Crisis of expansion
The root of the problem of US and world capitalism in the 1970s was not low rates of profit as such. After all, the driving down of profit rates in the pursuit of a larger mass of profits has been a long established tradition of historical capitalism.  The real problem throughout the 1970s was that US monetary policies were trying to entice capital to keep world trade and production expanding, even though such an expansion had become the primary cause of rising costs and uncertainty for corporate capital in general, and American corporate capital in particular. Not surprisingly, only a fraction of the liquidity created by the US monetary authorities found its way into new trade and production facilities. Most of it turned into an extraterritorial money supply, which reproduced itself many times over through the mechanisms of private inter-bank money creation, and promptly re-emerged in world markets to compete with the dollars issued by the Federal Reserve.
In the last resort, this growing competition between private and public money did not benefit the US government, because the expansion of the private supply of dollars set an increasingly large group of countries free from balance of payments constraints, and thereby undermined the seigniorage privileges of Washington. Nor did it benefit US capital, since the expansion of the public supply of dollars fed offshore money markets with more liquidity than could possibly be recycled safely and profitably. It therefore forced the US banks and other financial intermediaries that controlled these markets to compete fiercely with one another in pushing money on countries deemed credit-worthy, and indeed in lowering the standards by which this credit-worthiness was assessed.
Unfolding as it did in the context of a deepening crisis of US hegemony, this mutually destructive competition culminated in the devastating run on the dollar of 1979–80. Whatever the actual motivations and ostensible rationale of the sudden reversal in US monetary policies that followed the run, its true long-term significance—and the main reason why it eventually revived US fortunes beyond anyone’s expectation—is that it brought this mutually destructive competition to an abrupt end. Not only did the US government stop feeding the system with liquidity; more importantly, it started to compete aggressively for capital worldwide—through record high interest rates, tax breaks, increasing freedom of action for capitalist producers and speculators and, as the benefits of the new policies materialized, an appreciating dollar—provoking the massive rerouting of capital flows towards the United States discussed earlier on. To put it crudely, the essence of the monetarist counter-revolution was a shift of US state action from the supply side to the demand side of the ongoing financial expansion. Through this shift, the US government stopped competing with the growing private supply of liquidity to create instead brisk demand conditions for the latter’s accumulation through financial channels.
The monetarist counterrevolution was not an isolated event but an ongoing process which had to be managed. Brenner’s account of inter-state cooperation and competition among the leading capitalist countries in the 1980s and 1990s is particularly useful in highlighting the swings that have characterized this management. Whenever the process threatened to get out of hand and provoke a systemic breakdown, the leading capitalist states cooperated to avert the danger by bringing relief from competitive pressures to the producers most immediately threatened with collapse—US manufacturers on the eve of the Plaza Accord of 1985; Japanese and, to a lesser extent, Western European manufacturers on the eve of the reverse Plaza Accord of 1995. But once the danger was averted, inter-state competition resumed until the threat of a new breakdown loomed on the horizon. Illuminating as it is, this account does not tell us whether this process has any limits—and if it does, what these might be. This brings us to Brenner’s contention concerning the precariousness of the US economic revival of the 1990s, to which we now turn.
C) Possible Outcomes
In general terms, I concur with Brenner’s assessment that the US economic revival of the second half of the 1990s did not constitute ‘a definitive transcendence of the long downturn’; and that, indeed, the worst may be yet to come. Writing in the early 1990s—before the start of the revival analysed by Brenner, but after the monetarist counter-revolution had already succeeded in transforming the crisis of the 1970s into a new belle époque of US and world capitalism—I contended that ‘the most striking similarity [between this new belle époque and the Edwardian one] has been the almost complete lack of realization on the part of their beneficiaries that the sudden and unprecedented prosperity that they had come to enjoy did not rest on a resolution of the crisis of accumulation that had preceded the beautiful times’. Rather, ‘the newly found prosperity rested on a shift of the crisis from one set of relations to another set of relations. It was only a question of time before the crisis would re-emerge in more troublesome forms’. 
There are nonetheless two main differences between Brenner’s diagnosis of the crisis of profitability underlying the global turbulence of the last thirty years, and my own One is that I interpret the crisis of profitability as an aspect of a broader crisis of hegemony. And the other is that I see the financialization of capital, rather than persistent ‘over-capacity and over-production’ in manufacturing, as the predominant capitalist response to the joint crisis of profitability and hegemony.
One of the advantages of this interpretation is that it enables us to establish comparisons with earlier periods also characterized by a crisis of hegemony/profitability and the financialization of capital, in an attempt to identify possible prospective outcomes of the present crisis in the light of historical experience. This brings us back to the issue raised earlier of whether the present belle époque can be expected to end as catastrophically as the preceding one. In bringing this article to a close let me briefly point to reasons why it may and why it may not.
The main reason for anticipating a new debacle is that financial expansions have a fundamentally contradictory impact on systemic stability. In the short run—with the understanding that, in this context, a short run encompasses decades rather than years—financial expansions tend to stabilize the existing order, by enabling incumbent hegemonic groups to shift onto subordinate groups, nationally and internationally, the burdens of the intensifying competition that challenges their hegemony. In the preceding section I have sketched the process through which the US government succeeded in turning the financialization of capital from a factor of crisis for US hegemony—as it was through the 1970s—into a factor of reflation for US wealth and power. Through different mechanisms, analogous—if less spectacular—reversals can be detected not just in the course of the UK-centred financial expansion of the late nineteenth and early twentieth centuries, but even in the course of the Dutch-centred financial expansion of the mid-eighteenth century. 
Over time, however, financial expansions have tended to destabilize the existing order through processes that are as much social and political as they are economic. Economically, such expansions systematically divert purchasing power from demand-creating investment in commodities (including labour power) to hoarding and speculation, thereby exacerbating realization problems. Politically, they tend to be associated with the emergence of new configurations of power, which undermine the capacity of the incumbent hegemonic state to turn to its advantage the system-wide intensification of competition. And socially, the massive redistribution of rewards and the social dislocations entailed by financial expansions tend to provoke movements of resistance and rebellion among subordinate groups and strata, whose established ways of life are coming under attack.
The form that these tendencies take, and the way in which they relate to one another in space and time, have varied from financial expansion to financial expansion. But some combination of the three tendencies can be detected in each of the two so-far completed hegemonic transitions of historical capitalism—from Dutch to British and from British to US hegemony. In the past transitions (although not yet in the current one), they eventually resulted in a complete and seemingly irremediable breakdown in the system’s organization, which was not overcome until the system was reconstituted under a new hegemony. 
A new systemic breakdown?
The Crash and Great Depression of the 1930s—the only occurrence in the last 150 years that corresponds to Brenner’s image of a system-wide shakeout or ‘outright depression’—was an integral element of the latest breakdown. The success of the monetarist counterrevolution, in transforming the financial expansion of the 1970s into the driving force of the reflation of US wealth and power of the 1980s and 1990s, is not in itself a guarantee that an analogous systemic breakdown is not again in the making. On the contrary, the very scale and scope of the transformation are probably exacerbating realization problems worldwide to such an extent as to make an ‘outright depression’ more rather than less likely.  This is an important issue, and one to which I would like to return on some other occasion. For the time being, however, let me simply note that, once again, the economics of the situation evolves not in isolation from but in combination with the political and social dimensions of the ongoing transition to a yet unknown destination. And while the economics of the present transition is in key respects similar to that of past transitions—as witnessed by the intensification of inter-capitalist competition and associated financialization of capital—its politics and sociology are quite different.
As previously noted, in the course of the latest long downturn and belle époque there has been no tendency—as there was in the course of the long downturn and belle époque of the late nineteenth and early twentieth centuries—towards the transformation of inter-enterprise competition into a world-scale inter-state struggle over territory, with its associated escalation of the armaments race among rising and declining capitalist powers. On the contrary, global military capabilities have become even more centralized in the hands of the United States than they already were, while rising and declining capitalist powers have continued to work towards the consolidation of the unity of the world market. It is of course impossible to tell how this might change, were the increasing realization problems to precipitate a major system-wide depression. For the time being, however, the growing segmentation of the world market that contributed decisively to the economic breakdown of the 1930s does not appear to be a factor in the present transition.
Closely related to the above, the social forces that have shaped and constrained inter-capitalist competition in the late twentieth century are significantly different from those at work in the previous transition. Although the monetarist counterrevolution has been quite successful in undermining the capacity of labour in core regions, and of Southern nations in the world at large, to obtain a larger share of the pie, this success has its own limits and contradictions. Chief among these, as Brenner himself emphasizes, is the fact that the US economic revival of the 1990s, and the continuing dependence of the world economy for its own expansion on a growing US economy, have been based on an increase in US foreign indebtedness that has no precedent in world history. It is hard to see how this situation can be reproduced for any length of time without transforming into an outright tribute, or ‘protection payment’, the $1 billion (and counting) that the United States needs daily to balance its current accounts with the rest of the world. But it is even harder to envision the kind of system-wide social and political convulsions that are necessary to make the extraction of such a tribute the foundation of a new, and for the first time in history, truly universal world empire.
Towards the end of the belle époque of Dutch capitalism in 1778, the periodical De Borger wrote: ‘Each one says “it will last my time and after me, the deluge!” as our [French] neighbours’ proverb has it, which we have taken over in deeds if not in words’.  This pretty much sums up the philosophy that underlies all financial expansions and belle époques of historical capitalism, including our own. The main difference between then and now is the incomparably greater power wielded by the declining hegemonic state.
As David Calleo has argued, international systems break down ‘not only because unbalanced and aggressive new powers seek to dominate their neighbours but also because declining powers, rather than adjusting and accommodating, try to cement their slipping pre-eminence into an exploitative hegemony’.  At the time of the belle époque of Dutch capitalism, Dutch world power was already so diminished that the country’s resistance to adjustment and accommodation played virtually no role in the subsequent systemic breakdown, in comparison to the aggressive role played by the emerging empire-building national-states, first and foremost Britain and France. Today, in contrast, we have reached the other end of the spectrum. There are no credible aggressive new powers that can provoke the breakdown of the US-centred world system, but the United States has even greater capabilities than Britain did a century ago to convert its declining hegemony into an exploitative domination. If the system eventually breaks down, it will be primarily because of US resistance to adjustment and accommodation.
 Thorstein Veblen, The Theory of Business Enterprise, New Brunswick, NJ 1978, p. 241. I would like to thank Perry Anderson and Beverly Silver for their comments.
 David Landes, The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present, Cambridge 1969, p. 231.
 S. B. Saul, The Myth of the Great Depression, 1873–96, London 1969.
 Landes, Unbound Prometheus, p. 240.
 Landes, Unbound Prometheus, p. 231.
 Eric Hobsbawm, Industry and Empire: An Economic History of Britain since 1750, London 1968, p. 125.
 Saul, Myth, pp. 28–34; Michael Barratt Brown, The Economics of Imperialism, Harmondsworth 1974, table 14.
 Verso: London and New York 2002; hereafter BB. This article will also deal with themes that are developed in more detail in Brenner’s earlier text, ‘The Economics of Global Turbulence: A Special Report on the World Economy, 1950–98’, NLR I/229, May–June 1998; hereafter GT.
 GT, pp. 39–137, and BB, pp. 9–24. Brenner’s use of the expression ‘uneven development’ echoes Trotsky’s and Lenin’s but differs radically from the more common contemporary deployment designating the tendency of capitalist development to polarize and diversify geographical space. See especially Samir Amin, Unequal Development, New York 1976; and Neil Smith, Uneven Development: Nature, Capital and the Production of Space, Oxford 1984. Throughout this article I will use the expression in the same sense as Brenner.
 GT, pp. 91–2.
 BB, pp. 14–15.
 BB, p. 15.
 GT, p. 41, 105.
 GT, pp. 93–94; BB, pp. 17–18.
 GT, pp. 94, 116, 119, 126–30.
 GT, pp. 120–21.
 GT, pp. 120–23.
 GT, pp. 123–24, 137.
 GT, pp. 25–6; emphasis in original. As noted, Brenner invariably uses the terms ‘over-capacity’ and ‘over-production’ together, occasionally replacing them with the term ‘over-accumulation’ (e.g. BB, pp. 32, 159). In my view, what he is describing is a crisis of over-accumulation, of which over-capacity and over-production are distinct manifestations. As we shall see in the second part of this paper, the fact that Brenner never clarifies conceptually the difference between over-capacity and overproduction creates considerable difficulties in empirically assessing their actual importance, both in absolute terms and relative to other manifestations of the underlying crisis of over-accumulation.
 GT, pp. 32–33.
 GT, p. 34.
 BB, pp. 26, 31, 37.
 BB, pp. 33–34; emphasis in original. Brenner’s account of the sequence of events that led to the monetarist revolution (or counterrevolution, as I prefer to characterize it) is the weakest link in his story of the long downturn. For one thing, he leaves us wondering why, under conditions of over-capacity and over-production, Keynesian stimuli brought about increases in prices rather than output; and, once this had occurred, why price increases did not result in higher rates of profit. More important, in The Boom and the Bubble, he does not tell us how and why policies ‘designed to restore US manufacturing competitiveness’ resulted instead in record-breaking trade deficits, despite a simultaneous escalation in protectionist measures (the Multi-Fiber Arrangement of 1973, the Trade Act of 1974 against ‘unfair trade’, and the tightening of so-called ‘voluntary export restraints’ imposed on East Asian countries). In his earlier text, he suggests three reasons for this perverse outcome: a US macroeconomic policy ‘more stimulative than that of its chief rivals’; a slower growth of US labour productivity; and an apparently greater ‘tolerance of rival capitalists abroad for reduced profitability’ (GT, pp. 179–80). Nevertheless, these are ad hoc explanations which do not clearly fit his ‘too-little-exit, too-much-entry’ thesis and, as we shall see in the second and third parts of this article, miss the most fundamental causes of the devastating run on the dollar of 1979–80.
 BB, pp. 35–36.
 BB, pp. 36, 54–55.
 BB, pp. 54, 59–60.
 BB, pp. 60–61.
 BB, p. 89–93.
 BB, p. 127.
 BB, p. 130–31.
 BB, p. 131.
 BB, p. 127.
 GT, pp. 251, 255, 257–61.
 GT, p. 261.
 GT, p. 262; emphasis in original.
 BB, pp. 139–41.
 BB, pp. 143–6.
 BB, pp. 146–7, 151–2.
 BB, pp. 209–17, 248–53, 261–64.
 BB, pp. 269, 276, 277–78; emphasis in original.
 BB, pp. 278–82.
 BB, p. 113; GT, p. 152; emphases added.
 GT, pp. 151–2.
 As noted earlier, the great depression of 1873–96 has been called a ‘myth’ precisely because it was characterized by a slowdown in the rate of growth rather than a collapse of production, trade and investment, as in the truly ‘great depression’ of the 1930s. But in the 1870s and 1880s profitability did collapse and remained depressed through the early 1890s. Brenner does not deal with the semantic ambiguity of ‘depression’ but it is clearly an issue that must be confronted to make sense of his frequent use of the term.
 The long downturn of the late 19th century witnessed not just the beginning of the ‘Second Industrial Revolution’ but also the emergence in the US of the modern multi-unit, vertically integrated enterprise, which became the dominant model over the next century. ‘Almost nonexistent at the end of the 1870s, these integrated enterprises came to dominate many of the [US’s] most vital industries within less than three decades’: Alfred Chandler, The Visible Hand: The Managerial Revolution in American Business, Cambridge, MA 1977, p. 285. It is interesting to notice that the notion of ‘excessive competition’, which surfaced in Japan during the crisis of profitability of the late 1960s and early 1970s, and which Brenner occasionally uses to characterize the underlying condition of the long downturn of 1973–93, first gained currency in business circles in the late 19th century downturn, especially in the US. See Terutomo Ozawa, Multinationalism, Japanese Style: The Political Economy of Outward Dependency, Princeton 1979, pp. 66–7; Veblen, Theory of Business Enterprise, p. 216; and Martin Sklar, The Corporate Reconstruction of American Capitalism, 1890–1916: The Market, the Law and Politics, Cambridge 1988, pp. 53–56.
 See my The Long Twentieth Century, London 1994; Arrighi and Beverly Silver, Chaos and Governance in the Modern World System, Minneapolis 1999; and Arrighi and Beverly Silver, ‘Capitalism and World (Dis)Order’, Review of International Studies, 27 (2001).
 GT, p. 20. Elsewhere Brenner mentions immigration—‘unless . . . restrained by political means’—as another mechanism through which workers’ power can be undermined (GT, p. 18). His overwhelming emphasis, however, is on the mobility of capital.
 GT, p. 23.
 GT, p. 18.
 See Beverly Silver, Forces of Labour: Workers’ Movements and Globalization Since 1870, Cambridge 2003, pp. 131–38, for one set of answers to these questions.
 As Göran Therborn notes, in the 19th century Europe in general, and Britain in particular, enjoyed practically unlimited migration outlets for its labour. ‘Even the English centre of global industry was an out-migration area . . . A conservative estimate is that about 50 million Europeans emigrated out of the continent in the period 1850–1930, which corresponds to about 12 per cent of the continent’s population in 1900’: European Modernity and Beyond: The Trajectory of European Societies, 1945–2000, London 1995, p. 40.
 Hobsbawm, Nations and Nationalism since 1780: Programme, Myth, Reality, Cambridge 1991, p. 132.
 Arrighi and Beverly Silver, ‘Labour Movements and Capital Migration: the US and Western Europe in World-Historical Perspective’, in Charles Bergquist, ed., Labour in the Capitalist World-Economy, Beverly Hills 1984, pp. 183–216.
 Silver, Forces of Labour, pp. 125–31, 138–61.
 Aristide Zolberg, ‘Response: Working-Class Dissolution’, International Labour and Working-Class History, 47 (1995), pp. 28–38. To be sure, the ‘labour friendly’ reforms instituted with the establishment of US hegemony—e.g., macroeconomic policies favouring full employment—went hand-in-hand with fierce repression of any sectors of the labour movement that sought a deeper social transformation than the post-war social contract offered. Nevertheless, the reforms instituted under the pressure of escalating labour unrest and advancing communist revolution marked a significant transformation in comparison with the laissez-faire regime characteristic of the period of British world hegemony (Arrighi and Silver, Chaos and Governance, pp. 202–7; Silver, Forces of Labour, pp. 157–8).
 GT, pp. 52–54, 58–63.
 E. H. Phelps Brown, ‘A Non-Monetarist View of the Pay Explosion’, Three Banks Review, no. 105 (1975), pp. 3–24.
 See, among others, Makoto Itoh, The World Economic Crisis and Japanese Capitalism, New York 1990, pp. 50–53; Philip Armstrong, Andrew Glyn and John Harrison, Capitalism since World War II: The Making and Breakup of the Great Boom, London 1984, pp. 269–76; and Philip Armstrong and Andrew Glyn, Accumulation, Profits, State Spending: Data for Advanced Capitalist Countries 1952–83, Oxford 1986.
 GT, pp. 120–21.
 Silver, Forces of Labour, pp. 161–63.
 Completely forgotten today, the connexion between the May events and the abrupt end of French advocacy of the gold standard was also little noticed at the time. I nonetheless remember quite vividly from newspaper accounts how May 1968 brought about a sudden reversal of French support for the gold standard as a means of challenging US dollar supremacy.