Financialization One definition of the “financialization” of the economy has been a shift in the focus of investment and profit making from industry and commerce to the financial sector, with that sector generally understood to consist of many kinds of financial activity but all of them associated with the provision and manipulation of money. Before Hegel and Marx’s time, the financial sector was primarily composed of money lenders who loaned money to individuals, banks that loaned money to governments and merchants and insurance companies that provided insurance of various sorts, e.g., against commercial losses in trade. With the expansion of trade and finance also came an expanding role of the state in the issuance and overseeing of money and of the various financial institutions handling it. With the rapid industrialization of the late 18th and 19th Centuries, based on the rise of manufacturing industry, provisioned by an increasingly commercialized, capitalist agriculture, the financial sector shifted more and more to bankrolling investment in those industries. This process accelerated with the rapid rise of joint stock companies and the stock market. For the most part, however, savings, lending and borrowing were activities of capitalists and the state in a period in which most working class wages were too low to allow savings, workers had little material wealth to serve as collateral and the possibilities of borrowing open to workers were limited to friends, pawnbrokers and loan sharks.
Marx studied these developments closely; he kept extensive notes (many of which were gathered by Engels to form those sections of Volume III of Capital dealing with financial capital) and wrote many newspaper articles tracing the various roles of the financial sector and of state monetary policies in the ups and downs of the accumulation of capital. Through his studies he found that financial capital – when it financed industry – often played a vital role in overcoming the difficulties associated with periodical shortages of money. Money could be borrowed to complement in-house profits to finance real investment in production; it could be borrowed, as it long had been, to finance trade, and it could be borrowed to cover all kinds of short-term needs. Sometimes employers needed to borrow money to mediate their relationship with workers, e.g., to pay wages. Sometimes they needed money to deal with each other, e.g., to buy new supplies of raw materials, or to cover short-term debt obligations. In both cases, borrowing money bought time to overcome bottlenecks in the circuits of capital.
On the other hand, all of those lending methods that resulted in the creation of paper assets – bills of credit, stocks, bonds, mortgages, etc. – led to the emergence of secondary debt markets where those assets could be traded quite independently of their origins. Unregulated, such markets became the domain of speculation in which the value of those assets could rise far above, or fall far below the actual value of the real assets they represented; and rise and fall they did, in recurrent waves of speculative booms and busts that contributed to the instability and recurrent crises of capitalist accumulation throughout the 19th and well into the 20th Century. Throughout that period there were also recurrent efforts by the state, especially by central banks, e.g., the Bank of England, to counteract such phenomena, but with little success. Indeed, Marx took repeated pleasure in commenting on their failures.
Eventually, in the wake of the stock market crash of 1929 and the Great Depression of the 1930s, legal regulations such as the Banking Act of 1933 that (among other things) separated investment banking from commercial banking sharply limited the degree to which many financial institutions could use their money for speculative purposes. Those regulations, coupled with the prior creation in the United States of a strong central bank (the Federal Reserve System made up of a governing board and 12 regional Reserve Banks) and the adoption of Keynesian macroeconomic theories and policies, not only largely eliminated such booms and busts during the Keynesian or Fordist period of the 1940s through the 1960s but provided the federal government with the institutional means to manipulate monetary policies to complement fiscal policies, i.e., expenditure and tax policies, in order to, in economists’ parlance, “fine-tune” the economy.
From the perspective of class relations, however, what both monetary and fiscal policies were trying to “fine-tune” was the balance of class power within the process of accumulation – understood not just in terms of the growth of GNP or GDP, but in terms of the accumulation of the ever antagonistic class relations of struggle. For in the 1930s, soaring unemployment had been accompanied by tremendous working class mobilizations that formed new industrial unions to deal with employers and demanded new social programs to protect workers faced with unemployment and income loss for reasons beyond their control. The American government’s response to these demands was a “new deal” – to use President Roosevelt’s term – in which the key sectors of capitalist industry were forced by new federal labor legislation to accept workers’ struggles and their demands for union recognition, to bargain collectively with them over working hours, wages and benefits and to organize investment so as to raise productivity sufficiently to pay for increases in wages and other benefits. In short, capitalists had to accept, and their accumulation had to be organized on the basis of a new level of working class power in which working hours would be fixed at about 40 hours a week, the shop floor would be regulated by agreed upon work rules and workers’ wages and benefits would rise so as to share in the fruits of productivity increases. Such concessions, however, only had to be granted to the degree that unions also agreed to collaborate with the technological changes necessary to increase productivity and union shop stewards would work with company supervisors to ensure worker adherence to the new rules.
While these new industry-level deals went a long ways towards stabilizing class relations at the point of production, they constituted only one part of what emerged as a new Keynesian order (in many ways a generalization and refinement of the deals Henry Ford had cut with the workers in his mass production factories – thus the preference of some to characterize the period as “Fordist”) in which monetary policy was aimed at keeping interest rates low in order to encourage real, productivity-raising investment, while fiscal policy was formed around a whole gamut of programs designed to equilibrate the balance of class power throughout American society by supporting expanding consumption on the one hand and technological innovation and productivity growth on the other. Thus recurrent collective bargaining and the industry-specific “productivity deals” were complemented by new state programs designed to socialize the costs to workers of change, e.g., social security, unemployment compensation, welfare for the poor, and other state programs that channeled money into research and development of new technologies – from agriculture to nuclear power – all while maintaining more or less full employment.45 Within this national context, regulation of the financial sector confined it to a subordinate role supporting the overall Keynesian strategy for managing the dynamics of class conflict. Although stock and bond markets provided a means – through initial offerings – to concentrate money for capital investment, the primary sources of money for real investment were the retained earnings of industrial corporations.46 Beyond the national context, however, there was much less regulation. The increasingly dominant role of the United States during and after WWII, the success of anti-colonial struggles and the emergence of the Cold War meant that American policy makers were able impose, and maintain for many years, an international monetary system based on fixed exchange rates in which the dollar played a privileged role.47 That system presupposed and depended for its stability upon not just the borrower-of-last-resort role of the International Monetary Fund, but the ability of nation states to wield monetary and fiscal policies to achieve adjustment in their international accounts and maintain stability in their internal class relations. Where local governments failed in such efforts the IMF provided short-term loans and the United States used bilateral aid, civilian and sometimes military advisors to carry out nation-building and, where it was judged necessary, counterinsurgency programs and wars.
As this international system evolved in the 1950s and 1960s, the role of the dollar as international money expanded apace, eclipsing not only other currencies but also gold even as the dollar-gold exchange rate remained fixed. The expansion of dollar holdings by central banks as reserve currencies was accompanied by an even faster expansion of dollar holdings by both financial and nonfinancial corporations – dollars that were being used by multinational corporations to finance private trade and investment within and across national borders. Thus first a Eurodollar market and then an Asian dollar market emerged where ever vaster quantities of currencies were being exchanged. Unlike the situation within the United States and some other countries, these international money markets were largely unregulated, and what regulations there were, e.g., limitations placed on foreign ownership of local business or the repatriation of profits by foreign firms, were gradually eroded under pressure from multinational corporations, the United States government and international capitalist institutions such as the IMF and the World Bank.
Eventually the growing quantity of dollars being held and traded outside the United States was challenged by European and Asian governments, e.g., France, Germany and Japan, who pointed out that the growth of international dollar holdings depended on chronic, and eventually unsustainable, deficits in the US balance of payments. They also accused American corporations of taking advantage of the role of the dollar to buy up local industry and the American government of exporting inflation and in the process crippling their ability to use monetary policy for their own domestic purposes, i.e., to manage their internal class relations. Finally, they pointed to the increasing instability in foreign exchange markets as both governments and corporations hedged (speculated) against changes in fixed rates to protect or expand the value of their money holdings. The alternative policies those challengers proposed included everything from a revaluation in the price of gold, to the creation of a new world money to replace the dollar. The US government resisted all such demands.
These conflicts came to a head in 1971 when the declining US trade balance finally slipped into deficit and a run on the dollar in foreign exchange markets led President Richard Nixon to unhook the dollar from gold (by so doing he ended the fixed exchange rate system), to impose wage and price controls not seen since WWII and to slap a surcharge on imports – violating the US government’s long-time support for the multinational corporate goal of ever freer trading arrangements. All of this clearly constituted a monetary crisis of both domestic and international dimensions. Moreover this monetary crisis initiated the beginning of the current neoliberal period that has included the progressive financialization of the economy and of the relationship between classes.
How then does my reading of Marx’s labor theory of value help us understand the nature and sources of the above crisis and the shifts in class relations that followed? First of all, it compels us to look beneath the overt deals and conflicts among nation states and between corporations and labor unions to see how the evolution of these things was determined by changes in the balance of class power understood in terms of the power of capital to impose work versus the power of people to resist that imposition. To see, as mentioned above, how the working class mobilizations of the 1930s imposed a new deal in which people agreed to work for more or less fixed hours in exchange rising wages and benefits is a useful point of departure. Essentially, American workers had been fighting to reduce the number of hours they had to work for capital for many decades, slowly and irregularly driving down the average working week from 75-80 hours in the late 19th Century to an average of about 40. In the process they achieved a “weekend” ostensibly free from work and available for their own self-valorization, either individual or collective.48 For a while the generation that had achieved these results was willing to accept the new deals.
As time passed, however, a new generation of young workers entered the labor force, a generation that not only expected to see wages continue to rise, but one that wanted more free time in which to make use of higher wages.49 Such desires came into increasing conflict with trade union leaders who refused to reopen the question of working hours in collecting bargaining with employers. Those union leaders and their shop stewards had effectively become part of capitalist management, mediating the relation between workers and the corporations. By accepting to sign contracts that fixed working hours and work rules, they also accepted the legal obligation to help enforce them. Union leadership willing to play such roles was achieved through purges of active militants; those who remained became willing executors of the capitalist imposition of work in order to defend their own position and power. The inevitable result was growing antagonism between the rank and file and the unions, an antagonism that led on the one hand to all kinds of covert work refusal hidden from both management and union shop stewards and, on the other hand, overt efforts to form alternative organizations to challenge union leadership, e.g., Miners for Democracy that challenged the United Mine Workers leadership, or Teamsters for Democracy that challenged the mafia-linked leadership of that union. Before long covert work refusal became overt in the form of wildcat strikes aimed not only at corporate management but at union leadership. These kinds of conflicts increasingly ruptured the whole set of mediations that had played a key role in stabilizing capital-labor relations in the Keynesian period. Not only did the demands for less work challenge the ability of the wage relation to reflexively define people as workers, but by fighting and often bypassing the official union structures, these struggles ruptured the carefully crafted syllogistic mediations that had been put in place to control the rank and file of industrial labor. In all of this labor became less malleable, hierarchical divisions based on race and ethnic divisions were overcome and the role of work as social control (abstract labor) was undermined.
Such ruptures in the capitalist use of mediation to manage the working class were also taking place outside of industry in the various domains of reproduction: the community, the home and the school. The Civil Rights movement attacked segregation as a means of using whites to control non-whites. The welfare rights movement fought to convert welfare programs into vehicles of struggle. Women increasingly collaborated to refuse and challenge the power of men to mediate their relationship to capital and the wage. Students revolted against school administrators while refusing the mediation of teachers. As these struggles unfolded, they influenced each other; the revolt against discrimination in the community circulated into the workplace as groups like the League of Revolutionary Black workers led the militant attack on work and capitalist control; women’s refusal of male authority in the home buttressed students’ refusal of authority in schools, and so on. Crisis gathered throughout the social factory.
This rupturing of productivity deals also underlay many of the macroeconomic problems mentioned above. Contract negotiations continued to yield money wage and benefit increases but on-the-job disruptions (including sabotage) and growing refusal of workers to collaborate with productivity raising changes in the organization of work meant that productivity growth began to lag behind the growth in compensation. This raised the costs of production and put pressure on business to raise prices to compensate. This was one of the fundamental dynamics underlying what economists called “cost-push” inflation. By the late 1960s, widespread revolt against capitalist crafted social structures within the United States and a growing anti-war movement constrained fiscal policy and led to an accommodating monetary policy that financed accelerating inflation. It was that inflation which undermined the international competitiveness of goods produced in the US, shrinking the trade surplus to the point where it fell into deficit in 1971 and provoked the run on the dollar mentioned above. These pressures, along with others, not least of which was the resistance of the people in Southeast Asia to the imposition of a new neocolonial order, contributed to that exportation of inflation that angered European policy makers and drove them to challenge US hegemony. To make a long story short, beneath the monetary crisis of the early 1970s lay the revolt against work in both the waged work place and the unwaged institutions organized to reproduce labor power.
This recognition of the intimate link between the struggle against work and against all of the mediations and measures through which capital has sought to subordinate our lives also provides a key to understanding the whole sequence of monetary and financial crises that has followed the collapse of Keynesianism and Bretton Woods and that I sketched in my brief comment above on Thesis #2. Again and again capital wielded money in first one way, then another way to reimpose discipline on the job and to overcome crises in the reproduction of labor power. Again and again, those strategies were undermined by continuing resistance. Financialization, or the increasing reliance on the financial industry as the most dependable domain in which to realize profits was a response to the failure to restore profitable order, i.e., impose enough work, in other industries such as manufacturing and services – this despite the outsourcing of manufacturing and some services to areas of weaker, cheaper labor and the ever more vicious imposition of austerity in areas where workers were stronger.
Today, given the hardline capitalist push in Europe and the United States to use financial crisis as an excuse to impose drastic austerity on some – in preparation you may be sure for the imposition of austerity on all – probably the most relevant episodes of the use of financial sector to impose work and extract surplus value (profit) of the last forty years are those that unfolded during the international debt crisis of the 1980s and 1990s. Having written about this elsewhere, I don’t want to dwell on it too much, but simply to point out that all those measures demanded by creditor institutions (mainly the big multinational banks) and backed by the IMF and the most powerful OECD governments involved the imposition of austerity on the working class in country after country, first Mexico, then Argentina and Brazil, then others.50 Refusing to reduce debts artificially jacked up to impossible levels by monetary policies in the creditor nations – starting with the United States – the banks and the IMF demanded as conditions for rolling over debt: the cutting of wages and benefits, massive layoffs, attacks on consumer credit, the gutting of social programs that supported the unwaged and put a floor under the wage hierarchy, the privatization of state industries where wages were relatively high, and so on. All this while leaving the monies available for police and military repression of worker resistance to such measures untouched. These are the same kinds of conditions now being imposed on Greece, Spain and Portugal. What are now called “bailouts” of those countries are actually measures designed to protect profits in the financial sector at the expense of working class income and well-being. Just as they were in the case of the earlier international debt crisis, they are thinly veiled power plays designed to smash the ability of workers to struggle for less work and restore the ability of capital to impose it under the most profitable conditions possible.
Just as people in the so-called “debtor countries” valiantly resisted the imposition of such measures and through their resistance limited the imposition of work and suffering, so too are the people of Greece, Spain and now Portugal currently resisting. But the experience of such struggles in the 1980s and 1990s also showed how the failure to form a united front against such measures allowed the banks and IMF to isolate populations, one by one, and eventually extract hundreds of billions of dollars from them and impose untold suffering. The same banks and the same IMF, backed by pretty much the same national governments – especially the US and German governments – are now employing the same methods in Europe and in the United States to achieve a massive transfer of value from workers to financial corporations.51 The only limits to the viciousness of such attacks today are the same as they have been in the past: those we are able to impose by resisting, by refusing to accept lower wages, gutted social programs and falling standards of living aimed at further enriching financial institutions and through them empowering capital in general at our expense.52
1 Paper presented at the Conference on “Hegel, Marx and the Global Crisis”, held at the University of Warsaw, Poland, October 22-23, 2012.
2 A Prefatory Personal Note: Given the intellectual, philosophical and probable political diversity of those gathered at this conference, I think it behooves me to note at the outset of these remarks that I have come to the analysis and politics that I will set out here through a personal trajectory that has passed through science and economics on the one hand and a variety of engagements in social struggles on the other. Although I entered college bent on refining my scientific skills, I left it with a Ph.D in economics. The transition from the one to the other came about in response to participation in the American Civil Rights and Anti-war movements which led me out of the laboratory, into the streets and into a search for some intellectual framework for grasping the tumultuous events in which I had been involved. I was drawn to economics because it seemed to deal most directly with the structures against which the civil rights and anti-war movements were struggling: those of an economic inequality organized, in part, through racial hierarchies and those of an American imperialism that sought to extend that inequality globally in a post-colonial world where pacified pools of labor could be pitted against existing militant ones.
Unfortunately, economics turned out to provide, indeed to have always provided, since its beginnings in the self-serving writings of the mercantilists, not only a justification for such a world but strategies and tactics for creating and managing that world. What it lacked in the 1960s when I was studying the subject in school, were any direct ways of grasping the struggles against that world – the struggles in which I and millions of others were engaged. Eventually some economists would try to adapt game theory, operations research, thermodynamics and chaos theory to handle the contestation that repeatedly frustrated the strategies implied by their elegant theoretical models – but never with much success. Even before I completed my Ph.D I decided that economics was very much part of the problem and not part of the solution.