What is Finance?

Opening remarks from Dr. Craig Calhoun (President, Social Science Research Council; University Professor of Social Science, New York University). Additional Remarks by Dr. Robert Meister(Social Sciences and Political Thought, UC Santa Cruz) and Dr. Benjamin Lee (Anthropology and Philosophy, New School for Social Research)

Why does financialization matter? Markets always have some element of credit, but capitalism was once about accumulating material rather than financial assets. In the past four decades, the circulation of finance capital has been ascendant in an unprecedented manner, as the production of tangible commodities in developed markets has diminished. We’re in an “era,” but there’s a tendency to underestimate what is new: contemporary phenomena are often simply folded into some “fundamental nature” of markets or capitalism.

The “irrational” bubbles of today’s financialization have historic precedents: bubbles and similarly “irrationally exuberant” phases have allowed for the financing of industries and historic phases (such as the 17^th century rise of financial markets in London and Amsterdam, the financing of wars tied up with statebuilding projects, financing for imperialism).

Prominent features of the financialization from the 1970s onwards include scale, as the world’s wealth comes to be held as financial assets; new instruments and technologies enabling new trading forms; legal transformations as new instruments require creation of new contracts; price increases in assets tradable on global markets and ensuing massive leveraging.

To what extent does “imagined” phenomena come to be seen as real? There has been “a shift in the market imaginary itself” as finance capital has come to be understood as a “mover of markets” rather than a risk to it. Other re-imaginations have revolved around who or what constitutes market actors, the relationships between these actors, and notions of efficiency and inequality. In the midst of this, social scientists and economists have lost sight of connections between the economy, culture, politics, the state, and civil society. The economy has come to be seen as a metric through which other phenomena can be evaluated. As academic knowledge, for example, is transformed into an asset (e.g through proprietary knowledge and intellectual property), evaluations of performance and value have come to be priced accordingly. For public universities, the preferred criteria for knowledge-as-financial-asset has become how knowledge “pays off” in the short term. And yet, political phenomena cannot be separated out in explaining the rise of modern financialization; the politically unpopular Vietnam War, for example, was eventually financed exclusively by credit.

Question, Dr. Meister: Are we nostalgic for a “real” capitalism? Has financialization-as-totality subjugated (or subjectivated) agents who could change it? If “financialization” is a shift in perspective, whereby the “real economy” is now seen as part of asset markets, has economics been reduced to the non-arbitrage principle? Is arbitrage now the “grave-digger” of markets? Is there a different form of totalization happening around the asset form?

A: Financialization is part of a profit strategy to ensure the exclusion of certain parts of the world. The political sociology of resistance is shifting away from community aspirations to liberal freedoms and the influence of consumer identities. Presenting finance capitalism as a “problem” for confrontation can engender a return to movements. Considering totalities calls for skepticism thinking about the world in particular ways does not necessarily manifest into realities: for example, the question about arbitrage conflicts with the actual operations of traders.

Question, Dr. Lee: As the “best and the brightest” go into finance, those excluded from that sphere become politically disenfranchised. How should we understand this alongside the end of a sense of “interchangeability” in compensation for a “professional class,” and the astronomical rise of compensation in finance and investment banking?

A: Emphases on separate academic disciplines and publishing pressures—engendered by market pressures—have helped break up the solidarity of the profession. Unequal compensation has increased across and well as within professions. Is there enough worker motivation to shift blocked aspirations into movements?

Other questions: If there is disintermediation between the political and the economic, what’s the distinction between public and private goods, and public and private spheres? What is the link between financialization and high levels of debt to GDP? How should we understand high executive bonuses in relation to the paradigm of shareholder value maximization? Perhaps nostalgia exists for the time when surplus extraction from populations was more straightforward and occurred at the general site of production—how is class folded into financialization?

A: The wholesale valorization of the “private” as good, free, autonomous, and the “public” as bureaucratic and subject to domination by others is reconfiguring notions of exposure and protection. States are using debt to avoid dissent. Executive compensation reflects a failure of governance and the reduction of corporate value to its market price. The 19^th century to the 1970s embodies a long process of working classes bargaining within capitalism. While capitalism has always produced inequity, industrialization and democratization of wealthier societies created political leverage for class struggles. Capitalism has successfully incorporated the working class, such that class structure has become tied to reformism, rather than radicalism.