Re: [OPE-L] The growing global market for derivatives and swaps

From: Patrick Bond (pbond@MAIL.NGO.ZA)
Date: Sat Oct 21 2006 - 12:34:28 EDT

Jerry Levy wrote:
> I don't think that the following summaries refer directly to the particular
> issues I raised (rise in working-class savings; working-class credit card
> indebtedness; pension and mutual funds owned by working-class families).
> While there could be attempts to connect those issues to
> the combination that you mention (especially to uneven/combined
> development), where is the actual analysis that does this?

Right then, I have to go back to my doctoral dissertation (published in 
1998 by Africa World Press, as *Uneven Zimbabwe: A Study of Finance, 
Development and Underdevelopment*), where there are some specific cites, 
especially of the three people - David Harvey, Michel Aglietta and 
Suzanne de Brunhoff - whom I understand to have done outstanding recent 
theoretical work on this (although people like the late Paul Sweezy, 
Gary Dymski, Robert Pollin, Doug Henwood and Tom Schlesinger - and 
probably others I haven't kept up on in the last decade or so - brought 
forward the US empirical analysis very rigorously):


David Harvey (1982, 285; 1985b, 345) assists us by more clearly 
specifying “the contradiction between the financial system and its 
monetary basis,” in part through introducing finance to geography. He 
unveils a set of countervailing tendencies to crisis which were hitherto 
unexplored within the Marxist tradition: “Absorption of capital (and 
labour) surpluses through temporal and geographic displacement played 
key roles in the history of crisis resolution.” For Harvey, credit 
serves a temporal displacement function ─ a so-called “temporal fix” to 
overaccumulation ─ since finance not only speeds the turnover time of 
capital, as Marx observed, but also sends surplus capital into “the 
production of goods that have long term future uses in production or 
consumption.” This helps to displace crisis in the short-term, but 
exacerbates the overaccumulation problem down the road.
There is also a “spatial fix” to overaccumulation: in serving a 
geographical displacement function (such as through foreign lending), 
finance can send “surplus money to another country to buy up surplus 
commodities.” This amounts to a short-term solution to overaccumulation 
which comes back to haunt the lending country when, in order to pay off 
the debt, the borrower must cut imports from, and increase exports to, 
the lender. The same principle works at other geographical scales.
In sum, the tensions and contradictions in value production and 
realisation can only be resolved, says Harvey (1982, xvi), “at the price 
of internalising the contradictions within itself. Massive concentration 
of financial power, accompanied by the machinations of finance capital, 
can as easily destabilise as stabilise capitalism.” Harvey (1982, 283) 
thus highlights the constraints on the power of finance imposed by the 
full logic of the accumulation process, and “finance capital” is 
therefore seen, far more usefully, in terms of “the countervailing 
forces that simultaneously create and undermine the formation of 
coherent power blocs within the bourgeoisie.”...

Whereas Neil Smith (1990), in his seminal study of Uneven Development, 
roots the equalisation and differentiation of capital (the fundamental 
motions of uneven development) in the emergence of a division of labour, 
Ernest Mandel (1968, 210) searched even further back, to “private 
production” among different producers within the same community. He 
insisted that “differences of aptitude between individuals, the 
differences of fertility between animals or soils, innumerable accidents 
of human life or the cycle of nature,” were responsible for uneven 
development in production. As a result, societies faced a choice: either 
engage in mutual aid (usually feasible in a society based on 
cooperation) to ensure the subsistence of an entire community, or save 
and lend money to those who need it (eventually gaining some rate of 
interest). The latter route led to the historical development of money 
and credit, Mandel posited, which in turn paved the way for full-fledged 
commerce and, ultimately, for capitalist relations of production and 
distribution. In this abstract version of the capitalist development 
process, finance as an accommodating feature of early stages of economic 
growth had the effect of ameliorating uneven development, particularly 
in equalising the rate of profit across firms and sectors.
This could also, presumably, be the case in the sphere of reproduction, 
where the development of consumer and government credit markets offered 
finance the means to level certain reproductive relations. This 
phenomenon has been most important, of course, in advanced capitalist 
societies. When overaccumulation crisis is absent as a factor, then the 
inherent unevenness of the reproductive sphere ─ “disarticulated” 
development, as Alain de Janvry (1981) calls the differential production 
and consumption of durable goods along class lines ─ tends to be 
diminished by the role of credit in establishing what Michel Aglietta 
(1979, 232) terms a “consumption norm.” This sort of finance, Aglietta 
argues, also serves to level the unevenness of productive-reproductive 
processes because it “absorbs the divergence between the rhythm at which 
income is received and the rhythm at which it is spent, given the 
lumpiness of durable goods.”
At the same time, the steady evolution of consumer savings and 
non-corporate contractual savings (pension and insurance funds), much of 
which is used to fund production, led finance “irrevocably into direct 
participation in determining the general strategy of accumulation.” 
Spiralling government debt adds to this process, since, according to 
Aglietta, even the federal debt of the major capitalist power, the 
United States, “has no chance of being reduced or even stabilised in the 
near future.” Astronomic growth in consumer credit ─ hire purchase, home 
mortgage bonds, car loans, credit for consumer durables, credit cards, 
etc. ─ after World War II reflected the mass consumption orientation of 
“Fordism” and the “intensive regime of accumulation.”
What all of this implies is that under relatively good economic 
conditions ─ probably limited to the advanced capitalist countries ─ 
unevenness in the reproductive sphere can be ameliorated by finance, but 
the cost of this is growing indebtedness which in turn leaves the sphere 
of reproduction increasingly subject to the power of finance. In these 
theoretical arguments, in sum, the basis of 
finance-production-reproduction relations is one of amelioration; credit 
levels natural differences.
Finance has the opposite effect on uneven development under other 
conditions, however. It is only when we look beyond accommodating 
features of finance, and instead to the control and speculative 
functions, that we understand the roles of finance (as both cause and 
effect) in the uneven development of capitalism. To some degree, uneven 
sectoral development is most directly a function of imbalances in 
production between capital goods and consumer goods, and here the role 
of finance is by no means ameliorative. Such problems have “all kinds of 
manifestations in shifting investment flows from productive to 
speculative outlets,” according to Aglietta (1979, 359). For example, 
the increased turnover of short-term stocks of capital goods during the 
boom phase leads to ever-shorter terms for credit. More generally, 
Aglietta argues, “Uneven development creates artificial differences in 
the apparent financial results of firms, which are realised only on 
credit. These differences favour speculative gains on the financial market.”
These rather different financial effects can be postulated at the level 
of abstract theory, but Aglietta also documents how uneven sectoral 
development reached crisis proportions in the 1920s, leading to 
financial chaos from 1929-33 and the Great Depression. However, in 
considering the post-war era, Aglietta (1979, 378) invoked the spirit of 
Hilferding, in suggesting that finance can stabilise itself. The 
devaluation of money (inflation) and deflation of debt (write-downs in 
selected sectors) together permit a “threshold of resistance” to crisis: 
“What is important to note here is that the entire structure of modern 
capitalism functions in such a way as to avoid this phase degenerating 
into financial panic.” Indeed the general message from Aglietta’s 
“Regulation School” of political economy is that the development of a 
“mode of regulation” to serve particular “regimes of accumulation” makes 
finance and uneven development a much less explosive combination.
If, however, the intrinsic unevenness within and between finance, 
production and reproduction is not observable on the surface ─ thanks, 
temporarily, to successful strategies of regulation ─ that does not mean 
that overaccumulation crisis has been resolved, nor that we can dismiss 
theoretically-derived tendencies towards sectoral unevenness which 
ultimately manifest themselves in financial crisis. As argued above, the 
role for finance in accommodating production evolves into a much more 
contradictory function under conditions of overaccumulation crisis. It 
is here that finance accentuates other processes of uneven development 
in the productive circuit of capital.


de Brunhoff (1978, 61) draws the regulatory functions of both labour and 
money into the ambit of state policy:

Public management of labour-power contributes to the reproduction of its 
value, which is something required by capital, but not guaranteed by 
capital itself. As for the reproduction of money as a general 
equivalent, this calls for state management of central bank money as the 
national currency lying “between” private bank money and international 
money. The circuit M-C-M’, which represents the valorisation of money 
capital, M, in circulation, cannot reproduce itself without these 
non-capitalist supports.


Where did Hilferding go wrong in miscalculating the power of “finance 
capital”? As a semantic construct, “finance capital” has, so far, been 
quarantined in quotation marks for a specific reason: to emphasise that 
its interpretation is a matter of protracted debate. As van der Pijl 
(1984, 7) puts it, “the reality it conveys about the new empirical 
structure of capital does not obliterate the need for distinguishing the 
functional, `original’ fractions.” But other criticisms have been 
levelled against Hilferding’s profoundly institutional approach to 
finance. According to Suzanne de Brunhoff (1976, xiv), Hilferding makes 
a critical mistake that leads him to dissociate money and the credit 
system (“money as an instrument of hoarding” is ignored, she complains). 
“This dissociation has probably been one of the reasons for the 
overestimation of the role of `finance capital.’“
Further objections emerge to the internal logic of Hilferding’s “finance 
capital,” as well as to its contemporary relevance. The first line of 
argument highlights the historical datedness of the concept, since 
banking capital was, during Hilferding’s time, used nearly exclusively 
for financing the purchase of means of production (M-MP) and only rarely 
for purchasing labour power (M-L) (a function reserved for cash). 
Hilferding (1981, 70) observed a rising capital/labour ratio and 
concluded that “the growth of M-MP outpaces the growth of M-L, with the 
resulting more rapid increase in the use of credit compared with the use 
of cash.” In the post-depression era, however, an enormous amount of 
finance was originally drawn from and allocated to M-L, in part through 
related processes such as pension and insurance funds, consumer credit 
and government debt. Credit has now become a means of purchasing and 
reproducing labour power, in addition to its original role in arranging 
the purchase of means of production (as de Brunhoff [1978] has pointed 
out). Hence it would appear that Hilferding’s reliance upon the rising 
organic composition of capital to explain the build-up of debt in the 
economy, and then to gauge the relative strength of the “finance 
capital” power bloc, is an insufficient (even if it remains a necessary) 
component of economic analysis.
It would appear too that without analysis of government and consumer 
debt, Hilferding’s “finance capital” concept misses other insights about 
the influence of finance upon accumulation. One is the rise of labour’s 
“social wage” as a result of access to credit, which is partly 
responsible for establishing a privileged consuming stratum of workers. 
Another is the ability of the credit system to maintain “effective 
demand” (buying power) in the economy, partly through government and 
consumer debt, thus avoiding crises of “underconsumption” but putting 
off until later the unavoidable need to repay the debt. Notwithstanding 
the subsequent hegemony of conservative policy, these credit-related 
functions remain vital components of economic management in advanced 
capitalist economies, and they point to the need for more sensitivity to 
the meanderings of capital accumulation than that offered by a “finance 
capital” power bloc concept.

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