Portside

Tony Norfield, The City: London and the Global Power of Finance
Verso, July 2017,  $11.86, paperback. 304 pp.
ISBN: 978 1 78478 502 4

This book is about how the global financial system works, and in whose interests’, Tony Norfield announces at the start of The City. He also sets out to explain the functions of the Square Mile for British capitalism, its importance to the world market, and why it is wrong to counterpose the financial sector to a more productive ‘real economy’. Norfield’s credentials are based on his own experience. He began a twenty-year career in the City of London’s dealing rooms soon after the Thatcher government’s ‘Big Bang’ deregulation of financial markets in 1986. Unlike the soldier on the battlefield, who may know little about the war he is fighting, Norfield claims that ‘the basic mechanism of finance is clear to anyone who witnesses it from the inside’. Working in the City as a senior economist for Bank of America and Mitsubishi Bank, and as head of foreign-exchange strategy at abn Amro, no doubt helped to confirm the impression that London is at the centre of global finance. Norfield departed abn Amro at the end of 2006, shortly before its ill-fated takeover by a consortium of British, Belgian-Dutch and Spanish rivals. A doctoral dissertation at soas under Ben Fine helped to substantiate a view of the international financial system that had apparently long been refracted through a rather traditional Marxist lens. ‘There was no small irony in my going to work in the City’, he acknowledges. ‘I had decided some years before that organizing society on capitalist principles was a bad idea.’ But as he rather cursorily explains: ‘Needs must.’ 

The City argues that the global financial system must be analysed in terms of the economics of imperialism, in which ‘a few major corporations from a small number of countries dominate the world market’, and the major powers can use financial markets ‘to control world resources and siphon off the value created elsewhere’. On this view, finance is an integral part of the capitalist economy: rather than a cancer that should be removed to restore the body to health, it should be understood as a central nervous system, while its profits are little more than parasitic deductions from the surplus value created in commodity production. Although big-power governments support their financial sectors, whose revenues are important to their balance sheets—especially for the uk, whose reliance on the City’s earnings for two centuries has been thoroughly documented—Norfield argues that political institutions are subordinate to economic forces. Policy makers have little choice but to follow the logic of world-market imperatives. These themes—the City as a core element in economic imperialism; the explanatory primacy of the economic over the political—run through nine loosely connected chapters in which two distinct, but related, matters are addressed. The first is general: to establish the parasitic role of international finance, based on its appropriation of global surplus value. The second is historically specific: to explain the City’s survival as ‘the pre-eminent international financial centre’. Yet Norfield’s insistence upon the theoretical subordination of the political produces an unresolved tension between the two issues.

Much of The City’s historical account covers well-trodden ground. Norfield starts by documenting the uk’s exceptional position in the global financial system. It ranks second only to the us in the number of banks among the world’s top 50. More remarkably, in 2013 London accounted for 40.9 per cent of foreign-exchange turnover—more than double the us’s 18.9 per cent, with no other centre claiming more than 5.7 per cent. These and other data are invoked as a corrective to the widely held assumption of the us’s absolute dominance. Norfield flatly rejects Gowan’s description of the City ‘as a servicing centre for the dollar currency zone and as a satellite of Wall Street’. (Gowan later depicted the City more evocatively in NLR as Wall Street’s Guantánamo, where it could do what was not allowed at home.) Instead, global finance is seen as a binary system in which the uk and the us financial markets exert a ‘significant “gravitational” pull’ on each other.

Norfield’s account of the ‘Anglo-American system’ adds little new to the story of Wall Street’s failure to displace London as the world’s major financial centre in the interwar period. Strangely, there is no mention of Charles Kindleberger’s seminal account, nor the debate arising from his conclusion that the international disorder of those years was the result of the uk’s inability and the us’s unwillingness to manage their currencies as world money. Others have argued that the us was not merely unwilling, but also institutionally and politically incapable, of assuming a hegemonic role at this juncture. Norfield refers to the undoubted disabling effects of the fragmented structures of the us financial system and Federal Reserve, but only hints at the political conflicts, based on economic and regional interests, which stymied the New York financial elite’s ambition to supersede London. Later, at the Bretton Woods conference which devised the post-World War Two international monetary system, Treasury Secretary Henry Morgenthau pressed for the us to become the unrivalled global financial power. However, as Norfield points out, ‘New York did not quite achieve the domination that he had envisaged’. In fact, as we are all now aware, despite the us’s even stronger economic position, the ‘implausible’ occurred: the City staged a remarkable revival because it ‘had the expertise to develop a business largely on the basis of using the new world currency, the U.S. dollar’. 

The City goes on to outline how the us and uk positioned their financial systems after the disintegration of Bretton Woods at the start of the seventies. The deregulation of Wall Street on May Day 1975 was followed by the uk’s abandonment of exchange controls in 1979 and the ‘Big Bang’ which opened up London to foreign financial institutions. The ensuing invasion by us investment banks seeking to evade their stricter domestic regulation and take advantage of the Eurodollar markets led to the displacement and takeover of many of the City’s firms, as chronicled in Philip Augar’s The Death of Gentlemanly Capitalism (2000). ‘The Thatcher government’s policies made more sense as a capitalist strategy than most critics admit’, Norfield insists—no matter the wasting of the industrial sector while financial markets boomed. Her administration ‘placed a bet that looked to have better odds than any others on offer, especially given the international status of the City’. 

Capitalism’s need for financial services is explored in a chapter titled ‘Power and Parasitism’, using Marx’s categories of money-dealing and interest-bearing capital. It is confidently asserted—if not actually demonstrated—that the activities of banks, brokers, asset managers, pension funds and insurance companies are funded by a deduction from the surplus value extracted from the productive sphere. Norfield commendably tackles a particularly contentious question in the analysis of capitalism, the creation of money by bank credit, candidly conceding that ‘this topic is often poorly covered by Marxist writers’. (It should be added that it has also been poorly covered by mainstream neoclassical economics.) Money creation by banks is not directly dependent on surplus-value production; nor do they lend money to borrowers by taking it from depositors. After decades of resistance to the heterodoxy of Schumpeter, Keynes and their followers, the Bank of England Quarterly recently acknowledged, as Norfield notes, that banks produce money by merely creating a deposit for the borrower. In time-honoured Marxist fashion, this seemingly autonomous process of money creation is readily reconciled with materialism’s primacy of surplus value. The funds allocated to the borrower ‘should be seen as fictitious deposits, since they are created out of thin air by the bank and do not depend upon how much actual cash the bank has at its disposal at the time’. 

This distinction between fictitious credit and actual cash, found in both mainstream economics and Marxism, obscures the way in which capitalist banking transforms private debt into public money. ‘Thin air’ is not involved in the process; rather, it is grounded in the social reality of the confidence that the borrower’s private debt to the banks will be repaid. The institutional arrangements of the banking system, central bank and the state enable private debts, transformed by the act of spending, to enter the economy as public money through myriad forms of transmission—cash, cheque, electronic transfer. Norfield is compelled to deal with the problem that ‘for a while, credit creation can also appear to be completely independent of capitalist production’. The credit system obscures value relations in the capitalist system, so that it appears that ‘money creates money’. Yet, ‘how can production or profits that do not yet exist generate wealth now?’ Billions may be wiped off the fictitious wealth of stocks and share value, ‘but it was nevertheless once an asset that could have been cashed in’. The creation of credit by the banks and the formation of fictitious capital as financial securities may ‘appear to break the link between the production of value in the economy and the resources at the command of capitalists’, but the link is merely ‘stretched’.

The City follows this discussion of credit theory with an analysis of the ‘world hierarchy’ of capitalist states. Eschewing an international-historical account, Norfield measures ‘status’ by a combination of nominal gdp, outward fdi, banking assets and liabilities, currency, and military spending. The inclusion of finance flatters the uk into second place, followed by China, Japan, Germany and France, though many London banks are foreign-owned. Norfield also ranks the global corporations and mega-banks in terms of their ‘home’ states, insisting on the importance of governments in supporting ‘their’ companies in trade negotiations or international law. Here again, Barclays, Legal & General, Lloyds, Invesco and others put Britain second only to the us. With the uk’s global importance thus established, The City returns to the relationship between finance and production. The assertion that commercial and financial profits are not ‘new types of wealth, separate from the actual production of value’ is now a little less assured. After an instructive discussion of the statistical difficulties, Norfield concludes that there is no basis on which the profit rates of financial companies and other capitalist enterprises ‘can sensibly be compared’. Given the complex links between financial returns and the underlying rate of profit, it is only ‘more likely’ that the rate of financial returns will fall following a decline in the profits of productive capital. Despite conceding that an accurate measure for the rate of profit as conceived by Marx has not been found, Norfield nonetheless believes that data for the major capitalist countries show a trend rate of profit decline from the 1950s to the early 1970s, the cause of the subsequent period of economic and financial turmoil. The absence of such a trend since the early 1980s might appear to add weight to those writers who argue that 2007–08 was a crisis of financial excess rather than falling profits. 

Four countervailing factors explain the apparent failure of us corporate profit rates to conform to Marx’s theorem. First, the use of migrant labour and repression of labour unions to restrict wage growth. Second, the availability of low-cost products from low-wage countries. Third, after 2000, progressively lower nominal and inflation-adjusted interest rates, which encouraged borrowing for consumption. Falling interest rates put bank profitability under pressure, because of the narrower margins these allowed for between borrowing and lending. The banks responded by increasing their lending and the volume of their trading in foreign exchange, financial securities and derivatives. The expansion of bank credit fostered ‘the financial illusion of creating value out of nothing’. The fourth factor propping up profits was state rescue of the economy by means of quantitative easing when the financial bubble burst. Thus, Norfield maintains that we should not interpret recent decades of credit-fuelled profits as an indication that there hasn’t been a problem with profitability. ‘The capitalist laws of the market are only modified, not abolished, by the financial system’, leading to ‘bigger booms, and bigger busts, than might have happened otherwise’.

Norfield goes on to a short, but useful, summary of the us’s ‘exorbitant privilege’ conferred by global demand for the dollar, a brief account of the City’s global operations and their importance for the British economy, and a consideration of the future prospects of London’s financial quarter—for example, in accommodating Chinese and Islamic finance. Norfield rightly concludes that London’s global activities and cosmopolitan complexion created an ambivalence towards Europe in elite circles, most recently expressed in the May government’s inchoate Brexit stance. On the one hand, the uk’s anomalous arm’s-length relationship with the eu probably owes something to the fear that closer economic integration might affect the light-touch regulation of the City and curtail its global profits. On the other hand, as Norfield points out, leaving the eu puts trade and investment at risk, with knock-on effects on financial operations. It is now obvious that exclusion from Europe poses a threat to the revenues which have enabled the uk to offset its chronic balance of payments deficits. The City stands to be cut off from open access to European markets, which may trigger a migration of banks to competing financial centres. But Norfield argues that while London may lose some business to Dublin, Luxembourg and Paris as a consequence of Brexit, it will be difficult to dislodge it from the commanding heights of the world economy. 

Norfield is particularly allergic to critical analyses of the us role in the world economy, as proposed by Peter Gowan’s work on the ‘Dollar-Wall Street regime’ in The Global Gamble, Leo Panitch and Sam Gindin’s The Making of Global Capitalism or Eric Helleiner’s States and the Re-Emergence of Global Finance. In these accounts, ‘the economic mechanism is left to one side’; the authors fail to see that us strategy can only be explained by the international nature of ‘imperial finance’. Similarly, The City has little to say about the causes and nature of financial crises, the 2007–08 meltdown or ‘what some academics have called “financialization”’, preferring to focus on the essential and necessary daily mechanisms of finance which, Norfield insists, arise inevitably from capitalist market production. It would be naive to think that the Great Financial Crisis was caused entirely by ‘bad’ finance which can be separately reformed, whilst retaining ‘good’ production in a sanitized form of capitalism. Piecemeal reform is not an option. As a key element in imperialism, the City ‘has created a financial machine that functions as a vampire’s blood bank for the surplus value produced worldwide’. Continuing the analogy: ‘Only a stake in the heart of the capitalist system, not simply in some of its financial forms, will be enough to see an end to the power of the beast.’ 

This approach places Norfield at odds with much recent writing on international finance, and with earlier investigations of the disconnect between the City and British industry. In thinking that Gowan’s apparently one-sided emphasis on politics ‘prevented a fuller understanding of how the financial system develops out of the global capitalist market’, is Norfield unable to contemplate the dangers inherent in an equally one-sided prioritization of the economic? His makeshift account of the City’s capture of the lucrative trade in offshore us dollars in the 1960s, the turning point in its post-war fortunes, exposes the kind of difficulties which spring up when one fails to make room at the theoretical level for the shaping of financial systems by national political priorities. Despite a conviction that ‘the capitalist market system is beyond control’, he is forced to acknowledge that New York’s ascendancy ‘was hindered by us government policies’, notably retention of the 1933 Regulation Q and the Interest Equalization Tax, and that the uk actively encouraged participation in the so-called Eurodollar markets by refraining from introducing similar restrictions, as Gary Burn and Eric Helleiner have convincingly shown.

The Treasury’s desire to maintain the City’s invisible earnings, and ceaseless lobbying from the City and Bank of England, created the policy conditions in which the Eurodollar markets could take root. These markets did not simply emerge, fully fledged, from global capitalism’s functional requirement for a financial hub. Most important was the introduction under the Macmillan government of full convertibility of non-residents’ sterling accounts with the dollar and other currencies in 1958, which allowed foreign banks in London to make use of the dollars that us deficits had spread throughout the world. Restricted by their domestic regulations, American investment banks followed the dollars to London, lending them at lower interest rates than they could on Wall Street. Furthermore, the specific historical gestation of the Eurodollar trade owed much to the disintegration of Bretton Woods which, as Helleiner and Gowan argue, was hastened by a recalibration of American statecraft. Princeton political economist Robert Gilpin had warned Washington not to follow the uk’s example of inflexibly striving to sustain top-currency status in unfavourable circumstances. The us understood that it could reap all the advantages of the dollar’s popularity without the potential costs of a formal commitment to preserving its de facto role as world money. Having dismissed the influence of ‘groups of intellectuals’, Norfield is unable to follow such geo-strategic calculations.

The attempt to explain finance entirely in terms of what Norfield sees as its necessary economic functions leads to further misrepresentation of the work of other authors. At this point, I should declare a personal interest. I am one of those accused of identifying ‘a fundamental conflict between finance and industry’ which cannot in fact exist, because finance is ‘a normal part of the system’, dependent on surplus value and performing essential functions for capitalism as a whole. I portrayed the swollen nature of the uk financial sector ‘as a result of government policy-making, not as an outgrowth of imperialist economic power’, and became embroiled ‘in debates over whether financial interests were affecting government decisions to the detriment of manufacturing industry’. This is a rather one-sided interpretation of my Capitalism Divided? The City and Industry in British Development (1984) and its influence on some later work—including Helleiner’s States and the Reemergence of Global Finance(1994) and Gary Burn’s The Reemergence of Global Finance (2006). 

Of course, Capitalism Divided was a product of its time in its concern with Britain’s post-war relative economic decline and the problem of how political support for the City—especially the belief that its revenues required the maintenance of sterling as a major global currency—diverted attention from fostering an industrial recovery. Will Hutton’s The State We’re In (1995) gave popular expression to these anxieties. The American academic John Zysman’s Governments, Markets, and Growth: Financial Systems and the Politics of Industrial Change (1983) provided a more disinterested analysis. Comparing the impact of the major economies’ different financial systems on their industrial policies, he concluded that uk finance’s market-oriented global engagement inhibited the kind of government-sponsored industrial growth that was pursued in France, Germany and Japan. 

Capitalism Divided argued that the core institutional nexus between the Bank of England, the Treasury and the City, originating in pre-industrial Britain, exerted a significant influence on the governance of British capitalism. An earlier denizen of the City, Nicholas Davenport, had observed that these institutions recruited mainly from elite public schools—‘Old Etonian finance capitalism’. The social background of British elites is not unimportant: for example, compelling evidence of a City, Bank and Treasury social network was found by an anthropological study of the 1957 Bank Rate leak. However, I could not have argued more strongly that these social connections were not the systemic, structural basis for the Establishment syndicate. Capitalism Divided did not contend, as Norfield claims, ‘that somehow a narrow social grouping, the City–Bank of England–Treasury nexus, directed policy in a way that differed from the broader interests of British capitalism’. Rather, this historically forged institutional interdependence created a coincidence of complementary, but distinct, interests. Conflicts occurred, but these were never sufficient to weaken the shared aim to maintain a strong and stable currency. The City pursued its profits, the Bank managed the state’s debt and exerted control over the financial system, and the Treasury gratefully received the revenues, balanced the books and dominated the state bureaucracy. Norfield claims some originality for emphasizing the importance of the City’s global earnings, but it was a central theme in Capitalism Divided.

Without explicit mention, Norfield adheres firmly to the axiom that—‘in the last instance’—the reproduction of society, including all elements of the economy and superstructure, depends on its material mode of production. This formulation signified a compromise reached during the Marxist debates in the 1970s on the relative autonomy of the capitalist state to effect measures that appear to stifle or defer the contradictions in the capitalist mode of production. Could the Keynesian welfare state not only meet the narrowly economistic demands of the working class, but also stall the inevitable? Lip-service to material determination ‘in the last instance’ permitted examination of the capitalist state’s crisis-management strategies and consideration of the possibility that ‘the last instance’ might never come. I would suggest that Norfield’s analysis of capitalist finance and the City might be viewed from the same perspective. I have no wish to attempt a refutation of his insistent materialism. It is a truism that society would disintegrate if the means of subsistence apocalyptically collapsed, but does it make sense to use this as the only benchmark for the analysis of actually existing capitalism?

Norfield’s method impedes a thorough examination of the relatively autonomous operation of money and finance in capitalism and the complexity of their links to commodity production. Norfield can only admit a metaphorical ‘stretching’ rather than a ‘breaking’ of the relationship between finance and production; the distinction is never clearly explained. Without implying an indefinite trend, one might equally well contend that actual breaks are normal, periodic events. Capitalist crises are precisely those situations in which money/finance and production are no longer able to reproduce their connections without state intervention—the links are truly broken and in need of repair. In fact, Marx was not quite so sure as some of his adherents about the relationship between capitalist commerce, finance and production. Pre-capitalist commerce and banking were antagonistic to production; in the bourgeois mode of production, these sectors become subordinated to, and perform positive functions for, productive capital—provided, Marx cryptically comments, ‘merchant’s capital does not overstep its necessary proportions’ (Capital, vol. 3). Although the credit system develops as a reaction against usury, the latter lives on ‘in the pores of production’ in so far as bank credit based on the gold standard requires frequent interest-rate rises in order to maintain convertibility: ‘The value of commodities is sacrificed for the purpose of safeguarding the fantastic and independent existence of this value in money.’ Marx believed that the Westminster parliament’s 1844 and 1845 Bank Charter Acts were based on false theories of money, and helped to give the national banks and the big moneylenders and usurers ‘the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner—and this gang knows nothing about production and has nothing to do with it.’ Exasperated by the deflationary consequences of the Acts, Marx believed that such ‘mistaken’ legislation and ‘false theories’ would be abandoned once ‘the complete rule of industrial capital’ was acknowledged by English merchant’s capital and the moneyed interest. 

But have ‘false’ theories, the power of commerce and money-dealing, and ‘mistaken’ legislation not, in fact, persisted into the twenty-first century? If finance is parasitically dependent on surplus value, how has it been able to greatly increase its relative size in the capitalist economy? The exponential growth of the financial sector and its myriad assets and instruments, aided by politically enacted financial deregulation, has taken it beyond the necessary proportions of its functions for production. Or have the necessary proportions changed? Did capitalist production suddenly experience a vastly greater need for the services of commerce and money-dealing? Will finance be subordinated ‘in the last instance’? By relegating the role of the state in the politics of capitalist regulation, and designating credit-money as fictitious rather than a real force, Norfield is unable to offer a coherent explanation. 

Of the many attempts to provide one, it is surprising that Norfield does not refer to the books of a contemporary of his in the City. In Philip Augar’s The Greed Merchants: How the Investment Banks Played the Free Market Game (2005) we find that investment banking ‘outperformed the bulk of American business by a country mile for nearly thirty years’. Between 1975 and 2000, profits in the American securities industry grew by a factor of twenty-six, quadruple the increase in corporate profits over the same period. Are these the ‘necessary proportions’ between functionally integrated finance and production? Augar believes that financial deregulation led to an expansion of credit-money and the formation of a Wall Street investment-bank cartel that was able to legally expropriate funds from issuers and investors. The subsequent misallocation of resources undermined economic performance in the United States and across the world. Although Norfield insists that finance and industry cannot be in conflict, parts of his analysis are in fact consistent with Augar’s account, which points to the disruption wrought by self-generating financial circuits. Norfield tells us that financial companies’ large volume of assets mainly reflects loans to each other and that ‘only a very small proportion of their assets represents an investment in productive activity’. The expansion of these assets, he remarks, ‘helps spur financial-market “innovation” and all kinds of madcap speculation’—contradicting his previously stated view that the City is not a casino. 

The proliferation of derivative markets, briefly discussed by Norfield, shows how financial speculation exceeds its necessary proportions and assumes a relatively autonomous existence which is disruptive to commodity production and consumption. Modern futures markets can be traced back to the mid-nineteenth-century Chicago Board of Trade, which enabled agricultural commodity producers to hedge against unpredictable fluctuations in supply and price caused by the vagaries of the weather. Futures contracts require two counterparties, (commodity producer) hedgers and (financial) speculators, taking the opposite position on the future price that is ‘derived’ from an actual commodity. If the actual price proves to be lower than a future’s contract price, a hedger’s loss to a speculator would be offset by the gain from the lower price of the actual commodity needed for their business. Speculation and hedging combine in necessary proportions to stabilize future prices. 

However, purely speculative secondary and tertiary markets have developed for the trading of ‘derivatives of derivatives’. As the prices in these futures contracts are derived from a speculative future price, and not directly from the price of an actual deliverable commodity, they were legally defined as gambling and banned in many us states. Late-twentieth-century deregulation erased this distinction, legalizing all derivatives contracts by redefining a commodity to include services, rights and interests, and declaring that ‘over the counter’ derivatives trading lay outside the jurisdiction of the Commodity Exchange Act. Consequently, the secondary markets proliferated. More recent financial engineering, such as credit default swaps and collateralized debt obligations, shows the same pattern of evolution. Ingenious financial instruments designed to facilitate producers’ global transactions rapidly become objects of speculation in themselves, divorced from their original necessary proportions. Norfield’s insistence that commercial and financial services are a normal and necessary response to demand from the producers of surplus value makes it difficult for him to account for this ‘financialization’, a term he dismisses as ‘at best, a very superficial description of capitalist reality rather than a concept that helps to explain it’. Consequently, he fails to confront the post-2007 barrage of critique of pure speculation and money-dealing from dismayed liberal commentators such as Adair Turner, John Kay and Martin Wolf, as well as the work of long-standing Marxist sceptics of neoliberal bubblenomics, notably Robert Brenner. 

Furthermore, Norfield’s preoccupations cause him to miss the importance of debt-finance for pure speculation and its indirect and indeterminate relationship to the production of surplus value. State money, issued in payment for its purchases, accepted in payment of taxes, stands at the top of a monetary hierarchy of acceptability. This includes ‘near moneys’—ious, privately issued by enterprises as means of payment—that circulate in the shadow banking system. A large default on near-money ious in the shadow network, unsupported by the state or central bank, has an immediately devastating effect on their acceptability and liquidity. Based on his experience on Wall Street and in the us Treasury, Morgan Ricks argues in The Money Problem (2016) that the illiquidity of near money and the subsequent chain reaction of defaults was the major cause of the 2007 turmoil. An understanding of these events does not require that current or future surplus value in commodity production is taken into consideration. Securitized mortgages morphed into purely speculative assets, financed by both private near money and bank-created credit money. Norfield’s decision not to pay close attention to the Great Financial Crisis forecloses any consideration of these matters. 

A better grasp of capitalism’s complexity is achieved by abandoning both the ‘substance value’ assumptions in Marxism and the ‘real economy’ axioms of orthodox economic theory, along with their corollaries of ‘fictitious’ capital and the money ‘illusion’. In both schools, ‘value’ is created independently of the use of money—either as surplus value from exploited labour or as an individual’s marginal utility gained through exchange, where money is merely a passive instrument. Instead, money may be viewed as a token quantum of abstract prospective value by which production is inaugurated, accomplished, exchanged and consumed. In this conception, money is an active force of production. Its value is prospective in the sense that substantive value is actualized by money’s use, in Max Weber’s memorable phrase, as ‘a weapon in the struggle for economic existence’. This weapon is as ‘real’ as the material means of production.

The independent effects of monetary systems and financial arrangements are evident in Norfield’s own example of how a shift in the euro-Swiss franc exchange rate altered the merger, by share exchange, of cement producers Lafarge and Holcim from a ratio of 1:1 to 10:9. Thus, ‘financial developments can rapidly alter the relationships between major corporations.’ Norfield does not see that this was an autonomous monetary effect, produced exclusively by foreign-exchange market speculation which bore no relation to the cement manufacturers’ production of surplus value. Foreign-exchange markets are predicated on the existence of independent states and currencies which comprise a political system in which money is most obviously ‘a weapon’. 

Rather than a contorted conception of bank credit as a deduction from surplus value yet to be produced, the distinctive character of capitalist money and production is clearer if the logic is inverted. In capitalism, private debt is routinely transformed into the new prospective abstract value (money) without which production cannot be continually expanded. The creation of government and private debt ex ante ensures that there is enough money for production to be consumed. The elastic production of socially produced ‘fiat’ or ‘token credit’ money based on debt—promises that ious will be honoured—is simultaneously the source of capitalism’s dynamism and its fragility. Default is an ever-present possibility which is never simply the result of the present or future level of commodity production, except of course in the very ‘last instance’ when both money and material means no longer operate. A final day of reckoning—in effect, a financial ‘last instance’—in which all debts were settled would, as Marc Bloch pointed out, signal the end of capitalism.

In Norfield’s opinion, the state bailouts and repeated rounds of quantitative easing since 2007–08 constitute ‘a socialization of capitalism’s chronic liabilities by the capitalist state’. He refers to Lenin’s depiction of imperialism as moribund, already-dying capitalism. ‘The chronic nature of the current crisis’, Norfield writes, ‘with persistently low rates of growth compared to earlier decades, is another sign that the game is up.’ Yet capitalism may endure for as long as states and central banks continue to increase the level of public debt to provide the money with which to forestall an avalanche of private debt defaults. Ironically, this is implied by Norfield when he comments that ‘emergency stopgaps remain in place more or less indefinitely’. 

Is it too outrageous to view capitalism as a gigantic, ever-expanding, debt-financed Ponzi scheme? The major banks are sure to continue to overstep their necessary proportions, exposing the contradictions both within finance and in its relation to production. Only states’ sovereign money-creating power can attempt a resolution. Will they be able to embark—yet again, and again—on the subterfuge of quantitative easing, or direct drops of helicopter money, on a progressively greater scale? Will their creditors tolerate the burgeoning public debt? Would the populace accept the effects of measures taken to reduce it? Will the true nature of states’ rescue of finance eventually be exposed as the ‘socialization of capitalism’s liabilities’? In the spirit, if not the letter, of Marx’s Capital, it might be suggested—as Norfield glimpses—that the transformative potential of contradictions lies as much in capitalism’s mode of finance as in its mode of production.

Author Tony Norfield worked for 20 years in bank dealing rooms in the City of London. For ten years he was an executive director and the global head of FX Strategy in a major European bank, traveling to some forty countries on business, negotiating with finance ministries, central banks and major corporations. He was frequently quoted in the Financial Times, Wall Street Journal, Guardian and Telegraph, and on news services such as Reuters, Bloomberg, CNN and CNBC. In 2014, he was awarded a PhD in Economics from the School of Oriental and African Studies, University of London.

Essayist Geoffrey Ingham is a Life Fellow of Christ's College, Cambridge and author of Capitalism (2001) and The Nature of Money (2014).