Mike Beggs

Shoplifters of the world unite! law and culture in financialized times

The last two decades have seen significant growth and change in the character of the interactions between working-class households and financial markets. Individuals and households are bearing more and more of the risks that were once managed by governments and employers, and financial markets have developed a vast range of products to facilitate that risk transfer. This has put households at the centre of financial innovation, requiring the extension of regulation and consumer protection into a whole new suite of financial products and a project of financial literacy and advice. Along with this financial development and its associated regulatory demands has come a new cultural project of capital seeking to normalize the expanded integration of individuals and households into capitals frontiers of accumulation. The project invites and invokes new forms of subjectivity (and subjugation) on the part of households. The developmental project required of state regulatory regimes is increasingly articulating not just a discourse of financial literacy but subordination to the individualism and discipline implicit in financial calculation. Contrary to its conception as spontaneous and individualist, this is an intentional and universalizing project of producing and managing labours financial risks. In the collective self-management of these risks, the household is now not just a site of risk absorption; it is a major source of investment products (and, therefore, at the frontier of accumulation). Increasingly also, in the name of financial stability, households – not just those reliant on state support – are becoming subjects of surveillance and administration in their internal financial functioning. It is these dual aspects of households as both consumers and producers of financial claims that give materiality to conceptual and historical claims about the financialization of everyday life.

The state as a creature of money

ABSTRACT Recent social theories of money have challenged economic conceptions of it as first and foremost a medium of exchange. Writers such as Geoffrey Ingham and David Graeber have revived the chartalist position that money is essentially a creature of the state, whose primary function is to measure value or debt. In this paper, I argue that this is a wrong turning. I first clarify the conceptual underpinnings of Ingham’s treatment of money as an ‘institutional fact’, a concept drawn from Searle. I clarify the sense in which this argument establishes that the state ‘creates’ money – and show that this sense is quite limited. It is a theory of how something comes to be accepted as money, rather than a theory of why there is money in the first place, and it gives no account of money’s value. Finally, I sketch an alternative way of looking at the relationship between states and money. This recognises that modern states have been shaped in part by strategies with regard to monetary management, with state actors engaging strategically in a system they only partially constitute – so that states are ‘creatures of money’ as much as the reverse.

Strengthening the Central Bank

The development of monetary policy through the 1960s, 1970s and 1980s is often portrayed as a story of movement from regulation to deregulation, or from a state-centred system to a market-centred system. This is the basic story, for example, which Schedvin (1992) sees underlying his intricately detailed history (though it leaves off in 1975): Running through the story of monetary management was a gradual swing of the pendulum of central banking philosophy towards liberalisation and to reliance on markets as the fulcrum of action. As the memory of depression and war faded, suspicion of the markets receded. The change was imperceptible at first, became more pronounced in the 1960s, and gathered momentum with global financial integration following the breakdown of Bretton Woods and the revolution in electronic communication. Towards the end of the period covered in this book, the myth of market invincibility emerged that helped to dismantle the remaining tangle of regulation and create a largely free environment for financial institutions. (Schedvin, 1992, p. 544)

Macroeconomics and the Phillips Curve Myth

In 1958 Professor A.W.H. Phillips... published a paper with the uninspiring title of ‘The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861–1957’. This showed that there had been an inverse relationship between the rate of wage inflation and the rate of unemployment over that period; that is, when wage inflation was low, unemployment was high and vice versa. This relationship became known as the Phillips Curve, and it lent empirical support to the view that there was a choice between a low unemployment—high inflation situation, or a high unemployment—low inflation situation, and the various combinations between these two extremes. Not surprisingly, given this choice, the vast majority would choose a point that had low unemployment even though it meant higher inflation. Unfortunately, there was a very serious dynamic problem with the Phillips Curve, of which its creator was well aware... [T]o get unemployment below the level that was originally consistent with low inflation will take a series of increases in inflation with no apparent equilibrium end-point in sight. Thus, you cannot go to a permanently lower unemployment rate by accepting inflation at a constant higher level; what is required is a constantly increasing rate of inflation... This critique of the overly ambitious use of Keynesian demand management policy was mainly the work of Milton Friedman. For a decade or more it was hotly debated, but was ultimately proved right and is accepted today by economists of virtually all political persuasions. (Macfarlane 2006, 21–22, 24)

Inflation and the Keynesianism of Restraint

‘Nugget’ Coombs, Director General of the Ministry for Post-War Reconstruction 1943–49, central bank Governor 1949–68 and preeminent organic intellectual of the postwar technocracy, suggests that Keynesian ideas were a material force:1 in Keynes’ General Theory there was a conceptual framework providing a means of communication between me and my colleagues in the Bank, between the Bank and the Government and its Treasury advisers, and between the Bank and its principal clients in the private banks. It was one of the attractive features of the Keynesian analysis that it seemed to by-pass the most divisive issues within our society. It seemed in everybody’s interest that expenditure should be pitched at levels adequate to sustain business activity reasonably close to capacity and so to maintain high levels of employment, while avoiding inflationary pressures. (Coombs, 1981a, p. 146)

Inflation, the State and Economic Policy

This book traces the development of counter-inflation policy in Australia between the end of World War II and the 1980s. A focus on this specific aspect of policy sheds light on the historical evolution of the role of the state in capitalist society much more broadly. Furthermore, although I focus on Australia, and the particulars of this history are unique to that country, the broad shape of the evolution and the tensions that drove it have much in common with the rest of the advanced capitalist world. Some aspects set Australia apart in important ways — such as the centralised wage bargaining system — but many others are shared — the experience of a long postwar boom followed by stagflation, the profit squeeze of the 1970s, successive waves of financial innovation and the monetarist experiment. The peculiarity of the centralised bargaining system is in itself a variation of interest to the rest of the world, because such an institution was sometimes held up elsewhere as a potential solution to macroeconomic dilemmas: by looking at the Australian experience we can get a sense of how it affected policy options — and how it did not.

From Bretton Woods to the Float

The following four quotations, from a range of political and analytical perspectives, all present what has become part of the common sense of political-economic history: that the transition from the Bretton Woods regime to a world of flexible or floating exchange rates imposed the discipline of the global economy on governments. This idea — that international constraint was a novelty of the post-Bretton Woods period — is contradicted by the argument stated in Chapter 2: that Australian macroeconomic policymakers were motivated to prioritise disinflation in the 1950s by the demands of ‘external balance’. Furthermore, I showed there that many economists of the 1950s and 1960s saw a flexible, if not floating, exchange rate as a way out of this constraint — an extra policy instrument and another degree of freedom:

Inflation and Macroeconomic Policy in the Long 1970s

In Chapter 1, I criticised the origin myth of the ‘new macroeconomic consensus’. In this chapter, after giving an overview in §6.2 of the operation and context of fiscal policy in this period, I turn in §6.3 to the origins of the origin myth itself — the emergence of the ‘natural-rate, expectations-augmented Phillips curve’ (N-REAP) model of inflation. To recall, this story of policy transition is very simple. Policymakers had a conception of the economic system in which aggregate demand was set so as to make a choice within a stable trade-off between unemployment and inflation. This policy strategy failed because it was mistaken about the stability of the trade-off, because it neglected the effect of adaptive expectations on inflation. An alternative, superior strategy developed to take account of the impact of expectations and the fact that there was no long-run trade-off between inflation and unemployment. In Tinbergen’s terms, the instruments remain the same, and one goal is redefined downwards: instead of ‘full employment’, which is unsustainable under any policy arrangement, the target becomes the ‘natural rate of unemployment’. This shift takes place within the sphere of policy decision-making with existing instruments; there is no need for ‘qualitative policy’ or seeking to change the institutional configuration of policy or the broader economic system.

From the ‘Battle for the Banks’ to the ‘Credit Squeeze’: Monetary Policy in the Long 1950s

Goodhart argues that central banks are not impositions on the capitalist financial system by the state, but have shown a historical tendency to emerge in an evolutionary fashion, as a functional part of a variety of banking systems. Only over time, under the influence of macroeconomic theory and driven by successive financial crises, did they converge in the 20th century to the kind of state institution familiar today: The role and functions of Central Banks have evolved naturally over time, and play a necessary part within the banking system. (Goodhart, 1988, pp. vi–vii)

‘External Balance’ and the Counter-Inflationary Imperative

As quoted in §1.2.2, in its 1965 report, the Committee of Economic Enquiry used the relationship between full employment, price stability and external viability as an example of the potential for conflict between policy targets: ‘the nearer an economy is to full employment, the more difficult it is to achieve stability of costs and prices. On the other hand, stability of costs and prices makes for external viability, although action to achieve external viability, for example, by exchange devaluation, may operate against stable prices’ (Vernon et al., 1965, p. 46).