Beyond Twin Deficits: Emotions of the Future in the Organizations of Money

American Journal of Economics and Sociology, The, Oct, 1999 by J. F. Pixley

III

The Social Struggles of Money

GIOVANNI ARRIGHI IS A FERVENT SUPPORTER of the idea of money as one of contested social relations in modernity. He argues against Kondratieff cycles of long-term fluctuations in commodity prices as much as 'post-Fordist' and even 'flexible accumulation' explanations of the contemporary economic situation (1994 pp. 2-8). Taking a dramatic and sweeping view of contemporary global finance, the peculiarities of the late twentieth century are not so novel if one focuses less exclusively on trade and production and more on the credit system and speculation (Arrighi 1994 p. 229). Arrighi draws on Fernand Braudel in identifying phases of finance capitalism which tend to follow a wave of growth in commercial capitalism and the accumulation of capital far exceeding the scale for 'normal channels for investment' (Braudel, cited Arrighi 1994 p. 162).

Arrighi cites four main 'financial' phases. The first goes back (way back) to the Genoese, Venetian and Florentine era in the 15th and 16th centuries; the second to the 17th century which was dominated by the Dutch high financiers in Antwerp; the third to the late 19th century which was dominated by the City of London during the decline of the British Empire; and the fourth is the U.S. phase of the Wall Street 'financialization' of the late 20th century. [13] Arrighi insists that a capitalist logic of action guided Florentine business enterprise in the 15th century. The logic (namely the liquidity preference) was that capital should be invested in trade and production only as long as returns were higher than capital could have earned in financial deals. However, any move to flexible forms of investment such as the financing of domestic and foreign public debts, implied 'considerable economic, political and social turbulence' (Arrighi 1994 pp. 100-1).

More contentiously, Arrighi suggests a parallel between 'la belle epoque' of Edwardian Britain and Reagan's USA. In the British case, considerable competition by the 1870s had led to over-production, the withdrawal of cash flows from trade and into profitable opportunities in world financial intermediation.

In a less epoch defining manner, Smithin agrees that a 'revenge of the rentiers' was accomplished by a 'political revolution' between 1979 and 1982. The 'aggressive' inflationary and cheap money policies of most monetary authorities in the early 1970s had become a 'nightmare' for rentiers (those who gain income from dividends and interest on financial investments). Rentiers suddenly experienced 'negative real rates of interest'. After the elections of Thatcher and Reagan, according to Smithin, rentier interests 'captured' central banks, converted them to 'hard money', high interest and anti-inflation policies, and monetary policies became overly concerned with financial matters such as inflation, government budgets and balanced exchange rates (Smithin 1996 p. 5).

The 'rentiers' revenge' put an end to what Smithin argues had been a 'workable compromise' between the competing interests during the postwar era. As he says, the remedy is hardly the aim of 'zero inflation' that mainstream economics has promoted ever since. More beneficial would be a new compromise in which rentiers gain a 'reasonable' but not exorbitant rate of return. However, discussions of what are 'fair' or reasonable shares of income are not on the agenda. Instead, right up until 1998, inflation has been controlled in many countries by 'keeping the economy permanently in a state of semi-slump' far beyond what might have been a necessary concession to the excesses of the 1970s (Smithin 1996 pp. 5,132).