Are we living for The City?
reviews a book that looks at the role of finance in the capitalist system.
FINANCIAL ANALYST and "City" dweller Tony Norfield has come out with a good book that seeks to deepen the Marxist analysis of finance and modern imperialism.
While focusing primarily on the British financial center based in London--popularly known as "The City"--Norfield's application of Marxist categories and an unpretentious and clear prose style will be useful for those wishing to understand the dynamics and contours of modern imperialism and the role it plays in global capitalism.
The emphasis is on the global: One key insight of Norfield's book is that examining finance from a purely national perspective misses the crucial ways in which finance welds together and integrates global capitalist relations of exploitation and oppression.
DRAWING INSPIRATION from Marx's analysis of the developing financial system attached to capitalism; from Lenin's popular pamphlet Imperialism: The Highest Stage of Capitalism; and--although critically--from Rudolf Hilferding's Finance Capital; Norfield's book does three things.
First, challenging liberals and reformists--who he terms "anti-finance populists"--Norfield crucially reminds readers that financial institutions are not a dispensable abscess of global capitalism that can be safely and simply removed, but rather its indispensable "central nervous system."
What's more, the nerve endings of this system are not simply "the banks"--both commercial and industrial capitalists have transformed themselves into financial, money-dealing capitalists.
How did this come to be? Over time, production under capitalism centralizes and concentrates around fewer and fewer capitalists as others lose out over time. The survivors are bigger, hungrier and more ruthless than ever.
Since they're bigger, the costs of production are higher, and so they require assured access to a greater number of resources. They also need reliable access to markets and protection from competing capitalists.
Norfield argues that capital, now concentrated into giant enterprises, not only lays hold of state machinery to deal with these obstacles, but it also searches for large amounts of easily available idle capital to pay for increasing economics of scale. The financial markets do just that--they offer up the world's wealth of surplus value for further investment in production. They are, in Norfield's words, "a blood bank" for all modern vampires, industrial and financial.
SECOND, NORFIELD documents some of the unique financial mechanisms of imperial power.
Referencing a slew of data, he shows that in the U.K., for example, revenues from financial operations in the City inexpensively finance any deficit in the balance of payments with other countries.
A similar dynamic works in the U.S., but the role of the dollar as the global reserve currency is uniquely important to the imperial power of the U.S. ruling class.
With the dollar serving as the trusted currency for the world, it's easier for both the U.S. state and its capitalists to attract value produced abroad, which can then be used to pay for imperialist wars or productive investment by and for capitalists. The dollar facilitates the expansion of U.S. capital through mergers, acquisitions and hostile takeovers and enables it to assume a commanding position in the transnational and multinational corporations that result.
The dominance of the dollar also results in a U.S. debt being denominated in dollars. This means that holders of U.S. debt--lenders who buy U.S. Treasury bonds to finance U.S. state spending, such as China, have a material interest in defending the value of the dollar and its dominant position--because a drop in the value of the dollar would also be a drop in the value of the debt that the lenders hold.
Conversely, the valuing of the debt of developing countries in currencies that are not their own has been a powerful instrument for imperialist powers to control the rhythms, structures and tempos of their economies.
The stability of this arrangement shouldn't, however, be overstated. While a strong dollar is good for maintaining its dominance as a currency, it's bad for the section of U.S. capital that exports goods--since the goods these capitalists hope to sell are more expensive to foreign buyers when the dollar is strong.
Some signs of the contradictions in the current situation include Donald Trump's moves toward protectionist trade policy and China's increasing, though still experimental, advancing of its Renminbi as a reserve currency. Nevertheless, Norfield demonstrates how currencies, bonds and other financial instruments are central to the day-to-day functioning of imperialist states.
THIRD, NORFIELD integrates his analysis of finance with a Marxist analysis of capitalist crises. He points out how financial crises, like the meltdown on Wall Street and the world financial markets in 2007-08, are expressions of crises of industrial capital, since its operations are bound up with the financial system.
This integration has had one effect of increasing the instability of the system as a whole because a financial shock can easy become a wider problem.
Take, for example, the explosion of complex financial instruments invented by The City and Wall Street since the 1970s. Central to their development was the change in this era that allowed the value of different countries' currencies to "float" relative to each other, rather than being pegged to the gold standard, as the U.S. dollar was previously.
As Marxist economist David McNally observed, this led to currency values "gyrating" rapidly, which became a problem for capitalists with the production process outsourced to different countries. The multinationals could take advantage of lower wage costs and other advantages, but if the revenues of the capitalists are denominated in one currency, and their production costs in another, profits can disappear if currency values go in the wrong direction on either side of the equation.
One solution is for corporations to buy a financial insurance policy known as a derivative that sets value of currencies at a particular date. Capitalists are willing to pay the insurance premium to have some control over this threat to their profit rates.
But having to "insure" currency values in a half dozen or more countries adds to the potential for problems in the system. It's not hard to see how things can go wrong, especially as increasing fixed costs from competition drive down profit rates.
NORFIELD ATTEMPTS to suggest some areas where Marx's views, particularly about banking today, need revision or updating.
For example, Marx wrote in Volume II of Capital that the role of commercial banks is to funnel idle money to capitalists who want to keep production going instead of waiting for the revenues from previously produced goods. This is still a task of banking, but it's not all the banking sector does, and, in fact, doesn't really make up most of their operations.
According to Norfield, most of the time, the money that banks lend is largely or completely generated by the bank itself--in other words, it can lend even if it doesn't have actual money to lend.
Of course, this doesn't mean that, contrary to popular absurdities about the indestructible power of financialized capitalism, the system has overcome the barrier of having to produce actual surplus value and realize actual profit. Banks do need, at some point, to find actual money to back up their fictitious lending.
But should it be unable to find this money--as intensifying competition pulls profit rates down and the availability of actual money shrinks--the implications are colossal for a globally integrated financial system. Rather than credit providing stabilization, a financial shock or panic can cause greater economic earthquakes that spread far beyond the financial sector.
On one point, Norfield is unconvincing--his dismissal of the revolutionary potential of workers in imperialist countries who come into contact with a financial system that wheels and deals in global surplus value.
According to the argument, because their livelihood is drawn from the pool of global surplus value, workers in imperialist countries are materially tied to the fruits of imperialism--this explains their support for racism and chauvinism and their failure to combat the imperialist projects of the exploiters and oppressors.
Norfield is clearly taking inspiration from and expanding on Lenin's concept of an "aristocracy of labor" in imperialist countries--an idea that many Marxists after him have found fault with.
As for Norfield's argument, it falls short on several levels. First, workers who interact with the financial system--say, by taking out a loan to buy a home--don't necessarily draw from a pool made up only of surplus value. Some of the pool may even be made up of the savings of other workers thrown into the pool.
The ambiguity about the sources of this pool is a weak explanation for the ideas in people's heads. For example, a worker can put their wages into a savings account in a bank, which is then funneled to their own employer to invest in labor-saving technology. The source of the credit doesn't make the capitalists more sympathetic to the interests of labor, nor does it convince workers that their management should invest in machines that put them out of a job.
Second, productivity in the U.S. has steadily risen while real wages have stagnated or declined. The indebtedness of the working class and the increasing rate of exploitation during neoliberalism's dominance are part of an employers' offensive to steal back gains won in previous eras. The dependence of the working class on capital's financial system through greater debt is an extension of the dependence of workers on capitalists in the labor market.
Third, if workers have failed to mount a greater challenge against racism and chauvinism, it has less to do with surplus value and financial markets and more to do with the intensification of competition among workers and the effectiveness of an ideological campaign to deepen the divisions within the working class--as well as the weakening of working-class organizations that could serve as bastions of solidarity.
Rebuilding this organization remains a crucial task for the left. But the process of "financialization" has heightened, not neutralized, the contradictions, both domestic and international, that can give rise to struggles that lead to this rebuilding.
Despite this weakness, Norfield's book is an important resource for the left. While Norfield points out that the latest vampire of global capitalism might "have the edge on Dracula," it is still the blood of workers' labor that ultimately animates the "central nervous system."
As Norfield concludes his book: "Only a stake in the heart of the capitalist system, not simply in some of its financial forms, will be enough to see an end to the power of the beast."