In the mid-20th century, the problem of financing greater equity was to pursue redistributive tax policies and growing government spending. The public sector was the one that produced and consumed social goods. Even for economists like Friedman, it was still clear that-without reducing the price mechanism in the private sector-social equity should be possible through progressive taxation of income and massive payments of transfers. Their idea was to limit the state to redistributing income (rather than increasing spending), so that the efficiency of private markets would not be too much affected. Even the idea of an unconditional basic income was in play at the time. The assumption was that markets are more sensitive to the intensity and change of private needs than welfare states. Even the most robust public sector would depend on a robust private sector as its tax base, was the premise.
Schumpeter also assumed that the state as a parasite depends on taxes, which in turn requires growth in the private sector, and therefore he also described the state quite succinctly as “poor.” The question now was how much the state should tax the private sector and how much it should spend on the private sector to stimulate growth. The question was whether there should be high taxation in terms of reducing inequalities in income and wealth, higher government spending on social services, and direct government control of investment decisions and capital flows, or even a combination of the three measures.
Then, in the 1980s, the neo-Keynesian Hyman Minsky assumed that production should still be entirely private and regulated by markets, while the financial sector should be nationalized because of its inherent instability. Risky collateral becomes more liquid as asset values rise, making the coming speculation safer to begin with. Then, as credit ratings rise in good times, companies can borrow more and more money and will take on more and more debt, meaning that at some point their cash flows will not be high enough to make interest payments on existing debt. For Minsky, this led to the well-known Ponzi scheme, or financial crash, which in turn leads to depression throughout the economy. For him, the problem of stagflation was the dependence of industrial firms on private capital markets to finance their investments.
Minsky’s emphasis on the importance of liquid debt was based on Keynes’ assertion that the liquidity premium was the driving factor of the economy. Companies need assets that are highly liquid, like cash, as opposed to just investments in fixed capital. In bad times, the liquidity preference of lenders will rise and they will issue less credit. And there can then be, as Irving Fisher puts it, a debt-deflation spiral. If defaults then lead to the sale of collateral, then the market price of distressed debt falls, leading to further defaults.
Meister agrees with Minsky that higher liquidity premiums (determining the minimum interest rate that results from the play of supply and demand) periodically demanded by the private sector are a barrier to higher equity. While Meister now wants to reap this premium for financial security, Minsky wanted to eliminate the premium by nationalizing the financial sector, which would eliminate financial instability and thereupon bring about orderly growth and full employment.
But instead of following Minsky’s idea, governments in the 1980s focused on promoting capital market stability by having central banks issue an implicit guarantee of capitalists’ liquidity premiums. This subsumption of government planning under the logic of finance goes hand in hand with the financial revolution preached by the Chicago School of Economics. Where Minsky still assumed a rising liquidity premium and thus a decline in confidence as a disruptive force, the monetarists understood it as a principled tool of economic analysis and public policy. This was to lead to more perfect versions of currently existing financial markets that would implicitly trade liquidity premia more efficiently than the state. Macroeconomic problems were replaced by rational choice theory under conditions of uncertainty and asymmetric information. Pricing out assets in capital markets through options theory now moved to center stage. And if even government policies could be priced out and negotiated as derivatives in markets, then there was no longer any doubt that governments should support rather than ban trading of their bonds.
The market reforms that followed, from health care to education to prisons, which subsumed everything under financial logic, naturally chained states more and more to private capital markets, which in turn generated new forms of capital. This bending of state policy toward privately created options naturally led to privatized management of the social needs of the population. Minsky still assumed that regulatory policy by the state would become more effective if capital markets were nationalized, whereas for modern financial theory the effects of regulation should be precisely to generate differential liquidity premia, and to provide the tools to do so.
Meister questions at this point whether a state should advance historical equity through the expansion of GDP and the redistribution of income without appropriating for itself a substantial amount accumulated in the form of financial derivatives. Should we continue as if the financial revolution had not taken place at all? And long ago, contemporary democracy ceased to be based on the belief that elections could be used by a majority to increase its share of the national wealth, or that government programs of financing could counterbalance the financial sector. For Meister, on the contrary, it is a matter of unleashing the technologies created by modern financial theory, so to speak, for historical justice. He refers here to the economists Rajan and Zinagles of the Chicago Business School, who see the danger to capitalism not in financialization per se, but in its complete victory over the state “organized” capitalism that preceded it, but which led precisely to the victory of the financial sector. The expansion of credit and proliferation of debt is not the greatest danger, they argue, but the democratization of finance, which contains a utopia of finance for all. While recognizing the dark side of financial markets and their liquidity crises, the authors see an even greater danger in governments’ efforts to prevent the collapse of the financial system in order to return to the democratization of finance and a friendly capitalism, precisely by shoring up the establishment through bailouts. Precisely because the capitalists anticipate the bailout, they take even greater risks in the financial markets to maximize their returns. They rely on the policy of too big to fail. Ultimately, the point is to propagate a capitalism without capitalists.
Meister sees only one point of proximity to his theses here. He shows why too big to fail tempted systemically important banks to lend money too cheaply to the big investment funds. And this, in turn, allowed the investment funds to leverage the already very risky positions even further because there were legal structures in place that largely protected them from losses. Where Meister differs, again, is in the misstatement of why bailouts are necessary for the survival of financial capital, and how that relates to the issue of equity. Meister doubts the thesis that bailouts are necessary because they are expected.
He again points out that the history of providing sums of money to guarantee liquidity in physical and virtual spaces is just beginning, especially when different currencies circulate. Here, questions arise for Meister regarding the political and legal relativity of money, which has mostly been related only to the sovereignty of states. This, in turn, also relates to the fact that states have a monopoly on issuing currency and, if related to Marx, workers must sell their labor power because they have no ability to issue credit or money. For Meister, this link logically and historically precedes Marx` explanation of capital as a market-based mode of production. There is no exchange value without liquidity and no liquidity without the power of the state sovereign to issue liabilities that can be fully paid for by the currency one issues.
Regarding Marx` understanding of politics, Meister introduces at this point the semiotic distinction between the metonym (a sign that substitutes for value in exchange), and the metaphor (a sign that represents value as price). Marx did not relate his policy to the state using its power in the metonymic sense to provide money for infrastructure and social programs. Rather, Marx referred to the gold standard, which was supposed to protect states from deficits and price inflation. Moreover, the money issuance of states should still be limited by world trade. The relation between class politics and the role of the state in terms of providing liquidity to credit markets remained closed to him. Nor could he anticipate that the demand of the working class for a Keynesian-type policy would lead to the end of the gold standard. A class policy based on the demand for increased government spending, which might threaten the convertibility of the currency and lead workers to make demands against the monetary system as well as against the property system, remained hidden from him. Keynes brought money and the question of full employment back into play at this point. The Keynesian Michel Kalecki even went so far as to claim that increasing government spending would weaken the power of the capitalists and raise the class consciousness of the workers.
The anti-Keynesian policies of the 1980s, on the other hand, implied that too much money was spent by the state in relation to economic growth, so that the result was the stagflation of the 1970s. The Autonomia of Italy, by the way, made a similar argument when it believed that workers’ demands for increased government spending, including payments for “no work,” would lead to the collapse of capitalism.
It is nothing new to believe that the issuance of currencies independent of state money is a potential resource for destabilizing the relationship of the state and the financial system. Therefore, the state needs the monopoly to issue money, he said. But this, Meister said, does not refer to the creation of derivative currencies, for example, alternative dollars that are not issued by the U.S. state. It refers to currency derivatives, which allow traders and institutions to take financial positions within the relative movements of currencies without holding them longer. Meister again mentions the example of the Eurodollar and the Overseas Dollar… here.
He goes on to mention the spread between the value of non-U.S. government-issued dollars traded in London (LIBOR) and U.S. government-issued dollars traded on the federal funds market, a spread that became so wide in 2008 that the Fed had to intervene in the overseas dollar markets to restore the spread to par by backing privately created dollars traded in the private money markets. It would have to deploy $2 trillion in Federal Reserve loans to stop the flight of non-U.S. government-issued dollars to those of the Federal Reserve, thereby closing the spread.
The fact that Eurodollars are offshore currencies and just not identical to the U.S. dollar was an important factor leading to the U.S. government’s liquidity put in 2008. Accordingly, the U.S. government’s bailout was an attempt to bring offshore dollars into par relation with the U.S. dollar in order to ensure liquidity in the financial markets. Meister interprets this, in turn, as an attempt to prevent the Eurodollar from becoming an alternative currency that could be used to short the U.S. dollar and exploit the weakness of the U.S. economy. The hegemony of the U.S. dollar would be threatened if the derivatives market were not based on it. This market makes it possible for derivatives to be written by financial actors on the basis that U.S. government trading in global money markets remains at par between the U.S. government dollar and offshore dollars. The spread, in turn, can be speculated on. Thus, the ability to short the U.S. capitalism is in the hands of private financial institutions and sovereign wealth funds. By granting a bailout to private financial institutions in 2008, the U.S. government ensured the continuity of global financial markets. The very breach of the Bretton Wood system while maintaining the value of the dollar represents the possibility for the U.S. to have a permanent trade deficit without devaluing the U.S. dollar.
Another question arises regarding what is called “Chimerica,” the symbiotic relationship between China and the U.S. that allowed U.S. asset markets to boom while Chinese production grew to meet demand in U.S. markets. Thus, any attempt by China to short or sell the dollar had to be suppressed because it would have resulted in bringing down the U.S. capital markets. Meister wonders w hat would happen if China issued a currency called the dollar at a fixed rate to the U.S. dollar. China could manage it in such a way that the cost would tend to be on the U.S. to maintain parity of the U.S. dollar with the alternative dollar internationally. But if there is an expectation of failed parity, then a flight to the alternative dollar could begin, while the U.S. government would have to spend more of its own dollar to counter the attack, which in turn could increase inflation in the U.S. and a flight from its capital markets because of pending currency fluctuations.
And Meister goes on to wonder if there might not be crypto dollars that are outside the government’s sphere of influence. And what would the U.S. government then have to pay for a liquidity premium to keep all these currencies at par? These crypto dollars could become an asset class for certain sectors of the financial system to hedge against the U.S. monopoly of issuing dollars. An anti-capitalist policy would have to gain legitimacy to subvert the system, and it could then once again leverage the tendency that exists in the financial system to short or sell one’s own life by getting the system to invest in funds that threaten the financial system. Capital markets, foreseeing their own demise, are already short-selling capitalism now, witness the 2008 financial crisis. For Meister, the need for the U.S. government to provide liquidity to capital markets from the outside as a financial product is related to the possibility/option for historical justice, as a short position on financial liquidity.
Meister then arrives at his conclusions. For Meister, an important task in the future is to connect the diversity of existing movements so that each initiative can learn from the volatility created by others, and do so in terms of how the financial system is already doing to some extent. The focus on financial liquidity indicates that it can be an index of the threat these movements pose to financial stability. Any initiative can hedge against its failures by staying invested in the success of others.
Rather than aimlessly lamenting the lack of unity among movements and the left, it is better to invent the left as a portfolio of political movements engaged in tactical arbitrage on the success and failures of movements. This formulation contains the following insight into the logic of financial markets: one can index the degree to which the volatility of the price of a stock co-varies with the volatility of the stock market as a whole. An anti-capitalist politics should have similar ways of measuring the covariance between microeconomic and macroeconomic financial illiquidity that political movements themselves create. A movement against debt could make financial assets insured by credit less liquid. One could then issue tokens to generate derivatives with long or short positions that can be priced out and traded. There could be macroeconomic tools that oppose the 2008 bailouts, which would increase the cost to governments of saving the financial system. Anti-capitalist policies working by means of finance should provoke an autoimmune response from capital in the form of an outbreak of illiquidity in capital markets. One should develop financial instruments that allow the movement to profit from exaggerated expectations of momentary success and to hedge against the losses that emerge because of the exaggerated perceptions of current failures. Movements could be repositories of accumulated countervalue, accounting for their horizontal benefits and hedging against mistakes. Like Marx, Meister opposes movements based solely on viral contagions, and contrary to Marx, he sees in financial markets ways to leverage one’s use of contagious mechanisms to create and destroy liquidity on which to depend. Today, states do not have a monopoly on the possibility of issuing tokens that are liquid in the sense that their use as payment allows accounts to be opened.
In conclusion, Meister again emphasizes the difference of his approach from productivist versions of Marxism on the basis of various criteria. Contrary to some attempts to decelerate accumulation, he wants to find an activist and analytical language that allows for an inter-operative and confrontational use of alternative currencies and payment systems that indexes changes in the system that serve subversion.
And one could advance the self-destructive tendencies of the system in which one promotes its accelerations. Meister wants to make capitalist accumulation redundant through the use of financial instruments that capture and redirect its proceeds. It is not about a new accelerationism, but about leveraging points of vulnerability in the financial supply chains, and this as a new strategy to exercise the potential power of resistance. Accelerationism has no sense of anti-capitalist movements that are parasitic with respect to the destructive tendencies of capital, and that see this itself as a strategy to subvert capitalism. The gaps in security systems could be hacked or exploited by a few in the movement.
Michael Feher, who we’ve discussed on NON before, proposes an Investee that challenges investors on their own ground by creating bad publicity for companies, leading to the reshaping of investment accreditation. Meister, in contrast, proposes to monetize the turbulence of asset valuations that oppositional movements themselves create, to advance movements that are resilient to setbacks while placing a contingent claim on the wealth that has been accumulated to date.
translated by deepl.
Foto: Bernhard Weber