers: Costas Lapavitsas (SOAS), Gregor Semieniuk (SOAS)

Released by: SOAS Economics Podcasts