What ‘Off The Rails’ Capitalism Really Means
Have we entered the final phase of our economy’s long unwind?
In recent years, observers from the worlds of politics, the media, academia, finance, and think-tanks have described the current political and economic moment as unprecedented, marked by “broken guardrails” and a sense that things are “unhinged.” Recourse to these analogies has only intensified since November 2016, as the actions and statements associated with the Trump administration reflect for many a disintegration of political conventions and norms. It is typically assumed that a change of leadership can get back at least some of the lost guardrails. This is a mistaken view. The transformation of our “off the rails” economy predates Trump, and is more than reflection of the recent shift to the right (though this is a critical development). Since the second half of the twentieth century, capitalists have expanded their freedom of action at a heightened rate, at the expense of the conventions, customs, and regulations that have tethered and thereby anchored capitalism. Who better to help further a culture of unrestrictedness in political and economic realms than Trump?
In the current climate, it’s difficult to imagine how tethered capitalism has historically been. In the mid-nineteenth century, Karl Marx noted in Capital that customs and norms were important to production and especially finance, be it the setting of interest rates or the centrality of gold. Up until the nineteen-thirties — before the socialization of risk started to really take off — a tether on banks called “double liability” transcended corporate limited liability: shareholders were liable not merely for their own capital stake in a given bank — be it equity or credit — but for all the obligations, debts, fines, or losses the bank might accrue.
In 1971, President Nixon cast aside the gold’s dollar convertibility and established a fiat currency regime, a pointed instance of untethering. From that decade onward, untethering has been a central characteristic of capitalism, especially regarding finance. Forty years later, European central banker Mario Draghi felt sufficiently untethered to tell the world he would do “whatever it takes” to maintain profits and stability in financial markets. His American and Japanese counterparts made similar commitments, and all went on to freely fabricate novel approaches to credit and money systems, such as debt-monetarization and the suppression of interest rates. The expanding influence and presence of financial processes have been part of a change in the very disposition of capitalism. This entails not only the widespread fabrication of new financial practices, but also the disregard of established norms, conventions, and regulations that have historically guided capitalism.”
There is no shortage of examples of untethering, from “free” floating currency exchange to massive stock buyback programs — a practice which once was discouraged by the Securities and Exchange Commission. In the realm of buybacks, for instance, we now have a substantial number of firms not only deploying accumulated capital toward buybacks (nearly $1 trillion in 2018) but also floating massive debt in order to raise funds for it. Once we had “bond vigilantes” — investors who would observe the imbalances in a given economy and start selling bonds, driving up interest rates at a substantial pace and forcing capitalism to “correct course.” Today, bond vigilantes are extinct.
There are three dimensions involved in financial untethering: conventions, customs, and norms; the repeal of state regulations such as the nineteen-thirties Glass-Steagall Banking Act (deregulation is typically what people mean by “unfettering” capitalism); and the (hyper-) fabrication mentioned above, which has led to new practices such as “Quantitative Easing.” Hyper-fabrication may be the least intuitive dimension, but it is critical to creating new forms of capitalist agency that transcend existing limits as to what can be done, whether it’s the relatively straightforward invention of mortgage-backed securities or the complex development of esoteric interest rate derivatives and high-frequency trading. Hyper-fabrications are part of the what Marx described as the revolutionary character of capitalism. They do not just transform capitalism; they free up the range of possible action around the globe otherwise constrained by existing limits. Capitalists have many names for hyper-fabrication, but perhaps none are as apt as “financial engineering.”
Rather than a mission with an end-state goal, untethering is instead best viewed as a process. As such, it bears on how capitalists perceive and pursue the organization of capitalism, in which agency is central and what matters is the pattern and orientation of action (the disposition). There will always will be limits and tensions (which we can even call tethers). Tethers like capital controls can erode and then return or only very slowly unwind. There are rules and institutions and ways of doing things even where algorithms are concerned. Untethering requires institutions like the U.S. Federal Reserve or Bank of International Settlements to create spaces and capacities to act in untethered ways. The intensified untethering that has followed the 2008 crisis is not chaos or a free-for-all. It proceeds in what appears to be a step-by-step manner in the pursuit of profit, wealth, and the preservation of the economic system.
Before this era of intensified untethering, the rise of the twentieth century state as intervener and planner within capitalism meant that customary tethers were superseded by the widening and deepening of state regulation across different areas of economic life. Early on, regulations were put in place to limit trusts and unfair and risky corporate practices. As the mid-century approached, regulatory tethers were increasingly set in the context of planning and economic stimulation. This change was a function of the pursuit of planning to achieve economic growth, full employment, and a more stable financial system following the Great Depression. On the international level, the Bretton Woods currency tethers were established to facilitate international trade.
It is worth noting that as the many conventional tethers of capitalism faded with the rise of the Keynesian interventionist state, the decline of that state, starting in the nineteen-seventies, meant the disappearance of the twentieth century bulwark against a foot-loose capitalism. This was an especially troubling prospect as competitive capitalism was replaced by monopoly-imperialist capitalism with its expansion of concentrated power and political influence. The ground was clear to start disposing of capitalism in a far more untethered fashion and to use the emerging neoliberalizing state to facilitate the process.
We ought to think carefully about what capitalists might mean when they use phrases such as “unchartered territory” to describe the current moment. In their view, what renders developments as “unchartered” can be levels, ratios, practices, and circumstances seen as unprecedented — flowing from actions (hyper-fabrication) or the violation of previously assumed limits. Take a simple indicator, such as total public debt to Gross Domestic Product (GDP). A ratio that reached 100 percent was historically considered very dangerous (recall the panic around so-called Third World debt crisis in the nineteen-eighties). As late as the nineties, European states agreed (in the Maastricht Stability and Growth Pact) to a 60 percent standard. Today in the U.S., with the same ratio standing over 100 percent, a new tax cut has been instituted by seemingly indifferent Republicans.
But 100 percent is relatively low compared to the deficit in Japan, another G20 country, where the ratio of public debt to GDP is now over 200 percent and the Japanese central bank’s assets (bonds purchased on the market as well as stocks) now equals 100 percent of GDP as a ratio — to say nothing of China, where bank balance sheets amount to $40 trillion against the background of a $13 trillion GDP. Compared to decades past, when red flags were raised about much lower levels, these new levels are receiving increasing justification from institutions such as the International Monetary Fund, where it is argued massive debt levels are justified as contributors to growth; then there’s Modern Monetary Theory, which asserts such levels do not matter at all. Indeed, in 2016, interest rates hit the lowest level since the fourteenth century — typically low rates signal economic confidence. In contrast, in the aftermath of the Great Depression’s debt carnage — in a still tether-disposed capitalist economy — it took over a decade before even public debt would be treated as a truly worthwhile investment.
Does an untethered disposition risk system instability? Or is it a way of coping with system imbalances that are unavoidable in the post-World War Two capitalist order that has now spanned both the twentieth and twenty-first centuries? That is, is this untethering a symptom of what can happen at the end of hegemonic order? Such untethering could be seen as a condition that takes place to bring a cycle to its conclusion — with, for example, extreme financial bubbles that risk bursting and collapsing the economic order, the latter phenomenon receiving considerable attention from economists such as Hyman Minsky and Charles Kindelberger.
These questions raise the related one of whether capitalism is so entrenched that it senses that it can afford to untether itself well beyond the scale of relevant previous eras, such as the nineteen-twenties or last decades of the nineteenth century. In an untethered capitalism there is an absence of meaningful countervailing forces, not just within the state but also across the capitalist class itself. Natural questions here are: Why untethering? Why now? Does capitalism operate as though it is now not just hegemonic but victorious over anti-capitalist forces, the occasional re-emergence of which it believes poses no existential threat and can be handily dispensed with? Is capitalism confident in its ideological pervasion, organizational infrastructure, and institutional-material presence (from stock exchanges to commodity chains) — its deep and abiding inscription in the world? Historians like Fernand Braudel have shown it has been the inclination of capitalism since its beginning to operate with maximum degrees of freedom. In the past, it had limited scope to do so; now, it feels confident it finally can move freely.
What is on the other side of an untethered disposition? Can there be a re-tethering? History suggests that in principle there can be a re-tethering, especially if capitalism transitions into a new hegemonic order. Short of a world system transformation and revolution, or a major crisis that is not manageable within the confines of the existing order, re-tethering as a matter of willful policy and politics is unlikely. I cannot share some observers’ disappointment in institutions such as the Financial Stability Board for its lack of meaningful action in the aftermath of the 2008 crisis. In the context of an untethered disposition of capitalism, such expectations may be misplaced. Capitalism is unlikely to allow itself to be hemmed in and re-regulated from within the current untethered order itself. Ultimately, we have to wonder whether the quantity of changes associated with capitalism’s untethering might be leading to a qualitative shift in the type of capitalism we are facing. This would be a capitalism that not only undergoes changes within its various social, economic, and political spheres, but also changes its very nature on a sustained basis.
What about impacts on lives, communities, and the environment? Monopoly capital was already a formidable and destructive force as it entered the nineteen-eighties — its destruction including extreme harm to the environment, livelihoods, families, individual lives, and viable communities. One can only wonder what the tally will be when observers look back on the untethering of today. The synergy between untethering, monopolization, and violence is hard to miss.
If “nothing matters” anymore — including rapidly expanding inequality — at least to elites of various orientations, we may have to make sure to broaden our view of what is subject to untethering. Our sense of an “off the rails” political practice and culture (poignantly symbolized by Trump) should be seen as part of a more fundamental untethered disposition evident across capitalist modernity. There can be no clear one-to-one mapping of economic changes to the political realm. But transformations in modes and logics of economic action and organization can shape the overall nature of “how things are done” or “what is possible.” We have an excellent example in the transformation in logic of the industrial factory of the nineteenth century, which came to shape the entire political culture with its emphasis on bureaucracy and rational, compartmentalized, administration. Observers of “new times” and “postmodern” capitalism at the time were catching the first glimmers of change across cultural and political life. Trumpism is scary enough, but it may be only the tip of the iceberg of a wider set of changes to come, as capitalist modernity reorganizes via the untethered disposition of capitalism. And just as it may not be a simple matter to expect capitalists to gather the will and energy to re-tether the economic realm, it may be a false premise to expect the same in the political realm. As such, we ought to keep our eyes open to fundamental transformations underway in both spheres, and consider our resistance to them with the understanding that a resurgent right in the context of an untethered capitalism is a formidable challenge.
Robert Latham is a professor of political science at York University in Toronto, Canada; a New School graduate; and co-editor of The Radical Left and Social Transformation (Routledge).