Finance, Accumulation and Monetary Power

Understanding Financial Socialism in Advanced Capitalist Economies

Daniel Woodley

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367338558
• eBook ISBN: 9781000691986
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Economic Theory
• Index: Politics & International Relations

This accessible yet rigorous book examines the development of 'financial socialism' in advanced capitalist economies in the decade since the global financial crisis of 2007–2009. This new term refers to an attempt to resolve the accumulation crisis of capital through coordinated central bank activism, where state circuits of monetary capital assume a critical role in the reproduction of capitalist social relations.

The book explains the dynamics of the crisis as it has developed and assesses the response of monetary elites to systemic financial risk in the global economy. Their failure to re-engineer growth following the technology boom of the late 1990s and the global financial crisis are driving fundamental changes in the form and function of capitalist money, which have yet to be theorized adequately.

Finance, Accumulation and Monetary Power presents a revealing and radical critique of the failure of the International Political Economy to apprehend changes taking place within capitalism, employing a critical-theoretical analysis of contradictions in the capitalist reproduction scheme. The book will be of key interest to scholars, students and readers of international political economy, critical political economy, heterodox economics, globalization, international relations, international political sociology, business studies and finance.

PART I

Theorizing the crisis

1

THE FAILURE OF NEOCLASSICAL ECONOMICS

Introduction

During the last decade there has been no shortage of studies on the global financial crisis and its political consequences, with a vast range of books examining everything from the excesses of financialization and the failure of regulatory regimes to the history of the eurozone crisis and the economic consequences of mounting debt for advanced economies. Is there anything to add to this growing list of titles? The answer, it seems, is yes. The dramatic events of the 2008 market collapse are fascinating in themselves and provide excellent subject matter for narrative histories. However, very little that is useful can be learnt from the crash in isolation from a broader understanding of the material determination of value in capitalist society and the evolving sociopolitical structure of contemporary postliberal-capitalist accumulation regimes. This requires a critical-theoretical approach to political economy, dispensing with simplistic notions of ‘parasitic finance’ which condemn speculation on normative grounds or which misconstrue finance capital as an imaginary value detached from the ‘real’ economy. Too many recent studies start from the hackneyed assumption that the global financial crisis occurred due to the avarice of bankers (Augar 2018), the failure of regulation (Friedman & Kraus 2011) or the dishonesty of accountants whose complicity in financial fraud illustrates the failure of traditional fiduciary accountability in modern financial markets (Brooks 2018). Notwithstanding the extensive evidence of financial cupidity and corruption revealed by the crash, and the embezzlement and fraud which accompany financial liberalization (Bullough 2018; Shaxson 2018), a singular emphasis on criminality and greed distorts our field of vision by shifting the focus towards cases of individual malfeasance while ignoring the underlying structural development of commodity-determined society and its changing political form.

To address this deficiency, the following study develops a new approach to the crisis based on a critique of financial socialism, defined as a specific stage in the evolution of postliberal capitalism where state circuits of financial capital assume a critical role in the reproduction of capitalist social relations and the stabilization of corporate power. This suggests the development of capitalism beyond its so-called ‘neoliberal’ moment in an attempt to understand not simply the stagnation of advanced monetary economies, but the failure of economics itself as form of ‘legitimation science’ – that is to say, an ideologically distorted mode of social-scientific inquiry adequate to the defence of capitalist social relations. With the collective failure of the economics profession to predict or accurately diagnose the underlying causes of the crisis, it is evident that the ideological function of economics in contemporary capitalism is to reproduce paradigm mentalities in order to deflect counterhegemonic narratives, reconciling at a theoretical level the gulf between academic orthodoxy and economic reality. The claim of science to superior knowledge is based on the assumption that methodologically consistent work on the material world is likely to generate a more accurate picture of reality than can be obtained via intuition. Yet a scientific research programme characterized by paradigm mentalities inevitably aspires to the status of ‘normal science’, where the collective commitment of adherents obviates the need for evidence to defend theoretical claims (Kuhn 1970; cf. Walker 2010). Otherwise put: no matter how deep the irresolvable internal contradictions in a given paradigm, its recognized status as ‘normal science’ relieves adherents of the tiresome requirement to continuously justify a programme, reaffirming their claim to possession of scientific and methodological rationality.

The text is intended further as a contribution to value theory (Wertkritik), linking the accumulation crisis of capitalism with contemporary developments in global finance and monetary policy. Marxism has traditionally focused on capitalist crises from the standpoint of labour (Postone 1993), emphasizing class conflict and revolution as vehicles of social change; but with the collapse of state socialism and the retreat from historical teleology, Marxian critiques from the standpoint of labour have become less relevant. Class-theoretical approaches correctly locate social-structural change in the material development of commodity-determined societies yet fail to consider the categorial primacy and inner contradiction in the capitalist value form as a driving force of change within the capitalist mode of production. While the determinants of crisis are central to his investigation, the ‘object of Marx’s analysis is not crisis, but the capitalist process of reproduction in its totality. Given his method of investigation Marx examines the unending circuit of capital and its functions through all the phases of the process of reproduction’ (Grossmann 1929: ch. 2: 17). In addition, there is a failure to comprehend the eclipse of liberalism as a political technology with its origins in eighteenth-century political economy. The atrophy of liberal capitalism is well advanced; yet despite concerns over the rise of anti-establishment populism in western democracies, this trend is obscured by the hegemonic force of ‘neoliberalism’ as a discursive strategy which misrepresents the complex link between corporatism and oligarchic power as a necessary feature of globalizing capital. This system depends not simply on access to new markets and new sources of accumulation but on the growth of financial market capital (interest-bearing capital) to extend, intensify and amplify the accumulation of future value in the present, extending the parameters of accumulation while delaying a deflationary crisis that overshadows debt-leveraged economies in the capitalist metropole.

The emphasis, therefore, is on the contradictory development of value in commodity-determined societies as a social relation between agents realized at a higher level of abstraction through the process of exchange. Value is a central analytical category in Marxian political economy yet is one which is obscured in mainstream economics (and traditional Marxism) as a result of the ‘fetish’ nature of exchange value. That is to say, Marx (1978, 1973) observed that economics fails to distinguish between the technical character of the commodity and its social form in capitalism where the exchange-value of a commodity is entirely distinct from its intrinsic worth or utility as an object. This is necessarily so because commodity-determined society renders all values commensurable: their value is not intrinsic or given but realized via exchange. Relations between actors are mediated by and assume the form of relations between things in the market – a process which Lukács (1975 [1923]) famously termed ‘reification’. This economic mystification is not just ideological; it is a feature of social being in commodity capitalism which arises principally with respect to credit money as interest-bearing capital – the ‘main lever of overproduction and overspeculation in commerce’ (Marx 1959: 441). As Kurz argues:

We must not forget that value, which must appear as exchange value, does not by its nature express an in some way mythical substance inherent to things as such, as the fetish structure of exchange value suggests, but rather a social relationship between partial or private producers who are isolated from one another, whose social division of labor can only be realized by means of the sphere of circulation that has been separated from it. (Kurz 1986: 26)

Although it should be stated that – in contradistinction to Rubin (1973) and Heinrich (1991) – the sphere of exchange is not the exclusive realm in which value is created (Kurz 2016), the exchange-value of commodities realized through the intermediation of financial markets is the context in which social relations of capitalist production achieve their highest level of abstraction: finance is a sphere of money-creation which is integral to the expanded reproduction of global capital.

Complex financial instruments (equities, securities, derivatives) traded in financial markets represent fetishized forms of appearance of capitalist social relations – ‘new kinds of rationality for the promotion of exploitation strategies based on the circuits of capital, rather than […] aberrations or dysfunctional developments of the “real” economy’ (Sotiropoulos et al. 2013: 33; 2). Yet finance not only intermediates risk, it also generates an ‘attitude of compliance with the laws of the capitalist system [and] these new rationalities systematically push for an underestimation of risks’ (ibid.). Through the commodification of risk and anticipation of future value, financialization indicates not only the expanded role of finance in the reproduction of total social capital but the performative enactment and legitimation of commodity fetishism (the assumption that the value of a commodity is intrinsic, detached from the investment of human labour power in its production) among subjects always already ‘captured within and dominated by the “supersensible” but objective forms of appearance of the existing complex of capitalist power relations’ (ibid.: 153).

While the origins of the present crisis lie less in the implosion of the US sub-prime mortgage market in 2007 than in the slump of the 1970s, the event that exposed most dramatically the structural weakness of the advanced capitalist economies was the collapse of the new technology boom in the US between 1999 and 2001. Following a series of escalating crises in emerging economies during the 1990s, the coincidence of financialization with the global digital communications revolution induced what some observers define as a ‘metaphorical heart attack’ in the accumulation structure of capitalism – an economic trauma derived from the inner contradiction in the value form (Lohoff & Trenkle 2013). That is, the unprecedented expansion of capital value generated by the combination of the ‘dot.com bubble’ and the acceleration of global digital communications technology accelerated a process of ‘accumulation without value’ in the advanced economies. As a consequence of the diminished contribution of labour power in the creation of surplus value, the capacity of firms to valorize capital (to yield a profit from capital invested) has diminished sharply. This, in turn, has exacerbated a deflationary recession that persists two decades on despite attempts by elites to disguise the crisis by inflating new asset bubbles to perpetuate the fiction of rising prices, liquidity, prosperity and growth that sustain the advanced economies. This leads one critic to conclude that while the ‘visible hand of central banks has taken over administration of a burned out capitalist future, private business seeks out new speculative bubbles which have become indispensable for a continuation of the global accumulation process’ (Lohoff 2016: 4). With the rise of ‘financial market socialism on a global scale, an ironic outcome of the neoliberal revolution, politics has bought the decadent global capitalist system a reprieve’ (ibid.).

The implosion of the US mortgage market in 2007 triggered a market collapse which is now routinely – yet mistakenly – blamed on financialization, as if financial market risk and greed in and of themselves could explain escalating internal contradictions within the capitalist mode of production as a historical mode of production (Kliman 2012). The phenomenal growth of finance is less a historical aberration, however, than a structural feature of globalizing capital, which provides a powerful engine to generate value through manifold forms of credit and debt-leveraging. But it is more than this. To employ a concept from Althusser, in the present global order interest-bearing capital functions as a ‘structure in dominance’ within the capitalist mode of production: a critical element of a complex whole which determines and organizes all other social and economic practices. For Althusser, the concept ‘totality’ indicates ‘unity of complexity’, in the sense that the ‘mode of organization and articulation of complexity is precisely what constitutes its unity’ (Althusser 2005: 201–202). Marx, of course, recognized the importance of interest-bearing credit money in the nineteenth century, observing how finance capital ‘accelerates the material development of the productive forces and the establishment of the world market’ (Marx 1959: 441). He also recognized the logical contradiction in the capitalist credit system, namely that interest-bearing capital simultaneously ‘accelerates the violent eruptions of this contradiction – crises – and thereby the elements of disintegration of the old mode of production’ (ibid.). In the present era, finance intensifies the process of commodity abstraction, where the global money-form of capital – the realization of human labour power in the abstract (La Berge 2014), creates complex financial entitlements which facilitate and intensify the reproduction of value in the sphere of circulation. This, in turn, augments and compensates for a declining profitability of labour power in commodity production itself – although these two modes of valorization are not necessarily antithetical.

Nevertheless, financialization is economically and politically unstable because the growth of credit money – falsely understood as a ‘limitless’ quantity – continually tests the limits of liquidity in the international monetary system. That is, the growth of financial market money tests the capacity of monetary authorities to defend liquidity which is not itself money but rather ‘money that is virtual and latent in an asset’ (Lozano 2014: 16). This is so because, in pursuit of rapid gains, modern financial instruments are fluid, fungible, overextended and impermanent, dependent for their valorization on the continual multiplication of debt and the appropriation of future value to sustain an illusion of rising asset values and prosperity in the present. At the same time, the intermediating function of finance alters the social basis of property ownership in favour of investor elites. Despite the shrill propaganda of ‘popular capitalism’ and ‘share-owning democracy’ in the 1980s, and despite the relative diffusion of finance capital to post-communist and emerging economies in the present period of globalization, property ownership still remains highly concentrated among a transnational investor class whose deracinated location at once removed from the domestic political ties and regulatory constraints of sovereign territorial states affords it immense global financial power and operational autonomy. At the other extreme, new macroprudential regulations in the international financial system mean that assets held by ordinary depositors in banks and financial institutions are increasingly insecure: not only are depositors denied a real rate of return for lending to banks due to negative real interest rates (where the rate of inflation is higher than base rates) or negative nominal rates (where rates are below the zero lower bound), but a regulatory regime is being implemented which will limit the entitlement of depositors to assets in the event of future liquidity crises.

Central to the development of financial socialism is the changing form and function of money in advanced capitalism which must be understood in response to the accumulation crisis of capital, which is characterized by a tendential decline in the rate of profit, a search for new sources of value in the sphere of circulation and the field of information. At the heart of this problematic, however, is the unprecedented leveraging of debt in developed and emerging economies which renders the return to a ‘normal’ monetary policy cycle unthinkable without the risk of triggering sovereign and corporate default (Mai 2018). According to the International Financial Reporting Standards Foundation, the critical issue of debt has intensified since the global financial crisis:

The combined debt of consumers, banks, corporates and governments amounted to no less than 269% of [global] GDP at the outbreak of the financial crisis. Never in history had global debt been so high as it was in 2008. […] Normally excessive leverage is reduced after a financial crisis. This time, however, total debt continued to grow to a staggering 318% of global GDP in 2018, almost 50 percentage points higher than the historical record of 2008. (Hoogerverst 2018: 1)

The ever-increasing magnitude of private, corporate and sovereign debt in a slowing global economy means not only that accumulation is maintained to a great extent by the growth of fictitious capital, but also that capitalism (barring the unlikely occurrence of a modern debt ‘jubilee’ – a universal cancellation of outstanding unpayable debt) is caught in an irreversible debt trap. A debt trap is triggered where escalating levels of debt keeping capitalism in motion increase because interest rates are low, but where interest rates cannot be raised because the edifice of leveraged debt is vulnerable to even small movements in the base rate by one or more of the world’s major central banks. This extended interruption in the ‘normal’ cycle of monetary policy since 2008 – particularly in the advanced economies – reinforces the trend towards financial socialism as a specific stage in the evolution of postliberal capitalism where state circuits of finance capital assume a critical role in the reproduction of capitalist social relations and the stabilization of the financial system.

Stated otherwise: finance capital (credit money) is generated through new forms of debt, perpetuating at ever-higher levels of magnitude the moment of repayment which might announce the ‘end’ of capitalism as a mode of production in which a settling of accounts (debt repayment) might signify a limit to the potential valorization and self-expansion of capital. Streeck (2014) argues that measures introduced to stabilize the global economy since 2008 are a means of ‘buying time’ – a strategy to delay the sociopolitical crisis of state-democratic capitalism. He also argues convincingly that the financial crisis has been used by political and monetary elites – particularly within the eurozone – to realize the political-economic conditions for Hayek’s (1980) vision of ‘interstate federalism’ and to further reduce the capacity of sovereign democracies to manage their economic and financial affairs independently. Yet while Streeck may be correct in his evaluation of the political exigencies of the global financial crisis – which have further reduced the scope of eurozone states to determine economic and monetary poli...

Table of contents

• Cover
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of tables
• Preface
• Acknowledgements
• List of abbreviations
• PART I: Theorizing the crisis
• PART II: Financial socialism
• Bibliography
• Index