The spectres that haunt the minds of economists today – from authoritarian state capitalism to the growth of 'welfare dependency' – are conjured by the peculiar neuroses of the profession. Properly historical trends tend to pass economists by. Neoclassical economics tends to ignore this historical aspect of capitalism entirely, treating actors as strictly self-interested and rational. Keynesianism, meanwhile, tends to psychologise the behaviour of capitalist investors, which can also limit our understanding of long-run developments. Finally Marxist economics, though explicitly devoted to a historical materialist conception of capitalism, tends to fixate on certain 'fundamental laws of motion' at the expense of analysing what is new in the present historical moment of the system's development.
If there is to be an effective anti-capitalist politics there must be a serious effort to understand not just the essentials of the system, but also how capitalism is presently developing in novel ways. Without falling back on Marxist tropes like the 'declining rate of profit', I want to sketch here how the global economy is changing by drawing on a wide and heterogeneous literature, emphasising the dynamic, historical nature of capitalism. What are the key features and dynamics of global capitalism today? What are the epoch-defining changes to the global political economy that the left needs to understand?
Finance has always been an integral part of allocating resources in capitalist economies. But financialisation is an epochal change in the role financial capital plays in capitalism. A byproduct of the immediate postwar era, where a vast accumulation of money capital pushed at the margins of regulatory regimes until it was liberated in the 1970s, financialisation, as the Greek economist Costas Lapavitsas argues in his book Profiting Without Producing: How Finance Exploits Us All (2014), is a three-pronged process. Firstly, since the 1970s big companies have become less reliant on banks for their financing needs. Secondly, banks have engaged in more open market trading and increased lending to individuals and households, as opposed to making more traditional, long-term productive investments. Thirdly, individuals have become increasingly implicated in the operations of financial markets in order to fund day-to-day consumption and to plan for their futures.
Financialisation is more than just the preponderance of finance over production.' It 'represents neither the escape of productive capital into the realm of finance in search of higher profits, nor the turn of finance at the expense of productive investment,' Lapavitsas explains.' 'It stands, rather, for a transformation of the mix of financial and non-financial activities that are integral to the circuit of productive capital.' He argues that the 'protracted and continually evolving nature of the turmoil [since 2008]' indicates the' 'proneness of financialised capitalism toward crisis'. Lapavitsas's point is that the latest stage of capitalist development is characterised by increasing financialisation of not only capitalist circulation, but also of production and consumption. Since finance is so dependent on liquidity (that is, flows of money), a heavily financialised economy will be more prone to liquidity crises. Moreover, during a liquidity crisis' 'cash becomes king', Lapavitsas, says, citing Marx: in a capitalist crisis there is' 'a sudden transformation of the credit system into a monetary system.' Financial crises are closely related to monetary crises, and therefore very rapidly put pressure on the states and central banks involved.
Take the 2008 credit crunch: a shortage of liquidity originated in the interbank money market as early as 2007. Banks holding, or obliged to support those holding, mortgage-backed securities were subject to declining liquidity as mortgage failures rose. Banks then preferred hoarding liquid (cash) funds in order to deleverage (that is, to pay down their debts). Since banks rely on increasing flows to sustain their activities, a liquidity freeze can be fatal; declining liquidity amounts to declining solvency rates. Stocks declined, meaning troubled banks struggled to attract capital to support their losses on securities.' 'The burst of the bubble led to the apparent contradiction of financial institutions being awash with loanable capital but extremely short of liquidity.' As cash became king, the crisis inevitably developed into one of monetary weaknesses.
It is crucial to understand the era of financialisation if we are to grasp the nature of capitalist crises today. Financialisation of the global economy does not limit crises to financial bubbles. Indeed, the profound influence of processes of financial accumulation over productive accumulation and private consumption means that financial crises have a powerful effect not only on market activity but also on states, often via the crisis-reproducing mechanisms of the monetary system.
3. The Volatile Global Monetary System
'Most things in life – automobiles, mistresses, cancer – are important only to those who have them. Money, in contrast, is equally important to those who have it and those who don't.' This apparently throwaway remark was made by the economist John Kenneth Galbraith in the 1970s, as the world of money was changing in unprecedented ways. It reveals in the pithiest of terms a fact that was only fully grasped as the world changed: money is not a simple commodity like any other, but the expression of a social relation. Money is more than the means by which two parties express their trust in one another, or in a particular transaction. It is, at root, the psychological and social means by which social 'faith' is reproduced. Hence the reluctance to create new currencies out of nothing and the equal if opposing reluctance to leave them once they are created (witness Greece).
The basic feature of the international monetary system in the era of financialisation is its marked instability. There is no external guarantee of money as a commodity – gold, say, or some other precious metal – nor any regime formally pledged to defend it. There was in the immediate postwar era, commonly known as the Bretton Woods system of fixed exchange rates. Back then anyone in possession of $35 could, in theory, exchange it for one ounce of gold at the US Treasury. However, with' 'demand-push' inflation stalking the US economy throughout the 1960s (a result of militant unions demanding pay rises; the expansion of social welfare; and the Vietnam War), holders of overvalued dollar reserves threatened to sell them off for their promised gold. Richard Nixon then abolished the dollar peg to gold and created a new world – one where currencies would float against each other, sometimes freely and sometimes less so.
The political economists Leo Panitch and Sam Gindin observe that, though the US managed to stave off the threat of countries opting for gold over dollars (now that they simply couldn't trade their dollar reserves off for anything else), the centrality of the Federal Reserve and the Treasury commensurately increased. A transition was taking place from a fixed, reconstructive system to the' 'establishment of the legal, institutional and market infrastructure that would sustain capitalist globalization amid floating exchange rates anchored by a US dollar-Treasury bill standard.' The US dollar became the anchor of the world economy, with the Treasury and the Federal Reserve its guarantors.
The global order that emerged after Bretton Woods again used the dollar to its advantage, this time encouraging the very hoarding that had once threatened it. Barry Eichengreen, an economist very close to the beating heart of the US state (or at least its liberal wing), writes in his book on the dollar, Exorbitant Privilege:The Rise and Fall of the Dollar and the Future of the International Monetary System (2012):' 'Oil is priced in dollars. The dollar is used in eighty-five percent of all foreign exchange transactions worldwide. It accounts for nearly half of the global stock of international debt securities. It is the form in which central banks hold more than sixty percent of their foreign currency reserves.' States, banks, and firms all want and need the dollar. Thus the US can service its trade deficit whilst encountering no foreign exchange difficulties. Eichengreen dismisses the' 'Cassandras' who warn of a catastrophic end to this' 'funny money' scheme. A transition to a multiple reserve currency system, though inevitable, need not result in social upheaval as long as the US works on its productivity and its high-tech value-added exports sector. It will accomplish this not through' 'structural reforms' (i.e. liberalisation of the labour market), but through boosting education and technological uptake. Indeed, during the high watermarks of the crisis – 2008 and 2010 respectively – the cost of US borrowing actually went down as the world flocked to the dollar.
The problem here lies in the volatility of financialised capitalism and the interconnectedness of that volatility with monetary systems and, in turn, the fiscal conditions of states. These three interdependent realms of the economy are producing new kinds of antagonisms in the era of financialisation. Various institutions have sprung up to deal with that interconnectedness since the 1970s, but they have often been deflationary and largely have done little to counteract financialisation. The European Monetary Union (EMU) is a good example of how in defence against the power of the dollar, economies have clubbed together not to oppose financialisation but to deepen it.
Austerity measures have been imposed across the eurozone as a result of monetary and fiscal conservatism, with European Central Bank-led quantitative easing and even relatively uncontroversial lowering of central bank interest rates initially resisted by surplus countries like Germany. As Mark Blyth puts it in his book Austerity: The History of a Dangerous Idea:' 'If states cannot inflate their way out of trouble (no printing press) or devalue to do the same (no sovereign currency), they can only default (which will blow up the banking system, so it's not an option), which leaves only internal deflation through prices and wages – austerity. This is the real reason we all have to be austere. Once again, it's all about saving the banks.' Here, the initial need to' 'save the banks' refers precisely to the processes whereby crises of financialised capitalism are brought, via solvency and monetary stresses, onto the fiscal books of society as a whole. Greece, for example, is being punished today not only for its unsustainable debt to GDP ratio (much exacerbated by the crisis), but for its participation in the single-currency zone and its competitive losses, via that currency, to big exporters like Germany. Essentially, for small importing countries like Greece, the euro locks in current-account and budget imbalances and allows no means of escape. The monetary system that was intended to maximise competitive advantages in a financialised world has instead crushed less competitive states.
This is by now a familiar story. It is commonly accepted that the wealth of the very few increased dramatically from the 1970s to the 2000s. The net worth of the wealthiest has doubled again in Britain since then and the share of wealth at the bottom of society is stagnant.' 'The rules of the game are stacked in favour of the monopolists, 'Joseph Stiglitz says. The social outcomes of such wealth concentration are bleak indeed: from education performance to mental health and from infant mortality to the size of the prison population, research suggests that inequality reinforces a sense of failure and social alienation.
Where does this inequality come from? In his widely touted book Capital in the Twenty-First Century (2013) the French economist Thomas Piketty argued that the widening gap in wealth was a result of slowing growth and the erosion of high postwar tax regimes. Tax is massively important in shaping the distribution of wealth, of course. But it is just one of a cluster of state mechanisms and structuring social factors – albeit a central one – among many. For a continuous increase in inequality to have taken place over the last four decades, including during the global crisis, it is reasonable to assume that tax cuts for the rich must be acting in concert with other trends. Inequality is one partially intentional social outcome of a hugely successful class political project – what is widely called neoliberalism. Neoliberalism was, in turn, partly so successful because it latched onto secular developments in the wider economy. We must understand the causes of – as opposed to simply the trend towards – growing inequality in far more detail than that offered by Piketty, and with more focus on the real economy than that offered by Joseph Stiglitz and other' 'Saltwater' economists.
Germany is often celebrated for its prosperous and productive combination of social welfarism and liberal capitalism; an example of successful, socially equitable economic development for the modern world. But as recent studies show, wealth concentration is increasing in Germany like everywhere else, with the upper ten percent of German households possessing more than half of the country's entire wealth. In a book that spans the era of German reform since the 1980s, Wolfgang Streeck explores the' 'non-teleological evolutionary change' in German social, political and economic institutions. He shows how the wage bargaining system for core industries; the protection of workers in the peripheral sectors; the preferences of organised business and worker representation in corporate decisions; the investment and employment decisions of internationalising capital; the capacities for regulation and social provision by the state; and the power of interventions by political and bureaucratic actors within the state mutually reinforced each other.
All of this led to the liberalisation of German capitalism, even as it maintained a certain kind of coordination. The direction of causality in such an' 'evolutionary' model of institutional change is far from simple. However, it is clear that as capital became increasingly internationalised the capacity of the state to fund and run the old welfare system, and with it the model of protected, full employment, declined. Thus, as levels of employment fell and the negotiating power of German labour fell, inequality began to creep up. As Streeck has reported recently, the result is an explosion of industrial conflict in a traditionally serene national economy. Although Streeck's description of capitalist change is complex, it offers important steps forward in the analysis of growing inequality. Whereas Saltwater and neo-Keynesian critics of inequality tend to blame policy that favours rentier finance over productive capital, Streeck suggests that there are deep structural changes within the capitalist mode of production that may be difficult to counter via the old Keynesian stimulus methods.
1. The End of High Growth in the Real Economy
Growth is an abstraction the effects of which are nevertheless acutely felt. It is always an ex post calculation – normally from the gross domestic product of a particular economy (or the total amount of goods and services produced within a country's borders) – showing that income or output has increased. Economists like Joseph Stiglitz urge that the' 'benefits of wealth [be] more widely shared.' But the reality is that, since the 1970s, growth in the advanced economies has steadily been slowing. Declining population growth may have been an important factor in this. However, declining growth in productivity since the 1970s must also play a part. The latter is conventionally linked to declining technical and technological innovation, which comes and goes in waves. According to Gavyn Davies at the Financial Times:' 'Two phases of deceleration are apparent. In the 1970s, the decline in Japan and Europe is particularly pronounced, while in the 2000s, it appears everywhere.' There is reason for concern that this time the decline may be permanent, however.
As James K. Galbriath (son of the aforementioned John) observes in his book The End of Normal (2015), the high growth rates of the immediate postwar era were a freak. The high degree of growth of that era resulted in very' 'high-fixed-cost' industrial systems in the advanced economies, as well as in the Soviet Union. This is a system with high levels of prior (technological) investment which can operate with very high rates of return as long as the horizon of future events remains stable. Nevertheless, these systems have' 'multiple vulnerabilities.' More efficient rivals – operating in the same market – can emerge, as with Germany, Japan, Korea, and then China during the period of American industrial dominance. What is more, wars and resource cost volatility can affect profits and the predictability of fixed investment. Galbraith explains a significant amount of investor behaviour with reference to increased resource cost volatility since the 1970s – particularly in the case of oil prices. As resources like oil become scarcer, the likelihood of price hikes increases. 'When resources are scarce and expensive, when [investor] uncertainties loom large, then time horizons shorten.' Yet if it appears we are back in a world governed by the laws of Keynesian macro-economics, regarding the psychology of investment and the marginal efficiency of capital, things are in reality a little more complicated.
How to hedge against the vulnerabilities and instabilities of long-term productive investment today? As the US struggled against competitors; got bogged down in unpredictable wars; and suffered the effects of oil price volatility during the 1970s, its economy began a process of financialisation. This, as we saw above, was initiated by the pushing at the margins of accumulated money capital under the system of fixed exchange rates known as Bretton Woods. In Marxist terms finance increasingly mobilised idle money hoards, themselves the product of retained surplus capital from production, for further profits. Resource price volatility and the failure of profits from production to match rising (and increasingly powerful) shareholder expectations, led to the financialisation of non-financial firms. Risky long-term investment in' 'commercial' activities fell. Banks increased their involvement in more' 'investment'-like activities. At its height, the US banking system accounted for 40% of all profits.
Galbraith lays the blame for unemployment on technological change. Yet unlike optimists like the aforementioned Barry Eichengreen – who see the US's future in investment in jobs and education – Galbraith suggests the fall in employment may be permanent. A policy of demand stimulus, liquidity provision, and a boost to investor confidence will fail for specific historical reasons. Galbraith suggests the type of technological change generated and adopted in the advanced economies – in the era of low productive and high financial profits – is not conducive to job creation on a broad enough scale to reach full employment.' 'The service and office workers, checkout clerks, account managers, and salespeople whose jobs can be consolidated and rendered redundant are the modern version of the horses driven off their Depression-era farms.' Where a service is unpriced it simply drops out of GDP – hence the fall in growth rates. Accompanying low growth in productive, job-creating activities will be a commensurate rise in risky, often fraudulent and highly concentrated financial profits.
Most progressive critiques of austerity insist that labour market deregulation will not create decent jobs because repression of labour simply dampens demand. The benefits to employment – if they really exist – will be offset by the demand slump before they can take hold. Lapavitsas and Flassbeck (2015) make just such an argument in the case of Germany: the drive for a flexible labour force' 'was grounded in the neoliberal conviction that lower wages would result in more labour-intensive production processes across the economy.' Of course that policy has only been unevenly successful in terms of total employment. The real benefit was to the export sector of German capital and the protection of employment in core sectors over progressive wage increases. But what if it is not simply the dampening of domestic demand that has failed to generate new jobs? According to Galbraith, the potential for those new jobs may simply not exist at any technological level of the economy. The Keynesian preference for simply reanimating the' 'animal spirits' of investors and entrepreneurs at the expense of 'rentiers' and financiers may fail because our economies cannot generate the traditional style of employment on which demand management policies rested. In Galbraith's words:
We are at the end of the postwar period, and the models no longer apply. Moreover [the crisis] cannot be cured by Keynesian stimulus, along the lines urged by many of my fellow-Keynesian friends. The institutional, infrastructure, resource base, and psychological foundation for a Keynesian revival no longer exist.
Qualitative development – if not compound growth by any means – remains essential for any left-economic project. Moreover, in an economy as depressed as, say, Greece, latent domestic demand can clearly be mobilised for a short-term recovery. But the emphasis of progressive Keynesians on reanimating the real economy as an end in itself neglects the long-term questions of how to create equitable development in contemporary economies where the tendency is to reduce or eliminate labour costs. Across the world the private sector is an increasingly unreliable provider of anything but the most insecure and least valuable jobs; while private investment has utterly failed the social expectation that it will finance productive activity in the real economy.
Our politics may have to find ways of coping with a low-growth, low-employment and volatile world. Our bet should be that we can do so before the capitalists do.
Adam Blanden is a blogger and contributor to Dissent Magazine, Red Pepper, and New Left Project, among others. Follow him @adam_blanden.
 See, for example, Chang, Economics: The User's Guide (2014) p.121: 'The [Neoclassical] school conceptualized the economy as a collection of rational and selfish individuals, rather than as a collection of distinct classes... The individual as envisaged in Neoclassical economics is a rather one-dimensional being - a 'pleasure machine', as he was called, devoted to the maximisation of pleasure (utility) or the minimization of pain (disutility), usually in narrowly defined material terms.'
 In his General Theory of Employment, Interest, and Money (1936), Keynes describes how investor expectations of future yields - which are key to determining the rate of new investment, and therefore rising output/incomes and employment - are 'subject to sudden and violent changes.' When there is a 'sudden collapse' in the marginal efficiency of capital a fall in income/output and employment follows. The marginal efficiency itself is partly determined by investor expectations, themselves based on current yields. The marginal efficiency determines the demand and the rate of interest the supply of loanable funds. (Kindle loc: 1969-1970) When current yields decline, an atmosphere of pessimism sets in. 'Dismay and uncertainty' cause 'a sharp increase in the liquidity-preference [or demand for cash over fixed investment] and hence a rise in the rate of interest.' (Kindle loc: 3903-4) A 'far-reaching change in the psychology of investment markets ' is all that can offset this catastrophic decline in investment, the fall investment and the decline in aggregate demand that comes with it. 'Once doubt begins it spreads rapidly,' Keynes argues. Because of this the task of 'ordering the current volume of investment cannot safely be lef tin private hands.' (Kindle loc: 3960) This psychological element of expectations tacitly permits a macro-economic theory of boom and bust to be developed that, while depending on state intervention to lift entrepreneurs' 'animal spirits', conceives of no necessary reason for low expectations to be irremediable.
 Marx's analysis in Capital dedicates itself explicitly to the discovery of the 'fundamental laws of motion of the capitalist mode of production.' Marx identified as central to his economic theory the tendency of the profit rate to decline, whereby the value of the organic composition of capital rises relative to the value of variable capital. Though Marx was clear that capitalism was a system based on constant productive innovation, it is only later economists working in a Marxist tradition (Hilferding, Luxemburg) who defined capitalism's 'epochs' or 'eras ' of development.
 Lapavitsas, Profiting Without Producing: How Finance Exploits Us All, Kindle loc 538-42:' 'First, non-financial enterprises have become broadly involved in the realm of finance... Second, banks have directed their actions toward trading in open financial markets and dealing with households. Third, individuals and households have become heavily implicated in finance in terms of both borrowing... and holding assets. '
 Lapavitsas, Profiting Without Producing: How Finance Exploits Us All, Kindle loc 5286-90
 Lapavitsas, Profiting Without Producing: How Finance Exploits Us All, Kindle loc 6085-90
 Lapavitsas, Profiting Without Producing: How Finance Exploits Us All, Kindle loc 6524
 Galbraith, J.K., Money: Whence It Came, Where It Went, 14
 Panitch & Gindin, the Making of Global Capitalism, 145
 Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, p.4
 Blyth, Austerity: The History of a Dangerous Idea, 87
 Writers from the left (Danny Dorling, Inequality & the One Percent), the liberal centre (Joseph Stiglitz, The Price of Inequality), and the right (Ferdiand Mount, The New Few) agree on the trend, if not its causes or how to deal with it.
 Liberal and centrist economists like Joseph Stiglitz, Paul Krugman and Barry Eichengreen tend to focus myopically on the negative outcomes of public policy on a passive substance they simply term' 'the market.' See: Stiglitz, The Price of Inequality, Eichengreen, Hall of Mirrors: The Great Depression, The Great Recession, and the Uses-and-Misuses of History, Krugman, End This Depression Now
 Streeck, Re-Forming Capitalism: Institutional Change in the German Political Economy, p.226:' 'Everywhere... organized labour and business were losing members; collective bargaining was becoming more decentralized and fragmented...; social policy was cut back and became increasingly privatized; government spending hit a limit... large chunks of the public infrastructure were sold off...; and markets, firms, and production extended beyond national borders. '
 Galbraith, The End of Normal, p.102
 ibid. p.105
 ibid., p.141
 Lapavitsas & Flassbeck, Against the Troika, Kindle loc. 483-85
 Galbraith, The End of Normal, p.177