Chris Harman

Zombie Capitalism

Part Three: The New Age of Global Instability

* * *

Financialisation and
the Bubbles That Burst

Credit crunched

The mood was one of “exuberant optimism”, as the world business elite gathered in the Swiss resort of Davos in January 2007 to “enjoy” what the Financial Times called “the opportunities brought about by globalisation, new technologies and a world economy that is expanding at its fastest pace for decades”. [1] The mood was rather different at their next gathering in January 2008. There was “grim determination” [2] – grim because the global financial system had begun to grind to a halt with a “credit crunch”; determination because the “real economy” was still expanding and it seemed that appropriate government action would get the banks lending again.

Governments took action in the months that followed. In January central banks slashed interest rates. In February the British government nationalised the mortgage bank Northern Rock; in March the US Federal Reserve provided $30 billion for J.P. Morgan Chase to take over the failing Bear Stearns bank; in April and May central banks on both sides of the Atlantic provided hundreds of billions to the banks to keep them going, and in July they provided hundreds of billions more; early in September the US government took over the giant mortgage lenders Fannie Mae and Freddy Mac in what the former government adviser Nouriel Roubini described as “the biggest nationalisation humanity has ever known”. [3]

It was all to no avail. The collapse of one of the pillars of the US’s financial system, the investment bank Lehman Brothers, on 15 September caused what was generally called a “financial tsunami”. Bank after bank in country after country came close to collapse and had to be rescued by government bail-outs that cost further hundreds of billions and often involved partial nationalisation. The credit crunch had become the most serious financial crisis the global system had known since the slump of the 1930s. By end of the year it was clear to everyone that it was more than just a financial crisis. Tens of thousands of jobs were being lost every day in all the major economies; world trade was falling at an annualised rate of 40 percent, and the IMF was predicting “the sharpest recession since the Second World War for the rich countries”. [4] But it was not only the rich countries which were affected. South Korea, Malaysia, Thailand and Singapore suffered sharp economic contraction; 20 million Chinese workers lost their jobs as its exports fell and its real estate bubble collapsed; Russian ministers began to fear a new crisis; Brazil’s industrial output started falling; the economic recovery of Eastern Europe came to a sudden halt as millions of people found they could not keep up with their mortgage payments to West European banks. At Davos in January 2009 there were “ever more doom-laden prognoses”. [5]

The rise of finance

The crisis followed a quarter of a century in which finance had grown on a massive scale to play an unprecedented role in the system. The stock market valuation of US financial companies was 29 percent of the value of non-financials in 2004, a fourfold increase over the previous 25 years [6]; the ratio of financial corporations’ to non-financial corporations’ profits had risen from about 6 percent in the early 1950s through the early 1960s to around 26 percent in 2001 [7]; global financial assets were equal to 316 percent of annual world output in 2005, as against only 109 percent in 1980 [8]; household debt in the US was 127 percent of total personal income in 2006 as against only 36 percent in 1952, around 60 percent in the late 1960s and 100 percent in 2000. [9]

The growing role of finance had its impact throughout the global economy. Every upturn in the recession-boom cycle after the early 1980s was accompanied by financial speculation, causing massive rises in the US and British stock markets in the mid-1980s and mid-1990s, the huge upsurge of Japanese share and real estate prices in the late 1980s, the dotcom boom of the late 1990s, and the housing booms in the US and much of Europe in the early and mid-2000s. Along with these went successive waves of takeovers and mergers of giant companies, financed by credit, from the buyouts of firms like RBS Nabisco in the late 1980s through to the wave of takeovers of old-established companies by private equity funds in the mid-2000s.

Meanwhile general levels of indebtedness tended to grow for governments, non-financial corporations and consumers alike, as bank lending rose much more rapidly in most parts of the world economy than did productive output. It doubled in the US and trebled in Japan in the 1980s; the US boom of the mid-90s was accompanied by an extraordinarily high level of borrowing by firms and consumers; the housing and property booms of the mid- 2000s were similarly sustained by massive borrowing in the US, Britain, Spain and Ireland.

The impact of finance on the less industrialised countries was already very marked by the 1980s. The loans of the late 1970s had created a never ending dependence on further borrowing from financial institutions in order to keep servicing existing debt. By 2003 the total external debt of sub-Saharan Africa stood at $213.4 billion, that of Latin America and the Caribbean at $779.6 billion, and of the South as a whole at $2,500 billion. [10]

Overall the role played by finance within the system was much greater than in either the depression years of the 1930s or the boom years of the early post-war decades. In those decades the banks had certainly not played the central role Hilferding had ascribed to them at the beginning of the century with his concept of “finance capitalism” (see Chapter Four). In the US the big industrial corporations relied on their own internally generated revenues for investment funds; in Japan and Germany the banks played a greater part, but it was one of aiding the expansion of favoured sections of industrial capital. It was with the ending of the long boom that finance seemed to break the bonds that had bound and subordinated it to industrial capital. By the 1980s funds worth billions – and later hundreds of billions – of dollars were moving into and out of economic sectors and particular countries, cherry picking the most profitable outlets for investment before moving on elsewhere, often leaving economic devastation in their wake.

Finance began to impact directly on the lives of the world’s workers in a way in which it had not previously. Most people until the 1980s were paid wages in cash every week; now the norm was payment into bank accounts. The spread of home purchase in countries like Britain or the US from a third to two thirds of households provided a new destination for lending – and the diversion of part of wages and salaries into interest repayments. Insurance and private pension schemes likewise spread the tentacles of finance into wider sections of the population than ever before. Credit in the form of mortgages and hire purchase agreement was already important in the 1930s, but it was only in the 1980s that indebtedness began to become central in maintaining people’s regular living standards. For the majority of workers in the US or Britain, the mortgage and the credit card became part of everyday life, while governments almost everywhere preached the virtues of depositing regular savings into financial institutions as the way for the workers and middle classes to provide themselves with pensions in their old age. As Robin Blackburn has shown, pension contributions fed into the mushrooming expansion of a financial system over which the contributors had no control. [11]

This rise of finance was accompanied by a great increase in the frequency of financial crises. As Andrew Glyn said in Capitalism Unleashed, “Crises involving banking crises, which had almost died out in the Golden Age, reappeared in strength from 1973 onwards and became practically as frequent after 1987 as during the inter-war period.” [12] Martin Wolf noted “100 significant banking crises over the past three decades”. [13] Yet after each crisis the system as a whole seemed to revive again, so that on the eve of its greatest crisis there was talk of record growth rates and predictions of ever faster growth in the future. Finance, in fact, acted like a drug for the system, seeming to give it great energy and creating a sense of euphoria, with each brief hangover being followed by a further dose until the metabolism as a whole suddenly found itself being poisoned.

The debt economy and the great delusion

The growth of finance was never something separate from what was happening to the productive core of the system, but was a product on the one hand of its internationalisation, on the other of the long drawn out slowdown in accumulation.

The first big growth of international finance in the 1960s was a result of the way the growth of international trade and investment – and US overseas military expenditure associated with the Vietnam War – led to pools of finance (“Euromoney”) which had escaped the control of national governments. The next big growth came with the recycling of massively expanded Middle East oil revenues through the US banking system – revenues that were a product of the increased dependence of productive capital on Middle East oil.

The restructuring of productive capital took place increasingly, as we have seen, across national borders, even if mostly it was regional, not global, in scope and did not measure up to much of the hype about globalisation. But industry could not restructure in this way without having financial connections across borders. It required international financial networks if it was to repatriate profits or establish subsidiaries elsewhere in the world. An important source of profit for some sections of financial capital lay in the fees to be gained by overseeing acquisitions and mergers of productive firms, and that meant there was a gain to be made in operating multinationally before they did. As in Marx’s description of finance in his day, it led the way in encouraging productive capital to reach out beyond its established bounds.

Multinational productive capital, in turn, opened up new vistas for multinational financial transactions. The success of the Japanese car industry in penetrating US markets in the late 1970s laid the ground for the flow of Japanese finance into both productive investments (car plants) and real estate speculation in the US. And the flows of funds and commodities within multinational corporations provided conduits by which financial transactions could if necessary escape governmental control.

As chains of buying and selling grew longer than ever, so did the chains of borrowing and lending – and with them the opportunities grew ever greater for financial institutions to make profits through borrowing and lending that had no immediate connections with processes of production and exploitation. This took place in a wider context which made the search for profit through finance increasingly attractive to capitalists of all sorts – the fall in profit rates from their level in the long boom (as described in Chapters Eight and Nine). Capitalism internationally went through nearly four decades in which profitability was substantially lower, even in its period of recovery, than that which had enabled it to expand production and accumulate so rapidly previously.

Profitability did not collapse completely, and there was a continuous growth of a mass of past surplus value seeking opportunities for fresh profitable investment. But there were not nearly as many of these in productive sectors as previously. One consequence, as we have seen, was a general slowdown in the level of accumulation and decline in average growth rates. Fairly fast growth of productive sectors would occur in one part of the world economy or another – in Brazil and the East Asian NICs in the late 1970s, in Japan and Germany in the 1980s, in the US and the East Asian NICs again in the mid to late 1990s, in China and to a lesser extent the other BRICS in the 2000s. But profitability was not sufficient to raise productive accumulation throughout the system as a whole to its previous levels.

There were increased competitive pressures on individual firms to undertake large individual investments so as keep ahead of rival firms, but there was less certainty than before about being able to make a profit on those investments. Firms, wealthy individuals and investment funds reacted by being cautious about committing themselves to such investments lest it leave them without ready cash (“liquidity” in financial parlance) next time there was a crisis. The result was an inevitable tendency for the average level of productive investment to fall.

Growth of private sector real
non-residential capital stock
in industrial countries


5.0 percent


4.2 percent


3.1 percent


3.3 percent

These figures, it should be noted, understate the slowdown in productive investment, since a growing share of investment went into the non-productive financial sphere. And it was not only in the old industrial countries that a falling share of surplus value went into productive investment. The “tigers”, the NICs and the BRICS drew a sharp lesson from the Asian crisis of 1997–8. They were not willing to risk being stuck again with a shortfall of ready cash the next time international instability hit their markets, and built up surpluses on foreign trade that they saved rather than invested domestically. Even China ended up with an excess of saving over investment equal to 10 percent of its national income, despite its virtually unprecedented rate of accumulation.

Globally this meant there was a growing pool of growth of money capital – money in the hands of productive as well as nonproductive capitals – searching for outlets that seemed to promise higher levels of profitability. Hence the pressure on firms to deliver short-term rather than long-term profits. So too the succession of speculative bubbles and the repeated “Minsky” shifts from speculation to Ponzi schemes in which financiers used the money entrusted to them by some investors to pay off other investors and line their own pockets. [15] All sorts of speculative, unproductive activities flourished, from pouring money into stock markets or real estate to buying oil paintings by old masters. In each case, the rush of speculators into buying things in the expectation of rising prices was, for a time, a self-fulfilling prophecy. As they outbid each other, prices did indeed rise. In this way the ups and downs of the productive part of the system found a magnified reflection in the ups and downs of various other assets. The financial system expanded as a consequence, since it played a key part in collecting together the funds for speculation, and could then use the assets whose value had increased because of speculation as collateral for borrowing more funds.

There developed a mass of capital wandering round the world looking for any opportunity where it seemed there might be profits to be made. Already in the economic recovery of the late 1980s:

Financial activity became frenetic, with stock and share and property values soaring upwards ... Property speculation rose to new heights, and private borrowing reached record levels in the US, Britain, and Japan ... There was real industrial growth, but it was dwarfed by the expansion of the property markets and by various forms of speculative activity ... General business investment grew considerably faster than manufacturing investment – in sharp contrast to the 1960s and early 1970s, when manufacturing grew at the same speed. The growth of manufacturing investment was about a third lower in the US and Japan, and about two thirds lower in Europe, than in the earlier period. [16]

Robert Boyer and Michael Aglietta have accurately described what happened during the next US boom, in the mid and later 1990s:

Overall demand and supply are driven by asset price expectations, which create the possibility of a self-fulfilling virtuous circle. In the global economy, high expectations of profits trigger an increase in asset prices which foster a boost in consumer demand, which in turn validates the profit expectations ... One is left with the impression that the wealth-induced growth regime rests upon the expectation of an endless asset-price appreciation ... [17]

The growth of multinational finance increased the instability of the system, but did not cause it. Enhanced instability in turn encouraged productive firms to seek speculative profits in a way that further boosted the financial sector and added still more to the instability.

A prime example of this was the rise of the derivatives markets. Their original function was to provide a sort of insurance against sudden changes in interest or exchange rates. This was an extension of the long established practice of buying and selling “forward” – agreeing now on a price to be paid at some specified point in the future for some commodity. Now derivatives developed into elaborate systems of payments for options to buy and sell currencies or to lend or borrow money at various rates at different times in the future. In doing so, they provided productive firms with some protection against their calculations of future competitiveness and profitability being upset by sudden changes in various markets – and became an integral part of normal business for many companies. [18] But that was not the end of the matter. The derivatives that provided that protection could themselves be bought and sold, and it was then possible to gamble on changes that would take place in their prices if exchange or interest rates went up or down. Hedge funds, working with money provided by rich individuals putting in a few million dollars each, found they could make very large profits by borrowing in order to make such bets, assuming (as every poor gambler does) that they were bound to win.

The reliance on derivatives was not the only way in which the boundaries between productive capital and the financial sector were eroded. Many industrial concerns began to look to finance as a way of profit making. In the 1990s both Ford and General Motors turned towards financial activities such as “leasing, insurances, car rental”, so that “during the boom 1995–98 a third of the [Ford] group’s profit accrued from services”. [19] The Economist has told of the US’s currently biggest manufacturing firm, General Electric, that its “profits grew with the sort of predictable consistency ... made possible by ... making good any unexpected shortfall with last-minute sales of assets held by the firm’s notoriously opaque finance arm, GE Capital,” which was responsible for “40 percent of GE’s revenue”. [20]

As capitalism in all its forms turned to financial operations to complement productive operations from the early 1970s, governments came under pressure to abandon controls imposed on financial transactions. For a time governments still committed to the state capitalist or Keynesian notions of the previous period attempted to hold the line against the way finance could well over national borders. But one by one they gave up the attempt, partly because they saw old controls of currency and capital movements as ineffective, partly because, accustomed to adjusting their horizons to what capital said was possible, they were won over to the idea that this was the only way to achieve a new cycle of capital accumulation. The approach of those who had started off on the social democratic left was that if you could not beat them, then join them.

Usually the speculation was in non-productive spheres – repeated stock exchange and real estate bubbles. But occasionally it focused on some area where they believed there was profit to be made by productive investment. As the Financial Times told of the late 1990s:

Spending on telecoms equipment and devices in Europe and the US amounted to more than $4,000 billion. Between 1996 and 2001 banks lent $890 billion in syndicated loans ... Another $415 billion of debt was provided by the bond markets and $500 billion was raised from private equity and stock market issues. Still more came from profitable blue chips firms that drove themselves to the brink of bankruptcy or beyond in the belief that an explosive expansion of internet use would create almost infinite demand for telecoms capacity. The global financial system became addicted to fuelling this bonfire. Nearly half European bank lending in 1999 was to telecoms companies ... about 80 percent of all the high-yield, or junk, bonds issued in the US were to telecoms operators. Five of the ten largest mergers or acquisitions in history involved telecoms companies. [21]

The fact that there was a productive element to this boom added to the great illusion that it could go on forever. But the boom was based on speculation, ascribing massive exchange value to products for which the current use value was very limited. So much “band width” had been created, the Financial Times said, that:

if the world’s 6 billion people were to talk solidly on the telephone for the next year, their words could be transmitted over the potential capacity within a few hours ... [only] 1 or 2 percent of the fibre optic cable buried under Europe and North America has even been turned on. [22]

The telecoms boom inevitably collapsed, causing widespread disarray. By the beginning of September 2001 (before the 9/11 attack which is usually blamed for that year’s recession) the “stock market value of all telecom operators and manufacturers” had “fallen by $3,800 billion since its peak in March 2000” and “probably $1,000 billion” had gone “up in smoke”. [23]

Faced with the collapse of this bubble into productive investment, it is perhaps not surprising that the next bubble would be around something that seemed to be ... “as safe as houses”. During the recovery from the 2000–2 recessions those with money (old fashioned banks, newer financial groups such as hedge funds, and rich individuals with a few million in ready cash) found they could expand their wealth by borrowing at low interest rates in order to lend to those prepared for, or conned into, paying higher interest rates. Bits of various loans were then parcelled together into “financial instruments” to be sold at a profit to other financial institutions which in turn would sell them again. Those at one of end of the chain of lending and borrowing would not have the remotest idea where interest was coming from at the other end. In fact, many of those expected to pay it were poorer sections of the American population desperate to get somewhere to live but previously regarded as uncreditworthy. They were lured into taking out mortgages with “tickler” fixed term low rates of interest which could then suddenly be increased after two or three years. Rising house prices were supposed to make lending to them safe, since if they defaulted on their loans their homes could be repossessed and sold at a handsome profit. The fact that it was precisely the willingness of financial institutions to bid against each other to offer loans to buy houses that was raising the prices – and that prices would inevitably fall if they all began repossessing – was something that escaped the notice of the geniuses who ran these institutions.

The more corporations inflated their wealth by losing touch with reality the more they were honoured. The British bank Northern Rock was “the toast of a glitzy City dinner where it was heaped with praise for its skills in financial innovation”. [24] Gordon Brown praised the “contribution” of Lehman Brothers “to the prosperity of Britain”. [25] Ramalinga Raju was named India’s “Young Entrepreneur of the Year” and awarded the Golden Peacock award by the World Council for Corporate Governance just months before it was revealed that he had defrauded his own company of one billion dollars.

Again it has to be stressed that the speculative ventures of these years did not just involve financial capitalists. Industrial and commercial capitalists took part. More than half the supposed growth in the worth of the whole of the non-farm, non-financial corporate sector of the US in 2005 had been due to inflation in its real estate holdings. [26]

The finance-led bubbles were not, however, just important as a source of profits for the supposedly productive sector of the economy. They were also central in ensuring it had markets that neither its own investment nor what it paid its workers could provide. This was true of the bubbles of the 1980s and 1990s. The combination of reduced investment and attempts to hold down wages in the old industrial countries (and success in cutting them in the US) made consumer debt increasingly important in providing demand for output. It was even truer in the early and mid-2000s. Without the “housing” and “subprime mortgage” bubble there would have been very little recovery from the recession of 2001–2.

These were years in which the real earnings of workers in the US, Germany, France and some other countries tended to fall. They were also years in which productive investment was low in all the “old” capitalisms. “Investment rates have fallen across virtually all industrial country regions”, said one IMF study. [27] Another report, for J.P. Morgan, told in 2005:

The real driver of this saving glut has been the corporate sector. Between 2000 and 2004, the switch from corporate dis-saving to net saving across the G6 [France, Germany, the US, Japan, Britain and Italy] economies amounted to over $1 trillion ... The rise in corporate saving has been truly global, spanning the three major regions – North America, Europe, and Japan. [28]

In other words, “instead of spending their past profits”, US businesses were “now accumulating them as cash”. [29]

A low level of investment combined with falling real wages would, in normal circumstances, have resulted in continued recession. What prevented that was precisely the upsurge of lending via the financial system to American consumers, including the recipients of subprime mortgages. It created a demand for the construction and consumer goods industries – and via them for heavy industry and raw materials – that would not otherwise have existed. Recovery from the recession depended on the bubble, what the Italian Marxist Riccardo Bellofiore has aptly called “privatised Keynesianism”. [30]

The productive capitalists who were the beneficiaries of the operation were not just to be found in the US and Europe, but also across the Pacific in East Asia. Japanese industry, still suffering from the decline in profitability in the early 1990s, staged some recovery by exporting hi-tech equipment to China which then used it (along with components from the other East Asian states and Germany) to build up ever greater exports to the US. And it was the surpluses on their trade with the United States that Japan, China and the other East Asian economies deposited in the US, which helped finance the bubble and so provided a boost to the whole world economy, including their own part of it.

As Martin Wolf rightly commented, “Surplus savings” created “a need to generate high levels of offsetting demand” [31], and lending to poor people provided it: “US households must spend more than their incomes. If they fail to do so, the economy will plunge into recession unless something changes elsewhere” [32]; “The Fed could have avoided pursuing what seemed like excessively expansionary monetary policies only if it had been willing to accept a prolonged recession, possibly a slump”. [33] In other words, only the financial bubble stopped recession occurring earlier. The implication is that there was an underlying crisis of the system as a whole, which could not have been resolved simply by regulating financiers.

Wolf and others who emphasised the imbalances in the global productive economy did not locate their roots in problems of profitability. To have done so would have required at least half a turn from neoclassical economics to classical political economy, and especially to Marx. But low profitability was, as we have seen, behind the slowdown in productive accumulation in North America, Europe and Japan, while the partially successful attempts to sustain profits at the expense of wages were responsible for the increasing dependence of consumption on debt. It was also the attempts to maintain profitability in the face of an ever greater piling up of fixed capital that led to the holding back of consumption in China – and, as part of doing so, efforts to stop any rise in the international value of the yuan. And the memory of the crises of the 1990s taught the other BRICS and NICs that their own economies’ profitability was not high enough to protect them from global instability, leading them, too, to pile up surpluses. In general, it can be said that the different sectors of world capitalism would not have become dependent on the bubble had profit rates returned to the levels of the long boom.

Financialisation provided a substitute motor, in the form of debt, for the world economy in the decades after the US arms economy lost a good part of its effectiveness. The permanent arms economy had to be supplemented by the debt economy. But by its very nature a debt economy could not be permanent. The massive profits that banks make during any bubble represent claims on value produced in the productive sections of the economy. When there is a sudden decline in the prices of the assets they have previously bid up (in the housing, property, mortgage and share markets) they discover those claims are no longer valid and that they cannot pay their own debts unless they get cash from elsewhere. But the very process of trying to raise cash involves selling further assets; as all banks do so, asset prices decline still more and their individual balance sheets deteriorate further. The bubble bursts and the boom turns into a crash.

As Marx put it:

All this paper actually represents nothing more than accumulated claims, or legal titles, to future production whose money or capital value represents either no capital at all ... or is regulated independently of the value of real capital which it represents ... And by accumulation of money-capital nothing more, in the main, is connoted than an accumulation of these claims on production. [34]

What happened through the early and mid-2000s was that the banks assumed that these claims were themselves real value and entered them in the positive side of their balance sheets. A chastened Adair Turner, former head of the British employers’ CBI and former vice-chairman of Merrill Lynch Europe, recognised after the event, “The system in total has become significantly more reliant on the assumption that a very wide range of assets could be counted as liquid because they would always be sellable in liquid markets.” [35] Profits were measured according to “mark to market” valuations of assets – that is, according the level to which competitive bidding had raised them. But once there was a decline in the mortgage and property markets, financiers had to try to cash their assets in if they were not going to go bust – and found they could not. This is what the process which goes under the name of “deleveraging” was about.

Martin Wolf again described what was happening accurately:

The leverage machine is operating in reverse and, as it generated fictitious profits on the way up, so it takes those profits away on the way down. As unwinding continues, highly indebted consumers cut back, corporations retrench and unemployment soars. [36]

Hence the first moment of truth of August 2007, when some of the hedge funds controlled by banks discovered they could not pay their debts and banks stopped lending to each other out of fear they would not get their money back. Hence the failure of the hundreds of billions poured into national banking systems to prevent the second moment of truth in mid-September 2008 when the collapse of Lehman Brothers was followed within days by the threatened collapse of banks in nearly all the major Western states (AIG in the US, HBOS in Britain, Fortis in Belgium and the Netherlands, Hypo Real Estate in Germany, the three major Irish banks, the Icelandic banks). Hence the way in which in the two months that followed even banks which thought they had gained from the problems of their competitors were in dire trouble – Citibank (the world’s biggest) and Bank of America in the US, Lloyds in Britain.

Hence, finally, it was clear the crisis was no longer just one of finance. The vast expansion of finance had created the illusion of a new “long upturn” in productive accumulation; the crisis of finance made that illusion disappear with traumatic effects. There was “a week of living perilously” in November as “panic seized the markets”. [37] In the US Chrysler lost millions by the day, General Motors said it needed $4 billion immediately to avoid bankruptcy and Ford joined in asking for a $34 billion government handout. In Britain, Woolworths and MFI went bust. The toll of sackings in every sector began to compare with the haemorrhaging of jobs in the crisis of the early 1980s. And the pain was felt not merely on both sides of the Atlantic, but on both sides of the Pacific too.

In the spring of 2008 the dominant theme in mainstream economic commentary had been that a “decoupling” of different national economies would enable Asia to keep expanding at its old speed while Europe and America suffered. By new year 2009 the recession had spread to Japan, where car output fell at a record rate, to China, where there were thousands of factory closures in the south east [38], and to India, where a business lobby group warned that 10 million manufacturing jobs could be lost as exports collapsed. [39] The victims of the Asian crisis of 1997 – Thailand, South Korea, Singapore, Malaysia, Indonesia – were battered once again. So too were the victims of the slump which swept the former Eastern bloc from the late 1980s onwards – the Baltic states, Ukraine, Hungary, Bulgaria, Romania. In Russia the collapse of the record world oil prices of only six months before led to a fall in the value of the rouble, escalating inflation and a renewed spread of poverty.

Financialisation and the debt economy had proved incapable of moving world accumulation forward at its old speed in the 1980s, 1990s and mid-2000s. It had faltered every few years and, at the end, threatened to fail completely, leading to a crisis of unpredictable depth. Governments which in words, if not in practice, had insisted that the free market could be left to cure its own faults, were now faced with the grim reality that left to itself capitalism could, as in the 1930s, threaten to fall into a catastrophic slump, with the collapse of each giant firm ricocheting through the economy and leading to the collapse of others.

Urged on by some of the giant corporations, states saw no alternative but to intervene in the economy on a scale unprecedented except under circumstances of total war. So it was the Bush administration, the most right wing in the US for 75 years, that effectively nationalised the mortgage corporations Fanny Mae and Freddy Mac early in September. There was one last attempt to rely on the market when it allowed Lehman Brothers to go bust – a decision praised by the Financial Times editorial as a “courageous” and a “risk that might well pay off”. [40] The disastrous outcome left states with no choice not only to attempt one and half trillion dollar bail-outs, but in effect to partially, and sometimes completely, nationalise not just relatively small banks like Northern Rock and Bradford & Bingley in Britain, but some of the giants. As they did so, their advisers began to ponder whether the only solution to the crisis might be the nationalisation of whole banking systems. State capitalism, and its ideological correlate, Keynesianism, was making a massive comeback after being hidden in an ideological closet for a generation.

Finance and “financialisation”

The great crisis that erupted in 2007 led those who had rejoiced at the wonders of capitalism during the great delusion to try to pin the blame on something other than capitalism as such. The easiest way to do this was to see the “the banks” and “finance” as detached from the rest of the capitalist system. French president Nicolas Sarkozy went to a G7 meeting in January 2008 declaring that “something seems out of control” with the financial system and calling for increased controls over it. [41] All accounts of the Davos World Economic Forum in 2009 told of the deep unpopularity of the banks with the representatives of multinationals and governments: “The audience cheered in one debate when Nassim Nicholas Taleb, author of The Black Swan, said it was time to punish bankers by forcing them to hand back bonuses.” [42]

Such arguments led to a simple conclusion: the way to prevent future financial crises was greater regulation of finance. Such was the response of many mainstream economists – former monetarists and moderate Keynesians alike, with repeated discussions in the pages of the Financial Times over the degree of regulation that was possible and necessary. This was also the response of some analysts on the reformist left. Robert Wade of the LSE could provide riveting accounts of the absurdities of finances that led to the crisis and then conclude that greater controls could stop them. [43] Larry Elliot and Dan Atkinson in their book The Gods that Failed blamed “the gods of finance”, called for increased regulation and a breaking up of the gigantic financial institutions, and then saw some hope in a meeting of G7 policy makers early in 2008 that contemplated “measures to rein in the turbo charged financial interests”. [44]

Rather further to the left the rise of finance had already led to the re-emergence of the old notions of Hobson, Hilferding and Kautsky of “finance” or “finance capital” as having distinct interests from productive capital. The French campaigning organisation ATTAC had started life in the late 1990s committed to opposition to financial speculation, not to capitalism as such. [45] Its central demand was for a “Tobin tax” on movement of financial funds across national borders. This, it was claimed, would counter financial crises. Such “finance is to blame” arguments found a resonance among many radical Marxists. Duménil and Lévy wrote of “neoliberalism” as “the ideological expression of the reasserted power of finance” which “dictates its forms and contents in the new stage of internationalisation. [46] James Crotty’s tone was very similar, arguing that “financial interests have become much more economically and politically powerful, and ... these trends have been coterminous with a deterioration in real economic performance”. [47] François Chesnais wrote of “a globalised regime of financially dominated accumulation” [48], in which “the movement of money capital has become a fully autonomous force vis-à-vis industrial capital”, forcing it either to accept a “deep interpenetration with money capital, or to submit itself to its exigencies”. [49] He took up the expression of Mabie, Barre and Boyer, according to which “bad capitalism” had been able to chase out “good”. [50] Chesnais as a revolutionary socialist did not himself regard the old form of capitalism as “good” (hence his putting the word between quote marks). But he did argue that finance was to blame for the “mediocre or poor dynamic of investment ...” [51] A similar emphasis on finance having interests strongly opposed to those of productive capital was to be found in Peter Gowan’s The Global Gamble, a very useful account of US capitalism’s attempt to maintain global hegemony. He argued that “some of the sharpest conflicts within capitalist societies have occurred ... between the financial sector and the rest of society”. [52]

The accounts of “financialisation” varied considerably in their detail. But they all shared a contention that the “dominance” of “finance” led to a shift in the dynamic of the system. Productive capital, it was argued, was concerned with productive accumulation. In the early post-war years this had occurred across the industrial world, even if it was organised differently in the US and Britain, where industrial corporations had used internally generated profits in order to undertake long-term investments, and in Japan and West Germany, where collaboration with the banks had provided such investment. But the rise of big investment funds and the “dominance” of finance had changed that. The situation now was that all the pressure was on firms to deliver quick returns to shareholders (“shareholder value”) through high dividend payments and measures that ensured a high share price (so boosting shareholders’ capital gains), and on governments and national banks to keep interest rates high. Versions of this standpoint had been presented by Keynesian writers like Will Hutton and William Keegan in the 1990s to counterpose the “short-termism” of “Anglo-Saxon” capitalism to supposedly long-term, more investment oriented approaches of Japanese and German capitalisms. [53] Now it was extended to all the advanced industrial countries – with the partial exception of Germany. [54]

Crotty, Gerald Epstein and Arjun Jayadev referred to this as a growth of rentier incomes and “rentier power”. They were harking back to Keynes’s application of the term rentier to idle “gentlemen” who were receiving interest or dividends payments through the post for doing nothing. But now the rentiers were “mutual funds, public and private pension funds, insurance companies and other institutional investors”. [55]

Costas Lapavitsas, who provided excellent factual accounts of the development of the financial crisis of 2007–8, nevertheless put the stress in explaining it on purely financial aspects – in particular the changed behaviour of the banking system, which had shifted its lending from industry to lending to individuals and reliance on new computerised technologies. He argued that the “direct exploitation” of consumers by the banks had become a major new source of surplus value and influenced the dynamics of the system. [56] But this form of “exploitation”, like that caused by supermarkets forcing up prices [57], is only significant in so far as workers do not fight to protect the buying power of their wages at the point of production – something unions in Britain have usually tried to achieve by demanding wage increases linked to a Retail Price Index that includes mortgage interest payments. Or, as Marx would have put it, there is only increased exploitation in so far as the capitalists who employ workers get away with buying labour power at less than its value. [58] It is also worth adding that on Lapavitsas’s logic it is it not only workers who are exploited by the banks but also indebted members of the capitalist class and the new middle class – the median debt of households in the US with incomes of more than $100,000 in 2003 was about four and a half times that of households with incomes in the range of $25,000–$50,000.[59]

The “shareholder value” version of the financialisation argument has often been taken for granted. But it contains big gaps. Dick Bryan and Michael Rafferty have pointed out that:

the stock market should not be so heavily emphasised. It is, after all, a relatively minor forum for raising funds. Even in the so-called market-based systems such as the US, UK and Australia, retained earnings, loans and bond issues have been far more important ...

Furthermore, pension funds etc.:

rarely if ever play an active role in the managerial decisions of firms. Institutional shareholder pressure on company boards ... is the exception rather than the norm ... [60]

The fact that firms hand out a bigger portion of their profits as dividends need not in itself slow down the level of investment. The “rentier” shareholders can themselves lend a portion of their incomes back for further investment – and will do so if they think it is going to be profitable enough to do so. One proponent of the “shareholder value” interpretation, Stockhammer, admits that most economists hold that:

Financial investment is a transfer of assets, not a use of income. Buying stocks transfers liquidity from one economic agent to another, possibly from firms with bad investment opportunities to ones with good opportunities. Thus macro- economically financial investment cannot substitute for physical investment. [61]

And Crotty suggests at one point that “financialisation”, by increasing competition between firms, brings about more, “coerced”, investment. [62] Certainly, big financial institutions have nothing in principle against productive investment, even if finance did come to absorb a peak figure of 25 percent of total investment in the US in 1990 as against only 12 percent in the mid-1970s [63] and rose to close to half in Britain in the same period. [64] This was shown in the late 1990s when the dotcom/new technology boom saw industrial investment in the US financed by borrowing from the institutions as it soared ahead of savings.

The supposed dominance of finance over production is often traced back to the US Federal Reserve under Paul Volcker raising interest rates sharply in 1979. Boyer, Crotty, Chesnais, Duménil and Lévy all see this “Volcker coup” as a decisive point. Duménil and Lévy regard it as the great victory of finance, and argue this was why high interest rates were “maintained through the 1980s and 1990s”. [65] Implicit in such arguments is the suggestion that somehow finance in general and shareholders in particular had suffered through the decades of the long boom but were only able to express their feelings with the “coup” of the late 1970s. The argument simply does not fit the historical facts. The post-war decades were ones of enormous self-confidence among all sections of capitalism. The “golden age” for industrial capital was by no means a living hell for its shareholders and financiers. All gained as the growth of profitable productive investment translated into secure long-term capital gains.

There was some change with the crisis of the 1970s. The US’s bankers and multinationals did dislike the way the “macroeconomic” “Keynesian” response to the crisis of the 1970s led to inflation and devaluation of the dollar. But, as Robert Brenner points out, had such a policy solved the problems of profitability and industrial overcapacity for the rest of US capitalism, “it is quite conceivable that even the powerful coalition of international and domestic interests arrayed against it would have failed”. [66] In fact the Keynesian approach did not achieve these capitalist goals. Limited economic recovery from the recession of 1974–6 increased the level of inflation, which reached 13.3 percent. This had two negative consequences for all sections of US capital. It was likely to encourage workers to struggle over wages. And it was undermining the capacity of the US dollar to act as a measuring rod for US capitalists in their transactions with each other. Forcing up interest rates was meant to solve both problems – by reducing the level of economic activity to scare workers into accepting lower wage increases (which it did) and to reduce inflation (which it also did). This enabled some sections of finance to gain and induced a recession that damaged some sections of American productive capital. But it also served the general interests of all US capitalists.

As Marx had noted, capitalism needs money to act as a fairly stable measure of value, even if damage is done to society as a whole in order to achieve it:

Raising interest rates ... can be carried more or less to extremes by mistake, based upon false theories of money and enforced on the nation by the interest of money lenders ... The basis, however, is given with the basis of the mode of production itself. A depreciation of credit money would unsettle all existing relations. Therefore the value of commodities is sacrificed for the purpose of safeguarding the fantastic and independent existence of this value in money ... For a few million in money, many millions in commodities must be sacrificed. This is inevitable under capitalist production and constitutes one of its beauties. [67]

The suffering of many hundreds of millions as a result of the Volcker interest rate hike was a price worth paying to restore a relatively stable measure of value as far as US capitalism in its entirely was concerned – and helped cement its control elsewhere in the world. The “coup” by Volcker (and the turn to monetarism under Thatcher in Britain) consisted of turning away from one policy that was supposed to help restore the profitability of productive industry – expanding the money supply so as to allow prices and profits to rise – to another policy, that of encouraging interest rates to rise so as to squeeze out unprofitable firms and to put pressure on workers through unemployment to accept lower pay. Capital – and not just financial capital – was recognising that the Keynesian orthodoxies of the long boom could not cope with the new phase in which capital (including, not least, industrial capital) found itself.

When this manoeuvre produced only minimal results and it became clear that the high interest rates were beginning seriously to hurt US industry, Volcker cut them – not only under pressure from industrialists, but also from sections of finance. [68] The trend of real long term interest rates for the next quarter century was down, not up, although they remained above the level of the long boom until the year 2000, after which they fell to around 1 percent in 2003.

The whole claim that there are two distinct sections of capital – finance capital and industrial capital – is open to challenge. Many important financial institutions not only lend money, but also borrow it, since they are involved in “intermediation” between lenders and borrowers. What matters for them is not the absolute level of interest rates but the gaps that open up between different rates, particularly between long-term and short-term rates. And industrial concerns lend as well as borrow. Typically they accumulate surpluses between bouts of new investment, which they lend out in return for interest (see Chapter Three). They also advance credit to the wholesalers who take their produce off their hands. In short, industrial capital takes on some of the attributes of finance capital. As Makato Itoh and Costas Lapavitsas point out, “Revenue in the form of interest tends also to accrue to industrial and commercial capitalists, and cannot be the exclusive foundation for a social group.” [69] Thomas Sablowski – who accepts part of the “shareholder value” position – makes the point:

At the level of the common sense, it seems to be no problem to talk about finance and industry, like they were objects easily to distinguish. However, the definition of the concepts of industrial capital and financial capital is no easy task ... [70]

But if this is true, then it is difficult to see how the recurrent crises of the last four decades – financial and industrial – could simply be blamed on finance. A coherent explanation of the crises has to look at the system as a whole, and the way in which its different components react on each other. This is what Marx tried to do in a long, if rambling and unfinished, discussion of credit and finance in Volume Three of Capital. It is also what Hilferding attempted to do with the earlier chapters dealing with these questions in Finance Capital. These insights need to be developed to take account of the extraordinary development of finance, of financial institutions and of financial crises in the late 20th and early 21st century.

Ideology and explanation

Any great crisis does not just have economic consequences. It turns capitalist against capitalist as each tries to offload the cost of the crisis on others, just as it creates deep bitterness among the mass of the population. The crisis that began in 2007 fitted this pattern, and putting the blame on the banks was an escape route for all those who had argued so vigorously that neoliberalism and capitalist globalisation promised humanity a glorious future. So Gordon “the end of boom and bust” Brown argued that this was “a completely different sort of crisis” to those of the “previous 60 years”, since it was a “global financial crisis caused by irresponsible lending practices, laxity in them and problems of regulation”. [71] In this way, the reality of 180 years of periodic crises was shoved aside, in a desperate attempt to continue to extol the virtues of capitalism.

Those radical economists who put the stress on financialisation in creating the crisis risk opening the door to such apologies for the system. Their characteristic argument has been to claim that profit rates had recovered in the 1980s and 1990s sufficiently to have brought about a revival of productive investment were it not for the power of financial interests. Such was the argument of the French Marxist Michel Husson, when he claimed in 1999 that there were “high levels of profitability” [72], and Stockhammer and Dumenil were saying much the same thing in the summer and autumn of 2008. [73] If they were right, the crises which broke in 2001 and on a much bigger scale in 2007–8 would indeed have had causes very different to previous ones, including the inter-war slump, and greater control by the existing state over the behaviour of the financial sector would in the 21st century be sufficient to stop such crises. In accordance with such an approach, Dumenil and Levy described the “Keynesian view” as “very sensible” and looked to “social alliances” to “stop the neoliberal offensive and put to work alternative policies – a different way of managing the crisis”. [74]

Yet, as we have seen from the various profit rate calculations in Chapters Eight and Nine there seems little to justify claims that crises today have different roots to those in the past. The form of the crisis might be different each time to the last, but its impact will be just as devastating. No amount of regulation of finance alone will prevent a recurrence of crisis, and the cost to the capitalist state of trying to stop this can become almost unbearable.

It is true that “financialisation”, having risen out of a situation of low rates of profit and accumulation, fed back into both. There was enormous waste as labour and skills went into moving money from one pocket to another; as potentially productive material resources were used to build and equip ever more grandiose office buildings, and as the financial “Masters of the Universe” gorged themselves in conspicuous consumption. It may also be, as Ben Fine has argued, that financialisation had the effect of driving a “wedge ... between real and fictitious accumulation” [75], making it difficult for capitalists to see through the fog of the markets and recognise productive investment opportunities. But, ultimately, it was the deeper problems facing the productive sectors of capital that brought this situation about. Finance is a parasite on the back of a parasite, not a problem that can be dealt with in isolation from capitalism as a whole.

The contradictions of the new Keynesianism

The way the crisis was rooted in the economic system as a whole was shown by the sheer difficulties governments had in reacting to it. This was a crisis that hurt big capitals and not just those who laboured for them. Humpty Dumpty had indeed fallen off the wall. Yet it seemed that all the king’s horses and all the king’s men could not put him together again.

The response of virtually all governments to the crisis that erupted in 2007–8 was to turn away from the free market policies they had proclaimed for three decades as the only ones that would work. Overnight they ditched Hayek for Keynes and kept only that bit of Friedman that urged increasing the money supply to ward off deflation. [76]

But the conditions for applying Keynesian policies with any hope of success were worse than they had been when they had been tried and abandoned 30 years before. The known scale of the losses made by the banks dwarfed those of the mid-1970s – and no one knew, as each bank went bust, which other banks were owed money by it and might go bust too.

The promised bail-outs were massively bigger than those attempted by Roosevelt’s New Deal in the 1930s. US federal expenditure then peaked at just over 9 percent of national output in 1936. This time round it was already 20 percent before the crisis began, and the Bush and then the Obama administrations raised it several percentages more. But the levels of debt in the system that somehow had to be covered were also much greater if the financial system was to begin to function again. George Soros calculated “total credit outstanding” at 160 percent of gross domestic product in 1929, rising to 260 percent in 1932; in 2008 it was 365 percent and “bound to rise to 500 percent”. [77] The Bank of England estimated in the autumn of 2008 the global losses of the financial system to be as high as $2,800 billion. [78] Nouriel Roubini estimated the losses of the American banks alone at $1,800 billion early in 2009. [79] As governments poured in the money, mainstream economists offering advice debated with each other whether it would be enough to halt the transformation of recession into slump, whether governments would be able to raise the money without forcing up the interest rates they were trying to lower, whether they should turn to “quantitative easing” – that is, printing money – and whether any success with this might not risk bringing about a new inflationary spiral and an even greater slump. [80]

The problem did not just lie with the size of the banks’ losses. It also lay with the massive internationalisation of the system compared with either the 1930s or even the 1970s. The Keynesian remedies which were supposed to deal with the crisis were remedies to be applied by national governments, none of which had the resources to pay for all the losses of the global system of which they were part. The biggest states might conceivably be able to salvage a good part of their national financial system. But the problems even here were vast, and many of the smaller states had very little chance of coping.

The system in a noose

The crisis had revealed one of the great fault lines running through capitalism in the 21st century. The complex interaction of states and capitals which had been simplistically referred to as globalisation makes it much more difficult for national states to fulfil their function of aiding the gigantic capitals based within them just as the need for that aid becomes greatest. As Paul Krugman puts it, there are “major policy externalities”, since “my fiscal stimulus helps your economy, by increasing your exports – but you don’t share in my addition to government debt” and so “the bang per buck on stimulus for any one country is less than it is for the world as a whole”. [81]

It was a contradiction that inevitably led to deep political fissures within national ruling classes and to bitter divisions between the states which were supposedly cooperating to deal with the crisis. Domestically, sections of capitals complained bitterly in 2007–9 at the potential cost of bailing out other sections of capital, and internationally governments quarrelled with each other as the concentration of each on efforts to prevent the collapse of its nationally based capitals led to accusations of “financial protectionism”. As one observer told the Financial Times:

There is a very strong law of unintended consequences taking place after all the bank bail-outs. We will see more and more activist government policies that distinguish economic activities according to the nationality of the actors. It should be a big concern to everybody. [82]

At the time of the World Economic Forum in January 2009 Gordon Brown warned against “financial protectionism”, and he was then denounced in turn for that very sin as he pressurised British banks to lend domestically and not abroad [83]; the German government was criticised for not boosting its domestic economy but relying on exports to the countries that did; it in turn criticised the French and British rescue packages as a form of subsidy to their firms which would damage German interests; the new US government denounced China’s government for “manipulating” its currency to aid its industries; the Chinese government retorted that US finance had caused the whole mess [84]; and “less wealthy countries fretted” that the US would “use force majeure to soak up capital”. [85]

The ideologists of free trade warned that protectionism risked deepening the recession as the Smoot-Hawley Act in the US supposedly did in the summer of 1930 by raising tariffs on certain imports. As Peter Temin has noted, “The idea that the Smoot- Hawley tariff was a major cause of the Depression is an enduring conviction ... and has found its way into popular discussion and general histories.” [86] But he adds, “Despite its popularity, this argument fails on both theoretical and historical grounds.” Exports only fell by 1.5 percent of US GNP between 1929 and 1931, while “real GNP fell 15 percent in the same years”. [87] And the first real movement from the depths of the slump two and a half years later came after measures by Roosevelt which included putting national capitalist interests first with an effective devaluation of the dollar. Even more effective, as we have seen, were those measures taken by the Nazi state in Germany.

For those firms that produced mainly for the national market (the great majority in early 1930s), it was better to be in a protectionist state than a non-protectionist one. That was the rationale for state capitalism and its ideological correlates: Keynesianism, dependency theory and Stalinism. If the state could get control of the most important investment decisions in the national economy, it could assure that the mass of surplus value was absorbed in new accumulation even if the rate of profit continued to fall. This, however, was a policy that could only work up to the point at which the drive to accumulate collided with the restrictions imposed by the narrowness of national boundaries. This limitation showed itself in the drive of Germany and Japan to expand their national boundaries through war in the mid to late 1930s, in the declining effectiveness of the US arms economy by the early 1970s and in the crisis that tore the USSR apart in 1989–91.

Today the sheer scale of integration of national economies means that serious implementation of state capitalist solutions would cause enormous disruption to the system as a whole. Yet for national states simply to sit back and leave giant firms to go bust in the hope of crises liquidating themselves, as the Hayekians preach, would do even greater damage. The two long-term tendencies pointed to by Marx – for the rate of profit to fall on the one hand and for the concentration and centralisation of capital on the other – combine to put the whole system in a noose. The attempts of capitals and the states in which they are based to wriggle out of it can only increase the tensions between them – and the pain they inflict on those whose labour sustains them.

As states stepped in to intervene in the economy to cope with the crisis after October 2008, some sections of the left believed that the resurrection of Keynes meant the resurrection of the welfare policies of the long boom. In Britain, Ken Livingstone, former mayor of London, declared that the “economic assumptions of New Labour’s thinking ... have been abandoned”. Polly Toynbee proclaimed, “At last, the party of social justice has woken up ... The New Labour era is over.” Derek Simpson, joint general secretary of the biggest UK trade union, Unite, saw the pre-budget report as “a welcome warm up exercise after 30 years of inaction and neoliberal economics”. Yet reality soon proved otherwise. The government aimed to pay for a short-term economic boost with long-term cutbacks in expenditure on education, health and social services. The new Keynesianism for capital was combined with a continuation of neoliberalism for those who worked for it.

This was not a peculiarity of Britain. In every sector of the world system the attempt to deal with long-term downward pressures on profit rates continued to mean efforts to push through counter-reforms in working hours, welfare provision, wage rates and pensions. The push was intensified as global economic growth fell to zero and threatened to fall further. The turn to Keynesianism could neither restore the system to its old vigour nor serve the interests of the workers, the peasants and the poor.

The system was only able to recover from the crisis of the interwar years after a massive destruction of value through the worst slump capitalism had ever known followed by the worst war. The greater size and interconnectedness of capitals today means that the destruction of value would have to be proportionately greater to return the system to a new “golden age”. After all, even the bankruptcy of the world’s second biggest economy, that of the USSR, two decades ago had only marginal benefits for the rest of the system – a lower global price of oil than would otherwise have been the case and some cheap skilled labour power for West European firms.

It is necessary to repeat that this does not automatically mean endless slump. The limits on the degree to which some capitals can gain from the destruction of others do not mean that no gains at all are possible. The wiping out of many small and medium sized firms can provide some relief for the giant firms that states prop up. New bubbles and periods of rapid growth in one part of the world or another are not only possible but likely. But they will not involve the whole world economy moving forward uniformly and will only prepare the way for more burst bubbles and more crises. And the consequences will not only be economic.

* * *


1. Gideon Rachman, Financial Times, 29 January 2007.

2. Chris Giles, Financial Times, 5 February 2008.

3. Nouriel Roubini’s Global EconoMonitor, 7 September 2008, available at

4. Financial Times, 29 January 2009.

5. Chris Giles, Financial Times, 29 January 2009.

6. Andrew Glyn, Capitalism Unleashed (Oxford University Press, 2007), p. 52.

7. These figures are based on Robert Brenner’s calculations. Other estimates, for instance by Martin Wolf in the Financial Times (28 January 2009), arrive at a figure of 40 percent for the mid-2000s.

8. Michael Mah-hui Lim, contribution at conference on Minsky and the crisis, Levy Institute Report, 18:3 (2008), p. 6.

9. Sebastian Barnes and Garry Young, The Rise in US Household Debt: Assessing its Causes and Sustainability, Bank of England Working Paper 206 (2003), Chart Four, p. 13, available at

10. World Bank, Global Development Finance (2005).

11. Robin Blackburn, Banking on Death, or Investing in Life (London, Verso, 2002); Age Shock: How Finance Is Failing Us (London, Verso, 2007).

12. Andrew Glyn, Capitalism Unleashed, p. 69.

13. Martin Wolf, Financial Times, 15 January 2008.

14. Figures as given in Robert Brenner, The Economics of Global Turbulence, p. 282.

15. Named after an Italian American fraudster of the early 1920s. There is an early account of such a scheme in Charles Dickens’s Martin Chuzzlewit, written in 1844–5.

16. Chris Harman, Where is Capitalism Going?, International Socialism, 58 (1993).

17. Michel Aglietta, A Comment and Some Tricky Questions, Economy and Society, 39 (2000), p. 156. The discussion between Aglietta and Boyer was indicative of a situation where the Regulation School’s effort to explain the long-term trajectory of capitalism comes adrift. For a comment on it, see John Grahl and Paul Teague, The Regulation School, Economy and Society, 39 (2000), pp. 169–170.

18. For a full explanation see Dick Bryan and Michael Rafferty, Capitalism with Derivatives (Palgrave, 2006), p. 9.

19. Thomas Sablowski, Rethinking the Relation of Industrial and Financial Capital, paper given to Historical Materialism conference, December 2006.

20. Immeltdown, Economist, 17 April 2008.

21. Financial Times, 6 September 2001.

22. As above.

23. As above.

24. Financial Times, 15 September 2007.

25. Speech opening the London HQ in Canary Wharf in 2004.

26. Flow of Funds Accounts of the United States, Second Quarter 2007, Federal Reserve statistical release, p. 106, table R102. See

27. Marco Terrones and Roberto Cardarelli, Global Imbalances: A Saving and Investment Perspective, World Economic Outlook, International Monetary Fund, 2005, p. 92.

28. Corporates are Driving the Global Savings Glut, J.P. Morgan Research, J.P. Morgan Securities Ltd., 24 June 2005. See

29. Dimitri Papadimitriou, Anwar Shaikh, Claudio Dos Santos and Gennaro Zezza, How Fragile is the US Economy?, Strategic Analysis, The Levy Economics Institute of Bard College, February 2005.

30. Speech at the Historical Materialism conference, London, November 2007.

31. Financial Times, 22 January 2008.

32. Martin Wolf, Financial Times, 21 August 2007.

33. Martin Wolf, Financial Times, 22 January 2008.

34. Marx, Capital, Volume Three, p. 458.

35. Adair Turner, The Financial Crisis and the Future of Financial Regulation, The Economist’s Inaugural City Lecture, 21 January 2009, available at

36. Martin Wolf, A Week Of Living Perilously, Financial Times, 22 November 2008.

37. Martin Wolf, Financial Times, 23 November 2008.

38. Financial Times, 3 February 2009.

39. Quoted in Financial Times, 7 January 2009.

40. Financial Times editorial, 16 September 2008.

41. Quoted on Financial Times website, 29 January 2008.

42. John Gapper, Davos and the Spirit of Mutual Misunderstanding, Financial Times, 30 January 2009.

43. I heard him speak at the University of London’s School of Oriental and African Studies (SOAS) in late January 2008.

44. Larry Elliot and Dan Atkinson, The Gods that Failed (Bodley Head, 2008).

45. I shared a platform at a fringe meeting at the National Union of Students conference in 2000 with one of its leading figures who criticised me for talking of “anti-capitalism” on the grounds that neither of us had “an alternative to capitalism”.

46. Gérard Duménil and Dominique Lévy, Costs and Benefits of Neoliberalism: A Class Analysis, in Gerald A. Epstein, Financialisation and the World Economy (Edward Elgar, 2005), p. 17.

47. James Crotty, The Neoliberal Paradox: The Impact of Destructive Product Market Competition and ‘Modern’ Financial Markets on Non-financial Corporation Performance in the Neoliberal Era, in Gerald A. Epstein, Financialisation and the World Economy, p. 86.

48. François Chesnais, La Mondialisation du Capital (Syros, 1997), p. 289.

49. As above, p. 74. The passages from Chesnais are translated by me.

50. As above, p. 297.

51. As above, p. 304.

52. Peter Gowan, The Global Gamble (London, Verso, 1999), pp. 13–14.

53. Will Hutton, The State We’re In (Jonathan Cape, 1995); William Keegan, The Spectre of Capitalism (Radius, 1992).

54. See, for example, Engelbert Stockhammer, Financialisation and the Slowdown of Accumulation, Cambridge Journal of Economics, 28:5, pp. 719–774; Thomas Sablowski, Rethinking the Relation of Industrial and Financial Capital; Till van Treeck, Reconsidering the Investment-Profit Nexus in Finance-Led Economies: an ARDL-Based Approach, see; Andrew Glyn, Capitalism Unleashed (Oxford University Press, 2007), pp. 55–65.

55. James Crotty, The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Modern Financial Markets on Non-financial Corporation Performance in the Neoliberal Era, in Gerald A. Epstein, Financialisation and the World Economy, p. 91.

56. He raised the argument at a conference on Finance and Financialisation at University of London’s SOAS in May 2008 and at the Marxism event in London in July 2008. See the paper available at

57. The one reference by Marx to “secondary exploitation” is when he writes that “the working class is swindled” by the moneylender and also by the “retail dealer who sells the means of subsistence of the worker” – Marx, Capital, Volume Three, p. 596.

58. Samantha Ashman made this point forcefully at Lapavitsas’s presentation of his paper at the SOAS Financialisation conference. He had, she pointed out, confused the different levels of abstraction with which Marx had analysed capitalism. It should be added that, carried to its logical conclusion, Lapavitsas’s argument would undermine the central stress in Marxist political economy on exploitation at the point of production, since there are all sorts of consumer payments that could be designated as “direct exploitation” – tax payments, rents for domestic accommodation, the elements in shopping bills that go to retailers’ and wholesalers’ profits, the payments made to privately owned public utilities.

59. Sebastian Barnes and Garry Young, The Rise in US Household Debt: Assessing its Causes and Sustainability, Bank of England Working Paper, 206, 2003.

60. Dick Bryan and Michael Rafferty, Capitalism with Derivatives, pp. 32–33.

61. Engelbert Stockhammer, Financialisation and the Slowdown of Accumulation, pp. 719–741.

62. James Crotty, The Neoliberal Paradox: The Impact of Destructive Product Market Competition and ‘Modern’ Financial Markets on Non-financial Corporation Performance in the Neoliberal Era, in Gerald A. Epstein, Financialisation and the World Economy, p. 82.

63. Figure given in Robert Brenner, The Economics of Global Turbulence, p. 215. The figure for Britain was much larger.

64. Robert Milward, The Service Economy, in Roderick Floud and Paul Johnson, The Cambridge Modern Economic History of Britain, Volume Three, p. 249.

65. Gérard Duménil and Dominique Lévy, The Neoliberal Counterrevolution, in Alfredo Saad Filho and Deborah Johnston (eds.), Neoliberalism, A Critical Reader (London, Pluto, 2005), p. 13.

66. Robert Brenner, The Economics of Global Turbulence, p. 186.

67. Marx, Capital, Volume Three, p. 504.

68. The case for this interpretation of the shift is well made by Robert W. Parenteau, ‘The Late 1990s’ US Bubble: Financialisation in the Extreme, in Gerald A. Epstein, Financialisation and the World Economy, p. 134.

69. Makato Itoh and Costas Lapavitsas, Political Economy of Money and Finance (London, Macmillan, 1999), p. 60. They also point out that this is clear from Marx’s treatment of the issue in Volume Two of Capital, although at points in Volume Three he ascribed these functions to different groups of capitalists.

70. Thomas Sablowski, Rethinking the Relation of Industrial and Financial Capital.

71. Interview on Today programme, BBC Radio Four, 23 January 2009. See [audio no longer available online].

72. Michel Husson, Surfing the Long Wave, Historical Materialism 5 (1999), available at

73. This was the position of Engelbert Stockhammer, in Financialisation and the Slowdown of Accumulation; reiterated in Some Stylized Facts on the Finance-Dominated Accumulation Regime, in Competition & Change, 12:2 (2008), pp. 184–202; Duménil denied the relevance of profitability in conversation at the SOAS conference on Financialisation in May 2008 and in his presentation at the Historical Materialism conference in November 2008.

74. Gérard Duménil and Dominique Lévy, Capital Resurgent, p. 201.

75. Ben Fine, Debating the New Imperialism, Historical Materialism, 14:4 (2006), p. 145.

76. Friedman’s initial academic fame rested on research that claimed to show that too low a money supply had caused the crisis of the early 1930s. He turned his conclusions upside down when it came to the crises of the 1970s and 1980s, blaming them on too great a money supply. The crisis of September–October 2008 led some of his followers to hark back to his original research.

77. George Soros, Financial Times, 29 January 2009. See also Martin Wolf, Financial Times, 27 January 2009.

78. Bank of England Stability Report, October 2008, quoted in the Guardian, 28 October 2008. The January 2009 estimate of losses originating in the US was $2.2 billion (Financial Times, 29 January 2009).

79. See charts accompanying Martin Wolf, To Nationalise or Not to Nationalise, Financial Times, 4 March 2009.

80. See, for example the articles in the Financial Times by Wolfgang Muenchau, 24 November 2008; Jeffrey Sachs, January 27 2009; Samuel Brittan, 30 January 2009.

81. Paul Krugman, Protectionism and Stimulus, available at

82. Nicolas Véron of the Bruge think tank quoted in Financial Times, 5 February 2009.

83. See Gillian Tett and Peter Thai Larsen, Wary Lenders Add to Introspection, Financial Times, 30 January 2009.

84. Gideon Rachman, Economics Upstages Diplomatic Drama, Financial Times, 30 January 2009.

85. John Gapper, Davos and the Spirit of Mutual Misunderstanding.

86. Peter Temin, The Great Depression, in S.L. Engerman & R.E. Gallman, The Cambridge Economic History of the United States, Volume Three, The Twentieth Century (Cambridge, 2001), p. 305.

87. As above, p. 306.

Last updated on 05 April 2020