Endgame: Finance and the Close of the Market System
A metallic deity tops a monolith of stone reaching halfway to the clouds: Ceres, the Roman goddess of harvest and fertility, shines from the summit of the temple. Her aluminum skin clashes with the building's limestone cladding even as her vertical lines echo its skyward rise. In antiquity, she guarded a lower passage between the living and the dead, the mundus cerialus, where her worshipers offered grains as tribute. Now, gleaming high above the Chicago Board of Trade, she looms rectilinear, impassive, and austere, a distinctly modern idol. Symbolizing the grain trade central to Chicago’s commercial history, she could also be a patroness of alchemy: the original derivatives market emerged here with the founding of the Board's futures exchange in 1848, made possible by diluvial flows of wheat, the product of Midwestern farmers, streaming into the city. In the late twentieth century, the Board would host innovations in derivative finance that eventually conquered the world.
Today, Ceres keeps her vigil above an altered passage to the lower realms. The Board’s trading pits, once filled with human voices, are now silent except for the hum of computers—a strange, modern mundus cerialus beneath a citadel of finance. The goddess now guards a doorway to the afterlife of production, where the fading life of the capitalist economy appears in the rising numbers flashing across the screens of automated trading platforms.
The Latest Search for Order
We live, as some have suggested, in an interregnum between a dying regime and some unknown successor. The Great Financial Crisis of 2008 destroyed the credibility and confidence of what had been the neoliberal model of financial government, shattering the illusions of a generation of technocrats. For several decades, US policymakers had assumed that, if left alone, financial markets would manage themselves. If they remained free from governmental interference, the story went, banks and other financial institutions would efficiently allocate resources throughout the economy, ensuring prosperity for everyone. All that was required from policymakers was a steady hand with a light touch, which in practice meant leaving it to the enlightened central bankers, most memorably personified by the Ayn Rand disciple, Alan Greenspan. Greenspan's sophomoric fables about market efficiency earned him the sobriquet “The Maestro” on Wall Street.
The great meltdown of 2008 and its grinding, interminable aftermath put paid to such comforting laissez-faire notions. Since then, over a decade of new financial regulations and experimental monetary policies has not dispelled a malaise of stagnation in the US economy. They have certainly helped to juice corporate profits to record highs, fueling an ongoing binge of stock buybacks, downsizing, dividend payments, and speculative trading in financial markets.1 But they have not spurred broad-based growth, nor helped the rates of business investment it depends on. As one recent study observes, "The US non-financial sector is profitable, but it does not invest.”2
Far from being confined to the US, this trend is fully global. Before the COVID-19 pandemic, the world economy was already heading into recession, led by a steady deterioration in GDP growth in the high-income countries since 2010.3 As the pandemic hit, it kicked off a frenzy of emergency government spending in countries where, to take the G7 as a sample, such spending already counted for between 38–50 percent of GDP.4 Still, the recovery never fully arrives, despite official voices constantly reassuring us that it is just around the corner. A certain mood for perestroika has settled over America’s best and brightest, as economists, policymakers, and their media apparatchiks search for reforms that could revive growth and once again set the system on firm foundations.
The state of economic stasis has called forth a growing chorus of calls for more vigorous fiscal responses on the part of national governments. These have come from some unusual places. The International Monetary Fund, long one of the most enthusiastic cheerleaders for neoliberal policies, has been calling for more state-driven fiscal policy since 2013. The Clintonite economist and former Secretary of the Treasury, Lawrence Summers, and his fellow Harvard luminary, the Aetna Professor of the Practice of Economic Policy, Jason Furman, have decided in no uncertain terms that “active fiscal policy is essential in order to maximize employment and maintain financial stability.”5 This view is shared by the Biden administration's Council of Economic Advisors, who are less concerned with budget constraints than the typical economist soothsayers recruited by Democratic presidents.6
Further leftward, progressive economists push for more ambitious responses. In Mission Economy, Mariana Mazzucato calls for a return to an industrial policy based on “long-run, vision-oriented public investments” to restore broad-based and equitable growth. This would end the financial sector’s ability to impose its need for short-term, speculative returns on the broader society, so that “finance serves the economy, rather than the economy serving finance.”7 Enlightened governments should move from assuming the unquestionable efficiency of unfettered markets to actively shaping them for progressive social goals; with an activist public sector, competitive capitalism can be given a new lease on life.
While the details differ, all such remedies for the present moment are variations on the classic Keynesian playbook: in the absence of a private sector willing to do the job, governments must step in with a renewed commitment to actively steering economic growth in the “real economy” of investment, productivity, and employment. If the neoliberal era was defined by the dominance of finance over society, then its successor will be defined by re-embedding financial markets in society, putting them to work for the common good. “When the capital development of a country becomes the by-product of a casino,” as J. M. Keynes himself said, “the job is likely to be ill-done.”8
That is the idea, anyway. The neo-Keynesian narrative is based on the understanding that the US economy, to its detriment, has become “financialized.” As the author of a highly regarded book on the topic, the sociologist Greta Krippner, describes it, “financialization” refers “to the tendency for profit-making in the economy to occur increasingly through financial channels rather than through productive activities.”9 The appalling upward redistribution of wealth to the financial elite flows from their outsized share of business profits since the 1980s, and their resulting perch at the top of the economic order. National governments have the responsibility to learn from the failed experiments of neoliberalism, to in effect de-financialize the economy in the name of the public interest. Keynesians typically project an image of wholeness, such as the public interest, or the common good, as the frame for politics. Its unspoken premise is the possibility of reviving national class collaboration between workers and capitalists, wielding the power of government to induce higher rates of private investment that will raise productivity, boost profits, and generate high-wage work across the economy. Assuming that the US government could revive past patterns of class compromise to birth a new social democracy, fiscal nationalism idealizes a dead form of life to confront a radically different present.
Conjuring ghosts from the past does not help to grasp the present, much less transform it. What Keynesians imagine as the “public interest” in fact has little to do with the current practices of state actors, who treat financialization not as a problem, or as some parasitic growth to be removed from the real economy, but as the established paradigm of governance, the infrastructure of concepts and practices required for growth in present conditions. Under the pressures of a world economy in which production processes are steadily concentrated into ever fewer locations and firms, the world's workforce has nearly stopped growing, wealth is centralizing into the hands of a global class of asset owners, and the opportunities for profitable investment are drying up, the premier capitalist states have been compelled to involve themselves ever more deeply in the mechanics of the financial system.10
The tighter the fusion between government and finance, the more redundant private markets become as a mechanism for allocating resources, as these are gradually replaced by government financial operations. The result drives an intensifying double movement in which finance is governmentalized and government financialized, a crypto-planning regime that dare not speak its own name. In a reversal of the fate of the Soviet Union, US society undoes itself—not by pursuing liberal reforms to revive a moribund planned economy—but by quietly liquidating the liberal institutions at the source of its ideological legitimacy and economic vitality, which in the end are also those of capitalism itself.
The Anatomy of Finance
The theory of financialization abstracts from production to focus on distribution. That is, it abstracts from a constantly evolving conflict over the organization and control of time, the efforts by which businesses try to compel their employees to work longer and harder for less and the countless ways that workers resist this, including attempts to exercise control over the techniques and forms of the labor process itself. The daily combat inherent in reproducing society through the capitalist relations of production has its own shifting momentum and tide of battle that reflects the balance of class forces not just at the national level, but globally. Financialization theory, and the social-democratic politics it animates, redefine all of this as a technical economic function—producing and trading commodities, as in Krippner's conventional definition. It shares this premise with financial thinking, which similarly abstracts from production to analyze economic data as tradable flows of funds.
The security is the basic building block of finance. What is a security? Simply, it is any tradable, legal claim on some future stream of revenue. Some kinds of securities, such as stocks and bonds, are centuries old; others, like debt contracts, are even older, stretching back millennia. But the modern financial security as the general form of wealth in which all property appears as revenue-generating assets—as abstract, tradable claims to a stream of payments rather than particular activities connected with specific times, places, and personalities—emerged with the social transformations of industrial capital in the nineteenth century.11 The huge outlays and long turnover times necessary for large-scale industrial investment meant a massively expanded role for banking finance, whose thickening fusion with the industrial system redefined wealth in financial terms as the ownership of assets and liabilities. But the expansion of industry also ignited a new and explosive dynamic: the incorporation of waged, unpropertied millions into mechanized mass production on an unprecedented scale.
Press-ganged into the industrial labor process upon pain of starvation or imprisonment, the armies of the dispossessed made the ability to work into a political force right from the start, politicizing time itself in the fight for the 8-hour day, the 5-day workweek, the slower pace of work, the general question of who controls the pace and space of laboring life. The question always arises, because as every worker intuitively feels, and as business owners demonstrate daily by constantly pushing their employees to work longer and harder, profits stem from labor power, from the ability of human effort and ingenuity to produce more value than they consume. This surplus value created by labor but given to the capitalist is effectively unpaid labor time, a portion of the working day in which the worker toils for the capitalist for free. At the heart of production, this temporal terrain of social conflict across which classes are made, unmade, and remade again disappears from view in the wage relation, wherein the worker appears simply to be paid for her labor the way any other commodity owner is paid for her commodity.12
From the capitalist investor’s perspective, labor is merely an input producing an output like any other factor of production, part of a process in which money is converted into commodities, which are then sold for more money later. This is the general circuit of capital, depicted by Marx as M-C-M. The money capitalist is a specific type of investor who provides money for others to use in production. For this figure, money produces money in the form of interest paid by the borrower: M-M’. That interest is paid out of the profits of productive investments. But for the money capitalist, it is only the flow of interest payments over time that matters. The process of production leaves no trace in the mind of the financier, who, seemingly untethered to material activity, simply advances money to receive more sometime in the future. The passing of time tout court appears to be the source of the return. This abstraction grounds a core principle of finance, the time value of money: since it can be invested to earn a return, a sum of money in hand now is always worth more than the same amount later. Understood not as a construction between human beings in their concrete historical activity but as a function of money, time is automatized. An extreme abstraction concealing its own basis in the circuit of capital and, at a deeper level, the wage form, the time value of money is the fetish at the heart of the modern financial security.13
Stocks and bonds are the elementary forms of security, the bases of a swirling kaleidoscope of secondary types: futures, forwards, swaps, warrants, options, swaptions, CDOs, CDSs. All derivatives, however exotic, are based on some underlying security, a claim on a future stream of payments. Since a dollar today is worth more than a dollar tomorrow, the price of such claims is adjusted, or “discounted,” to indicate the current value of payments to be received later. In effect, financial securities call the future in the present; they give future expectations a reality now.
Consider a company organizing an initial public offering (IPO) of shares to be publicly traded on a stock exchange. Its original owners will have invested capital in buildings, equipment, software, materials, employee wages, and so on, but this sum—their “equity”— could have little or nothing to do with the price its shares will fetch. This will be set by the judgment of market actors regarding the profit expectations of the business, the likely demand for its shares, its level of debt, prevailing interest rates, and so forth. If the company looks profitable and interest rates are low, its share value can be several orders of magnitude larger than the initial sum of capital. The prices of securities, capitalized wealth, therefore represents a fictitious form of capital, in the sense that they can represent a dramatic expansion of value purely out of expected interest payments. This is the alchemy at the heart of finance.
A simplified example shows how this works: If the rate of interest is five percent and a given stock share pays a dividend of ten dollars, the share is worth two hundred dollars, the amount that would generate that return at that particular rate of interest, other things being equal. If the interest rate were to fall to two percent, the price would rise sharply to five hundred dollars, the sum required to earn ten dollars at two percent. The real calculations for any security will be more complicated than this, but in general the inverse relationship between interest rates and security prices tends to hold.
The logic is the same with other types of securities, like government bonds, only in this case there is no original-invested capital, just the ability of the government to service its debts by collecting taxes or further borrowing. The interest rates on some bonds have a special role in the financial system, serving as the “risk-free rate,” or the baseline return that can be earned with minimal to no risk. In the dollar-based system, this role is typically filled by the interest rates on US Treasury securities. Generally speaking, if the returns on a potential investment look unable to beat the risk-free rate, it is not worth pursuing; if they do, then the difference is your effective return. Profit becomes a function of the volatility of security prices, the correlation between risk and return.14
The financial security is thus a very weird thing. In the world of securities, assets become wealth through the magic of capitalization, the creation of fictitious capital. Profit, the value-product of unpaid labor, seems to be just another kind of capitalized revenue, no different in kind from interest, rent, or dividends. In reality, from Chicago to Shenzhen, from Santiago to Seoul, firms in the global system of production try every day to force workers to labor harder and longer to generate enough profits for the system to sputter on. Across these same global coordinates, workers inevitably resist, withholding their labor power, striking, sabotaging, walking off the job en masse. Fueled by the desires, dreams, nightmares, and rage of hundreds of millions of people, the class struggle makes profit production into a molten terrain of permanent contestation. Capitalized assets represent the outcome of these conflicts as a calculable, predictable thing.
Financial governance attempts to impose order on institutions whose reproduction depends on misrecognizing the conditions of their own existence. When central banks carry out “open market operations,” for example, in which they trade securities with private dealers, they aim to adjust interest rates lower or higher, to encourage or to discourage investment. To induce a healthy profit environment prices must be stable and returns attractive and predictable. Market conditions must remain liquid, or easy to trade in, without major movements in the price of the assets bought and sold. In other words, the central banks share the financiers’ belief that their economic existence depends only on returns on assets, divorced from their ultimate source in profits extracted through the unpredictable course of the class war. This assumption is not a mental error, but follows from the practices and policies necessary to sustain growth through financial accumulation. And the more fragile and brittle the edifice of financial accumulation becomes, the greater the pressure on the state to sustain the fetish of liquidity that keeps the whole thing turning over.15
Both as a technique of valuation and as a mode of economic governance finance abstracts radically from the imperative to generate profits in the realm of production. Its rise to economic prominence accompanies an underlying abstraction in the historical dynamics of capitalism itself, in which surplus labor time, the source of profits, gradually evaporates as a result of the basic capitalist pursuit of productivity. Conceptually and economically, finance is an expression of the tendency for capitalist industry to become ever more centralized and concentrated into fewer hands and locations, to get denser as capitalists pursue efficiency by replacing labor power with means of production.
Individual businesses pursue higher productivity by rationalizing their operations, adding and upgrading machines in the labor process while deleting humans from it. Reducing costs through the greater efficiency of mechanized techniques makes it possible to gain an advantage over competitors by undercutting them with lower selling prices. As capitalism is a global system of production, the surplus value generated by each investment flows into a global pool of money capital, the fount of the financial system, overseen by giant banks and asset management firms. This pool serves as a source of credit for the capitalist class as a whole, as individual companies borrow from financial institutions to fund their investments, to expand, to acquire other assets, and so on. In turn, productive and commercial companies pay interest on their loans, which is capitalized as staggering amounts of fictitious capital on the balance sheets of the financial firms. The financiers also make money borrowing and lending to each other, of course. But the true source of financial profits is the interest paid by the other forms of capital; finance produces no value of its own, but only appropriates value that has already been produced elsewhere. Hence, these payments are ultimately deducted from the profits of industry.
As credit, the flow of money capital greatly facilitates the mechanization and expansion of producers, boosting profits through higher productivity rates. For the first innovators replacing labor power with machines the benefits are substantial, allowing them to appropriate a larger share of the global surplus value as profits. But the advantage this confers can only be temporary. As particular mechanized techniques spread and become the general norm that capitalists everywhere are forced to adopt, the source of surplus value in unpaid labor time dries up, as the part of production performed by exploited laborers decreases relative to the total expenditures of private businesses. The global pool of surplus value available for redistribution as profits shrinks relative to the total invested capital worldwide. Over time, this puts downward pressure on the rate of profit for all productive capitals, forcing them to further revolutionize production, to cut costs even more through technical improvements. The cycle is reset, but this time at a higher base rate of productivity. Consequently, the general result at the level of the productive system as a whole is a permanent condition of overproduction, as mechanization puts downward pressure on the overall rate of profit, which only calls forth additional mechanization as the remedy.16 The arena of the world market is where the drama plays out, but the competitive battle of the market is only a secondary stage of the deeper pressures caused by the contradictory logic of the productive system itself. This self-reinforcing dynamic is the core engine of the global economy, a spiraling pattern that is in effect a doom loop built into the heart of capitalism.
Unable to adapt to the new production norm, some businesses go under, or are swallowed by larger companies. Profit is re-distributed, temporarily raising the rate of profit for the remaining survivors. Many bankrupt concerns, however, manage to keep operating on credit from banks—including central banks—who often have a stake in keeping obsolete firms alive in order to protect their own interests. The massive federal bailout of 2009, for example, is the only reason the major US automobile companies General Motors and Chrysler still exist today. Some of the biggest manufacturers also pursue their own sources of financial revenue in order to survive, blurring the distinction between “financial” and “non-financial” firms. Apple is a perfect example: nominally a manufacturing company, Apple owns no factories but has an enormous financial arm six times larger than its “productive” assets; this flagship of American capitalism trades securities, pursues acquisitions, buys back its own stock, and chases other means of financial revenue instead of investing or innovating in its supposed core purpose of production.17 The more financial dealing displaces production, the more finance itself becomes a powerful engine of deindustrialization. Financial wealth grows as productive capital, the ultimate source of profit, evaporates, a process that obviously has a built-in limit.
These dynamics explain the apparent paradox of astronomical financial profits and declining economic productivity. Since the early 1980s rising financial profits have closely tracked stagnating or declining macroeconomic indicators in the US, such as rates of investment and labor productivity.18 As the US economy has been decimated by deindustrialization, labor productivity growth has slid downward, going from a post-war average growth rate of about 3.5–4 percent per year to hovering somewhere between zero and 1.5 percent from the period between 2011 and 2019.19 Even more telling are the anemic rates of output growth by “non-financial” corporations, which, taking the same periods, have declined from an average of about 8 or 9 percent to around 1 to 2 percent per year, on average. Perhaps most significantly, the exhaustion of the capitalist economy shows up as a supernova of corporate debt, a reflection of the dearth of profitable investment, and the growing share of financial profits on corporate balance sheets. In 2019, the debt-to-surplus ratio for US non-financial businesses reached 9.5, meaning the debt load for the average American corporation is 9.5 times its profit rate—and this was before the COVID-19 pandemic.20
Since the early 1980s, governments the world over have had to borrow and spend ever more to sustain already meager rates of private capital investment. This has led governments to involve themselves ever more intricately in the basic mechanisms of the financial system. To varying extents this is true of Japan, China, the United Kingdom, and the European Union, all financial powers in their own right, but it is especially true for the US, whose fate is tied to the international capitalist order made in its image, and whose center it is.
The US carries out this role through its governmental institutions, above all the Federal Reserve and the Department of the Treasury. In effect, US government debt is the raw material of the global financial system. In a bond auction, the Treasury sells debt to primary dealers, a core group of about two dozen investment banks with familiar names, like Citigroup, Bank of America, and JPMorgan Chase.21 These dealers then make the market for US public debt by selling the securities to counterparties throughout the system, who are normally happy to hold the safest assets available for a modest return. In this way, US Treasury bonds function as stabilizers, providing a safe investment when risks are rising. They also serve as the most secure collateral for borrowing, that is, for credit creation. This happens chiefly through repurchase agreements, or “repo.” Repo contracts allow holders of safe assets, like US debt, to swap them as collateral for short-term cash; the firm or fund taking the collateral can then, in turn, re-sell it forward to raise additional cash, fueling further credit creation throughout the financial system. Funds raised in this way are then invested in all types of assets, driving up prices across the system. The Fed uses repo contracts constantly to manage cash balances in the system, as do companies of all kinds to manage their funding and liquidity needs. Global money markets need a steady supply of safe assets to continue functioning at all, and financial profits need a growing supply of such assets to continue growing. Because of its indispensable role as a “collateral factory” for this distended system of growth, US government debt will continue to rise precipitously, regardless of whatever ideology policymakers and economists are entertaining at a particular time.22
To expand the amount of cash in the system, central banks buy government bonds from banks, dealers, and now even directly from “non-financial” corporations, removing them from circulation. Since 2008, the Fed has sluiced over seven trillion dollars of newly created dollars onto private balance sheets in exchange for corporate and government bonds.23 Since April 2020 alone, the central bank balance sheets of the G10 countries have ballooned over $8 trillion. Through their "large scale asset purchase" programs—a euphemism for simply shoveling newly printed money at banks and businesses—the central banks keep the entire system running by expanding their balance sheets as much as needed—“whatever it takes,” in the words of the former European Central Bank President, Mario Draghi.
The footprint of public institutions in the “private” financial system has become so enormous that even central bankers themselves have been forced to acknowledge their expanding role. Traditionally, they acted as lenders of last resort, managing the occasional financial panic in otherwise normal conditions. But in the face of normalized market dysfunction, Andrew Hauser of the Bank of England argues, they must embrace the role of market makers of last resort, working constantly to sustain a private sector that can no longer stand on its own feet. The overall trend is plain. The scope for markets as a distributional mechanism is narrowing, their functions gradually rendered redundant as they are displaced by the administrative decisions of government agencies. Through force of necessity, national central banks and treasury departments are gradually euthanizing the market to preserve a social order well past its due date.
The structure of private finance itself has dwindling need for market mechanisms. Consider index funds, passive investment vehicles with a portfolio built automatically to mimic the performance of a particular market index, such as the S&P 500. Since 2008, the share of the equity assets managed by index funds has grown 450 percent, greatly outperforming traditional, actively managed funds and surpassing them in money held in 2019.24 It is no accident that this rapid rise has coincided exactly with the expansionary policies of the central banks since the Great Financial Crisis. Returns for passive investment depend on the total value of the entire market always going up, which in turn depends on the removal of systemic risk. This is precisely what the expanding administrative reach of the government institutions, particularly the Fed, aims to do.
Operated mainly by just a few giant fund managers who own half the equity assets in America, passive investment makes a joke of the notion of competitive innovation.25 Not only does it remove any need for acumen while investing money, effectively de-skilling the trade, but it also instills incentives to suppress competition between corporations. The asset management firms Blackrock, Vanguard, and State Street Advisors are the largest single shareholders in 9 out of 10 companies on the S&P 500, on average owning more than 20 percent of the shares of every company on the index, so it is naturally in their interest to discourage any competition that could lower profits.26 This has led some among the liberal punditburo to complain that index funds are even “worse than Marxism.”27 Blackrock, the largest of the big three, now serves as an essential governing partner to the Federal Reserve and the US Treasury, which commissioned the firm to carry out state purchases of mortgage-backed securities and corporate bonds in the meltdowns of 2008 and 2020, respectively.28
The giant asset managers themselves are the result of a decades-long centralization, in which the world's firms and households have pooled their collective savings into one gigantic reservoir of financial wealth. Pension funds, insurance companies, corporate profit hoards, university endowments, sovereign wealth funds—massive institutional investors like these are the fount of what Michael Howell terms “global liquidity.”29 Through the repo-fueled money markets of the financial system, this reservoir serves as the source of funding for private enterprises and governments alike, whose survival now depends less upon overcoming the competitive challenges of the market than upon the availability of funds and the willingness of lenders to roll over their outstanding debts for another day.
Finance, as the thickening nexus of government administration with private asset management, increasingly functions as a global administrative system, growing in its scope and power as competitive markets become obsolete. Its evolution into a governmental apparatus has been made possible by centralization in the ownership and control of money; it has become necessary to ensure that the collective surplus product of a shrinking global workforce continues to be extracted upward into private hands as profit, especially the hands of US banks and businesses.30 This is not because officials at the Fed and Treasury are lackeys of the big banks—though, of course, they may indeed be that. Rather, it is because they are playing a role it is necessary for them to play: maintaining, in the face of an eroding basis for profits, a life support apparatus for the private, market-based system on which the survival and political legitimacy of the US state itself depends.
Under the pressurizing force of one pulverizing crisis after another, this private-public fusion has evolved unconditionally to support rising asset prices above all else, because if the credit stops flowing, and the prices stop rising, the game is up. The resulting devaluation of formerly profitable investments would be on a scale scarcely imaginable, wiping out hundreds of trillions of balance sheet assets overnight. Government officials know and fear this, so they go on bailing out bankrupt companies, issuing state debt, and shoveling dollars into the financial system by the trillion. Technically, this can go on as long as security dealers are willing freely to trade US bonds. But socially, the consequences are enormous. All debt is ultimately a claim on future profits that are yet to be produced. As governments are forced to mortgage an ever rising portion of the social product to the needs of the credit system, as total debt rises while total profits fall, there will be ever less social wealth available to provide the basic resources that society needs to materially reproduce itself. Wealth inequality between those who own assets and those who don't, already staggering, will only continue to increase. The accelerating centralization of wealth, the growth of a surplus population with no place in the economy, the breakdown of politics into competing mass psychoses, escalating domestic turmoil, the general unaffordability of life—eventually, the ever-mounting social and political costs of the asset growth economy will reach a breaking point. It is only a matter of time.
As the premier capitalist country, the US essentially takes on the mounting costs of reproducing the deteriorating conditions for global capitalist production, which show up as an exploding Fed balance sheet and national debt. At the same time, the expansion of governance into private finance and of finance into government erodes the basis for the market’s competitive function. The further this dynamic progresses, the more the scope for the market shrinks; the more the market shrinks, the less profitable private production becomes relative to the revenues to be collected through finance; the less profitable private production becomes, the more the accumulation of capital is exhausted, requiring ever more drastic state intervention just to keep its heartbeat going, which further erodes the basis for the market. Traditionally, some form of planned economy is taken to be the alternative to market institutions, but there is not much planning happening here. Rather, this is something new: the abolition of the market without planning.
Ironically, the overall effect of these support measures is to lock in the deepening sclerosis of the world production system which makes them necessary in the first place, trapping the US in a spiraling downward pattern of declining labor productivity, political paralysis, and accelerating social disintegration. Forced to uphold a global system whose survival depends upon the deterioration of its own domestic economy, the US state is ripped apart from within, its ruling class disorganized and confused, its political class apparently incapable of grasping the source of this crisis, much less of acting to address it. The Sisyphean labor of post-neoliberal governance prolongs the lifespan of a global economy in stasis at the cost of condemning the US to the slow unraveling of a society without a future.
Midnight in America
The eyeless effigy of Ceres shining atop the tower at 121 West Jackson Boulevard in Chicago is thus an apt avatar of finance. Like finance, she seems to see both everything and nothing, the algorithmic, impersonal face of what capitalism has become. Once, she oversaw the advent of the financial knowledge that eventually gave US capitalism a new lease on life at the dawn of the neoliberal era. Perhaps now, at the close of that era, and as was her role in ancient society, she will close the cycle of life and death, an undertaker guiding a dead master to the underworld of past empires.
In the end, the critique of financialization misses the point entirely. Far from a reversible policy failure, financialization has solidified into the paradigm of post-neoliberal governance, an improvised un-plan for a desperate age. It cannot be repealed, as if history could be rewound, but can only be passed through, by unraveling the contradiction which makes it necessary in the first place: a transnational organization of labor whose decreasing profitability is the sputtering engine of a global economy that relies on expanding profits to continue growing.
Still, the fiscal nationalist dream dies hard. If only the elites could get their shit together, if only they would truly decide to act in the public interest, if only our political dysfunctions could be suspended in the name of a common cause, if only we could elect smart officials with the right ideas, a new era of prosperity and power awaits the United States. But the political dysfunction is only a symptom of the underlying economic disease. So there will be no policy solution to the problems America—and the world—faces, because no such solution, at least on the national level, exists. But of course, that's what war is for.
- Jeremy C. Owens,“Corporate profits are hitting record highs, but earnings expectations may still be too low,” MarketWatch, July 2021.
Germán Gutiérrez and Thomas Philippon,”Investment-less growth: An Empirical Investigation,” Brookings Papers on Economic Activity (September 2017) 6.
GDP growth (annual%), high-income, World Bank Statistics. As always, reported statistics like GDP should be taken critically as the partial indicators they are, but do serve to indicate general macroeconomic trends.
General government spending, Total, % of GDP, OECD Data: https://data.oecd.org/gga/general-government-spending.htm
“A Reconsideration of Fiscal Policy in the Era of Low Interest Rates,” Peterson Institute for International Economics, 9.
Bryce Covert, “The Progressive Trio Shaping Biden’s Ambitious Economic Policy, The New Republic, May 4, 2021.
The Mission Economy: A Moonshot Guide to Changing Capitalism, ch. 6.
The General Theory of Employment, Interest, and Money, ch.12.
Capitalizing on Crisis: The Political Origins of the Rise of Finance, 4.
“The average annual growth of the global working-age population has decreased from 1.9 per cent in the period 1990–95 to 1.3 per cent in the period 2013–18; it is projected to fall even further, to 1.1 per cent, by 2030. This slowdown is reflected in a declining labour force growth, with the latter rate falling from 1.8 per cent in 1992 to below 1 per cent in 2018 and beyond (figure 1.2). Employment growth has also decreased over the same period, from an average of 1.5 per cent in the 1990s to below 1 per cent in 2018,” International Labour Organization, 2019 World Social & Employment Outlook, 7.
Fernand Braudel, Civilization and Capitalism, 15th-18th Century, Vol. II: The Wheels of Commerce, tr. Siân Reynolds (Los Angeles: University of California Press, 1992) 392.
“For the rest, what is true of all forms of appearance and their hidden background is also true of the form of appearance ‘value and price of labour,’ or ‘wages,’ as contrasted with the essential relation manifested in it, namely the value and price of labour-power. The forms of appearance are reproduced directly and spontaneously, as current and usual modes of thought; the essential relation must first be discovered by science.” Karl Marx, Capital, a Critique of Political Economy, Volume I, tr. Ben Fowkes (London: Penguin Books, 1990), 682.
This concept has created enormous confusion in contemporary analyses of finance. For instance, instead of explaining how the time value of money has historically emerged as the dominant capitalist perception of wealth, and the material conditions underlying it, in their “capital as power” theory Shimshon Bichler and Jonathan Nitzan simply idealize it into an entire ontology, and then try to explain everything else on this basis (Jonathan Nitzan and Shimshon Bichler, Capital as Power: A Study of Order and Creorder [New York: Routledge, 2009]). In taking one of the basic fetishes of capitalist perception and generalizing it into an entire theory, Bichler and Nitzan are a paradigmatic case of what Marx considered vulgar political economy. Moreover, even on its own terms, the theory neither predicts nor explains very much. See Joseph Baines and Sandy Brian Hager, “Financial Crisis, Inequality, and Capitalist Diversity: a Critique of the Capital as Power Model of the Stock Market,” New Political Economy (Vol. 25, January 2020) 122-139.
This is the basis of the key variable in the theory of finance, beta.
Much contemporary social theory is utterly fascinated by modern finance. Some authors even look to it as a vehicle for left politics. Robert Meister, for instance, claims financial theory can “bring forth the subjectivity required for the democratic pursuit of historical justice today.” In Justice Is an Option, which attempts to theorize how finance could serve as a vehicle for radical democratic politics, Meister tries to build an entire political theory on the basis of the liquidity fetish. In this account, the self-understanding of financial actors that is formalized in modern financial theory, particularly in option pricing, is supposed to offer possibilities for a radical left or even revolutionary politics. The claim boils down to the idea that some unspecified political movement could leverage the volatility it creates through “highly financialized political activism” to fund the collective pursuit of justice, which he takes to mean the redistribution of wealth to historically wronged groups. Meister simply accepts the conventional financial narrative at face value that the Black-Scholes options formula revolutionized everything. Instead of investigating the historical and social conditions of its possibility in the first place, as would the critique of political economy, the argument simply takes the financial worldview for granted, re-describing all economic and social relations in terms of “optionality.” It should go without saying that from this standpoint, the “critique” of Marx advanced in the book can only be nonsensical. See Justice Is an Option: a Democratic Theory of Finance for the Twenty-First Century (Chicago: University of Chicago Press, 2021).
The global decline in the profit rate of industrial capital is by now a well-documented empirical trend. There are a variety of different methods for measuring it, and results differ slightly depending on the methods used. Likewise, the statistics collected by business organizations and government agencies do not directly represent the ratio Marx analyzed as the rate of profit, much less the more fundamental concepts of surplus value, variable capital, constant capital, and so on. But with these caveats, the general trend in contemporary measurements clearly indicates a long-term direction consistent with what one would predict based on the increasingly dense global concentration of production and a rising capital to labor ratio, or what Marx theorized as the organic composition of capital. For recent evidence, see Michael Howell, Capital Wars: the Rise of Global Liquidity (New York: Springer, 2020); Michael Roberts, “A World Rate of Profit – New Evidence,” Brave New Europe, January 22, 2022; Phillip Neel, Global China, Global Crisis: Falling Profitability, Rising Capital Exports, and the Formation of New Territorial Industrial Complexes (dissertation, 2021).
For a good overview of Apple, see Tony Norfield, "Apple's Core: Moribund Capitalism," Economics of Imperialism, blog, May 24, 2017.
These statistics are publicly available at the US Bureau of Labor Statistics and the Bureau of Economic Analysis. Note that even here, the stagnant pattern in the US government's statistics on domestic business investment are massively overinflated by an over-weighting of information processing and software in their measurements. This problem has been documented extensively. For a good introduction see the report by Luke Stewart and Robert D. Atkinson, "The Greater Stagnation: The Decline in Capital Investment is the Real Threat to US Economic Growth," the Information Technology & Innovation Foundation, 2013.
“Business Sector: Labor Productivity (Output per hour) for All Employed Persons,” Federal Reserve Economic Data: https://fred.stlouisfed.org/series/PRS84006092#0
“Non-financial corporations debt to surplus ratio,” OECD Data: https://data.oecd.org/corporate/non-financial-corporations-debt-to-surplus-ratio.htm.
“Primary Dealers,” Federal Reserve Bank of New York: https://www.newyorkfed.org/markets/primarydealers
I owe the idea of the "collateral factory" to Daniela Gabor. See, among other works, “Revolution without Revolutionaries: Interrogating the Return of Monetary Financing,” Transformative Responses to the Crisis.
“Recent Balance Sheet Trends,” Total Assets of the Federal Reserve: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Dawn Lim, “Inded Funds Are the New Kings of Wall Street,” Wall Street Journal, September 18, 2019.
Julie Segal,” History Made: US Passive AUM Matches Active For First Time,” Institutional Investor, May 17, 2019.
See Benjamin Braun, "Asset Manager Capitalism as a Corporate Governance Regime," May 2021. Pre-print version of a chapter to be published in Hacker, J. S., Hertel-Fernandez, A., Pierson, P., & Thelen, K. (eds.)., American Political Economy: Politics, Markets, and Power (New York: Cambridge University Press, forthcoming).
- An ironic notion, since index funds are founded on two seminal theories of capitalist finance, modern portfolio theory and the efficient markets hypothesis. Annie Lowrey, “Could Index Funds Be Worse Than Marxism,” The Atlantic, April 5, 2021; Scott Hirst and Lucian Bebchuk, "The Specter of the Giant Three," Boston University Law Review (Vol. 99:721) Sahand Moarefy, "The New Power Brokers: Index Funds and the Public Interest," American Affairs, Winter 2020, Vol. IV, Number 4.
Jeanna Smialek, “Top US Officials Consulted with BlackRock as Markets Melted Down,” The New York Times, June 24, 2021.
Howell, Capital Wars.
“Labor Force Projections to 2024: the labor force is growing, but slowly,” US Bureau of Labor Statistics: https://www.bls.gov/opub/mlr/2015/article/labor-force-projections-to-2024.htm; Frank Tang, "China population: workforce to drop by 35 million over next five years as demographic pressure grows,” South China Morning Post, July 1, 2021.