Wednesday, May 28, 2014
Giovanni Arrighi's The Long Twentieth Century examines the contemporary capitalist financial crisis by situating it as the tail end of a multi-century historical process. The result is a history book that meanders through European history to explain the present situation as simply the repeat of a drama that has played out many times before -- exactly three times before, to be precise.
Arrighi begins, "Our thesis is that capitalist history is indeed in the midst of a decisive turning point, but that the situation is not as unprecedented as it may appear at first sight." (1) Indeed, he posits, we are at the end of a fourth "systemic cycle of accumulation" (henceforth SCA), which he defines as a "fundamental unity of the primary agency and structure of world-scale processes of capital accumulation." (6)
A SCA has two phases, inspired by Marx's general formula of capital MCM'. In the first (MC - "material expansion"), commerce predominates, but after a "signal crisis" the second (CM' - "financial expansion") begins, during which a shift to finance occurs. The SCA, finally, is ended by a "terminal crisis."  There have been four such SCAs, each shorter in duration: Genoese (15th century to early 17th century), Dutch (late 16th century to most of the 18th century), British (late 18th century to early 20th century), and American (late 19th century to present). In each subsequent SCA, a new type of cost is internalized and power concentrated on an even greater scale. (See figures.)
Arrighi borrows many concepts from the French historian Fernand Braudel. His definition of capitalism (8), emphasis on capitalist flexibility (4), the idea of recurrent withdrawals from trade as signaling financial expansion (5) and the capitalist/market/material 3-layer economic model (Arrighi examines only the top, capitalist layer). (10) Arrighi differs in rejecting Braudel's notion of secular cycles (7) in favor of SCAs. Nevertheless, Arrighi makes clear he is deeply indebted to Braudel's analysis: "I let Braudel plow for me the high seas of world historical fact, and chose for myself the smaller task of processing his overabundant supply of conjectures and interpretation into an economical, consistent, and plausible explanation of the rise and full expansion of the capitalist world system." (xiii)
The first chapter, Three Hegemonies of Historical Capitalism is a bit of a departure from the main theme of the book, examining the formation of the state system. Arrighi introduces the concepts of capitalism and territorialism as opposite logics of power. In capitalism, (to paraphrase Marx's afore-mentioned formula, with T meaning territory) the MTM' process predominates whereas in territorialism the rule is TMT'. Arrighi claims there were two periods of state formation, the first in the city-states of Northern Italy during the Renaissance and again in North/Western Europe later. The Italian city-states featured four characteristics of states: first, the capitalist system of war and state making; second, the operation of the "balance of power"; third, the emerging "protection-producing industry," where a larger segment of the population is induced into supporting the armed forces; fourth, developing networks of diplomacy. (38-40)
The Peace of Westphalia in 1648, which established the modern interstate system, emerged as a consequence of the increasing violence in Europe and costs of deploying that violence, leading to much social unrest. The emerging post-Westphalia Dutch hegemon had four differences with the Venetian regime (the most powerful city-state of Italy): first, an increase in scale and power; second, the interests of the Dutch capitalists clashed much more with the medieval authorities; third, the Dutch had greater war-making capabilities; fourth, the Dutch had greater state-making capabilities. (45-48) The British/French mercantilist system which succeeded the Dutch system was a fusion of capitalism and territorialism featuring three main components: settler colonialism, slavery and economic nationalism.
The Seven Years War settled the question of which of those two powers would be hegemonic. Consequently, Britain created a new world order of "free trade imperialism" which arose alongside three dynamics: the incorporation of new, non-dynastic European states into the interstate system, the dissolution of colonial empires in Europe which was followed by the creation of colonial empires outside of Europe; and a world government of "laws" emerged. The subsequent US-dominated hegemonic system exhibited a territorialism and capitalism that were indistinguishable from one another. The US ushered in an "anti-imperialist" (71) system of transnational corporations and regulating international bodies (United Nations, GATT, IMF, World Bank, Bretton Woods). The modern interstate system, therefore, features hegemonies of increasing comprehensiveness, each of which reduces the sovereignty rights enjoyed by its members. (76) But Arrighi ends the chapter wondering if this pattern of increasingly powerful regimes is at an end, in part because increasing expansion seems impossible, and also because warfare is reverting to Renaissance-era practices.
The second chapter discusses the first two SCAs: Genoese and Dutch, but not before revisiting the themes of SCAs. The four SCAs have transformed the capitalist world-economy, Arrighi asserts, "from a system in which networks of accumulation were wholly embedded in and subordinate to networks of power into a system in which networks of power are wholly embedded in and subordinate to networks of accumulation." (87) Every SCA involves a "change of guard at the commanding heights of the capitalist world-economy and a concomitant 'organizational revolution' in the process of capital accumulation." (88)
Capitalism as a historical system emerged in the context of the "war of all against all" during the Italian Hundred Years War which ended with the Peace of Lodi in 1454. Florence, specifically, with its management of Papal finances and wool trade, took the lead: "High finance in its modern, capitalist form is a Florentine invention." (97) In Florence the Medici family established "de facto... monarchical rule" of the city and were financially dominant for four reasons: first, the vacuum created by the financial troubles of the Bardi and Peruzzi families; second, the Medici's preference for government loans (and prudence about who to loan to); three, the Medici's state-making abilities, notably their artistic patronage which solidified city-state loyalty and prevented overaccumulation in their business; fourth, the atmosphere of competition for finance, brought about primarily because of the English/French Hundred Years War but also because of the enlargement of Papal finances after the Black Death. (105-109)
The first true SCA (rather than just a FE) took place under Genoese auspices. Unlike Venice and Florence, the landed aristocracy in Genoa prevented the formation of a merchant aristocracy, mandating that the merchants keep their surplus capital liquid. (113) The establishment of the Casa di San Giorgio, the use of gold coin of fixed weight to be used in all business accounts, and other innovations lead Arrighi to declare that "the real birthplace of modern finance capitalism in all its forms was mid-fifteenth-century Genoa." (115) Eventually, increased competition from Turks and other Italians for trade led the Genoese, relatively incapable of projecting power by themselves, to align themselves with the Iberian monarchies as their financiers. Consequently, the first SCA featured "an [Iberian] aristocratic territorialist component... and [a Genoese] bourgeois capitalist component." (125) Unlike other great financial families of the time like the Fuggers, the Genoese survived crises by shifting loses onto clients or competitors. (128) The Genoese fall from dominance corresponds with the Dutch victory over Spain for independence in the Eighty Years War, which the Genoese were profitably financing in the meantime. (Arrighi mentions that the Genoese capitalists later were also some of the main financiers and beneficiaries of Italian unification (128)).
The Dutch SCA saw the Netherlands fuse "the Venetian strategy of regional consolidation based on self-sufficiency in state- and war-making and the Genoese strategy of world-wide expansion based on a relationship of political exchange with foreign governments." (140) With their roots in the Baltic grain trade (like the Italians, the Dutch did not overextend themselves in their key trade, opting instead for conspicuous artistic consumption), the Dutch expanded their power and influence by making themselves the central entrepôt of world commerce, creating the first stock exchange in permanent session and launching joint-stock companies, notably the VOC (Dutch East India Company) in 1602. (141-143) The Dutch were able to consolidate power during this time in part because they were not engulfed in inter-religious feuding, unlike other European territories. (209) In contrast to the Genoese, the Dutch "internalized protection costs" by not outsourcing their armed forces to, say, Iberia. The Dutch coercion was also driven by desire for profit, not religious zeal or a fanatical gold hunt. By demonstrating the viability of mercantilism, the Dutch found themselves under competition from more powerful emulators, notably Britain. The later overtook the Dutch trade by force as a result of the last Anglo-Dutch War. (147) The transition of power from Dutch to British was reflected on the Amsterdam stock exchange, where surplus capital switched from Dutch investments to British ones. (161) (Interestingly, Arrighi calls the Dutch Patriot's Revolution "the first revolution on the European mainland, the forerunner of the French Revolution." (179))
Before the British SCA, "England had to go through a long historical process in the course of which its ruling groups first learned how to turn a geopolitical handicap into an advantage, and then began to exploit this advantage to wipe out all competitors." (188) The throne concentrated its power via the War of the Roses, creation of the Church of England, the defeat of the Spanish Armada, Elizabeth I's fusion with Scotland and conquest of Ireland, etc. The tradition of "sound money" (192) along with the establishment of the Royal Exchange, "marked the beginning of nationalism in high finance." (195) Nevertheless, "it took another century before the national union of capitalism and territorialism initiated under Elizabeth began its irresistible rise to world dominance." (200) By the end of the English Civil War which completed the process of nation-state formation that Elizabeth left unfinished, the defeat of Spain in the establishment of the Westphalian system made clear that England's national rivals were France and Holland. (203)
The British SCA established imperialism and free tradism as its distinguishing characteristics, globalizing the capitalist world-economy and synthesizing a capitalist and territorialist logic. (169) British victories in the Seven Years War (including the Battle of Plassey, the spoils of which enabled the British to buy back the national debt from the Dutch) and, eventually, the Napoleonic Wars, allowed Britain to consolidate power. These developments along with the industrial revolution allowed the center of entrepôt capitalism to shift to Britain, as well as Britain to take over the Atlantic triangle trade. The world, however, began abandoning Britain's free trade regime almost as soon as it was established, with newly-created Germany in the protectionist lead. (272) The suspension of gold convertibility of the pound in 1931 ended the British SCA.
In the fourth and hitherto last SCA, the US superseded the market by vertical integration within transnational corporations. (296) Britain tried to control the market and Germany tried to suspend it; both failed in the end. The US had the advantage of an abundance of territory and political isolation (unlike Europe), but realized that isolationism had reached a point of declining returns upon entering WWII. The Marshall Plan, Korean War and Vietnam War solved the problems of liquidity that dogged the US after it emerged victorious. But during the years of 1968-73, the system started to enter crisis because of the growth of finance caused by the abandonment of the gold standard, in turn because of the growth of the Eurodollar market. The crisis came militarily, financially and ideologically (disrepute of anti-Communism). (309) "In part," Arrighi writes, "the joint military and legitimacy crises of US world power were the expression of the failure of the US military-industrial apparatus to cope with the problems posed by world-wide decolonization." (331) The Volker Shock ushered in a new era, bringing some Third World countries to their knees because of their insolvency, but Arrighi ends the chapter by wondering if this new belle époque will be just as ephemeral as the last one.
Arrighi ends the book by emphasizing the lifetime of capitalism's expansion is necessarily limited: "Sooner or later, it must reach a stage at which the crisis of overaccumulation cannot bring into existence an agency powerful enough to reconstitute the system on a larger and more comprehensive foundations... There are indeed signs that we may have entered such a stage." (341) He comments on the unparalleled rapid economic rise of Japan, noting that Japan's promise of security from the US has enabled it to funnel funds to development in lieu of militarization (and also that Japan has gained the economic hinterland it failed to get via conquest through trade instead). (353) Arrighi argues that cheap labor constitutes the most important factor of the East Asian rise. A 2009 postscript emphasizes China's rise more than Japan's, but nevertheless Arrighi insists that "Contrary to what some reviewers have maintained, I did not suggest that any of these states (including Japan) were poised to replace the United States as the hegemonic power." (380) But he does see a "critical anomaly" in the current state of affairs: "the unprecedented bifurcation of financial and military power." (372)
Arrighi sees three potential outcomes unfolding: first, that the US will appropriate East Asian capital by military force or otherwise, forming a "truly global world empire" and bringing hitherto capitalist history to an end; second, East Asia dominating a world market system, but departing from the model of the previous several centuries where market-making and war-making powers coincide (perhaps being held together by "mutual respect of the world's cultures and civilizations"); third, the world descending into the chaos of escalating violence. In the postscript, Arrighi reiterates that any of these three scenarios remains a possibility. (369-370, 381)
Arrighi's account may befuddle some in its exclusion of both class struggle and core-periphery relations as factors of capitalism's development. His conception of the origin of capitalism breaks with the traditional Marxist account, preferring a story originating with the Pope's finances and slowly progressing to the modern day to a sharp distinction cut between feudalist and capitalist eras. His explanation of the contemporary capitalist crisis coincides nicely with Brenner's, although Arrighi claims such a pattern of overproduction is a historically recurring one. All in all, Arrighi's story is an engrossing one that encourages the reader to take the long view of financial crises rather than getting caught up in the superficial novelty of the present moment.
Thanks to Aaron Benanav for conversations regarding this book.
 Arrighi has a concise summary of the dynamics of material and financial expansions in the postscript: "In the conceptualization of financial expansions advanced in The Long Twentieth Century, material expansions eventually lead to an over-accumulation of capital, which in turn leads capitalist organizations to invade one another's spheres of operation. The division of labor that previously defined the terms of their mutual cooperation breaks down, and increasingly, competition turns from a positive-sum into a zero-sum (or even negative-sum) game. By accentuating the overall tendency of profit margins in trade and production to fall, cutthroat competition strengthens the disposition of capitalist agencies to keep in liquid form a growing proportion of their incoming cash flow. It thereby consolidates what we may call the 'supply' conditions of financial expansions... Sustained financial expansions materialize only when the capitalist agencies' preference for greater liquidity is matched by adequate 'demand' conditions. Historically, the crucial factor in creating the demand conditions of financial expansions has been an intensification of interstate competition for mobile capital... The occurrence of financial expansions in periods of particularly intense interstate competition for mobile capital is no historical accident. Rather, it can be traced to the tendency of territorial organizations to respond to the tighter budget constraints that ensue from the slowdown in the expansion of trade and production by competing intensely with one another for the capital that accumulates in financial markets. This tendency brings about massive, system-wide redistributions of income and wealth from all kinds of communities to the agencies that control mobile capital, thereby inflating and sustaining the profitability of financial deals largely divorced from trade and production." (372-3)
Posted by Danny Colligan at 8:01 AM