The Measure of a Monster: Capital, Class, Competition and Finance
Pundits are describing the global ‘credit crunch’ as potentially the worst crisis to befall capitalism since the Wall Street Crash of 1929 and the Great Depression that followed. We doubt the value of such comparisons, but there is no doubt we need to make sense of the origins, nature and meaning of the current financial crisis. Most important, we need to grasp its potential and its dangers for us. Here we print two analyses. In the first, Christian Frings suggests that not only was neo-liberal ‘financialisation’ a response to struggle, but that its crisis is now opening up new possibilities for movements. In the second (below), David Harvie argues that finance plays a role that goes to the heart of competitive calculation, accumulation and class struggle; the present crisis is thus a crisis of both measure and capital.
“International financial markets have developed into a monster that must be put back in its place”
– Horst Köhler, German President and former head of the IMF
The numbers associated with finance are mind-boggling. The entire value of annual global output changes hands in just six days’ trading on the world’s financial markets! Sometimes – like now, in the midst of the ‘global credit crisis’ – finance seems to get out of control. The voices of those – such as Horst Köhler or, from the Left, Walden Bello – denouncing finance and calling for its regulation rise to a crescendo.
Is all of this financial activity merely ‘speculative’? Is it a symptom of capital’s flight from ‘a stagnant real economy’, that is, from ‘production’ where it has to struggle with living labour to extract surplus value? Certainly much financial-market activity is speculative in that traders are taking risks in the hope of making a profit. But all capitalist activity is speculative in this sense. There’s nothing more speculative than throwing money into production – that is, purchasing means of production, including labour-power – and then trying to make the breathing, struggling, desiring human bearers of this labour-power work hard enough to make you a profit.
Speculation isn’t the whole story, though. In fact arguing whether financial markets are primarily about ‘speculation’, or whether they are ‘stabilising’ or ‘destabilising’, easily falls into the trap of implying that investment in the ‘real economy’ – the accumulation of alienated labour in factories, fields, call centres and schools – is somehow more ‘ethical’. This sort of critique of finance also misses its most important function, which goes to the heart of capital accumulation, competition, class and the class struggle.
The financial markets, and in particular those arcane instruments known as ‘derivatives’, are all aboutmeasure, measuring the production of value, measuring capital accumulation. Financial derivatives allow all the different ‘bits’ of capital (across time, across space and across sectors) to be priced against – orcommensurated with – each other. Derivatives even turn the very contingent nature of value – its contestability – into a tradeable commodity.
The ‘performance’ of different assets – that is the ‘performance’ of its associated ‘bit’ of capital, including the workers exploited by that bit of capital – can be measured by its rate of return. And thus each asset, if it is to survive, must deliver a competitive rate of return. Each must meet or beat the market ‘norm’. Financial investors, speculators – call them what you will – do not care whether they trade cocoa futures, the Argentinian peso or some index linked to the FTSE100. They seek simply the greatest return (taking risk into account). And so, by their trading actions, the ‘performance’ of those ‘top’ 100 companies is compared to the ‘performance’ of the entire Argentinian economy (if that economy is ‘strong’ the peso will rise in value) and to cocoa farmers everywhere. The implications for workers across the planet are clear. Our‘performance’ is being measured. The performance of a Detroit car-worker can be compared not only with that of his neighbour on the production line, or even with her counterpart in Alabama or South Korea, but with garment workers in Morocco, programmers in Bangalore and cleaners on the London Underground. Competition is intensified, as is class struggle.
Which brings us to the present crisis. At the heart of the crisis lay ‘subprime’ borrowers and so-called Collateralised Debt Obligations or CDOs, another type of derivative instrument linked to these borrowers’ mortgages. Not only is our access to housing dependent upon capitalist exchange. Not only has our struggle to keep a roof over our heads become a profit-making opportunity for investors. Our ‘performance’ as debtors is measured by the global financial market and is yoked to that market, and through it to the performance of all other ‘assets’ – the programmers and the cleaners, the farmers and the garment workers. In short, we become – in our reproductive activity as well as our waged work – subjects of competitive calculation.
Those who invested in mortgage-backed CDOs clearly believed that those borrowers, ‘subprime’ and otherwise, and the US economy in general, would ‘perform’. In other words, that US householders and workers would perform their assigned role in competitive calculation. Of course, a small proportion of borrowers would not ‘perform’, but these risks had all been taken into account in CDOs’ ‘risk-and-return profiles’. Risks had been calculated and priced. In the event, many more borrowers failed to perform and, as the defaults spread, the financial system in its entirety was threatened.
At one level this crisis is a crisis about needs versus profits. Our needs for housing versus those of investors – or capital – for a rate of return. It’s a crisis that, like all crises, reveals how our access to social wealth, such as housing, is rationed by money. Just look at the growing ‘tent cities’ – American shanties – whilst houses made of timber, bricks and mortar stand empty as a result of foreclosure.
But the present crisis is also a crisis of measure. Investors mispriced risk, they miscalculated. Bankers are now talking about market ‘corrections’. What’s interesting about this crisis is not so much that financial institutions have lost a lot of money – so far $300 billion has been ‘written down’ – but that, almost a year on, they still don’t know exactly how much. Through the duration of the crisis, financial markets have failed to measure value and thus to commensurate capital. Capital – for it to be capital – must be commensurated. If ‘bits’ of capital cannot be measured and entered onto a balance sheet as so many dollars or euros, then they’re just so many barrels of Brent crude or such-and-such a number of tonnes of coffee: their status as capital is threatened. Thus a crisis of the measure of value is a crisis of value, and of capital itself.
Part of our politics must take the form of resistance to competitive calculation. The holders of sub-prime loans showed this potential negatively: the capacity of a (generally black) working class in the US triggering crisis by refusing to perform the role assigned them and the calculation implied. The challenge is to work out how to frame this power positively.
Subprime borrowers are those with ‘poor credit histories’, individuals with no secure income or assets, who may have defaulted on loans in the past. In short, the precarious!
Derivative instruments are financial assets or securities whose value derives, in principle at least, from the price of some underlying commodity, asset or set of assets. A future, for example, is a firm commitment to exchange a certain commodity or asset at an agreed price at some point in the future; an option is similar, but gives its holder the right to buy or sell, but with no obligation to do so. With swaps, the two parties exchange income streams or debt repayment commitments, e.g. a variable-interest rate loan denominated in yen is swapped for a fixed-interest rate payment in dollars. In practice, prices tend to be established in derivatives markets first, and the price of the underlying asset or commodity is derived from these. So the price a Guatemalan coffee farmer receives for her crop is actually set by traders on the London International Financial Futures and Options Exchange (LIFFE) – occupied during 1999’s Carnival Against Capital. Derivatives may be linked to commodities (coffee, cocoa, pork bellies, oil and so on), shares or share indexes (such as the FTSE100), interest rates, currencies… There are now even derivatives based on the weather and, for a few a months, there existed a ‘Policy Analysis Market’, which allowed trading on coups d’état, assassinations and terrorist attacks.
The word mortgage has its roots in Norman French; literally it means ‘death grip’.
In the 1970s, another decade of escalating oil prices, Western banks ‘recycled’ petrodollars to many ‘Third World’ governments in the form of loans (at variable interest rates). Whole economies were thus exposed to the measure and discipline of international financial markets. The real meaning of discipline became apparent in the course of the international debt crisis of the 1980s and the various financial crises throughout the 1990s and the first decade of this century.
Credit has its origin in the Latin word credere, ‘to believe’.
David Harvie is a member of The Free Association and an editor of Turbulence.