MONEY AND FINANCE WORKSHOP 2014 August 11-12
ABSTRACTS
Modern Shadow Banking as the Schmittian ‘Exception’: Meditations on a
Constructivist Approach to the theory of Money and Debt
Philip Mirowski, Notre Dame
Recent events have provoked numerous exercises in rethinking money and debt—one
might point to Graeber’s Debt, Mehrling’s New Lombard Street (2011), Lazzarato’s
Making of Indebted Man (2012), performativity in the social studies of finance, and a
host of others—but I suspect none would be credited as making a dent in the
neoliberal consensus. I will break with my standard practice as historian and propose
an alternative approach to debt that would prove to be antithetical to Neoliberalism at
the most fundamental level, and then use it to propose an alternative portrait of
shadow banking in the latest crisis.
The talk will consist of three sections, each summarizing a much larger project. First,
I outline a “constructivist” approach to money and debt, and contrast it with traditions
that seek to ground money in something more ‘real’ and invariant. Instead, money is
the creation of an invariant out of nothing, while debt is the controlled relaxation of
that invariant over time. At the individual level, this invariant is experienced as a
‘budget constraint’. This is an attempt to use a neoliberal precept against the
neoliberals, by insisting that markets and money are constructed “all the way down”.
The second section then applies constructivist principles to key features of modern
finance. In particular, it narrows the focus to shadow banking and ‘repo’, and
reinterprets them as yet another example of small coteries of insiders attempting to
evade invariance and the budget constraint, while keeping outsiders subjected to it.
This is the beginning of the Schmittian exception, a basic definition of the nature of
politics originally proposed by Carl Schmitt. This trend is exacerbated when the
institutional structure of the finance system is reconfigured to push all the deleterious
consequences of this ‘exception’ off onto other unsuspecting participants, so when
things go wrong, the holders of these ‘derivatives’ do not suffer. Yet, because at root
this involves destruction of the system-wide budget constraint, the entire process is
unsustainable, and when the dire consequences can no longer be loaded onto some
scapegoats or confined to a subset of economic actors, then the state is forced to enter
in and socialize the instability and ‘restore’ the constructed system-wide invariance.
This theory can serve both as an account of and denunciation of ‘financialization’
which does not depend upon simplistic notions of finance as ‘unproductive’ or
diverging from some hidden ‘real’ valuation.
The third section makes the Schmittian exceptionalism concrete by describing one
major motivation for the creation of repo, namely, the subtle and little-noticed
changes in rules concerning collateral and bankruptcy in the runup to the crisis of
2007-? Here my comments are based upon the underappreciated work of Carolyn
Sissoko (2010). She shows how derivatives like repo became like musical chairs,
always attempting to push the consequences of insolvency off onto others, while
vastly increasing degrees of leverage.
I close with some observations how this constructivist account would prove poison to
neoliberals. First, it uses some of their own main intellectual resources
(constructivism, Schmitt) against their core doctrine that any ‘market failure’ can be
fixed with more markets. It is a direct attack on their theories of money and debt. And
it reveals the freedom they seek is the freedom to undermine and wreck the entire
financial system.
Sissoko, Carolyn. 2010. “The Legal Foundations of Financial Collapse,” Journal of
Financial and Economic Policy (2):5-34.
Money and Futurity
Ronen Palan and Anastasia Nesvetailova
Capitalism is a system of delayed gratification. One invests today in order to gain
profit tomorrow. The financial system serves an important role in this future-oriented
system, creating credit by ‘cashing’ in on future income streams: it serves as an
important bridge between the present and the future. In commission-based banking,
‘cashing in’ on the future became the main business of finance. The financial system
had therefore, collectively a vested interest in assuming future growth – because
growth rationalised the creation of credit at present. At the same time, the growth of
pension funds and mutual funds ensured a continuing demand for financial assets that
generate future income streams (such as mortgages). There was a demand and supply
issue because regulation prevented banking from fulfilling this demands for financial
assets. The financial system innovated then, a whole set of financial instruments,
known today collectively as the shadow banking industry, that could collectively
avoid limitations on the credit creation imposed by current regulation. Many financial
transactions moved to ‘off balance sheet’ to ensure that bank’s limited balance sheet
does not prevent growth of financial assets.
Risk and value: Finance, labour and production
Dick Bryan, Michael Rafferty and Chris Jefferis
When we think of both money and labour as units of measure, we see the mutual rise
of uncertainty of values and the risks of valuation. So what is the significance of the
identification of risk as a commonality between labour and money?
Underlying this question is the desire to recognise how, with the benefit of time, we
can now talk about historical ‘modes of valuation’: that the way in which Marx could
talk about value had to be imbued with 19th century circumstances, forms of capital
and analytical capacities. To be sure, analytical techniques have developed since the
time of Marx, but as popularly depicted these capacities have tended to be taxonomic
and mathematical (for example, how we classify labour as productive or
unproductive; how we solve the transformation problem). Our issue here is of a
different order, for while it implies both taxonomy and mathematics, its explicit
agenda refers to a shifting calculative project.
Critically, we follow, at least partially, the work of Hardt and Negri on the
impossibility of valuation within the search for coherent value, although they centre
the reasons for impossibility on the rise of immaterial labour and the disappearance of
taxonomic boundaries delineating what is and is not ‘production’. The logical
consequence in this framing is to shift analysis away from the ‘labour process’ as the
site of value creation, and to recognise creation in diverse forms of activity.
We instead shift that focus to finance. We concur with the impossibility of measuring
value, but argue this in relation to the problems of recognising the contingency of the
future, and the way this contingency (risk) enters value. Through finance, we explore
the issue not of value generation beyond production, but the extension of production
into the domains of working class consumption and financial contracts.
By the end of the paper we develop the argument that financial value in the form of
risk management is itself produced, including by value-creating labour: labour
dividuated (Deleuze) or ‘tranched’ for its risks of default on its financial contracts.
The fact that high tranches of mortgage-backed securities are central to Federal
Reserve Quantitative Easing policies, and now make up 40 percent of federal Reserve
assets, is then re-interpreted as a ‘labour+risk’ foundation to money at a time of
monetary fragility.
Governing the Financial System: Risk, Banking and Neoliberal Reason
Martijn Konings
Since the financial crisis of 2007-08, questions of “systemic risk” have attracted a
great deal of interest. Progressively minded commentators have seen this as the
potential foundation of a new post-neoliberal regime of financial governance, and a
growing amount of scholarship seeks to assess the prospects of this policy orientation.
This paper argues that such an agenda is rooted in a conception of uncertainty as an
external limit to knowledge and is problematically invested in the possibility of
transcending the speculative imperative. As amply borne out by its history, financial
governance principally never escapes the contingency of the processes it seeks to
regulate and has always taken the form of the alignment of governmental operations
with the logic of banking. The latter, it is argued, can be understood as the
normalizing principle that is endogenous to the interactive dynamic of speculative
investments. The neoliberal project, far from advocating a naïve faith in the
equilibrating effects of the market, has always contained a specific engagement with
the problematic of system risk, one that consists in the recognition and calibration of
capitalism’s speculative-normalizing rationality and involves the reconfiguration of
the state’s relation to the logic of banking. It is this reflexive aspect of the neoliberal
project that progressive critiques and reform proposals often fail to recognize, and as
a consequence they tend to play a somewhat unreflexive role in the rolling out of the
neoliberal project.
‘A Goddamn Theory of Everything’: History, Utopia, and the Efficient Market
Hypothesis
Paul Crosthwaite
The efficient market hypothesis (EMH) is one of the defining dogmas of our age. As
Philip Mirowski shows in his recent Never Let a Serious Crisis Go to Waste, the
EMH retains an intellectual stranglehold on much of the economics profession. At the
same time, it has crucially informed not only the lax regulatory environment that gave
banks the freedom to design ever-more risky financial products, but also the wider
ethos of “the market knows best” that has infiltrated virtually every area of life under
neoliberalism. And yet the EMH is demonstrably wrong. Why, then, does it continue
to enjoy such influence and valorisation? This paper aims to make a contribution to
answering this question, beginning with Mirowski’s account of the ways in which the
EMH has become too integral to both the theory and practice of financial markets to
be abandoned, and venturing into more speculative territory. Specifically, I attempt,
with the help of works of fiction by Don DeLillo, David Foster Wallace, and Hari
Kunzru, and perspectives drawn from contemporary cultural theory, to show that the
theory of market efficiency is a privileged expression of utopian longings that pervade
our moment: longings for a transcendent realm in which our actions would have
meaning, significance, and permanence and for the world to prove mappable,
coherent, and intelligible. My aim, then, is not to stress why the EMH is wrong (an
issue that has been amply dealt with by Mirowski and others), but to read the EMH –
alongside works of fiction and theory – for its cultural meanings and psychic
investments.
Currency, Territory, Speculation: From Soros to Bitcoin
Brett Neilson
Currency has traditionally been structured by a contradiction between its necessary
circulation and its relation to territory. On the one hand, it appears as a rootless token
of exchange. On the other hand, it is a political technology that apportions space and
changes social relations. This paper argues that today these twin aspects of currency
have come unstuck. The accumulation of capital depends increasingly on speculation
and the circulation of currency as money, but the struggle to secure territories and
bodies that can guarantee such accumulation has led to a deep spatial disruption in the
geography of globalization. Theoretically we encounter claims that currency is purely
relational, such that any attempt to ground it in territory is nostalgic. At the same time,
there are calls to rethink territory through currency, which means understanding how
value is differentiated through an ever more complex proliferation of borders and the
appearance of emergent jurisdictions and orderings that override the state’s
territoriality. Beginning with an analysis of George Soros’s breaking of the British
pound in 1992 as a point of departure and historical comparison, this paper traces the
shifting relation of currency and territory over the past two decades. Empirically I
focus on the transformations introduced by high frequency trading in foreign
exchange markets and the experiments and enclosures associated with
cryptocurrencies such as bitcoin. Conceptually I seek to understand how the
increasing flexibility and relationality of territory has accompanied and provoked the
current economic crisis.
Performativity: Money, Power, Fiction
Nina Boy
The analytic of performativity in finance has been assigned to economic and financial
theory and calculative practices, enacting financial phenomena rather than describing
them. Curiously it has far less frequently been brought in relation to money and credit,
surprising as this may seem given that the ‘promise-to-pay’ could be seen as the
performative par excellence. In particular with the advent of fiat money, financial
instruments have been said to work despite a more or less openly displayed
fictionality and self-referentiality. This article first looks at the underwriting factors of
this performativity in the form of authority. Secondly, on the side of reception, this
article approaches the performativity of money and other financial instruments as a
performativity of (social) fictions that critically hinged on changing articulations of
reality and fiction significantly shaped by the genre of literature. Thirdly, the interest
of performativity in ‘how power works’ rather than denying its truth claim has been
criticised as an alliance with authority and the article concludes with an assessment of
the potential of performativity as critique of power.
States as a Creature of Money
Mike Beggs
Political Economy, University of Sydney
In recent years a kind of chartalism has been on the rise within sociology and
heterodox economics, blending ‘state’ and ‘credit’ theories of money. Its proponents
argue that the Mengerian treatment of money as emergent out of exchange is
ahistorical, a ‘barter myth’. In this paper I argue that this is a wrong turn. The idea
that “money is peculiarly a creation of the State” (as Keynes put it in the Treatise on
Money) is an essentialism that takes the state’s coherence and power for granted — it
is not sociological or historical enough. Marx, Weber, Schumpeter and even Keynes
himself all emphasised that the value of money was beyond state fiat. Tracing the
evolution of the value of money as a political problem is a fruitful alternative way of
approaching the relationship between states and moneys. This allows us to see state
agencies as strategic actors among others on the broader political-economic terrain of
capitalism, which has shaped their forms and patterns of co-ordination.
The Dialectics of Liquidity Crisis: An Interpretation of the Financial Crisis of
2007-08
Chris Jefferis
This paper analyses the logic of applying the American Post-Keynesian economist
Hyman Minsky’s Financial Instability Hypothesis to the financial crisis of 2007-08.
Key to this project is exploring the “historicity” of Minsky’s work asking the question
of whether his theory can be applied outside of the historical context in which it was
formulated? In conducting a historicizing critique of Minsky’s work this paper seeks
to illustrate how the abstraction of financial “risk” which conditions trade in financial
instruments such as derivatives and asset backed securities can be conceptualised as
“liquidity”. The conceptualisation of financial “risk” as liquidity illustrates the
continuing relevance of Minsky’s theory of liquidity crisis as “immanent” to modern
finance and the crisis of 2007-08 but not as explanatory in and of itself.
Accounting for Justice: Beyond Liberal Calculations of Debt and Crime
Miranda Joseph
Social theorists have argued that debt is now the determining economic and thus
social relation, superseding relations of production or consumption as the socially
formative economic dynamic. Certainly, debt plays a particularly prominent role in
the contemporary regime of capital accumulation, as debt-related financial
instruments from sovereign bonds to securitized credit card debt, student debt, and
mortgages are traded on global markets, while stripping assets from individuals in
their roles as citizens and consumers. And likewise, there is no doubt that debt plays a
hegemonizing function: disciplining (or even accumulating) individual and collective
subjects of capital by linking their sense of independence to normative participation in
particular social formations as they “freely choose to take on debt” (Heintz and
Balakrishnan 2012, 390) under the constraints of that same double-edged freedom
Marx ascribed to “free labor.”
While acknowledging this prominence of debt to contemporary subjectivity and social
relations, I take as axiomatic Janet Roitman’s argument that debt is not exterior to
social relations, not a “perversion or deviation,” but a fundamental and constitutive
social fact. So, rather than approach debt as an origin or cause or crisis to be analyzed,
I posit debts, and credits, as components of complex performative representational
practices that I refer to collectively as accounting. And I explore modes of
accounting—techniques for constituting and attributing credits and debts—as they are
deployed to create, sustain, or transform social relations.
Here, specifically, I ask, What is the relation of accounting to justice? Noting the
frequent contemporary deployments of numerical accounts by social justice advocates,
I turn back to the nineteenth century to investigate the emergence of the intertwined
strategies of knowledge production and inscription, of juridical and financial
accounting, that undergird the modern regime for the constitution and management of
“criminals” and “debtors,” categories that are related and differentiated, generating
social—and especially racial—hierarchies. I make use of Derrida’s critique of liberal
“law” (as opposed to “justice”) in “Force of Law” (1992a) to articulate the “force” of
accounting. I then explore some important efforts to critique and promote alternative
modes of accounting (such as social accounting and restorative justice) that might be
more just or at least more enabling of social justice efforts.
Home Economics: Dream, Debt and Default in California’s Foreclosure/Fiscal
Crisis
Fiona Allon
This paper presents recent research on subprime mortgage finance and urban fiscal
crisis undertaken in Stockton, California. Known as the ground zero of the foreclosure
crisis, the ‘town the housing boom broke’, Stockton was one of the first cities in the
US to file for municipal bankruptcy. Between 2004 and 2006, the majority of
mortgages issued in Stockton were subprime, mostly ARM (Adjustable Rate
Mortgages). In 2007, with foreclosures eroding Stockton’s revenue base, Stockton
issued a series of pension obligation bonds, on to which was layered an interest-rate
swap agreement underwritten by investment bank Lehman Brothers. This experiment
with pension obligation bonds and with swaps, the most common kind of derivative
instrument, proved to be disastrous when the Federal Reserve reduced interest rates
and rates of return collapsed. In the context of the post-2007 urban fiscal crisis, and
with municipalities emerging as the next casualties of the crash, austerity,
privatization, fiscal discipline and the further financialization of urban governance
have become the dominant policy responses, resulting in the sale of public assets,
restricted access to credit, and the continued decline of social welfare. Such responses
are now generating further vulnerabilities, which in turn are leading to a new spate of
foreclosures and creating conditions for the reproduction of crisis that is again easily
exploited by financial markets.
Drawn from a larger project on the financialization of housing, households and home,
this paper connects municipal crisis to subprime lending, viewing both as symptoms
of a new derivatives-based regime of finance that is operationalized across multiple
scales, from ordinary minority homeowners, urban space and infrastructure to the
globalized economy. In the context of asset-based welfare programs and the
governmental promotion of homeownership as a de facto form of welfare (the
homeownership/welfare trade-off and transfer that has taken place alongside the
restructuring of the welfare state and thirty years of wage stagnation), individuals
have effectively been forced to become risk-bearing entrepreneurs speculating in the
face of fundamental uncertainty and volatility. At the same time, cities and other
municipal bodies have also internalized this ‘derivative logic’, which has had
similarly serious consequences for regimes of government and regulation, housing
and property, welfare and socio-spatial inequality.
Inflation as Moral Crisis: Neoliberalism, Neoconservatism and the Crisis of the
Family Wage
Melinda Cooper
The Volcker shock of 1979 created the conditions for the Reagan Revolution and
initiated the period we commonly refer to as that of post-Fordism. Today a number of
scholars argue that the Volcker shock of 1979 must be understood as a concerted
political response to the rising militantism of the Fordist working class (Gindin and
Panitch 2013, Dickens 1996). Having assumed an already unified conception of the
working class, however, these theorists are unable to explain why commentators from
across the political spectrum connected inflation to the breakdown of family values.
Nor are they able to explain why contemporary reflections on the crisis focused so
relentlessly on one of the New Deal’s more marginal relief programs – Aid to
Families with Dependent Children or AFDC – which was designed to allocate welfare
benefits to deserving single mothers. Yet commentators of the left and right were
singularly convinced that the expansion of AFDC to African-American women –
minimal though it was in terms of federal budget expenditure - was not only
responsible for a crisis of the American family, but also represented one of the
principle causes of inflation. How did the American crisis of the 1970s come to be
associated so intimately with a crisis of the family?
Prior to the late 1960s, a bipartisan consensus existed on the basic premise of
Keynesian social policies. Democrats and Republicans alike were committed to the
redistributive politics of the family wage, although they were divided on the question
of whether or not it should be extended to African-American men. Old Democrats
(and future neoconservatives) such as Daniel Moynihan were convinced that the
family wage should incorporate African-American men – a view they shared with
many liberals in the welfare rights movement. Republicans such as Milton Friedman
and Nixon preferred the racially neutral solution of a basic guaranteed income,
although they remained overwhelmingly committed to a welfarist framework
(Quadagno 1994; Chappell 2009). What then precipitated the profound turn against
welfare that emerged in the late 1970s?
In this article, I will argue that it was only when welfare was seen to threaten the very
normative premises of the Fordist family that a new consensus emerged on the need
to undertake wholesale welfare reform. This threat had already begun to materialize in
the 1960s as welfare rolls designed to benefit “deserving” white women expanded to
include growing numbers of never-married black women. It became overt in the late
1960s and 70s, when the more radical elements in the welfare rights movement
succeeded in overturning the moral restrictions that limited women’s access to
welfare (Mink 1998; Nadesan 2005). It is in response to this development in
particular that a new language of crisis emerged and a new alliance was forged
between Old Democrats (future neoconservatives) and neoliberals. These critics of the
left and right now accused AFDC – and by extension the welfare state itself – of
radically undermining the family. And in response to this crisis they now called for a
much more profound reform of welfare than they themselves had hitherto imagined. It
was now agreed that the redistributive welfare programmes of the New Deal and
Great Society would need to be radically restricted, even while the private institution
of the family was to be strengthened as a general alternative to social welfare. It is in
this shift that we can locate the simultaneous rise of neoliberalism and
neoconservatism as mature political philosophies. Neoliberalism and neoconservatism
may be diametrically opposed on many issues; but on the question of family values, I
will argue, they reveal a surprising affinity.
This paper explores the ways in which this new alliance between neoliberalism and
neoconservatism (Brown 2006) and their derivatives would shape social policy over
the following decades, culminating in Clinton’s welfare reform act of 1996.
Speculative Futures in the Time of Debt
Lisa Adkins
University of Newcastle, Australia
This paper takes as its context the productivity of debt, that is, debt as a form of
money which generates money, and the centrality of debt to contemporary
accumulation strategies as well as to the dynamics of social relations as a whole. It is
concerned in particular with the temporality of debt, especially the widespread claim
that the debt economy has ushered in a particular temporal universe in which time is
both appropriated and destroyed. Thus, and to give just one example, in The Rise of
Indebted Man, Lazzarato (2011) claims that the economy of debt has produced a
society without time, that is, a society in which indebtedness into an (objectified and
colonized) future not only appropriates the present labour-time of wage-earners and of
the population in general, but also pre-empts non-chronological time and the futures
of individuals and society as a whole. For Lazzarato debt thus closes down the
possibilities and potentialities of time. He writes: ‘the principal explanation for the
strange sensation of living in a society without time, without possibility, without
foreseeable rupture, is debt’ (2011: 47). Yet while Lazzarato attributes the strange
sensation of living without time to debt, other commentators have suggested that the
money economy in general is connected to the destruction of time, and especially to
the emergence of an unbounded, extended present (Simmel, 2004 [1907]). Indeed, the
idea that money is destructive of time and especially of futures is a key motif of both
classical and contemporary social theory.
Against this background this paper seeks to open out and pin down the specificity of
the temporality of debt in the contemporary present beyond the notion of the
emptying out of time. It will suggest that far from closing down the creation of new
possibilities, debt itself precisely concerns forms of time which are not necessarily
knowable and predictable in advance and escape probabilistic forms of forecasting
and planning. Debt involves therefore not a colonization (and emptying out) of the
future, but speculations regarding possible (underdetermined) futures, speculations
which are based not on linearity (where futures roll out from the present) but on
unpredictability. I will therefore stress that debt is a form of money which is
generative not only of money but of also of non-chronological forms of time. The
potentialities of debt in regard to time are far from unproblematic. However, rather
than through disengagement with the debt economy or through attempts to invent
alternative time universes, I suggest that practices of speculation provide a key ground
for contests to be waged in regard to the future.