Finance
Finance today signals a whole range of ways in which culture, economy, and polity—the very fabric of material and symbolic life—have become interwoven. It maps a terrain where expert knowledge jostles uneasily with tacit understandings of the world, where enormous wealth becomes entangled with everyday poverty, where the future mingles with the present and the faraway with the very near. “Finance,” as a noun or verb, along with “financialization” as a name for the process by which financial habits of thought have become prevalent across a wide array of fields and activities, has meanings and applications that shift depending on usage. This variation renders the term all the more challenging to grasp, even as the calamitous specter of households, businesses, nations, and global markets in default has made private matters of credit and debt objects of public consideration.
One reason for this confusion is that “finance,” considered as a keyword, presents meanings that are both logically and practically conflicted. It appears in popular and academic discussions as a realm of imaginary speculation unmoored from the material labors of production and circulation, even as it points in those same discussions to the collapse of the distinction between the imaginary and the real. It is said to be both the source of our economic woes and the key to our future prosperity. Its complex mathematical formulae are held up as perfect information processors, self-regulating and best run without public oversight or government interference, yet the prominence of finance has spawned reams of rules and regulations. When financial markets froze in 2008 and trillions in US taxpayer dollars were put up as collateral to restore their health, the conventional meanings of public and private interests reversed. Once offered as proof of the reasonableness of private markets to organize and satisfy collective needs and wants, finance suddenly occasioned scenes of popular rage, confusion, and anxiety.
“Finance” once signified more narrowly. The Oxford English Dictionary traces the term to fifteenth-century French provenance, where it referred to settling a dispute or debt, paying a ransom, or supplying a contracted provision—the “fin” or final point of a transaction or exchange. It was not until the turn of the nineteenth century that the term’s usage began to point toward the science of managing fiscal affairs in governments and corporations, along with what became the modern language of credit and economy (Poovey 2008). “Finance,” in this context, refers to a means of amassing capital by underwriting the risks associated with the promise of future wealth through the issuance of bonds and other instruments of credit. Throughout the nineteenth century, finance capital fueled industrial and imperial expansion as investment houses developed increasingly sophisticated technologies for managing and profiting from economic risk and speculation. Out of these origins in the nineteenth and early twentieth centuries, financial logics and terms of art entered everyday speech only in the last quarter of the twentieth century. With the turn toward market-based thinking in public policy debates, finance began to provide a generalized vocabulary for modeling the management of risk across a wide array of arenas, ranging from the consequences of weather patterns to the assessment of schoolchildren’s learning to disease and terrorism as threats to security (R. Martin 2002).
The colleges and universities in which this essay is most often read provide one instance of this financial turn in policy discourse. From the granting of land to create public universities through the nineteenth-century Morrill Act to subsidies for student tuition and campus operations in the twentieth century, major initiatives in higher-education policy have focused on inclusion and access. The assumption guiding these initiatives is that education is a public good essential to upward economic mobility and informed democratic citizenship. Beginning in the 1980s (partly as a result of the rise of the so-called knowledge economy and its ability to make intellectual pursuit profitable), financialization began to recast education as a private investment. For individual students, this shift has made college planning something to manage from cradle to grave, with families putting money into financial instruments such as stock-market-based 529 savings plans at birth. At the same time, public and private tuition continues to rise, as does average student-loan debt (the current number is over $20,000 per pupil). Taken as an aggregate, student-loan debt is approaching a trillion dollars and, as of 2011, exceeds consumer credit-card debt. For institutional investors in the global financial markets, this level of borrowing makes student loans a source of revenue or liquidity, particularly when the debt is bundled or securitized in ways that transform it into a long-term stream of income. The expectation that tuition (and debt) will continue to rise is now being used as collateral by some public-university administrations to secure favorable terms on bonds for construction projects. These strategic investments rationalize inequalities and cross-subsidies from lower-cost, instruction-intensive fields in the humanities and social sciences to the higher-cost fields of science, technology, engineering, and medicine that might promise returns on investment if enough money is risked. Contemporary metrics of educational excellence—national and international rankings, endowment size, grant making, intellectual property—eclipse other student-centered considerations of what education might be for and which values it should uphold (Meister 2011; R. Martin 2011; Newfield 2008).
As both a term and a technology, finance plays its greatest role when these types of substantial changes in the way business is conducted are afoot. Historians have detected patterns across periods of rapid monetary expansion: the rise of finance as a means of wealth making corresponds to the social decline of locations where finance is centered. Examples are Florence during the Renaissance (the early 1500s), Spain at the end of its century of conquest (the late 1500s), the Dutch at the end of their period of expansion (the late 1700s), and the British Edwardians at the sunset of their empire (the late 1900s). In each of these eras, the concentration of financial wealth and the leveraging of resources through finance capital were accompanied by dramatic polarizations between haves and have-nots, both between the imperial center and its colonial peripheries and within the center itself. In each instance, the middle class that helped usher in the new wealth fell on hard times. The historical pattern distinct to financialization can be traced through the rapid accumulation of wealth that anoints a new global center of economic activity, the relative shift from industry to finance as the preferred mode of capital accumulation, the resulting rise of income polarization and decline of the middle class, and the resort to state coercion as the only means of governing an increasingly polarized population (Braudel [1981–84] 1992; Arrighi 1994).
The United States entered this historical pattern when it began to take over dominance in global financial affairs from Britain at the end of the nineteenth century. In the early decades of the twentieth century, the United States expanded overseas, and its workers were converted through a process known as Fordism into middle-class consumers with access to credit for the cars and houses of their (American) dreams. After a decade of depression and doubt whose nadir corresponded to relinquishing the gold standard as the means of undergirding currency value, the nation emerged victorious from World War II as the guardian of a system of international exchange that pegged the worth of all currencies to the dollar. The United States enjoyed the economic and political privileges of monetary sovereignty since it controlled the rules of the game as a result of the Bretton Woods agreements of 1944 (agreements that installed the International Monetary Fund and the World Bank as global financial institutions). But it also took on the responsibilities of being the standard currency. In the 1970s, economic growth among European and petroleum-exporting countries outstripped the US government’s ability to hold adequate dollar reserves. As the financial architecture installed at Bretton Woods unraveled, exchanges of money, credit, and debt became the province of a massive multinational financial-services complex.
The significance of this shift cannot be overstated. As a result of the slow transition from industry to finance as the cardinal mode of wealth making in the United States, the government’s role as guardian of the economy shifted from stimulating growth and developing the nation’s human capital to guaranteeing the security of transnational monetary flows and shifting financial risk onto its citizenry (Hacker 2006). From the 1970s to the present day, organized labor has come under assault due to its commitment to viable working-class lives, and wages have flatlined or declined. Expanding consumer credit and access to appreciating equity (stock-based pensions or mortgage-based homeownership) has taken up the slack of wealth production for the middle class. The credit wings of venerable manufacturers such as General Motors and General Electric have become their most profitable divisions. As finance has become more pervasive, the concept of risk has also risen in significance. Understood as the calculable measure of potential future gain, the capacity to act now by living in anticipation of what may come to pass, risk makes of finance both a calculation and a feeling. When queried as to the ideal mix of investments, financial planners invite their clients to answer for themselves, “Can you sleep at night?” This question shows that financial decision-making may be more emotional than rational or, in the words of Raymond Williams ([1977] 1997, 128–35), that it may provide a “structure of feeling”—an inchoate and emergent sensibility underlying many aspects of contemporary life. As financial thinking has spread from the rarified precincts of capital to the sinews and microfibers of middle-class planning and self-fashioning, both assets and populations have begun to be sorted according to who can bear or manage risk (the virtuous self-managers of risk) and who cannot (the “at-risk” populations in need of management).
When the decades of heightened financial risk taking incentivized by neoliberal policy reforms boiled over in the crisis of 2007–8, the understanding of finance as a parasite on something else called the real economy took hold. The effects of this conventional way of thinking about finance were diverse: anti-Semitic images of greedy bankers running Ponzi schemes were recycled from the Crusades and the Christian prohibitions on usury, and racialized representations of “at-risk” populations reawakened ideological associations of poverty with the failures of individual self-control. Odd political bedfellows were created as Tea Party populists chafed at taxpayer money propping up failed banks and liberal Democrats blamed insufficient regulation for the creation of financial firms that were too big to fail, thus giving the scoundrels a pass. Leftists declared with a mix of hope and longing that the burst bubble portended a capitalist collapse (R. Brenner 2003; Foster and Magdoff 2009). At the same time, these political effects distracted attention from the structural significance of the contemporary interweaving of economics, politics, and culture. Finance devoured or outpaced regulation, relied heavily on state intervention, and exacerbated the coercive aspects of the market. It relied on a double vision of moral hazard and moral panic. The first worried about rewarding the bad behavior of the bailed out, both rich and poor; the second referred to those blemished subprime-mortgage borrowers who, as carriers of bad debt, required preemptive action through foreclosure (R. Martin 2010).
For both cultural studies and American studies, this interweaving of the material and the symbolic—what Marxists refer to as the economic base and political superstructure—should provide an opportunity to recognize the ways in which productive activities are now closely integrated with financial circuits of social reproduction. This recognition provides a suppler grasp of the current situation. Whereas Marx invited us to treat the culture of capitalism from the vantage of its apparent singularity, the commodity, the cognate analytic move today requires that we approach the culture of finance from its most salient manifestation, the derivative (Bryan and Rafferty 2006; LiPuma and Lee 2004). Derivatives are financial contracts that work like insurance policies; a premium is paid by an investor to hedge against the unanticipated outcomes of speculation on future events. As such, derivatives have a face or notional value many times what they are bought and sold for. On the eve of the subprime-mortgage crash in 2007, derivative contracts had a face value of over a quadrillion dollars, nearly fifteen times the global gross domestic product—the standard measure of the value of goods and services. These instruments for speculating on and managing risks by bundling together attributes of commodities-in-exchange (interest, mortgage, currency exchange, and other variable rates) were the principal medium of profit making among the investment banks and hedge-fund managers who purportedly drag raced the economy off the cliff in 2008.
The challenge we face today demands that we neither moralize about derivatives as financial instruments nor await the next cyclical downturn to be able to say “I told you so.” Rather, we need to trace the generalized social logic of risk that the derivative epitomizes so as to locate new horizons of possibility for human association. Derivatives provide financial leverage; they take local attributes and render them of interest to global circuits of exchange. Mortgage rates, once governed by neighborhood savings and loans, are now spliced together according to their credit rating and traded internationally. These far-flung, highly diversified portfolios quickly came back to bite investors and homeowners, restructuring entire neighborhoods along the way. This is the spatial dimension of the derivative. Its temporal aspect works similarly since it makes the future actionable in the present. This ability to act on opportunities before all their conditions have been realized is one feature of the culture of neoliberal and market-based thought and policy with which we live today. But it may also underwrite the confidence in speculation that characterizes the do-it-yourself counterculture of hacking, mash-ups, and self-production. The temporality of finance insinuates the future in the present; the possible becomes actionable now.
If finance were not imagined as an end in itself, it could become a means of making common claims on the enormous aggregations of wealth in our midst. The result could be a rethinking of our mutual indebtedness, away from the intonations of moral turpitude that blame the individual victims of financial miscalculation and toward more expansive and appreciative claims that we are able to make on one another (Dienst 2011). For cultural studies and American studies, finance should force us to consider the means we use to value how we perform, what we produce, where we are accountable and mutually interdependent. In the early twenty-first century, finance has brought an end to a certain US-centered dreamscape, but it should also allow us to mine its ruins to see what else we might make of the surpluses it has created. It names the politics we have made but have not yet found the means to value.
2014