Mouatt - The Dissolution of the Financial State

The Dissolution of the Financial State

Heterodox Studies in the Critique of Political Economy

Series Editor : Andrew Kliman

The outbreak of the global economic crisis in 2007 has led to renewed discussion of heterodox economics and Karl Marxs contributions. Heterodox Studies in the Critique of Political Economy contributes to and seeks to broaden the focus of these discussions. It welcomes proposals from authors working within various heterodox traditions. Contributions to the critique of political economy in the tradition founded by Marx are strongly encouraged, as are other marginalized voices and perspectives. Thus, nonacademics, scholars from Asia and the global South, and proponents of perspectives that are underrepresented in the existing academic heterodox literature are encouraged to submit proposals. Both single-authored works and edited collections are welcome.

Advisory Board

Alan Freeman, London Metropolitan University

Seongjin Jeong, Gyeongsang National University

Nick Potts, Southampton Solent University

Recent Titles in this Series

Is Marxs Theory of Profit Right?: The Simultaneist-Temporalist Debate , edited by Andrew Kliman and Nick Potts

The Dissolution of the Financial State: A Marxian Examination of the Political Economy of Money since the 1930s , by Simon Mouatt

The Dissolution of the Financial State

A Marxian Examination of the Political Economy of Money Since the 1930s

Simon Mouatt

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British Library Cataloguing in Publication Information Available

Library of Congress Cataloging-in-Publication Data

Mouatt, Simon.

The dissolution of the financial state : a Marxian examination of the political economy of money since the 1930s / Simon Mouatt.

pages cm. (Heterodox studies in the critique of political economy)

Includes bibliographical references and index.

ISBN 978-0-7391-9037-1 (cloth : alk. paper) ISBN 978-0-7391-9038-8 (electronic) 1. MoneyHistory20th century. 2. MoneyHistory21st century. 3. CapitalismHistory20th century. 4. CapitalismHistory21st century. 5. Financial crisesHistory20th century. 6. Financial crisesHistory21st century. 7. Marxian economics. I. Title.

HG255.M68 2015

335.412dc23

2015013243

The paper used in this publication meets the minimum requirements of American National Standard for Information SciencesPermanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992.

Printed in the United States of America

Contents

This book would not have been possible without the seminal work of Professor Andrew Kliman to whom I owe a debt of gratitude. I would also like to thank Professor Victoria Chick, Dr. Carl Adams and Dr. Julian Wells for comment, and Professor Nick Potts for his insightful reflection at every stage of the research. Special thanks also to Helen Anderson for her train illustrations used in Chapter 8, Charles Caplen for proofreading, Rachel Searle for background information on the Bank of England and, for tireless support throughout the writing of this book, my wife Catherine.

In this book I argue that the post-Keynesian (PK) theory of endogenous money (EMT) can be combined with Marxian analysis in order to give insight into the changing power relations between the state, finance sector and real economy. The control of financial resources and money, described in the book as financial power , is a primary (but not exclusive) source of social power for those that wield it. Since virtually all of modern money exists in the form of credit-money held in bank deposits and denominated in particular currencies, the political economy of the credit system and currency value are worthy of specific focus. In this respect, following the work of Susan Strange, one of the books key arguments is that financial power is derived from the control of money-issue and its purchasing power, both assumed to be determined by the state and market in varying proportions depending on context (Strange 1988). As the subtitle suggests, the theme explored in the book is the erosion of state sovereignty, in terms of this financial power, experienced from the 1930s to the current era of globalization. The assumption is that, during the Keynesian period after WW2, the state acquired a measure of capability to determine money-issue/value that has been subsequently lost. In addition, the growth of financial markets in recent decades, so-called financialization , has led many to assume that private finance is an important proximate driver of economic affairs in general. I argue in the book that the impact of the states lost capability is a democratic deficit and the reduced capacity to regulate the macroeconomy. It is common in the discourse to explain this financial transformation, and lost state sovereignty, with reference to the actual processes of financialization itself. However, this view is somewhat tautological and, therefore, provides insufficient explanation. To discuss various financial factors as causes of financial crisis, for example, risks describing the phenomena without illustrating the root causes. In contrast, the book seeks to argue that systemic drivers of capitalism (rooted in production), probably best understood by Marx, actually do provide a more plausible explanation of the causes of the financialization and erosion of state sovereignty. In addition, the post-Keynesian descriptions of monetary processes are considered to best reflect the actual reality of the monetary system. This represents an interesting synthesis of the classical Marx with modern money theory.