The demise of national capitalism.
To talk of the world economy being “informalized” suggests that there is a global rule-system, whereas effective rules are now absent at all levels of society, from the top to the bottom. We need to be clear about the different dimensions of this crisis. It is not merely financial, a moment in the historical cycle of credit and debt. I prefer to approach our times as a formative episode in the history of money. The removal of political controls over money in recent decades has led to a situation where politics is still mainly national, but the money circuit is global and lawless. We are witnessing the collapse of the money system that the world lived by in the twentieth century. This system has been unravelling since the US dollar went off gold in 1971 and its chief symbol today is the crisis for the single currency that was meant to protect European countries from their individual vulnerability. As the need for international cooperation grows, the disconnection between economy and political institutions makes effective solutions unattainable.
The informal economy’s improbable rise to global dominance is the result of the mania for deregulation during the last three decades, linked to the wholesale privatization of public goods and services and to the capture of politics by high finance. Deregulation provided a fig leaf for corruption, rentier accumulation, tax evasion and public irresponsibility. Nowhere was this more evident than in the culture of the Wall Street banks from the 1980s. This was no secret at the time. Each major bank spawned a tell-all book written by undercover reporters or disillusioned employees – from Liar’s Poker (Salomon Bros – Lewis 1989) to F.I.A.S.C.O. (Morgan Stanley – Partnoy 1999). The removal of official restraints on financial practices generated a culture of personal excess from the trading floor to boardroom politics; moral responsibility towards clients was replaced by an ethos of predation. Yet, while the credit boom lasted, criticism was drowned by celebrations of unending prosperity. Even after the bust, the political ascendancy of finance has hardly been challenged. And we wonder why our leaders routinely refuse to take responsibility for their own failures.
Apart from the main financial houses, the shadow banking system — hedge funds, money market funds and structured investment vehicles that lie beyond state regulation – is literally out of control. Tax evasion is an international industry that dwarfs national budgets (Shaxson 2011). The Cambridge economist, Sir James Mirlees, won a Nobel Prize for proving that you can’t force the rich to pay more than they are willing to. Mitt Romney’s non-disclosure of his tax returns inscribed this principle at the heart of the US presidential elections! None of this touches on the outright criminal behaviour of transnational corporations who now outnumber countries by 2 to 1 in the top 100 economic entities on the planet (Perkins 2004). Where to stop? The drug cartels from Mexico and Colombia to Russia, the illegal armaments industry, the global war over intellectual property (“piracy”), fake luxury goods, the invasion and looting of Iraq, 4 million dead in the Congo scramble for minerals. In 2006, the Japanese electronics firm NEC discovered a criminal counterpart of itself, operating on a similar scale under the same name and more profitably because it was wholly outside the law (Johns 2009). The informal economy was always a way of labelling the unknowable, but the scale of all this goes beyond comprehension.
2011 saw the first political consequences of the financial crisis of 2008. We still tend to talk about the encroaching disaster we are living through in economic rather than political terms. Even neoliberalism’s detractors reproduce the free market ideology they claim to oppose. The euro is by no means the only symptom of this crisis, but it may come to be seen as the decisive nail in the coffin of the world economy today (Hart 2013). We seem to be at the end of something. What is ending is “national capitalism”, the synthesis of nation-states and industrial capitalism. Its main symbol has been national monopoly currency (legal tender). It was the institutional attempt to manage money, markets and accumulation through central bureaucracy within a cultural community of national citizens. National capitalism was never the only active principle in world political economy: regional federations, empires and globalization are at least as old or much older.
National capitalism’s origins lay in a series of linked revolutions of the 1860s and early ‘70s based on a new alliance between capitalists and the military landlord class (Hart 2009). These ranged from the American civil war and Japan’s Meiji restoration to Italian and German unification, Russia’s abolition of serfdom, the French Third Republic and Britain’s second Reform Act. In all this, Marx (1867) published Capital and a revolution in transport and communications (steamships, continental railways and the telegraph) took place. These new national governments launched a bureaucratic revolution in the late nineteenth century and then sponsored large business corporations in a drive towards mass production. The national system became generalised after the First World War when states turned inward to manage their economies in war and depression. Its apogee was the social democracy built after 1945, what the French call les trente glorieuses.
Money expands the capacity of individuals to stabilise their own personal identity by holding something durable that embodies the desires and wealth of all the other members of society. People learn to understand each other as members of communities and money is an important vehicle for this. Nation-states have been so successful in a relatively short time that it is hard for us to imagine society in any other way. Five different types of community come together in the nation-state form:
• Political community: a link to the world and a source of law at home
• Community of place: territorial boundaries of land and sea
• Imagined or virtual community: the constructed cultural identity of citizens
• Community of interest: subjectively and objectively shared purposes in trade and war
• Monetary community: common use of a national monopoly currency
The rise and fall of single currencies is therefore one way of approaching national capitalism’s historical trajectory. Money is the principal means for us all to bridge the gap between everyday personal experience and a society whose wider reaches are impersonal. According to Georg Simmel (1900), it is the concrete symbol of our human potential to make universal society. At present national politics and media frame economic questions in such relentlessly parochial terms that we find it hard to think about the human predicament as a whole. But money is already global in scope and the need to overcome these limitations is urgent. My fear is that only a major war and all the losses it would bring will concentrate our minds once more on fixing the world we live in.
Karl Polanyi (1944) is enjoying a major revival today for the good reason that our crisis is strongly reminiscent of the disaster he sought to explain then, namely the collapse of the Victorian free market ideal, resulting in world war and depression. He listed money, along with land and labour, as a “fictitious commodity” whose unregulated exchange came close to buying and selling society itself. He held that money and markets originate in the extension of society beyond its local core; society has to become more inclusive since none was ever self-sufficient. But conflict between the internal and external dimensions of an economy is often highly disruptive. This is why societies have traditionally held markets at arm’s length and why acceptance of market principles at the core of modern societies invites disaster.
Mainstream economics says more about what money does than what it is. Its main function is held to be as a medium of exchange, a more efficient lubricant of markets than barter. Another school emphasizes money’s function as a means of payment, especially of taxes to the government and hence on “purchasing power”. It is also a standard of value or unit of account, with the focus again on government’s role in establishing the legal conditions for trade; while John Locke (1690) conceived of money as a store of wealth, a new form of property that allowed the accumulation of riches to escape from the limitations of natural economy. In a little-known article, Polanyi (1964) later approached money as a semantic system, like writing. He argued that only modern money combines the four functions (payment, standard, store and exchange) in a few “all-purpose” symbols, national currency. By contrast, primitive and archaic forms of money attached the separate uses to different symbolic objects or “special-purpose” monies. Polanyi argued against the primacy of money as a medium of exchange and for a multi-stranded model of its evolution. For him and for Keynes, it was above all a means of payment or the “purchasing power” of citizens which drives modern economies, not so much a medium of exchange for buying and selling as such (…to be continued).
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