Bob Jessop Lancaster University

Variegation, Financialization, and the Financial Crisis

Outline

• What is money? The complexities of its forms and functions

• What is capitalism? Beyond mainstreams and Marxisms

• Always-already present abstract potential of crisis

• A global system or national varieties?

• Variegated capitalism in the shadow of …

• SSA and RA approaches to crisis of 1970s

• KBE versus Finance-Dominated Accumulation

• Financialization

• Financial crisis

• Conclusions

Money as a Social Relation

• Money is not a thing, it is a fetishized social relation

• Money is a commodity and a fictitious commodity

• Money is a not a single social relation but a complex and contradictory ensemble (assemblage) of social relations

• Money has diverse functions and forms

• Tensions between money as money and money as capital

• An adequate account should consider 3 interrelated moments of the money, credit, and capital forms: – the functions of money;

– the hierarchy of money forms;

– the tension between ‘national currency’ and world money and its reflection in the contradictions of currency pyramid

The Essence of Money?

• ‘Babylonian madness’ over the origins of money: answer depends partly on one’s ontological view on ‘nature of money’, with all risks of hindsight on later developments

• Tracing the history of successive forms and functions of money is not the same as explaining the hierarchy of forms and functions of money in a given historical context

• Development of money functions is related to changes in forms of money (and vice versa)

• Crucial distinctions: – money as credit/debtor relations tied to unit of account,

– role of capitalist credit money in organizing circuits of capital,

– role of fictitious capital in integrating societal relations

Abstract Potentials, Concrete Causes

• Even before he analysed capitalist production relations, Marx noted a theory of money and credit was the essential foundation for developing a theoretical account of crisis

• Accumulation and crisis dynamics rest on interaction of:

– abstract forms of crisis (abstract potential of crisis) in commodity circulation (esp of capitalist commodities)

– and the basic crisis-tendencies of capitalist production (which may be expressed concretely in various ways)

• While profit fluctuations are critical to monetary crises that are directly rooted in industrial and commercial crisis, some monetary crises have their own causes and impact wider economy via contagion and blowback

Functions of Money

Function Definition Crisis Dynamics

MMC Means of circulation (exchange) Liquidity crisis

MMV Extrinsic measure of value (price) Unstable price system

MH Store of value (hoard, then capital) Devalorization

MMP Means of (deferred) payment (incl. taxes), money as (proper) money

Excess credit, insolvency, generalized credit crisis

MMI Money as interest-bearing capital Money as independent value, i.e., concentrated form of total capital

Contradictions between functioning capital and capital as property

WM World money as means of international payment

Gold (bullion) shortage, oversupply of top currency

The Capitalist Mode of Production

• Wealth appears as an immense accumulation of commodities

• Commodity form is generalized to labour-power (which is a

fictitious commodity but treated as if it were a commodity)

• Duality of labour-power as concrete labour and labour time

• A political economy of time (note especially the constant

rebasing of abstract time treadmill effects)

• Key role of money as social relation in mediating and modifying

the profit-oriented, market-mediated accumulation process

• Essential role of competition in the dynamic of capitalism

• Market mechanism cannot secure all conditions of capitalist

reproduction (even ignoring labour process) (endogeneity?)

CAPITALISM

Rational

Capitalism

Political Capitalism

Traditional commercial capitalism

Mode #1

Trade in free markets & capitalist production

Mode #2

Capitalist speculation and finance

Mode #3

Predatory political profits

Mode #4

Profit on market from

force and domination

Mode #5

Profit from ‘unusual’ deals with

political authority

Mode #6

Traditional types of trade

or money deals

Weber’s Modes of Capitalism (Based on Swedberg 1998)

Categories for Analysing Capital

Capital as functioning capital

Productive capital (constant and variable) plus capital of circulation (commodity and money capital) Merchant’s capital (commodity-dealing capital and money-dealing capital) has necessary functions

Division of labour plus division of property among productive capitalists Commercial credit reduces demand for own capital Bank credit concentrates spare funds and savings of all classes in hands of money-dealing capitalists

Capital as property

Interest-bearing capital (titles of ownership or financial assets) Fictitious capital when viewed in terms of capitalized income streams

MMC employed neither in production or circulation - useless from viewpoint of capital, value set by capitalization of revenues relative to interest rates

Fictitious capital (narrow)

Money lent as MMC directly or via banks to state (e.g., to finance wars, public expenditure, state activities)

Basis for exchange of money against ownership titles – can be multiplied many times over (leverage)

Space, Time, and World Market

World market is both a presupposition and posit (result) of capital accumulation: not self-identical over time but alters with modes and extent of world market integration. E.g.

The movement of capital, though much accelerated, still remained, however, relatively slow. The splitting up of the world market into separate parts, each of which was exploited by a particular nation, the exclusion of competition among themselves on the part of the nations, the clumsiness of production itself and the fact that finance was only evolving from its early stages, greatly impeded circulation’ (Marx and Engels, German Ideology, 1845-6)

Variegated Capitalism - I

VarCap points to incomplete,

provisional, inherently unstable,

and fractal economic orders that

are based on the co-existence,

structural coupling, asymmetrical

conditioning, and co-evolution of

different, but still dynamically

compossible, accumulation

regimes and modes of regulation

seen in terms of their multiscalar

location in time-place and in space

of flows

Variegated Capitalism - II

• This does not entail singular

logic with unique directionality

at level of world market – it

excludes it!

• Explore VarCap as a global order

evolving in the shadow of one

(or more) dominant ‘VoC’ and

with distinctive emergent logic

• This approach can be applied to

sub-global spaces (e.g., North

Atlantic, East Asia, EU) whilst

noting world market context

Global Shadow of Neo-Liberalism

Shadow results from the relative

weight of finance-dominated

accumulation in neo-liberal

economies, from the ‘ecological

dominance’ of such economies

in the world market, from the

general place of finance in global

circuits, from the roll out and/or

reform of international regimes

that embed forms of neo-liberal

disciplinary constitutionalism

EU in Shadow of Neo-Mercantilism

Shadow results from relative

weight of export-led growth in

the “Modell Deutschland”, from

the ‘ecological dominance’ of

German economic Grossraum in

European Economic Space,

especially in the Eurozone, from

institutional flaws in design of

Euro (cf. those in Bretton

Woods), and from Germany’s

hegemonic position in EU and

wider EES

Marx on Hierarchy of Money Forms Form Content Validation Role of state Crisis

Commodity Physical commodity

Has, contains, embodies value

State sets unit of price formation

Limited supply of money commodity

Commercial Credit

Notes, bills of exchange

Convertibility Legal tender Private debt

Bank money Notes, bills of exchange

Convertibility Legal tender Private debt

Bank Credit Banks create credit through advancing loans

Convertible into money commodity, guaranteed by state

Banking policy Reserve ratios Guarantees notes

Liquidity and solvency crisis, excess leverage

Central Bank Credit

Lender of last resort

Convertible into bullion at CB and/or guaranteed by state

Central banking policy, may own or control CB

Excess leverage Solvency crisis Currency crisis

State Money Fiat money Symbolic money issued by state

Taxation, coercion, legitimacy, credibility, or extractive power

Taxation, coercion, coinage, seigniorage

Sovereign debt crisis, fiscal crisis, other state crises

World Money Bullion Bullion or relations among states

Imperialism, interstate relations, hiearchies

Bullion shortage, Triffin dilemma

Crisis, what Crisis?

• Crises as ‘accidental’ products of natural or ‘external’ forces rather than antagonistic internal relations (e.g., invasion, tsunami, crop failure, SARS)

• Crises as ‘structurally-determined’: inherent crisis potentials and tendencies of specific social forms with corresponding patterns of crisis-management (e.g., capitalism, democracy)

• Crises ‘in’ are normal and may be resolved through established crisis-management routines and/or through innovations that largely restore previous patterns

• Crises ‘of’ are less common and involve a crisis of crisis-management, indicating inability to ‘go on in the old way’ and demanding more radical innovation.

What Follows Fordism?

• Crisis in/of Atlantic Fordism rooted in crisis of structural coherence between principal (structural) forms of capital relation (wage relation, including social wage, and money form). Internationalization (+ other crisis-tendencies) weaken wage as demand source, money is national.

• Trial-and-error search for post-Fordist economic regimes leads to a hegemonic economic imaginary (knowledge-based economy) and to neo-liberal political project that prepares ground for finance-dominated accumulation

• KBE widely endorsed at many sites and scales (OECD, EU Lisbon Agenda, national/regional/urban strategies, etc.)

The Knowledge-Based Economy

Knowledge-Based Economy

Basic Form

Primary Aspect

Secondary Aspect

Key Institutional Fix

Spatio-temporal fix

Capital Valorization of knowledge- and design-intensive capital

Capital as intellectual property

Competition state plus moderate IPR regimes (with risk of an anti-commons)

Knowledge-intensive clusters, cities, regions

Compet-ition

Innovation-led, Schumpeterian competition

“Race to bottom” and fall-out from creative destruction

Increased role of global trade regimes, IP regimes,

Complex + multi-spatial with local and regional forms

(Social) Wage Relation

Production cost (for mental as well as manual labour)

Source of local or regional demand (hence flexible)

Flexicurity for full employability, aiding demand and global competitiveness

Controlled forms of labour mobility, globalized spatial division of labour

State Competition state oriented to innovation-led growth

‘Third Way’ as flanking / supporting mechanism to cope with new social exclusion(s)

Schumpeterian Workfare Post-National Regime

Multi-scalar meta-governance (e.g., open method of coordination)

Finance-Dominated Accumulation

Finance-Dominated Accumulation en Régulation

Basic Form

Primary Aspect

Secondary Aspect

Key Institutional Fix

Spatio-temporal fix

Capital

Fast, hyper-mobile money (including derivatives) as general form

Valorization of capital as fixed asset in global division of labour

De-regulation of financial markets, state targets price stability, not jobs

Free trade without national or regional state controls; grab future values

(Social) Wage

Private wage plus household credit (promote “private Keynesianism”)

Cut back on social wage as (global) cost of production

Numerical and time flexibility; new credit forms for households

War for talents plus race to bottom for most workers and “squeezed middle”

State

Neo-liberal policies with Ordoliberal constitution

Flanking plus soft + hard disciplinary measures to secure neo-liberalism

Free market plus “strong state” (authoritarian statism)

Endorses intensified uneven development at many sites + scales as market outcome

Global Regime

Create space of flows for all forms of capital

Dampen uneven development, adapt to rising economies

Washington Consensus regimes

Core-periphery tied to US hegemony, its allies and relays

Money and Derivatives

Function Definition Derivatives

MMC Means of circulation (exchange) Currency swaps, futures

MMV Extrinsic measure of value Commensuration (no standard of value)

MH Store of value (hoard) Hedging

MMP Means of payment (reserves for deferred payment, buying capital)

Securitization, credit + interest rate swaps, etc

MMI Money as interest-bearing capital Money as independent value, i.e., concentrated form of total capital

Securitization of capital as property, capital as function, arbitrage

WM World money Currency arbitrage

Significance of Derivatives

• Rise of derivatives generalizes, intensifies competition around means of production, money capital, specific capitals as units of competition, and social capital

• Derivatives represent a form of market completion that overcomes limits of world market noted by Marx/Engels in German Ideology (see above): – overcomes frictions of national boundaries,

– opens national economies to foreign competition,

– helps to overcome clumsiness of production,

– enhances the role of finance in promoting competition

• Completion of world market activates “all contradictions”

The North Atlantic Financial Crisis

Finance-Dominated Accumulation in Crisis

Basic

Form Primary Aspect Secondary Aspect Institutional Fixes

Spatio-

temporal fixes

Money /

Capital

Rising antagonism

between “Wall

Street” and “Main

Street” (etc.)

Epic recession based

on debt-default-

deflation dynamics

(D4)

De-regulation crisis

of TBTF predatory

finance + contagion

effects

Protectionism in core

economies, growing

resistance to free trade

from periphery

(Social)

wage

Credit crunch puts

private Keynesianism

into reverse

Austerity reinforces

D4, leads to double

dip recessions

Growing reserve army

of surplus, precarious

labour

Global crisis and

internal devaluation

reproduction crisis

State

Political capitalism

undermines Ordo-

liberalism

Austerity policies

meet resistance,

harsher discipline

Crises in political

markets reinforce

“post-democracy”

Cannot halt uneven

development at many

sites + scales

Global

Regime

Unregulated space of

flows intensifies

“triple crisis”

Multilateral, multi-

scalar imbalances and

race to bottom

Crisis + rejection of

(post-)Washington

Consensus

Crisis of US hegemony,

BRICS enter crisis and

global disarray

The North Atlantic Financial Crisis

• This crisis (more commonly, and misleadingly, called the

‘global financial crisis’) has a specific aetiology:

– NAFC must be situated in world market

– Related to variegated capitalism – more than mechanical sum of interacting varieties of capitalism in the world market

– Finance is more than money, credit, or capital relations

– Hierarchy of money and currency pyramid

– Financialization is more than growth of financial activities relative to other sectors or financialization of everyday life

• Need to study new forms of money and their dynamics,

especially derivatives as forms of interest bearing capital

Finance-Dominated Regimes in Crisis

• NAFC emerged directly from “capitalist speculation and

finance” rather than from a specific type of “free trade in

markets and capitalist production”

• It was enabled by “unusual deals with political authority”

(de-regulation of finance via legal changes and regulatory

capture) and “predatory political profits” (tax cuts for rich,

welfare cuts, privatization, “disaster capitalism”)

• But it has specific form due to hyper-financialization of

advanced neo-liberal economies and, in particular and

most immediately, practices of de-regulated, opaque, and

sometimes fraudulent financial institutions

Fundamental Forces and

Relations of “Epic Recession”

Global Liquidity Explosion

Global Money Parade

Speculative Investing Shift

Debt Deflation Default

Financial Institutions Asset Prices Banks and Finance

Non-Financial Business Product Prices Non-Bank Business

Consumer-Household Labour Wages Consumer-Household

Financial Fragility Consumption Fragility

Declining Real Economic Indicators

Real Asset Investment Household Consumption Global Trade and Exports Industrial Production Employment ....

Derived from Rasmus , 2010: 16

Currency Pyramid

Form Features Crisis-Tendencies

Top Currency

Issued in and/or sanctioned by the state that enjoys world economic leadership , i.e., the predominant state in world market

If national currency is also international reserve currency, possible tensions between short-term domestic and long-term international objectives

Master Currency Circulates mostly in geo-political blocs, e.g., thanks to political dominance of issuing state

Loss of hegemony or domination in bloc (decline of GBP and FFR blocs in 1960s-70s; rise of yen bloc in 1980s)

Negotiated or Political Currency

Based on international regimes with strong emphasis on mutual benefits rather than coercion

Euro suffers from emerging latent incompossibility of EU economies and inherent design flaws of EMU

Passive or neutral currency

Circulates domestically, no major role in international regimes

Limited appeal, leading to adoption of other currencies (e.g. dollarization)

Euro and Currency Pyramid

Form Euro Weaknesses, crisis-tendencies

Top Currency

EU is not the world economic leader. Euro is not the established currency of a normal state with usual set of powers (coercion and tax monopoly)

EU economies do not meet economic requirements of top currency; also lack military-political power to encourage and/or enforce adoption of euro

Master Currency

Circulates in EU as geo-political bloc due to political as well as economic dominance of (quasi-)issuing state (Franco-German axis, DM model)

EMU is part of state project linked to variegated European capitalism in shadow of neo-mercantilism in world market in shadow of neo-liberalism

Negotiated or Political Currency

Based on international regimes with strong emphasis on mutual benefits rather than coercion

Negotiation to join EU also linked to negotiation to join EMU. Request or demand depending on economies

Passive or neutral currency

Circulates domestically, no major role in international regimes

National currencies of candidate states with limited economic clout and/or political stability.

EU Debt-Default-Deflation Crisis?

• Eurozone crisis is not just another Minsky-induced recession

nor another crisis of competitiveness in individual economies

– for both, there are routine crisis-management responses

• Crisis has evolved into epic recession, based on financial and

consumption fragility, that is creating a debt-default-deflation

trap (already well under way in Eire). This is aggravating the

credit and competitiveness crises in EU

• Rigidities of EU and Eurozone plus strong interdependencies

create pathologically compossible variegation, impossible

choices, and threaten to turn EU into an incompossible dream

The View from Davos

Crises as Revelatory Moments

• Crises tend to disrupt accepted views of the world and how to ‘go on’ in it, calling into question theoretical and policy paradigms as well as people’s everyday routines

• Crises are threat and opportunity: – threaten established views , practices, institutions, social relations

– opportunity for reflexion, learning in, about and from crisis, and theoretical, policy, and practical innovation

– may also lead to re-assertion of old ideas and values, policy paradigms, and routines (restoration, reaction)

• In short, they are complex, objectively overdetermined moments of indeterminacy, where ‘decisive’ action can make a major difference to future

Economic and Political Crisis

• Economic crises have more radical effects when there is a crisis in the state and political life and when crisis provokes challenges to state as well as economic forms

• Current crisis was not initially linked to a crisis in the state (i.e., dominant patterns of governance and government): instead, “market failure” led to “state rescue”

• Indeed, roll-out of free markets has been associated with extension of strong state at home and with new forms of transnational governance inaccessible to popular forces

• Both aspects limit scope for social movements to define the nature of the crisis and to shape responses

Crisis Construals and Domination

• Power is the ability not to have

to learn from one’s mistakes

(Deutsch 1963: 111).

• Elites may try to impose costs

of their mistakes onto others

• Entrenched blocs, durable

alliances, and/or temporary

coalitions of the powerful may

seek to allocate costs of crisis

management/ adjustment and

also shape learning processes

Never Let a Serious Crisis Go to Waste

• Control health care costs and expand coverage

• Energy security and alternatives

• Simple and fair taxes

• Reform education to train the workforce

• Reform regulation of finance based on transparency and accountability

37

Never Let a Serious Crisis Go to Waste

• Cut welfare expenditure

• Public sector pay freeze

• Full employability, not full

employment

• Tax cuts for top 1 per cent

• Bail out banks, no bankers to

go to prison

• Double dip recession

• Rising debt/GDP ratio

• Warnings from IMF

38

Conclusions

• Money is a fetishized social relation

• It has multiple, hierarchically organized forms and functions

• To understand money we need to go beyond money as money and include money as capital and, increasingly, its increasingly fetishized and fictitious forms

• Crisis dynamics exist as abstract potential but their forms are objectively overdetermined, their construals subjectively indeterminate, and their outcomes both path-dependent and path-shaping

This presentation derives in large part from research conducted during the tenure of an ESRC Professorial

Research Fellowship: Grant RES-051–27–0303