Justice is an Option: A Democratic Theory of Finance for the Twenty-First Century 022670288X, 9780226702889

Table of contents :
Contents
Preface
Introduction
1: Finance and Marx
2: Market Liquidity and Financial Power
3: Trauma or Injustice
4: Is Justice an Option?
5: Justice as an Option
6: Can Capitalism Short Itself?
7: Funding Justice
Conclusion
Afterword: Spring 2020
Acknowledgments
Notes
Bibliography
Index

Citation preview

JUSTICE IS AN OPTION

CH ICAG O S T U DI E S I N PR ACT ICE S OF ME AN I NG A series edited by Andreas Glaeser, William Mazzarella, William Sewell Jr., Kaushik Sunder Rajan, and Lisa Wedeen Published in collaboration with the Chicago Center for Contemporary Theory http://ccct.uchicago.edu RE C E N T b OOkS I N T HE S ER I E S Authoritarian Apprehensions: Ideology, Judgment, and Mourning in Syria by Lisa Wedeen

The Politics of Dialogic Imagination: Power and Popular Culture in Early Modern Japan by Katsuya Hirano

Deadline: Populism and the Press in Venezuela by Robert Samet

American Value: Migrants, Money, and Meaning in El Salvador and the United States by David Pedersen

Guerrilla Marketing: Counterinsurgency and Capitalism in Colombia by Alexander L. Fattal What Nostalgia Was: War, Empire, and the Time of a Deadly Emotion by Thomas Dodman The Mana of Mass Society by William Mazzarella The Sins of the Fathers: Germany, Memory, Method by Jeffrey K. Olick

Questioning Secularism: Islam, Sovereignty, and the Rule of Law in Modern Egypt by Hussein Ali Agrama The Making of Romantic Love: Longing and Sexuality in Europe, South Asia, and Japan, 900– 1200 CE by William M. Reddy The Moral Neoliberal: Welfare and Citizenship in Italy by Andrea Muehlebach

JUSTICE IS AN OPTION A DEMOCRATIC THEORy OF FINANC E FOR T HE T w EN T y- FIR ST C EN T URy

ROBERT MEISTER

The University of Chicago Press Chicago and London

The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London © 2021 by The University of Chicago All rights reserved. No part of this book may be used or reproduced in any manner whatsoever without written permission, except in the case of brief quotations in critical articles and reviews. For more information, contact the University of Chicago Press, 1427 E. 60th St., Chicago, IL 60637. Published 2021 Printed in the United States of America 30 29 28 27 26 25 24 23 22 21

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ISbN-13: 978-0-226-70288-9 (cloth) ISbN-13: 978-0-226-73448-4 (paper) ISBN-13: 978-0-226-73451-4 (e-book) DOI: https://doi.org/10.7208/chicago/9780226734514 .001.0001 Library of Congress Cataloging-in-Publication Data Names: Meister, Robert, 1947– author. Title: Justice is an option : a democratic theory of finance for the twenty-first century / Robert Meister. Other titles: Chicago studies in practices of meaning. Description: Chicago : The University of Chicago Press, 2021. | Series: Chicago studies in practices of meaning | Includes bibliographical references and index. Identifiers: LCCN 2020039759 | ISbN 9780226702889 (cloth) | ISbN 9780226734484 (paperback) | ISbN 9780226734514 (ebook) Subjects: LCSH: Finance, Public—United States. | Debt—Political aspects—United States. | Liquidity (Economics) | Social justice. | Marxian economics. Classification: LCC HJ257.3 .M45 2021 | DDC 332/.04150973— dc23 LC record available at https://lccn.loc.gov/2020039759 ♾ This paper meets the requirements of ANSI/NISO Z39.48-1992 (Permanence of Paper).

CONTENTS PR E FAC E vii I N T RODUC T ION 1 ON E : F I NA NC E A N D M A R x 15 T wO: M AR k E T LIqU I DI T y A N D F I NA NC IA L P Ow E R 45 T H R E E : T R AU M A OR I N JU S T IC E 61 F OU R : I S JU S T IC E A N OP T ION ? 82 F I v E : JU S T IC E A S A N OP T ION 109 S I x: C A N C A PI TA LI S M S HORT I T S E L F ? 137 S E v E N: F U N DI NG J U S T IC E 162 C ONCLU SION 190 A F T E RwOR D : S PR I NG 2 02 0 199 AC kNOwL E DGM E N T S 203 NO T E S 209 bI bL IO G R A PH y 257 I N DE x 281

PREFACE Ten years after the Great Recession of 2007– 9, it was common for opinion leaders to blame the rise of both left- and right-wing populism on the perceived injustice of the government bailout of Wall Street. As Bloomberg Businessweek reports: It’s clear Obama was foolish to think public sentiment could be negated or held at bay. Financial crises are every bit as much about politics as economics. How could they not be? . . . Wages were stagnant when the crisis hit and have remained so throughout the recovery. . . . A bitter irony dawning on Geithner at the time . . . was that a substantial number of Americans saw the rising stock market not as a gauge of economic revitalization but as an infuriating reminder that the financial overclass responsible for the crisis not only got off scot-free but was also getting richer in the bargain. The iniquity stung. One complaint voters at campaign rallies still share . . . is that no Wall Street figure of any consequence served jail time as a result of the meltdown. By contrast, the U.S. Department of Justice prosecuted more than 1,000 bankers after the savings and loan crisis of the 1990s. The story of American politics over the past decade is the story of how the forces Obama and Geithner failed to contain reshaped the world. The day-to- day drama of bank failures and bailouts eventually faded from the headlines. But the effects of the disruption never went away, unleashing partisan energies on the Left (Occupy Wall Street) and the Right (the Tea Party) that wiped out the political era that came before and ushered in a poisonous, polarizing one. The critical massing of conditions that led to Donald Trump had their genesis in the backlash. And the rising tide of economic populism among Democrats makes it all but certain that the next presidential election, and Trump’s possible successor, will be shaped by it, too. The biggest effect of the financial crisis and its aftermath was a loss

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of faith in U.S. institutions. Initially, and not surprisingly, this loss of confidence was concentrated in the financial sector. . . . Antipathy toward Wall Street eventually became distrust of the government, which not only struggled to mitigate the effects of the meltdown but also began producing its own crises, including a debt default scare in 2011 and a shutdown two years later. In 2013, five years into the recovery, Gallup discovered that Americans no longer considered “economic issues” to be the most pressing national problem: “Government” had replaced them as the top concern.1 Bloomberg is far from the only business publication that takes such a view. On the same day the Financial Times published a lead opinion piece with the headline “Populism Is the True Legacy of the Global Financial Crisis,”2 and the New York Times Nobel Prize– winning columnist Paul Krugman praised two Democratic senators for introducing legislation requiring the federal government to collect and report data on who benefits from GDP growth.3 At the same time, the New York Times columnist Andrew Ross Sorkin looked back and praised the Bush and Obama administrations for their courage in putting the rescue of Wall Street first despite the inevitable populist anger that this aroused.4 The central actors in the bailout were at least somewhat conflicted about its possible political repercussions. President Barack Obama, who rejected the “Swedish” option of nationalizing the banks, nevertheless urged executives of all banks that were “too big to fail” to curb their compensation, saying that he was all that stood between them and the “pitchforks.” But the fact remains that, notwithstanding Obama’s awareness of the pitchforks, he looked the other way when his Treasury secretary, Timothy Geithner, “slow-walked” (i.e., resisted) his order to break up Citibank. Neither did he stop Geithner from using the Troubled Asset Relief Program (TARP) money, originally appropriated to purchase the toxic assets of big banks at deep discounts (“trash for cash”), to simply recapitalize the banks and thus restore market confidence that they were “safe.” Looking back on Geithner’s apparently unauthorized use of presidential power, The New Republic noted, “Every action fit Geithner’s worldview: The financial system must be stabilized at all costs, as the only way to heal the economy so real people benefit.”5 Such retrospective accounts of the financial crisis implicitly agree that Obama and Geithner did not know at the time whether the bond markets were at their mercy or vice versa, and that their policy was not to find out. Their highest priority was, rather, to avoid doing or saying anything that would further threaten the liquidity of financial markets, and they measured the success of their policy by the restored ability of failing banks to raise funds on private capital markets.

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Writing in 2019, the self-proclaimed rescuers of the financial system— Geithner along with former Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke— could still imagine the financial system’s end in the form of “fire sales” of the assets in which global wealth had been accumulated. For them, the financial system’s awareness of its imminent apocalypse— the ever-present possibility of death by fire— lies at the heart of that system itself. Its inherent flammability is the very reason why it must be saved by government intervention. They are thus able to portray themselves in hindsight as the heroic “firefighters” who put out the flames before they spread, destroying everything.6 The paradox of 2007– 9 is that the financial system became politically invulnerable at the very moment when its survival was otherwise in doubt. The reasons for this paradox are not obvious; the Great Depression made the interests of the financial sector within capitalism politically controversial, and its opponents extracted their price in the form of a welfare state. Following the Great Recession, however, the growing belief that the financial system must not be attacked when its weakness might have been leveraged suggests that financialized capitalism may have ultimately trumped the project of historical justice. The thus far definitive history of the Great Recession by Adam Tooze largely supports this point of view while lamenting its accuracy. Tooze’s careful assessment is that the pitchforks were all on the political right— “the Obamians lacked pitchforks of their own”— and that the new regime of “stress tests,” despite carrying the whiff of federal interference in capital markets, in effect made the government responsible for any subsequent bank failures, and this in turn made it easier for banks to raise capital. Tooze is here directly describing a policy of financial stabilization through guaranteeing liquidity that has greatly exacerbated economic inequality while simultaneously stoking right-wing narratives that the system is “rigged” by liberal elites in favor of the rich.7 As he says in his introduction, The Fed’s liquidity provision was spectacular. It was of historic and lasting significance. Among technical experts it is commonly agreed that the swap lines with which the Fed pumped dollars into the world economy were perhaps the decisive innovation of the crisis. But in public discourse these actions have remained far below the radar. . . . The technical and administrative complexities of the Fed’s actions no doubt contribute to their obscurity. But the politics go beyond that . . . to the analytical agenda of reimagining international economics, forced on us by the crisis and articulated by the proponents of the macrofinancial approach. . . . This is hugely illuminating. It gives economic policy a far greater grip. But it exposes something that is deeply indigestible in political terms. . . . If in intellectual terms the crisis was a crisis of macroeconomics,

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if in practical terms it was a crisis of the conventional tools of monetary policy, it was by the same token a deep crisis of modern politics.8 As Tooze regretfully points out, it was the right-wing populists in 2008, and they alone, who professed their willingness to call the bluff of the financial sector when it threatened the larger economy with capital market illiquidity. He does not disagree, however, with the view of mainstream opinion leaders that their opposition to the bailout was intellectually irresponsible and politically reckless. Unlike that of the right-wing populists in the Tea Party movement, my project is to transform the concept of financial market liquidity from an assumed precondition of capitalism to an object of political contestation. I hope thus to show that the development of vehicles through which capital market liquidity can be materialized, priced, and shorted might also serve as a signifier through which historical injustice— the effect of past evil on present inequalities— can be interpreted and made actionable. This is to say that a new analysis of capitalism’s vulnerability to liquidity crises can for its opponents become a source of new ideas, tactics, and demands.

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Why did a heightened awareness of the fragility of the financial system in 2008 result in a political consensus in favor of supporting it at all costs, even when this meant allowing economic inequality to increase rather than intensifying efforts to reduce it? The reasons run deep and go beyond the skill of Geithner, Paulson, and Bernanke in managing the egos and fears of the elected officials with whom they dealt. Today’s sense of “capitalist realism” is widely seen as an effect of capitalism’s passage from an industrializing phase into an era of globalized finance.9 This view is only partially true, but to the extent that it is, we need an analysis of capitalist financialization that is comparable in breadth and depth to Marx’s account of capitalist industrialization. What, then, is capitalism’s financial turn? It is, at least, the well documented political dominance of the financial sector over other sectors of capital that indisputably occurred following the stagflation and global turbulence of the 1970s.10 This dominance has arguably resulted in lower public investment in industry and infrastructure and stagnant real wages, even as asset markets soared. But, if this were all, then the capture of state power by a financial elite would be weakened by a severe financial crisis, leading to its recapture by other sectors of capital that could have demanded greater state investment in industry and infrastructure. Much of the writing on this period by progressive economists, like Paul Krugman, complains

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that this did not happen, but without addressing the paradoxical fact that the political power of finance over the economy and the state was, if anything, strengthened by the weakness of the financial sector.11 The real question is why relative gains of financial actors were not at least partially reversible, especially during the largest financial crises since the Great Depression. This question arises because today’s financialization is something more, and different, from the capture of the commanding heights of both the economy and government by financiers who can thereby advance interests presumed to be narrower than those of capital as a whole.12 The financialization that has occurred since the 1970s must be understood, beyond this, as a generalization and extension of financial ways of thinking to all sectors of capitalism, and also as a set of technologies for financializing activities that are otherwise outside the financial sector. It is the pervasive growth of financial ways of thinking and of financial technologies that has made the financial sector hegemonic, and the alternatives to its political power much more difficult to imagine and bring about.13

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My thinking on this topic began in collaboration with the late Randy Martin, whose work has enabled scholars in the humanities and social sciences to see the social logic of derivatives, hedging, and portfolio management operating everywhere.14 The cultural studies literature on commodification had recognized by the late twentieth century that the financial sector had taken control of large portions of the so- called real economy dominated by the commodity form.15 Randy’s twenty-first century intervention was to identify a cultural shift in which the idea of self- ownership that grounded neoliberal theories of human capital was superseded by a conception of the self as, essentially, a strategy for creating and rehedging its options in a world of ever- changing risk.16 For Randy, the fully financialized self is a portfolio of assets with ever- changing exposures to risk and opportunity that must be actively managed over the course of a lifetime in response to inherently uncertain future conditions. Describing this sense of selfhood as essentially precarious— the self is always struggling to stay on its feet— Randy, as a choreographer, saw this new subjective orientation as a mode of embodiment— what he called a “kinestheme”— because in the dances he loved, the performers are never not falling down. His conception of sociality as itself a “precarious dance”— and of dance itself as a “derivative sociality”— is, of course, the contribution to cultural studies for which Randy is best known.17 Perhaps fewer of his readers know that in the last four years of his life, Randy moved from discovering cultural analogues to financial derivatives

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(what he called “the derivative form”) to exploring how his social understanding of derivatives could be deployed in political struggles for historical justice. Justice, he thought, can be made more present— more embodied, more actionable— if it is reframed through a new social and political understanding of the manufacture and pricing of options. I was saying something similar, and this was the point at which our collaboration began. The distinctive feature of our approach was to consider together the ideas of value (supporting life) that Marx developed and of liquidity (supporting markets) that are stressed in modern finance.18 We saw these conjoined concepts, value and liquidity, as social emanations of the institution of money as it develops within capitalism.19 The value form had thus been identified by Marx as the materialized abstraction that allows the ready substitutability of one thing for another in social transactions based on monetarily equivalent exchange. A preference for holding cash itself, value in its money form— the “liquidity preference” identified by Keynes— is based on the equally abstract assumption that in a market-based economy, holding cash is desirable in itself because it embeds an element of optionality that commands a premium. Keynes’s liquidity premium was the prototype of what Randy and I called “the option form” in the sense that any asset embodying value that isn’t money has to be turned into money (liquidated) for one to have the option of converting it into another asset. The universal equivalence promised by the value form thus makes the optionality provided by the money form, its liquidity, intrinsically desirable in and of itself.20 We were both aware, however, that this view of the relation of liquidity to value could be reduced to an observation that the exchange of money is simply a social precondition for using markets to support and reproduce life. This observation, accurate in itself, is often taken to imply that the liquidity that results will then be viewed as a positive externality, or free good, thrown off by the existence of markets themselves. The Chicago School of economics could thus be paraphrased as thinking it’s a good thing that markets happen to support life and that life happens to support markets. Unlike the Chicago School, however, Randy and I believed that a focus on liquidity could highlight the political vulnerability of the financial markets themselves, which may disappear almost instantly, reducing the accumulation of value they contain to zero. We thus saw in finance’s paradoxical capacity to create new wealth from an awareness of potential threats to liquidity the key to making its continuing existence politically contingent and thus subject to subversion, manipulation, and sabotage. We had no doubt that, in thus repoliticizing financial technologies of wealth, we were also talking about historical justice. This is the dimension in which the aftereffects of past injustice, such as interracial gaps, compound

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rather than dissipate with the passage of time. Not all past injustices ramify and intensify over time; many are not deepened by the machinery of capital accumulation. But those that are become historically more important for that very reason and must be a central concern for a Marxist politics today. Our approach was thus to show how modern financial concepts fit into Marx’s ideas in ways that once again connect them to the pursuit of historical justice.

INTRODUCTION Does historical justice have a chance in today’s financialized form of capitalism? On the one hand, the accelerated appreciation of financial wealth may well compound the inequalities arising from past injustice. Insofar as adding to an earlier injustice is itself unjust, the rise of financialization is on its face a setback for the justice-seeking subject under capitalism. On the other hand, however, the tendency for inequalities of unjust origin to concentrate rather than dissipate provides an occasion, and a provocation, to question the justice of the institutional processes through which this happens. Insofar as preexisting disparities do not become more legitimate when widened by financialization, its rise can provide new arguments for justice-seeking subjects under capitalism that Marx could not have foreseen. Financialization can also provide new opportunities for reversing historical injustice because the socially created wealth that is held in the form of financial instruments is more abundant, transferable, and liquid than capital accumulated in the form of industrial plant and materials. Marx recognized, as chapter 1 will show, that the extraction of surplus from the labor process would necessitate investment vehicles in which the surplus could be preserved and then accumulated. Increased investment in producer goods could fill that need, he said, provided that the price realized by selling the end product was sufficient to validate such investments. But accumulating capital in form of producer goods could also undermine capitalism’s ability to support the rising population that would demand its rising output, thereby generating greater poverty and inequality; and it would also create new opportunities— both technological and political— for collective resistance. Today, the principal vehicles of capital accumulation are distinctively financial products that do not do double duty as producer goods. Because investment in these products does not directly increase total output, many Marxists point out that it is unproductive, and conclude that the wealth thus accumulated is unreal— indeed, “fictitious.”1 For me, however, it is more important to point out that many but not all of these assets can have

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value because there are options embedded in them, and that the valuation of options arises from their ability to lock in and thus preserve, and also leverage and thus expand, preexisting value. When options are thus understood, the elements of optionality that are explicit or implicit in all financial instruments makes it possible for them to function as vehicles of capital accumulation, and implies that any vehicle of accumulation, including Marx’s producer goods, must also embed an element of optionality in order to function as such. Capital accumulated in a purely financial rather than material form is thus not usefully described as fictitious to the extent that the options it embodies can be valued— even and especially when what is being valued consists of an enhanced capacity to preserve and expand preexisting value, and thus to perform the specific function of vehicles of accumulation. Accumulated wealth in my view consists largely, and increasingly, of financial options that have a present value. This is why my project in the chapters that follow is to theorize historical justice in today’s financial language as also “an option” that has a present value. Finance is not, of course, the only level at which cumulative effects of bad history are preserved, magnified and contested: there is also an underlying politics about which I have previously written. In After Evil, I described how modern regimes can come to understand themselves as survivors of specific evils that preceded them (e.g., feudal, racial, religious, tribal, communal, colonial). The idea that a time of evil has been placed firmly in the past can then be used, I argue, to discredit demands for redistribution in the present as dredging up an earlier stage of history that is better left submerged. This claim, which the transitional justice literature embraces, would effectively remove historical justice from the agenda of democratic politics so that society can move forward.2 If we view financialization and transitional justice together, it becomes clear how capitalism can perpetuate and augment historical injustice without appearing to do so. This is my retort to the common, but rarely defended, assumption that the differential benefits of bad history are somehow cleansed to the extent that they are attributable to the ordinary working of capital markets that would operate in the same way whether the wealth invested in them was justly acquired or not. Historical injustice is not in my view reducible to an unjustifiable past followed by a run of good luck regarding how the benefits proceeding from it have been reinvested. I rather hope to show how the widening disparities that arise from bad history can no longer be rationalized as mere good fortune once political democracy reintroduces the question of historical injustice.3 Democracy matters, in my view, when and because it can politicize the relation of bad history to present disparities of fortune, which can then appear as an ongoing injustice that has been wrongly deemed to be past. If this

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is the political meaning of historical injustice, the promise of democracy is that those who continue to be disadvantaged can derive present value from it and increase that value going forward, thereby mitigating or eliminating its cumulative aftereffects. This is why I see new opportunities for historical redress in an age of finance, and why I believe that today’s financial theory— much more than democratic theory— provides conceptual and practical tools for bringing heterogeneous times and spaces into the present.

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My approach in the chapters that follow will thus require a departure from the way today’s literatures on democratization and financialization have been made to fit together. Mainstream political scientists have been preoccupied with explaining why democratization can be compatible with high levels of wealth inequality and can be imperiled by demands to reduce it.4 For them, democracy is a way to legitimate social inequalities of many kinds, especially financial, that would otherwise threaten political stability. In contrast, the mainstream literature on financialization has been about investment vehicles that derive their value from how much and how rapidly contrasting inequalities widen and narrow with respect to each other. But reducing socioeconomic inequality is rarely if ever a direct aim of finance, which addresses and evokes a liquidity-seeking subject rather than a justice-seeking subject. In contrast with these approaches, I will argue that liquidity is the abstract form of power specific to globalized financial capital— the normative and empirical ground of its existence— in the same way that sovereignty was the abstract form of power specific to the national development of capitalist modes of production. For me, the imperative to link liquidity and sovereignty is the presumptive basis of communal solidarity in a capitalist state— the universal expression of class power that is potentially threatened by the pursuit of justice through democracy. By reintroducing the question of historical justice into financialized capitalism, I mean to test the limits on conceivability that states and capital markets, and especially the market in public and private debt, have imposed on democratic politics. Of course, I am not the only writer dealing with these themes. Other recent books have shown the links between the liquidity of debt and capitalist class power: Governing by Debt, Capital as Power, and Debt as Power are important titles that address financialization through the lens of Marx.5 Another is a long-awaited book by the French political economist Michel Aglietta, who argues that money embodies the link between liquidity and sovereignty in market-based states because, for any form of public or private debt to be incurred, there must also be a conventional form of finality, a settlement of accounts, that is universally accepted as such. By paying the

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correct amount of money, one can satisfy a debt without incurring another debt. Because the fundamental norm of capitalist societies is that final payment must be in money, Aglietta regards money issued by the sovereign state as an externalized expression of their underlying unity— the social bond connecting debtors and creditors. As the guarantor of social unity, the distinctive fiscal role of the state thus lies in its ability to issue funds, money, that it distinguishes from its own debt, but that it can then use to pay its debt after removing an equivalent amount of money from circulation by collecting it as taxes. A money- creating sovereign is thus defined as having the power to monetize its own debt, thereby canceling the distinction between issuing money and borrowing it. But its voluntary forbearance in exercising the power to monetize its debt becomes the basis for confidence in the currency it issues as a means of settling privately created debt, and thus for the liquidity of such debt in the secondary markets that comprise the financial system. This socially accepted use of state money to settle— extinguish— the privately created debt that circulates in the financial system gives that money what Aglietta calls “absolute liquidity” and thus absolute value. By this he means that, without the liquidity of money, relative value reflected in price could not exist, and neither could a secondary market in privately issued debt that by definition cannot be repaid in money issued by the private debtor. It follows, for Aglietta, that the state’s relation to capital markets through the medium of money is itself culturally normative.6 He thus says, citing both Émile Durkheim and René Girard, that “money is . . . the intergenerational bond that guarantees the immortality of society” (63) and that it is “the institution of collective belonging that lies at the foundation of value” (64). The instrumentalisation of money goes hand-in-hand with the unleashing of individual desires for liquidity. The modern collective value able to challenge this is the political autonomy of the nation, conferred on what becomes a national currency (69). Aglietta here portrays the sovereign monopoly on defining the moneyconvention as the Durkheimian ground of solidarity (the unanimously held value) that allows social differentiation down the line to further strengthen, rather than destroy, the whole.7 A problem with Aglietta’s account of the conventional unanimity surrounding money is that the relative liquidity of financial markets has always been a product of political contestation. In the history of capitalist states, this typically occurs through various discursive and commercial practices that can question, invalidate, or otherwise interpret the fiscal and monetary

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discretion of the sovereign.8 In financialized capitalism it now occurs, also, through the issuing and pricing of financial derivatives that reference, profit from, and insure against uncertainty about the relation between publicly created and market-based liquidity guarantees. These derivatives themselves signify another relation to this relation. That relation is one of optionality, based on the ultimate contingency of whatever happens next to disturb market liquidity, and on whether it will be perceived to be a better guide in moving forward than the known past. I would thus qualify Aglietta’s argument by saying that the sovereign has the option to support the currency or not, but that this is only one meaning of “liquidity.” A separate and related meaning is that the sovereign has the option to support asset valuations in the capital market— the form in which cumulative wealth is held— and that there is an inherent political risk that this will not occur in time to prevent a disaccumulation of capital held in that form. Supporting the currency and supporting asset valuations, however bubbly, are thus two related but distinguishable forms of governmentally created liquidity for capital markets. And there can be considerable slippage between the state’s willingness to do one and its willingness to do the other, especially across all financial sectors. So, while I see the point when Aglietta and others equate the social power of debt with the social power of state-created money, I believe that Aglietta’s approach forecloses important questions about the creation and valuation of options preserving surplus value accumulated as financial assets. I will thus argue in chapter 5 that we can reopen these questions by defining how the option of the state to provide liquidity (or not) could be continuously valued in the market for financial derivatives.

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The link between sovereignty, liquidity, and optionality that I propose to develop was first explored by John Maynard Keynes. He argued in The General Theory (1936) that people have a preference— a “liquidity-preference”— for receiving non-interest-bearing cash as a payment to begin with— rather than, for example, an interest-bearing and equally liquid short-term bond issued by the same government.9 Responding to the General Theory’s critics one year later, Keynes focused even more sharply on the element of optionality that underlies the liquidity preference by asking rhetorically, “Why should anyone outside a lunatic asylum wish to use money as a store of value?” He answered: Money as a store of wealth is a barometer of the degree of our distrust of our own calculating and conventions concerning the future . . . the

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possession of actual money lulls our disquietude; and the premium which we require to make us part with money is the measure of the degree of our disquietude.10 For Keynes, the value of optionality embedded in cash thus lies in the differential ability it confers to derive gain or avoid loss from changes in one’s degree of certainty that the future will be like the past. A holder of a stable currency, for example, can respond instantaneously to unforeseen price changes without first having to liquidate some other asset, the price of which may also have changed in some unforeseen way. Keynes’s liquidity premium thus isolates the element of optionality embedded cash itself, the value of which is not reflected in the price of the commodity for which cash is exchanged, but rather in the variable difficulty of funding a purchase for which the commodity would be pledged as collateral. Building on Keynes’s insight about the premium commanded by the liquidity of cash as the quintessential option, modern financial theory generalizes the ability to price options separately from the market prices underlying commodities, beginning with the idea that liquidity premiums associated with any asset other than cash can and should be split off and valued as a distinct asset class.11 It also essentializes Keynesian uncertainty— the fact that markets cannot distinguish in the moment between noise and information— as the very reason that optionality as such has a marketable value as a measure of the impact of new information on liquidity. So, having the future option to purchase or sell at a price known in advance as a response to information that cannot be known in advance is an additional, potentially valuable right for which one can be expected to pay a premium above the liquidity premium that is provided by holding on to cash. How much one should pay for this additional optionality? How much cash one should relinquish, for example, to lock in a future buying or selling price, regardless of how the market moves? The answer is clear if the option can be immediately exercised. The option to buy something for $100 that has a current price of $110 will today cost $10; this is its “intrinsic value.” But the option to buy something for $110 that is currently worth $100 today has only “time value.” The financialization of capitalism that began in the 1970s was triggered by an innovation in the way that the premium for financial options that have only time value was calculated. To do this— and here’s the innovation— the issuer of an option could ignore the asset’s average return (such as expected profit) and focus only on the degree of expected variance in its price above or below $100 (“expected volatility”) relative to the time left before the option expires (“time decay”).12 This is demonstrated in the seminal paper of modern finance, “The Pricing of Options and Corporate Liabilities” by Fischer Black and Myron Scholes (1973).13

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To grasp the importance of pricing options based on underlying volatility, we must step back and consider how this approach to valuing options could provide a new foundation for the rest of finance. The Black-Scholes paper is based on the idea that an investment is always an exchange of a fixed quantity of funds— liquidity— for something that is less liquid, such as a stock, that can vary in price. Through giving up liquidity, the buyer of a stock thus gets financial exposure to future movements in its price, gaining if it rises and losing if it falls. Owning a stock for a fixed time period could thus be described as •

•

buying the right to gain from the stock’s appreciation during that period (this would be a bought call option, exercisable at its initial purchase price), or selling the obligation to undergo a loss from the stock’s depreciation during that period (this would be a sold put option that is exercisable at its initial purchase price).

But from a financial perspective, the purchase of a stock is never not an investment of the initial purchase price— perhaps in borrowed funds that would have to be repaid. So, in addition to the bought call and the sold put, a portfolio replicating the outright purchase of a stock must include an element of debt— here considered as a risk-free loan made to the government for the same period of time— the repayment of which would return one’s purchase price plus any gains arising from the call, or minus any losses arising from the put. By definition, the return on this portfolio, assuming that the put and call are correctly priced, is identical with the return one could get from owning a fully financed portfolio of a stock.14 Behind this idea lie two further distinctions that are fundamental to options theory: whether the option is a call or a put (a right to buy or sell?), and whether the call or put has itself been bought or sold (an asset or a liability?). The buyer of an option, whether a put or call, is thus said to have taken a “long” position on it as an investment; the seller is said to have taken a “short” position that eventually may have to be covered by being bought back at a loss.15 In the illustration above, the stock buyer is long the stock but short a debt (who owes the purchase price) in the same position on the date the stock is sold to pay the debt as an investor who is long a call, short a put, and long a debt that will pay the initial purchase price of the stock at that later date— and that this will be true regardless of the price at which the stock is sold, provided that the payoff of the put, the call, and the loan is calibrated to the stock’s initial purchase price. The foregoing exposition is purely conceptual. It illustrates the financial idea of “put-call parity” that makes options interdefinable with equity

8

Introduction

and debt, so that we can say, for example, what it would cost to make debt incurred to purchase equity risk-free by also requiring the borrower to purchase a put guaranteeing the equity can be resold at its initial price to cover the debt. But put-call parity is merely an accounting identity that allows us to solve for the price of the put, the call, or the stock if one knows the risk free rate of interest and all the other elements.16 The question is whether puts and calls can be priced when they have only time value— that is, when their respective future payoffs (plus or minus) cannot be realized from the current market price of the stock, but relate to the ever-changing likelihood of prices that the stock has not reached.17 By solving this pricing problem, at first for calls, Black and Scholes showed how to break down other purely financial assets, like stocks and bonds, into the more basic components of options and risk-free government debt as defined by put- call parity. Market participants would then be able to separate their exposures to directional risk and volatility risk by paying a premium for doing so.18 Through paying the premium for the option to purchase a house in the future at a price that is set today, for example, I could potentially benefit from a future rise in home prices by selling my option at a profit while limiting my potential loss to the original premium I paid for the option to purchase in the event that home prices fall. And even if home prices trend downward, my option to purchase a home could still rise in value merely because home prices become significantly more volatile (change more rapidly or widely) during the period before it expires. Expected price volatility of the option’s underlier, and changes in that volatility during the life of the option, are the key to option pricing, according to Black and Scholes— and volatility is the only parameter in their formula with an exponential rather than a linear effect. Fischer Black’s biographer, Perry Mehrling, rightly describes this contribution as a “revolutionary idea of finance.”19 He has in mind, mainly, the ways in which financial theory could claim to subsume the rest of economics under a more parsimonious theory that relied only on shared epistemic assumptions about the inherent unknowability of information that has yet to appear and the inherent impossibility of profit without risk, and eliminated more questionable psychological assumptions about the transitivity of preferences and diminishing marginal utility20 Because of Black’s revolutionary theory of finance, financial institutions can manufacture options in whatever quantities are demanded without thereby exposing themselves to market risk, and buyers and sellers of options can now trade those options to hedge or leverage their exposure to directional changes in the market, and to benefit or hedge against changes in market volatility no matter which way the market moves.21 A further, more political, implication of the revolution in financial theory

Introduction

9

is that financial markets can translate developments that might otherwise threaten capitalism’s stability, such as global warming or rising socioeconomic inequality, into drivers of short-term volatility. These markets can then trade that volatility— take either long or short positions on it— as a way to protect themselves against the directional changes on which capitalism’s opponents might rely as grounds for hastening its end. Once capitalism develops financial vehicles for shorting its own future, it can become more politically resilient than challengers who continue to rely on the acceleration of present trends: such challengers can be defeated if the direction of history moves, even temporarily, against them, while investors in financial markets can find ways to benefit from any change in volatility regardless of the direction in which history moves. Black’s revolutionary idea of finance thus had potentially negative implications for anticapitalist movements that did not grasp its new paradigm, insofar as it created opportunities to reap financial benefit from any turbulence resulting from the success of such movements. Based on this idea, modern financial theory eventually became an engine for translating political and economic insecurity into drivers of market volatility that could be measured and, eventually, monetized through the marketing of new financial products that are priced on the basis of today’s expected volatility and marketed to those who believe that the knowable risks in any particular situation could suddenly worsen. Such products are especially attractive to those in a society who believe that history is not on their side, and who wish to mitigate their downward path by paying a premium to hang on a little longer to what they expect they will eventually lose. But this highly pessimistic form of what Marxists call class consciousness could now be actively encouraged by those on the opposite side of the class divide who expect to benefit from heightened volatility, regardless of which way history goes. Capitalism’s existential uncertainty about its own future here becomes a further resource from which value can be extracted, and not merely a cause of financial market crashes resulting from the flight into cash.22 This opportunity for value extraction will continue to be available as long as financial markets remain liquid.

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When and how to threaten financial liquidity thus becomes a central question for those of us who would supplement Marx’s analysis of capitalist industrialization— focusing on democratic control of the means of value production— with a Marxian analysis of capitalist financialization, focusing on democratic control of the means of value preservation and appreciation. If revolutionaries were to seize wealth accumulated as investments in the

10

Introduction

means of production, it could retain its use value as a means of production when falling into their hands. But, if revolutionaries tried to seize the accumulated wealth that was held in the form of liquid financial assets, the present exchange value of those assets could largely disappear along with the secondary market for them, and their only use value is to have exchange value. This is another way of saying that their use is to create liquidity, and it makes a seizure of such wealth that would destroy its liquidity much less attractive to revolutionaries than a seizure of the means of production once was. But we should not conclude from the possibility that pure financial assets could become useless if they were seized, the accumulated wealth they embody when liquid is “fictitious,” and thus less relevant for political purposes than capital invested in the means of production.23 The right question in my view is not whether most accumulated wealth is illusory, but whether a state’s commitment to preserve the liquidity of accumulated wealth by any means necessary is a point at which the power of capital can be politically contested. By this I mean that loss of “confidence” in their own future liquidity is what capital markets threaten when they wish to quell demands to reverse the cumulative effects of past injustice. If this is the political threat that ultimately sustains today’s financial capitalism, my solution is to embrace rather than ignore it by arguing in later chapters that justice is an historical option that can become more valuable through democratic struggle. Yes, I will concede, capital market illiquidity could be largely or even wholly an event of capital disaccumulation rather than a transfer of accumulated wealth. But the implication of this is merely that the financial value of rolling over such a revolutionary option of disaccumulation can be priced as the value of the liquidity premium that government pays to support existing asset valuations at moments of political and economic volatility. The political question at these moments is: Who receives the liquidity premium? Will it be the financial institutions that are threatening to blow themselves up unless their confidence is restored? Will it, rather, be justicedeserving subjects and the justice-seeking movements that advance their claims? My proposed answer is that a critical appropriation of today’s hegemonic language of globalized finance, the language of liquidity premiums and the like, can bring forth the subjectivity required for the democratic pursuit of historical justice today. In proposing this I recognize, of course, that the financial elites who typically advance this language tend to epitomize the undemocratic forces in our society. But even if there is currently no democracy in finance, I believe that there can be no democratization of our present society without it. I will thus argue that political democracy in an age of finance is best realized through the project of increasing the present value

Introduction

11

of historical justice as an option even when the circumstances that make it actionable, such as a revolutionary seizure of power, have not eventuated. Political democracy can do this because, within the contemporary capital market, financial liquidity is always subject to political risk— a factor that is generally assumed to be absent in theoretical models that posit liquid markets. Critically appropriating the language of financialization thus allows us to see more clearly how democracy can reintroduce the political risk that government will not restore liquidity to capital markets when they need it most. In developing this claim, I will draw in chapter 5 on mainstream financial theorists— including several Nobel Prize winners— who defended the government’s bailout of financial markets in 2008. They plausibly identified its central feature as a liquidity guarantee for privately created creditbacked securities, and rightly acknowledge that a premium could have been charged by government for providing such a guarantee based on the premiums charged for liquidity guarantees provided by the private sector. But, despite the fact that no such premium was charged, they nevertheless agree that the state-provided liquidity guarantee should have been provided, and they argue that similar policies should be followed from now on. To their analysis I will add what at first may seem only a modulation in tone: In saving the capital market from collapse, the government rolled over the politically unexercisable option of letting capital markets become illiquid, which would have disaccumulated the present value of past wealth. This is perhaps just another way of saying that we were not in a revolutionary situation and did not have a revolution. But it is also another way of saying that the purely financial argument against having a revolution is that the attempt to seize accumulated wealth makes it all suddenly illiquid and thus financially worthless before it could be made available for redistribution. From this I do not conclude that finance must always get its way, but, rather, that the premium that could have been charged for protecting accumulated wealth from becoming suddenly illiquid is the price that can be extracted in democracy for preserving a revolutionary option even in circumstances where that option cannot and will not be exercised. To the objection that neither sudden illiquidity nor a revolution that threatens to create it is remotely possible, I reply that it has thus far been the work of financial markets and democratic politics to make this seem to be so. The truth that underlies their operation that financial illiquidity is not impossible, and neither is political revolution.24 Financial markets, rather, exist to manufacture alternatives to illiquidity in much the way that democratic politics exists to manufacture alternatives to revolutionary disaccumulation. Their immanent potential for apocalypse is central to their publicly stated rationale for carrying on as in the past. In my view, illiquidity

12

Introduction

and revolution are thus conceptual counterparts in their respective spheres that can also be linked rhetorically as cause and effect— as when democratic revolutions are said to create financial illiquidity, or vice versa. This point is different from, but related to, the more common observation that popular democracy in general can pose a threat to capital market stability— and that, when this happens, the question of who really rules is up for grabs. At such moments, commentators often point out the precarious balance between the legitimacy that comes from respecting elections and the stability that comes from supporting markets.25 The often-noted paradox is that respecting elections can destabilize capital markets, but that not respecting them can destabilize markets even more unless an authoritarian regime takes power promising to reassure them.26 If the latter solution, having liquidity without democracy, is presumed to be better than having neither, then the political-economic sweet spot would be a form of democratic politics that does not threaten capital market liquidity, and thus does not threaten the valuation of accumulated wealth. For the half century before the Great Recession, many policy makers in the Western industrial democracies could plausibly claim to have found this sweet spot. They were bolstered by the view of many prominent macroeconomists that in each advanced economy there was a non-inflationaccelerating rate of unemployment (NAIRU) and that governments that bowed to popular demands to reduce unemployment below this level would end up failing to reduce it, and would instead create inflation. Based on NAIRU, the standard macroeconomic antidote to the potentially inflationary effect of democracy was central bank autonomy with a policy mandate to target inflation ahead of full employment, thereby heading off the economic arguments for authoritarian rule.27 In moving beyond this view, my approach stresses the centrality of historical injustice as the underlying link between political democracy and financial accumulation under capitalism. I will thus argue that reversing historical injustice due to capital accumulation has the logical character of an option in three distinct senses: that it could happen simply as an automatic effect of capitalist disaccumulation due to revolution; that it doesn’t have to happen, because revolution can be deflected by democratic reform; but that democratic politics can still extract the present value of the revolutionary option of capitalist disaccumulation even when it is not likely that this option will be exercised. In my view the spheres of financial and democratic theory are mediated by the concept of historical justice as a real option on accumulated wealth that becomes more valuable when the wealth becomes less secure under political threat. By this I mean that capital market illiquidity and justice-seeking revolution lie just over the horizon of possibility imposed by the capitalist imagination, and that the cumulative dimension of financial value makes it politically vulnerable to

Introduction

13

its own underlying injustice when the democratic legitimacy of the political regime is in question.

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At a practical level, the financial system has long recognized that capital market liquidity is a product of the contingent relation of markets and states. It all but confessed Marx’s nineteenth-century critique of capitalism as inherently transitional when it embraced Walter Bagehot’s roughly contemporaneous acknowledgment that the liquidity of the banking system on which capitalist finance then rested was contingent on the government’s willingness to be the lender of last resort.28 In doing so, the financial system’s understanding of itself incorporated a realization that it could end at any time— and that the end is likely to be sudden if it comes. But translating this awareness of finance’s immanent potential for apocalypse into a basis for moving toward historical justice has not been easy to imagine. Yet this is what I here propose. What is the political advantage of thinking in such a way? My answer is partly that it recovers a concern with the historical dimension of justice— especially with the question of whether to view the present as postponing it— that was downplayed or dismissed in mid-twentieth-century philosophical approaches to justice as such. My main teachers from that period— Michael Walzer, Isaiah Berlin, Robert Nozick, and (less directly) John Rawls— viewed distributive justice as an interpersonal problem, a problem of the declension of pronouns. Who does what? Who does what to whom? Who does what to whom for whose sake? Who does what to whom at whose expense? If there were to be an argument for just redistribution, they assumed that now would be the time for it: there need be little attention to the intertemporal syntax of verb forms, such as tense and aspect, if justice is possible only for the living. In After Evil, however, I showed that the characteristic political discourse of our era is the argument that now is not the time for justice. In mainstream liberal politics, the conventional thinking is that it is still too soon or already too late— too soon because something more is yet to be done, or too late because something else should have already been done. In addressing such arguments, After Evil showed that the paradigms of interpersonal justice explored by my teachers urgently needed to be supplemented by a view of intertemporal justice that focused on the conjugation and nesting of verb forms rather than the declension of pronouns— an aspect of grammar that sociolinguists following Roman Jacobson call syntagmatic.29 I thus argued that debates about justice can be about what the present will have been now that we know, for example, that it can’t last; and that they can also be about what the past would have been had we known what would follow. It is by downplaying the full range of such implicit issues that we find ourselves

14

Introduction

talking too much, in our financialized capitalist economies, about what justice would have been were it not too late, and what justice may yet be if we could only wait. The question I raised in After Evil concerns what historical justice is worth now. Over the decade since that book was published, I have come to see that financial theory gives us unprecedented ways to ask and answer this question. Financial theory is based fundamentally on the pricing of options that are themselves texts, often standardized contracts, that co-reference distinctive sequences of events and set points of parity between them. Such a point of parity can simply be the spread between the prices of two commodities at a single point in time. But it can also be a parity between such incommensurable units as an average price and a measure of average temperature, or between different types of unit— perhaps ordinal (a count) and scalar (a metric). In financial economics this element of co-referentiality embedded in derivative contracts is the very thing that is being priced and traded on a market in those derivatives. The creation of a market in financial derivatives— a secondary market— is also a way for economics to reflect on itself; it is meta-economics. Through such a derivatives market we can thus place a present value on what philosophers call counterfactual conditional propositions — on what an option would have been had underlying markets played out differently, and on wealth-transfer effect would be of liquidating that option for its present value or of allowing the option to continue running. In my dynamic approach to claims based on historical injustice, the conceptual framework of financial derivatives thus allows us to think of two or more temporalities at once, to make them reference each other at a point of parity, and to create derivative instruments that value the cumulative effects of divergence from parity.30 This way of thinking can operationalize what Walter Benjamin regarded as messianic or redemptive history— an indexical relation of one temporality to another, which would be a particular version of what my late colleague Hayden White called “metahistory.”31 Once justice is conceived pragmatically as a metahistorical option, new and pointed questions will arise. What redistributive effects can be produced by rolling justice over if one can extract a premium for doing so? Can these effects somehow compound to the advantage of those in society who still must suffer from the cumulative effects of past injustice? Can we create financial dynamics that put the future of bad history on their side? In addressing such questions, the chapters that follow set aside the ethical evasions and doubts that the prevailing approaches to financialization introduce into contemporary thinking about historical justice. They demonstrate that, whatever disagreements we may have about alternative forms of capitalism or alternatives to it, it is not too late to harvest the benefits of bad history in the name of justice. This is what we now need to do.

1: FINANCE AND MARX Critics of financialization tend to be nostalgic for the familiar problems of industrial capitalism, especially in the Fordist era, when financial products were far less prevalent, and crises were typically driven by the ever-present tendency of expanded production to exceed consumer demand.1 In my view, however, it does little good to criticize the financialized version of capitalism for leaving the familiar problems of overproduction and underconsumption behind. The question today is how to restate Marx’s critique of capitalism in terms that allow its extension to an era that is defined by the hyperprofitable and ubiquitous manufacture of specifically financial products that have no use other than to remain liquid under various scenarios of future risk. Through such a transposition of Marx into twenty-first-century language, I propose a new way of seeing historical continuity of capitalism throughout its centuries of change. But why should we, who now live in a world dominated by finance, look toward our future through the eyes of Marx? The reason, to put it bluntly, is that for Marx the point of extracting surplus value through production was to preserve and accumulate as an investment vehicle— what we now call an “asset.” Because finance is concerned fundamentally with the valuation of assets, it must thus be considered alongside the valorization of commodities in order to reach a proper appreciation of Marx today. This is necessary, I will argue, to grasp the relation that finance and production have always had in capitalism and what difference the financialization of capitalism has made.

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Capitalist production— both in its abstract form and in its historical origin— is an activity that can be, and always could have been, financed by producers with no initial ownership of the means of production and no initial control over their labor force. It begins, at least in theory, with the

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CHAP TER ONE

figure whom Adam Smith and David Ricardo called the “farmer.” This protocapitalist figure is decidedly not Thomas Jefferson’s “yeoman farmer” who owns the land he works, plants a portion of the crop he grows, and then sells what he neither eats nor plants on an open market, sharing the proceeds with no one. Unlike this self-supporting occupier of notionally empty land, the farmer in classical political economy operates in the interstices of a feudal class society. He may rent his land from a local lord, buy his seed on the market, and hire poor, landless laborers to grow his crop. What’s more, the protocapitalist farmer described by Smith may have funded these transactions through borrowing, using the proceeds of the final crop sale to secure whatever obligations he has incurred to his creditors. He can do this because he is presumed to own his future crop, which means that he is entitled to exchange it directly for money without encumbrance from the feudal system of dues and obligations. The farmer’s presumably unencumbered right to alienate the crop for money is an important part of what it means for him to have produced it as a commodity. But how does this protocapitalist farmer get free of the feudal encumbrances that could have otherwise precluded exchanging crops for money? A partial answer is, I have said, that he could already have financed his production of the crop by incurring debt, and pledging the crop as collateral for that debt. But why would such a debt not have to be repaid in kind rather than in cash? A second part of the answer is that coins, “pennies,” were the mode in which English common-law courts and their Roman law predecessors settled debts that were in default.2 So, if a court were to award the legally required remedy to a creditor entitled to be repaid in coin, the creditor’s right to be paid in coin for crops seized as collateral would implicitly strip third parties of the right to challenge such a sale by asserting feudal duties and reversionary interests, and thus carve out a legally recognized exception to feudal relations.3 But if the court would protect a lender who can sell the crop as a commodity to liquidate a debt, why could it not could also have been be sold by the borrower to repay that debt? The farmer would have an incentive to do this if there were what we now call a positive spread between the crop’s market price and its liquidation value as collateral. And in a system of production that needs to be financed, the right to harvest such a spread lays the legal foundation for the commodity form— full alienability of the product— that Marx saw as the kernel of classical political economy. The capitalist financing of agricultural production is thus both logically and legally prior to capitalism as a mode of production; the crop must have been pledgeable as collateral before it can be alienable as a commodity. Such a stylized genealogy of how capitalist agriculture through changes in late medieval credit and monetary systems would in principle be consistent with Marx’s historical critique of the classical political economy of Adam

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Smith for assuming that a liquid market in produced commodities did not exist before capitalism itself. We now know that what the legal historian Christine Desan calls the “coming of capitalism” was preceded by more extensive redesign of the relation of public currency to the circulation of unsecured public debt and secured private debt, and a corresponding legal redesign of necessary and useful objects as having a money price that allowed them to be sold or pledged— and that such background changes in medieval financial and monetary life preceded by a century or more the more local land enclosures and dispossessions described by Marx that increased the supply of landless labor and the demand for agricultural commodities.4 What appears in retrospect to be the production of commodities for sale on a preexisting market was built, as I have said, on a prior ability to hypothecate the product as security for debt that could be settled by paying publicly created money. According to Desan, changes such as this ultimately transformed the meaning of money itself. What began as something spent into existence by the state as a token for goods and services it requisitioned came to be circulated in market exchanges to purchase goods and services and to settle private debt, and then taken out of circulation by the state through the collection of taxes and the sale of public debt.5

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Once such historical and conceptual changes are in effect, we can describe Smith’s protocapitalist farmer in the language of modern financial theory. In borrowing against his future crop, the farmer would have in effect issued (sold) a security (resembling a bond), the proceeds of which will fund production. Here the secured bondholder would be the residual owner of the crop that has been pledged as collateral. And the interest rate collected on the secured loan would then be equivalent to the implicit premium for giving the borrower a right to “put” the collateral as full repayment of the loan, thereby limiting the potential loss to whatever price the collateral provided would bring in the event of default.6 In return, the lender will have implicitly given the borrower another option that is exercised by repayment of the loan: this is in effect an option to buy back the crop from the lender for the predetermined price of the full amount borrowed plus interest. This is in effect a “call” option on the net economic value of the crop— a right to appropriate the remainder after all liabilities have been paid. It would be rational to exercise the call, rather than allow the secured lender to retain residual ownership of the crop, only if the present market value of the crop exceeds the amount borrowed plus interest. The foregoing paragraph describes what it would have looked like for Adam Smith’s protocapitalist agriculture to have been financed— based

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CHAP TER ONE

on how the Black Scholes paper restates the distinction between debt and equity in terms of option theory. Here the secured lender is in effect purchasing the farmer’s crop as collateral for the price of the loan while simultaneously selling the farmer an option to get out of full repayment if the market value of the crop is less than the amount borrowed plus interest. The lender thus bears the risk that the crop will be worth less than the total amount owed because the farmer has the right— implicitly, a put option— to discharge the loan for the future value of the crop in that eventuality. The right the farmer implicitly retains after selling his crop to the lender as collateral is now an equity interest in the crop. This is, as we have seen, a call option on the profits from his investment of the borrowed funds to grow the crop. But the farmer does not have to retain 100 percent of his potential upside from this call option. Once we understand it as his equity in the investment, we will see that he can sell shares in it to raise additional cash. Selling equity is thus a second way for the farmer to finance production in addition to, or instead of, issuing debt. This hypothetical picture is, however, oversimplified. In a real financial system, a lender is likely to require the farmer to pledge collateral worth considerably more than the amount borrowed, or to pledge some or all of his net equity, the unsecured investment he would otherwise retain, in order to qualify for a loan secured by his future crop. The latter scenario does not, however, fully protect the lender from default. The farmer’s default remains rational within the logic of finance if his pledged equity is worth less than the amount owed, in which case the lender will have effectively bought the farm along with its crop.7 The point of this anachronistic rendering of Smith’s protocapitalist farmer is to show that the mode of production he describes presupposes that he has the sociolegal capacity to throw off two financial byproducts that will later become debt and equity. Unless this can happen, a profit earned on borrowed funds could not accumulate as capital stock owned by the farmer. But in Smith’s account of protocapitalist agriculture, and later in David Ricardo’s, there is no secondary market for either debt or equity; because they cannot be priced and traded, these financial by-products of capitalism are unrecyclable. Although Smith and Ricardo did not foresee present-day financial markets, they saw a similar dynamic in the market in agricultural land, which had become inflated as a place to invest the profits from investment in expanded agricultural production. Because there were as yet no alternatives to investing capitalist profits in land, Smith and Ricardo feared that the growth of capitalism would ultimately enrich the landed aristocracy without increasing the wealth of society as a whole.8 In Theories of Surplus Value, Marx stresses the inability of Smith and Ricardo to account for what becomes of surplus value beyond the use of agricultural profits to drive up the price of land. He attacks them for failing to grasp how central the creation and recycling of surplus value must be to

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a market mode of production, and also for being oblivious to how the need to produce vehicles in which to accumulate surplus value is a driver of such a system’s development that can eventually transform it into something else.9 The kernel of truth about surplus value that Marx nevertheless finds in Smith and Ricardo is that, even if the capitalist farmer ends up owning the means of production (both the seed and the land), this is only because these have come to function as vehicles for holding and accumulating the surplus created in earlier rounds of production. In grasping this, Marx almost sees that, at the innermost kernel of the mode of agrarian production defined by Smith and Ricardo, there is an ability to manufacture a financial asset based on the present value of something, in this case a crop, that does not yet exist. The fact that Marx implicitly understood this helps explain why he called his book Capital even though it is most directly about commodities. And any serious restatement of Marx to incorporate the insights of finance must place the market for assets (capital), consisting of options on the value of the crop, on an equal footing with the market for commoditized goods, such as the crop itself.

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My own restatement of Marx in today’s financial language goes to the core of his distinction in Capital between “absolute” and “relative” surplus value. By absolute surplus value he meant the economic value, analyzed by Smith and Ricardo, that comes from the productive employment of labor to produce marketable commodities, and the means of making them, which can be ultimately purchased by the wages paid to laborers. Smith and Ricardo claimed that aggregate economic value would rise with more of the population being brought into commodity production, as opposed to being subsistence laborers or servants— and that, once full employment had been reached, any further improvements in technology or skill would result in lower prices without adding to economic wealth. In their view, there would thus be no inherent bias in favor of investing in expensive machinery to save labor costs if it happened that more workers were available for hire whose wages would increase what we now call aggregate demand. Writing a half century later, at the cusp of capitalism’s industrial revolution, Marx distinguished the “absolute surplus value” described by Smith and Ricardo from the capitalist’s production of what he called “relative surplus value.” The pursuit of relative surplus value explains capitalism’s bias in favor of productive technologies that reduce rather than increase employment, as well as its eventual ability to transform the world through favoring investment in the labor-saving technology characteristic of heavy industry.10 For present purposes I will stress— though Marx did not— that his account

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of relative surplus value is grounded on the fundamental maxim of finance: the non-arbitrage principle, otherwise called the law of one price. This law says that two identical units of any given commodity should be sold at the same price regardless of their cost of production. Beginning in chapter 12 of Capital, Volume I, Marx implicitly and perhaps unknowingly applies this maxim of finance to those forms of production that convert raw materials into finished commodities. His implicitly financial claim is thus that the form of production described by Smith and Ricardo allows the producer an arbitrage opportunity on his investment in producer goods if he can put out more units of product in the same labor time. Why does such an arbitrage opportunity exist? Because the investor in labor-saving technology presumably would not have to lower his selling price on units embodying identical inputs of material until the competition caught up in reducing labor costs. Creating this arbitrage opportunity in the turnover of raw materials— which are one component of Marx’s “constant capital”— is thus another way of describing an increase in the productivity of labor through investment in machinery, which he considered as a component of constant capital along with raw materials. When seen from the standpoint of today’s financial theory, the capitalist’s investment in labor-saving technology, such as advanced machinery, creates an arbitrage opportunity by widening the spread of returns on the investment in identical quantities of raw materials that are used to create products that will sell at the identical per unit price regardless of what Marx calls the “variable” quantity of labor employed in their production. Because the law of one price confers a competitive advantage on enterprises that can do this, other firms will be compelled by the market to invest in laborsaving productive technologies in order to survive. As a result, industrial laborers will be thrown out of work as their productivity increases. This is the point about relative surplus value that Marx, rightly, stresses because of his immediate focus on labor. But a corollary point in Marx’s account of relative surplus value has to do with capital. It is that producer goods— new machinery and raw materials— become core vehicles for preserving and accumulating surplus value by allowing investors to benefit from the arbitrage opportunities that are opened by the steeper productivity gradients that relative surplus value reflects. Because of its need to accumulate previously created surplus value by investing in producer goods, industrial capitalism simultaneously commits itself to constantly expanding production. This opens it to disaccumulation, a collapse in the prices of producer goods, if the market for consumer goods does not also expand. This central argument about the historical trajectory and ultimate vulnerability of industrial capitalism is where Marx comes closest to meshing the gears between commodity production and asset creation. His most

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original insight here is that producer goods do double duty as produced means of production and as vehicles of accumulation, or what we would now call financial assets.11 This, for Marx, is the gear connecting the asset and commodity markets that, for a time, drives capitalism to perform its historical role of creating both an abundance of things and an abundance of wealth. His account of relative surplus value thus explains why there is a financial incentive to create labor-saving technology, and also why investing in producer goods becomes a way to financialize the spreads in labor productivity that are introduced by that technology. During a historical conjuncture in which this is possible, investors can become wealthier primarily by reducing the time it takes to generate returns on their increased investment in the raw materials necessary to produce commodities on an expanded scale. Expanding relative surplus value in this way was, for Marx, the genius of industrial capitalism in its most dynamic phase, but it was based on a coincidence that could not last: the coincidence between producer goods as a liquid asset in which capital could accumulate, and producer goods as produced commodities that could be priced like any other. The fact that they were both of these things distinguished them from all other assets in which wealth could be held except for money itself. But Marx recognized that this coincidence was unstable. During the time lag required for production, for example, the capitalist’s investment in producer goods could lose its value as an asset if the price of the end product became lower than would be necessary to validate the investment.12 Marx clearly recognized, in Capital, Volume III, that a reduction in the valuation of the physical capital as collateral would lead to a reduction in the value of the debt as a financial asset, thus leading to a sale of the collateral to repay creditors, which would lead in turn to a fall in its value as a financial asset, and finally to a disinvestment in production. Here he seemed to have hit upon the illiquidity of a still-nascent secondary market in debt– backed assets as a cause of disaccumulation in the value of physical capital, but he did so without addressing the importance of liquidity as such in asset valuation.13 Today, Marx’s theory of financial crises could be described as the accelerated swapping of less liquid assets for more liquid assets, the most liquid being money itself. But Marx preferred to call this a “realization problem,” arising from inherent uncertainty about whether capitalists can monetize their investment in goods and service in circumstances where money itself can be hoarded rather than spent. He went on to connect this to a contraction of the credit extended to producers, a call on loans collateralized producer goods, and a reduced ability to raise money for repayment by selling unused raw materials and underutilized machinery into a market that was falling due to lack of buyers. His account of the realization problem thus treats it as an example of illiquidity in both capital goods and credit markets

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brought on by a contraction in consumer demand. Since financial liquidity effectively validates the vehicles in which accumulated capital is preserved, financial illiquidity calls into question the legitimacy of capital accumulation, and results in capital disaccumulation.14

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Marx understood all this, at least implicitly, but he could not have known that the specific realization problem that he described could, eventually, be hedged through the use of put and call options that preserve the value of one’s investment in raw materials during the time it takes to convert them into finished products. Before the Black-Scholes paper discussed in the Introduction to this book, put-and-call options were available on boutique markets, but these were sold in limited quantities and at a very high price that discouraged demand and partly protected the issuer of options from exposure to the risks that traders of the option would be trying to assume or shed. The different derivations of the options pricing formula in 1973 by Black and Scholes15 and by Robert C. Merton16 essentially agree that the theoretical price of an option should be identical to the cost of its continuous hedging by a manufacturer who does not want any exposure to the risks that can subsequently be assumed or shed by trading that option. The idea that options on risk can themselves be created risklessly may seem paradoxical at first, but it reflects the need to distinguish between the value of a bet on the future— one way or the other— and the value added by creating the opportunity to make such a bet. The latter is the value of optionality as such, and the problem of deriving it in a risk-neutral way lies at the heart of the Black-Scholes-Merton formula of 1973 (BSM). 17 Black, Scholes, and Merton approached this problem by constructing a portfolio consisting of debt, equity, and the option to be priced that synthetically replicates the risk-free rate of return of a US government bond. It should then be possible in theory to solve for the price of the option as the only unknown component of this portfolio, the value of which would have to be identical with the cost of hedging the rest of it. The mathematical difficulties arose from describing how to do this continuously in real time while all the other components are changing. But the theoretical decision to treat the price of options at their issuance— not as the assumption of counterparty risk by an initial seller, but as part of the project of creating and maintaining a risk-free portfolio — made it feasible for issuers to supply new options of nearly every kind at nearly any scale demanded, and thus to create the kind deep and liquid market in options that BSM requires for continuous hedging to be realistically approximated.18 We can now compare the hypothetical world of finance described by

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BSM to that of Smith’s capitalist farmer, discussed earlier in this chapter. The paradigm case invoked by the original Black and Scholes paper is that of a holding company, such as a hedge fund, that owns stocks in other companies as its only assets. This company, they suppose, buys these stocks using borrowed money and equity that comes from issuing its own stock at a price reflecting the present value of its expected future earnings. Once this highly financed company is a going concern, it may want to generate cash by selling calls on its own shares— and, once it develops the formula for doing this, on any company’s shares regardless of its exposure to them. What is the price at which it can manufacture and sell a call option in whatever quantities are demanded without making an uncovered bet on whether its own stock price will rise or fall? This is a risk to which it is already exposed, insofar as it holds equity in itself. But its purpose in manufacturing calls need not be to leverage or hedge that exposure, which any owner of their stock could do by buying or selling options on it. What if its purpose were merely to generate income from manufacturing a financial product that could be supplied at any level without changing its risk exposure to price movements in the underlying stock— in this case its own? How would it price that product? BSM showed how it is theoretically possible to answer this question in a way that has unleashed new possibilities for the manufacture and marketing of new financial products, some of which we will discuss in later chapters. My point here is that the financial engineering that BSM enabled could be used to hedge the realization problem that Marx described. By this I mean that the devaluation of the collateral for funds invested in producer goods— collateral which is here the producer goods themselves— can be hedged by means of a derivative asset, here a put option on that collateral, the value of which would be inverse to that of the collateral: its market value would rise automatically as the market value of the collateral falls. So a portfolio consisting of the collateral and the debt to finance it plus a put option fully guaranteeing the collateral would retain its value if the market for collateral becomes less liquid, as it would in the downward spiral scenarios that Marx envisioned. But if this is true, the put option would add value to the portfolio that is real notwithstanding the fact that it is also purely financial. That added value is the value of optionality.

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But how could the value added by optionality comport with Marx’s theory if it is not, at least primarily, the product of labor? Both the collateral and its inverse security, the put, are monetizable assets, and the swap of two monetizable assets corresponds to Marx’s general formula for capital itself: M – M1.

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In Capital, Volume I, however, Marx famously rejects M – M1 as a formula for capital, because a market in which money is instantaneously exchanged for money does not explain M1 > M, the creation of surplus value, which could be the only purpose of such an exchange. There must, he says, be some third mediating term that explains this. But he does not consider that that a liquidity gradient could be the mediating term that explains M1 > M. Perhaps Marx could not see variations in liquidity, because he followed Smith and Ricardo in assuming that liquidity is a precondition for the existence of markets (or part of their definition), rather than being sometimes a matter of degree. A more fundamental reason for deemphasizing the arbitrage of liquidity gradients in capitalism is Marx’s focus on gradients in the productivity of wage labor as a source of absolute and relative surplus value.19 Marx thus explains the capitalist’s ability to make money from wage labor not as a swap of liquidities (M – M1) but as a consequence of a special characteristics of labor power as a commodity that arises in a spread between what Duncan Foley usefully characterizes as “how much value in monetary units an hour of labor time creates” (say, fifteen dollars) and how much value in monetary units an hourly wage can purchase (say, five dollars).20 Foley’s reformulation of Marx’s theory of exploitation does not mention puts and calls; but it implies that what the capitalist appropriates, without paying a premium for it, is a call option on the value of that spread. The idea that such a spread itself is a unique outcome of the commoditization of labor power is the capitalism-as-production side of Marx’s critique of the M – M1 formula for capital, which posits that the purchase of a third element, C, makes M1 > M in M-C-M1, but if and only if C consists of rented labor power. For all other purchases of C, M-C-M1 would from Marx’s perspective describe an arbitrage opportunity— buying and selling a commodity simultaneously at different prices— that violates the law of one price by a riskless profit of any size to be made on the transaction. If this is the capitalism-as-production side of Marx’s M-C-M1, there is also, at least in embryo, a capitalism-as-finance side to M-C-M1 in which C can consist of a hedged portfolio consisting of debt and equity and, also options— puts and calls. It was, of course, not possible when Marx wrote to construct a fully hedged portfolio consisting of debt and equity that could in principle be made fully liquid at all times through the use of puts and calls.21 But their relation can be expressed statically in the basic financial formula that relates the parity of debt and equity to the parity of puts and calls: Stock + Put ≡ Call + Debt22 Put-call parity is, as I’ve explained earlier, is a simple accounting identity. Essentially, it says that if you own a stock plus a put giving you downside

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protection, you can replicate the investment return of a making a loan that will pay you back on maturity what you would have paid to purchase the stock, plus a call giving you upside participation in the stock price.23 At the most abstract level, the formula implies that if you solve for the risk-free debt component, you can use puts and calls to create a completely hedged stock portfolio that will earn a return no higher or lower than a US government bond— that is, the return eliminating all market-related risk and leaving only the political risk associated with defaulted government bonds, which lies outside the parity formula. From the perspective of modern financial theory, put-call parity shows clearly that Marx’s version of the realization problem can be hedged if the capitalist’s portfolio includes puts and calls that can be bought and sold on a secondary market. By adding bought puts and sold calls to the producer’s investment in financial assets, we would be directly addressing Marx’s implicit concern with how, for example, an automaker’s investments in raw materials such as steel are also assets in which capital is accumulated, the value of which is subject to fluctuations in the demand for cars— a risk factor that Marx describes as the realization problem.24 As a way of anticipating the realization problem, the BSM-based technology for manufacturing and trading puts and calls allows the capitalist to decide whether investment in expanded production is the optimal route to preserving and expanding the store of capital that already exists. Producer goods— what Smith and Ricardo would call the enterprise’s capital stock— are merely one possible store of capital. But they may or may not provide a safer form of collateral than investment in other vehicles of capital preservation, such as financial derivatives constructed of puts and calls on underlying assets that no longer need to be directly owned in order to earn a return. But insofar as the potential illiquidity of collateral lies at the core of Marx’s realization problem, a judicious use of puts and calls can allow a manufacturer’s capital stock to remain liquid during the time lag between its purchase and its eventual sale in the form of a finished product. Liquidity in this sense is what financial markets create alongside what Marx called the “value” of economic output (measured by today’s GDP) that derives from the capacity of what we now call the “real economy” to employ workers and create purchasing power. And, when Marx sometimes suggests that the flight into money (the refusal to spend) creates the realization problem, this formulation is a throwback to the time when currency was the only truly liquid financial asset.25 We have thus seen that what Marx called the “realization problem”— a phrase that appears throughout Capital as a kind of nervous tic— is a liquidity problem that arises because the capitalist’s investment in expanded production will cease to be considered sound collateral as soon as the market for the finished product declines. And if liquidity is a requirement of capital accumulation as such, then vulnerability to a liquidity

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crisis is not sufficient to distinguish disaccumulation from the bursting of a speculative bubble that can also occur. My interpretive claim is, rather, that Marx left illiquidity undertheorized when he called its collapse “the realization problem,” which could be said to comprise the entirety of the market system that is the central focus of mainstream economic thought.26

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How does Marx’s analysis of capitalism relate to mainstream economics if finance is brought into his framework, as I here propose? The implicit force of Marx’s critique of the mystery of surplus value (M-C-M1) is that there must be financial liquidity to fund the creation of value even in the abstract sense described by rigorous theorists of his “value form.”27 Their account of historically specific market modes of production presupposes that there are markets that impose the discipline of money payments on people whose access to the means of subsistence therefore depends on earning a wage. For the relation of wage-labor and capital to occur, there must thus be enough liquidity in financial markets to generate the currency or credit needed to fund production in this form. If Marx had focused on financial liquidity, he would have understood that it is not merely a positive externality thrown off by primary commodity markets themselves. Rather, it comes at a price. In one sense, this price is political; maintaining liquidity requires the repression of forces, such as debtor revolts, that would make credit instruments less liquid. The reaction to such events can sometimes create a cascade of demands that debts be paid off— converted into money— in situations where there would not be enough money in circulation for everyone to do so. In a more straightforward sense, the price of liquidity is set by capital markets. Here, liquidity is manufactured by paying someone a premium to assume the risk of temporary illiquidity (the risk that one will not be able to convert an investment back into money right away).28 This risk is what the financial market makers try to hedge by assigning a price to a financial vehicle that has liquidity now— perhaps a bond or another “safe asset”— and which is defined for transactional purposes as being just as good as money.29 But market makers cannot hedge against liquidity risk itself— the complete flight from all nonmonetary assets into a demand for currency issued by a state.30 Guaranteeing against systemic illiquidity, and thereby supporting the value of asset markets in general, is something that presently only states with the exclusive power to issue currency are able to do. They do it by swapping their bonds for otherwise illiquid assets at par, and then redeeming— buying back— those bonds by printing new money. The effect is to inject

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enough liquidity into the financial markets to satisfy the demand for funds. But the state’s willingness to do this to preserve the value of accumulated wealth— and to avoid massive disaccumulation— can often come at the expense of justice.31 Instead of borrowing in order to spend more on social programs that mitigate rising inequality, the state spends less so that it can borrow more cheaply in order to shore up capital markets by providing relatively safe collateral as a substitute for the privately issued financial instruments that have become illiquid. Government austerity programs thus tend to shore up the value of accumulated wealth by swapping bad private debt for good public debt at one hundred cents on the dollar. As we shall see in later chapters, the price of using the government’s borrowing power to support financial market liquidity is ultimately political, insofar as the demand for justice must be repressed in order to accomplish it. This need for repression does merely impose a monetary cost on the state that takes priority over other possible expenditures. It also imposes a legitimacy cost on the state— even in the eyes of capitalism’s principal beneficiaries— to the extent that the efficient working of the financial market no longer appears to be more natural or self-justifying than the power of the state that props it up. The extremity of the political price that finance imposes on the state in such moments is that it heightens popular perception that the political system is “rigged” in favor of interests that the state must ultimately serve no matter what the cost.32 This is not, however, what Marx directly says. In Capital, Volume I, chapter 25, he brings absolute and relative surplus value together to produce the mechanical result he calls an “absolute general law of capitalist accumulation,” which shows the impact of finance on production. It models how the investment logic of relative surplus value favors the real accumulation of capital in the form of producer goods, thereby changing what he calls its “organic composition” in a way that tends to deepen income inequality and raise the macroeconomic threat of underconsumption. I see this as an exemplary effort to understand the interaction of asset markets and economic output in the era of capitalist industrialization that sets a standard for all efforts to reimagine Capital for the twenty-first century. In Volume II, Marx attempted to nail this down by showing how the increased availability of funds available to invest in the producer goods through which capital is accumulated affects capitalism’s continued ability to forward-fund the growth of aggregate demand for wage goods on which the validation of those investments would depend.33 Because he was concerned here only with productive capital, Marx assumed that growth in accumulation and production could grow in tandem to optimize the exploitation of available labor power— and that any tendency of capitalism not to do this was epiphenomenal to industrial capitalism, and therefore subject to correction.

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In Volume III, Marx made it clear that the “general law” of accumulation laid out in Volume I did indeed identify a tendency for the growth in capital accumulated as means of production to exceed the growth of marketable output, but that this tendency was offset by what he called “tendency of the rate of profit to fall,”34 and could be reversed during periodic financial crises when capital invested in production was disaccumulated. On the basis of the arguments in this chapter— and nearly 140 years of capitalist history since Marx’s death — we can now better grasp the underlying problem with which he struggled in Volumes II and III: that, despite Smith and Ricardo’s description of the capital of society as a “stock” of producer goods, which may cause a growth in economic output, the valuation of capital, as such, arises partly from the liquidity of the assets in which it is invested, and for this reason cannot always be pegged directly to whatever growth in output it creates. The portion of asset appreciation that is due to liquidity creation would not have been evident to Marx, who was left to grapple with its apparent decoupling from the growth in production to which Smith and Ricardo had tied it. Even today, economists in the Marxian tradition seek to find where the capital valuations that arise from liquidity creation really “come from” in the sphere of production.35 In my view, however, the deeper implication of Marx’s critique of capitalism is that it is emphatically not a system that could be fixed by policies that peg the appreciation of capital markets to growth in the real economy so that we could, for example, directly address the problem of inflation by pegging wage rates to changes in the nominal price levels of the goods that wages can buy. The heart of my argument is, rather, that the component of capital appreciation that does not come from expanded economic output is a problem in its own right that points us to sources of strength and vulnerability in capitalism beyond those identified by Marx. In my approach, for example, it is clearly possible to write derivatives that index the spread between the total volume of capital market volumes and GDP without setting a peg between one and the other. Could it then be possible to create a politics around questions of historical justice that reflects long and short positions on the price of those derivatives? But here I leap ahead of myself. My purpose in this chapter is merely to suggest questions that could arise from relaxing Marx’s apparent assumption that asset market growth— capital accumulation and disaccumulation— normally occurs in tandem with the expansion and contraction of economic output. What would it mean for asset markets to grow faster than the industrialized economies that supposedly underlie them? Is this differential growth something real that can be harvested by democratic means to fund public goods? Is it something false, or ephemeral, that would disappear before it could be expropriated and put to other use? Is it a new source of capitalism’s strength?

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Does it reveal new points of weakness? Such questions preoccupied both proponents and critics of Marx’s thought in the first century after his death.

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Thomas Piketty’s bestselling book Capital in the Twenty-First Century is based on the evident fact that throughout most of capitalism’s history, asset values have compounded faster than production has grown. Conceptually, Piketty’s major innovation is to measure capital accumulation by the number of years of GDP it would take to equal the valuation of a country’s capital market. His empirical question is: “What is the effect of wealth accumulation, thus conceived, on the basic income distribution between those who own capital and those who do not?” Income inequality prima facie increases, he says, as financial assets appreciate in value and then throw off revenue at a rate of return that does not decline to offset the appreciation in value. It follows that both asset appreciation and the expected rate of return will affect the basic income inequality arising from the ownership of capital. These two factors can reinforce each other, as they would, for example, if assets were to appreciate while the rate of return went up— or they could offset each other if, for example, the rate of return were to go down as asset accumulation rose, as in Marx’s scenario of a “falling rate of profit,” which Piketty does not see as a characteristic inherent to the process of capital accumulation. Piketty’s way of framing this question makes it plausible that, as the ratio of accumulated wealth to national income grows, so too will the likely share of national output each year that goes to the wealthy. He insists, however, that this is only an empirical tendency. It can be offset by circumstances such as war and depression, and by government policies that prescriptively lower the rate of return on capital as the ratio of wealth to output rises. Such direct policies— including redistributive income taxes, capital levies, and monetary controls— are thus conceivable as ways to constrain the rate of return on capital. The rate of after-tax return on capital could even be adjusted low enough so that in any given time period the compounding of reinvested wealth is not permitted to exceed the rate of growth in GDP. This could eventually neutralize or even reverse the effect of a rising concentration wealth on rising income inequality. The valid conceptual point here is that one could set a politically motivated cap on the share of national income going to holders of capital while still allowing the relative rates of growth in asset markets and their underlying economies to follow whatever presumably natural course the mode of production requires. Piketty, who eschews talk of socioeconomic revolution, seems to treat it as a criterion for a fair- enough distribution of

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revenue between classes that the share of national income that capitalists enjoy should not rise, regardless of their increasing share of national wealth. Another approach to limiting capital’s rising share of national income could be to regulate the rise of asset prices by a policy that pegs them to some other statistic, such as inflation-adjusted GDP growth, that expressly excludes the rise in asset prices. Although Piketty does not say so, a predictable effect of both approaches, if they work, would likely be to lower the value of assets and thus to disaccumulate wealth. This would be consistent with the goal of curbing the share of national income going to capitalists, and thus it may be Piketty’s intended result. What he does not say, however, is that an expected decline in asset valuation would certainly be resisted by capitalists acting through their intermediaries in both government and the financial sector. Thus we have a possible recipe for class struggle— or, if not, we have an analytical description of what it looks like for class struggle to be forestalled by artificially restricting the nominal growth rate of capital markets to growth in real output plus inflation. There is, however, no mention in Piketty’s book of the likelihood that asset values would be reduced under his various policy scenarios by making them less liquid despite the strenuous objections of capitalists; nor does Piketty acknowledge that threatening to sabotage the liquidity of capital markets is a form of class power that capitalists could exercise in resisting his policy suggestions. Such concerns apply primarily to forms of appreciated capital whose main use value is to remain liquid, and Piketty is concerned primarily with the question of whether reducing the share of national income that capitalists receive from an increasingly capital-intensive economy would reduce net investment in factors of production. He does not seem to think that it would.36 But Piketty’s underlying analysis is not in any obvious way limited to those appreciated assets that are invested in expanding economic output, rather than in purely financial instruments. His chosen metric— dividing the size of a country’s capital market by its annual GDP— should pick up the appreciated value of all liquid investment vehicles, including purely financial assets that are not investments in production. And now that such assets are becoming an increasingly important component of capital markets, it is especially odd that a book called Capital in the Twenty-First Century pays so little attention to them and to the heightened political and social power that the markets in them have given capitalists today. In this respect, he follows squarely in the tradition of political economists, including Marx, who have assumed that access to money or credit (which postpones the need for money) is not part of what is being bought and sold in the real economy.37 Yet, today, such financial products are often bought and sold throughout the real economy as surrogates for the outright purchase of consumer goods

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and services— and can themselves be important drivers of rising inequality, insofar as they extract a growing share of after-tax income, no matter what its source may be. It is clear, for example, that health insurance, mortgages, and student loans are significant expense items for many families. Are these financial products necessities for life, or are they speculative investments on the part of those who undertake such payment obligations? They are often both. But clearly, they are also investments undertaken by financial institutions providing credit in households as predictable future revenue sources— as what the social theorist Michel Feher calls “investees.”38 The creditworthiness of today’s investees no longer requires having a steady, well-paid job. It can also be established by entering into a long-term payment contract for something that one cannot do without, such as mobile phones and utilities. As more data becomes available on investees, the predictability of their payment patterns can be continuously reassessed on the basis of measurable changes in their needs, habits, social networks, and so forth. The securities can then be bundled, securitized, rated, and then pledged as collateral to generate funding for new loans that can themselves eventually be securitized to create new categories of collateral. As previously mentioned, the increased use of debt financing for household expenditures is simultaneously a way of mining data to reveal further aspects of daily life that consumers can pledge to increase their borrowing power far beyond a mere advance of wages. When Marx wrote Capital in the nineteenth century, he could, unlike Piketty, reasonably consider the wage laborer as an ideal type— debt-free and uncreditworthy— because it was central to his analysis of capitalist exploitation that a worker’s consumption must always be funded by paying cash in advance. He could proceed on this assumption even though he was almost certainly aware that most workers were paid in arrears when they were paid in cash at all,39 and that, until well into the nineteenth century, there would not have been enough currency in circulation to pay wages in cash.40 Marx downplays these points in order to stress that any money received in wages is spent as soon as it is gotten, on commodities that do not function as value-preserving assets (investments) for the purchaser. But in thus focusing on the exploitation of wage labor in the process of production, Marx need not have argued— nor would it have been true— that capital cannot further advance its process of accumulation by extracting something extra from household expenditure of after wages have been paid. The Marxist economist Costas Lapavitsas now calls finance capital’s extraction of additional surplus through insurance premiums and debt service as a kind of tax imposed upon the wage as an additional “profit upon alienation or expropriation” that can result in real accumulation.41

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In today’s US economy, many employed persons, the partially employed, and the entire “surplus population” rely on nonwage sources of funding that are nevertheless encumbered in ways that accelerate capital accumulation.42 And there have been many other historical examples in which an extra measure of capital accumulation has been enabled, indebting wage earners rather than making them pay for everything all at once. The Marxism we now need (let’s call it “capital for the twenty-first century”) is one that links Piketty’s question about the differential growth rates and aggregate volume of asset markets and GDP to the specific logics that now underlie the specifically financial forms capital appreciation.43 Piketty, rather, focuses on capital invested in production, and assumes that its rate of growth can and should be indexed to the rate of growth in total output. He does not assume, however, that there is an economic mechanism— including crisis— that brings these rates of growth into alignment, or that periodically corrects their misalignment as economic crisis do in Marx. He claims, rather, that it is empirically typical, and suggests that it is inherently likely that they will continue to diverge in ways that leave the owners of capital with an increasing share of national income. The reason for this inadequacy is that, like Marx, he does not see the logic of the asset form as equal in importance to his analysis of the logic of commodity production in understanding the dynamic tendencies of capitalism.

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With few exceptions, a fatal blind spot on the topic of financial liquidity persists in Marx scholarship today. In my generation, the preeminent “value form” Marxist was Moishe Postone, who grounded his approach on a distinction between “value” and “wealth.” Marx’s concept of value, Postone writes, is “not mediated by overt social relations,” but is “measured in terms of what all [commodities] have in common. . . . The expenditure of human labor that is not a function of the quantity and nature of its products is, in Marx’s analysis, time.” Postone contrasts this with Marx’s more relativistic concept of “material wealth, which does mediate itself socially.” By this he meant that material wealth “is ‘evaluated’ and distributed by overt social relations— traditional social ties, relations of power, conscious decisions, considerations of needs, and so forth.” The “evaluation” of wealth was thus, for Postone, mimetic in René Girard’s sense— whereas in the “valorization” of commodities, the social relations are concealed, and the form of mediation appears to be direct.44 But despite his dichotomy between value and wealth, Postone did not regard value and wealth as having a similar conceptual importance in Marx’s theory. On this point would have differed, for example, from the Marxist

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economist Suzanne de Brunhoff, for whom money is the general form of wealth, much as abstract labor time is the general form of value. “Sales and purchases of commodities, C, are made through money, M. This means that commodities circulate with monetary prices, and that the money that is circulating has a value. This value comprises an omnipresent core benchmark in the circulation of commodities, for which money constitutes a ‘general equivalent.’ Money becomes the general form of wealth.”45 For Postone, unlike Brunhoff, the moneyness or liquidity of wealth is not a central category for the critical understanding of capitalism in the way that value is. Money is a visible form of social mediation relating the heterogeneous objects for which it can be exchanged to social agents; value abstracts from social mediation, so that the relation of commodities to each other appears to be direct. It is here sociality itself that is concealed through the illusion of direct mediation, making social relations of domination invisible without eliminating them. For Postone, the fact that social domination is more visible in noncapitalist societies means that the problems it poses specific to capitalism are those that that arise only when and because it is concealed. These are problems of abstraction: the reduction of human effort to an expenditure of homogeneous labor time. The form of sociality based on abstract labor time— which for Postone is capitalism itself— thus conceals the distinctively social function of abstraction, which is to naturalize those forms of social domination that are still present. The process of abstraction that drives Postone’s notion of direct mediation thus has much in common with the Frankfurt School philosopher Alfred Sohn-Rethel’s claim that “the act of exchange has to be described as abstract movement through abstract (homogeneous, continuous, and empty) space and time of abstract substances (materially real but bare of sense-qualities) which thereby suffer no material change and which allow for none but quantitative differentiation (differentiation in abstract, non-dimensional quantity)” [italics in original].46 The essential point that Postone seems to share with Sohn-Rethel is that capitalism makes the mediating role of abstract time appear to be direct by making it invisible. And, just as Kant’s immanent “critique” of human understanding consists of making visible the role of space and time as constitutive categories, for Postone, Marx’s immanent critique of the commodity form in Capital consists of making visible the constitutive role of abstract labor time in reducing mediation through social relations to the illusion of direct mediation by value as such. But Postone’s idea of direct mediation is puzzling on its face. How could it be mediation if it is direct? And in what sense could he mean it to be direct, if not to deny that the value form is mediated by money and thus dominated by finance? Postone’s emphasis on the directness of social mediation in

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capitalist production does commit him, I think, to a diminished stress on the role of financial intermediaries and money markets in capitalism as a whole. But even allowing for his focus on production, Postone’s philosophical view that mediation can be direct within this realm is not well developed in his work. On its face, direct mediation appears to be something of an oxymoron, implying at the same time as it denies the existence of a third, or mediating, term through which the relation between two other terms can be interpreted. In Peircean semiotics, for example, there is always be a third, mediating, sign that refers to the relation between a signifier and the object that it signifies. The relation of the third sign to the signifier- object relation can be one of self-similarity (as in a metaphor) or contiguity (as in a metonym); it can be one of causation or of abstraction in Postone’s sense. And such abstraction can take the form of symbolization that may or may not also consist of commensuration, as when money becomes both a symbol and a common denominator of the social relations between agents and things. From a purely semiotic perspective, Postone’s central concept of abstraction itself is merely a particular form of mediation as creating wealth (accumulated exchange value) out of something else that Marx calls use value. The semiotician Paul Kockelman thus describes Postone’s version of Marx as one in which “the commodity is at once the object to be investigated and the method of investigation. In this way, an ontology ultimately grounded in a subject-object dichotomy is one of the ideational reflexes of 19th-century capital; and must therefore be used as a theoretical tool for interpreting that form of capitalism.” In contrast to Postone’s “dialectical” approach, Kockelman sees his own approach as one that grounds “the commodity in a semiotic. And hence rather than systemically unfold a subject-object dichotomy, it systemically deploys a sign-object-interpretant trichotomy.”47 Postone was well aware of the value of Peircean semiotics in anthropological research when he wrote Time, Labor, and Social Domination, and his rejection of it in favor of “direct mediation” by the value form was, I think, deeply grounded in the theological dimensions of his view. Direct revelation is the monotheistic alternative to idolatry, which it regards as the worship of “other gods” that appear to humans through the mediation of natural objects and created artifacts. The objection is not merely that the idols are not themselves gods, but that any god whose divinity is mediated by material objects is also false. The one true God, in contrast, would be encountered by humans, if at all, through a modality that is uniquely direct.48 So the apparent oxymoron of direct mediation in Postone’s interpretation of Marx’s value form should be read as an attempt to reject immediacy because there is still alterity, while still erasing the need for what sociolinguists such as Kockelman would call a mediating sign. What would be revealed in this way

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is that the one true God is an exception to forms of sociality and religion that are mediated by material objects, and also to the threefold Peircean semiotics of sign-object-interpretant deployed by Kockelman. For at least one branch of monotheistic theology, the apophatic branch, God is not an abstract signifier designating the attribute that all “gods” would have in common, but rather the universal signified to whom every signifier refers. The one true God thus has both every name and no name.49 It follows that nothing can be given its own name without also being given the name of God. But such a God would not create or inhabit the world by abstracting from it, as though God’s divinity were the single common denominator commensurating all. The apophatic doctrine of Divine Names thus denies that God appears as an abstraction, just as monotheism more generally denies that God appears through mediation. Instead of being a mere symbol that stands for God, the name of God thus becomes a concrete universal of the type described by Hegel, Adorno, and Sohn-Rethel as selfmediating, thereby drawing a secular analogy to the monotheistic view of divine self-creation as a way of becoming concrete rather than abstract.50 What remains here of God is thus concealment of a universal signified by a universal signifier— and a similar approach may underlie Postone’s assumption that in capitalism there are no interpretants in the value form, only the concealment of a universal signified by a universal signifier masquerading as an abstraction. There is thus a strong resemblance between Postone’s approach to the value form in capitalism and earlier monotheistic critiques of both idolatry and abstraction. But monotheism itself is a form of atheism with an exception: it is an argument that there is no god but God. Here the concept of the one true God— of God Himself— is used to criticize the worship of other gods as false.51 The criticism here is that the worship of those false gods is a form of concealment. Such concealment may occur by either mediation or abstraction— the objections here are much as they have always been. But in monotheism it is not clear whether the concealment of God is itself the problem to be revealed, or whether problem with concealment can be revealed by God alone. The argument that there is no God but God could be a model for critique even if there is no God. But the critique here would be that God alone is capable of direct mediation, and that nothing else can occupy God’s place. For all these reasons, it remains unclear in Postone whether the value form’s concealment of social domination, or of social domination itself, or of the value form itself, or (perhaps) of capitalism’s concealment of the value form through the fetish of money, is what is specifically wrong with capitalism. Sometimes it seems that continuation of capitalism is incompatible with the revelation of its social precondition in the value form, and that

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it thus depends on its concealment. Is direct mediation through abstraction what has been concealed, what has been revealed, or, rather, a means of concealing something else? And is this what we should wish to know directly? But, if direct mediation in capitalism really does occur through the value form, as Postone might be saying, then the participation in value form is still the worship of a false God— the God of “the social”— because there is no God but God. If so, Postone’s objection to capitalism might be ultimately religious. But it is also possible that his objection is to direct mediation itself. If so, the implication would be that there is no God— not even “the social,” and not even God. We would thus have a conception of critique that resembles atheism without an exception. But then, where is our analysis of capitalism to lead if there is no substitute for value and no value?

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My interpretation of Marx in this chapter bypasses these thorny theological questions by rejecting the need for the concept of direct mediation as the key to understanding both Capital and capitalism. What if the commodity form is mediated by the asset form, most notably through the use of financial derivatives? In this case, the production of wealth without passing through the labor process would reflect an historical process leading from industrialization to finance. Drawing on Randy Martin’s idea of a “derivative sociality,” I see the novel idea of modern financial derivatives not primarily as the creation of an abstract common denominator that commensurates existing products (the price system already does that) but, rather, as the creation of new, specifically financial product— essentially a written text— that that mediates between potentially heterogeneous measures and scales by coreferencing rather than commensurating them. For Martin, the key financial idea was thus not the creation of a general equivalence through abstraction from context, but rather the production of what sociolinguists like Kockelman would call a “co-textual” derivative of the social. Derivatives do not commensurate (if this is even the right word) by finding a common denominator among heterogeneous spreads. Rather, they place them side by side in the same text at the same time— making them cotextual and coeval, but not equivalent. So, as a mediating signifier, the financial derivative is not primarily an abstraction from a second thing (the exchange value of a use value) but is, rather, an index, a third thing, the price of which both measures and materializes the pressure of what Postone would call sociality (basically, the changing volatility of prior expectations) on the other two. For example, a financial derivative written on wheat prices with respect to temperature would not reduce them to a common denominator or scale. It would be

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used to measure the effect of external stressors in the price of maintaining the initially specified point of parity between these two incommensurable scales during a fixed period of time. Trading such a derivative could then be part of a strategy to preserve and increase wealth as the indexes of price and temperature move in different directions and by different magnitudes, as they would, for example, in periods of heightened climate volatility. The form of mediation performed by financial derivatives is, therefore, not commensuration in the sense that Marx or Postone intended when they described the value form. A focus on parity rather than commensuration is part of what distinguishes my approach to capitalism, which focuses on the derivative and finance, from Postone’s, which focuses on the commodity form and production. In my view, the derivative can be considered, semiotically, as an “interpretant” of other social and material relations that mediates between them in a way that is neither “direct” nor “abstract” in Postone’s sense, but is material in the way that Marx’s notion of surplus value also is. In presenting the thought of Randy Martin, I have argued that derivative pricing is how surplus value creation in the form of financial assets becomes cumulative and thus a real, rather than merely fictitious, driver of capitalism itself. In doing so, it also creates what he called a derivative sociality that magnifies and compounds unjust effects from the past in order to increase liquidity in the present. This is what I think is wrong with it.52 It may involve commensuration in the weak sense that the price of the derivative measures differential changes in the relations being indexed, which may themselves be prices. But it is not commensuration in the strong sense that Marx or Postone intended when they described value as an abstraction, and money as its fetish form. So Postone is unlikely to have agreed with my interpretation of capitalism in its present form, although he occasionally acknowledged that the value form has become increasingly “anachronistic” in the age of finance.53 But, because in Postone’s view Marx anticipated the eventual anachronism of the value form, it is unlikely that his reading of Marx should also change along the revisionist lines I here propose.54 Which of us is right? In this chapter I have argued that the concept of collateral is the missing link between Marx’s developed account of the commodity form and his much less developed account of the asset form and, more generally, of finance, and a strong analysis of the liquidity of collateral in his discussion of the realization problem. Whether my discovery of these notions inside Marx’s concept of value is a critique or an elaboration of Marx is for the reader to decide. On the one hand, some of the “countertendencies” he identifies for the tendency of the rate of profit to decline can in hindsight be said to fall under the heading of protofinancialization.55 On the other hand, his treatment of such developments was necessarily limited because

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he described a transitional mode of producing commodities (the transition from manufacture to heavy industry) that still shared characteristics with earlier forms. In this historical context, Marx did not need to address a fundamental tension between what I will call two “conservation principles” that work in different ways to structure his argument. The first principle stipulates a conservation of value in the capitalist mode of production. It holds that total profits (“the mass of surplus value”) in a closed economy, taken as a whole, cannot be greater than what is produced by total wages at full employment multiplied by the rate of exploitation allowed by a given level of technology. This conservation principle is what most Marxists, especially value-form Marxists such as Postone, see as the main source of scientific rigor in his theory. The second conservation principle anticipates the law of one price in the theory of financial markets that comes after Marx. It says that you cannot make simultaneous profits in undistorted capital markets without risk. If you could, there would be no limit to the money that could be borrowed to finance such a transaction, and to the profit that could be made on it, and this would allow anyone without capital to make money through arbitrage without having to work. In my account of relative surplus value I have shown, perhaps controversially, that this second conservation principle is also present in Marx.56 In Marx’s distinction between relative and absolute surplus value, we see the contrast between the capitalist as an investor who can increase his return on constant capital through technological innovation, and the capitalist as employer who operates in the manner described in earlier accounts of the market mode of production, such as those of Smith and Ricardo. The question of whether I am interpreting or revising Marx’s view depends on whether these two conservation principles are mutually consistent in his thought.57 Postone’s distinction between value and wealth suggests that we could reconcile them by saying that the first applies to value and the second to wealth— and that capitalism itself embodies a conflict between the two. My argument interprets Marx, but only by demonstrating a need, already immanent in his view, to go beyond the commodity form to consider also the option. This calls into question the first conservation principle, which Marx shared with Smith and Ricardo and never discarded as his theory advanced toward what Postone himself describes as the “anachronism” of the value form.

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Before proceeding with my political argument in the chapters that follow, it is worth filling in my account of a few central concepts from finance that

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I believe to be especially relevant to a critical analysis of capitalism conducted in the spirit of Marx. The first is the concept of a liquidity swap. A barter system is, of course, a series of swaps that bypass the use of money. And money itself is often described as an enhancement or facilitation of the real exchanges that would otherwise have to occur through barter. But, as John Maynard Keynes points out, this is not what happens in a market mode of production. An economy, which uses money but uses it merely as a neutral link between transactions in real things and real assets . . . , might be called— for want of a better name— a real exchange economy. . . . The theory which I desiderate would deal, in contradistinction to this, with an economy in which money plays a part of its own and affects motives and decisions and is, in short, one of the operative factors in the situation, so that the course of events cannot be predicted, either in the long period or in the short, without a knowledge of the behaviour of money between the first state and the last. And it is this which we ought to mean when we speak of a monetary economy.58 Keynes’s distinction requires us to speak of the market mode of production that Marx described, not as the “real exchange economy” facilitated by money that Marx assumed it was, but as a “monetary economy.” Doing so allows us to elucidate Marx’s central claim about the centrality of wage labor and capital as constituting an exception to the usual role money plays in financing economic transactions. In a monetary economy such as capitalism, transactions consist of swapping the liquidity of money for something of value that is less liquid. We normally focus on one form of liquidity swap: the purchase of something one does not own, using cash that one happens to have. As we have seen, this conception of purchase and sale presupposes that market liquidity already exists. Taking a financial perspective on liquidity broadens our understanding by opening the question of how one gets the money one spends in a liquidity swap. It tells us: • •

You can get money by selling something you do not own (short selling). You can buy something by borrowing money you do not have (leverage).

The first of these financial operations, short selling, differs from stealing something and then “fencing” it mainly on the basis of social context. In finance you borrow it rather than steal it, and you can eventually return it after buying it back at whatever its future price happens to be. The social capacity to sustain and benefit from this distinction between stealing and borrowing is inflected by what Marx called class relations.

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The second operation, leveraging, can also be compared with theft when seen through the lens of class. Here, you have paid for something with someone else’s money— borrowed, to be sure— but if the loan has been secured, your creditors are then obliged to accept the thing you have bought in satisfaction of the loan if you cannot or do not come up with the money to pay them back. Here they get the liquidation value of what you bought in today’s market, rather than a return of the original purchase price that was borrowed. For you, however, the deal is leveraged, because you get to keep the full value of your purchase if its price increases, while repaying only the original price with interest— and limiting your loss, if the price decreases, to that future price. Once we view the capitalism Marx describes as a monetary economy, he can be read as presupposing the presence of these two financial operations as precursors to capitalism, and as then showing how capitalism’s development as a market mode of production depends on carving out an exception to them. By this I mean that for a capitalist financial system to function as a mode of production, there must be a socioeconomic class of transactors who cannot steal and call it borrowing goods for sale, and who cannot purchase with borrowed money to leverage their gain if prices rise and limit their loss if prices fall. Instead of being able to collateralize their transactions, these people are “free” to work for the money they need to pay the full price of whatever they must consume to continue surviving in such freedom. So a Marxist reading of liquidity swaps through short selling and leverage is that not everyone qualifies for them because of the distinction between wage labor and capital in the capitalist mode of production.59 This leads to Marx’s central insight that pertains specifically to the exceptional way in which the consumption of wage laborers gets financed: •

Not everyone can get money through the operations of short selling and leverage; some must work to earn it.

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Having introduced the notion of a monetary economy as a system of liquidity swaps, creating a distinction between money itself and monetary value, I now need to introduce the concept of a forward contract. In the standard paradigm of purchase and sale, the payment of money and the delivery of something that has monetary value are simultaneous. This is, quite simply, what it means for a purchase not to be financed and is thus a particular instance of a more general framework in which delivery and payment will occur at different times, creating ongoing entanglements that

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are themselves negotiable and potentially monetizable. So goods can be advanced on the basis of a promise to pay in the future, and if the funding arrangement guarantees the payment, it is not always necessary for all or even any of the money to change hands. Viewed through a financial lens, the central problem in a monetary economy is thus how to get money when and if one needs to come up with it— and whether and how one can postpone the need for coming up with money by having something else that one can pledge as security. From a financial perspective, all monetary economies are built out of forward contracts, which in the broadest sense are vehicles for locking in some prices and allowing others to float. What financial economists now call the “spot market” is simply the instantaneous transfer of liquidity possessed by one party to another in return for something that is less liquid with no future liabilities, whether fixed or contingent. There is in theory no financial premium required to transact at the spot price, even though that price is in effect the same as paying the nearest future price as the time between payment and delivery approaches zero. But, viewed from the perspective of finance, the spot market— often described as the market— is itself an artificial construction used to index the present value of forward contracts. A forward (or futures) contract is thus an agreement now to buy something later at a predetermined price (perhaps today’s price) without paying that price today. Here you have the same risk and reward you would have from outright ownership without necessarily having to come up with money to enter the contract— which, between today and the future, can be sold for a profit or a loss depending on the change in price. As long as the upside and downside of delivering on a forward contract are eventually borne by the party who pays, payment and delivery do not need to be simultaneous, and the contract that specifies their separation can itself be traded as an asset, the price of which is indexed to intervening changes in the spot market. From this perspective, the spot market is simply the special case of forward markets in which payment and delivery are specified as simultaneous, and liquidity is immediately exchanged for all the upside and downside potential of holding an asset. An emerging financial market could thus be described schematically as the reality created when the present value of a forward contract can itself be swapped, and in which the emergence of spot prices can then be used to index the present value of the forward contract. This idea provides a perspective on what it means for capitalism to have become financialized. To leap way ahead of my argument, it means that the actualization of the financial market has subsumed the spot market, which now appears to be the kind of virtual reality that implicitly it always was. The full development of financial markets thus allows us to consider and price what philosophers call

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counterfactual dependencies (what would have happened had we chosen differently) alongside causal dependencies (what would not have happened but for the choice we made). But what I’m calling the actualization of a financial market— which takes place, for example, through the ability to buy and sell such forward contracts— allows us to trade in and out of these alternative possible worlds for a price that will fluctuate as these spreads, and the spreads between them, continue to move. By this I mean that one of the parties might subsequently have to pay to get out of the forward swap, and that the other would be entitled to compensation if the losing party in the forward swap decides instead to breach the contract upon its expiration. At expiration, the damages for breach, the cost of compliance, and the buyback of the swap would be the same, not counting any differences in the cost of transacting or litigating the outcome. A secondary market in forward contracts, or the legal right to breach them and then litigate the damages, thus allows parties to monetize the difference between what would have happened and what does happen— and to make or lose money from the counterfactual possibilities that are pegged to movements in the spot market.60

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Just as the concept of a liquidity swap introduces a separation between money and something of monetary value, and just as the concept of a forward contract introduces a separation between time of delivery and time of payment, so does the financial concept of an option introduce a separation between the direction of market prices, up or down, and the volatility of the spreads among them. The option is the third important financial concept that we need to recognize, insofar as capitalism is what Keynes called a monetary economy rather than the hypothetical real exchange economy described by Marx. The assumption that prices are volatile underlies our earlier discussion of liquidity swaps: in locking in a price through the use of a forward contract, we are also hoping to benefit from price movements on the basis of their direction. The option allows us to isolate the amount of movement as such from its directionality, and to benefit from changes in the degree of variance in the market, regardless of the market’s direction. This is reflected in the mathematical definition of standard deviation as the square root of the square of gains and losses, thereby wiping out the difference between positive and negative market movements for the purpose of measuring market volatility. In an options contract, one acquires the right to take the potential gains from entering a forward contract without an offsetting obligation to incur

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the potential loss. The lack of an initial symmetry between gains and losses is why one must always pay a premium up front for entering an option contract. Intuitively, we can thus regard the option premium as the price one should be willing to pay to get out of the losing side of a costless forward contract. A forward contract will have either negative or positive intrinsic value at expiration; one will end up either a winner or a loser. But getting out of the losing side of a forward contract will always be worth something until it expires. This is another way of saying that that at expiration, its intrinsic value can be zero rather than negative— that one cannot lose more than the premium— and that until expiration, the option itself will always have a positive “time value.” That value is the cost of avoiding the negative intrinsic value through which forward contracts can ultimately pay for themselves.61 The idea that an unexercisable option always has time value is an aspect of capitalism that is counterintuitive to many Marxists. But it is essential, I will argue, to reconceptualizing a Marxian politics today. By this I mean that oppositional social movements, especially if they are militant, may or may not achieve their forward-looking goal of directional change, but that their efforts to do so will always take the path of raising uncertainty about the status quo, and thus heightening financial volatility. An important strategic question will thus be how or whether they can benefit from the heightened volatility that results from any initial success they may have. But to address this question, they must understand how the options market allows the financial system to anticipate and benefit from whatever future threats to its liquidity result from the turbulence they hope to create— along with bad news about climate change, the energy supply, the food chain, arable land, groundwater, and so on.62 It is also why, even in less developed capitalist economies, the heightened volatility resulting from widely publicized threats to basic needs can be monetized through the design and marketing of financial products that can be priced as options the value of which may allow them to benefit from the added volatility they create, even when their impact is exaggerated.63 The ability of financial markets to capitalize on threats through creating and pricing options is clearly a source of capitalism’s resilience today, but it also reveals capitalism’s political vulnerability. Although the technical details can be complicated, the basic point is simple. If options valuation theory, the foundation of modern finance, tells us that the downside risk of any asset can be priced and sold off separately as an option, then the fully hedged remainder becomes by definition a risk-free asset that can be pledged as collateral and thus easily swapped for pools of cash already present in the system. This is another way of saying that these synthetic assets can be used to park large amounts of cash, and thus implicitly to insure it to a degree that the use of ordinary bank accounts does not. Why?

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Because the definition of insurance is to swap one’s money for something that is deemed to be risk-free. So the logic of financial innovation has led to the creation of a so-called shadow banking system, which accepts as safe collateral the synthetically risk-free instruments that financial engineering throws off in the process of creating options out of data that could not have been monetized until just about now.64 The meaning of “risk-free” collateral in this context is that the risk that remains is ultimately political. And we shall see in the chapters that follow that what is commonly called the bailout of Wall Street was ultimately a governmental decision to guarantee that political risk. This decision was not inevitable, but neither was it a simple mistake. This chapter began by showing that Marx’s capitalism originates, conceptually, in the identification of the commodity as a new type of collateral; and it has argued that the financial revolution in capitalism has consisted of identifying and extracting new sources of collateral on the basis of data collected outside the sphere of commodity production and consumption. The ultimate promise of today’s financially engineered form of capitalism is that safe collateral can be manufactured out of any measurable spread that is potentially volatile, even if the units of measurement are not themselves monetary. Through financialization, capitalism has become a machine for mining new sources of collateral that are convertible into money, without passing through the process of producing goods and services that are for sale. Turning collateral into cash, or dispensing with cash by posting collateral, is a general description of what monetary economies have always done. In the words of the legal scholar Katharina Pistor, “The ability to spend money one does not have is— for better or worse— the very essence of capitalism.”65 But financialization is a technology for manufacturing collateral by mining data streams from wide swaths of life that have moved capitalism from the financialization of production (through relative surplus value) to what now appears to be the “financialization of everything.”66 If this could be accomplished, it would mean the collateralization of everything that can be measured by extension of the way that Marx showed relative surplus value could be measured to allow the collateralization of producer goods alongside end products— or so I have suggested in this chapter. It follows that we must understand the grip of financialization on popular imaginaries in order to identify its political and moral vulnerabilities, and to see the ways in which it makes available new resources that can be leveraged against it. This is my task in the chapters that remain.

2: MARKET LIQUIDITY AND FINANCIAL POWER My reinterpretation of Marx in chapter 1 opens important political questions about capitalist financialization: Does political resistance touch the heart of capitalism only when the financial system itself becomes a focus of democratic demands and a site of class struggle? What are the tensions and connections between the ways in which both production and the state must be financed? To the extent that consumption and even unemployment must also be financed, what role can debt and credit instruments play as sites of political resistance? Can popular resistance movements also engage with the relations between government and finance at the commanding heights of the economy, and also globally? How do we connect a deeper understanding of the derivative form of finance to politics as we know it today? A good place to start is Timothy Mitchell’s observation that the potential for anticapitalist resistance in Marx’s lifetime arose not from the generalization of commodity production as such, but rather from technosocial conditions surrounding the transition from wood to coal as a source of energy. These conditions allowed the growth of large-scale industry in the nineteenth century, but in a way that gave organized workers an unusual degree of leverage to subvert the power being exercised over them by blocking the extraction and transportation of coal.1 Mitchell’s core claim is that individual miners, isolated at the coal face, occupied a “choke point” at the beginning of the industrial supply chain: by coordinating their actions horizontally rather than obeying orders transmitted vertically from the surface, they could eventually bring all industrial production based on coal and steam power to a halt. Railway workers occupied further choke points down the line, and could have more immediate effects by refusing to move coal from the mines to the factories. If factory workers, those working in the steel mills for instance, were then to join such a strike rather than demanding military seizure of the mines and railroads, there would be a general strike that an elected government might have neither the legitimacy nor the security resources to suppress.

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The possibility of a general strike gaining democratic legitimacy in this way had the potential to subvert the electoral technologies that could otherwise have legitimated the state itself. Elections are normally used to manufacture popular consent for the deployment of security forces, so as to isolate subversives from their potential social base and drive down the cost of political repression. But Mitchell shows that the state’s increased reliance on electoral technologies to accomplish this in the era of coal made it vulnerable to the horizontal coordination of voters outside the polling place. It meant that voters could be mobilized by the prospect of an elected government using military force against popular assemblages in the event of a general strike. In practice, such a prospect rarely if ever appeared as a direct electoral choice between revolution and repression. But in the longer term, the linkage between the right to strike (which had material effects on capitalist power) and the right to vote (which had legitimating effects on working-class power) provided the opening for the class compromise over government economic policy. The compromise eventually reached is now often nostalgically associated with a Fordist regime of high wages backed up by a welfare state regime of nonwage transfer payments that allowed jobless workers to fund basic consumption without going into debt. Mitchell’s conclusion from this line of thought is that the transition from coal to oil by the mid-twentieth century defeated the historically specific assemblage of political and social forces that briefly democratized the industrial West. Oil workers were proportionally fewer than coal miners, and could not exercise the outsize leverage that coal miners had over production. This left the power to wreck a domestic economy in the hands of individual terrorists who could blow up a pipeline without either needing or receiving organized popular support. The most effective choke points of oil-based production were in the hands of the oil companies and, by the 1970s, in the hands of oil-producing states that were able, through OPEC, to control prices. From my perspective, the central innovation of Mitchell’s account is to connect the heightened capacity for economic sabotage with an increased need for popular legitimation as jointly necessary for effective democratic resistance to capitalism. To be effective, he argues, a democratizing movement must have the threat potential of a strike that occupies and takes control of vital choke points; to be democratic, such a movement must have the communicative potential to build or occupy public spaces, whether these are physical or virtual. A successful politics must therefore pose the threat of both politically legitimate economic sabotage and economically subversive political legitimacy— a possibility that existed only at a particular conjuncture of technological and institutional change. This conjuncture ended, Mitchell shows, with the transition of capitalist production from coal to oil

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as its principal form of fossil fuel. The resulting political question is whether the powers of internal sabotage that our oil-based financial system makes available to key actors creates the potential for democratizing it from within. In my view, we need to extend Mitchell’s materialist analysis of the political potential of coal- and oil-based technologies of production to the global technologies of financial accumulation that now enable the current energy extraction system to exist. The coal-based British Empire was financed for fifty years on the basis of this conception of the relation of states to their internal and external markets. By contrast, the petroleum-based American empire has been financed for the past sixty years by global investors able to price currency options in relation to other financial spreads, such as volatility in the price of oil itself and the changing risks of credit instruments denominated in different currencies. A central issue for our time is thus whether the technologies for making and pricing financial products create the kinds of openings for disruptive democratic politics that coal-based industrialization created in Marx’s time. Can we put Marx’s account of the financial vulnerabilities of nineteenth-century commodity production in the same conceptual register as the techniques of asset valuation based on the BSM formula? By doing so, could we come up with a political agenda that links direct action— such as strikes and uprisings— with a democratic political program that aims at legitimately redistributing and politically neutralizing accumulated wealth?2 I mean here to raise the possibility of disrupting the chain of liquidity creation in capital markets through horizontally coordinated actions that, like those of miners at the coal face, would be relatively hard to control from above; and I mean to raise the further possibility that such liquidity-disrupting activities could be linked to vertically oriented popular movements that aim to extract a price for restoring liquidity through state action.

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In developing this possibility, let me start with the question of whether and to what extent the crucial period of 1971 to 1973, contemporaneous with the birth of financialization, represents a new phase in what Mitchell calls the oil-based regime of global governance. The Bretton Woods agreement, concluded in 1943, required that oil be priced and purchased in dollars. This mechanism linked how much oil would be produced to how many dollars and dollar-denominated credit instruments had to be pumped into global circulation to keep that oil flowing. In the 1950s and ’60s, the European banks issued dollar- denominated deposit liabilities, known as Eurodollars, that could be used to purchase oil because they were valued at par with US currency. The decision to maintain

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par meant that the ability of oil states to pump out more oil without a fall in prices would be directly tied to the ability of financial institutions to pump out more dollar-denominated credit instruments, or Eurodollars, without thereby undermining the value of US dollars issued by the Federal Reserve.3 But by 1971 the glut of Eurodollars in the petroleum market caused the United States to repudiate its obligation under Bretton Woods to redeem dollars in nondomestic circulation with gold. From that point on, dollars would only be redeemable with dollars. And, by the early 1970s, it seemed that the global need for safe dollar-denominated assets to secure the credit needed to finance imports of oil would effectively deny states the monetary autonomy needed to control the double- digit inflation that had developed.4 The imperative to “whip inflation now” (to resolve the immediate monetary crisis)5 was thus at odds with the need to resolve the longer-term energy crisis that occurred when the end of Bretton Woods allowed the horizontal coordination of oil-producing states (through OPEC) to raise the price of dollar-denominated oil. As a new technology for creating liquidity through pricing financial derivatives, the 1973 publication of BSM occurred at the conjuncture of this change in the global monetary system and its link to energy. Nearly fifty years on, it is clear that BSM would eventually give birth to a new understanding of the potential role of US government debt in the global financial system, but at the time it appeared to follow standard practice in assuming an abundance (technically, a nonscarcity) of publicly created debt vehicles. These are “risk-free” in the limited sense that bonds issued by one branch of government (the US Treasury) are backed in the last instance by the ability of another branch of the same government (the Federal Reserve) to issue the currency (dollars) in which they are redeemable. The fact that US taxes are also collected in dollars means that the US government can repay its bonds with revenues raised from taxpayers whose spendable income would thereby decline. The alternative is for the Fed, here acting as the Treasury’s agent, to repurchase these bonds by issuing new dollars.6 Such an always-possible public-sector swap of debt for dollars resembles a private-sector swap of debt for equity in that the value of the dollar or the equity could go down due to inflation or dilution.7 This possible dilution effect on spending power is why taxpayers and shareholders are often willing to pay their creditors ahead of other demands— an economic motivation that is far from universal or self-evident given the obvious incentives to default on debt.8 And so, the ever-present alternative of monetizing sovereign debt rather than repaying it also makes it possible to fund current government spending beyond what future tax revenues will support. The possibility of monetizing debt rather than raising taxes had been a feature of the financial system prior to BSM. It goes back to the role of public

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credit in the foundation of pre- capitalist city-states.9 And in twentiethcentury Keynesian economics, a two-way relation between deficit spending by the state and support for capital markets was spelled out: by stimulating demand for goods and services, public spending could increase profits, and through this mechanism asset values; but if the government is expected either to monetize its debt or to default on it, the resulting price inflation could directly damage capital markets by shifting their focus from real to nominal growth in profits. The important point is that, before BSM, profits were the principal mechanism that distinguished private capital markets from public finance, and the expected effect of deficit spending by the state on the real rate of profit in the private sector was seen to be a primary determinant of the rate of interest at which it would lend to the state, and thus of the power of capital markets over it. BSM transformed this way of thinking about the relation of public debt to asset valuation in private capital markets when it substituted the “risk-free rate” on government debt for the expected rate of profit on investments as the drift factor used to discount future returns to present value. This reliance on what government pays, rather than what investors “expect,” entirely sidesteps mid-twentieth-century arguments by Marxists and leftKeynesians that “capital theory,” as then understood, was circular and incoherent because the expected rate of profit could not be derived from the market itself: it was, rather, a measure of the political power of capitalists as a class to demand and get that rate of return.10 If, however, the interest on government debt is taken as the discount rate, the political question about capitalism is no longer whether state power should be used to support or undermine whatever rate of profit capitalists demand, but, rather, whether states are willing to generate risk-free debt in whatever quantities are needed to provide safe collateral for capital markets that are now seen as pricing volatility rather than as subsidizing drift. We have here— and this is central to my argument throughout this book— a second function of government debt, which is not to finance public spending, but to backstop private asset valuations by supplying adequate collateral that pays the riskfree rate whenever privately manufactured “risk-free” securities are trading at a premium over government bonds. Put most simply— there are many complications— BSM and its progeny would eventually commit government to wiping out that premium by swapping those privately created equivalents for government bonds at par, so that volatility could continue to be priced in private capital markets. Although I have described the conceptual change brought about by BSM as revolutionary, its political implications were realized only gradually through a process that culminated with the bailouts of 2008. The years immediately surrounding the publication of BSM in 1973 had been a period in

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which investors fleeing volatility in capital markets sought safety in government bonds. But it is only in retrospect that BSM allowed the major events of that era— the “energy crisis,” the “inflation crisis,” the “environmental crisis”— to be lumped together as drivers of volatility as such; and only in retrospect that BSM has been clearly understood as a technology allowing the private manufacture of risk-free portfolios that must be recognized as such by a government willing to issue sufficient debt to purchase them at par. BSM does not directly say this; it merely sets the drift factor in asset valuation as the risk-free rate so as to refocus capital theory on the pricing of volatility as such relative to the period of time over which one is exposed to it. Pricing volatility would be pointless, of course, if positive and negative movements canceled each other out, as they do in calculating an average rate of profit. Unlike a statistical average, the measure of volatility must be an absolute number, here a standard deviation, without a plus or minus sign showing the direction of change.11 The question specifically addressed by BSM is thus what component of an option’s price is due to its standard deviation, rather than to the length of time until the option expires or to the risk-free rate that is used for purposes of discounting to present value. BSM’s answer is that expected volatility is squared; it is the only nonlinear parameter in the option pricing formula, and is thus more important than either time to expiry or the risk-free rate as a component of an option’s price.12 Although its political implications were realized slowly, BSM had immediate effects on the economic conjuncture in which it appeared. The Chicago Board of Options Exchange was created at almost the same time, which in tandem with BSM made it feasible to hedge foreign exchange risk through both publicly traded instruments and over-the- counter currency instruments pegged to such derivatives. Without such innovations in the funding of world trade, globalization as we know it, based on chronic US trade deficits, could not have occurred because the deficits would have led to dollar devaluation. There is thus a deep link, created in the early 1970s, between Nixon’s decision to default on the gold standard, his opening to China, BSM’s innovations in financial theory, chronic trade deficits, and the globalization of both manufacturing and finance. By the 1990s, moreover, the ability to manufacture fully hedged, dollardenominated assets in which capital could be accumulated allowed for a world economy in which persistent trade imbalances be funded by selling financial products that were designed to function as safe collateral in global markets. For many years, the volume of trade in such purely financial products has dwarfed the trade in goods and services, and its notional value has been a multiple of global GDP. Because this market exists and is mostly denominated in dollars, it has not been necessary for the US government to choose between devaluing the dollar and correcting the deficit in trade. We refer to this fifty-year suspension of the textbook rules relating to

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currency exchange rates to the balance of trade as “globalization” when we want to stress its effect on the spatial location of production. Calling it a dollarization of world trade would stress the exceptional role of US monetary and political power within this system.13 But it is also — perhaps more importantly— a regime of financialization, which is what we call it when we want to stress its effect in creating vehicles of capital accumulation that are not necessarily investments in expanded production.

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But underlying the globalization, dollarization, and financialization of capitalism as it entered the twenty-first century, there has been a change the way that capital markets think about sovereign debt itself— especially US government debt. BSM now makes it necessary, as we have seen, to think of the supply of government debt— along with other securities designed to replicate its risk-free characteristics— as a necessary component in pricing financial derivatives. As this use of public debt has become more important since the 1980s, government entities have been put under pressure to spend less (i.e., pursue austerity) so that they can borrow more cheaply and in greater quantity, and thus meet the need of the private sector for “safe” (i.e., tax-backed) collateral in sufficient quantities to allow all riskier (non– tax-backed) credit to be priced. How important has this additional use of public sector debt turned out to be? I won’t here summarize the literature linking financial instability to the vast demand for safe securities (US government bonds) as the best— that is, most liquid— collateral for the global financing of everything, beginning with oil and ending with the “shadow banking system” itself.14 I will simply tie this in to my previous argument by pointing out that the BSM formula implicitly built upon the ways in which the optionality attached to Eurodollars gave oil its financial liquidity, even under Bretton Woods. This defined the task of “whipping inflation now” (i.e., after the emergence of OPEC) as simultaneously allowing the dollar price of oil to rise without lowering the value of the dollar itself. The conceptual revolution begun by BSM made this problem tractable, for example, by allowing proven oil reserves— creating the option to drill now or later— as themselves bankable financial assets, the value of which was determined not by increases in the average and thus expected daily price of oil, but by the volatility of oil prices. It thus became possible for OPEC and its bankers to treat oil reserves as financial assets in which wealth is stored, and not merely as an opportunity to maximize current revenues by preventing the supply of oil as a commodity from rising in tandem with demand. If the price volatility of oil is what is valued in the options market (exponentially, it turns out), this too could be politically manufactured and manipulated by OPEC (e.g., through political crises) in a

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way that might increase aggregate sovereign wealth faster than continuing to think about oil as if it were only a nonfinancial product. The bottom line is that, beginning in the 1970s, the inflationary impact of the price of liquid carbon at the pump could be hedged because there were new ways to manufacture liquidity in the global financial system through the expanded use of options, beginning with simple puts and calls.15 But the availability of options on the volatility of oil prices was not limited to those endowed with oil reserves; options could be created and traded globally, such that the inflationary impact of a US trade deficit in dollar-denominated oil could eventually be hedged through the production and trading of offsetting assets that were essentially financial, and would come to include creating the safe collateral of US government debt, which is one of the raw materials from which BSM-style financial options are produced. This left central banks with the task of controlling inflation while creating enough base money to maintain the liquidity of markets in these new financial instruments. In doing so, the central bankers’ stated goal was to allow asset prices to rise in relation to the value of goods and services without triggering an offsetting decline in the value of the currency in which the assets were denominated.16 Through these and other mechanisms, the globalization of commodity production— not only in oil— required a globalization of financial markets. In practice, this entailed the freedom of capital to flow in ways that could offset trade deficits without needing to eliminate them. The lifting of capital controls (the state-imposed requirements for domestic reinvestment that trade economists call financial repression) was thus increasingly connected to political repression of demands for high public spending, characteristic of the welfare state during the late Bretton Woods era.17 Maintaining full employment thus became a lower priority for central banks after Bretton Woods, which added the stabilization of capital markets to their original mandate to control inflation. In practice this meant supplying enough cash and safe collateral (in the form of risk-free debt) to keep those markets liquid, thereby ensuring that asset values could be safely stored.18 A further implication— realized only gradually— is that financialized capitalism was becoming a technology for delinking the rate of growth in asset values to inflation-adjusted GDP. This meant that, beginning in the 1980s, growth in the dollar value of markets in purely financial assets would eventually come to exceed the rate of nominal GDP growth by an evergrowing margin. Partly as a consequence of this growing mismatch, there was a greatly increased need for pools of safe collateral that could be traded for the increasingly large pools of cash generated by the financial market itself. The existence of a market in which inherently safe assets could be sold and repurchased for cash was in effect a way to insure the larger amounts of cash that the financial system generated.

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This was the origin of the shadow banking system, the backbone of the money market, which in essence prices the premium that US dollars command over the safest collateral.19 That collateral is US government debt, which is denominated, and repayable at par, in US dollars. Is this a form of “exorbitant privilege” for the United States, or is it the imposition of an “exorbitant duty” to global capitalism that prevents it from putting American interests first? Mainstream political economists say that it is both. For them, a globalized, dollarized, and financialized form of capitalism has come to mean that, if the US government is willing to issue debt and dollars in sufficient quantities and underwrite their trading at par, core global financial institutions can remain liquid without having to liquidate their assets by selling them into a falling market.20 When the US government keeps capital markets liquid, we are not talking here about it subsidizing corporate profits (which can also happen); we are talking about a support for asset prices at something close to their current levels. Supporting markets is not price-neutral, because liquidity is the property that financial assets have when they can be sold at their market price without having to be turned into cash through liquidation. An asset’s liquidation value, as distinct from its price, is the cash a lender could get by selling the collateral in distressed circumstances.21 When liquidations become widespread, the value of collateral collapses much faster than the value of the debt it is liquidated to repay.22 This is because there isn’t, and couldn’t be, enough currency in the world to liquidate all assets or, put differently, to repay all debts if they were simultaneously called.23 So when we are talking about US government measures to maintain the liquidity of the debt that is traded in major capital markets, we are also talking about preserving the market value of accumulated wealth. How large is the accumulation of capital in the form of credit instruments? In the United States alone, the value of total credit market debt (TCMD)— the financial assets that along with cash, equities, and real estate constitute a minimal measure of accumulated national wealth— has been running at about four times the dollar value of US GDP.24 And, since one person’s debt is someone else’s asset, the total volume of high-quality debt (plus cash, equities, and real estate) is roughly equivalent to the volume of bankable collateral that can be used to store and monetize value. As long as debt and other collateral remain liquid, they do not have to be called, in which case massive disaccumulation of asset values through attempts to monetize them can be avoided.

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My reading here of the link between BSM and the dynamics of capital accumulation is consistent with my reinterpretation of Marx in chapter 1. There

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I pointed out that his concrete analysis of the price “realization problem” anticipated what Hyman Minsky would later call a “debt validation” problem in which creditors would call collateral and withdraw lines of credit before debtors could realize the revenue necessary to pay back their loans. My claim was that the financial revolution set in motion by BSM would allow the price realization and debt validation problems to be hedged for a price, thereby sidestepping the chain of disastrous events for capitalism described by Marx and Minsky. The problem, we now see, is that the state must ultimately stand behind such privately manufactured equivalents to public guarantees— that they will turn out to be public guarantees after all. When proponents of financialization advocate recognizing these guarantees as a matter of public policy, they expose a vulnerability of the financial system to politics that parallels the vulnerability Marx exposed in industrial capitalism.25 But how do the vertical guarantees that government provides to the financial sector relate to potentials for horizontal resistance that Marx and Mitchell also identified in the era of coal-powered industry? As individuals spend increasing proportions of their disposable cash on debt service, their access to the means of subsistence depends increasingly on a credit system that is feasible because they are spending more of their time online, whether in production or consumption, and are thus throwing off surplus information that can be used to construct the data out of which financial products such as credit scores, professional credentials, subprime loans, and other statistical spreads are constructed.26 The fact that these data are constantly being harvested, whether or not people are “at work,” means that an increasing amount of the time that people actually spend at work in countries with high GDP per capita can be considered a renting-back by capital of some portion of the time they would otherwise spend online providing unpaid data inputs out of which financially valuable spreads can be manufactured. What is now variable for many individuals is the spread between paid and unpaid time online, which determines on a netting basis the credit they can run up and the credit they can pay off in a context that is already controlled by the financial institutions that run the internet-based economy in conjunction with the tax state that allows it to be “free.” In today’s heavily online service-based gig economy, both production and consumption are viewed increasingly through the lens of economic rents, and the flow of payments and credit have become part of a single increasingly global netting system. This system is ultimately dependent on two industries that occupy its choke points: the global securities industry that produces collateral (stored value) out of information, and the global security industry that controls and protects collateral through surveillance and violence. So horizontally coordinated political insurgency must now involve disrupting

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the vertical relations between the political and financial system at these choke points— a possibility to be explored in chapters 6 and 7 of this book. Although the 1973 publication by Fischer Black and Myron Scholes of an academic paper, “The Pricing of Options and Corporate Liabilities,” can be seen in retrospect as a turning point in the development of capitalism, I am not attributing the political and economic changes that have occurred since 1973 to an academic paper. Rather, I am pointing to the transformation in the structural role of capital markets that the Black-Scholes pricing formula enabled. Marx’s debt-free but uncreditworthy laborer— always an abstract construct— is increasingly obsolete in economies where finance extracts surplus from providing credit to a labor force that far exceeds the numbers employed to produce goods and services. Today, both debt service and insurance must now be lumped together as nonwage vehicles from which surplus can be extracted to the degree that options can be written that allow them to be turned into highly liquid collateral in societies where government both subsidizes and guarantees the provision of expanded private credit facilities to individuals who must incur debt for housing, health care, education, and other basic needs.27 Put differently, both our capacity to assume debt and the newly measurable anxieties that lead us to assume it are becoming as important as our labor in creating today’s primary vehicles of capital accumulation, which increasingly take the form of collateralized debt instruments.

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Fully financialized capitalism first recognized its own inherent fragility in the late 1980s, which not coincidentally was the period in which a communist alternative to financialized capitalism collapsed.28 By the 1990s, the core institutions of today’s global capitalism came to focus increasingly on their ability to stabilize themselves as government borrowing expanded to provide safe collateral for financial markets, and government spending was systematically cut. The resulting policies, broadly categorized as “austerity,” meant replacing social services funded by tax revenues and government debt with privatized versions funded by personal debt.29 This required turning precarious populations into an expanding market for financial products by making them feel more creditworthy as credit was made available to them. To bring about such a change, it was necessary for the financial sector, armed with new tools for pricing securities, to get at-risk citizens to see their tax burden and their ability to take on more household debt to pay for basic needs as a genuine tradeoff. This transformation in public attitudes might not have happened if governments were not already threatening cuts

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to public programs, thus making expected levels of benefits less secure. Under such conditions, personal debt and public taxation were presented as competing ways to finance benefits to poorer segments of the general population. The argument for privatization was, thus, both simple and circular. Privately financed alternatives to public benefits became more appealing as political support for taxation diminished; and support for taxation diminished as beneficiaries of public programs opted for privately financed alternatives. Behind this powerful political dynamic, however, lay a simple financial idea: if lower income households eventually could be made to pay as much or more in debt service as they did in taxes, the private sector could effectively finance what state budgets had previously funded on a pay-as-you-go basis by extending personal credit further down the income ladder and then securitizing that debt to reduce overall risk in the credit market as a whole. The political gambit was that lower-income taxpayers would come to see having more borrowing power now, and better credit later, as a substitute for increasingly uncertain pay raises as a means of providing them with disposable cash. But for a well-publicized few, there was a possibility of getting higher benefits through leveraging such borrowing power than were likely to come from a stingy bureaucratic state. The key to undermining democratic support for the welfare state was thus to replace it with an ideology of financial citizenship and inclusion that held forth this possibility.30 Here, roughly, is how a series of coordinated arguments eventually worked together to strengthen the financial sector and weaken the public sector during the period in which the financial technologies arising from BSM allowed for increased manufacture of credit-based derivatives: •

Credit markets said to government: “You will not be able to borrow at reasonable costs unless you back your bonds with higher tax rates or (if politically feasible) lower spending.” • Governments said to taxpayers: “To satisfy the credit markets, we will have to raise your taxes, cut your services, or both.” • Taxpayers said to credit markets: “If government cuts our services and other benefits, we will have to borrow more to buy them in the private marketplace or pay higher taxes to restore them.” • Credit markets said to taxpayers: “If government raises taxes, you won’t be able to pay your current debt service, or to refinance. But if it lowers your taxes, your borrowing power goes up by a multiple of that amount— borrowing power that you are more likely to need if your services become worse as a result of lower taxes.” • Taxpayers then said to government: “Cut our taxes; we are already too deeply in debt to pay them. And leave us with the option of borrowing

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still more from the credit market if you cut our benefits and services as you now threaten to do whether you cut our taxes or not.”

These stylized exchanges among citizens, government, and the credit markets illustrate how anxieties about the stability of public finance are both created and exploited by the financial sector for its own benefit. This does not necessarily require that the financial sector organize an overt conspiracy to set in motion such a chain of events. It is sufficient that fears about the cumulative effects of greater inequality can be partially allayed by purchasing financial products that are priced on the basis of today’s expected volatility, and are marketed to those who believe that the knowable risks in any particular situation could suddenly worsen. These financial products, typified by insurance and other guarantees, provide ways to make that worsening less sudden by locking in whatever advantages one currently enjoys for a little longer. Promoters of such financial products claim that the availability of such an option should be most valuable to those in a society who reasonably believe that history is not on their side, and who wish to mitigate and slow an inevitable downward path. This version of class consciousness— becoming more realistic about the future in periods of widening inequality— is actively and sometimes cynically promoted by those on the opposite side of the class divide in today’s financialized form of capitalism. To the extent that it takes hold, a self-aware precariat will become the segment of society most willing to pay a premium to the financial sector to hang on a little longer than it otherwise would in the bad scenarios it believes to be unacceptably probable.

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In this schematic picture, our present financialized politics is based on a class compromise between those who think they are vulnerable to heightened volatility and seek financial inclusion, and those in a position to insist that their “confidence” in the liquidity of financial markets is a precondition for granting such inclusion. Such confidence-building measures often take the form of expanding the scope of collateralization, and thus the means of its enforcement over financially sensitive citizens whose behavior is increasingly monitored and predictable. In our new paradigm, such a citizen no longer needs to decide whether a present shock is part of a cycle or the start of a trend. It is enough to price and trade the expected volatility created by the shock— a technical approach through which each financial actor internalizes the financial market’s uncertainty about the answer to fundamental historical questions about the future of capitalism. To the extent that such fears and insecurities are now more broadly propagated, perhaps

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by greater turbulence originating in the markets themselves, groups made to feel especially precarious in times of downturn— especially the working poor— could eventually be induced to buy financial products, such as payment plans or subscriptions for essential goods and services, that promise to offset the precarity of daily life and give households a measure of downside protection against future market volatility.31 This dynamic of class polarization goes beyond the exploitation of precarity in the form of wage labor, and allows for a more generalized exploitation of precarity, as such, when social knowledge presents itself as information about risk. The more we find out about the past risks we have survived, the better we understand how much of this we could not have known at the time, and the greater need we feel for protection against an inherently uncertain future about which we can only know for sure that something unexpected will have happened. The result is a form of data- driven ignorance about when or whether one can ever really know what to do next.32 Greater knowledge of our nonknowledge in this way creates and expands the consumer market for financial products that will hedge our uncertainty about whether our future will be more like the past than we could have known the present to be in advance.33 Modern financial theory thus presupposes and seeks to reinforce a particular political psychology: the more people know about the risks they face, the more anxious they are expected to be, and the more need they are expected to feel for interactive financial products that teach them to be “better choosers” under conditions of uncertainty.34 There is here a deep and often explicit link between financial insecurity, political security, and the continuing liquidity of products created by the securities industry. This requires the repression of political demands, especially in the United States, that would subvert a global financial system largely based on the stability of the US dollar, and its ability to trade at par with dollar- dominated securities issued outside the United States. But the liquidity of financial securities also requires the funding and maintenance of a global security industry that protects the fragile system of information and collateralization on financial liquidity rests. As we will see in chapter 6, the security industry has become the fastest-growing sector of a global defense industry, providing coverage domestically, internationally, and across cyberspace.35

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If this how capitalist exploitation now works, the central question of this chapter is whether and to what extent today’s financialized form of capitalism can be subverted by democratic forms of resistance that leverage its self- confessed potential for illiquidity. Did the leaders on Wall Street (picture them for a moment as saboteurs or suicide bombers attacking the

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general economy) show the Occupy movement the way to do this by threatening to blow up the financial system, and themselves along with it, when they said that none of their collateral could be valued unless virtually all of it was guaranteed by the government at a hundred cents on the dollar?36 My suggested answer has been that the nodes of liquidity in today’s financial system have parallels to Mitchell’s choke points of industrial capitalism in the age of coal. Organized workers could exert collective power to threaten the popular seizure or repossession of that which financial markets value as collateral, and which is always already in the people’s hands. Threatening liquidity in this way can be a complement or even an alternative to reoccupying semipublic spaces like Tahrir Square and Zucotti Park, which are merely jumping-off points for a hoped-for future democratization of the accumulated wealth that is now largely private rather than collective. Bringing on a liquidity crisis is of course a threat to destroy that wealth, assuming that we as activists have the nerve to act on the vulnerabilities in the financial system revealed in 2008. I here leave open the question of whether “we” want to be (or identify with) the people who can do these things directly. Clearly, the answer will depend on what actions they make available to the rest of us. Posing threats is, for example, what industrial saboteurs and strikers know how to do. And under some political circumstances, the use of such tactics can produce a higher wage, more progressive income taxes, and some redistributive social programs in return for leaving more or less intact the distribution of accumulated wealth. In chapter 6, I will explore the possibility that anticapitalist movements can use similar technologies to fund themselves by benefiting from the short positions that financial institutions take on the future of capitalism. The question I here raise is whether, if it all, such tactics can link to broader forms of democratization throughout the economy. In this chapter I have suggested that there are parallels between the role of debt and information as raw materials in the manufacture of financial products, and Mitchell’s logistical and operational questions about the subversive potential of capitalist democracy in the age of coal. Today, informational technologies are being used to create spreads on the relative predictability of a wide variety of payment patterns, especially the revenue streams generated by the credit-based securities that themselves support other spending patterns. So, as the products of capital themselves become increasingly “cognitive,” what Marx called relative surplus value is being created as a form of informational arbitrage that economists ranging from Hayek, on the libertarian right, to Arrow and Stiglitz, on the social-democratic left, regard as central to market-based democracies.37 From the perspective of this chapter, it is clear that today’s techniques of data analytics are, among their many other uses, a technology of mining for

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new forms of collateral— financial assets for which there could be a liquid market if one data set is indexed to another by means of creating a tradeable derivative. And, because the financial market attaches present value to any change in beliefs about the future, information signaling that collateral will be less liquid in the future will make it already less liquid in the present, unless it is hedged by another financial product. The illiquidity of assets and the volatility of data are thus two sites of vulnerability that are intrinsic to capitalist finance. Either one of these vulnerabilities can cause the other: both can create financial insecurity. These are potential choke points in the financial mode of manufacturing assets that make it no less vulnerable to sabotage through collective action than the mode of manufacturing commodities in the age of coal. When the suicide bombers on Wall Street threatened to blow up the financial system in 2008, this was paradoxically both the source of their power and a confession of the vulnerability of their own asset valuation technology to any exaggerated threat. They showed this when they credibly threatened to accelerate the scenario they said they feared the most unless they got new guarantees and concessions that were sufficient to reassure them that old guarantees were still good. But their apparent willingness to short capitalism itself, even when no one seemed to be attacking it, suggests future opportunities for emerging opponents of capitalism to make their case and build their movements. In later chapters I will flesh out this claim by considering tactics and strategies for an anticapitalist politics that aims to reverse historical injustice by redirecting the cumulative wealth that is based on it. But first it will be necessary to say more about what justice is, why it should be seen as primarily historical, and how the pursuit of historical justice can guide present and future movements that seek to democratize finance.

3: TRAUMA OR INJUSTICE My present argument about historical injustice is intended as a sequel to my earlier book After Evil. There, I analyzed today’s discourse of humanitarianism and development— not as a revolutionary claim for social transformation through popular democracy, but as a historical compromise. That compromise allows beneficiaries of historical injustice to keep the gains accumulated from it by acknowledging the evils of the past, seen now as a different time, and then imposing a political consensus that continuing and compounding advantages from that time are not to be seen now as a perpetuation of the earlier evil.1 This allows the self-described “post-conflict” society to “move on” by telling itself that now is never the time for justice: it will always be too soon until it is too late. The humanitarian deal, put bluntly, has been that the beneficiaries of past injustice get to keep their gains in return for granting the victims of historical injustice a moral victory. That victory— the achievement of a moral consensus that the past is evil— also requires creating a presumed political consensus that the evil is past. Once such a consensus exists, anyone who sees the present distribution of benefits and burdens as a continuation of past injustice will be considered guilty of “dredging up” that past and reviving historical animosities that impede future progress. Imposing this consensus thus requires a willingness to marginalize, demonize, and sometimes criminalize those who insist that the struggle to overcome past injustice as it affects the present must continue. The argument of After Evil was that both reparative and distributive historical justice— involuntary transfers of wealth with or without past wrongdoing— have been disarmed as political projects by being assimilated into the topic now known within liberalism as “transitional justice.” To the extent that the concept of transitional justice takes hold, justice as a settlement of historical claims becomes politically optional in the colloquial sense of losing urgency, or even of no longer being necessary. It gets replaced by the idea of a nondirectional and possibly permanent transitional

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state in which those who suffer from historically unjust disadvantage are encouraged to become more resilient, and the ongoing beneficiaries of past injustice are let off the hook for the aftereffects of a historical evil that they now no longer wish or need to defend. They thereby get to keep their gains even while repudiating the bad histories that produced those gains. This occurs despite often overwhelming evidence that the aftereffects of such histories are cumulative in the straightforward sense that the economic and social gaps attributable to such injustices persist and tend to widen. While writing After Evil, I came to realize that the late-twentieth-century development of the transitional justice paradigm is not the whole story. Long before the fall of communism, most of my peers in the liberal academy professed confusion about the very possibility of historically driven claims to justice to be pursued over a longer term. Even orthodox Rawlsians, with a few exceptions, typically argued that historical justice (the kind often advocated by Marxist revolutionaries) involves transferring resources from people who did nothing wrong to people who themselves suffered no wrong. This, they suggested, comes closer to a paradigm of injustice than to a program for justice.2 As both an ethical and a practical matter, they argued, the distributive justice envisioned by Rawls must await the supersession of historical grievances and animosities, if only because it will not then appear to be improperly retributive, and thus unjust, rather than impartially redistributive and thus just.3 Liberalism itself, even prior to its neoliberal deformation, would thus seem to have denied the conceptual justification for large-scale historical redress, even as it lacked many of the financial tools now available for bringing about such redress.

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The post– Cold War debate about trials, truth commissions, and amnesty that I address in After Evil transformed the pursuit of historical justice into a cultural phenomenon— the creation of a human rights culture to be promoted by a new set of political techniques that came to be called “transitology.”4 My central point about transitology, considered as both a strength and weakness, was that it is different from the pursuit of justice as such— that is, the punishment of the guilty. This marks a change from previous thinking in which the end of past evil was presumed to be simultaneous with the beginning of justice for its perpetrators. As long as that thinking remained in place, the Nuremberg trials would be considered a failure because of the relatively modest number of the guilty (a few hundred) who had been charged and prosecuted by the 1950s and ’60s.5 The late-twentieth- century literature on human rights transitions was based on the view that this apparent defect in the Nuremberg idea was in

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fact its greatest virtue. With the benefit of hindsight, the purpose of the trials was now taken to be their role as a crucial turning point in Germany’s successful transformation into a model of fin de siècle human rights in which the evils of the past would become unthinkable.6 By the mid-1980s this led, especially in Argentina, to a more general question: How much justice is truly necessary to bring about a successful transition— or, more accurately, how little? And, if human rights trials are now considered to be culturally effective despite, and even because of, the low number of guilty who are punished, why must these trials actually occur in order to produce their desired cultural effect? What had seemed in 1968 to be a weakness of the Nuremberg trials— that so many people escaped justice— appeared at the apex of transitional justice era to be their strength: that they allowed conformists in the old order to be comfortable as conformists in the new order, because they no longer feared being treated as collaborators. By the early 1990s, especially in Latin America, the cultural arguments for holding human rights trials in just the right number became pervasive. This was followed by a frank aestheticization of the trials themselves, which came to be assimilated to other techniques of culture production and mythmaking as part of the overall technology of transitional justice. By then the question was not how many evildoers were identified and disgraced, but how few we needed to single out to produce the best cultural result. Was Judgment at Nuremberg, the movie, a more fundamental marker of the successful transition to a human rights culture than the actual judgments rendered at Nuremberg? Of course, the movie’s effect presupposed the occurrence of the trial. But from the standpoint of transitology, its effect in fostering transition is what matters. The distinctive feature of this standpoint is that it specifically removes the achievement of criminal justice itself from the catalogue of desired effects of holding trials. Even though the Nuremberg trials may have largely failed to initiate a broader program of criminal justice, they are treated as a success in achieving the purposes of transitional justice. These include the deterrence of future oppressors, the recognition of past victims, the public identification and denunciation of past wrongdoers, the creation of a factual record, and finally the strengthening of the rule of law. Strengthening the rule of law is especially important for the project of transitional justice insofar as it implicitly exonerates all those who were not tried by giving them the benefit of the rule of law’s presumption of innocence. The very individualization required by due process thus becomes a cultural dimension of the reliance on legality per se— its distinction from a mere purge of the defeated. From this perspective, the individual defendant will be punished, if at all, only for the respects in which he differs from the many who shared his fears and wishes. The real power of the human rights

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trial, as described by transitology, thus lies in the discipline it imposes on those who can watch without identifying their own responsibility but who are now forbidden, by their very commitment to legality as such, from denying the presumption of innocence to those who were not actually tried and convicted. The object here is not to produce a society of existentialist choosers responsible for the world but to reassure those who have conformed in the past that they can conform again with impunity. But trials are only one of many cultural instruments in the toolbox of comparative transitology. The practical question is whether “we”— as stand-ins for the “world community”— can bring about a better result by pardoning the guilty or by punishing them. Do we do it by remembering their crimes or by forgetting? By forgetting to remember, or by remembering to forget? In After Evil and elsewhere, I explored what it means for transitology to explain the kinds of peace that are possible after periods of struggle in such cultural rather than political terms. I argue that, if we take for granted that the winners in society are expected remain largely the same after the transition, then a change in their attitude toward governmental accountability would be all that is necessary for the transition to have occurred. A “human rights culture,” seen as the successor to a “culture of impunity,” can then be described as a future past that could have been imagined from within the culture of impunity— a reason for preserving its historical record— rather than as a present in which human rights will have been achieved.7 Such a cultural change would be worth promoting, according to most defenders of transitional justice, even if is likely to fall short in the area of protecting human rights. The implicit assumption behind such reasoning is that the creation of a human rights culture out of a culture of impunity is a one-way ratchet— that there’s no going back once conformists in the old regime embrace the cultural ideology of “never again.” I believe, however, that this argument is wrong, and that the transitology approach is really a two-way ratchet. If a new emergency, perhaps following a terrorist attack, once again persuades conformists that this is no time for ordinary justice, they can easily revert to their previous deference to their government’s claims. This next time, perhaps, they will be more likely to anticipate feeling regret if future scrutiny discredits what their leaders have said when the full facts come out. In my view, a transition to a culture of human rights serves mainly to remind the public that emergencies do not go on forever, and that they often end in a climate of regret for the excesses that took place. But there is nothing here that demands resistance as long as the public still believes what it has been told. Creating a new culture of human rights without touching the beneficiaries of past injustice is thus, I have argued, a weak legitimation of conformity, rather than the establishment of a legal duty (and correlative right) of resistance, as the Nuremberg trials were once meant to be.

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Partly because of its potential appeal to conformists, the leading architects of transitology in countries such as Argentina and Chile openly embraced the perspective that I criticize in After Evil. Why focus excessively on trials, they asked, when we can jump ahead to the anticipated moment of regret and effectively institutionalize it through amnesties combined, perhaps, with truth commissions and other cultural practices commemorating victims? By the 1990s, an approach to human rights that focused on optimally balancing these ways of reassuring the public that an evil era has passed had all but buried the question of resistance to injustice that was once the basis of revolutionary struggle.8

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The end of apartheid in South Africa marked the apex of this approach to historical injustice. With the initial help of Latin American consultants, its transition to democracy was designed to be a hybrid between that of Chile, where there was a truth commission but no trials, and Argentina, where there were trials but no truth commission. The South African tweak was to empower a Truth and Reconciliation Commission (TRC) to both grant amnesty and take evidence, so that those who did not confess the truth could be incriminated by the testimony of those who did. The question of how many prosecutions there would subsequently be would then be left to a process that in principle conditioned amnesty on one’s willingness to incriminate oneself and to provide evidence against others who still refused to admit their guilt. In practice, however, hardly anyone sought official amnesty by such a route, and the TRC process did not lead to a significant number of prosecutions. This apparent supersession of the need for criminal justice by the imperatives of transitional justice was retroactively legitimated by the worldwide prestige of the TRC itself, which seemed to make criminal prosecutions unnecessary to achieve reconciliation. Its success in jumpstarting reconciliation allowed many beneficiaries of apartheid to sidestep the question of whether a revolutionary overthrow of apartheid would also have been justified. Instead, there was a consensus, even among exrevolutionaries, that the miraculous replacement of apartheid with a regime of human rights was even more successful than a revolution might have been. But what was this success? My view, stated at length in After Evil, is that the South African “miracle” allowed the beneficiaries of past evil to keep their gains without having to defend them, and without appearing to perpetuate the evils that had produced them. I summarized this by saying that the TRC achieved a moral consensus that the past was evil by imposing a political consensus that the evil is past. This occurred through a deconstruction of the dialectic of victimbeneficiary-perpetrator on which two hundred years of revolutionary and

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counterrevolutionary narratives (1789– 1989) were based. The revolutionary side of the story was addressed to victims. They regarded themselves as such by having a theory (such as Marxism or ethnonationalism) that explained types of suffering that might have seemed inevitable by revealing that there was a class of people, broader than the active perpetrators, that was benefiting from their suffering. Based on such theories, self-identified victims could be motivated to take action against those beneficiaries. The response of beneficiaries would then be to condone or more actively participate in repressive actions by the perpetrators. To be called out as a beneficiary is thus to be exposed by a politically self- conscious victim as one who will stand behind perpetrators who do the dirty work. Victims whose consciousness is raised by this response to their struggle become revolutionaries who assume that all beneficiaries are would-be perpetrators. As unreconciled victims, they may continue the struggle long after the perpetrators have been dislodged, until the continuing beneficiaries disgorge their unjust gains.9 From the standpoint of counterrevolutionaries, however, it is a sign of moral damage in unreconciled victims that they identify beneficiaries with perpetrators. This moral damage makes unreconciled victims unfit to rule. Counterrevolutionaries in South Africa would thus not have needed to believe that their regime was just in order to uphold it; it was enough to for them to think that they were hated by their victims, even justly hated, to conclude that the victory of such victims was likely to be even more unjust than the status quo. In this way, the present beneficiaries of the old regime could come to identify themselves as the future innocent victims of the new postrevolutionary order. The foregoing dialectic between revolution and counterrevolution is the political framework that transitology supplants. In After Evil I suggested that transitional justice draws upon the tendency of beneficiaries to assert a moral equivalence between themselves in the future and victims in the past who turned out to have been innocent in the sense that they did not pose a real threat to beneficiaries. What qualifies as innocent victimhood for the purpose of transitional justice here consists, primarily, of a refusal of the revolutionary consciousness that considers ongoing beneficiaries of injustice as would-be (or would-have-been) perpetrators. Once the anxieties of ongoing beneficiaries are thus allayed, they feel free to bear witnesses to the innocence of past victims whom they would have happily rescued had they known then what they know now— namely, that those victims would not hold beneficiaries responsible for past injustice. This is how the late-twentieth- century project of transitional justice was supposed to work in its successful applications, most notably in South Africa. Here, the beneficiaries of past injustice testified to the innocence of past victims whom they no longer feared. The most prominent celebrants

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of the transition would then become militants against the belief that cruelty can be justified for any reason— except, of course, when it is used against those who profess to believe that it can be justified. But transitology, thus described, can succeed only when it wins the support of those whom it promises to consider the good victims for demonizing the bad victims— the victims whose irreconcilability threatens beneficiaries with future disgorgement of their gains. By treating only these supposedly bad victims as a real threat, and reconciling the other former victims to continuing inequality, the project of transitional justice continues, using more benign means, the earlier counterrevolutionary project of allowing the ongoing beneficiaries of past injustice to keep their gains. The question that transitional justice purports to answer is thus not about how to reverse the cumulative advantages of past injustice, but about what makes power good when justice is off the agenda. Christian theodicy of the early modern era provides a prototypical answer by showing how a God with the power to transform the world could be worth worshipping despite the persistence of evil and injustice arising from the past. Here, the central claim is that postponement of redemption is not an expression of God’s cruelty; there could be nothing worse for humans than divine omnipotence, if God were cruel. What makes the Christian God worth worshipping by humans is God’s own renunciation of cruelty and embrace of compassion, as revealed by Christ. In this way, faith in Christ can justify divine omnipotence while perpetuating the status quo until the time for justice comes. A professed denunciation of cruelty by secular powers can function similarly, allowing us to believe in the goodness of power without having to believe that the perpetuation of the past is just. Here, the cruelty of violence becomes the worst injustice and the only one that secular governments must absolutely disavow to legitimate their rule. Humanitarianism today rests on a secular faith is that there is nothing worse than cruelty10— especially when it is shielded by omnipotence, even that of God— and that a unipolar world order could be justified if and only if the sole global hegemon abjures cruelty and embraces compassion.

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To advance this secular theodicy, we have developed a vast cultural machine, a veritable human rights industry, for decontextualizing and homogenizing pain— for generalizing it as trauma— so as to maximize the amount of human suffering that we can put in the past. The defining characteristic of the trauma that is mined by this human rights industry is that it is not merely pain but, rather, past pain that is experienced as happening again. In the history of medicine, the trauma-concept was thus originally used to

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diagnose pain that is reexperienced when there is no reinjury or when new injuries are experienced more intensely as the reoccurrence of prior pain.11 Using trauma as a medical metaphor for the psychic afterlife of a past injury thus treats historical injustice as a harm that is implicitly psychosomatic in its ongoing effects. This approach, in the words of the medical anthropologist Didier Fassin, now “dominates what it means to speak of the ongoing presence of the past” as a domain of human rights.12 In this domain, which Fassin calls “the empire of trauma,” the goal of public institutions is not directly to minimize harm— to prevent bad things from happening— though many human rights practitioners try to bend it toward that goal. The point is, rather, to demonstrate that something bad has already happened which might now be reexperienced as trauma if its victim is denied treatment that must now be seen as a compassionate response to that past. By thus limiting the focus of human rights, the empire of trauma finds special meaning that calls for an essentially medical response. Such a medicalization of injustice— a decision to view remediation as something like a right to treatment— has benefited many individuals who qualify, and is surely better, on the whole, than helping no one. And medical practitioners, social workers, and administrators who work within the system, including Fassin himself, have reasonably hoped that a public health approach to social suffering can be bent to help remediate historical injustices that go beyond the traumatic experiences it was designed to heal. My criticism of the metaphor of treating trauma that underlies this humanitarian regime is partly conceptual. In its bureaucratic form, the function that Fassin calls “humanitarian reason,” makes the otherwise invisible injury inflicted by what happens next cognizable as a repetition of an earlier trauma to which it is attached. Once that earlier trauma is identified and put on the record, a denial of whatever benefit one seeks, such as a visa, turns into something different and much worse than what it would be for someone with no such prior experience of abuse. But articulating the relation of the present to a traumatic injury in the past does not make the present worse in a way that would otherwise be unacknowledged. Even from a medical standpoint, remembering a trauma is at least sometimes sufficient to put it in the past and thus to prevent a new, and possibly unrelated, negative event being unconsciously experienced as a repetition of the old injury. A trauma itself must, rather, be understood as an additional event that is always partly endopsychic, whatever external events may trigger it, and that may both intensify and disturb one’s response to that event. The foregoing point, which is both conceptual and clinical, connects to my political criticism of the empire of trauma: that it is not an adequate surrogate for dealing with past injustice, at least not with the instances of it that matter most today. My view is, rather, that the present problem with

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past injustice is that the cumulative effects of the resulting inequality persist. Widening inequality is thus intrinsically relevant to politics, regardless of its potentially pathological effect on mental health. In humanitarian reason, by contrast, the generic form of human rights violation would be indifference to victims’ stories. Contempt is an intensified version of such indifference, which is therefore a form of evil. And further violence— however wrongful on other grounds— becomes additionally wrong insofar as it manifests even more indifference to the victims’ trauma. This makes it possible to interpret institutionalized forms of cruelty and violence as, essentially, expressions of indifference that would be repeated if we, too, refuse to listen to victims’ stories, and deny them the aid they now seek. The idea that underlies this discourse is that reconnecting with its story can release the traumatized body from a disabling endopsychic effect of past history, the trauma itself, and enable the embodied mind it to get on with the pragmatics of living. The ethical correlate to this idea would be that traumatized bodies that have been saved in this way thereby regain their dignity, at least in the eyes of those who bear witness to their trauma, perhaps as journalists, social workers, therapists, priests, poets, novelists, filmmakers, songwriters, and so forth. In today’s humanitarian discourse, it is thus telling its story that makes the body matter to both itself and others. As the English professor Joseph R. Slaughter notes, “Humanitarianism, thus, becomes a problem of sympathy, and sympathy becomes a problem of narrative; in short, humanitarianism becomes a literary problem.”13 He thus concludes, “To tell stories is . . . also to act . . . or so the (human rights) story goes.” According to Slaughter, there is thus little difference between “doing something” about human rights and bearing witness to their violation.14 To the extent that indifference is itself the problem, it can be remedied by providing institutional outlets designed to show victims that their stories “matter,” without ever addressing the fundamental injustice of the institutions themselves.15 As a representative of this view, Slaughter cites the literary scholar Wayne C. Booth, who describes the most fundamental human right as a form of self-authorship— it is essentially a “right to narration.”16

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It is nevertheless too simple to say that the domain of historical justice, as I understand it, has been usurped by something self- evidently different: a form of cognitive therapy that stresses cultural healing, seen through the lens of trauma rather than political struggle. There is an alternative view of justice itself that underlies the empire of trauma— based on the presumed right to be treated with an attitude of non-indifference, a right

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that is violated when people are treated as if they didn’t matter.17 This view of justice— or of what matters most about it— has evolved over the past fifty years in tandem with the development of the human rights discourse that triumphed following the US defeat in Vietnam.18 The legal philosopher Ronald Dworkin, for example, grounds the supreme value of justice in concern, especially for human suffering, which is the precondition for an attitude of respect, especially for human dignity. We must therefore insist that though people do have a political right to equal concern and respect on the right conception, they have a more fundamental, because more abstract, right. They have a right to be treated with the attitude . . .— a right to be treated as a human being whose dignity fundamentally matters. That more abstract right— the right to an attitude— is the basic human right.19 For Dworkin, the right to such an attitude and is best realized by becoming the author of one’s own narrative, and in then living out one’s own story of personal fulfillment. Hans Joas, the German social theorist, takes a similar view, but stresses that the narrative should also include an experience of suffering that could have been incapacitating, as psychological trauma often is, unless it is made meaningful by the narrative itself.20 The political theorist George Kateb strikes a similar chord by grounding the value of justice itself in the more fundamental value of human dignity, which is based on the proposition that every life matters to the person who lives it. For him, too, self-authorship is how one makes one’s life matter to oneself, and our ethical duty toward others is epitomized by saying that it should matter to us that their stories matter to them.21 Making mattering to each other the essence of social justice may seem trivial, but in the evolving liberalism of Dworkin, Joas, and Kateb we can see how the view that what really matters is mattering itself could be seen to rival or subsume my view that what matters for purposes of justice is who benefits from historical inequality. It would be easy to dismiss the “mattering” approach as mere psychobabble. The routine claim of corporations and governments to take this or that criticism “seriously” because “your opinion matters” is, for example, easy to ridicule as hypocritical jargon that uses an organization’s professed sensitivity to complaints as a public relations opportunity. But such jargon is not entirely empty insofar as it invites complaints, at least some of which— for example, lack of access for the physically handicapped— are essentially demands to be accommodated that should be met. In this and many other contexts, a focus on what most matters to the people for whose sake one acts is, self- evidently, a good idea. My question is whether the view that “mattering” itself is what ultimately

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matters could lead to a satisfactory substitute for my approach to historical justice.22 The strongest version of this view is that trauma is an impediment arising from past injury that disables its victims from overcoming that history and proceeding on the path of human development. Here, the main problem with the past is that the trauma it leaves behind is an obstacle to development, which is more important for our flourishing as humans than greater justice without development would be, and much more important than a fixation on injustice that prevents development. The thinner versions of trauma theory discussed above treat it as a kind of writer’s block preventing each of us from finishing our own stories. This is easy to criticize as an excessively narrow view of what really matters. A thicker version of humanitarian discourse, focusing on mattering as such, would be that human development is what ultimately matters, and that such development (in something like its Aristotelian sense) is the real meaning of justice, which becomes teleological rather than historical. Once development as such subsumes the topic justice, creating “capabilities” for development will become more important than historical redress, and more important the more equal distribution of primary goods advocated by philosophers like John Rawls and Gerald Cohen (who are discussed in chapter 4). Justice as development would then appear as an intrinsic good, because it is a precondition for being able to choose and enjoy whatever primary goods we happen to get; and trauma would be intrinsically evil, because it incapacitates us from the enjoyment that is essential to a good life. There are weaker and stronger versions of this “capability theory.” The philosopher and economist Amartya Sen sees an index of capabilities, such as the Human Development Index, as the best overall measure of social justice, and thus locates capability theory within a broader theory of justice, such as that of Rawls.23 For his more Aristotelian collaborator Martha Nussbaum, what matters most are capabilities, and the human “functionings” they represent: A functioning is an active realization of one or more capabilities. . . . Enjoying good health is a functioning, as is lying peacefully in the grass. Functionings are beings and doings that are the outgrowths or realizations of capabilities. In contrasting capabilities with functioning, we should bear in mind that capability means opportunity to select. The notion of freedom to choose is thus built into the notion of capability. To use an example of Sen’s, a person who is starving and a person who is fasting have the same type of functioning where nutrition is concerned, but they do not have the same capability, because the person who fasts is able not to fast, and the starving person has no choice. . . . Capabilities are [thus] important because of the way in which they may lead

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to functionings . . . [as] the notion of functioning gives the notion of capability its end point. But capabilities have value in and of themselves, as spheres of freedom and choice. . . . Options are freedoms, and freedom has intrinsic value.24 Capabilities create options, options are freedoms, and freedom has intrinsic value—so trauma is the paradigmatic injustice, because it disables us from making better choices and thus destroys our options. In justice-asdevelopment we see intimations of a view of options theory that could subsume and transcend the issues of justice that concern me, rather than revealing and addressing them as I propose.

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My proposed use of the theory of financial options to reanimate the topic of historical justice differs fundamentally from this invocation of optionality in capability theory. For Sen and Nussbaum, the starting point of humanitarian ethics is to become more realistic about the past and more resilient going forward. If greater realism and resilience are the most immediate goals of “development,” then disability narratives and other tales of incapacity become for Sen and Nussbaum the quintessential injustices. In disagreeing with today’s development-based approach to past injustice— that it impedes our ability to make good choices for the future— I am not denying the importance of having capabilities nor of trauma as impeding them. Neither am I saying that the remedies for this are necessarily outside the domain of justice. So it might seem easy to propose a semantic compromise with those who think that trauma is what really matters, to the effect that justice matters too because it is an independent value that matters intrinsically. The trouble with such a compromise lies in the ambiguity of “mattering” as a concept. It is often a concept used to make comparisons: people can be said to matter more or less, based on their relative status or importance; we often say that a situation or event really matters when we want to stress its urgency. And the point of calling something unjust is often to make it matter by considering the victim to be more important or the situation to be more urgent than it might otherwise seem to be. But trauma and other causes of arrested development are often said to matter to anyone who experiences them for reasons that do not presuppose that they have unjust origins. Such neutrality on questions of historical justice is especially central to the trauma- concept’s appeal as designating an especially intense form of injury, partly unconscious, that can be suffered by the just and unjust alike. Trauma and disability will always matter to those who suffer from them in the way that having a disease would, and

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this implies that the needs of the traumatized and disabled may sometimes have to be weighed against the needs of ongoing victims of historical injustice who may not have been traumatized by it in their own lifetimes. So we have here not a subsumption of the question of historical justice, but a displacement of it. Recent work in neuroscience takes steps to such a conclusion by showing that it is possible for the trauma of bad history, such as slavery or the Holocaust, to be inherited across generations through “epigenetic” mechanisms by which gene expression is controlled.25 If so, it might follow that some forms of historical injustice pose a mental health problem for present victims, and that they would matter when, and perhaps only when, they do. The relatively few moral philosophers who read the epigenesis literature have suggested that it brings philosophy into human biology through the back door, providing a scientific foundation for the seminal insights of psychoanalysis, dialectics, and so forth.26 From reading this body of work in conjunction with Fassin’s Empire of Trauma, it is easy to surmise that the reactivation of earlier traumas is the affective source of other forms of mattering, including that of justice, and that the epigenetic transmission of trauma is why historical justice matters when it does. This surmise, while still far from being supported by the scientific literature, is becoming part of today’s common sense because it limits the range of historical injustices that should concern us to those, for example, that have observable effects on crime rates and other signs of maladjustment. It is, however, alien to many political philosophers, including liberals, for whom justice itself is what matters intrinsically. By this they mean, as in the Kantian tradition, that the imperative to address it is independent of the affect it triggers in individuals with different psychic histories and social backgrounds. The liberal philosopher John Rawls thus writes that “laws and institutions no matter how efficient and well-arranged must be reformed or abolished if they are unjust.”27 From this perspective, claiming that justice, whether it is historical or forward-looking, might not always matter would reflect a failure to understand it as a moral concept, even if there is still a psychological point to be made by acknowledging that justice does not in fact matter to most people most of the time. It is possible, of course, that many individuals and groups could be motivated to pursue justice with greater moral urgency if the need to do so can be connected to an experience of injustice in their past. But it does not follow that narratives motivating the pursuit of justice must be narratives of trauma or narratives that have a retraumatizing effect on those who hear them. Traumatic memories, which are often unconscious, are also frequently disabling in contrast with a heightened awareness of past injustice, which can often clarify thought and empower action. And historical injustice can cease to matter politically

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because its measurable effects are no longer discernible in the social structure, whether or not from a clinical standpoint its story, or a drama based on it, continues to evoke traumatic memories. Rather than translating trauma into injustice or vice versa, I thus want to focus on the fundamental differences between trauma stories and injustice stories as two types of truth about the past. These differences concern the incidence of trauma and injustice respectively, and also their transmission from person to person and from time to time. As for incidence, the trauma from a morally culpable act can fall on victim and perpetrator alike. And whether the original event was more traumatic for one person or the other, or equally traumatic for both, is independent of their relative culpability. This is a distinctive moral feature of trauma that I discuss in After Evil as the “moral damage” arising from injustice, the kind of harm that Socrates thought was greater for the one who commits it than for the one who suffers it. Today, the soldiers engaged in the military occupations of Palestine, Iraq, and Afghanistan are routinely treated for the psychiatric injuries, the traumas, caused by the injustices they inflict.28 This is morally important, as I’ve said, but it is often more important to insist upon the ways in which their trauma is a symptom of their moral responsibility for the suffering— including the traumatic suffering— to which they have significantly contributed. The transmissions of trauma and injustice are also different. Trauma passes from person to person through mechanisms of psychological identification. Sometimes these mechanisms are conscious, as in the formation of political identity, and sometimes they are unconscious. The most important mechanisms are often conscious identifications that draw upon unconscious pools of affect to mobilize political action.29 This process of transmission through identification is a way for originary trauma to be repeated vicariously across the barriers between persons and time. In trauma, it is the repetition itself that is morally relevant: the same thing is happening to me that happened to you, and the same thing is happening now that happened earlier, perhaps no matter how long ago it may have occurred. In contrast with trauma, historical injustice is transmitted not merely by repetition but also and primarily by accretion. Here it is most relevant morally that the gains resulting from the past continue to accumulate, regardless of the level of conscious or unconscious identification of present political agents with the primal trauma of originary victims. There is thus no doubt that historical injustice, as I describe it, should be measured and tracked as one type of truth about the past, even as the stories of originary victims are also remembered. For me, the most troubling question posed by the post– Cold War humanitarian consensus was whether remedies for historical justice should

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be postponed if providing therapies for the trauma of victims and perpetrators alike is less controversial, cheaper, and for both reasons easier to implement. In his cautiously affirmative answer nearly a decade ago, Fassin acknowledged that humanitarian reason sidesteps historical justice, but still seemed to believe that the empire of trauma represents a positive aspect of the way we live today that provides opportunities for those who work within it to make it better. Such an argument may seem even more compelling now that the reaction against the inclusionary bias of humanitarian reason has spawned an exclusionary politics that would seem prima facie unjust. But this makes sense only if one’s conception of justice itself is, like Fassin’s, essentially Foucauldian: focusing more on the epistemic effects of horizontal exclusion than on the ongoing distributive effects of vertical exploitation and domination From my perspective, however, it is the shift in focus away from vertical injustice that is largely to blame for the popular reaction against humanitarian reason and the growing indifference to trauma that has followed. I thus propose a compromise: to acknowledge the truth of trauma as a type of harm, while insisting on the primacy of ongoing injustice as the most politically relevant truth about the past.

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How, then, should we think of trauma and injustice as two expressions of the present meaning of the past? In my view, the trauma narrative, is formally a text or performance that includes an embedded version of two other stories— one occurring in the past and one in the present— and indexes them, one to the other, as a third story. The third story, the trauma story, retells what is happening now as a repetition of the past while retelling the past as a prefiguration of the present. In this respect the trauma story has some of the literary features of a Christian allegory, especially if the repetition is also a redemption, and especially if the prefiguration of the present is also a revelation.30 From my perspective, however, the truth of trauma narratives would here be rooted in the promise of justice to come, rather than in the diagnosis of a present disability. This promise is what distinguishes the pursuit of human rights as a potentially justice-seeking activity, from today’s weaker versions of it that are based on a medically inflected ethics of care.31 My formal description of a trauma story as a narrative that indexes and measures the spread between two other stories thus treats it as a derivative story that could not exist without the presumed existence of the preexisting stories that it references. As I have said in previous chapters, financial derivatives are also textual constructions, generally contracts, that typically index a one-time series of market events (typically price movements) to

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another. They perform this mediation, moreover, by functioning in the market as a separate asset, the changing price of which reflects, in their simplest form as index-based derivatives, the changing spreads between the price fluctuations they reference. In this way, as we saw in a previous chapter, the present value of a financial derivative can price the opportunity to liquidate (convert to cash) the value still accumulating from the past based on changing information that bears on its expected value in the future. A derivative’s fluctuating price, when seen through a semiotic lens, functions as a meta-economic interpretant of the always questionable continuity of past and future that attaches us to the present in something like the way that affective fluctuations arising from trauma function as metahistorical interpretants that index our psychic investment in the present as a point of continuity between past and future. There is thus a sense in which both the price of a derivative and the affective charge of trauma can be redeemed. But the price of a financial derivative does not ordinarily have redemptive meaning of the kind Walter Benjamin has in mind when he speaks of “messianic time” as a third time that juxtaposes and conjoins the meaning of two other times.32 In treating historical justice as itself a financial option on accumulated wealth, my proposal in this book is to unlock the potential of financial derivatives to have redemptive meaning by connecting their monetary valuation to their affective value as metahistorical narratives. In this way I hope to relate trauma and injustice as different kinds of truth that link the present with the past: While the truth of trauma leads to reconciliation and potential healing; the truth of injustice leads to remediation and potential change. In my approach, a politics of funding greater equality out of the proceeds of injustice could thus become a more benign successor to the revolutionary tradition in much the way that today’s antipolitics of healing trauma has become more benign successor to the counterrevolutionary tradition criticized earlier in this chapter. Having stated my objections to a traumatological approach to justice, I nevertheless believe that trauma should be treated medically, that suffering should be relieved, and that removing or accommodating disabilities of all kinds is an important part of justice in a capitalist society and any desirable successor to it. If my claim is that historical justice is not itself the remediation of suffering or the cure for trauma, what is it? My focus on inequality thus far might lead some readers to assume that I regard historical justice as the fulfillment of an ideal of equality. I do not, however, see injustice itself as simply a departure from equality; neither do I regard equality as a baseline that is always presumptively just.33 For me, a present growth of inequality is a sign— or index— of a continuing injustice, and not the injustice itself. My concern is with the present value of that injustice to its beneficiaries.

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I thus regard my present effort to capture the cumulative benefits of financial asset growth to reverse the cumulative disadvantages of bad history as a direct and politically prescriptive sequel to my earlier critique of human rights discourse in After Evil.

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Before turning to the substance of my proposal in the next chapter, I will conclude this one with some thoughts about the difference between my view of historical justice as a redemption of past evil, and the alternative view that we must heal the trauma that past evil leaves behind. Today’s human rights discourse, as I have said, carves out an essentially transitional present in which it is too late to change the horrors of the past and too soon for an apocalyptic judgment on it. If the present is a time between the end of evil and the beginning of justice, it can for this reason be appealing, even ethically, to prolong it and thus save people from suffering the consequences of their evil past. What is ethical about salvation thus conceived is that we can choose it without fostering the illusion that we are safe from relapsing, perhaps at any moment, into the evil we have put provisionally into the past. Our belief that the past is over may, rather, be all that separates us from returning to it.34 In my view it is this fear of falling backward— of returning to sin— that has, since the writing of Saint Paul, been the quasi-ethical justification for not moving forward toward the historical justice demanded by the Jewish prophets and thus hastening the apocalyptic judgment that Christ’s Second Coming must bring. In After Evil, I found a secular version of these ideas at the heart of the refusal of today’s discourse on human rights to fall forward into justice out of fear of falling backward into the evils of the past. The great German sociologist, Max Weber, saw a similar dynamic in the Calvinist roots of early capitalism. As Christians who were existentially uncertain about their ultimate salvation, these Calvinists sought in secular life a rational way to postpone either falling backward into original sin or falling forward into final judgment and apocalypse— both of which they all too easily imagined. Their solution was to bracket the possibilities of ultimate damnation and ultimate salvation as inherently uncertain, and to leave what was inherently uncertain outside their calculations of what was probable or improbable in the present. This was not primarily an epistemological point about the unknowability of the future and the fragility of models for predicting it. They professed an absolute faith that everything would end, and many could have reported detailed beliefs about what this would entail. Why would they not, then, factor in these highly possible future scenarios that would be infinitely good or infinitely bad in comparison with the

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choices before them? Weber’s thesis is that the origin of capitalism lies in a faith-based refusal to discount the value of our present choices by assigning a present probability to a future world in which none of them would matter. Why would anyone choose to assign a zero probability to the possible outcomes that most matter to them as a response to existential doubt? The explanation is deep and widely applicable: the stronger our belief that the future is foreordained, the stronger reason we will have not to act on that belief to affect the future. If a financial trader believes that a market crash is foreordained, should he then sell? A contagion of short selling is what would cause a market crash, which would be postponed if everyone refused to act on their belief that a crash was certain to happen. But the trader does not make an eventual crash any less certain by refusing to assign a probability to its occurrence. All that he can do in the time that remains is to focus on saving himself, regardless of what the future might bring. This is why, for Max Weber’s Calvinist, infinitizing an evil like the end of the world becomes a reason for assigning zero probability to it— not because he is certain to be saved, but because there is no possible hedge against the fear that he is already damned.35 What it then meant for such a Protestant to be “justified” by faith was not to be hedged against damnation, but to proceed as though the future would in retrospect reward his present choices in the interval before an end that was already foreordained. Weber’s distinction between knowable risks, based on the past, and existential uncertainty about one’s ultimate salvation was carried forward in 1921 by his student Frank H. Knight. Where Weber was interested in how existential uncertainty motivated the accumulation of capital, Knight made it into a justification for capitalist profits. Profits, Knight argued, are not the reward for taking on knowable, insurable risks; they are, rather, a premium accruing to those who invest despite the uncertainty about those components of the future that are intrinsically unhedgeable. Risk that is unhedgeable is now known as “Knightian” uncertainty, which is often about liquidity— and thus about whether there will continue to be a market as we know it. For Knight, exposing oneself to risk that could be prudently managed is simply stupid, and should never be rewarded; but entrepreneurial profit is the bounty that may or may not arise from one’s faith-based refusal to hedge an existential risk.36 In his recent book on the role of faith in economics, the philosopher of science Jean-Pierre Dupuy spells out the paradox of choice and predestination that underlies these views: that our choices now will have somehow mattered retrospectively in bringing the future about without having changed what the future will be. How then do we value what matters about choice in a way that captures the additional value of preserving choice— that is, of optionality itself? The answer, for Dupuy, is to force a distinction

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between the time in which choice matters and the ever-present possibility of an imaginable end in which our choices do not matter at all. The value added by choice would then be to extend the time in which our choices matter before it is too late.37 But Dupuy also argues, based on Weber, that existential uncertainty— the ever-present imminence of apocalypse— functions as a resource for creating value in every scenario before it arrives. The functional importance of the distinction between risk and uncertainty is thus precisely to exclude the apocalyptic scenario from probabilistic valuations of a risk, while at the same time attributing the bounded value of those valuations to uncertainty about how soon the always immanent apocalypse will appear. Dupuy thus rejects the view that capitalist investors are oblivious to the possibility that capitalism itself is fragile.38 He suggests, on the contrary, that what they do both presupposes this ever-present doomsday scenario while deriving financial value from refusing to predict it. If capitalism’s end “were to be predicted,” he says, “and the date of its demise announced, such a prophecy would be immediately falsified because the catastrophe would strike at the time of the prediction and not at the predicted time.”39 Our faith must thus be in resilience above all else, because it alone can prolong the time in which our choices still matter and thus postpone the easily imagined catastrophes in our moral, economic, and natural worlds that allow us to extract value from their mere survival.40 Although Dupuy describes his argument as a “critique of economic reason,”41 which is not specific to capitalism’s financial turn, it is easy to see modern financial theory (which he does not directly address) as an implicit confession and expression of his critique. The core of his argument is based on distinguishing between “counterfactual dependence” (“If I had not done x in the past, the known future would have been different”) and “causal dependence” (“My doing x caused the known future to be what it is”). According to Dupuy, “there may be counterfactual dependence even in the absence of causal dependence.”42 We can say, for example, that a different present would have required a different past without implying that a different present could therefore cause the past to be different. The possibility of having counterfactual power over the past even if— and sometimes because— we have no causal power over it was, according to Dupuy, how Weber’s Calvinists reconciled free will, determinism, and forgiveness through grace, and it lies at the heart of capitalism.43 But some sciences, including Newtonian physics, are based on what Dupuy calls “the causalist hypothesis,” which is that “a variable depends counterfactually on another only if it depends on it causally,” and vice versa. Dupuy’s critique of neoclassical economics is that it abandons the insights of Weber and Knight by mimicking this feature of Newtonian physics. But in economics the

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“causalist hypothesis” is a “metaphysical claim” that there is “good reason to doubt” because “nothing that I do between now and the future can justify me in believing that if I do this, the future will be different.”44 For Dupuy, capitalism’s genius comes out of its awareness that it may not have a future, and that its past may need to be forgiven. Its capacity for “selftranscendence” through either faith or politics allows it to go forward, step by step, in full recognition that its survival is nothing natural. Dupuy defines “self-transcendence” as “the feedback of the causal effects of predicting the future upon the future itself,” which he goes on to describe (following both René Girard and behavioral economics) as a mimetic process that can be controlled only by becoming internally aware of itself as such.45 In Dupuy’s account of a self-transcendent economy, “the future counterfactually determines the past, which in turn causally determines” the future.46 But by burying this fundamental feature, Dupuy says, the neoclassical theory of economics “loses its capacity for self-transcendence”47— the ability to externalize itself as an object of thought and policy. If this is Dupuy’s critique of neoclassical economics— especially its model of general equilibrium— it does not apply to modern financial theory. I have suggested in previous chapters that self-transcendence, in Dupuy’s sense, is precisely what the financial revolution enabled neoclassical markets to achieve by capturing what he calls “the loop between the future and the past.” Dupuy quotes the philosopher David Lewis to express the metaphysical position that in my view underlies financial valuation in the world arising from BSM. What we can do by way of “changing the future” (so to speak) is to bring it about that the future is the way it actually will be, rather than any of the other ways it would have been if we acted differently in the present. That is something like change. We make a difference. But it is not literally change, since the difference we make is between actuality and other possibilities, not between successive actualities. The literal truth is just that the future depends counterfactually on the present. It depends, partly, on what we do now.48 Financial derivatives provide a way to get paid for “what we do now,” as Lewis puts it, to address the way in which the future depends counterfactually on a present in which we remain free to choose based on our prediction of what the future will be without therefore believing that we can change it.49 For me, the political significance of Dupuy’s book is thus, to paraphrase Lewis, that modern financial theory reveals the conditional dependence of the financial system on counterfactual claims about what its reaction

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to different government policies would have been. My account of justice as an option is itself based on the possibility of constructing an alternative counterfactual history of what the present would have been if the past had been otherwise, so as to attach a present value to our causal inability to go back and change the past to make it so. Thinking of historical justice as an option and protecting against the inherent tendency of capital markets to destroy themselves are both political choices that presuppose the ability of capitalism to transcend (or think outside) itself; and they are examples of what Dupuy calls its “self-transcendence.” In the remaining chapters I will show that recognizing justice as an option and postponing the threatened self- destruction of capitalism, which might seem to be two separate forms of capitalist self-transcendence, are deeply connected. They may even turn out to be the same, if chapter 2 was correct in saying that financial liquidity is the choke point in political struggles over the future of capitalism today. Dupuy’s idea of counterfactual contingency, as introduced here, will thus prove useful in subsequent chapters that expand upon my claim that the ever-present danger of sudden illiquidity is the modality through which capital markets both threaten and defer their own immanent apocalypse. In this chapter I have moved from a critique of humanitarian alternatives to historical justice to the argument that finance is the site within capitalism where its power to destroy itself is simultaneously revealed and concealed as the metaphysical and moral basis of its survival. This is the paradoxical dynamic that I hope to leverage in laying the foundations for an anticapitalist conception of historical justice that is appropriate to our era. In the chapters that follow, my concern will be not merely with the resilience of that system— its ability to preserve the financial value it creates— but with its justice. To this end, I will treat the state’s explicit support of the liquidity of capital markets as a financial derivative— an option— that can be valued in the same register as its implicit decision to allow the disparities of advantage arising from past injustice to widen. To make this claim, however, I will need to develop my rationale for treating justice itself as an option in a sense that is at once financial and moral. That is the topic of the next chapter.

4: IS JUSTICE AN OPTION? My restatement of Marx in chapters 1 and 2 stressed that the production of liquidity through financialization has an internal logic that tends to widen preexisting wealth and income inequality without going through the wage relationship. To the extent that such inequality originated in past injustice, the mode of producing liquidity for financial assets has a structural tendency to compound that original injustice. But is the process of financial compounding itself unjust because it adds to, rather than merely preserving, the injustice that preceded it? This question is often sidestepped by legal scholars who stress the fact that those who have been allowed to receive the cumulative benefits of possessing property that was unjustly acquired can reasonably expect that they will continue to do so after a period of time is passed, as in the law of adverse possession. The idea here is that there is a subsidiary principle of law, that settled expectations are presumed worthy of respect unless there is a moral argument for disturbing them today that is more than a revival of ancient claims.1 But, as I show in After Evil, respect for settled expectations— extending the benefits of repose— does not always defeat arguments for rectification that are grounded in demands for historical justice. Sometimes even weak claims to retention of a windfall gain must give way: one generally does not get to keep found wealth if, for example, it can still be returned to its rightful owner. And benefits innocently derived from someone else’s accident, mistake or wrongdoing may also become subject to disgorgement. So the expectation of benefiting, often hugely, from the compounding of wealth cannot simply be assumed to be an accidental bit of good fortune that befalls those who are already rich, especially if this assumption is grounded on nothing more than a reluctance to disappoint those who presently expect to get richer in this way. To rebut my suggestion that the process of capital accumulation itself raises questions of historical justice or injustice, there must be an affirmative argument that such benefits, even when they widen

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disparities, could justly be placed on the same footing as benefits derived from existing wealth that are deserved. A common argument that it is just to retain the gains from capital accumulation is that this is the reward for taking risk with the wealth one already has. But surely one does not deserve to be rewarded without limitation merely for putting oneself at risk; if one does this unnecessarily, one should not be rewarded at all. And, in cases where assuming risk is socially desirable, the incentive for doing so could still be limited. Frank Knight’s argument, as we saw in chapter 3, was that only unhedgeable— uninsurable— risk should be heavily rewarded. Here the reward would not be for assuming risk as such, but for one’s confidence in the face of those uncertainties to which no probability can be attached. Such a faith in reflected in the otherwise unfounded confidence in oneself and in the markets which Keynes, who had read Knight, called “animal spirits.”2 Keynes’s claim is that, from the perspective of the capitalist entrepreneur (or Weber’s Protestant saint), everything is always up for grabs, and nothing is ultimately deserved except as proof that one is blessed. The Protestant ethic that lies behind the spirit of capitalism is that there is nothing wrong with being blessed, and that it can never be deserved. In extending their argument entrepreneurs to rentiers and other investors, Knight and Keynes said that that they too are rewarded, not for correctly calculating known risks, but merely for their confidence in the economic future. The economic reasoning here is that if entrepreneurs collectively lost their confidence in the future, that future would indeed be bleak and they would each lose almost everything. This argument for rewarding entrepreneurs for betting there will be a market— for taking liquidity risk out of their calculations about the future— can be extended to an argument that all investors who leave their money in the capital market deserve to be rewarded in proportion to the amount of preexisting wealth they are willing to leave hostage to their faith that others will not lose confidence. Here, the claim of the rich to disproportionate, perhaps unlimited, gains is based on how much they have at risk if the markets collapse. There are many fallacies with this rationale for allowing the rich to gain disproportionately from the overall growth of capital markets merely because they are not yet ready to panic and pull out. The most important is that investors are not like gamblers, who get to keep what they do not bet and who may need to be incentivized to bet by the promise of a windfall. In the real economy, which is not a game, the portion of one’s wealth that is to be preserved must always be invested in something; the only alternatives are spending or wasting it. But this does not mean that one invests only in the hope of hitting the jackpot and then keeping it. A rational investment portfolio can seek a balance between upside participation and downside

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protection, so that the investor will do better than average whether the market rises or falls, and thus do cumulatively better overall. A hypothetical investment portfolio in which the possibility of total loss is offset by the opportunity for unlimited gains would thus be an extreme example of the range of possibilities that modern portfolio theory elucidates, and the notion that this is the portfolio choice that capitalists as a class have made is not a plausible rationale for the windfall gains they get from rising asset markets and miracle of compound interest— especially given the willingness of government to mitigate their losses, as we saw in 2008. It may have been true at that time that those whom I have called the “suicide bombers” of Wall Street” seemed collectively willing to destroy the capital markets’ wealth by refusing to invest in them. But surely the ability of such capitalists to pose even credible threats to their own wealth is not a moral reason why they deserve to keep it. Suppose, however, we set aside claims about the rewards that capitalists deserve and say that they are merely lucky— that they are blessed. We need not think good luck is the deserved reward for having faith in the economy to believe that there is nothing wrong with being lucky. The idea that there is nothing wrong with being lucky is, after all, the rationale within capitalism for being able to keep the gains from voluntary agreements that turn out better than expected or bargained for. The common law of contracts that underlies market relations has much to say about the scope and limitations of allowing people to keep benefits arising from luck that were not part of the original bargain. It typically allows us to benefit from such winning contracts after they are performed unless there is evidence of prior mistake that would justify forfeiture of those gains, or of fraud and other wrongful acts that might justify additional compensation to the losing party. The counter-principle, however, is that we are typically allowed to get out of losing contracts before they are performed: here the party who would have won is compensated only for the cost of reliance on the loser’s promise, and is not entitled to the expected, and possibly windfall, benefits resulting from compliance. First-year law students thus learn that reliance damages are standard remedy for breaching a contract if the counterparty does not voluntarily grant a release from it for a negotiated payment based on what the remedy for breach would otherwise be. This approach to legal damages builds into contract law what is in effect an option of noncompliance before a losing contract is performed: before complying, one has the choice of compensating the other party for relying. Such an implicit option, if it were explicitly priced and purchased, would be a right to put the contract back so as to limit one’s exposure to the costs of fulfilling it.3 My point here is that the presumed right to have benefited from a lucky deal is circumscribed by the presumed right of the potential loser to limit losses by getting out of it for

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a price, even if one has not bargained in advance for the right to do so. Far from treating the lucky winners in a bad deal as being entitled to unlimited gains from its enforcement, contract law is built around the following compromise: An unfulfilled contract does not create a nonpossessory interest in the full benefits of the other party’s compliance; but once the contract is fulfilled, the winning party is generally entitled to retain the benefits of good fortune. The possessory interests created by good luck are thus sanctified by the contract process, but only because the nonpossessory interests created by an unfulfilled contract are not. A roughly similar position has been defended by prominent anticapitalist moral philosophers who call it “luck egalitarianism.”4 For these philosophers, attributing large and undeserved gains to luck alone does not make it wrong to limit them before they become vested: the proceeds of good luck in a limited sphere of social life should, rather, be viewed as a collectively available resource that can be justly redistributed to offset the inegalitarian effects of bad luck in all other spheres. The benefits of winning a lottery, for example, could be heavily taxed, as can the compounded proceeds of investing those winnings, but only for the purpose of offsetting more fundamental inequalities outside the lottery that people suffer through no fault of their own. The limit on this principle is that losers of the lottery itself would not need to be compensated by the winners. In this sense, luck egalitarianism is the true heir to the view that inequality is justified only as a reward or penalty for responsible choices to assume risk, as in the example of a lottery. Its point, however, is to show how little inequality is justified on this basis. There might, for example, be no reward— and certainly no unlimited reward— for the insurable risks of harms that have not befallen those who are lucky enough to get away without insurance.5 A further implication is that that those with insurable risks whom harm befalls should have their liability limited to the cost of the insurance. The remaining questions are what happens to the unlucky uninsured. How much additional penalty should they pay, beyond being forced to buy insurance? And how does society incentivize people to assume uninsurable risks when it is desirable that someone does so? These are different, and narrower, questions than whether some people should be rewarded without limit for being on the upside of a rising capital market and remaining in it, or whether other people should be penalized indefinitely for being at risk for downturns in a precarious economy from which they have no escape. For most “luck egalitarians,” the point of equalizing the effects of social luck— the causes of inequality for which no one is responsible— is to sidestep arguments by other philosophers that certain forms of inequality, such as political inequality, matter more than others, or that the incentives

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for making responsible and generally risk-averse choices should penalize some risky behaviors, such as addictive drug use, more than others, such as buying beachfront property.6 Their hope is to increase the pool of resources available for forward-looking justice by treating the benefits of good luck as if they can be collectively appropriated and redistributed without depriving anyone of anything that is deserved, but without thereby distorting whatever incentives the market provides to make prosocial choices. Defenders of luck egalitarianism thus believe that it is more inclusive and defensible than other versions of socialist equality that leave no role for market incentives. Here, the claim is that one should neither benefit nor suffer disproportionately from the effects of social luck alone. A less egalitarian, but more historically sensitive, approach to limiting inequality is the principle known as “beneficiary pays.” Philosophers who defend this principle, which is narrower than my view of historical justice, argue that the beneficiaries of past wrongdoing should disgorge those benefits to fund forward-looking redistributive projects, even if there are no identifiable victims who deserve compensation.7 Luck egalitarians object to “beneficiary pays” on the grounds that its historical focus could lead to results that are distributively unjust as defined, for example, by the Rawlsian principles I discuss later in this chapter. Could the restoration of ancient land rights, such as those of indigenous or conquered peoples, lead to a society that has otherwise unjustifiable levels of inequality because of the prevalence of rents that, as a matter of institutional design, might have no better forward-looking justification than feudal rents once had? But those who argue for the “beneficiary pays” principle do not generally articulate this or any other conception of historical justice as an alternative to forward-looking distributive justice: they see it, rather, as an alternative way to fund distributive justice. Some argue, for example, that “beneficiary pays” is especially appropriate in international contexts such as government-to-government reparations for colonialism, the end of which precludes treating the colonizer and the colonized as though they were a single nation-state.8 Others argue, based on principles derived from the law of equitable remedies, that the appreciated gains from wrongdoing or mistake are more traceable, and more normatively relevant, than establishing the chain of cause and effect necessary to identify specific perpetrators and make them compensate their victims.9 It may be more efficient and just, for example, to tax the beneficiaries of pollution than to identify and penalize polluters.10 There are also principled arguments, based on private law, for the forfeiture of benefits innocently obtained through the mistake or wrongdoing of others, along with equally principled counterarguments that, for example, the good-faith purchaser of stolen property should not be required to forfeit it. The difference among cases often comes from the

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conflict, discussed above, between rectifying past injustice and allowing relations based on settled expectations to continue undisturbed.11 Although I have here stressed the disagreements among some notable academic philosophers, I am addressing the diminishing number of them who are still concerned with the justice of inequality under capitalism. I share this concern but do not base my version of “beneficiary pays” as applied to financial capitalism on philosophical intuitions about hypothetical examples or legal cases that do not directly involve financial capitalism. If, for example, you were to wrongfully cut down my neighbor’s fruit tree to steal his fruit, and the fruit falls accidentally on my property, I have no general view that tells me that I, and not you, should compensate my neighbor for the literal fruits of your wrongdoing that would apply to the appreciation of financial assets; I do not see “beneficiary pays” as a principle I can apply to capitalism if and only if I am committed to applying it everywhere. But my views of capitalist inequality, and its purported legitimation through democratic institutions, do give me strong intuitions that the cumulative beneficiaries of capitalism should pay for its injustice. Because I aim to bring the realm of capital growth through asset appreciation back into the domain of justice as such, I must expound on how I understand the specific character of historical justice as an option as a contingent claim on the benefits of capitalist financialization today.

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After near fifty years of teaching and writing on Marx, I have come to understand that my job all along has been to put the option of historical justice back on the table for both academic political economy and insurgent political practice. I say “back,” for I have concluded that the ideological effect of the most influential philosophical and legal thought since the 1970s has been to remove it. I thus view my reconceptualization of historical justice as a continuation of the Marxian way of thinking— running against the grain of both liberal and neoliberal ways of thinking about the subject. By Marxian thinking I here mean the modern secular project of integrating economics and politics to realize both justice and abundance in a way that redeems or harvests value from the injustices of the past. Like most Marxists, I am especially interested in the economic and social gaps attributable to past injustices that tend to increase over time, and not in those that fade away and eventually disappear. And, like most Marxists, I refuse to be distracted from historical justice by the abstract argument that there may be some persistent inequalities that do not have unjust origins.12 My treatment of inequality in this chapter thus does not assume that inequalities are unjust per se; it is limited to analyzing those disparities

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that can be used to measure the ongoing effects of past injustice.13 To measure disparities, one first needs an ordinal ranking (hierarchy) of positions. Such rankings may be deemed to have been naturally given or exogenously imposed. Spreads are the gaps between such predefined ranks, and one generally needs a cardinal scale with which to measure them. Based on this, one can then consider the spreads among spreads, and how they change, developing numerical indexes with which to do so. Such indexes may be denominated in a cardinal unit used to commensurate divergent scales, but indexation itself can be accomplished without requiring a common denominator if some other semiotic device is constructed for coreferencing indexes that remain incommensurable.14 I see historical justice as a project that considers distinct historical moments simultaneously and sees in this overlay an index of the cumulative effects of historical injustice on the spreads among ranks in our present socioeconomic hierarchy. My understanding of how this could be done has been based on my relatively recent interest in financial derivatives, and it has led me to revisit the apparent reluctance of liberal theories of justice to address mechanisms of value preservation and accumulation through which historical injustice has been compounded and might yet be reversed. To better ground my argument, however, I need to consider the ways in which the focus of liberal philosophers on the hypothetical justice of capitalism enabled them to sidestep the Marx-inflected questions arising from its history that I hope to reanimate.15 By the time I was a student in the 1960s and early ’70s, philosophers, beginning with Karl Popper, had denounced Marxism for fostering “conspiracy theories of society.”16 Popper’s polemical point was not a denial that a conspiracy theory might prove true; he admitted that conspiracies have occurred. It was, rather, that attributing a social outcome to a conspiracy is weaker scientifically than showing that an alternative explanation could be either true or false regardless of whether such a conspiracy exists. The reason for this, according to Popper, was that explaining an outcome by reference to a conspiracy that aimed to bring it about presupposed an absence of unintended consequences of acting with conspiratorial intent, and also an absence of intervening causes that could prevent the conspiracy from succeeding. In Popper’s view, the strongest explanation of any social pattern would be to show how what actually happened would have happened anyway without intelligent design, coercion, or conspiracy. So, even if the ruling class did in fact manipulate the state to widen economic inequality, a better explanation would be one which shows that the same result could have happened without wrongdoing or nefarious intent. Mere luck— a purely random process— would in his view be a better explanation of socioeconomic

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inequality in capitalism, even if the existence of a class conspiracy were historically provable.17 Popper’s account of the advancement of scientific knowledge, which foregrounds the inherent openness of science to outside influences and the acknowledgement of past errors, is thus overtly hostile to a pursuit of justice based on who still benefits from bad history. This hostility clearly reflects his fear that attempts at historical redress will lead to totalitarian politics. But he would also have seen claims like mine, that capitalist institutions perpetuate and compound past injustice, as a version of conspiracy theory, which for him would be a weaker explanation of present-day capitalist inequality than a just-so story of how it could have arisen and persisted with no wrongdoing or malign intent.18 Popper’s project in The Open Society and Its Enemies is thus a fierce attack on theories of justice in both their ideal (e.g., Platonic) and “historicist” (e.g., Hegelian) forms as inimical to the free thought and experimentation that were in his view characteristic of both scientific communities and open democratic societies.19 Popper’s methodological strictures and political conclusions were shared by Friedrich von Hayek, who thought that coming up with cogent stories of how economic and political institutions could have evolved from human actions without being a product of human design was a knockdown argument against blaming past humans for intentionally and wrongfully bringing about such results. For Hayek it would be more mature— less primitive— to depict our social world as one that could have been an accidental outcome of human activity than to search for a malevolent purpose in the past that can be invoked to justify undoing its present state. This is, Hayek thought, what backward-looking arguments based on class analysis often do, and it is why they go wrong. For him, a social world that could have resulted from accident is the next best thing to one that is natural, and perhaps even better than a natural world, if we do not see nature itself as an impersonal process, and superstitiously believe that it is governed by the ability of gods to impose their will.20 For both Hayek and Popper, “conspiracy theories” are superstitious inasmuch as they project a presumption of omnipotence onto a few powerful, and malign, humans.21 The philosopher Edna Ullmann-Margalit interrogates the kind of “invisible-hand explanations” that Popper and Hayek purvey by usefully distinguishing between invisible-hand explanations that are evolutionary and those that are not.22 Evolutionary theories, she says, explain survival: their form of argument is that something new survives because it performs an adaptive and thus desirable function, regardless of how it originated or whether it was designed to do so. Unlike evolutionary invisible-hand theories, which are functional explanations, process-type invisible-hand theories are what philosophers of science like Carl Hempel called “genetic” explanations:

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they explain origins. Hempel’s point was that patterns, even those in the mind of a designer, cannot satisfactorily explain the origin of patterns manifested in the world because the structure and complexity of the explanation would be too similar to that of the phenomenon to be explained. For Hempel, the existence of a pattern can be adequately explained only by appealing to a mechanism or story in which the inputs are previously unpatterned, or at least less patterned. As Ullmann-Margalit points out, however, Hempel’s argument holds only if, or rather when, explaining origins “invisible-handedly” is taken to be a better “explication” of what happened regardless of whether it is the true “explanation.” An explanation pointing to a conspiracy may be true, she concedes, but it is “explicative” only if it sheds light. It may, for example, be historically provable that fractional reserve banking was invented by an Italian prince who both imagined and implemented it for his own benefit. But this accurate description of what happened as what a person did would not deter those who think it a better explication to show how it could and would have happened without that person and still succeeded. According to Ullmann-Margalit, “There is even a sense in which the fact that a cogent invisible-hand explanation proves false is felt to be peculiarly irrelevant; the fact that someone was actually smart and quick enough to have intentionally brought about the pattern in question is felt, I think, to shed but little light on its nature— indeed is felt to be almost accidental.”23 An exemplary proponent of process-type invisible-hand theories was Hempel’s student and my teacher Robert Nozick,24 who developed Hempel’s argument that, if patterns in society are the object to be explained, it is circular to attempt explaining them by appeals to preexisting patterns. The problem for Nozick is thus that explanans and explanandum in such theories are too much of the same type and level of complexity. It is this feature that makes conspiracy theories (he sometimes called them “hidden-hand explanations”) superficially attractive while undermining their plausibility as valid science.25 Nozick’s view is that arguments using patterns (like prior class structure) to explain patterns (like subsequent class structure) are inherently weak as scientific theories to the extent that the two descriptions already resemble and may even referentially entail each other. If what is to be explained is a pattern or structure, the best explanation would not invoke phenomena of the same type and complexity as the phenomenon to be explained. A better explanation would invoke what Nozick calls “processes” (he mentions “filtering” and “equilibrium”)26 to show how a structured state of affairs could and would have been produced even if it did not already exist and no one intended to bring it about. One example of a process-based invisible-hand explanation is the adjustment of supply and demand by means of price. This would also be fully explicative, in Ullmann-Margalit’s sense, because the resulting pattern could have

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arisen independently of anyone’s intention: it would be the same regardless of whether the foreordained process was known to everyone or to no one— and regardless of whether they were motivated to advance it or resist it. This, according to Nozick, is what makes invisible-hand explanations “more fundamental” than historical explanations that ascribe agency and efficacy to those who happened to benefit from previous patterns or expect to benefit from future ones. Note, however, that for Nozick, more “fundamental” does not necessarily mean more historically accurate. Nozick’s political philosophy was partly informed by his view that the class structure that preceded capitalism, however unjust, cannot be a good scientific explanation of the class structure of capitalist states. He therefore argues that an invisible-hand explanation leading to a minimal state (or “dominant protective association”) would be better as an explanation than positing a conspiracy— whether by a ruling class or in the form of an initially just social contract— and suggests that this could be true even if there really were a social contract or a more nefarious form of collusion. In this respect, Nozick’s political philosophy reflects his view that showing unintended processes at work is more “robust” against challenges than an explanation based on the hidden hand.27 But, as a mitigation of this approach and an implicit break from Popper and Hayek, Nozick also said that the truth of hidden-hand explanations is the only thing that matters for the purpose of what he calls justice as a “rectification” of the past.28 He thus ended up with a seemingly paradoxical view of capitalist inequality— that it could be rationalized, and in this sense justified, if it could have come about by accident or through the working of an invisible hand, but that it would have to be rectified (if this were not how it really had come about) by relying only on a forensic form of historical proof that holds in abeyance the scientific question of whether essentially the same result could have come about without anyone doing anything wrong.29

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I largely agree with Nozick’s view of justice as rectification, but I take exception to his view of explanation, at least insofar as it implies that historical explanations based on the agency and efficacy of those who occupy specific structural positions are inferior on moral and political grounds to just-so stories about how the same result could have occurred even if no one had the intention and the power to bring them about. Why should we be more interested in the fable than in what actually happened, provided that we have a good account of the latter? I mean this partly as a rhetorical question, but it also deserves a serious answer. The answer begins with the philosopher Donald Davidson’s point that

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giving someone’s motivation for doing something is indeed a type of causal explanation: it explains what happened as an action, and names that action by referring to the agent’s reason for it.30 This rebuts the implicit assumption in Popper and Hayek that giving someone’s reason for doing something could not causally explain what happened by showing that this assumption presupposes that what happened wasn’t someone’s action. When Popper and Hayek attack conspiracy theory for making the opposite assumption— that what happened could not have been an accident—they do not demonstrate that it could not have been someone’s action and that the responsible agent’s reason for it could not be an adequate explanation in Davidson’s sense. The point that Popper and Hayek miss, but which Nozick seems to understand, is that a conspiracy theory could be a valid explanation if it correctly names what happened as something that someone did, which to me is a way of shedding light on it in Ullmann-Margalit’s sense. This is why, I think, Nozick bracketed his own approach to the philosophy of science to open the door for rectifying historical injustice, even if it meant disturbing patterns that could have arisen without injustice. In my view, what makes a present pattern unjust is most often the history that has produced it— that is, the reasons that have caused it to occur. Such an explanation may be true or false, but it cannot be dismissed in advance as though it were not an explanation that may be more explicative in some instances than appealing to an invisible hand. Over time, my understanding of the relation between Nozick’s philosophy of science and his political philosophy has been increasingly inflected by my changing understanding of Marx. When I first studied with Nozick as a college freshman, I may have had inklings of a Marxist objection to his view. These would have been more clearly formulated by the time I reencountered him in graduate school after having written quite a bit about Marx in the intervening six years. And now, with the benefit of fifty years of hindsight, I would have an even more negative view of the political subject invoked by Popper and Hayek, who would believe that it is better not to know what really happened in the past if there is an alternative invisiblehand explanation of what is wrong in the present. There would have to be, I now think, a lot of projection of one’s own desires onto others, and a lot of introjection of their supposed desires in the self to constitute the subjectivity that would prefer to believe that what happened could have happened anyway rather than know that it was really the result of unjust or otherwise wrongful conduct. As explained in the previous chapter, I now see this subjectivity as that of beneficiaries of past injustice and wrongdoing who wish not to be blamed as if they were the perpetrators (conspirators) who brought about what happened, because they would not necessarily have intended or desired to get those benefits through such a path. For them,

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it would be morally reassuring to know that what did happen could have happened even if they had merely expected it and subsequently benefited from it without doing anything wrongful to bring it about. For me, what happened is morally relevant; and I am pleased to think that Nozick himself might have shared this concern.

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My present view nevertheless differs in important ways from those of my teachers, who are still revered as paragons of liberal thought. Today academic philosophers teach distributive justice much as they did fifty years ago: as an abstract tradeoff between the size of the pie and how equally it is sliced. They treat the existence and magnitude of such a tradeoff— the extent to which differential benefits would simply disappear if transferred to those who are worse off— as irreducibly empirical, in the sense of having to be demonstrated by economists. “What if there were such a tradeoff?” these philosophers seem to ask, as though they were still answering an academic question posed to them by mid-twentieth- century Keynesian economists.31 That question was whether the income convergence already occurring due to the post–World War II economic boom could be accelerated significantly without impeding growth.32 For some moral philosophers, and a few economists, this raised the further question of whether increased growth itself could be justified unless it made income convergence as great as it could be, and unless minimum basic needs were met for everyone. If no wealth would be destroyed by redistributing it more equally, then greater equality would be just. But if all wealth would inevitably be destroyed by being redistributed, then inequality to an extent sufficient to preserve existing wealth could also be just. Moreover, it could be just to avoid redistribution altogether if it made no one better off. The hard question for liberal moral philosophers in the mid-twentieth century was whether redistributions could still be just if they made some people worse off through no fault of their own. The question specific to moral philosophy, according to John Rawls, the most prominent of these philosophers, was which segment of the population should always benefit from redistribution even when it made some segments worse off. Rawls’s answer was that distributive justice depended on how well off the worst off would be under any proposed redistribution.33 This meant in principle that the involuntary transfer of wealth from people who were better off but had done nothing wrong to people who were worse off but had suffered no wrong could still be just. Rawls’s theory of justice is officially agnostic, however, on the question that concerns me: To what extent do the rich get richer because they are already rich? Rawls makes

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the degree of that dependence an empirical question on which the justice of continuing the present distribution could partially depend. But it would be entirely consistent with Rawls’s view to say that the compounding effect of wealth accumulation mechanisms on preexisting inequality could be explained by luck— a purely random process, in Popper’s sense. This is because Rawls’s theory of distributive justice is focused on justifying the magnitude of the gap between the best- off and the worst-off as being necessary to maximize the absolute level of basic welfare available to those who are worst off. For Rawls, this is a factual matter that could be determined by economists. If, for example, they could show empirically that the rich would choose to tank the economy, making everyone worse off, rather than submit to greater equality, then the level of inequality necessary to avoid this could be just, in Rawls’s sense. My contrasting view reflects my focus on capital markets in addition to GDP. This perspective allows me to move beyond the basic problematic that defined so much of mid-twentieth-century political philosophy: How to divide a pie more equally without making it smaller. In financial markets the valuation of assets, unlike the size of a pie, is, as we have seen, the product of a historically specific mode of pricing the option to convert those assets into cash. Pricing that option, for example, in the form of a guarantee to be able to sell an asset at its currently quoted price makes that asset more liquid, and thus more available to satisfy the discipline of payments in specifically capitalist societies. And, because options can add to the liquidity of otherwise illiquid assets, their increased availability now makes it feasible for me to think about distributive justice itself as a contingent claim on redistribution that can itself remain liquid even when the assets that underlie it are less liquid, and thus difficult to access for purposes of justice without destroying part of their present value. But the growing use of options to support liquidity in capital markets can also work against Rawlsian redistribution by giving capitalists an even greater power to veto it. As we have seen, the ultimate power that capitalists have in capitalism comes from being in a position to destroy capital markets merely by withdrawing from them, thereby bringing ruin on themselves along with the rest of society. This form of power is so large, and so peremptory, that the credible threat of its exercise would make the rest of Rawlsian theory moot: a just society would have to do whatever it takes to keep the capital markets going, as Timothy Geithner and Mario Draghi all but said in 2008. If Rawlsian efforts to encumber or redistribute financial wealth were to make capital markets illiquid, there would be much less wealth to redistribute. The capital markets are a crucial source of the class power of capitalists today, but they do not appear in Rawls’s account of the basic institutions of a just society. In the fifty years since Rawls published A Theory of Justice, the centrality

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of capital markets as a nexus between state power and class power has been almost entirely off the radar of liberal theories of justice. The philosopher G. A. Cohen reminded us that there are empirical assumptions underlying these theories that can and should be challenged by redirecting our attention, as Marx did, to the material sources of class power.34 But Cohen did not foreground the capital markets as a material source of class power, and his twentieth-century version of Marxism is not mine. Channeling the spirit of Marx, I now believe that we must now engage with the technology of financial valuation critically and on its own terms, as he did with the economic theories of his day.35 This means engaging with it as a technology for generating funds from assets through the option form.

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The option form was not on my agenda fifty years ago, when Isaiah Berlin and Michael Walzer taught me to regard distributive justice as a problem of achieving the right balance between greater equality and greater liberty. They saw these as separate social goods that were also potentially in conflict because greater inequality could result from greater liberty— a point that they thought Marx exaggerated, but which was nonetheless true. Their optimistic rejoinder to Marx was that this conflict, while logically possible, was not historically inevitable: greater liberty could also coexist with greater equality. This had indeed occurred in the mid-twentieth century as part of the “great convergence” described by Simon Kuznets, who held forth the promise of the social welfare state as an alternative to communism.36 From a mid-twentieth- century liberal perspective, the question of distributive justice was thus no longer one of revolution versus counterrevolution, but one of whether to constrain liberty, and its potential to produce economic growth, when it did not produce greater convergence in the gaps between ranks. The great liberal philosophers of the age of income convergence, most notably Rawls himself, had thus focused debates about justice on the question of whether and in what circumstances reducing income variance should be an independent concern, even when average per capita income was rising. What effect, they asked, should incremental growth have on reducing inequality to an even greater degree than Kuznets observed to be already occurring? This historically specific question underlies the debate between Rawls and Nozick, who overlapped with Kuznets at Harvard and whose major books on justice were published around the time I sat in their classes. As we have seen, Rawls argues that those least advantaged as a consequence of participating in a social order are entitled to benefit maximally from further economic growth— as though it were, hypothetically, a collective product

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to which their unforced contribution (that is, consent) is a sine qua non— a point that Nozick contested.37 There was an even deeper disagreement about social structure itself. Rawls could say that the only spread that counts in defining a basically just society is the gap between best- off and worst- off positions, because he operated with a highly abstract model of social structure in which hierarchy, a set of ranked positions, was the only morally relevant feature. His model did not concern itself with the identities of people occupying each rank, or their position in the processes of wealth accumulation as a source of power and vulnerability within the social structure. All that mattered was how large a gap between the top and bottom could be justified at a given level of economic development. Such a simplifying approach to sociology is consistent with a hypothetical scenario in which the steps would be smaller from one rung of the ladder to the next, because there would be more rungs, even though the height of the social ladder would remain the same. For Rawls, the question of distributive justice concerned only the height of the ladder— the outside spread between the top and button rungs— and not the inside spreads of all the rungs between them. His central claim, as Derek Parfit later explained it, was that the needs of the least well-off should be given priority, regardless of whether doing so would widen or narrow the pattern of equality among all others.38 But Parfit’s restatement would implicitly open Rawls to the objection that he does not directly address the question of who comes next in the order of priority. Should it simply be the nextworst-off? Or is there some point at which we should focus on narrowing some of the inside spreads, rather than bringing about greater convergence between outliers?39 For Nozick, the central question is why (in what circumstances) the magnitude of any gaps among ranks (inequalities) should matter at all. Gaps would matter, he says, only if people at each rank did not deserve what they have. Nozick argues that involuntary redistribution— the rearrangement of social patterns— could be justified for purposes of historical redress, but not otherwise. Absent a clearly documented historical crime, there would be no reason, Nozick argues, that people in the middle of a socioeconomic hierarchy who had done nothing wrong should have a new pattern of social and economic gaps imposed upon them for the benefit of the poorest. The perceived unfairness of making them pay to improve the overall pattern becomes acute, he notes, once we recognize that in Rawls’s view positional improvement for the poorest would not necessarily be funded by the richest alone, or even by the richest at all, provided that the poorest were made as well off as they could possibly be. To underscore this point, Nozick once asked in class if it would matter whether the worst- off in society happened to be “nomads” (though they

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might be refugees or even tourists) who were just passing through the society without materially affecting or being affected by its overall structure.40 Should they be in a moral position to demand what might turn out to be a complete restructuring of the rest of society if they happen to be poorer than everyone else, but not otherwise? Should we consider it just that some of them— those who traverse the social structure at the lowest income level— could potentially trigger a rearrangement of all other income spreads solely for the purpose of making themselves better off? Why should it be the case that other nomads passing through at any intermediate point between the best-off and the worst- off have no redistributive effects whatsoever on the outlier gap between the poorest and the richest, and thus no collateral effect on gaps among the ranks in between? Nozick concluded that such nomads should not be able to demand that preexisting patterns of distributions be disturbed for their benefit on the basis of justice merely because there happened to be no position in society worse off than their own. For Nozick, the morally relevant question here is both historical and counterfactual— what would have happened had the nomads not been present. As we saw in chapter 3, this is the type of question that interests Dupuy, who devotes considerable attention to Nozick’s earliest writing on it,41 and it is in no way based on a Popperian argument against disrupting patterns that might have arisen through the working of an invisible hand. Having set forth Rawls’s implicitly antihistorical conception of distributive justice, we can now return to the points in Anarchy, State and Utopia where Nozick distinguishes himself from both Rawls and Popper on the question of how historical explanation bears on justice. According to Nozick, nonvoluntary redistribution should not be based on an ahistorical standard of justice according to which a distributive pattern might be optimized to better serve the poorest. Here, the possibility that the present pattern could have happened justly is decisive. But Nozick also believes that nonvoluntary redistribution should be based on rectification of a wrong that did in fact produce the pattern. This amounts to a counterfactual conditional argument that the pattern of distribution would have been different had the wrong not occurred. Such an argument would not be trumped by showing that the same result could have arisen without a history of wrongdoing. “Justice in holdings [as claims on wealth] is historical,” he insists. “It depends upon what actually happened.” He goes on to say that “the rectification of justice in holdings” is a “major topic under justice in holdings,” but he addresses it only in a series of questions without providing answers: What obligations do the performers of injustice have toward those whose positions are worse off than they would have been had the injustice not been done? . . . How, if at all, do things change if the beneficiaries and

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those made worse off are not direct parties in the act of injustice, but, for example, their descendants? . . . How far back must one go in wiping clean the historical slate of injustices?42 Nozick does not follow up on his own questions about how far to go, although he cites with apparent approval Yale Law School Professor Boris Bittker’s vigorous approach in The Case for Black Reparations.43 The closest Nozick comes to making a concrete proposal is to briefly allude to the need for a “principle” that would “make use of . . . subjunctive information about what would have occurred (or a probability distribution over what might have occurred . . .) if the injustice had not taken place.”44 Like me, Nozick here asserts that the cumulative benefits of historical injustice are potentially measurable as a gap between what he calls declarative and subjunctive histories— between what happened and what would have happened. Such questions were very much part of the US political and legal debates following the Brown vs. Board of Education decision, which struck down public school segregation as unconstitutional. The central issues in the remedial litigation that followed Brown were whether what is wrong with racial discrimination is that it produces cumulative inequality, or whether what is wrong with cumulative inequality is that it results from racial discrimination. These were, and still are, counterfactual questions about what the present would have been if bad history had not occurred. What Nozick calls rectificatory justice is needed because counterfactual history is not causal history. Redistribution in the present cannot cause a different past; therefore, what is redistributed should be the difference in net benefits created by the past that has not been changed by recognizing its injustice.45 Perhaps influenced by the political climate of desegregation, Nozick takes the clear position that the forcible rectification of past wrong is justified, but that coerced contribution merely for the benefit of others is not.46 In the previously quoted passage on rectification, he explicitly proposes that unjust enrichment from wrongdoing, whether by the richest or not, should be entirely disgorged— a view cited with approval by advocates of the “beneficiary pays” principle discussed earlier in this chapter.47 Such a view is potentially less consistent with his own free-market politics than with my version of Marxism. Implicitly acknowledging this, Nozick goes on to concede that an important question for each society will be the following: given its particular history, what operable rule of thumb best approximates the results of a detailed application in that society of the principle of rectification? . . . In the absence of such a treatment applied to a particular

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society, one cannot use the analysis and theory presented here to condemn any particular scheme of transfer payments, unless it is clear that no consideration of rectification of injustice could apply to justify it. But then Nozick seems to recoil, going on to say, Although to introduce socialism as the punishment for our sins would be to go too far, past injustices might be so great as to make necessary in the short run a more extensive state [than Nozick otherwise advocates] in order to rectify them.48

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The manuscript of Nozick’s Anarchy, State and Utopia went to press in 1973, the year in which the Black-Scholes-Merton (BSM) formula for pricing options was published. Whether or not Nozick knew of Fischer Black,49 it is instructive to recast his critique of Rawls’s 1971 magnum opus in the then emergent language of dynamic hedging on which BSM is based. Nozick’s version of historical justice can then be restated as an open-ended liability of perpetrators, and probably also some collateral beneficiaries. In other chapters, and in After Evil, I have suggested that Nozick’s victims of historical injustice can be better described as holding a long put, limiting their future downside, whereas Rawls’s worst-off hold can be better described as holding a long call capping the upside of others. Although I believe that, in hindsight, Rawls and Nozick may have ultimately been arguing about what options people should want to hold (puts or calls), it is important to remember that they completed their major works on justice a few years before there was a generally accepted method for pricing options that can have value until they expire even when they can’t be exercised.50 It is also important to recognize that their conception of liberty as meaningful choice is not identical with the financial concept of a tradeable option. Liberty, for them, is almost certainly limited to choices that could be exercised, perhaps at a later time, but with no future contingencies attached, as there would be with an option; and it would thus correspond to what we could more comfortably call an opportunity (an exercisable option that in financial terms would be “in the money”). Because they never consider the possibility that options can be valuable without the presence of realizable opportunities, they could not have entertained the possibility of a valuable option to bring about a revolutionary redistribution of wealth, as I am now suggesting, unless there were an actionable opportunity to have a revolution.51 But the value of unrealized and unrealizable options is addressed, if only

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indirectly, by the most original moral philosopher to follow in the RawlsNozick tradition: Derek Parfit. His work, from the 1980s until his death in 2017, did much to dissolve the focus on continuous personal identity in moral philosophy, and showed how we can take a moral interest in alternative possible lives that we will not live, and in the past lives that we did not live but would have chosen based on our present knowledge.52 If we adopt Parfit’s framework, we could thus view our lives as platforms for valuing alternative future scenarios— a portfolio of options opened and foreclosed. A possibly related aspect of Parfit’s work is that its focus on the optionality of the life we live did much to undermine the focus on equality as a central political philosophy that drives the demand for greater justice. Parfit thought, as I have said, that Rawls should have simply advocated giving priority to those in greatest need— a view that Parfit thought plausible— rather than floating the idea that a more equal society is abstractly better than a less equal society unless the worst off will suffer from bringing it about— an idea that Parfit found morally implausible.53 Parfit’s view does not, however, provide a full alternative to Rawls’s theory of justice. He was, rather, concerned to reconcile the plurality of theories of justice after Rawls by suggesting that justice as a value can be replaced with a theory of valuation itself: the valuation of alternative possible lives we might (or might have) lived; of the alternative possible lives that others are now living, and of the ongoing moral importance of being a valuer to the unfolding value of our lives.54 As I briefly mentioned in chapter 3, Parfit eventually called his moral philosophy a theory of “what matters,” and described what I call valuation as a matter of “mattering.”55 So, from Parfit’s standpoint, justice doesn’t necessarily matter except when it does, and mattering is what always matters. For him, even personal identity, in the sense of bodily continuity, matters to persons for different reasons and in differing degrees. On What Matters, Parfit’s magnum opus, thus seeks a higher ground from which to compromise between deontological philosophers like Rawls and Nozick, for whom the irreducible distinctness of separate persons bars involuntary interpersonal transfers of utility, and consequentialists like the nineteenth-century philosopher Henry Sidgwick, for whom valuation is a matter of ranking choices on a single commensurable scale. Parfit viewed moral argument as a matter of valuing incommensurable lives (not necessarily one’s own) that are to be seen as on a par in the sense that we could choose either way, but not equal in the sense that we are scoring them on a single scale so that the slightest improvement in one of the scores would tip the balance. By setting alternative life choices on a par— whether one is thinking about incompatible future versions of the same self or present instances of separate selves— our choice between them will not be based

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on discovering further features of the alternatives that tip the balance, but on the fact that one must be chosen rather than the other, under conditions of uncertainty. Here the choice itself, and not the evidentiary basis for it, will be what really matters: selection is an act of valuation. Parfit’s foregrounding of the act of selection itself fits the ShannonWeaver definition of “information” as the selection of a message from among possible alternatives.56 Living a life— learning from experience— can thus be viewed as a system for processing the new information that would not have existed but for the prior choices we made. Parfit himself does not develop this cybernetic perspective, which was part of the intellectual milieu in which he wrote, but its central features were summed up by a scientist who retheorized evolutionary biology as a system for processing information and thus learning from experience. “This word, ‘information,’” she says, quoting Claude Shannon, “. . . relates not so much to what you do say, as to what you could say. . . . Without this element of potential variety and uncertainty about what will come next there is no transmission of information.” She then quotes the communications theorist Colin Cherry: “To set up communication, the signals must have at least some surprise value, some degree of unexpectedness or it is a waste of time to transmit them.”57 Note that her definition of information itself, as a measure of the unexpectedness of choice, means that the choice itself creates information precisely to the extent that it is not the product of stored information. This is why in options theory, as in evolutionary theories more broadly, the inherent stochasticity (unpredictability) of choices provides the new information that allows choices to be ranked in order of priority, so that the gaps between ranks can be measured and their changes can be valued. The capital market is in this respect a medium for communicating contingency that creates order out of randomness and thus allows value to be stored— or so says Elie Ayache, who is more conversant with this mode of thought than I am.58 The convergence of the dominant ideas in information science with those in finance in the late twentieth century helps explain why for Parfit, and for philosophers influenced by him, the actual occurrence of choice (our having had to make one) is indispensable to the valuation of possible lives, both past and future.59 Building on Parfit, the legal philosopher Ruth Chang has developed a theory of “hard choices” in which she constructs a kind of parity between future scenarios that can’t be described as equal in the sense that if they were, an infinitesimally small change could tip the balance between them. Her major theme is that one’s valuation of life choices will often be partly backward-looking: a narrative account of how and why the choice has mattered in the kind of person one has become, and not merely an assessment of whether the forward-looking predictions on which the choice was based

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have panned out. The narrative here would partly revolve around what I would call the value added in one’s life by an awareness that the path chosen was one among other possible lives one could have lived. Chang’s frequent example is her own career choice between becoming an academic philosopher and a practicing lawyer, paths she regarded as incompatible at the time. What would give either choice its value was not, she says, the accuracy of the predictions she could have made in advance about how it would turn out, but the narrative interpretation she will have constructed in retrospect of the life arising from a choice. Chang thus concludes that the choice between incommensurables must actually have occurred, for existential reasons, for the life that followed to have mattered.60 There is no mention of options theory in Chang’s account of moral valuation. As a professed existentialist, she prefers going all in to being hedged. But there is a parallel between her idea that choice (optionality) as such adds value and the valuation of risk-neutral options in BSM, which is also based what they would be worth if we hypothetically value all future bets on the direction of the market at par. Parfit and Chang, in their focus on valuation and mattering as such, illustrate in a different register how people can be given options that are valuable even when detached from the opportunity to exercise them. Since 1973 this mode of thinking has mostly worked to the detriment of programs for distributive justice. Such programs have been portrayed as illegitimately rigid efforts to reach a degree of historical closure that is incompatible with logics of scenario planning which are continuously sensitive to new evidence in a world of constant change.61 When discussions of justice are raised at all, the political point, as my late colleague Randy Martin often said, is generally to prove that “we are never the right people for historical justice or that it is never the right time, or (usually) both.” The force of his comment is that justice will appear within the intertemporal logic of finance to be an option that the people we happen to be will lack the capacity to exercise at precisely the moments when it most matters. If justice has no present value, why not take it off the table and, following Nussbaum, focus instead on building our capacity to make better choices based on the best information available to us? Based on the ideas of Sen and Nusbaum, discussed in chapter 3, much policy aimed at the “developing” world is now designed using agent-based theories aimed at making people “better choosers” regardless of their level of “human capital.”62 And in “developed” countries, the response of institutions to protests against injustice has been to urge protesters to adopt a more realistic, evidencebased reevaluation of their options. The idea behind this pitch is that the more people believe (with good evidence) that history is against them, the more they should be willing to cash in their potential upside in return for

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mitigating their downside risk. One might even say that in deindustrializing capitalism, the class division is now between those trying to hedge against their economic decline and those who are willing and able to sell them these hedges in return for taking a call option on a rising portion of the upside.63 The short-term problem is that they are made to pay more and more for an protection within an ever-narrowing band. This is the view that my claim that justice is an option attempts to supersede.

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Although I may not be the first to transpose questions of justice into the register of options theory, I here announce my break with predecessors in the liberal tradition. My project as a Marxist is to restate the question of justice not as a tension between equality and liberty, but in terms of options that can be increased in value through political and social struggle that goes beyond helping people to make more realistic choices based on how little value they now have. The core idea of my project is that, now that options can be directly valued, we no longer need to speak of a conflict between equality (spreads) and liberty (choice). We can now speak, as we do in finance, about how a currently unexercisable choice still has “time value,” which is greater the more time remains and the higher the volatility that is expected to be during that time. Such a conceptual reframing can take us beyond the twentieth-century distinction between equality and liberty as competing social goods to a unified and historicized account of value itself as the cumulative product of past injustice as it affects present choices. My distinctive approach begins with Randy Martin’s insight that financialization has become an organizing metaphor and worldview for describing our present way of life in much the way that commodification once was.64 He showed that optionality— the hedging of one’s life portfolio by making “better choices”— now functions, even at the level of everyday life, as a category through which financialized subjects, as distinct from merely commodified subjects, negotiate the relation between increasingly unwaged labor and the marketing of consumer products that both substantiate and presuppose one’s creditworthiness. Sometimes merely purchasing these credit-based products can establish the future creditworthiness of the purchaser. (Taking on additional debt for homes and cars, for example, can increase the purchasing power of consumers even as they drain disposable income.) There is thus a frequently noted “tendency of finance to penetrate and subsume economic activity and social life as a whole . . . in its voracious quest to permeate nonfinancial domains that it can then data-mine to create new financial products.”65 Today, establishing creditworthiness has becomes a primary objective of those who borrow to fund consumption,

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and gathering such information becomes increasingly central to the business plan of lenders for whom financial data is a by-product of lending that can be sold or licensed to other businesses that aggregate it.66 All this constitutes what Martin calls a “derivative sociality,” as discussed in the preface to this book. In today’s financialized conception of human subjectivity, “financial man” is less like the owner of a single specialized skill (as in Foucault’s conception of Homo œconomicus),67 and more like the investor in a diversified portfolio of assets that hedge against exposure to particular market risks and must be rehedged as the risks change. Here, as in portfolio theory more generally, the added value of optionality is paramount: it is only by having options that “financial man” can hedge against adversity, and thus remain liquid when others fail. The financial theorist Emanuel Derman expresses the added value of optionality by saying that time and the right to choose are worth money. That is, they can be expressed quantitatively in terms of an amount of money, which is the price of the option that would give one time and the right to choose.68 I read Derman’s point as an explanation of the paradoxical way in which Marx states his general formula for capital. In capitalism, Marx says you can make money by investing money (M-C-M1, where M1 > M). The paradox, as we saw in chapter 1, is that you cannot explain the existence of surplus value in terms of an opportunity to buy and sell the same commodity (C) at two different prices (M and M1) simultaneously, because this would violate the nonarbitrage principle on which capitalist finance is based. When restated in the register of Marx, Derman’s lapidary description of the option form shows that value can be added in M-C-M1 if C includes an option that adds liquidity to one’s portfolio. This added value comes from extending the time in which there is still a right to choose— a right that can itself be cashed out at any moment in the meantime, or rolled over to further extend the present expiration date.69 As I’ve shown in chapters 2 and 3, this is an important supplement to, or revision of, productionist versions of Marxism that ground surplus value in the exploitation of abstract labor time. My argument since chapter 1 has been that what Marx calls the “realization” of relative surplus value harvests some of what Derman calls the financial surplus of heightened optionality.70 What is relevant in Derman’s account is thus not choice per se, but the valuation of choice— which depends on how much extra time one has to make it and the degree to which the spreads, or differences, among the alternative outcomes will widen and narrow during that time. This means that liberty and equality, which were described as incommensurable values in the political thought of my liberal teachers, can now be co-referenced without being commensurated by means of a financial derivative the price of which measures the sensitivity of the present value of preserving

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choice— the liberty to choose later— to changes in the volatility (variance) of one or more indexes of socioeconomic inequality. The extent of inequality and its volatility, both of which are affected by political instability, thus enter into the value of “buying time” in which to choose, as reflected in this index-based derivative’s price as it would be in the price of any security that completes the market by allowing future possibilities to have a present value.71 The present value of having more time in which to exercise the right to choose can now be more precisely described as having an option to choose later when the relevant spreads will be greater or smaller and their expected future volatility will also have changed. According to Derman, options-pricing theory is ultimately based on the intuitive point that the present value of making a choice later, rather than now, will depend on how widely and suddenly future scenarios are expected to vary. This means that the value of postponing choice today (preserving optionality) does not depend merely on how well it hedges us on the expected returns for occupying a particular position, such as that of owners of particular financial instruments, or of human capital such as a skill or professional qualification. It also depends on how well our purchased option hedges us against changes in the volatility of spreads— what Derman calls “the volatility of volatility” itself.72 His emphasis on volatility— not as a constant, but as something that is itself volatile— is the most important development in modern finance theory after the publication of the original BSM papers in 1973. Today, thanks to Derman’s work as codiscoverer of the “volatility smile” in 1994, the market in options is widely understood to trade volatilities.73 It followed from this work that, instead of taking volatility as a given parameter and solving for the option price, one could take the market price of the option as given and solve for the expected volatility that would retroactively make the pricing formula true. This would retroactively construct price movements as having been an effect of the expected volatility changes that the options pricing theory purports to measure. BSM, as glossed by Derman, therefore allows us to isolate the value added by optionality itself as a product of the unexpected changes in expected volatility—and thus what Derman calls the volatility of volatility itself. In this sense, financial theory externalizes and trades its own internal doubt about its risk models. It thus achieves what Dupuy calls “selftranscendence”: a reflexive awareness of the paradoxical effect of our predictions of the future on what the future will turn out to be. Derman thinks this problem reflects the difference between having a scientific theory of the world as it is and merely making models that compare it to something else. The danger in acting on predictive models of the future, he says, is that our own actions will make the model’s predictions false— something

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that would not be possible if we were acting on the basis of a causal theory that is simply true. So when financial traders price the volatility of their own expectations of volatility, they are really trading on their doubt about their models— what Derman calls “model risk.”74 Derman’s overview of modern finance theory thus provides a vision of how valuation arises from the future uncertainty that comes from constantly updating our data about the past in order to revise our assumptions about volatility in the future. The uncertainty is, ultimately, about whether and in what degree the future will be like the past. The key takeaways from his account are as follows: •

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The more you now know about what past risks were, the more you realize how much of what has happened could not have been expected. Finance and experience teach that the unexpected is the only thing that will happen for sure. New information is constituted by what is unexpected in the data— but, because of the inherent stochasticity of surprise itself, there is always the danger in mistaking the message conveyed by new information for randomly occurring noise. The more data you have, the more you will seek; and the more protection you will need from the possibility that that it will produce unexpected new information, and from the difficulty of distinguishing that new information from noise. The greater your demand will be for a hedge against your growing uncertainty about whether the future will be like the past, the more incentive there will be for someone on the other side of such a transaction to price that hedge. So, coming full circle, data is the medium for valuing one’s options given the anxiety or uncertainty about the future that data itself creates because it is always about the past.75

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We can see here what effect fifty years of financialization have had on the libertarian subject that Nozick presupposes in Anarchy, State and Utopia. That subject is no longer primarily driven by fear of coercion— and a consequent desire for what Isaiah Berlin in the 1950s called “negative liberty.”76 As a consequence, political philosophy is no longer dominated by what Berlin saw as an ineliminable tension between such liberty and greater equality. Instead, we have a concept of optionality that largely comes from outside political philosophy and is, broadly speaking, about the changing value of preserving choice. Today, options pricing theory allows us to assign value

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to our right to choose— what Berlin Nozick called “liberty”— which could at first approximation be calculated as a derivative of inequality— now defined as an expected variance from which a volatility (standard deviation) can be calculated, as it is affected by the expected volatility of that volatility. Put more directly, the extent and rapidity of changing expectations about underlying inequality will affect the present value of liberty— which is the right to commit to something later— and will explain why that value fluctuates over time. For the option-valuing subject for whom choosing now or later remains the overarching question, it is thus important to know how much time remains, and the direction of underlying drift in the situation.77 From my perspective, the option-valuing subject is not making an unavoidable tradeoff between the irreconcilable values of liberty and equality, but is, rather, paying or receiving the present value of deferring and possibly avoiding such a tradeoff. This added value, according to Derman, comes from the differential ability to benefit— and to do so exponentially— from significant changes in the volatility of market prices, without having to suffer from such changes. It is this differential ability to derive value from choice, based mostly on financial theory itself, that explains the exponential widening of economic gaps that scholars such as Thomas Piketty and Anthony Atkinson have documented empirically.78

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My approach to financing greater justice in the following chapter refuses to lock in present degrees of inequality and income rankings. I therefore problematize rather than presuppose the continuing stability of the financial institutions. This is why my stress throughout has been on market liquidity and the price of maintaining it. The aim of my post– Rawlsian/Nozickian/ Marxian approach to social justice is thus to restore it as a political option (in the ordinary sense of the word) by allowing actors in the present to redefine it as a contingent claim on the wealth of society that rises in value when the assets in which it is held become less liquid. My approach is not, however, reducible to regarding historical justice as a final settlement, a liquidation, of claims on the cumulative benefits of past injustice. I am not calling for a one-time cash payout, and thus to reopen questions about whether previous gestures of reparation toward historical victims should, because they were accepted, have been considered payment in full. Rather, I see these cumulative benefits as the result of not having settled historical claims for their liquidation value, and instead having allowed them to compound. These benefits are a collective product, but not in Rawls’s sense of being the outcome of an agreement about how to distribute the benefits produced by deviating from strict equality to stimulate heightened productivity.79

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They are, rather, the result of a nonrevolutionary peace in which the question of disgorgement by beneficiaries has been indefinitely postponed while remaining an option. Here, of course, I am playing with the semantic ambiguity, noted earlier, in the concept of optionality itself. But the fact that justice is optional in the colloquial sense also means that it can have value as an asset in the technical, financial sense. This is true even, perhaps especially, when historical settlement would threaten the liquidity, and thus reduce the value, of other financial assets.80 For me, the optionality of justice in this dual sense is an essential feature of capitalist democracies, which can make the present possessors of capital pay a political price to maintain the valuation of their accumulated assets, especially when these assets are themselves increasingly held in the form of financial derivatives. This means that the deferral of justice is intrinsic to the practice of democracy, and becomes meaningful to the extent that democracy can extract a price for that deferral. In chapter 5 I will show how the option to “put” historical injustice can be priced in a nonrevolutionary or prerevolutionary situation. This question is most relevant to situations in which capital markets persist under conditions of uncertain liquidity, and in which the political risk to financial markets is inevitably heightened.81 If justice is indeed an option under state-backed financialized capitalism at the very moments when it demands austerity, then the question for a Marx-inflected politics is how to raise its value as an option. Chapters 6 and 7 will take up this question.

5: JUSTICE AS AN OPTION In an age of financialization we have new ways to describe historical justice, dynamically, as an option that has a present value even when it cannot be exercised. The statement that historical justice is an option has two colloquial meanings: that historical justice can be done, and that it does not have to be done. A further meaning made available by modern options theory is that the option form is now a possible metaphor for historical justice: that historical injustice purportedly confers on those presently disadvantaged a claim analogous to what financial economists would call a conditional (or “state-contingent”) right to “put” that injustice back to its present beneficiaries. Extending this metaphorical comparison, we can also say that this kind of claim— a put— becomes more valuable when things are going worse for the beneficiaries of historical injustice. The basis for my analogy between an actionable historical injustice and a financial put option was first suggested in my introduction to this book: an investor who buys a put option to sell a stock for one hundred dollars when its price is equal to or higher than that amount acquires the right to sell that stock for one hundred dollars in future states of the market when its price falls below that amount. By purchasing this put, this investor stands to lose less in falling markets than investors with full exposure to the stock’s declining price. The seller of the put will have collected extra cash, the premium paid, but will have assumed a liability to compensate the buyer for any further losses if the stock price falls below one hundred dollars by, in effect, promising to buy the stock for one hundred dollars regardless of how far it falls, and regardless of their own exposure to losses on the stock. Such a nonvoluntary transaction could be considered to be forced, and thus illegitimate, were it not for the historical existence of the put itself. In my analogy, the beneficiaries of historical injustice would be considered to have illegitimately extracted an extra benefit— the premium for a put. This cannot be undone, but which is created to compensate those who paid this premium for all future losses below a baseline even when the beneficiaries

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of the original injustice are suffering even greater losses. In my analogy with options theory, such a put would tend to rise in value at those moments in which the fortunes of beneficiaries of that injustice are in decline. In this way, at long last, but only under some scenarios, the victims of historical injustice would be sure to derive material advantage from it. But this put, like a financial option, could still have time value in situations where the payoff is not triggered. In many situations of heightened market volatility, and in all situations of market decline, the put option will be worth more than it was before— which means that the beneficiaries of historical injustice would have to pay a high price to buy it back. So, a claim to historical justice would resemble a put option in at least a metaphorical sense. My stronger claim, however, is that historical justice can be continuously priced like any other option, and that collecting this price when it is high, and driving it up when it is not, is a tangible way for justice-seeking subjects to derive benefit from bad history without waiting for a revolution. By showing ways to price historical justice as an option, this chapter takes up the task of showing why my claim that justice is an option is more than a metaphor. Before I go into greater technical and empirical detail, let me explain the broader relevance of what follows. The question of historical justice— the topic of this book— is whether, when and how ongoing victims of past injustice can eventually come to benefit from it. Could they, under some scenarios, automatically put it to its present beneficiaries as a forced transaction, and under a broader range of scenarios extract present value from the possibility of doing so someday? What I here call putting the injustice must remain, for now, a metaphorical expression of the notion that those who have been able to leverage and run up unjust advantages incur a downside liability that would magnify their losses disproportionately, so as to mitigate the losses of those who were relatively disadvantaged by their rise. I nevertheless believe this metaphor captures an important aspect of the overhang of bad history. For example, it implies that, from those who are permitted to run up unjustifiable gains, even more could be legitimately taken— and that it should be taken at a time when they become less able to pay, and might otherwise argue that their historical victims should accept austerity. Unlike Rawls, who saw distributive justice as a forward-looking cap on how much the better- off should benefit from inequality, whether it was originally just or not, I view unjust inequality as intrinsically historical. By this I mean that its originary and cumulative character are co- constitutive: that the foundational wrong occurs with a forward-looking view of its future cumulative effects, and that the magnitude of those effects can make that injustice even worse, looking backward, than it was originally. Such a forced transaction occurs in the financial markets whenever a long put goes “in the money” and can thus be exercised; it occurs in political systems on

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the rare occasion of a revolutionary seizure of accumulated wealth. In this respect, my notion of historical injustice as a long put is simply a metaphor for revolution. But it is also possible for the implicit sellers of that put, the beneficiaries of historical injustice, to buy it back in order to reduce the danger of suffering additional losses in a falling market and having to compensate those other losers who are protected by the put. Once we consider the possibility of buybacks, we have moved beyond a mere analogy between a claim against the benefits of historical injustice and a put option as it is understood in finance. We are no longer saying that one is like the other and are now talking more technically about the price at which the option can be cashed out. If, as I will argue, historical justice has a present value that continuously fluctuates and can be paid at any time, then in this respect it is not only like an option— it is an option. This is so not merely because its changing value is a derivative of changing volatility, both macroeconomic and political. It is also so because there are now financial technologies, based on options theory, that could be used to design vehicles redirecting the flow of funds, collateral, and risk that could operationalize and implement historical justice as a project for harvesting the ongoing benefits that arise from injustice in the past. My argument in this chapter that historical justice can be priced as an option turns, however, on a point that has been stressed in previous chapters: the dependence of capital accumulation on the continuing liquidity of financial assets. Liquidity is a sine qua non for the existence of a capital market, but in ordinary capital markets the liquidity of a financial investment is not guaranteed. This is because another sine qua non of a market is that a buyer of an asset is exposed to both downward and upward fluctuations in its price, and that a seller sheds this exposure. The normal relationship between buyer and seller in a market for commodities is thus predicated on the absence of liquidity guarantees. Such guarantees can, however, be bought and sold in a capital market by paying a premium. What it means for there now to be a developed capital market is that these guarantees can themselves be priced and purchased separately as assets for which there is also a market. Full liquidity in the purchase of an asset can be guaranteed, for example, by an asset repurchase agreement— the right to sell it back for its original purchase price. But locking in an asset’s price through a repurchase agreement or put is not the only way that capital markets can remain liquid. There are also dealers and traders who can provide “inside liquidity” to an asset market by being willing to sell when others are buying, and to buy when others are selling. Because they are indifferent between buying and selling, provided that they can do so at different prices, they can collect a spread between the bid and ask prices. Being able to profit from an arbitrage on the relation between two prices makes it unnecessary for these market makers to provide

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liquidity by guaranteeing a single price for which they would have to charge a premium.1 But, as we have seen in earlier chapters, the collapse of liquidity is accompanied and sometimes defined by the flight or failure of such market makers. This, in the absence of some other guarantee, sends asset prices into free fall for lack of a buyer at any price. Such downward spirals can be ended when a very private banker, such as J. P. Morgan in 1907, steps in to set a floor on falling prices, or when the government provides “outside liquidity” to asset markets— for example, when the Fed steps in to purchase debt instruments that would otherwise have no other buyers. The idea is to “restore confidence in the market” by giving other potential buyers something they did not previously have— the right to put (resell) their purchased asset to the Fed at a predetermined price.2 By providing outside liquidity, central governments can often reverse the collapse of asset prices, no matter how “bubbly” they may have been. But for mainstream economists, the stated reason for preventing a “fire sale” of assets is rarely, if ever, to preserve the wealth of those who currently hold it, or to protect them from the risks for which they should have already been rewarded according to the efficient market model (EMM). The stated policy reason for preventing fire sales is, rather, to avoid economic “contagion” and its distorting effect on credit markets— and, even more important, the distortions in the market allocation of productive assets if every investment in them were to be priced at its liquidation value in a falling market.3 But, because the government promotes these apparently laudable goals by means of supporting asset prices, the expected effect of providing a liquidity guarantee will be to prevent the large-scale disaccumulation of existing wealth— a fact that should make it politically controversial. The major economists who now endorse measures such as those taken by the US government in 2008 assume that government cannot ultimately refuse to enact them, but they often warn that politically motivated delays will feed market uncertainties and thus drive up the eventual public cost of stabilizing capital markets. Politicians seeking cover to support such policies can then invoke these warnings from eminent economists to blame those who would dissent from a government bailout for further panicking unstable markets and thus making a liquidity crisis worse. This self-serving argument is correct as far as it goes: if there are dissenters to a bailout, their objections will raise the likely cost of a bailout by posing further threats to capital market liquidity. But whether this is good or bad depends upon who pays, and who gets paid, the higher cost of preserving the liquidity of accumulated wealth. The remainder of this chapter suggests ways— both technical and public— for dissenters to challenge the assumption that the public must pay that cost, and to argue that the capital markets should pay a premium

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for the put it receives from government to restore market liquidity. That premium need not take the form of cash; it could be a financial asset, such as a long call, that appreciates in value as markets rise and thus constitutes a growing claim against accumulated wealth. The rising value of a long call during a market recovery and rise could be used and even leveraged to fund the reduction of social inequalities that capital market growth normally exacerbates. From this perspective, treating historical justice as an option would be much more than metaphorical— it could also provide a strategic blueprint for responding politically to liquidity crises at precisely those moments when the financial system sees its own vulnerability as a reason to expect austerity from everyone else.

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The strategic opportunities that I see are not confined to potential liquidity crises that arise directly from political upheaval. Other “shocks,” such as earthquakes, droughts, and plagues, can trigger liquidity crises without being seen as outcomes of political struggle. No matter what initially disrupts the inside liquidity of capital markets, the provision of outside liquidity by the state will require political support and/or intensified repression, and thus introduce a political risk that the state will refuse to act, or that it will not act in time. The possibility that the state might fail or only partially succeed in its efforts to backstop capital markets introduces a further element of political risk. To the extent that the provision of outside liquidity to capital markets by government must carry elements of political risk, there will be opportunities to leverage this risk to strengthen demands for historical justice. And, as soon as such opportunities are recognized, there are likely to be countervailing threats of a capital strike that would further tank the markets. Why shouldn’t justice-seeking subjects simply call this bluff and dare capitalism to self-destruct? Such a response may well succeed in some circumstances. But is too easy to assume that a capital strike is impossible in any circumstance because it would be against the interest of capitalists. They may have more resilience to a politically induced economic crisis than justice-seeking movements and the victims of injustice they support. The capitalists are, thus, not the only ones whose bluff might be called. More fundamentally, however, any plausible threat to destroy something by powerful forces that manifest a willingness to destroy themselves requires deeper analysis. Is capitalism’s potential ability to bring about its own destruction a sign of weakness, or the basis of its strength? When I said in chapter 2 that the threat of capital strike is the financial equivalent of suicide bombing, I meant to leave open the question of whether the bombers would go through with it. Perhaps they understand, at least implicitly, that their

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enemies are the ones who in the final analysis will make whatever sacrifice it takes to preserve the capitalist system, and that this is why and how it survives. This conclusion is likely to prove false in the final analysis— capitalism cannot survive forever— but it is hard to deny that capitalism has thus far held off demands for historical justice by revealing that even its most vocal critics are not ultimately serious about wanting to replace it. This would probably not have been true of Marx himself. While we cannot be sure what he would say today, in his own time he would have taken it to be a positive effect of labor militancy— and a sign of its success— that it accelerates the self- destruction of capitalism by provoking capital strikes that would devastate the financial sector first. For the Marxists who immediately followed, provoking a capital strike would have been one way in which a general strike— or the heightened possibility of one— could weaken capitalism and lead to revolution. This is partly because they would have shared Marx’s view that purely financial wealth is inherently “fictitious,” and that its destruction would thus harm no one other than those capitalists who falsely believed it to be real. My update of Marx in chapters 1 and 2 of this book rejects his description of all financial assets as “fictitious.” Immaterial forms of wealth, I argue, can play a central role in the materiality of power relations, and the link between their valuation and their liquidity is an important way in which this happens. But my rejection of Marx’s account of “fictitious capital,” as it applies to most financial assets, accepts his underlying insight that its valuation is contingent on its liquidity, while adding that we now understand, better than Marx could have done, how reproduction of financial liquidity is itself politically contingent. My specific contribution, especially in this chapter, is thus to draw out the strategic implications of understanding the political reproduction of financial liquidity as a choke point in the system of capital accumulation that makes it vulnerable to sabotage both by justice-seeking movements and by capitalists seeking to defeat them. One strategic implication is that, if even less than credible threats of capital strike can still win out over demands for historical justice, the reason is that capitalists have their fingers on choke points of illiquidity and that justice-seeking subjects do not. This is why I see the politics surrounding liquidity reproduction as a new site of macropolitical struggle, and why I regard the identification, extraction, and appropriation of a financial premium for preserving capital market liquidity as a reasonably effective and relatively stable way to redistribute some of the wealth out of which that premium itself can be paid.4

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The political strategies I suggest would oppose a view that is widespread, even on the left, that historical justice is something we cannot afford, and

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that austerity is our only alternative. Austerity, from my perspective, is a political program based on the assumption that the option of historical justice has a present value of zero. If this assumption is true, then financial liquidity is purely an infrastructural good that government could choose to provide at little or no cost to the financial sector, using a rationale similar to that of providing free roads to the driving public. Yes, it’s a type of subsidy for a segment of society, but the imposition of user fees, if any, should be driven by considerations of efficiency rather than of justice. To me, however, it is fundamental that government provides to financial markets the good of liquidity by guaranteeing the value of the assets that embody the present accumulation and distribution of wealth. This is not merely useful infrastructure for which a user fee might or might not be charged. The very fact that the government’s asset guarantee includes the appreciated proceeds of historical injustice bears on whether the beneficiaries of that guarantee should be made to pay a premium for receiving it. It also bears on who should benefit from the government’s insistence on collecting that premium. The benefit should go to those who would otherwise be further disadvantaged by the perpetuation and compounding of historical injustice— for example, by shrinking socioeconomic gaps that originated in past injustice and which will otherwise widen as asset markets recover.5 My strategic answer to the politics of austerity is thus that, at the peak of the liquidity crisis of 2008 the option of justice was clearly worth far more than zero, and that its value was rising while its enemies were campaigning for austerity as the only alternative to financial collapse. When they suggested that historical justice was worth nothing because of capital market illiquidity, they were thus deflecting a political dynamic in which threatening liquidity would make justice be worth more. My strategic response is to identify and advance that political dynamic. I am here proposing that democracy, when it is not just a technology for manufacturing consent, is an arena for the continuous repricing of the option of justice in a class-based society that is continuously deferring an event of sudden disaccumulation that could come about in many ways, including a revolutionary abolition of capital markets that aims to wipe out accumulated wealth. To implement such a strategy, however, I would need to derive the present value of justice as an option to financial value that is already known, or is discoverable, in today’s financial markets.6 I have thus been using the idea that revolutionary justice would abolish capital markets as an analytical tool for defining a paradigmatic break from the state’s role in supporting capitalism that causes the sudden illiquidity of financial markets, thus destroying all wealth accumulated in financial form. I here treat revolutionary disaccumulation not as justice achieved, but as the conceptually necessary limit point in my argument that preventing disaccumulation through illiquidity— and thus rolling over the option of revolutionary justice— is

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equivalent in its financial value to another option: the option of guaranteeing liquidity, a discernible value that can be approximately priced.7 My immediate reason for doing this is that the value of providing a government guarantee for the liquidity of financial markets— the macroeconomic liquidity premium—has already been approximately calculated by a group of eminent financial economists, including Robert C. Merton, who shared the Nobel Prize for coinventing BSM and applying it to microeconomic questions. The most rigorous of these discussions point out that Merton himself began applying contingent claims analysis (CCA, which is another name for options-pricing theory) to government guarantees of bank deposits as early as 1973; and that, since then, it has always been feasible to use CCA to price other government guarantees against macroeconomic risk. Merton and his collaborators believe that government’s liquidity guarantee was necessary in 2008, but acknowledge that the CCA used for pricing liquidity guarantees throughout financial markets would have justified charging a very high premium for guaranteeing the liquidity of those markets, the value of which should have appeared as an asset on the government’s balance sheet to offset the very real liability it assumed in making that guarantee. If the government had charged the correct premium for its guarantee and booked it as an asset, the liquidity put would in theory have had the same macroeconomic effect on financial markets. That is the point of CCA. It could, however, have yielded far greater benefits for ordinary citizens, whom these economists tend to categorize as either “consumers” or “taxpayers.”8

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As an outsider who reads the CCA literature, my main contribution is to interpret in strongly political terms— in the language of justice itself— the idea of a macrofinancial intervention to support liquidity and stabilize asset prices. This means taking seriously the claim of these financial macroeconomists that the risk of aggregate illiquidity can be priced and consequently hedged— that there is what they would call a macroeconomic liquidity premium— and that the value of that premium will rise sharply, exponentially, with capital market volatility. But it also means taking more seriously than they did the possibility of harnessing political controversy over government-provided liquidity guarantees to require that the liquidity premium be collected by government, and that it then be used by government to mitigate the perpetuation of historical justice that results from accumulated wealth.9 The CCA approach is rooted in an earlier concept of a “complete market” that was introduced by the economists Kenneth Arrow and Gérard Debreu

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as part of their seminal reformulation of general equilibrium theory in the mid-1950s.10 A complete market is one in which “every possible state of the world, past, present and future,” has “a financial payoff associated with it to which a price could be assigned in the present.”11 In such a market, it would be possible to buy accurately priced insurance contracts against any future eventuality— including illiquidity and revolution— however unlikely it might seem. Insurance contracts like these— sometimes called “Arrow-Debreu securities,” after their originators— are described as being “state-contingent” in finance literature. This is because their value fluctuates with new information that changes the projected probability of contingent future events. In effect, these securities are ways of pricing that probability from the standpoint of a hypothetical trader who would be equally willing to buy or sell the security, depending on its price. As the Nobel laureate James Tobin put it, Arrow and Debreu encompassed the uncertain future within the friendly confines of . . . general equilibrium. They simply multiplied the number of commodities to be traded by specifying the date and the contingency— “state of nature”— in which each good would be delivered. They also assumed each agent to have a vector of endowments of commodities so defined and a utility function over such commodities. At the beginning of economic time, a single market in these commodities, i.e., in contingent futures, determines everything: the famous Walrasian auctioneer has a big job finding the equilibrium, but he has to perform only once. . . . Once all the contracts are made, economic life is simply the routine of fulfilling the contracts as the specified dates and contingencies occur.12 A journalistic account of the financial revolution that followed from Arrow and Debreu’s idea paraphrases their vision as follows: The notions of complete and perfect markets are critical here. In a universal and open market, millions of immediately executed transactions in derivatives serve, according to this theory, to verify and enforce prices in an underlying economy and ensure that risks are held by those most able and willing to bear them. . . . Completing markets promise that all possible future contingent states of the world can be encompassed in a contract and actively managed. Contra Knight’s (1921) unbridgeable distinction between risk and uncertainty, the alchemic propensities of financial innovation ostensibly turn deleterious uncertainties into fungible globules of risk.13

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In such a hypothetically complete market, forward contracts might be traded alongside options contracts, so that we could continuously price the value added by optionality as such. And under conditions of market completion, assets could always be collateralized as a source of funding because they would be completely hedgeable, and could thus be made synthetically risk-free. This means that there would never be a risk of credit rationing, and no need for a liquidity premium on assets that are more readily convertible into cash, and thus easier to collateralize.14 The CCA approach invites us to apply this way of thinking to all intertemporal claims. Here, the question in valuing any put or call is always a matter of pricing in the present what its future value will have been.15 And we can ask this very question about the bipartisan liquidity put provided to the financial sector by the US government in 2008 and 2009. Robert C. Merton and his distinguished collaborators provided a plausibly conservative answer to this question based on CCA. They estimate that as of 2010 (immediately following the crisis), the notional value of the guarantee (the amount guaranteed) came to $17 trillion. The total includes approximately $5 trillion in debt for Fannie Mae and Freddie Mac, and off-balance-sheet guarantees of roughly $12 trillion to various financial institutions. Importantly, they point out that “the $17 trillion represents the amounts being guaranteed, not the actual value of the guarantee. The value of these guarantees, however, can be enormous, particularly in times of stress.”16 What, then, was the value of these insurance premiums on liquidity at the peak of the 2008 financial crisis, following the collapse of Lehman Brothers? To answer this question, Merton and his coauthors gave a brief primer the basic principles of CCA as applied to secured credit markets: that the essential risk posed by default, leaving aside legal and other costs, is that the value of the assets pledged as collateral by the defaulting debtor will be less than the face value of the loan. This means that the purchase of any risky bond or loan can be broken down from the standpoint of CCA into two components: a risk-free bond that returns its principal plus the risk-free rate of interest, and a sold insurance policy (or put) on that bond in which the purchaser assumes the risk that, in the event of default, the collateral’s market value will be less than the bond’s full repayment value. The insurance component could then be priced through CCA. But, instead of paying a third party to insure the value of the collateral (making the loan effectively risk-free), the borrower pays a premium to the lender in the form of interest above the risk-free rate. That risk premium, according to CCA, should be equivalent to the premium for the insurance that the borrower did not have to buy.17 Merton’s seminal insight, first published in 1974, was that a portfolio consisting of a secured loan plus a put, locking in the value of the

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collateral against which funds were borrowed, is the privately manufactured equivalent of a US Treasury bond of the same maturity.18 From this insight follow two initially counterintuitive conclusions. The first is that, in secured private credit markets, default risk is ultimately reducible to an insurable risk that pledged collateral might become illiquid. This is why Merton et al. can insist that the value of a risky loan is the value of a risk-free loan minus the value of the guarantee, which is then an option that can be priced, whether in the form of an insurance premium or an interest premium. The liquidity of private credit markets thus implies that borrowers and lenders will each, in effect, have “guaranteed the solvency of the other.”19 Loss of confidence in these mutual guarantees explains the “flight” to safer, more liquid, assets and ultimately to cash itself, during a financial crisis.20 The second major conclusion is that the private credit markets are thus essentially in the business of establishing synthetic equivalents of risk-free government debt. When those markets are liquid this means that a premium can be paid to make collateral safe in lieu of providing collateral that is considered safe because of a government guarantee. But this definition of private credit market liquidity takes government-guaranteed collateral as its baseline, beyond which there is only political risk, and thus indirectly defines private credit-market liquidity as equivalent to the ability to issue safe collateral, or to make risky collateral safe— an ability that only government has, in the final analysis. But if private risk premiums cannot be priced without referencing them to safe collateral that the government can create, it should be possible to price government guarantees of risky collateral held by private parties by referencing them to private risk premiums. The problem here is how to price the liquidity risk that the government assumes without having to know the market value of the underlying collateral, or to know anything else that might be part of a private lender’s due diligence. Pricing the liquidity of an asset or portfolio to the exclusion of all its other features is a strong point of CCA in all its financial applications, and can be especially useful in analyzing and pricing macrofinancial risk. Sticking to their method, Merton et al. assume that, in states of high market liquidity and stable or rising asset prices, liquidity premiums will be low; but when underlying asset values decline, the sensitivity of the put value to each increment of decline— in technical terms, its delta— rises more rapidly. They thus conclude that the price increase of the put would “get very steep very fast” as a “shock propagates,” causing the price of underlying assets to fall and volatilities to rise. In essence, . . . governments are writing a guarantee on the bank assets. But what are the bank assets? Bank assets are effectively short put

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options, so these governments are guaranteeing a put, which means they are writing a put on a short put. . . . If puts are convex, then puts on puts are “doubly convex.”21 Their elaboration of this point is that repeated shocks to asset values— for example, “a series of asset value declines”— would in turn produce even greater sensitivity (higher deltas) and a sharper curvature in the price of the liquidity put. And even if asset prices do not change, a change in the volatility of asset returns, which typically occurs during market declines, has a very large additional effect on the further “propagation of risk.” Finally, there are “feedback loops” caused by the mutual dependence of banks and governments, and of banks and nonbank financial intermediaries, on each other. For example, banks may become weaker because of government instability and the like: The consequence of the banks’ becoming weaker means that— because the government has guaranteed the banks— the value of the government guarantee rises, which, in turn, means the government becomes weaker, which feeds back to the banks’ becoming weaker. This sort of feedback loop can lead to some pretty intense cycles.22 Merton et al. go on to argue that this domestic feedback loop is further intensified by the global connectedness of central banks, insurance companies, and shadow banking institutions. Such interconnectedness means that the true price of the outside guarantee of liquidity to be provided by government, and thus the financial value of rolling over the inverse option of not providing it, is not straightforwardly measurable in a macrofinancial context. The usual approach is based on deriving an expected default ratio for private debt that can be compared to the risk-free baseline of government debt. In fully private financial markets, this would be calculated in reverse by dividing the face value of the debt by what it would cost to insure it through purchasing a credit default swap. But in cases where “there is already a government guarantee that exists . . . the CDS price does not reflect all the credit risk but only that part borne by the private sector.” Because of this fact, Merton and his collaborators suggest a different approach: “Our methodology is to use a market-tested contingent claims analysis (CCA) technology . . . to derive an estimate of what the CDS price would have been had there been no government guarantee.”23 Their article, which focuses on methodology, breaks off with a discussion of how such an analysis of interconnectedness might be done by applying something called “Granger causality tests” and using the CDS prices of nonguaranteed equity pledges as proxy for “fair” CDS prices on pledges

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of guaranteed bonds. This method is applied to specific components of the federal guarantee of capital market liquidity. But in the end, this consortium of prominent economists does not add up these components to come up with the total price of the liquidity put that that the US government provided in 2008 and 2009 to preserve stable asset prices (by preventing a “fire sale”) in both domestic and global capital markets. The explicit purpose of their work was to advocate for such policy, and not to shock the public and stir up opposition by revealing its monetary value. But by adding up the separate components of their analysis, a careful reader can figure out that the fair market value of the outside liquidity put in 2008 was very large (between $3 trillion and $6 trillion, as explained below), and that issuing it had a positive effect on the prices of the financial instruments in which accumulated wealth was stored, and by means of which that wealth could be safely transferred. It follows that the premium that could have been collected for this put at the height of the financial crisis, a premium larger than that year’s US federal budget and only somewhat smaller than that year’s US GDP, would have been enough to fund publicly provided health care or higher education or a guaranteed basic income or an infrastructure program— or a combination of such initiatives—without requiring government austerity.

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Why have I presented this technical analysis in such detail when it is not my own area of expertise? The first and most obvious reason is that it shows that top-level mainstream economists believe the liquidity premium can be priced and have shown how to do so. I dwell on this because their method is also a way to price the inverse option of not backstopping capital and partially severing the link between state power and accumulated capital, which would be severed completely and automatically by the stylized conception of revolution that I use as a baseline of analysis, in contrast to the stylized conception of a state-backed capital market that underpins CCA. The second reason for my extended treatment of Merton and his colleagues’ work is that it reframes our understanding of the implicit subsidy that capital markets receive from government when it is not required to provide them with outside liquidity. Textbook economics justifies interestrate premiums in terms of a tradeoff of risk and reward, providing variable incentives for investors with different degrees of risk tolerance. But if, as Merton says, default risks are federally guaranteed for wide swaths of the private credit market, then the interest rate spreads between government debt and the private debt that receives this implicit guarantee may not fully reflect the existence of formal and presumed state guarantees. In effect, private-sector lenders would here be paid an unnecessary insurance

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premium for debt that the government has already insured. A further problem arises, according to the Chicago School economist Luigi Zingales, because the largest lenders, the Wall Street banks, are incentivized by the near certainty of government bailouts to undercharge their largest borrowers, the Wall Street hedge funds, for the real risks they take: Rational lenders [have] understood that, when push came to shove, the government would probably intervene with help if a big or extensively interconnected financial firm were to fail. . . . “Too big to fail” had become a self-fulfilling prophecy. If the belief becomes sufficiently entrenched in the marketplace, the cost, when policy makers surprise the market by not bailing out a big bank, grows even greater. Shortsighted policy makers will always prefer the cost of a bailout to the cost of upsetting the market. . . . Anticipating government bailouts in case of emergency, lenders are willing to lend to large financial institutions very cheaply and without restrictions. Offered cheap credit, the managers of these financial institutions find it attractive to borrow a lot and to take wildly risky gambles because they can maximize their profits in doing so. Unfortunately, the risky bets also maximize the probability that the government will have to intervene, as well as the cost that the government will pay when it does. The value of this implicit government subsidy to banks considered “too big to fail” is estimated to be half of a percentage point of interest.24 Zingales believes that “the subsidy implicit in the ‘too big to fail’ policy [was] roughly $30 billion a year” for the eighteen largest bank holding companies before the 2008 financial crisis, and that it is largely responsible for having caused that crisis.25 Although he, too, ultimately agrees that “some sort of government intervention” was necessary in 2008,26 his stated objective, unlike that of Merton et al., is to stir up what he calls a “populist” resentment of what happened then as form of “crony finance.” My third reason to dwell on the analysis of Merton et. al, is the eyepopping size of the liquidity premium that they believe the US federal government could and should have charged to the financial sector and booked as an asset on its balance sheet. Its estimated valuation, when added up, would have been larger than the federal budget in 2008, and only somewhat smaller than the GDP at that time. The order of magnitude of the bailout’s finance valuation is not in dispute, nor is the method used to derive it. The range of possible estimates is based, rather, on a range of views about what categories of nonfederal credit market debt, with a notional value in the tens of trillions, were implicitly guaranteed by the US federal government beyond the facilities that were explicitly provided. The $17 trillion in notional value that was, according to Merton et al., federally

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guaranteed as of 2010 is an admitted underestimate. For example, it does not include student debt (then exceeding $1 trillion, most of which was already federally guaranteed). The authors also mention in passing that federal guarantees of private pension funds, which are not included in their calculation, are especially risky because the persistent low interest rates maintained by the Fed reduces the ability of pension funds to meet their future obligations. We could also include other components of the notional value of the credit market that the government implicitly guaranteed in 2008 or which it was already guaranteeing before the financial crisis, such as the never formalized federal backstops for Fannie Mae and Freddie Mac, government sponsored enterprises whose mortgage-backed bonds are priced as though they were government obligations. They are not government obligations, but without the government’s presumed willingness to back this segment of the mortgage market a whole asset class, housing, would not be widely used as collateral. A similar rationale has been used by the Fed, beginning with Alan Greenspan in 1987, to backstop markets in debt and equity that are privately issued, because they too are widely collateralized, and their deep devaluation would threaten the stability of credit markets. Although free market economists like Zingales deplore such policies, the willingness of the Fed and other central banks to choose them (when they are not obliged to do so) has become its principal way to signal that it will ultimately do whatever it takes to maintain the liquidity of credit markets— a signal that it hopes will restore market confidence and make the promised intervention less necessary. This may seem more prudent in the moment than signaling a faith in free markets that it will eventually have to abandon at even greater cost. The political importance of government backstops for credit market liquidity is apparent in the ratio of total credit market debt (TCMD) to gross domestic product (GDP).27 In 2016, TCMD (which includes federal debt that is already “safe”) was $63.5 trillion, and GDP was $18.6 trillion, yielding a ratio of 340 percent.28 And TCMD, when added to real estate and equity, represents most of the financial assets that can be pledged as security in financial transactions. “Too big to fail” means that lenders against this collateral are implicitly short a put for which they will not be expected to take a loss, whether upfront in cash or by capping their ability to benefit from a financial recovery. But for my purposes, it is enough to stress that the magnitude of financial wealth implicitly and explicitly protected by the US government’s promised willingness to tax GDP was, even under the most conservative estimates, much larger than the US GDP itself. But if we stopped at the value of TCMD in the United States, we would be neglecting the substantial role that the United States played in guaranteeing international markets and therefore vastly underestimating the value of

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the liquidity put. The Bank of International Settlements reported that the notional value of the global financial derivates market in 2008 was over $683 trillion.29 Since 2008, and arguably before, the Fed has provided offbalance sheet guarantees for this market, and for the global money market in general. While there is some double counting in the figure the BIS provides (insofar as multiple derivatives can be written on the same assets), the scale of the guarantee that the Fed provided is astounding.30 The global reach of this guarantee is worth stressing, along with its tenuous legal basis. While the Federal Reserve has an explicit mandate to provide liquidity support to the US banks that fall under its regulatory and supervisory purview, in recent years it has also increasingly supported the nonbank financial intermediaries (often based outside of the United States) that comprise what we now call the “shadow banking system.” By the early twenty-first century, the volume of money flowing through this system had already eclipsed the traditional banking system. Shadow banks provided 45 percent of total credit in 2003, and their total liabilities were roughly $25 trillion, or more than double those of the traditional banking centers.31 Because of the transnational scope of this financial system, the various backstops, guarantees, credit swaps, and “facilities” provided by central banks go considerably beyond the scope of underwriting the liquidity of domestic markets. The economist Perry Mehrling constructs a hypothetical balance sheet for the Fed that estimates the monetary value of these backstops (the liabilities arising from puts) at $3.6 trillion for global money markets and $2.6 trillion for global derivatives markets, and he strongly supports Fed interventions in these markets as something to which the public should become accustomed.32 In contrast to Mehrling, the economists Morgan Ricks and Anastasia Nesvaitolova deplore the extension of liquidity supports to issuers of financial assets outside the government and the regulated banking system. They note that the flight to safety during financial panics puts excessive demand on government-issued liquidity as synthetic, privately created assets that were once acceptable as money equivalents suddenly become less accepted and are dumped on the market. At these moments of credit contraction, the so-called financial innovations that appear to expand capital market liquidity during an upswing can lead to what Hyman Minsky called a “shortage” in government-created liquidity, which is suddenly in higher demand.33 As a follower of Minsky, Nesvetailova argues that the definition of “liquidity” itself has been distorted by the proponents of such financial innovation to create the illusion that new financial instruments are as liquid as the government obligations they purportedly replicate.34 Ricks provides a more nuanced statement of this position by insisting that “‘liquidity’ and ‘moneyness’ are not synonyms.” He means by this that

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securities of any maturity may be highly liquid and show great price stability, but that only the shortest-term IOUs can satisfy the need for money. Only these instruments are “liquid” in a sense that state-created money is. It follows that, if the implicit government guarantee of liquidity of new financial instruments were explicitly withdrawn, they could no longer be considered liquid in the sense that money always is.35 Fair enough, but why wouldn’t the guarantee be reinstated in the next crisis if there were no organized political opposition to doing so? Contrary to Ricks and Nesvaitolova, I do not believe that the problems addressed by the 2008 bailouts are the result of semantic confusion about the correct usage of “liquidity” as a concept.

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My argument above has assumed that the extension of the liquidity concept to support markets in financial derivatives, tri-party repo, and so on was primarily a response to the fact that these assets are now the largest repositories of accumulated wealth. I thus focus, as Nesvaitolova and Ricks do not, on the interactions between major institutions: the interactions between the money market (or “shadow banking system”) and the governments— most notably the US government— that supply it with safe collateral, as well as the interactions between the capital markets and the money markets that provide them with the financial liquidity needed to meet the discipline of payments. Following Mehrling, I also presuppose an institutional context in which shadow banks, trading risk-free securities for cash instruments, now perform the functions of traditional banks in providing the financial sector with the cash to make payments and the credit to defer them.36 The money market is predicated on the existence of large pools of inherently safe and liquid collateral, such as US Treasury obligations and their equivalents. These are considered to be “inherently” safe because they do not require posting additional collateral in order to borrow cash against them. But insofar as this is true, the reasoning is somewhat circular because they are also defined as intrinsically liquid in the sense of being instantly convertible into cash. Through this circular reasoning, the pledge of an interest-bearing risk-free asset (a government bond) for a non-interestbearing US government obligation (money) becomes the only form of collateralized transaction that is not considered to be the swap of one form of debt for another, but rather, a transaction that provides the cash that can be used to liquidate debt by enabling its bearer to make payment on demand. This definition of fully collateralized liquidity reveals the foundational paradox of the money market, which is that cash does not pay interest, yet interestpaying bonds are traded for cash at a discount rather than a premium. But

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if bonds themselves are inherently liquid, why would anyone (outside Keynes’s “lunatic asylum”) accept payment in cash rather than in bonds?37 The answer, once again, seems tautological.38 Money, as cash, is the most liquid asset that can be defined within the financial logic of capitalism because it is the only thing that fully satisfies the demand for funds as such in the discipline of payments.39 So it always commands a premium in the money market over other negotiable securities, including derivatives on money and other money substitutes. This is especially true in times of crisis. The premium that the dollar in the form of cash commands over the most liquid collateral that can be posted to borrow it— the US Treasury obligation— is thus measured by the excess value of bonds one must post over the amount of money one can borrow against them, also known as “the haircut.”40 The money-market haircut— the discount rate at which risk-free bonds are convertible into dollars— measures the difference between being fully liquid and being able to pay. This price is set in the money market (most importantly, in London’s “repurchase and reverse repurchase” or “repo” market) that turns securities into funds by putting a positive dollar price on lending against the safest security than can be pledged as collateral (AAArated US Treasury obligations).41 As Perry Mehrling and many others have demonstrated, this interchangeability of funds with financial assets on the money market (i.e., the money market funding of financial markets) underlies the ability of institutions to manufacture new financial products, such as derivatives, in which previously created value is preserved and accumulated. Creating a negotiable security can turn an illiquid thing or future state of the world into an asset that can be priced today because it can be pledged as collateral to generate funds today. It is having a price that makes securities both analogous to money and convertible into it. Indeed, price is how we analogize an object to money by representing it as a potential source of funds, and also how we convert it into money by either selling it or borrowing against it. We have seen this logic at work in my argument that historical justice can be financed through harnessing the self-shorting propensities of capital markets.

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Beyond the potential use of contingent claims analysis to price the government-provided liquidity put in times of crisis, my ten-year collaborative project of “rethinking capitalism” in an era of derivatives has led me to a basic truth that underlies the financialization of capitalism: that the BSM model is not just a way to price derivatives, but also a technology for manufacturing synthetic public debt (the equivalent of US Treasuries) out of private credit and other forms of capital.42 This is not, as some financial

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journalists suggest, an undesirable side-effect of the financial innovation BSM enables. Rather, as I’ve illustrated in discussing Robert C. Merton’s early contributions, it was part of BSM’s original intent to show what private credit instruments would be worth if all their identifiable risk components (except liquidity risk) were stripped away, leaving synthetically created riskfree financial assets as precipitates of the process of pricing the volatility of risk. Since 1973, this has meant that, as part of the process of manufacturing (i.e., pricing) collateralized debt obligations (CDOs), the financial industry produces synthetic Treasuries (AAA securities) as by-products that can be recycled as safe collateral and used in place of government-issued debt to borrow money (for example, in the repo markets). From a macroeconomic perspective, the creation of CDOs using the technology of BSM is thus a privatization of the process of producing increased US government debt without thereby making funds available for increased government spending. With the benefit of hindsight, all of this is apparent in the BSM formula itself, which can be read and algebraically rebalanced as an equation that hypothetically commensurates all asset prices with US Treasuries. What cannot be taken for granted, based on the formula alone, is that there will be a robust and liquid market for trading this synthetic risk-free debt at par with actual US Treasury debt. If there is not such a market, US Treasuries will trade at a premium because they are more liquid unless the US government steps in, as expected, to guarantee the liquidity of privately created public debt. This is why the financialization of capitalism can be criticized by Nesvaitolova and Ricks for making unrealistic and false assumptions about the functional equivalency of synthetic Treasuries and real government obligations.43 But his criticism misses— or implicitly dismisses— the political significance of what happened from 2007 through 2009.

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We now know that the BSM formula’s assumption turned out to be empirically true, because the government guaranteed the liquidity of synthetic AAA-rated securities once the financial crisis struck. Had the state refused to do so, the accumulated wealth held in the form of financial derivatives could not have been priced and much of it could have therefore vanished. This means that the BSM formula not only presupposes, but is politically contingent on, the expectation of a state guarantee for privately manufactured alternatives to public debt. In the financial sociologist Donald MacKenzie’s sense, BSM had to be performed by the US government in 2008 and 2009 to remain descriptively relevant thereafter.44 But MacKenzie’s notion that economies are created by performing economic theories misses the political significance of BSM’s com-

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mensuration of public and private debt. BSM neither assumes that these are ultimately one and the same, nor does it make them so. The point of financial macroeconomics, as identified by Merton and his colleagues, is that the swap between them contains an embedded guarantee that can itself be priced using the methodology of BSM, and that this implicit price of preserving capital market liquidity has in fact been paid and collected in ways that are yet to be transparent.45 How, then, should we grasp the implicit political meaning of the liquidity guarantees to financial markets that Merton and his colleagues now advocate? My political argument builds on the indisputable fact that financial crisis accentuates the difference between government bonds and all other assets that might be used as collateral: as investors dump those other assets in pursuit of liquidity, there is an increased demand for governments to increase the supply of safe collateral that can be sold or lent to generate funds. Government bonds, especially US Treasuries, perform this function in the money market, which, as I have said, prices the difference between cash itself and the safest collateral for which it can be traded. Because the collateralized money market, much more than the regulated banking system, now funds the financial market, the declining safety of privately- created collateral increases the demand on the US government to issue debt in whatever quantities are required to satisfy the need of money markets for safe assets in which to park their pools of funds.46 This has been the case since the 1990s, and the political question today is whether the handful of governments that now manufacture safe collateral will do so in sufficient quantities to enable the money markets to keep the financial markets liquid and thus prevent asset prices from falling. Whatever its specific components, a government bailout accomplishes this by definition, and among the political questions raised by this definition is whether and how the government should spend back into the economy the revenues it nominally borrows by issuing bonds. Would such spending raise inflation, reduce the confidence of the financial markets, and make the bailout more expensive? Because the future liquidity of the financial system lies in government’s hands, we have here an issue of the extent of its demonstrable commitment to preventing the collapse of asset values at all costs, and the ability of bond markets to reduce those costs by detaching the expansion of government bond issuance from an increase in deficit spending. Do governments or bond markets here have the upper hand? Based on this understanding of the financial literature, my political intervention is to focus directly on the financial valuation of the guarantee that government provides in restoring capital market liquidity under circumstances in which money markets fueled by bonds provide that liquidity. This is different from simply adding up the obscene amounts of money

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that circulate among financial institutions in the course of transacting the bailout. And it is also different from asking the obvious question of why government does not spend the money that it nominally “borrows” to bail out capital markets in order to run a fiscal deficit and thus stimulate the economy. My question is specific to the financial value of bailing out the financial system as expressible in the price of a financial asset— a macroeconomic put.

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This focus on the financial value of the bailout— what it was worth to beneficiaries— is a different project from trying to calculate its total cost to the government. The latter project was attempted by the economist James Felkerson, who concluded that the sum of Fed expenditures, unusual asset purchases, and liquidity swaps between 2007 and 2010 was over $29 trillion.47 This figure includes $10 trillion in Central Bank Liquidity Swap (CBLS) loans that were made and repaid. These were short-term credit agreements allowing non-US central banks to sell and repurchase their own currency for dollars, and they peaked in 2008 with a notional value of nearly $3 trillion.48 Another large component of Fed expenditures, totaling over $8 trillion, was the Primary Dealer Credit Facility (PDCF), which allowed the Federal Reserve to function as a lender of last resort to market makers posting good collateral following the Bear Stearns collapse in 2008 and continuing until 2010.49 These extraordinarily large totals reflect the sum of short-term loans that were not all outstanding at the same time, were overcollateralized, and were all paid back with interest according to their terms. They contributed, of course, to the restoration of liquidity, but putting them end-on-end to calculate a total does not contribute to an analysis of the value of the bailout, which is best understood as the price of a sold put for which no premium was paid. Other elements of the bailout, as popularly understood, are relevant to the calculation of costs associated with issuing the put. In 2008, the Term Securities Lending Facility (TSLF) Treasury obligations were swapped for privately manufactured securities at par, even though there was no real market for them. The cost of this program, measured in the nominal value of the Treasuries issues, was over $2 trillion.50 But because the interest on those bonds was near zero, the real cost to the Fed of swapping them for toxic assets would seem to be much lower— unless, of course, one insists, as I do, that there was embedded in this swap a price guarantee for which no premium was paid. My approach is thus to consider the value of the put to its recipients as a financial liability of government that should have been balanced by an

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offsetting asset: it is agnostic on the question of whether, and in what form, $2 trillion should have been reflected in the federal budget deficit in 2008 and 2009. I am concerned, rather, with the federal balance sheet. That balance sheet should reflect all the other swaps with embedded guarantees that were part of the bailout. As part of the first quantitative easing in 2009 (QE1), the Agency Mortgage-Backed Security (AMBS) program swapped bonds collateralized by mortgage loans, many of which were failing, at par for US Treasury obligations.51 There was also the Troubled Asset Relief Program (TARP). This program, a bailout initiative of the Treasury rather than the Fed, was funded by adding more than $700 billion to the deficit, originally for the purpose of purchasing assets held on the balance sheets of banks that were by then considered toxic, though some had previously been rated AAA. Eventually, this increase in government borrowing was used to recapitalize the banks in return for which the Treasury received preferred stock.52 Both of these rationales for increasing the deficit to fund TARP were accepted by the bond markets as a form of government borrowing that would not be inflationary because the dollars received from bond purchasers would not be circulated back into the economy as higher government spending. Such uses of government debt to prop up financial asset prices that would otherwise collapse are not unprecedented; but they are a departure from orthodox economics, in which government spends money into existence and then borrows to “fund” its budget deficit. Neither are they consistent with the heterodox tradition in economics that used to be called “functional finance” and is now called “modern monetary theory,” in which government spends as much as necessary to stimulate the economy and then borrows and taxes to adjust for the inflationary effects, if there are any.53 But connecting the funding of the bailout to government debt, completely bypasses the question of valuing what the financial industry got from the liability that government assumed, and whether that liability should and could have been balanced by an offsetting asset. The 2008 approach, which took hold starting with the Russian debt default of 1998, is that government treasuries now issue debt not primarily for Keynesian reasons of fiscal and monetary policy, but to supply the increased amount of safe collateral that is demanded by the money markets on which the financial system now depends. 54 This “epistemic framework” for understanding the importance of money markets in the financial system suggests, according to financial economist Daniela Gabor, “that the state has become a collateral factory for shadow banking.”55 Within this framework, there need be “no macroeconomic consequences” if “debt issuance could be completely divorced from fiscal policy,” and thus from the question of what the “Treasury would do with the money that it borrows.”56 In this scenario, “Treasuries

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can do for market-based finance what the central bank does for bank-based finance, creating the ‘base asset’ that supports the growth of shadow liabilities . . . The state, in its debt-issuing capacity, becomes a ‘shadow central bank . . .’”57 Gabor concludes that, as the state withdrew from economic life, privatizing state- owned enterprises and state banks, and putting macroeconomic governance in the hands of independent central banks, its role in financial life grew bigger. Sovereign debt has become the cornerstone of modern financial systems, used as benchmark for pricing assets, to hedge positions in fixed income markets and as collateral for credit creation via shadow banking.58 Instead of “fiscal dominance,” she says, states seek “financial dominance— defined . . . as “asymmetric support for falling asset prices.”59 Like Gabor, I too am suggesting that the apparent abdication of fiscal responsibility for growth in economic output has given states— at least a few of them— a much more direct role in guaranteeing and promoting the growth in asset values. I have said that what we now call the financial “bailout” consisted of government being allowed to borrow for free from the financial sector to issue more safe collateral, on the condition that government would not spend whatever additional funds it happens to raise as a necessary side effect of such increased borrowing. Government’s role in issuing both bonds and the currencies in which they are repaid has put it in the position of being a dealer in the shadow banking system in which currencies and bonds are swapped— what Perry Mehrling calls “the dealer of last resort.”60 Mehrling points out that since the period extending from 2007 to 2010, the financial sector has had less doubt that asset market liquidity in a larger sense— the question of whether there will continue be a market at all— is ultimately guaranteed by governments that are willing to step in and trade their own debt, backed by currency they themselves can print, for privately issued debt that would otherwise be illiquid. Gabor adds that, because of this epistemic shift, the capitalist state no longer borrows more in order to spend more, as it did in Keynesian capitalism. In austerity capitalism, it spends less so that it can borrow more cheaply, because debt issuance (collateral creation) is in the interest of the state, aside from any need to spend more money.

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bailout as a reflection of our time. In this chapter I rather stress that what the government did to restore systemic liquidity, and reduce the spread of differential liquidity, amounted to an assumption of liability for a fall in asset values in the way that selling a put does. The state’s ability to do this can thus be conceived, manufactured, and priced as a financial asset— essentially, an option— that it sells for a price or swaps for an offsetting option. The second point I stress is more specific to the role of public debt in underpinning and guaranteeing the liquidity of private credit markets. As we have seen, the original BSM formula solves for the price of a call by placing it in a hypothetical portfolio of financial assets that is defined to have a return equivalent in all future states to a risk-free government bond. This portfolio represents the possibility of engineering out of the private sector any excess risk attributable to its not being the public sector. We have also seen that BSM produces synthetic risk-free (AAA) securities as a by-product of its technique for manufacturing and pricing riskier securities. This is because the fundamental technique for pricing the excess risk that would exist without a government guarantee is to precipitate out the risk-free components of any security, and thus to isolate the risk and price it separately as the cost of dynamically hedging that risk. According to modern finance theory, there should be no liquidity premium whatsoever demanded for holding such a privately synthesized risk-free portfolio as an alternative to a real financial obligation of the government, because these portfolios can be engineered to trade at par with US government debt. And yet, the theory allows us to calculate such a premium. Does this mean that the theory ignores or assumes away the political risk that the state will not perform the actions required to make the theory true? Does it mean that the power of finance capital over the state is such that it has no choice other than to perform those actions, rather than expose the hypocrisy of modern financial institutions about their own theoretical foundations? The more nuanced conclusion of the new literature on financial macroeconomists discussed above is that there is indeed political risk that the US government will not be willing to swap its own bonds at par for synthetically created equivalents, but that this risk can now be defined and priced as the premium required to obligate the US government to honor the theoretically required equivalence of its own bonds and privately manufactured AAA securities by swapping them at par. So, if BSM and its progeny implicitly project into the private sector the sovereign power to create risk-free securities, it follows that the liquidity premium commanded by public debt measures the gap between the private financial sector’s power over government and its vulnerability to paying what could be a very high premium for government backstops of private debt markets with public debt. There is,

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moreover, no doubt that the subsequent valuation of capital markets could sustain such a premium, since in theory it would have already been priced in as the premium required to set a floor on that valuation.

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The central claim of this chapter has been that the premium for this liquidity provided during the Great Recession of 2008 could have been priced, and still can be, by democratic forces hoping to claim it. That premium would be valued at zero only if the option of justice is taken off the table at precisely those moments when it should be possible to command a higher premium for rolling it over. There remains, of course, the question of when and how and to whom the premium should be paid. It might have been paid, as I have said, by crediting the public with a new financial asset matching the value of the private financial risk the public has assumed, and these offsetting positions could conceivably be settled through the same netting process that is used elsewhere in global financial markets.61 But the notion of paying for short puts with long calls provides only the crudest outline of such a justice-based approach. Taking a more nuanced approach, the government might, for example, accept in return for its put what financial specialists call a “laddered” call— collecting different percentages of the upside at different levels of recovery. This long (bought) call could, as I’ve suggested, be exercisable only up to a specified index level (a “knockout”), above a specified index level (a “knock-in”), or within a specified band (a “call spread”). If we rethink the structure of the government’s long call in this way, we can also rethink the structure of the short put that government provides (sells) to capital markets. The government could, for example, sell a cheaper put by letting asset prices drop further, and then buy a cheaper call to offset it. Or it could protect only some markets and not others. Another way for government to take less upside in a market recovery would be to buy a put, rather than a call, at an exercise price that is lower than its sold put (it would then hold what is termed a “put spread”). In this scenario the government would retain a residual downside claim against those it had bailed out, and thus be able to “put back” the assets that it originally acquired at a loss for what would later become a gain relative to still-collapsing asset prices.62 Once we identify a range of possible implementations of my approach, we can see how their pricing would be contingent on factors such as the level, timing, and likelihood of paying off as market valuations recover. The main theoretical constraint imposed on my approach by financial macroeconomics is that the price of the call structure that government imposes on the financial sector as a premium for the bailout should be set at par with

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the price of the liquidity guarantee that government provides to support or restore asset valuations in turbulent times. Once we know that modern options theory allows us to price macroeconomic guarantees, we can see that there is no inherent reason for present holders of wealth to receive the entire upside (or as much of it as they now do) from the liquidity put the government provided to end the Great Recession. Yet from 2007 to 2010 the US government was under almost no political pressure from an organized and militant left to demand a call on asset market recovery, or some other vehicle through which a premium for the sold put could be collected. Had there been opposition to the public bailout of financial markets, a macroeconomic call on their recovery could by now have supported massive public investment in programs to reduce socioeconomic inequality. This did not happen, however, because the climate of emergency precluded the political debate over the bailout that it would have necessitated. In this context, neither the Treasury nor the Federal Reserve presented policy makers with a range of alternatives to giving Wall Street nearly everything it wanted, thereby leaving the impression that the policy makers had no alternatives. But once there are known to be alternatives, it follows that advocates for greater justice should not dismiss technologies of finance merely because they notice— without any further political analysis— that the whole conceptual edifice depends on government guaranteeing the equivalence of synthetic public debt and real Treasury obligations. This is the Achilles’ heel of today’s financialized capitalism, and it should be understood as a point of vulnerability that can be exploited to put the option of justice back on the table when its value is already rising, and then make it even more valuable. Once this has been done, the paramount political question becomes how to redirect the cumulative benefits of unjust enrichment without destroying them in the process. Otherwise, all of the value created by bad history will have been wasted when seen from the redemptive standpoint of historical justice.

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In this chapter, my proposal for treating historical justice as an option has been based on the straightforward acknowledgment by our most eminent mainstream economists and legal thinkers that the bailout of 2008 was something that had to happen.63 They demonstrate that, at moments when the sudden collapse of the financial market is easily envisioned, a heightened sense that this is possible “propagates” and “amplifies” the risk that it will occur.64 They do not, however, directly factor into their calculations the forms of anticapitalist political action, to be discussed in later chapters

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of this book, that increase uncertainty about whether a collapse will occur unless it is accompanied by greater justice. Neither do they discuss in what form the government should demand that a justice/liquidity premium be paid. They do, however, argue that it could be paid, and they show how its value could be calculated. This is the point of departure for my own argument in chapter 6 and 7. This chapter has drawn on recent literature in financial macroeconomics to show: •

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Capital market illiquidity would wipe out the present benefits of past injustice. For that reason, it would be an event of revolutionary justice, as I define it, though not a form of distributive justice as defined by Rawls. Imposing historical justice as capital market illiquidity is a real option that distinguishes meaningful democracy from a mere technology for manufacturing consent to present inequality. This is true even, and perhaps especially, when the collapse of financial asset prices would burst a perceived financial bubble and cause a flight in credit markets to the most liquid forms of collateral, which are government bonds and cash. The monetary value of US government guarantees of asset markets has been calculated by leading financial macroeconomists as the price of a sold put option on aggregate credit market liquidity. In 2008 it may have reached $9 trillion when the US GDP was $13 trillion. This price is equal to the premium that democracy should be able to extract for rolling over the option of justice as disaccumulation, and for preserving asset values in financial markets at moments of impending capital market collapse. It is demonstrably a price part of which will have already been paid by some (for example, the victims of government austerity) to others (for example, the beneficiaries of financial recovery) for supporting the market value of accumulated wealth. The price of the aggregate liquidity put is also the amount that could be harvested for purposes of funding greater justice, or at least of reducing inequality, at such moments. Reducing the effects of past evil in this way is thus what society can afford to do in precisely those circumstances in which the beneficiaries of cumulative injustice would argue that historical justice is no longer affordable and must be set aside in favor of austerity policies. These would be circumstances in which they could be forced to pay a premium for what they have. In such circumstances, a democratic response would be to ask: Who pays this premium, and who gets paid? Why, for example, should beneficiaries of past injustice be able to extract a price for restoring their

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own confidence in the market forces that preserve their wealth? Why shouldn’t the historical victims of past injustice now derive some benefit from having suffered it?

The next chapter explores some possible vehicles through a significant part of the liquidity premium that might be collected by capitalism’s potential gravediggers.

6: CAN CAPITALISM SHORT ITSELF? My purpose in this chapter is to suggest possible vehicles through which justice-seeking movements can extract part of the premium for supporting liquidity that governments less motivated by justice rarely try to collect. The possibility of collecting some part of this premium instead of government could give such movements a more direct incentive to threaten liquidity and become the financial system’s potential “gravediggers” in something like a Marxian sense. At this point in my argument, however, an obvious question arises: Wouldn’t such oppositional movements simply be repressed? This is a serious question, because an implicit assumption in my argument has been that the preservation of accumulated wealth held in the form of financial securities must and will be treated by government as a matter of state security. It would seem to follow that preventing financial operations from being undermined or disturbed, even by otherwise legitimate activities, would be an utmost priority for both government and the financial industry itself.1 This is the case because a threat to markets poses the threat of political upheavals that increase the likelihood of repression— and because, as in other matters of national security, the cost of containing and deterring such threats need not be directly borne by those needing protection. One can hardly be surprised, then, that the connection between the securities industry and the security industry as private-sector adjuncts to the capitalist state has become as strong as it is. But how should we think about this connection? According to my analysis in previous chapters, the total premium that financial asset holders should be willing to pay for liquidity must be combined with what governments and private security providers could be able to charge them for security. The combined total is equal to the present value of a hedge against an event of disaccumulation through revolution or financial sabotage.2 So what we might call a “security premium,” supporting stability in both government and asset prices, can potentially bundle in the cost of political repression,

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ordinary law enforcement and anti-hacking protection, and even the cost of minor gestures toward economic redistribution intended to mollify demands for historical justice. In times of political turbulence, a major portion of the total cost of preserving financial liquidity will be paid to the security industry that is hired to repress or thwart anticapitalist movements by means of policing, surveillance, and encryption. Taking such an integrated approach to liquidity support and political security has broad implications. It suggests (evoking the Marxist register of political economy) that finance functions as what the cultural theorist Marieke de Goede calls both a “premediation and preemption” of disaster— here, one of financial illiquidity.3 By premediation, de Goede means experiencing virtually and in advance, as we would in watching a disaster movie, a horror that has not and might not happen. And by preemption, she means being compensated in advance for such an anticipated possibility, which is not prevented but is rather, to coin a word, pre-remediated. To say that a liquidity crisis can be both premediated and pre-remediated by pricing financial instruments is my alternative to the commonly held view of liquidity as a free good, or positive externality, in markets that are assumed to be complete and perfect. The political geographer Louise Amoore builds upon de Goede’s distinction between prediction and preemption by introducing a further distinction between a “probabilistic” mode of governance and economy leading to “prediction,” and a “possibilistic” mode of governance and economy allowing for “preemption.” The latter is based on what she calls the “imagineering” of “low probability but high consequence” scenarios that threaten security. This language might at first seem to suggest that businesses would irrationally overweight worst-case scenarios by infinitizing the cost of outcomes that have infinitesimal probabilities of occurring. But the essence of Amoore’s intervention is to point out that the application of imagineering to security services was originally an extension of techniques used by businesses, such as department stores, to identify unusual data patterns suggesting that the public had found it easier to visualize catastrophes that the business then could evoke through advertising to boost sales and profits, even when the imagined catastrophe itself had not become more probable. Amoore’s point is that an extension of this form of data analytics by the security industry to previsualize catastrophic threats is precisely not an actuarial use of data, which assigns probabilities to risk in order to reduce exposure to them and thus to minimize the occurrence of the underlying harm that is risked. Previsualization is, rather, a way of benefiting in the present from changing perceptions of a risk.4 She finds this mode of thought in the pricing of financial derivatives which, to merge my language with hers, is based on present uncertainty about whether past probabilities are a guide to future possibilities.5 Amoore thus sees a convergence of the logic

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of derivatives in finance, which is always previsualizing and acting upon threats to liquidity, and the logic of states of emergency in politics, which is always previsualizing and acting upon threats to security. My own approach to the convergence of liquidity and security focuses specifically on examples like the use of metadata (for the purpose of threat analysis) to trigger “circuit breakers” (suspensions of trading) in financial markets on the basis of early warning signs of something like a distributed denial of service (DDOS) attack. US capital markets have been assured that financial regulators can now model (premediate, in de Goede’s sense) the occurrence of illiquidity events caused by certain kinds of malicious activity, such as the unleashing of Trojan malware by enemy states or terrorists. In recent decades, an informatics industry has grown up around technologies for detecting hacks in financial systems that do not have to be disclosed to the financial services firms that employ them. Top managers at financial firms are considered to have performed their legal duty of care merely by paying for the security services that similar firms employ. Indeed, their willingness to pay a very high price without wanting to know how or whether the anti-threat technology works suggests that they are primarily investing in short positions on capitalism as a system that is naturally resilient to such threats. This is the intrinsically financial product that the security interest sells when it overcharges for unproven technology, the vetting of which could expose its secrets thus making it ineffective. This chapter is about how the liquidity of the financial system is bound up with confidence in its security, and thus with the ever-present ability to previsualize its collapse. This link between the contingent aspects of liquidity and insecurity about whether markets will survive is my corrective to the more common stress on confidence in transparency as the foundation of markets. The idea that sudden illiquidity, whether the result of sabotage or of revolution, could wipe out accumulated wealth lies at the heart of my claim that capitalism’s well-visualized fear of destroying itself— and not its blindness to this possibility— can be harnessed by its opponents to democratize finance. But my view that a democratically justifiable revolution could legitimate the disaccumulation it would cause is in fact far from novel. It was first elaborated by defenders of the mid-twentieth-century consensus on social welfare capitalism. In the words of Roosevelt brain-truster Adolf Berle, Jr.: “Any investigation of liquidity is a study of the mechanisms which make particular forms of wealth acceptable [emphasis added].”6 This implies, as Berle goes on to explain, that the political unacceptability of a particular form of wealth would preclude state support for its liquidity, and thus preclude its convertibility into money and all the things that money can buy. But what if the possibility of forced disaccumulation is foreclosed by welfare-state capitalism? What if the masses are bought off by automatically

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countercyclical policies that constitute a social safety net? This is, according to Berle, precisely what occurred in twentieth- century welfare-state capitalism. Although the welfare state provided much of the population with security from the worst effects of economic decline, its creation meant, for Berle, that historical justice in my sense was no longer an option because revolution would be off the table.7 But from the present- day perspective of financialized capitalism, the safety-net entitlements of the welfare state were essentially a set of contingent public liabilities. These would have to be funded during periods of economic downturn by higher taxes on the rich and/or by higher public debt. It was only at such moments that these programs functioned as something more than state-provided vehicles for pooling social risk and became genuinely redistributive of accumulated social wealth. In normal times they worked like insurance policies provided by the private sector, and were subject to strict regulation as to whether their liabilities were adequately funded and their premiums were fairly priced. Using the language of modern financial theory, we could thus say that the entitlements programs of the welfare state have two components. First, the welfare state provides an insurance policy for spreading nonsystemic risks among individuals— essentially, swapping personal risks (perhaps at a premium) for those of a larger, less internally correlated risk pool. The second function of the welfare state— the function triggered by severe financial crises— is to price the premium on what I have called the liquidity put, which my argument in chapter 5 sets at par with the premium for rolling over the option of revolutionary justice. We can now say in hindsight that, by paying this premium, the welfare state reduces its political vulnerability to revolution. My options-based approach suggests that the extent to which the welfare state accelerates or retards the project of historical justice varies with the political circumstances. In prerevolutionary scenarios, where an event of revolutionary disaccumulation is vividly imaginable, the gains from past injustice may be nearly worthless to its present beneficiaries unless they are willing to let the disadvantaged become much better off than ever before. This scenario is vastly different from the late-twentieth-century version of the welfare state in which involuntary austerity is imposed to preserve the valuation of capital markets, with all their resulting inequality. In both of these scenarios, however, the demand for historical justice would be representable as an option whose price is pegged to the value of the revolutionary expectations it postpones.

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My premise that the value of financial guarantees and security expenses should be added together to arrive at the total liquidity premium allows me

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to say more about the political assumption that underlies my approach: that capitalism’s survival is radically contingent on a level of public acquiescence the withdrawal of which would constitute an immediate crisis of liquidity for the financial markets. For many political scientists, this assumption is reducible to the conventional understanding that economic stability depends upon political stability and vice versa. To me it means that such overall stability is purchased for a discernible price that anticapitalist political movements can attempt to increase, and partially collect, through various forms of direct and indirect action that heighten insecurity in capital markets. Today, the quilting of finance and security— and of financial and political forms of insecurity— is best understood as a largely successful effort to foreclose the possibility of legitimate popular revolution by selling the public on the need for greater government austerity to restore the confidence of financial markets.8 I recognize that the alternative form of justice-seeking politics that I propose is not obvious. Indeed, the reason that historical justice no longer seems to be an option is the widespread conviction, memorably stated by Margaret Thatcher, that “there is no alternative.” By taking this position, she was implicitly saying that what I call the option of historical justice is worth zero unless it is in the money (unless the option can be exercised through revolution), and implicitly daring those who opposed her to attempt a revolution, which was always the alternative. But in my framework, the option of historical justice is currently valueless only if we assume that there is no liquidity premium to be collected in situations that are becoming politically and financially unstable. We saw in chapter 5, however, that the outside liquidity government provided had a knowable price that the rescued banks weren’t asked to pay simply because asking them to do so could have further undermined the confidence of markets.9 The banks were not here referring to some vast, impersonal social fact. What was needed, they said, were measures to restore their own confidence that government would do “whatever it takes” to bring them back into markets,10 thus restoring liquidity. But the banks were not the only political actors who threatened to bring about systemic illiquidity after the financial crisis. Culminating in the 2011 Occupy movement, anti–Wall Street protesters advocated, and sometimes implemented, a physical occupation of assets that financial markets assumed could be legally repossessed with little or no impediment by simply rebalancing accounts. The protesters’ resistance to evictions in the courts and on the ground showed that politically motivated obstructions of financial institutions’ ability to repossess homes could upset market valuations by generating heightened uncertainty about whether nominal claims to collateral could actually be acted upon in the event of a default. As a result of such actions, the lax procedures for document transfers among lenders, for example, were called into question, making loan documents less

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negotiable in downstream credit markets. As these transactions became less secure, the ratings of mortgage-backed securities were downgraded, and they ceased to be easily tradeable in financial markets. The federal government stepped in because, even though the eviction of defaulting homeowners was not then a threat to national security, the collapse of the secondary market for home loans was about to trigger a capital strike. So the owners of capital were bailed out for reasons of national security, and those who lost their homes were not. But the close link between national security and financial market liquidity did not first emerge after 2008. It had long existed and became readily apparent from the moment US global hegemony began to crack. On September 11, 2001, Wall Street (the World Trade Center) was attacked, both physically and symbolically, by literal suicide bombers who were not, of course, trying to play the market. The attack was nevertheless an outside shock from which the financial markets had to recover. And it also prepared the guardians of market confidence for subsequent scenarios in which markets would need assurances that another malicious attack was not occurring. Since 9/11, there have been reported cyberattacks that could have led to financial markets seizing up. But even when such attacks are successfully thwarted, their ongoing premediation, as earlier defined, adds value to derivative contracts that promise to stabilize asset values even as financial markets are constantly “preparing for the worst.”11 There is now a general consensus that maintenance of liquidity in global financial markets is essential to US national defense. It is unlikely that financial markets would have recovered so rapidly after 2008 if investors did not believe that the US government had learned since 9/11 to secure those markets from cyber sabotage. The government provides such security by using metadata on the full range of ordinary, and presumably legal, financial transactions to find patterns through which regulators can distinguish in real time between the kind of crash that would be allowed to occur because of ordinary financial greed and the kind that would now have to be stopped because the market had been hacked by malicious actors. There are, however, reasons of national security for the investing public not to know when or whether this has worked; the most important is that such disclosures could compromise sources and methods and thus make the markets less secure.

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What is the epistemic status of discovering “abnormal” patterns in real-time market data as a legitimation of direct government intervention to protect present asset values from free fall (disaccumulation)? If the abnormal

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patterns were publicly known, they could be secretly replicated or circumvented by malicious hackers. So they must be known to be unknown, except to those entrusted to know them for the sake of our security.12 But if so, the investing public must also have a kind of faith that they are indeed knowable to such persons, though not already known to those intending to steal our secrets. This is, as we have seen, why the technology for knowing them must also be hidden from those who are protected by it. The apparent recovery of capital markets after 2008 thus depended on the public’s having simultaneously known and not known, since 2001, that metadata could be used to trigger “circuit-breakers,” and so forth, that would prevent markets from going into free fall. It is reasonably clear by now that that financial markets could not have fully recovered if the public did not trust the government to secure them from attack, but that these would not still be markets in the classical sense if the public believed that the government had the surveillance and regulatory ability to protect anyone from capital losses due to asset depreciation. In the latter case, government choices could be plausibly blamed for any large-scale financial losses, including those ascribable to ordinary market corrections. But if government is not to be held responsible for what it could have stopped, why shouldn’t we assume that financial markets are being hacked by their presumed guardians, operating behind this cloak of secrecy? Given the notorious two-way street between Wall Street and Washington, there is little objective basis to believe, as most of the American public still may, that the metadata on trades used for purposes of market security has not been made available for purposes of profit to powerful and wealthy backers of the political elite. For that matter, how is it possible to distinguish what happened after 2008 (or even after the deregulation of 1998) from what would have happened if the financial markets had been hacked so that someone could gain from the government rescue? Could Wall Street have hacked itself? How do we know that it will not? The public’s apparent trust that cybersecurity experts would never secretly interfere to promote private interests is indeed puzzling, now that the metadata that exists on every transaction involving registered securities can be used to trigger circuit-breakers in real time upon suspicion of a hack. It is thus no longer possible to argue, as Friedrich Hayek famously did, that a decentralized market is more secure than any other possible system because no data on transactions could be computed faster than the market’s instantaneous incorporation of all known data to generate prices.13 The idea that financial markets can be sabotaged and/or protected from sabotage means that, pace Hayek, they are not intrinsically the most secure and resilient distributed computing system that could ever possibly exist. Indeed, the field of cybersecurity implicitly assumes that there can be a computational

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simulation of finance, a metamarket that is more secure than the financial market and which can thus be used to secure it. But if, as I have indicated, the financial markets can be hacked or sabotaged, even by those whom we trust to secure them, why couldn’t they also be better regulated, or even socialized? These are possibilities Hayek rejected in the mid– twentieth century on the ground that only markets are ultimately secure. My conception of justice as an option presupposes that its value is raised by any threat, whether politically motivated or not, that denaturalizes the financial market’s Hayekian claim to inherent resiliency and forces the state to take affirmative steps to secure it. In this respect, the state’s provision of security and of liquidity to asset markets are two sides of the same coin. Both are meant to preserve existing asset values; both come at a price and require an underlying machinery that is generally concealed from public view. I believe that this price and that machinery can be revealed in ways that accentuate the divide between those on the downside and those on the upside of financialization, and which thus make the pursuit of justice more valuable than it hitherto has been. When viewed in purely financial terms, for example, university students who take on debt to finance their ever-higher tuition are implicitly taking a long position on the component of future income inequality that is attributable to the variance in their educational credentials— essentially, how well they did— to stay on the upside of widening inequality. But if it is more information about worsening inequality that drives students to pay more for tuition, then universities can be seen as “shorting” the success of most of their students by profiting, while they can, from individual anxieties about class mobility. These anxieties are, paradoxically, induced by an increasing class divergence that higher education now claims credit for exacerbating mainly because it sees itself as also doing a worse job of promoting class mobility.14 The student debt resistance movement, which peaked three years after the Great Recession, opposed the opportunistic alliance between higher education and finance described above by staging events in which borrowers publicly refused to make their student loan payments. These refusals were largely animated by the possibility that they would spark a contagion that would threaten the student debt industry. But their more immediate and realistic goal was to add a new and volatile element of political risk in the default rate for student loan asset-backed securities (SLABS): a growing unwillingness to repay, that could vary independently of changes in the ability to repay. To the extent that the student debt resistance succeeded, however, such a strategy could only increase the volatility of bond prices, creating financial opportunities from which the debt resistance movement was in no position

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to benefit. There was, for instance, an increased interest by bond investors in ways to short SLABS — whose originators, primarily the formerly stateowned enterprise Sallie Mae, received no federal guarantee against student defaults. Eventually, as the market in SLABS faltered, investors emerged who sought to profit by going long on (buying) these assets as well. Such investors saw that the deep discounts in secondary markets for student debt were the result of a fundamental misunderstanding: a failure to recognize that students’ decreasing willingness to repay, even if it continued, would be more than offset by their increased ability to repay as the economy cycled out of recession.15 But the debt resistance movement itself had no similar ability at that time to capitalize, literally or figuratively, on the likelihood that its initial success would be exaggerated— and would thus benefit, as financial institutions already were— from the increased volatility in credit markets created by movements seeking to disrupt those markets. In my writing at that time about public higher education in California, I drew upon my emerging analysis of how capitalism now works: a hypothetical financial instrument that was designed to provide, through the optionpricing mechanism, the kind of protection against downward mobility that people were hoping to get from taking on debt to fund a university education. Suppose, for example, that an organization for resisting student debt creates a parametric derivative on the spread between the macroeconomic variables of GDP and the Gini coefficient— a security the price of which would index the widening spread between the rate of economic growth and the rise in economic inequality.16 I thus wrote at the time that, as long as universities could sell higher tuition as reflecting the price of an embedded option to get and stay on the upside of a widening income distribution, they could continue on their path of raising prices and lowering quality while still increasing demand in apparent defiance of the laws of economics.17 The initial question raised by many of us at the time was whether a politics of resistance could gain political leverage by threatening to sabotage the ratings of university bonds that were collateralized by pledging future increases in tuition, the payment of which would be largely funded by other bonds collateralized by federally guaranteed student debt. What I did not then say is that raising the value of justice as an option is the goal of a political movement that adopts the tactics of sabotaging credit ratings.18

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But, unless they successfully embody claims to justice, organized movements whose success would threaten the liquidity of capital markets (or some part of them, such as the market in student debt) will almost certainly be accused of sabotage, much as strikers were treated as industrial saboteurs

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in the late nineteenth and early twentieth centuries.19 Once we understand that sabotage is the charge each side of these struggles will make against the other, there is no reason why self- conscious political movements should not apply pressure to the choke points available to them in the interests of justice. The question here is one of political legitimacy. And, like strikers during the period of capitalist industrialization, today’s organized financial hackers must use techniques of democratic organization to legitimate the forms of sabotage they may threaten.20 But in whose interests should they “strike”? As Randy Martin pointed out, “a cleaving of population between the risk- capable and those delimited as at-risk” has become a fair proxy for the class division in financialized capitalism:21 When applied to politics and daily life, financialization introduces a schism between those who can benefit from assuming risks through effective self-management and those who fail to do so — the populations considered to be at risk.22 For Martin, as we have seen, the “financialization of daily life” provides an epistemic framework for capitalist exploitation in the twenty-first century, in much the way that the commodification of labor time did in the nineteenth century. He locates something like a class divide between those who benefit from heightened volatility (the “antifragile,” in Nasim Nicholas Taleb’s sense) and the “precariat” (in Judith Butler’s sense), who are admonished to be more realistic in managing the options before them.23 Exploitation of the precariat by the antifragile through the production and sale of financial products places us squarely in the realm of class struggle in something like a Marxian sense, even if such struggle is now conducted in a different key. The question is how to proceed from here.

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The significance of security for the liquidity of financial markets, as I have outlined it so far, is a symptom of the degree to which these markets are already interoperable with both cloud computing and state surveillance and control. From the recent literature on this topic, I surmise that a contemporary anticapitalist politics must politicize the cloud to create virtually public and potentially oppositional spaces within it. 24 Perhaps anticipating such thoughts, Randy Martin and I used to say, mostly to each other, that nationalizing the Internet is not what we want, but neither do we want to keep it private. We were thus concerned, like libertarians, with the Internet becoming overtly what it already was potentially— an intrusive tool of

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government surveillance and control. But we did not see a path to justice in the outsourcing of data mining on the Web to corporations and consultants. For us, the only difference between nationalizing and privatizing data mining of the Internet was whether the results are shared with government by command or through a cash nexus.25 In carrying our project forward on my own, I have focused more directly on the social properties of cash itself (or “currency”), as distinct from Randy Martin’s notion of “derivative sociality”— and thus on what makes data not just monetizable, but monetary. The question is posed neatly in Finn Brunton’s recent history of cryptocurrency: The work of making cash digital means creating an object that is trivial to transact over networked computer and easy to verify— to prove that it is what it appears to be— but impossible to forge or duplicate, and that can carry the information about what it is worth, without generating any information about how it is used or by whom.26 In Brunton’s punning parlance, cash payment (the transfer of “currency”) is “current” because it performs the essentially semiotic function of indexing the point in time at which it occurs to the past and future temporalities of the parties to the transaction, and thus of synchronizing their ledgers (or digital “wallets”) with each other, and with all other ledgers.27 In this regard, data that is valuable as a piece (or instance) of money is distinguishable from a negotiable security, such as a debt instrument or financial derivative, that is monetizable (liquid) to the extent that it can be liquidated by the payment of its present value in currency. Cash settlement extinguishes debts and cuts off contingent claims without the need for further negotiation or repricing. To receive it is, by definition, to have been paid. In what follows, I use the term “coin” in Brunton’s sense— connoting not just literal nickels and dimes, but any countable, noncopyable bearer instrument that functions as both a store of value and a self-verifying means of payment. A coin, thus defined, is susceptible to being hoarded; it does not have to be spent. And because a coin has been issued rather than borrowed, it differs from bank-created credit money that is always offset by a corresponding liability to the lender, such as deposit liabilities. Insofar as such a coin is also a piece of data, however, what is most distinctive about it is that by being transferred it is spent, rather than merely duplicated or copied. The entire history of cryptocoins was thus an effort to program into code the taboo against the double-spending of coins, which required that their use in a transaction will permanently and irreversibly change the underlying ledger of payments and receipts by clearing what would otherwise remain on the books as a contractual liability to pay. Whatever else it may now

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be, the expenditure of cryptocurrency is at least a secure, time-stamped transfer of information that has offsetting effects on the ledgers of sender and receiver that add up exactly to zero. Before elaborating on this, I need to say more about the difference between a coin, a ledger, a financial derivative, and the tokenization of the value of a derivative by means of a currency that may be either a coin or an ordinary debt instrument. •

In the world of cryptocurrency, the concept of a coin has two sources. The first comes from the domain of currency, in which a coin is a means of satisfying or extinguishing a debt that is not itself merely another debt accepted by the creditor because it is more liquid than the first. The ability to pay by issuing a coin is thus an historically important attribute of sovereignty that is distinguishable from the ability to take on debt that is secured by the ability to collect in taxes the coin with which it can be repaid. But this distinction rests on assuming that the acceptance of coins is what constitutes payment, and that the issuance and use of coin as payment is the opposite of taking on debt. The second source of the concept of coin in cryptocurrencies comes from computational cryptography. Here, the relevant distinction is between making a transfer (for example, of a physical coin) and making a copy (for example, of ordinary data): Transfers need to be authenticated as unique events, whereas copies need only to be verified as consistent with each other. A cryptographically secure system is one that enforces the distinction between messages that are transfers and those that are copies by developing techniques for authenticating digitally created coins as noncopyable but transferable units. • The main advance of cryptocurrency in the past decade has been the development of secure, unforgeable ledgers as a technology for realizing the distinction between transfers and copies. Here, the coin is what is transferred, and the record of that transfer— the ledger— is what is copied and can be made universally available. The “blockchain” is an implementation of this idea, and it allows the cryptographically enabled “coins” that function as native tokens on the chain to be traded and held as an asset class off the chain.28 • The possibilities of writing derivatives on cryptocoins presupposes a distinction between their on- chain use as signs that index a unique change in one ledger (a debit) to one in another ledger (a credit), and their off-chain use as tradeable financial products— as coins in a monetary sense. The latter use is not necessarily limited to on-chain transactions, because the coins used for that purpose may be issued and accumulated as by-products of operating the blockchain, or whatever other version of an encrypted ledger is in use.29

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•

The proliferation and adoption of cryptocoins creates new opportunities for writing derivatives to structure the political and economic life surrounding them. It is now possible, for example, to write and trade derivatives on the spreads between cryptocurrencies as asset classes; or on the spread among the coins that exist within an asset class; or on the spread between particular cryptographically created coins and fiat currencies, such as dollars, that are also supposed to be secure and unforgeable. Such derivatives can themselves be traded and priced, and can be used as vehicles for taking long or short positions on their respective economic platforms— including dollar-based capitalism itself, which now appears to be its own platform— on the basis of protocols specific to the particular monetary and financial system that is centered on US government guarantees. • The value of such derivatives can be indexed to other units, including those that are not native to any specifically financial protocol. An example would be a natural unit such as mean temperature. But their value can also be indexed to that of inherently financial measures, such as the price of the US government’s backstop of the secondary market in private credit instruments. The point of any such derivative is that at present it can be traded as a token or instance of the type of relationship it indexes. Not every tokenization of an index needs to have the semiotic or monetary properties of a coin; but sometimes the market value of coin itself, considered in both its semiotic and its monetary sense, can be used as an index for interpreting other relations.

For software designers not primarily concerned with the issues of historical justice that drive this book, the foregoing ideas have liberated the concept of a coin from the numismatic prehistory of fiat money. They ask whether security must be enforced by the threat of punishment by a centralized state, and by a banking system that is trusted to be both honest and protected from thieves and hackers. To what extent can better security be provided by encryption protocols? And must such protocols be kept as proprietary secrets of the state and banking system, or will they be more effective and trusted if they can be shared and verified by end users? Their provisional answer has been that that cryptographically enabled native tokens are potentially more secure— less leaky— than hierarchically enforceable ways of operating a system of accounts that have to be constantly reconciled using an exogenously produced token such as the US dollar. To the extent that this is plausible, sharing the encryption protocol but not each user’s private key (or password) with a zealous user community could, then, be enough to create a consensus that all copies of a common ledger are identical. This would be operationally equivalent to creating confidence in the accounting system without having to trust its guardians. But

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the security that is enabled here seems to be little more than invulnerability of the total ledger to hacking or other compromise: this, it is argued, can be successfully accomplished through public/private key encryption without necessarily requiring a system of surveillance and repression that would be characteristic of a state security apparatus. The focus on encryption strips “security” of any political connotation relating to a central authority that maintains its internal secrecy by means of force.30 Here, the entire security paradigm— the question of what constitutes “security”— changes. It’s not about building a firewall up around a centralized pool of valuable data controlled by a trusted third party; rather the focus is on pushing control over information out to the edges of the network, to the people themselves, and on limiting the amount of identifying information that’s communicated publicly. Importantly, it’s also about making it prohibitively expensive for someone to try to steal valuable information.31 Such was the vision of self-styled “cypherpunks” in the late 1990s, who believed that anon-proprietary (public domain) and permissionless (useraccessible) encryption systems would be more widely trusted than the costly and ineffective security provided by large, secretive organizations. This vision partly reflected their libertarian political agenda, which was to reduce the intermediation of central institutions. But it also reflected their technological agenda of creating “smart”— that is, self- enforcing— contracts that used automated access to external databases to trigger the transfer of digital “coins” between the digital “wallets” (accounts) of users when the conditions specified in the contract were fulfilled. Such a cryptographically enabled utopia would have eliminated the need for a firewall between the hackable Internet and a secure financial system, and would have considered the existing system of financial intermediation to be just one such platform among many, some of which could be entirely disintermediated and potentially open to all users. For the cypherpunks, there would thus be no problem with designing a cryptographic payments system that completely eliminates the option of noncompliance with a contract, as long as the changes automatically entered into user wallets can be trusted to be accurate. They assumed, moreover, that these entries would have to be trusted if all copies of the overall ledger of accounts were verifiably the same. Their libertarian goal was thus to achieve justice— seen as full compliance with contracts— through a form of economic disintermediation that required no trust in the integrity of central institutions. This was, they thought, a technological fix for the problems of the world now governed by central that are not worthy of trust.32 The cypherpunks’ design specification for a secure distributed ledger

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was met more than a decade later by the pseudonymously authored white paper for Bitcoin that would automate the distinction between a copy and a payment made over the Internet. From Bitcoin would follow the creation of other payment platforms, such as Ethereum, each of which had its own native coin (token) that could be hoarded as a speculative investment by believers in the future of such platforms— an investment that paid off when these coins were purchased as an asset class by mainstream financial institutions seeking potential short positions on their future.33 But there is nothing inherently radical or disruptive about the use of distributed ledgers as such.34 Some banks, such as J. P. Morgan, are already experimenting with the idea on which Bitcoin is based, the “blockchain,” as the best-established technology for increasing redundancy— the number of backups—a form of security that is better than secrecy, which can result in too few backups. They are thus reverse-engineering the Bitcoin ideal of a ledger that can be verified on every user node to create a “permissioned” network in which the ability to verify requires approval by a central authority— in this case, J. P. Morgan itself — that can keep the process in-house.35 Although I have learned much from developers in the cryptocurrency world, I do not share the cypherpunks’ libertarian view of justice as requiring, essentially, compliance with contracts. As I pointed out in chapter 3, contracts typically imply the existence of an option of noncompliance that can often be priced as the fluctuating spread between the cost of complying with the contract and the cost of reimbursing the other party for relying on it. Neither do I think that the inability of financial intermediaries to protect our accounts from meddlers, or from their own possible meddling, is a principal reason why contracts should not be irreversibly enforced once their terms are met. For me, the concept of a smart contract, one that automatically rebalances the wallets of the parties, attempts to eliminate the option of noncompliance by reducing its value to zero. Insofar as this succeeds, it all but erases the question of whether and when it is just to enforce the contract by requiring full compliance when the circumstances of the parties have changed. A related point applies to the issuance of cryptocurrencies that can function as an asset class outside the system of ledger-keeping to which they are native. It is important, of course, that cryptocurrencies can be traded on a par with the other asset classes that coexist in the financial system. But how liquid will they be? There may, for example, be little demand for them. So the decision to hold any financial asset, including a cryptographically enabled coin, implies the possibility of purchasing a derivative on it that adds liquidity to one’s portfolio. (One might, for example, purchase a put option protecting one’s right to sell it back at a price— perhaps the original purchase price— that would otherwise be unavailable if markets move lower.) Because of my stress on the creation and valuation of options, I part

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company from even the most progressive developers of cryptocurrencies in my insistence on preserving the distinction between creating digital coins and writing options on them. The relation between a plurality of coins and the derivatives written on them is easier to grasp if we look back to an era before the logic of finance took over the mode of production, and before local sovereigns sought to exclude foreign coinages from their territory. Throughout much of late-feudal Europe, for example, coins issued elsewhere circulated alongside the coin of the realm. But as goods were moved from realm to realm, the supply of coins available to purchase them did not move with them. Instead, bills of exchange were written by private bankers who locked in a designated exchange rate among potentially available coinages for a period of time, often the time it took merchants to move between the local fairs where their goods were sold. These bills of exchange were often accepted as money in lieu of coin for purposes of payment, because they provided features of transportability and negotiability that minted coinage lacked. But they were essentially derivatives that indexed a plurality of coinages to their value at multiple locations, thereby allowing transactions to occur regardless of what coins happened to be physically present at any given time or place.36 Here, we see a clear connection between a plurality of coexisting coinages and the opportunity to issue private money in the form of derivative contracts referencing those coinages. In modern capitalist states the connection is at first less clear because of their sovereign power to require a single coinage within their territory. That said, however, much of the public money that now circulates in those states has much in common with the “private money” of late feudalism: it consists of negotiable debt instruments created by banking institutions and indexed to a government-issued coin, defined as a money token that is not a government debt. The United States “dollar” is, for example, both a coin that the government alone has the power to issue without incurring debt and a bill that represents a government obligation indexed to the value of the dollar coin, which happens to be no longer available to discharge that government obligation. And much of the US money supply consists of book-entry deposits created by private banks that can credit US dollars without issuing them. If this is not a scandal, it is at least a vacuum that the original cypherpunks had hoped to fill by breaking the now-dormant state monopoly on the issuance of coin, which could then be a form of cryptographically secured private money, as distinct from the monetized government debt the public money has become. In their anarchist utopia, “making” money (issuing coin) would be an alternative to borrowing, earning, or being endowed money that the state alone can create. But there is nothing to prevent states

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from using the same cryptographic techniques to issue digital coins of their own at par with the fiat currency; China may be considering this. And if privately issued currencies are not attempting to counterfeit a fiat currency, such as the US dollar, they are not in obvious conflict with the state monopoly on issuing dollars. So my political question, leaving cryptography aside, is whether increased acceptance of a plurality of coins creates new opportunities for stabilizing or destabilizing preexisting financial relationships. My answer in this chapter is that a plurality of coins creates opportunities to write options on them, and may thereby affect demand for them outside the community in which they are already accepted. New strategies of political and financial arbitrage are thus available. This aspect of the history of coinage was historically important in the transition to capitalism and it may be no less important to the transition out of it. We should notice, for example, that recent cryptographic revival of the word “coin” to describe the native token in a secure messaging system resonates with the traditional economic distinction between money that is mined (in the sense that its origin is exogenous to exchange) and money that is created in the process of exchange by extending credit. The former can be said to have intrinsic value, in contrast to the latter, which does not. But the original conception of intrinsic value was that the precious metal used in coin would have been rare, costly to discover, and laborious to extract or mine, so that coined currency (mined money) could be valued by both its “weight” and its “count.” Its intrinsic value would become liquid, both literally and figuratively, by being sold for its melt price, perhaps in another realm, so that currency flight could be a constraint on sovereigns wishing to debase their coin. In precapitalist Europe, a positive spread between the mint price and the melt price could be realized by a sovereign as a form of seignorage, which we would now consider a premium that could be charged for the liquidity that currency provides over the value of the metal it contains when priced as a commodity. But we have seen that bankers and merchants moving goods and currency from market to market could also write bills of exchange, the value of which was a derivative of the volatility of the relative spreads between the melt and mint prices of different coins at different times, and thus the value of locking in a particular spread for the time it took to move goods from one marketplace or fair to another.37 The legal historian Christine Desan has brilliantly shown how the relation between mining and minting, on the one hand, and the relation of public and private credit, on the other, are intimately connected in the prehistory of modern fiat money, as a matter of what she calls “constitutional design.”38 When designers of cryptocurrency try to operationalize the intrinsic value of their native coins, they, too, use the idea of “mining” the coin to tie

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it to some scarce resource, such as computational (or even electric) power that is exogenous to the ledger itself. But the fuzzy idea that the scarcity of that resource somehow explains their decision to limit the number of coins minted makes a hash of the distinction between mint price and melt price out of which the historical linkages between states and capital markets arose.39 In my view, the issuance of coins instead of credit can be a way for relatively autonomous political movements to interoperate with and potentially undermine the mutually supportive relation of the state and the financial system. In this way, the coin issuer may be able to get funding from its enemies as a side benefit of the native ledger it uses to get crowdfunding from its friends. So at this point I need to differentiate my stress on social derivatives from the tendencies that now dominate the cryptocurrency field to automate the enforcement of contracts by making breaches technically impossible. The political question I raise here is whether a subversive, alt-finance constellation of movements can benefit from its own perceived success by creating classes of financial assets that would fund financial capitalism’s would-be gravediggers. Such an approach goes beyond a common truism of the left— that democracy is meaningful only when the rich are insecure— by considering what it would take under present conditions to make the rich exaggerate their potential insecurity. Although my way of thinking about oppositional politics may seem bizarre to most activists engaged in organizing, I am now in a position to both clarify and qualify my interest in the possible uses of cryptocurrency to index and harvest the present value of justice as an option. I see movements that seek a directional change in capitalism— that seek a different future— as also operating on its present volatility. In the former respect, they are imposing explicit security costs on their opponents. But in the latter respect they are also implicitly creating financial opportunities for mainstream financial institutions to go both long and short on the operative effects of whatever tactics the movement plans to employ (such as boycotts, strikes, public protests, and security threats). An environmental movement opposing real estate developers could reasonably expect, for example, to increase the volatility of property values by increasing regulatory risk, and thus to raise the value of hedging against such risk. This is not merely an incidental side effect of the movement’s chosen tactics; it is a path through which those tactics would succeed insofar as they do. If this is so, a cryptocoin pegged to an internal metric of the environmental movement’s short-term success in generating political friction and bad publicity could also be marketed as a financial product that could be sold to otherwise unsympathetic investors seeking to hedge their downside exposure to the success of the movement.The movement could then harvest some of the upside that results from whatever increased financial volatility it creates

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by making it easier for investors to short controversial aspects of capitalism that they need not personally oppose. Let me stress that the issuance of the native coins I have in mind would need to be indexed to a defensible internal metric of value or success for the movement itself. The essential difference between a smart coin produced by an alt-movement and a piece of revolutionary swag, such as a Che Guevara T-shirt, is that coins can automatically perform the kind of accounting, or ledger keeping, performed by state-issued money in the capitalist discipline of payments. The social meaning of this or any ledger is to declare what is acontextually true in the sense of being more or less fully “entexted” (internally self-referential).40 But the coin itself also performs the function of indexing the financial statement of accounts to the external world of transactional relations. Such a semiotic description of the coin closely parallels the financial economist Gary Gorton’s description of a “safe”— that is, liquid— asset as one that can be confidently exchanged without any need to acquire additional and expensive information about its value under particular circumstances. (If someone gives you a coin, for example, you don’t have to know about the person’s credit history in order to be comfortable accepting it.)41 A coin is thus a unit of account that references transactions and is itself a transactional token that can be withheld and hoarded, in contradistinction to the money created through the liquidity of credit.42 My view is emphatically not that oppositional political movements should go into business as hedge funds seeking to benefit from whatever chaos the movement creates. Such movements must, above all, generate internal value for their adherents and do some good for those outside. But they also need to recognize that there will be hedge funds that seek to benefit from exaggerated perceptions— even fears— of the movement’s initial uptake and success. The strategic question I here consider is whether such a movement needs to go long on those first exaggerated perceptions. Insofar as they believe that the only form of legitimate political success is modeled on viral growth— essentially on contagion— they will grow when they appear to be growing, and then collapse as soon as they start to lose support. My proposed strategy is an alternative to the fantasy that someday, some anticapitalist movement will “go viral” enough to kill its capitalist host. It recognizes that financial institutions are already parasitical within capitalism— not only in the usual sense of sucking out its blood, but because they know how to benefit from a directional threat to asset values by treating it as an increase in volatility. The immune responses represented by financial derivatives— including the ability of capitalism to short itself— are usually sufficient for capitalism to defeat its enemies. That is how capitalism won in the second half of the

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twentieth century. This is typically taken as evidence of the “resilience” of capitalism, but it is also a point of vulnerability to the extent that capitalism’s enemies can control that volatility— and then learn how to leverage it. This, it seems to me, is how capitalism might yet be overcome as the twenty-first century plays out.

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In this chapter, focused as it is on relating national security to the market in securities, we must still consider how far the new technologies surrounding alternative currencies could be mobilized as a means for anticapitalist resistance today before they are suppressed. What if cryptocurrencies and the investments based on them were designed as investment vehicles for shorting or transforming the system of financial intermediation that is performed by means of fiat currencies? If this were to occur, governments with an interest in stability would almost certainly try to ban these alt-securities, if only because they were produced with overtly subversive intent. For example, a government regulator might try to prevent hedge funds from owning and trading the coins produced by openly subversive political organizations. It could also prosecute such organizations for attempts to manipulate, or hack, the market. Such a prosecution might even be legally valid to the extent that a subversive movement’s success in financing itself depends on insider trading, based on knowledge of its own plans, or on setting extortionate conditions for suspending those plans. But a political movement would not necessarily have to trade in advance to take financial advantage of a shock it had deliberately produced.43 The strategic point is for a movement to be able to leverage, after the fact, the financial fears it creates. This is something movements on the political right have understood far better than movements on the left. Regardless of whether repression of this or that financially subversive movement occurs, the logic of finance would still push mainstream financial institutions to seek out new instruments that allow them to hedge their insecurity about themselves. Capitalists with no direct subversive intent could, after all, take short positions on the overall health of the financial system without themselves having sabotaged it. And they could and would demand that banks and other financial intermediaries manufacture securities that allow them to take short positions, as the hedge fund managers Michael Burry and John Paulson did in persuading Goldman Sachs to create credit default swaps on mortgage back bonds before 2008.44 If it is perfectly legal for vulture investors who profess no interest in capitalism’s collapse to reap windfall gains from it, would such investors shun whatever alt-securities become available at such moments, or would they flock to them? Could

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government regulators make a principled argument that it should be illegal for those who may ultimately want to crash the financial system to create and profit from financial instruments that will rise in value with their success, while allowing other investors who profess no antipathy to capitalism to benefit from shorting it in the same circumstances? I do not doubt that governments would try to repress capitalism’s death instinct by banning such uses of financial innovation by some but not others. My question is whether they can successfully do so without destroying capitalism’s immune system, which is what the inverse forms of financial innovation practiced by vulture capitalists have now become. For me, this question is ultimately about how to leverage capitalism’s ability to short itself— usually a source of resilience— to strengthen and fund movements that seek to undermine it. In my experience, once-promising movements that fail to go viral tend to die when they begin to show signs of decline. This occurs because, when seen through the lens of finance, they succeed by creating volatility from which they ultimately fail to benefit. A successful implementation of the strategy I here suggest could mitigate the directional risks that face movements for which timing is everything, and which may yet be ahead of their time. That said, a security allowing money to be made from political threats to the financial system need not be produced by the movement posing those threats. It could be issued by third parties with no stake in the movement, and bought by investors for reasons that have nothing to do with their belief in the movement’s ultimate success. Capitalism’s immune system would then have worked. But isn’t this my description of how it already works? A less obvious point, however, is that anticapitalist movements could also find ways to benefit from the existence of vehicles for shorting capitalism that are not of their own creation. As their success becomes more imaginable, for example, they could hedge against an equally possible defeat by short-selling the securities being bidden up by capital markets in anticipation of heightened turbulence. They could thereby come out more financially resilient, merely from having posed a credible threat and lost. And why wouldn’t they try to pose such a threat? If they win, after all, they will have won. They would then have nothing more to lose. My argument in this chapter about shorting capitalism takes full advantage of the easily observable fact that there is no necessary link between the ideological positions of being pro- or anticapitalist and the financial positions of taking long or short positions on the liquidity of capital markets. Disciples of Ayn Rand can short capitalism as much as dyed-in-the-wool Marxists, even if their goal differs. A movement trying to resist climate change, for example, implicitly aims to lower the stock price of fossil fuel extractors, such as Exxon, by questioning the present value of the oil

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industry’s greatest asset: the option to drill proven reserves at some indefinite future date.45 Stated in financial terms, the movement’s tactic is to make the valuation of that option incorporate the political risk of heightened future awareness of climate change as its effects are manifested. To the extent that this is true, the movement is implicitly creating opportunities within financial markets to capitalize in the present on the premediation of the doomsday scenarios for those markets that the movement may hope to bring about. And this can be true whether the movement knows it or not. I would argue that, to become more effective, the anti– climate change movement’s political tactics should be stateable in these financial terms. This means anticipating that, in response to its perceived success, energy investments can be partially protected by manufacturing and pricing derivatives that would hedge against the political and regulatory risk the movement intends to create. One would also expect that investment in industries that could profit from such changing perceptions, such as the security and public relations industries, would go up as the climate movement is perceived to be more effective.46 If this is true of the anti– climate change movement, similar points can be made about anticapitalist movements. They can become effective, as I have suggested, by heightening the financial sector’s ability to visualize threats to capital liquidity, and thus increasing the value of macroeconomic liquidity premiums— especially those provided by government. But they should also be aware that someone on Wall Street is likely to be making money from writing derivatives on the spread between the perceived political threat to liquidity, which can change rapidly, and the relatively stable historical probability that an illiquidity event will occur. The fact that such derivatives can be traded on public financial markets and cashed out in dollars means that there is no need for investors to buy into an anticapitalist movement in order to profit from its success in helping people to visualize the end of capitalism. Once they recognize this, the tactical question for anticapitalist movements becomes whether they too can benefit from it, and thus be partly funded by financial institutions without selling out to them. This is where the idea of a “liquidity coin,” perhaps even of a “token of resistance,” could be a tool that movements can use to benefit from the heightened anxieties about financial liquidity that they mean to create, and which are usually mobilized to demonize movements such as theirs. Whatever else they may do and demand, at least some such movements could benefit by creating investment vehicles that can hedge against, and partially ease, the anxieties they mean to create— especially if those movements could be funded by the rising price of such investment vehicles. Although the further elaboration of this idea awaits the emergence of movements yet to come,

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I must emphasize yet again that the fear of such movements is already being traded in financial markets.47

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There would, of course, be obvious difficulties if I were merely suggesting that capitalism can, somehow, by tricked into funding organizations seeking to subvert it. Would organizations seeking to do this have to be themselves presumptively legitimate for such tactics to be considered legitimate? Would their ability to interoperate with the established financial system itself legitimate them? If it did so, would it also coopt them into becoming supporters of capitalism, leaving them as the ones who had been tricked? If there were a real danger that capitalism could be tricked, would not regulatory bodies like the Securities and Exchange Commission intervene to prevent capital markets from destabilizing themselves by succumbing to the very temptations that alt-securities movements would seek to exploit?48 A swift regulatory response would certainly occur if we were talking about hacking financial markets for the purpose of shaking confidence in them. And from a purely technical standpoint, or so I suppose, the same disruption to financial networks can be caused by ten million individuals acting in concert (for example, to crash a payments system or database) as by a single malicious user generating ten million copies of the same message or algorithm. At the level of political legitimacy, of course, the level of mass coordination required to hack capitalism matters greatly: the fewer hackers it would take to make the financial system illiquid, the easier it is to conclude, as we saw in chapter 2, that a sabotage of capitalism lacks democratic legitimacy and can therefore be repressed without provoking a reaction. These nineteenth-century questions would not disappear if my suggestion is pursued. I do, however, see the tactics I suggest as being difficult— even paradoxical— to ban, insofar as they are neither a trick nor a hack, but rather an intensification of the immune response that capitalism requires to protect itself. As we have seen throughout this and the preceding chapters, capitalism preserves financial liquidity, and thus itself, by means of continuously imagining threats to financial liquidity, and thus its own survival. To be effective, anticapitalist movements must understand themselves to be parasitical on this tendency within capitalism, and thus must remain acutely aware of the extent to which their continuing presence tends to weaken or strengthen the host that supports them. Although this book provides what may be new conceptual tools for doing this today, I also think that the entire history of democracy, as it operates within capitalism, has been one of using the disruptive potential

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of capitalism against itself and raising the value of justice as an option. Early-twentieth- century coal miners, for example, used the notion of a capitalist labor contract against capitalism itself by asserting the right to nationwide collective bargaining. The threat to shut down the national economy by exercising the acknowledged right to withhold one’s labor was then denounced as anarchism, terrorism, and of course subversion, precisely because the possibility of revolution was no less imaginable than that of sending soldiers in to break the strike before it spread to other strategically important sectors. Political leaders presumably wanted to suppress these strikes in order to safeguard the wealth accumulated in the means of production— but even then, this was not a knockdown argument for the use of force against strikers. Strikers, after all, aimed to succeed by threatening production; but production itself was possible under capitalism only by means of the voluntary employment of labor. The potential power of workers acting in concert to demand greater justice out of capitalism has thus been understood by Marxists as more than an opportunity to hack industrial capitalism’s dependence on the labor contract. What Marxist political organizers really understood was that a truly general strike was neither possible nor impossible in industrial capitalism— that it represents an internal contradiction.49 But, though the threat of a general strike turned the capitalist logic of freedom of contract against capitalism itself, it did not in fact overthrow capitalism, and may indeed have temporarily strengthened it by producing a new hybrid mid- century system.50 From my perspective, the mid-twentieth-century welfare state appears in hindsight to have been the price extracted by workers for rolling over (not exercising) the option of a general strike. In previous chapters we have seen how production and finance were imbricated with each other from the beginning of capitalism, and how that connection has deepened as the logic of finance subsumes that of production. From the totalizing perspective of finance, buying something in order to have it is just a variant of many profitable possibilities. These include “accessing,” “liking,” “trying,” or “subscribing” to it. All these variants of what we used to call “consumption” now create data that can be harvested, analyzed, and packaged into new products that will be partly financial and partly material. In today’s financialized capitalism we thus see a growing convergence between semiotics, cybernetics, and informatics as an overarching social praxis that allows us to reframe earlier forms of industrial commodity production, based on earlier modes of processing information, as just an earlier financial “platform.”51 My claim has been that successful anticapitalist movements must operate today within and against this relatively new framework of financialized capitalism. To do so, they must become better able to benefit from

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their perceived capacity to cause societal disruption, in much the way that some investors already benefit from heightened volatility. Intentionally subversive movements can exploit this possibility to benefit, both organizationally and financially, from the exaggerated fears that arise whenever financial collapse becomes more imaginable, whether through their own action or otherwise.

7: FUNDING JUSTICE I have thus far argued that historical injustice— the effect of past evil on present inequality— has a present monetary worth that can be linked, for analytical purposes, to the concept of a political revolution that would wipe out the cumulative effects of that injustice by destroying capital markets. I have thus compared an in-the-money-option on historical justice— one that is immediately exercisable— to revolution; and I have compared the democratic politics that indefinitely postpones revolution to an out-of-the money option that still has time value. The preceding chapters have been mainly concerned with this time value, which I equate with the liquidity premium that preserves accumulated wealth by deferring revolution. Three key political questions follow from this idea: (1) How can the size of the liquidity premium be affected by justice-seeking subjects? (2) Who appropriates it now? (3) How should it be redirected and invested in a justice-granting society?1 In chapter 5, I suggested approaches to enlarging and harvesting the liquidity premium at a macrofinancial level. Here, the liquidity premium would appear on the government’s balance sheet as an asset, the value of which would offset the liability the government assumed when it guaranteed the liquidity of financial markets. In the United States, the potential result would be greatly to enrich the federal government by far more than the most steeply progressive income tax ever could, since the dollar volume of US net financial worth that the liquidity put would guarantee is a large multiple of the US tax base.2 But a significantly richer state would be unlikely to use its financial wealth to advance greater justice— or to diminish the effects of past injustice— unless it is democratically controlled by justice-seeking subjects, as the United States in 2008 was not. Because of this concern, I concluded chapter 6 by proposing a critical approach to democratic politics that works through finance to diminish the political power and influence of the financial sector without indulging in the illusion that one can somehow make that sector itself more democratic. The animating question of that chapter is how political activists can become an

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effective force for social justice prior to, or instead of, recapturing state power in the near term. My answer partly depended on the recent appearance of decentralized computational protocols, such as blockchain, that are already being used by financial institutions, both to secure themselves from cyber attacks and to create predictive markets. I suggested that similar technologies could be used by politically autonomous— and, in the Italian sense, “autonomist”— organizations to both create and occupy a virtual public sector as an arena of political and social redress.3 To explain what is distinctive in my proposed approach, however, I first need to say more about the concept of a nonvirtual public sector— particularly about how its financing was conceived before financialization through the lens of taxation and sovereign debt, and how such an approach has been affected by the hegemony of global capital markets.4 My goal in this chapter is thus to articulate the relation between some of the microeconomic ideas in chapter 6 and the heavily macroeconomic approach of chapter 5.

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In the mid-twentieth century, the financing of greater socioeconomic justice fell squarely in the purview of fiscal policy: taxation and public expenditure. The public sector was widely understood to be the site where social (nonrival) goods were produced and consumed. Many economists thus saw the public sector as a favored site not only for providing goods that were intrinsically social, but for providing individual “wants,” such as education and housing, that had social “merit.” Because many of these economists were proponents of a strong public sector, they further believed that at least some such wants should not, as a matter of public policy, be provided in accordance with private preferences as measured by the market.5 Given the central role of the public sector in providing social goods and many merit goods, the central question of public finance then became what role price mechanisms should play in allocating resources to produce them, and in subsequently distributing the differential levels of well-being they permitted.6 At that time, even the economically conservative progenitors of what would become known as the Chicago School of economics, including Henry Simons and the young Milton Friedman, argued that without reducing the role of price mechanisms, social equity could be achieved through steeply progressive taxation of income and massive transfer payments. They thought, perhaps naively, that if an expanded public sector’s function could be limited to redistributing personal income rather than providing goods and services, this greater public role would not detract from the efficiency

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of the free market in allocating resources.7 In this early form of the Chicago School, redistributive taxation and a version of what we now call universal basic income was thus conceived as a desirable alternative to a large public sector providing goods and services because markets are inherently more sensitive than welfare states to changes in the intensity and relative priority of private wants.8 They here shared in the consensus of mainstream economists that even the most robust public sector would depend upon a robust private sector as the tax base needed to support it; their disagreement was limited to whether the optimal uses of tax revenues would bypass the public sector or expand it. The great twentieth- century historian of public finance, Joseph Schumpeter, explained the context of this debate. He saw any state that depends on taxes as a parasite that requires the creation and growth of a private sector in order to survive, and for this reason he described such a state as metaphorically, if not literally, “poor.” He meant this as a contrast to the “rich states” of the Middle Ages, in which monarchs derived much of their wealth from property in the way that other feudal lords would have done.9 In “rich states,” increased princely revenue thus came from acquiring more land and, with it, the vassalage of its inhabitants; territorial conquest, intermarriage, and inheritance were the main ways one’s feudal domains could increase. But feudal dues of goods and service were not always sufficient to meet the monarch’s military needs, and coin was sometimes used to hire mercenary armies. Much of this coin had to be borrowed or forcibly collected as the payment of a tax. The feudal precursors of public finance were thus the forced loans and levies (obtained by borrowing from the estates or taxing them) that provided monetary means for monarchs to overcome the “common exigency” of war. In Schumpeter’s contrasting account of the “tax state,” the need to raise currency through public borrowing or taxes is not occasional but constant. Here, the local monarch’s central role is to provide an increasingly contiguous territory with ongoing military defense from conquest by another monarch. The estates would then agree to be taxed because, if they were successfully conquered, the foreign monarch would force them to cover the cost of their own defeat by imposing an even heavier tax burden. The “common purpose” that tied them to the crown thus provided them with security from both conquest and excess taxation. But this meant the estates also had reason to protect themselves from excessive fiscal demands by their own monarch. They did this by defining a “private purpose” for themselves that the crown in turn was obliged to protect. The ruler had a fiscal interest in advancing that private purpose, because expanding the tax base became an alternative to acquiring more feudal territory. Monarchs willing to expand their tax base, for example, could assume the obligations of burghers and

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vassals to their feudal lords, and then tax these newly “free” subjects to pay off the monarchs’ newly incurred financial obligation to the landed aristocracy, who were now among the creditors of the state alongside bankers. Because the crown increasingly owed everything to the subjects whom it would directly burden with taxes, it had a need for political economists— specialists in public finance— on whom it relied to figure out the best way to raise tax revenue without reducing the tax base, and thereby lowering total revenue from taxation even as tax rates increased. For Schumpeter, questions of public finance lay at the root of political economy and, eventually, the science of economics, seen as the creation of sound public policy to nurture the private sector. Schumpeter thus provides a genealogy of the basic questions of mid-twentieth-century public finance: How much money should the state tax out of a robust private sector to support the public sector, and how much should it spend back into the private sector to stimulate its growth and possibly offset the inequities internal to it?10 By the mid-twentieth century these were generally understood to be questions for all industrializing economies, whether capitalist or socialist. A defining feature of the public finance literature at that time was thus its framework for comparing alternative paths to higher productivity through capital investment. It asked, for example, whether the price of the capitalist path should be heavy taxation of disparities in income and wealth, increased public expenditure for social services, direct state regulation of investment decisions and capital flows, or some combination of the three. The answers to this question were sharply divided in this period. There were strong differences of opinion, for example, about whether capitalist investors could sustain the price that democratic government might impose upon them, and whether such a political burden on capital formation by the bourgeoisie was historically justifiable, especially in so-called new societies unburdened by a feudal past.11 Should societies founded on political and social equality, it was asked, be relatively exempt from state policies favoring economic equality, based on the assumption that such policies were justifiable largely as remedies for the continuing effects of past injustice associated with feudalism?

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As these controversies raged into the 1980s, it was possible for a left Keynesian like Hyman Minsky to argue that production could and should be fully private and governed by the market— provided that credit markets were nationalized to smooth out the negative macroeconomic impact of the private financial sector. He thus wrote: “Socialization of the towering heights is fully compatible with a large, growing and prosperous private

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sector.”12 Minsky’s now-famous argument supporting this view is that financial stability is itself inherently destabilizing. Why? Because the whole idea of stable growth is that initially risky collateral becomes more liquid as asset values rise, thereby making previously speculative investments safer. As existing debts are validated and credit ratings rise in good times, corporate borrowers can roll over what they owe and borrow even more. For Minsky, this dynamic is not a pathological aberration in the system, but the essence of how and why it normally works insofar as the validation of existing debt depends entirely on the willingness of investors to hold it rather than demand cash when it comes time to refinance. But this definition of financial stability in capitalism is also, for Minsky, the source of capitalism’s inherent financial instability. As borrowers become ever more indebted, their cash flow eventually becomes insufficient to meet even interest payments on existing debt. At this point they become what Minsky calls “Ponzi” borrowers, who can stay afloat only by selling assets or going deeper into debt. Any minor shock can cause such borrowers to miss a payment, and thus jeopardize their creditors’ confidence that they will be repaid. And once some creditors start to lose confidence, others will too. But when creditors simultaneously demand immediate payment, this lowers the market value of the collateral that must be sold off to repay existing loans, making it difficult, if not impossible, to refinance them. And as more and more collateral is liquidated into a falling market, a liquidity crisis turns into widespread corporate insolvency. A crash in the financial sector thus leads to a depression in the wider economy.13 Based on his analysis of the financial sector as a key source of economic instability, Minsky opposed the then-widespread consensus that the Keynesian government policies of the 1960s were to blame for locking in a cycle of inflation and stagnation during the 1970s.14 For him, the problems of capitalist stagflation were the result not of misguided state regulation of the economy, but of industry’s dependence on private capital markets to finance its investments. The problem here is that credit collapses when the secondary market in debt instruments becomes illiquid, leading to a fall in the value of collateral as it is sold into a falling market to raise cash to cover debt. Minsky’s emphasis on the importance of liquid debt as a means of corporate funding comes out of his distinctive reading of Keynes, which foregrounds liquidity preference as a driving factor in Keynesian economics. (This concept is also central for our purpose of pricing the liquidity premium). His basic argument is that the need of corporations to hold assets that are more liquid, like cash, as opposed to assets that are less liquid, like investments in fixed capital, changes over the course of a business cycle. While an economy is stable or growing, “increased availability of finance

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bids up the prices of assets relative to current output, and this leads to increases in investment.”15 Corporations can then borrow more against the same collateral without increasing leverage because the market value of that collateral appreciates in proportion to their increased debt. Initially, such collateral remains liquid, which minimizes the need for corporations to hold cash reserves. But the perversely destabilizing effect that dependence on the financial sector has on industry is that the expansion of debt-based liabilities on corporate balance sheets must be offset by increased cash positions— liquidity— to service their debt. This becomes, for Minsky, the Achilles’ heel of a productive economy that is beholden to the financial sector. If growing businesses at some point generate less cash— become less liquid— their expected ability to pay existing debt goes down, which in turn makes it harder for them to refinance thereby making them even less liquid.16 Minsky describes the resulting downward spiral in Keynesian terms by saying that at such moments the liquidity preference of lenders increases. The result is the paradox the economist Irving Fisher had described a few years prior to Keynes’s General Theory and called a “debt-deflation spiral” to which I alluded in earlier chapters: When defaults cause collateral selloffs, the market price of the collateral for nondefaulted debt falls, thus leading to further collateral calls and more defaults.17 Minsky’s invocation of this paradox builds on Keynes’s concept of a liquidity preference to argue in the 1970s that “stagflation is the price we pay for the success we have had in avoiding a great or serious depression.”18 In this context, Minsky concluded that only a takeover of corporate finance by a public sector committed to stable growth would achieve Keynes’s stated policy goal of maintaining full employment while simultaneously advancing greater “justice and equity in income distribution.”19 In what ways does Minsky here anticipate my argument? Both of us regard the high liquidity premium periodically demanded by private capital markets as an impediment to greater justice. But where I propose to harvest that premium to finance justice, he proposed to abolish it by nationalizing private capital markets and letting the state finance the remaining private sector that could then enjoy regulated growth and full employment without fear of financially driven instability. For Minsky, this would clear a financial path for the public sector to rig capitalism to serve the interest of workers and the poor, though he knew that having a clear path would not make this an inevitable outcome.20 Minsky’s basic insight was, I think, that financial stability and full employment are at odds in Keynesian theory only because there is a cyclical premium on the liquidity of debt in secondary credit markets, which could be easily abolished by nationalizing those markets. This argument was directed mainly against the same neo-Keynesians who also

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believed that price stability (controlling inflation) was incompatible with economic stimulus to achieve full employment. His retort to neo-Keynesian arguments for prioritizing debt liquidity and price stability over full employment was that the private capital markets that forced such a choice should themselves be socialized so that market-based production and consumption could thrive.21 But there is no going back to the choices of the 1970s, and my view is a response to what happened thereafter.

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Instead of pursuing Minsky’s full-employment proposals in the 1970s and ’80s, policy makers sought to promote capital market stability— what would later be called “the great moderation”— making the Federal Reserve an implicit guarantor of the private sector liquidity premium. This subsumption of public sector economic planning by the logic of finance coincides with the financial revolution in economic theory associated with the Chicago School of economics. Implicitly rejecting Minsky’s solution to the 1970s impasse in Keynesian theory, Chicago economists took a hard turn from the earlier moderation and sought to undermine public sector regulation of finance altogether. Where Minsky saw a rising liquidity premium (lower “investor confidence”) as a disruptive force, the mature Chicago School came to see it as the principal tool of both economic analysis and public policy. The essence of this approach was not primarily to emphasize Keynes’s own stress on the “animal spirits” of risk-taking entrepreneurs as a driver of capitalism.22 Rather, their argument was that the mid-century planning functions enabled by Keynesian macroeconomic theory could and should be replaced by fuller and more perfect versions of actually existing financial markets that were now seen as implicitly trading liquidity premiums more efficiently than the state could regulate them. Macroeconomic problems of planning were thus replaced by theories of rational choice under conditions of uncertainty and asymmetric information to which market mechanisms were said to be especially sensitive. The claim by Chicago School economists— most notably Milton Friedman and Robert Lucas— that capital markets could supplant Keynesian regulation took on added force because this was when economists at the University of Chicago Business School, along with others at MIT, were spearheading a robust new approach to asset pricing in capital markets using options theory.23 This meant that most if not all public policies and programs could be restated as contingent claims and liabilities— a system of puts and calls that could be priced on the basis of a theoretical model, even in the absence of a market for trading such claims. Once public policy outcomes could be theoretically priced and analyzed

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as derivatives on underlying markets, there seemed to be no inherent reason why the government should ban rather than facilitate their being traded on these markets. This allowed affected parties to buy out of any proposed regulatory scheme or public program on the general theory that most regulations, like most contracts, implicitly price the option of an efficient breach. It followed that private financial markets could fund these programs by directly pricing and trading the options for evasion that they created, thereby reducing and potentially eliminating fiscal burdens on the state. This new approach to public finance proposed to derive a market price for opting out of all public programs and regulations, and to assess such programs on the basis of whether they created markets for new financial products, including opt-outs, that the market could provide.24 It was also true, however, that option-based substitutes for government’s role in the economy often performed different functions and served different interests than the programs they replaced. For example, market-friendly reforms often stimulated the design of new financial products, such as contributory pension accounts, that encouraged traders, fund managers, and ordinary people to hedge against risks from which they had once been unconditionally protected by tax-and-spend public programs such as Social Security. And in higher education, direct state and federal funding of public universities was gradually replaced by an influx of private capital for student loans that allowed both tuition and spending to rise much more rapidly than they otherwise would have done— and far more rapidly than the rate of inflation. There were similar market-based “reforms” of public housing, public health care, and even public prisons— all of which were eventually subsumed into the logic of modern financial theory. This increasingly tied them into private capital markets that both generated new capital funding and, increasingly, set new priorities. And because, as we have seen, the Chicago School of economics originated as an attack on the mid-century theory of public finance as such, it should not be surprising that its restatement of government policy and programs in the language of privately created financial options led to the increasingly privatized provision and funding of the “social wants” and “merit wants” that public finance theory had assigned to the public sector. Somewhat more surprising, however, was a resulting change in the mode of analysis applied to regulatory policy itself, regardless of whether it was implemented in the public or private sector. Before the revolution in financial theory, the variable effect of regulatory policy on the liquidity of financial assets could be seen as a negative externality that could undermine the policies’ effectiveness. This is why progressive economists, such as Minsky, assumed that regulatory policy would be more effective if capital markets were effectively nationalized, thereby eliminating the variable

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liquidity premiums for financial assets that they create in response to such policies. Following the rise of modern financial theory, however, the effect of regulation in creating differential liquidity premiums became central to articulating the goals of regulation, as well as becoming a principal tool for implementing it. By this I mean the following. Proposed regulations could be assessed on the basis of whether their aim was to create a liquid market for allocating a resource, or to reduce the liquidity of an existing asset market that was misallocating that resource. Regulations would therefore operate by affecting the price that capital markets set to buy out of them. Every regulatory regime would thus affect a secondary market in which its impact on liquidity premiums in the underlying market could be traded and arbitraged in relation to a baseline liquidity premium of zero in an ideally efficient market that would need no regulation. As a consequence, regulatory arbitrage, previously seen as an impediment to government regulation of the economy, has become the lever through which the economy is managed by capital markets that have taken over many functions from the government. This has made the nationalization of capital markets much less conceivable as a means of regulating them than it was when Minsky wrote. We must thus ask what Minsky’s policies would mean today. Could a state now advance historical justice by expanding GDP and redistributing incomes, without appropriating and preserving a substantial portion of the wealth that has been accumulated in the form of financial derivatives? Could it proceed as though the revolution in financial theory had not occurred? In addressing the question of how or whether the state can finance historical justice through taxing and spending alone, we should first take note of how little popular support exists for such an approach within advanced capitalist states. This is paradoxically true even though, as incomes become less equal, the main burden of progressive taxation in such states falls on an ever smaller minority.25 But democracy today no longer rests on a common belief that electoral power could be used by a majority to increase its share of national wealth, and that in a “mixed economy,” the public financing of publicly provided programs can be a needed counterweight to the role of finance in a private sector dominated by manufacturing.26 Without being able to articulate democratic demands in language that meshes with finance itself, we will not be able to create remedies for historical injustice that can be funded

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The importance of connecting justice to its funding stream is especially clear in the United States, where the task of historical remediation has most

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often fallen to courts, which lack the power of the purse that is vested in other branches of government, but have wide powers to compel wrongdoers to pay.27 The US jurisprudence of remedial justice derives from the ancient power of English courts of equity to fashion remedies if they found a violation of rights, and from the abolition in 1938 of the distinction between law and equity by new Federal Rules of Civil Procedure.28 Based on these recently revised rules, US federal courts used civil rights injunctions, an equitable power, to desegregate Southern school districts in the aftermath of Brown v. Board of Education, and then asserted further equitable powers, inherent in their jurisdiction to decide all cases properly brought before them and to craft remedies in many domains where discrimination on the basis of race and other unconstitutional criteria had long existed.29 Whether the federal courts also had an equitable power to fund the remedies they crafted was a more difficult matter. Federal judges quickly figured out how to make state and local governments pay the attorneys who brought successful civil rights suits against them— they were considered in retrospect to have been “private attorneys general.”30 But these courts lacked equally effective tools for making state and local governments fund the equitable remedies they imposed, if doing so meant redirecting tax revenues that had already been appropriated by legislatures for purposes more popular than that of obeying court orders. As for new taxes on the general population, a federal court clearly lacked the power to impose them and to then require that the proceeds be used to enforce its orders. Underlying this obvious political impediment was a deeper question of judicial legitimacy. The preemptive language of rights and remedies that the courts were using to justify their power presupposed that the majority’s preferences about how tax revenues should be spent were discretionary and must give way to mandatory remedies for judicially recognized denials of constitutional rights. In this specifically countermajoritarian gloss on constitutional rights, a majority as such did not have them; the “rights of the majority” would thus be reduced to a mere figure of speech.31 But such a view would need to be reconciled with the eighteenth- and nineteenthcentury justifications of majority rule as itself a procedural remedy for bad histories in which majorities were the historical victims of privileged minorities. Was majority rule itself the underlying constitutional right that federal courts were obliged to enforce, or was it a default remedy established by the constitution for historical injustice— a remedy that courts could override or refine as necessary if they found that such injustice was perpetuated or exacerbated by means of majority rule? The Warren-era federal courts addressed this problem head-on by implicitly treating this rationale for majority rule as though it were basically a form of remedial justice for bad history that could not be extended uncritically to the history of the United States,

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which had not overthrown an oppressive feudal aristocracy,32 and which had enslaved a minority that continued to exist as a permanent underclass. The central jurisprudential problem of the Warren era, developed through its doctrine of when to apply “strict scrutiny” to legislation, was to justify giving variable degrees of deference to a majoritarian process that is not always a remedy for historical injustice, and could be perpetuating it. In those areas where it found strict scrutiny to be justified, the “equal protection” jurisprudence of the Warren Court required that the presumed legitimacy of majority rule give way to the more fundamental democratic project of remedying the ongoing effects of historical injustice. The Warren Court took this to mean that, in order for the US to be a democracy, the political order established by the US Constitution must be founded on the presumed equality of historically wronged groups with the electoral majority. It followed that an electoral majority may not permissibly burden historically wronged minorities in ways that it does not also burden itself; it must protect them equally under the law by not benefiting at their expense in ways that it may permissibly do at the expense of more temporary electoral minorities who had not been the victims of historical injustice. The right to equal protection became in this respect a ratonale for limiting or overriding majority rule that might not apply in other countries where popular sovereignty could be seen as the constitutionally established remedy for a history in which the self-identified majority was oppressed by a minority.33 Such a remedial— or equalizing— approach to constitutional democracy was described by John Hart Ely, a former law clerk for Chief Justice Warren, as a judicial reinforcement of the formal political representation of historically underrepresented groups.34 A restatement of nearly all of US constitutional law along remedial lines was articulated in the 1970s by Laurence Tribe, who found the problem of offsetting potentially illegitimate forms of inequality to be pervasive throughout the Constitution. His magnum opus, American Constitutional Law, set forth structural permutations of this theme in the spheres of education, speech, religion, commercial regulation, federalism, the separation of powers, and so forth, and saw the history of US constitutional development as an ongoing process of analogizing these structural permutations to each other. The capstones of Tribe’s “structure and analogy” method of constitutional interpretation were the Fourteenth Amendment concepts of “equal protection” and “due process” that became decisive in the cases to which the Warren Court applied strict scrutiny. Tribe’s approach both celebrated and historicized this development by showing it to be the culmination of a process that analogized the variable structural role these concepts already had in spheres of constitutional jurisprudence that earlier Supreme Courts had tried to keep more separate than the Warren Court had done.35

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To accelerate this metastasis of equal protection and due process across the entirety of US constitutional law, a generation of legal activists— my generation— saw battles over the jurisdictional reach of US federal courts as a primary site of struggle over historical justice.36 But despite the ingenuity of their arguments for an activist judiciary, government taxation and borrowing were still ultimately controlled by elected politicians who could stir resentment of the backward-looking justice pursued by courts to the extent that funding it preempted the forward-looking public policies on which elections could be won or lost. The argument for historical justice, even assuming the courts could get it right, would thus always come down to whether and to what extent the cost of enforcement is a budgetary and moral priority, despite the consequences for nonremedial and judicially mandated programs that would suffer as a result.37

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Although the era of federal judicial activism did not survive the declining role of government brought about by financialization, I believe that we are now in a position to use the logic of financial derivatives to accomplish some of what US federal courts once attempted to do when they devised structural injunctions to remedy past injustice. One way of stating the problem of educational inequality, for example, is that students lacking other social advantages are the only ones in our society who are entirely long on the success of their schools as gateways to upward mobility (in precisely the sense in which those owning S&P-based mutual funds are said to be long on the stock market).38 But being “long” on the public schools is finance-speak for being “at risk” for their failure— a phrase which expresses, in the seemingly callous language of unhedged financial exposure, the importance of schooling as the only path upward for those who lack a diversified portfolio of social advantages.39 If the public schools fail them, these students presently get no offsetting benefit. But, today, these schools themselves are often closed and replaced by private-sector educational providers that use educational modules resembling the standardized tests that they are training students to take.40 The near-term beneficiaries of this are investors in the educational analytics industry and the for-profit school industry: the more educational failure there is in the traditional system, the more public funding will be diverted to corporate schools in which the curriculum consists of continuous gathering of data to provide real-time evidence of learning outcomes. By focusing on the metrics used to shut down public schools, they provide the rationale for this diversion, which is how they get paid for what in finance would be called a “short” position on the ability of investments in mass

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education to reduce, rather than perpetuate and magnify, preexisting inequality. But what about the students? They are still “long” on their education, even after it has been successfully shorted by the for-profit education industry Why shouldn’t their unequal educational opportunity be offset by a hedge against the likelihood that schools alone, whether public or forprofit, can offset the combined effects of other social disadvantages, some of which are long-standing legacies of bad history? For them, a plausible remedy might be straightforwardly financial: an asset designed to rise in market value as their public schools declined.41 By analogy with bonds that have a call feature that is triggered by some “positive social impact,” these hypothetical financial assets could be called “negative social impact” puts. The appreciation of a negative social impact put would be directly redistributive at any point at which its bearer sells it to harvest the benefits arising from the negative social impact of the public schools, as the for-profit school industry is already doing.42 In a sense, that industry’s ability to shut down and replace public schools based on performance metrics already operates as such a put— a financial asset implicitly awarded to them by the government education policies from which they now benefit. My question is why the students who suffer from school failure should not have been endowed with such an inverse asset, and why the for-profit school industry should not have been required to buy it from them, rather than getting it for free. If students were to hold an inverse put on public school success, selling it to the for-profit education industry would not be only way for them to benefit from it. They might, for example, pool their assets into a fund with long and short positions from which cash withdrawals are possible as needed. Why couldn’t such a fund then diversify itself by being long on the performance of elite private schools— or perhaps by being long on an index on the spread between them and the public schools? Why not design a more complex derivative that pays off if the spread increases? Such a fund would be a hypothetical example of what I called, earlier in this chapter, a virtual public space for redistribution and redress. But who would buy a financial instrument from which profits could be made if disparities in school success rates widen? One possibility, as I have said, would be those already investing in the for-profit education business. They are already selling the public school system short, along with the success of its students. Purchasing a long position on an inverse asset, if it existed, could put them in an equivalent position with less risk and fewer collateral expenses. And they would no longer need to peddle cruel optimism about the ability of privately-provided schools that are focused on metrics to remove barriers to class mobility that may, in the end, be due to class structure rather than school failure. This implies that they would not

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be the only market for a negative social impact put. Any pessimist about the ability of either public or private schools to alter class structure might buy an asset that gives them a clean short on social mobility as measured by a specified index of educational success. My hypothetical suggestion would allow students who share that pessimism an opportunity to short their education, rather than awarding that opportunity only to the for-profit education industry, which is based on the assumption that students have no alternative to going long on education regardless of a deepening class divide. Such a “modest proposal” for addressing the devaluation of so- called human capital can be read as Swiftian satire by those who, like me, believe that the intrinsic and possibly universal value of education is self-evident; but there is still a political point to be made here about the specific role of school finance in widening or narrowing the ongoing effects of economic injustice. In a political culture where equality of educational opportunity is widely believed to mediate and legitimate the relation between class reproduction and class mobility, the public schools may get increased funds because of student failure, but are not automatically rewarded for student success. In this financial model, public schools are clearly taking a short position on their students, especially in inner cities. What about introducing a system competition among schools: “school choice” implemented through publicly funded vouchers? This potentially aligns the incentives of students who are long on their education with those of schools that take a long position on their success. But by making parents responsible for evaluating and comparing the quality of schools, the implicit message is that parents who make poor choices— perhaps because they are pessimistic about the ability of education alone to offset class or racial inequality— become responsible for their child’s place in the eventual distribution of lifetime income. Instead of being at risk for school failure, they must now choose to bear the risk that their choice of schools will not offset the compounding effect of financialized capitalism on preexisting economic and social disparities. This risk cannot be blamed on their having “no choice” about what school to attend. The political point is simple: If the principal reason to invest in public schools or universities is to reduce indexes of, say, lifetime income inequality, then why should those who are supposed to benefit from this investment bear all the risk if the indexes increase? In the area of educational inequality, we thus have another example of Dupuy’s paradox of choice versus predestination, discussed in chapter 3, in which the counterfactual and the causal history are distinct: if you had not had the poor education you did, your socioeconomic outcome would be different; and yet your education did not cause that outcome, which was largely predetermined to occur, whether through your education or by some other path. My modest proposal, even if facetious, illustrates how the

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spread between these stories affects the value of an option that would pay off inversely to the economic value of education now used to justify public and private investment in it.43 For analytical purposes— and maybe more— the possibility of designing financial securities as substitutes for failing social programs can thus be a tool with which to think through that failure, if only because deepening social divides would become more visible as the prices of such negative social impact securities rise. A pressing hypothetical question is whether the existence of such securities would eclipse the need for the failing programs they are designed to hedge and thereby focus attention more directly on the social divides that they are meant to mitigate. In my view, this would not be a bad thing if it can raise the question of whether these programs are valuable in themselves or simply as Band-Aids on conflicts attributable to financialized capitalism that are best addressed by directly financial means. We could ask, for example, whether the premiums collected from a short position on schools should be reinvested in creating better schools, rather than being used to reduce financial disparities that the schools themselves cannot affect. The answer would depend in part on whether better education, and broader access to it, has a value independent of its perceived effect on legitimating wider income inequality— and that would, of course, depend on what kind of education it is.

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In addition to leveraging capital market turbulence to finance a transition away from capitalism, or exploiting it to deepen capitalist inequality, my willingness to think financially about such questions implies the existence of a third possibility: that the technologies created by modern financial theory can be “unleashed,” presumably by enlightened policymakers, for the purpose of “saving capitalism from the capitalists.” Raghuram Rajan and Luigi Zingales at the University of Chicago’s School of Business wrote a book by this title. It argued that the financial revolution was itself a democratization of capitalism that reduced the power of financial elites, and recommended further steps to eliminate the subsidies and other advantages that those elites still enjoyed.44 The danger posed by capitalism, as they saw it, was not financialization but its incomplete victory over the government- enabled crony capitalism that preceded it, leaving incumbent financial elites with too little competition and too much control over private access to funds.45 But by showing how to diversify and thus reduce the risk of lenders, financialization makes it easier and cheaper for risky borrowers to get funds. The expansion of credit and proliferation of subprime debt enabled by financialization is not, according to Rajan and Zingales, its greatest

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danger, but the core of its democratizing promise “amounting, de facto, to a revolution” that has brought us “closer to the utopia of finance for all.”46 They further argue that the democratizing potential of finance was advanced, not threatened, by a rapid growth of the markets in financial derivatives that have reduced the need of corporations to generate their capital internally and have often resulted in the flattening of corporate hierarchies and the breakup of large organizations.47 Rajan and Zingales recognize that the “dark side” of all this is the inherent vulnerability of financial markets to liquidity crises.48 While recognizing that these could result in financial collapse, they see a greater danger that government efforts to forestall such collapse will reverse the democratizing tendency of finance itself by reverting back to crony capitalism and bailing out the establishment while allowing its competitors to die. To the extent that financial elites— the “capitalists” in the book’s title — anticipate such bailouts, they will take greater risks to maximize their profits, while welcoming the consolidation of the market power that will follow if their market strategies fail because, as dominant financial institutions, they are “too big” to be allowed to go out of business for this reason. The greatest danger to Chicago School capitalism is thus that government will seek the support of an incumbent financial aristocracy at precisely the moments when that aristocracy is most in need of government support, and thus becomes willing “to go against markets” in order to survive.49 Saving Capitalism from the Capitalists, by Rajan and Zingales, was published immediately before the government bailouts following the Great Recession had the effect of saving the largest capitalists from the risks of capitalism. Its criticism of “too big to fail,” and more broadly “the cancer of crony capitalism,” was taken up after the Great Recession in A Capitalism for the People, by Zingales writing alone.50 Here, he frankly channels populist anger at the favoritism shown to big banks and other financial institutions which, with little regard for their role in bringing on the financial crisis, were largely rescued from its consequences. Like me and many others, he sees how such actions might trigger a populist response that brings capitalism itself into disrepute. The populism Zingales favors, however, is not a demand for the redistribution of income or wealth, but a demand for meritocracy based on a system of fair competition that is not rigged in favor of big business and the rich. Such an antibusiness but promarket perspective should, according to Zingales, lead populists to support the democratizing and leveling aspects of the financial revolution that he and Rajan had celebrated in their earlier book, so that capitalism can “work for everyone.”51 There are parts of Zingales’s argument that resonate with mine. As we have seen, he gives a lucid account of why “too big to fail” incentivizes systemically important banks to lend too cheaply to the largest investment

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funds. This allows the funds to further leverage the already-risky positions that they were misincentivized to take because their legal structures mostly insulate them from losses while giving them an outsize share in any gains. Thus there is, he suggests, a hidden subsidy for capitalists that is objectionable on economic grounds because it is a subsidy, and on political grounds because it is hidden.52 The effect of “too big to fail,” he rightly says, is to make markets more sensitive to the political risk that bailouts will not come than to the market risk that they will be necessary.53 But in the end, he “is not opposed to government intervention in such extreme circumstances,”54 and is mainly concerned that those who resent them demand reforms that are promarket rather than, as I am arguing, pro-justice. My disagreements with Zingales arise from his failure to explain why the bailout of capitalists has proven to be necessary for the survival of financialized capitalism, and how this bears on questions of its justice. His story is that bailouts have become necessary because they are now expected— that the Fed would make only the crisis if it put those expectations in doubt. But these expectations were created in 1987 when Alan Greenspan, shortly after becoming Fed chair, decided to support an asset bubble rather than allowing it to burst (the “Greenspan Put”). They were reinforced when his eventual successor, Ben Bernanke, while still an academic, coauthored an article in 1999 praising the Greenspan Put because asset crashes damaged the economy and there was no good way for the Fed to distinguish in advance between bubbles that could safely be allowed to burst, and market valuations that must be supported to protect systemically important institutions. Bernanke’s decision as Fed chair to follow a similar course in 2007– 8 is often called the “Bernanke Put.”55 But, for Zingales, the government’s provision of “outside liquidity” to capital markets appears to be the consequence of ill-advised promises, bad habits, and nervous economists rather than a structural necessity of capital markets that biases them in favor of perpetuating and deepening preexisting injustice unless the democratic forces that Zingales invokes can be mobilized against them. For him, however, a concern for justice is limited to leveling the playing field so that anyone can get rich, rather than moderating the gaps between those who do and those who do not. This is not what I, and many other moral philosophers, would mean by “making capitalism work for everyone.” A higher moral standard for “saving capitalism from the capitalists” would have to address its structural tendency toward compounding preexisting injustice, and then proactively use the tools of finance to correct this tendency. Such remedial applications of finance could, for example, make of capitalism more just in Rawls’s sense through instruments, based on puts and calls, that would automatically make the worst off better off as a condition for allowing the best off to do even better. This could not, of

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course be a true Rawlsian social contract, because it does not arise in what he called “the original position”; the element of implied consent to such an arrangement would here be predicated on knowing where one stands in relation to an existing baseline of inequality that is otherwise expected to become worse. In such circumstances, the relevant Rawlsian question is to what degree a society’s overall justice can be improved (on the basis of principles chosen in the original position), where such improvements are constrained by the need to avoid provoking opposition from those better off that could threaten the liquidity of capital markets. The most sustained recent effort to bend finance toward greater Rawlsian justice under such a constraint is that of the Nobel Prize– winning financial economist Robert Shiller.56 He is best known for arguing that homeowners should be able to buy downside protection from foreclosure by selling a call on part, or even all, of the upside they might get from real estate appreciation. Here, as in his later work, there is an explicit acknowledgement of preexisting levels of socioeconomic inequality as a baseline: the question of justice is limited to negotiating the terms under which further inequality will arise. Shiller’s proposal is simply to make the least risk-capable as well off as they could be in their worst- case scenarios by making the most risk- capable even better off than they would otherwise be not merely in the best-case scenario, but under most positive scenarios. When taken on its face, the apparently zero-sum financial transaction that Shiller proposes would not transfer wealth downward unless housing markets fall, perhaps substantially. In “up” markets for residential housing, it would transfer wealth upward. What makes Shiller’s approach to financial markets more Rawlsian than the Chicago School is the possibility of linking his index of housing prices— the Shiller-Case index— to other forms of indexation. His idea here draws on the practice of indexing for inflation as a common way to take the risk of changing currency values out of financial contracts by requiring them to be repaid in inflation-adjusted dollars. But Shiller goes far beyond this in suggesting that home mortgages could be indexed to the borrower’s income level, to property values elsewhere, or to property values across a city and region rather than in a single neighborhood. Lower-income homeowners could thus have many possible alternatives to the high-risk, high-reward mortgage that is now their only available choice. And once there is such a variety of indexed mortgages, there could be secondary financial markets that price the spreads between them and today’s nonindexed mortgages. From Shiller’s perspective, the overall effect on net wealth would be either greater equality or better justified inequality, depending on the market choices people actually make.57 Shiller, along with various collaborators, has subsequently taken his

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approach to indexation and choice beyond the housing market. In Macromarkets, he proposes that governments and investment banks manufacture index-based (i.e., parametric) options on the future movement of macroeconomic aggregates, such as GDP and the Gini coefficient of income inequality. This could be done on a risk-neutral basis, he says, by simultaneously issuing, for example, an “up macro security” (in Shiller’s terminology) that rises as the index rises, and a “down macro security” that rises as the index falls. Once these securities become separately tradeable on public markets, Shiller argues, their price movements could effectively lock in a position in the present income distribution for anyone willing to purchase this type of protection as income inequality rises for everyone else.58 In this way, Macromarkets shows how it is possible for limited redistributions of wealth to occur through the repricing of inversely correlated financial assets that are pegged to indexes. This could occur without much, if any, taxpayer involvement and without diminishing the responsibility of individuals for the choices they make. From Shiller’s quasi-Rawlsian perspective, his proposal justifies future rises in inequality, which might happen anyway, to the extent that they are accompanied by greater downside protection, if they choose it, for those who are most at risk. His point as an economist is that they would now have this choice, and that having it could make them better off if they are willing to be realistic about their high-risk exposure and poor life prospects in today’s advanced economies. A clear, if unstated, implication of this approach is that those who fail to overcome the psychological barriers to investing in Shiller’s macrosecurities would become a new category of undeserving poor— those who are unrealistic or willfully ignorant about their prospects, and who thus fail to ensure responsibly against becoming poorer. To me, however, finding ways to make the worst- off more responsible for their poverty advances neither Rawlsian justice nor the kind of historical justice that I advocate. It can even move us in the opposite direction. This is not merely true because a supposedly irresponsible poor person can choose to forgo insurance against being further disadvantaged due to existing disadvantages. It is, perhaps more importantly, true because the rich could benefit even more than the poor from buying assets indexed to rising poverty, and because they could then reinvest the proceeds and become even richer when markets recover. This is not a paranoid fantasy on my part; it is essential to Shiller’s macromarkets that that there be buyers for his inverse securities. The rich would be buyers only if they can benefit in the same way as the poor by purchasing index-based securities that are inversely correlated to an index of inequality, such as the Gini coefficient. Why wouldn’t large financial institutions buy these up, thereby further increasing the asset price inflation (wealth effect) that is expected to accompany rising

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inequality? If they are already benefiting financially from such trends, investing in Shiller’s macro securities would here provide them with new opportunities to double down on their positions— or to hedge by shorting these securities. Although Shiller does not explicitly acknowledge such possibly counterRawlsian effects of macromarkets, he elsewhere advocates the use of public tax policy to flatten the rise of income inequality as such. Instead of using taxation and government expenditures to advance equality, however, he proposes to adjust the effect, or incidence, of taxation so that, once again, preexisting inequality does not increase. This could be done, he says, if Congress were to simply legislate a revenue target and then charge the tax authorities with annually recalibrating rates so that the after-tax distribution of income among tax brackets does not become less equal than in the previous year— so that the after-tax Gini coefficient does not rise.59 Instead of using fiscal policy to achieve the greatest level of equality that would be consistent with capitalism, Shiller’s admitted compromise is once again to “leave the extent of inequality at its present levels” while at the same time ensuring that, as a result of taxation, “no household’s position in the income ranking is changed.”60 His political rationale is that the seemingly inexorable rise in inequality can be slowed only if its present beneficiaries are assured that they will not fall in rank as a result. Such a compromise may be— or may have been— attractive in the absence of political struggles over historical injustice. But if, as I have shown, his approach to mitigating inequality could have the opposite effect, and if today there are such struggles, there must be better ways than Shiller’s to harness the self-destructive powers of finance to undermine its tendency to increase preexisting inequality. Let us, then, return to my approach. I am clearly interested in Shiller’s proposed use of inverse securities to bring about redistributive effects, but I have raised the possibility— both here and in chapter 6— that these could be manufactured in alternative financial systems that interoperate with, and could be partially funded through, the single, hegemonic financial system on which Shiller relies. Might we avoid some of the potential problems I have here identified as arising from trading Shiller’s inverse securities on public markets, if they could be pegged to a publicly traded alt-coin market that is itself indexed to the performance of the entity that issued them? Some of my friends in the cryptocurrency world are trying to imagine how this might work, and their provisional answers would need to be evaluated by someone with greater technical knowledge than I have. Their general idea, however, is that investment in an alt-coin could provide those threatened by the issuing entity with a hedge against the anxiety that the movement creates about the future of the institutions it challenges, in much the way that off-chain speculation in the native coins of today’s Blockchain systems

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sometimes does. Whether this idea can be extrapolated into a full or partial strategy, the ability of such movements to fund themselves out of the increased volatility they create depends upon many factors, both technical and political, that still need to be worked out. A potential problem with such an approach arises from the fact that justice-seeking movements or justice-advancing governments are not the only entities that can issue and benefit inverse securities. Established financial intermediaries such as Goldman Sachs could issue derivatives on indexes of crime rates, or other parameters of social instability, that would make it possible for investors to benefit from a rise in crime without themselves doing anything illegal. Could criminal organizations also invest in these securities while benefiting from the effect of higher crime rates on their value? Would the success of such a business plan reduce the rate of crime by getting them out of that business? Or would it increase the rate of crime because doing so would double down on the value of their secondary business plan? 61 Strange scenarios are clearly possible. But stranger things may have happened in medieval Europe, where sovereigns were able to fund themselves by selling coin— thus making their subjects pay a premium for liquidity while promising to maintain the value of the coin by threatening to demand it back in taxes.62 If this was possible for political actors who were not therefore considered to be criminal, it has also been possible on occasion for political organizations classified by the state as subversive to create alternative economies in which they operate by selling liquidity through seignorage— the minting and circulation of coin. But even if such organizations can successfully fund themselves in this way, why should they do so? The answer, I think, lies in their need to distinguish themselves from criminal protection rackets by building public acceptance and even a measure of democratic legitimacy. In truth, the legal and political history of being able to collect a premium for supplying liquidity in physical and virtual spaces where multiple currencies have circulated has only begun to be written, and will almost certainly require a new chapter as new forms of monetary engineering— seignorage— take their place along today’s new forms of financial engineering. The more optimistic possibilities I suggest in this and in the previous chapter should thus be read as an attempt to reopen ancient questions about the political and legal relativity of money that have long been suppressed by its links to the sovereignty of states, and which have recently become possible to ask in new ways that are simultaneously global and local.63

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I will close this chapter by connecting what Marx had to say about the politics of repoliticizing labor to the more recent possibilities of repoliticizing

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money addressed above. A familiar idea in Marx’s Capital is that workers are separated from nonmarket access to their means of subsistence and thus need access to money in order to survive. This argument rests on the unstated assumption that the state (and the state-sanctioned banking sector) have a legal monopoly on issuing currency, and that workers need to sell their labor power because they cannot literally make money in the form of issuing coin or credit. This presumed link between currency and sovereignty is prior, both logically and temporally, to Marx’s description of a market-based mode of production in which workers are alienated from their labor by a universal need for state-created money.64 There is thus no exchange value, in Marx’s sense, without liquidity, and no liquidity without the power of the state to incur debt that is fully redeemable in a currency it can issue as needed for this purpose. Some of Marx’s analysis linking working-class politics to money can now be understood in terms of an ambiguity between its use as what semioticians call a metonym (an indexical token that substitutes for value in exchange) and its use as what they call a metaphor (an iconic sign that represents value as a price). But Marx’s own approach to politics did not anticipate the popular demand that the state should use its power to make money in a nonmetaphorical (that is, metonymic) sense as a means for funding infrastructural and welfare programs. His uncharacteristic blind spot was to assume that the gold standard operated to preclude governments from increasing deficits, inflating prices, or both to mitigate the domestic effects of business cycles on the poor. This meant that stable foreign exchange rates (convertibility without devaluation) became a priority in the emerging system of world trade that Marx consistently describes as an outgrowth of the ability of newly consolidated nation-states to keep a rising domestic proletariat under political control. But Marx’s basic understanding of the domestic money supply as limited by world trade, and the need for currency backed by gold reserves, prevented him from fully grasping the relationship between class politics and the state’s role in providing liquidity to domestic credit markets. He could not have anticipated, for example, that the working class’s demand for countercyclical policies of the kind recommended by Keynes would be among the factors that eventually destabilized exchange rates and ultimately ended gold convertibility itself. To him, such policies would have seemed to be outside the state’s purview, because of the constraints of the preferred regime of currency convertibility into gold that Great Britain was then imposing on Germany and France and hoped to impose globally.65 But Marx need not have limited himself in this way, nor should we. The now-standard approach to historicizing the gold standard gives a straightforward class analysis of its short-lived predominance that he did not seem to grasp:

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The credibility of government’s commitment to convertibility was enhanced by the fact that the workers who suffered most from hard times were ill positioned to make their objections felt. . . . Labor parties representing working men remained in their formative years. . . . The priority that central banks attached to maintaining currency convertibility was rarely challenged. 66 Marx’s failure to question the historical basis of currency issuance and convertibility was a limitation on his ability to imagine a form of workingclass politics based on the demand for increased state expenditures that might threaten currency convertibility, and thus lead workers to make demands against the monetary system in parallel to their demands against the property system.67 Keynesian economics broke through this limitation by bringing money back into a “general theory” of employment, and stressing that convertibility of one’s currency at par with gold or any other standard is a matter of political choice, rather than an economic necessity.68 That political choice, as explained by James Tobin, is that “a nation can maintain no more than two of the following three conditions: (1) a fixed rate of exchange between its currency and other currencies: (2) unregulated convertibility of its currency and foreign currencies; (3) a national monetary policy capable of achieving domestic macroeconomic objectives.”69 For more than fifty years, such “macroeconomic objectives” included full employment plus some form of unemployment insurance and income guarantees for those who could not work. This approach to politicizing money deepened the connection between shop floor struggles and the macropolitical relations between big government and finance. For Marxist economists like Michal Kalecki, the increased use of state spending to promote Keynesian objectives meant that “the social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow.”70 The mid-twentieth- century standoff between capital and labor ended only with neoliberalism, epitomized by the ascendancy of Reagan and Thatcher.71 Their anti-Keynesian claim in the 1980s was that newly empowered political constituencies had been making fiscal demands on the state that required it to issue too much money relative to production growth, thus creating the “stagflation” of the 1970s. An oddly parallel argument had been put forward in the 1970s by some on the left (especially by New Left formations like the Italian workerists), who believed that workers’ demands for increased public spending, including payments for “no work,” had nearly brought down the then existing capitalist order. Using language based on Marx’s Grundrisse, Antonio Negri thus claimed that paid work outside the sphere of commodity production would be ultimately “self-valorizing.”72

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We can have a more concrete idea of what the “self-valorization” of labor could mean as a political strategy if we think today of workerist movements autonomously issuing a “coin,” and thus making their own money. There is thus nothing new in thinking that currency issuance, as distinct from borrowing or spending state- created money, is a potential resource for destabilizing the relation between a state and its financial system. One could argue, along with Aglietta (and many other, more conventional, economists) that this is why modern capitalist states need to have a monopoly on money creation. But this argument has not precluded the creation of derivative currencies— for example, alternative US dollars issued by entities that are not the US government. Such alternative US dollars would not, on their face, purport to be or to replace US dollars, as truly counterfeit dollars would do. They would be more like currency derivatives that allow traders and institutions to take financial positions on the relative movements of currencies without necessarily holding them. The Eurodollar, or overseas dollar, is an example of a non-US-government-issued currency that is called a dollar and is generally treated as a dollar, but which does not necessarily trade at par with the dollar. On occasion, this fact has caused havoc in the US financial system. The last time that happened was in 2008, when the spread between the value of non-government-issued dollars trading in London (LIBOR) and government-issued US dollars trading on the federal funds market (the overnight indexed swap, or OIS, rate) became so wide (peaking at 3.65 percent) that the Federal Reserve felt it had to intervene in the overseas dollar market to restore par by backing the privately created dollars being traded in the global money markets.73 In 2008 the intervention took the form of an additional $2 trillion in Federal Reserve loans to “nonbanks” to stop the flight from non-US-government-created dollars to Federal Reserve dollars, and thus close the spread.74 So merely calling the unit traded in the global money market a dollar is not sufficient to guarantee its near equivalence to the dollars traded on the domestic federal funds market. Maintaining approximate par between the two has been a policy choice by the US government, requiring the Federal Reserve to support, whether actively or passively, the issuance of dollars by non-US financial entities, and requiring the Treasury to issue risk-free government debt in the quantities needed to collateralize global money markets in which offshore dollars are traded.75 This has happened, but it doesn’t have to happen.

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We have here circled back, via the politically subversive potential of alternative currencies, to the themes with which this book began. The fact that Eurodollars are offshore currencies, and thus not identical to US dollars,

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was one important factor leading to the US government’s liquidity put in 2007– 9, on which I have laid such stress in chapter 2. And another way of describing the bailout that occurred in 2008– 9 is that it was a concerted effort by the United States to bring offshore dollars back into a par relationship to US Federal Reserve notes, and to thereby restore liquidity to global financial markets. From my perspective, we can also provide an alternative rationale for the Fed to support near parity between the Eurodollar and the US dollar: that its purpose was to prevent the Eurodollar from becoming an alternative currency that can be used to short the US dollar and exploit weaknesses in the US economy. Such a subversive use of Eurodollars was never likely to happen. But it still takes a great deal of mutual assurance among governments, central banks, and global markets to prevent it from happening. The magnitude of the effort it takes for the dollar to maintain its position as the global reserve currency shows up in the literature on international monetary economics that describes the “exorbitant privilege” the US government enjoys in normal times and the “exorbitant duty” imposed upon the US government in times of crisis.76 It would be much more difficult for the United States to reap its privilege and do its duty were it not for the mediating effect of a market in US- dollar-based derivatives. This market makes it possible for private sector financial actors to write derivatives on the degree to which the US government’s trades in the global money market maintain par between the US government’s dollar and the offshore dollars that are used as a token of settlement in global financial transactions. And through this market it is also possible, indeed necessary, for some traders to take short positions on the US dollar and/or the offshore dollar, and to speculate on the volatility of their spread. Thus far, however, the ability to short US capitalism and its degree of globalization remains largely in the hands of private financial institutions and sovereign wealth funds. By bailing out these institutions in 2008, the US government performed its exorbitant duty to support the continued dollarization of global markets. The success of the bailout, however, was contingent on the unwillingness or inability of other global actors to create new facilities for shorting the dollar, and the dollar zone, at that time. The fact that currency-based derivatives can be used to short currency zones— and national economies— has nevertheless troubled many economists and historians, especially those committed to a program of Keynesian macroeconomic stabilization. We saw in chapter 2 that the Eurodollar market was allowed to flourish in the context of Bretton Woods and postwar European recovery. In this symbiotic relationship there was an understanding, especially between Great Britain and the United States, that the trade in Eurodollars on the emerging London money market would not be used

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to undermine the US dollar. When it eventually was used in that way, this marked the end of Bretton Woods, followed by a new implicit understanding that the dollar could be allowed to float after 1971 without having to be devalued. A major consequence of this new mode global forbearance on shorting the dollar was, as I have said, the ability of the United States to run a permanent trade deficit without devaluation, and the globalization of production that followed. The global “crash” that resulted from the failure of US mortgage-backed securities consisted of a breach in the parity on overnight money markets between US dollars and offshore currencies that are called dollars, but which can require market interventions to be kept equivalent to US dollars.77 A more recent literature on “Chimerica” (a portmanteau coined by the economic historians Niall Ferguson and Moritz Schularick) describes what followed as a no less symbiotic relationship between the US and China that allowed US asset markets to boom as Chinese production grew to meet demand from US domestic markets. This, too, involved a suppression of any willingness on China’s part to short the dollar— and, implicitly, the US capital markets, where asset valuations would certainly fall as a result. The express purpose of the literature on Chimerica is to underscore the dependence on US capital markets on Chinese forbearance, and thus the ever-present possibility that China could go short and bring them down.78 Adam Tooze stresses, for example, that the US government response to the crash of 2008 was driven by an overarching fear that China could at any moment take advantage of it by shorting dollardenominated assets, thereby declaring its independence from global capital markets insofar as they remained too dependent on the United States.79 All of this literature on the danger of a major player shorting the recovery of the global financial system presupposes that the system itself can and probably must provide the vehicles through which this can be done. I have already mentioned currency derivatives in which the availability of long and short positions is intrinsically necessary; there must be a robust market in which traders can go short on the US capital market if policy makers want China to go long. But one could also imagine differently motivated alternative currencies that make it easier to short the US dollar by opening up a spread. I suggested that the Eurodollar has always posed the danger of becoming such a currency, despite the fact that it was designed not to be one. What if, for example, “China” (by which I mean a hypothetical sovereign state less closely imbricated with the US banking system than China itself has been) issued a currency called a dollar and supported it by a fixed reserve ratio maintained in US Federal Reserve notes? These externally created dollars would be no more or less counterfeits of US currencies than were the original Eurodollars.80 But “China” could manage them in a way that

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the private issuers of Eurodollars did not, to raise the cost to the US government of maintaining the US dollar’s parity with the alt-dollar as a vehicle for settling global accounts. Once there is an expectation that parity will be broken, there could be a flight to China’s alt-dollars as the US government prints more of its own dollars to fend off the attack, thus bringing on inflation in the United States and a flight from its domestic capital markets due to exchange rate fears.81 In such a hypothetical, the US government’s willingness to support a stable US dollar that trades at par with governmentcreated offshore dollars could not easily withstand the creation of a maliciously operated currency called the “dollar” that itself held reserves in US dollars and could be manipulated to subvert the role of US Federal Reserve dollars in supporting the US economy.82 Why couldn’t such “cryptodollars” (a digitally based evolution of the Eurodollar) be issued by a still wider range of entities, legally sanctioned or not, that operate outside the regulatory reach of a single state? Some of these might be designed with reserve requirements that affect the supply and demand for US government-issued dollars.83 But the entities issuing these cryptodollars would not necessarily share the political interests and agenda of the US government, which regulates its dollar. We would then have to ask how much of a liquidity premium the US state could ultimately pay to keep all versions of the dollar trading at par— assuming, as is likely true, that a preponderance of dollar-denominated obligations are now created by nonbank entities unregulated by any sovereign state? If such cryptodollars got off the ground, they would become an appealing asset class for sectors of the financial system looking for hedges against a failure of the US government monopoly on “dollar” issuance. This could affect the demand for dollars, and for dollar- denominated bonds. Now that the financial sector (and not heavy industry, agriculture, or mining) is the emergent site of democratic demands, the idea of bringing on what financial macroeconomists like Ricardo Caballero call the “sudden arrest” in financial markets should become part of the political lexicon of militant movements for whom funding historical justice is a high priority.84 They could then orient themselves henceforth around extracting a political price for preserving the liquidity of accumulated wealth. For these reasons, in addition to my argument in chapter 2, I find it plausible that the US government’s provision of aggregate liquidity to the global financial system is a choke point of twenty-first-century capitalism. This means that an anticapitalist politics could now evolve around how to legitimate the potential for subverting the system at that choke point. Such a politics could conceivably leverage the financial system’s existing tendency to short its own survival, by getting it to fund the forces that already threaten it.85

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This chapter’s conclusion is that historical justice really is an option, now more than ever. By this, I mean to go beyond the metaphorical suggestion of thinkers like Badiou and Meillasoux that redeeming the universal significance of past struggles is not impossible in our present situation. They stress the seeming unimaginability of capitalism’s coming to an end as perhaps the deepest reason for thinking that the end of capitalism is necessary for new ways of being human to emerge.86 I believe, rather, that capital markets that previsualize the possibility of their own demise are already selling capitalism short, which is how the crash of 2008 occurred. We have thus come full circle from the need for US intervention to supply outside liquidity to capital markets, to liquidity itself as a financial product, to the option of historical justice as a short position on financial liquidity, to advancing justice by creating vehicles for capitalism to short itself, to the possibility that some alternative currencies could become vehicles, and to the actual emergence of short positions on the dollar that were closed out in the bailout of 2008.

CONCLUSION What are the political implications of my approach for the wide array of thus far uncoordinated movements and tendencies that stand before us today? As this book goes to press, talk of historical injustice and redress is once again in the air, and a variety of movements are taking the streets to demand the kinds of historical justice that my argument addresses.1 Today the most urgent political task is to develop an overarching framework for connecting the diversity of initiatives that exist and will emerge, so that each initiative can learn how to benefit from the heightened volatility created by the others in something like the way in which the financial system already does. My point in focusing on financial liquidity is not that every progressive movement should now focus on it, but that it can be an index of the threat these movements collectively pose to financial stability. It might follow that the conjuncture of such movements is more resilient than any one of them, and that each of them could hedge against its own likely failure by being partly invested in the success of some of the others. So, rather than pointlessly lamenting the lack of unity on the left, we might usefully reimagine today’s left as a portfolio of political movements engaged in tactical arbitrage on the success and failure of a subset of the others. This formulation is meant to mimic a core insight in financial theory: that one can index the degree to which the volatility of a particular stock’s price covaries with the volatility of the stock market as a whole.2 I am here suggesting that in anticapitalist politics there are similar possibilities of measuring the covariance between the microeconomic and macroeconomic financial illiquidity that this or that political initiative creates. A rent-resistance or debt-resistance movement, for example, could operate by making the financial assets now collateralized by real estate or credit significantly less liquid. Such movements could then, conceivably, issue tokens pegged to this success (as discussed in chapter 6 of this book), and such tokens could be used to create long and short derivative positions that could be priced and traded. At the same time, there could also be macropolitical movements that oppose

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the kind of government bailout of global capital markets that occurred in 2008. Their near-term success would raise the cost to government— the implicit premium— of guaranteeing the liquidity of the financial system. It is likely that the relative success of such movements operating at different institutional levels would covary to differing, and measurable, degrees. To the extent that this occurs, it would give us an analytical framework for, once again, linking micropolitics of various kinds with an overarching macropolitics. Analyzing politics through the lens of financialization is not at all what Marx did in Capital; but Marx, as I now read him, showed the way by relating micropolitics to macropolitics and seeing them both through the lens of commodification. By seeing labor through that lens, he stressed that the wage laborer’s availability for employment depends upon making him, when unemployed, among the worst off in society. We have here a micropolitics of domination. But Marx also showed that the role of the worker, when employed for the production of relative surplus value, is to increase the proportion of that value accumulated in the form of producer goods, thus widening inequality and making the relative social position of wage labor even worse. Here we see a macropolitics of exploitation. Throughout his all-important analysis of relative surplus value Marx implicitly understood, but did not sufficiently stress, my point that most of the continuing injustice of the surplus value created through capitalist production came from its aftereffects in the process of accumulation that is the fundamental driver of the system. Based on his account of relative surplus, and the general law of capitalist accumulation derived from it, Marx developed an analytical framework for linking the shop floor demands of trade unionists, the emergence of artisanal and consumer cooperatives, militant direct action by anarchists, and so forth to the project of an anticapitalist party that might sometimes have to distance itself from each of those things. He well knew that micropolitical grievances could, as we now say, “go viral.” A shop floor grievance over working conditions or pay could lead to a general strike, and the subsequent possibility of military repression to forestall a possible revolution. But in building the political power of organized labor, it was equally important that workers could extract benefits from the threat of revolutionary upheaval, even when strikes failed to spread and escalate virally. Here, what I have called the revolutionary option becomes the basis for a Marxian political analysis. But, by showing how political struggle can raise the present value of the revolutionary option without a revolution, Marx often illustrates what it would mean to move beyond the binary alternatives of contagion or defeat. Through the lens of options theory we can see in hindsight how such a

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Marx-inflected politics of labor once worked to expand the space between contagion and defeat. For much of the century following Marx’s death, industrial capitalism responded to the disruptive possibility of strikes by implicitly shorting itself through redistributive taxation and increased public spending.3 This mid-twentieth- century form of class compromise corresponded to what Kuznets, Piketty, and many others called the era of “great convergence,” and what some post-Marxists now describe, often with some nostalgia, as the “Fordism” and “Keynesianism” that the financial revolution in economics explicitly aimed to overthrow starting in the 1970s.

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My imagined future for the left assumes that it begins with a diversity of movements, such as debt strikes and rent strikes, that succeed initially by creating exaggerated perceptions of their initial success. I do not mean this as disparagement; it is the vocation of a self-identified left to have a greater effect on the ability to imagine possibilities than on the underlying probabilities of meaningful change, in much the way that the impact of new information in finance is to create greater uncertainty about what’s possible without necessarily affecting its probability. Hurricane Katrina, for example, had a much greater impact on the public’s ability to envision climate change than it did on predictions of the weather.4 And, while this is an example of how a single natural catastrophe can spread the fear of irreversible change, it does not in any obvious way provide a link between the climate-change resisters and other progressive movements. So my support for a plurality of approaches in the present conjuncture is not based on the hope that one will go viral enough, and be a virus to which capitalism has not already developed an immunity. Rather, I presuppose that financial derivatives themselves now function within capitalism to give it a kind of immunity from infection by potentially viral threats. This implies, to extend a timely metaphor, that an anticapitalist politics operating through finance must try to provoke an autoimmune response from capitalism in the form of an outbreak of illiquidity in capital markets themselves. I thus look forward to a politics that, without having to go viral, can develop financial vehicles that allow a movement to internalize the benefits of exaggerated perceptions of its momentary success, and to hedge against the losses that are mainly due to exaggerated perceptions of a momentary failure. The strategy here is make such movements the repositories of a kind of accumulated countervalue that can give them stakes, horizontally, in each other’s progress and partial hedges against their own failures. Like Marx, I thus seek alternatives to a politics that relies on contagion; but

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unlike Marx, I look to the financial market for ways to leverage its own use of contagion mechanisms to both create and destroy the liquidity on which it depends. I have thus added to Marx’s concern with the production of value (goods and services) and Keynes’s concern with the expansion and contraction of credit a further concern with the role of territorially defined states in providing and guaranteeing liquidity of the financial system. For me, however, the issuance of and support for financial liquidity is not, conceptually, an attribute uniquely attributable to monetarily sovereign states. Rather, it stakes out a general relation between having funds and getting them that is central to the usage and meaning of the word “finance” itself, insofar as it suggests that pledging a commodity as collateral for credit is an alternative way to meet the discipline of payments instead of selling it for cash or making it for wages.5 The role of money in finance is thus distinct from its role in exchange, and although it can be important that the same money plays both these roles, the question of whether finance or exchange is more fundamental in understanding what makes it the same money is largely genealogical.6 This realization reopens the question of when whether the issuance of money needs to be added to borrowing, selling, and earning as ways of getting money to meet the discipline of payments. I first broached this question in chapter 2 when I added the material conditions of active liquidity creation and support to the list of capitalism’s choke points. And I laid the groundwork for doing so in chapter 1 by reinterpreting Marx to focus on wage labor as the constitutive exception to a new regime of financing production through the collateralization of end products. For Marx, it goes without saying that the capacity to issue money or to produce credit-based securities must be denied to workers in order to force them to earn wages to meet the discipline of payments. Whether this remains true today is a question that must be reopened, along with the possibility of alternative forms of issuance— and with new questions about sovereign issuance. Today, as we have seen, territorial states no longer have a monopoly on the ability to issue tokens that may or may not be liquid in the sense that their use as payment would effectively settle accounts. The US Federal Reserve is now an active trader in the repo market, presumably for the purpose of maintaining near parity between US government-issued dollars and non-US-government-issued dollars that can be borrowed against the “safe” collateral of US government debt. But such dollar- denominated forms of liquidity can also be issued or supported by foreign banks, and by foreign or domestic corporations— and also by foreign governments, such as China, that may or may not have a permanent interest in supporting the global parity of credit instruments denominated in or collateralized by dollars that the US government may not have issued. It follows that a

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government that wishes to harvest a liquidity premium by issuing cryptodollars of its own might decide to ban the use of non-state-issued cryptocurrencies, or else hoard them, thereby driving up the price. Facebook, in collaboration with other large companies, had for a time considered issuing liquidity that may or may not have remained pegged to US dollars— the consortium of companies seems to have collapsed before arriving at an answer to this question. And China has been studying such a possibility and may now pursue it. All of this is important because it is liquidity that allows wealth to accumulate, and it is the accumulation of wealth that allows historical injustices to propagate and expand. Capitalism has always presupposed a set of norms governing the appropriation of whatever portion of wealth is due to the appreciation of preexisting wealth— for example, the portion that is due to its compounding— as though it were an uninhabited continent, there for the taking, that will be occupied by someone. I am here drawing an analogy to what the legal theorist Carl Schmitt called a “nomos of the Earth,” according to which the newly discovered continents of the Western Hemisphere fell under European control. In proposing this analogy, however, I mean to stress that accumulation, like “discovery,” is politically contestable, and can exist only as long the outcome of that contestation remains unresolved.7 My own political and intellectual formation tells me that the continent of accumulated wealth created through financialization is not a new and unclaimed territory discovered by financial explorers seeking new sources of collateral to mine. It is, rather, the cumulative outcome of collective history, much of which was bad, that can be either reclaimed for purposes of justice or allowed to go to waste.8 How much of the appreciated value of unjustly accumulate wealth gets reclaimed in this way, and by whom, is in my view an artifact of financial and constitutional designs that are themselves malleable to degrees that have not yet been tested. The insurgent and potentially subversive discourse of financial design that I envision is not necessarily reductionist in the sense of committing itself to treating what is not a market as a market. Rather, it can envision marketable tokens of the market’s coexistence with its heterogeneous others without needing to regard them as therefore similar.9 It would here reflect the aspect of our presently-existing financial discourse that is reflexively about its ability to create new investment vehicles whose changing prices yield new information deriving from changes in underlying indexes that have no common denominator. From the standpoint of today’s financial engineer, what matters is not the direction of change but its volatility. This resonates with my argument in previous chapters that the ability to gain or lose from heightened volatility is also the primary site of struggle in capitalism today,

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and that progressive movements are often defeated by being on the downside of the volatility they have successfully created.

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In stressing throughout this book the importance of volatility, my approach differs in emphasis from many on the left who describe the replacement of heavy industry with immaterial labor and robotics as “cognitive capitalism”– a new mode of production that makes hourly labor obsolete and replaces the division of the day into production and consumption into a round-the-clock life of data-producing activity, some part of which also consists of consuming, and even enjoying, data. Some on the left now argue that the surplus data thrown off by this process is a new “common,” the appropriation of which the philosopher Antonio Negri calls “absolute rent,” a hightech version of the enclosures of the common that Marx called “primitive” or “original” accumulation.10 Others argue that the creation of new products, both ordinary commodities and financial assets, out of collectively produced information justifies paying a guaranteed basic income to everyone whose information is now being gathered as raw material for such products. There is also across the left a growing recognition that Marx himself anticipated these developments in the Grundrisse, where he foresees the development of what he calls “the machine,” an outgrowth of capitalist industry’s tendency to become an automaton, into what he called “the general intellect,” in which the living labor of the automaton would be increasingly cognitive.11 This version of Marxism regards our present world of computerization as the material reality toward which capitalist industrialization tends: a material reality that makes labor increasingly immaterial. I believe, however, that it makes a political difference to see our present conjuncture in capitalism as one of financialization, which is also a material reality toward which capitalist industrialization tends. Both descriptions emphasize that the distinction between producing and consuming has been erased in many aspects of life under capitalism, calling the traditional centrality of the hourly wage into question. But my foregrounding of financialization stresses that, despite massive underemployment of the labor force, the discipline of payments is still being met through the increased production and consumption of financial products; of nonfinancial products with elements of embedded optionality; and of ordinary consumer goods, such as clothing, that incorporate aspects of optionality, such as customization, in their design and production. I also stress that for purposes of historical justice it may be most important to grasp how the datification of everything is being used to create financial vehicles that allow wealth to be accumulated without necessarily expanding the output of goods and services— thereby

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deepening the effect of preexisting inequality on the distribution of accumulated wealth. How, then, is my finance- centric approach distinct from these other Marx-inflected efforts to grapple with recent changes in capitalism that remain within a productionist framework? Resistance: When I advocate translating recent political and economic developments into financial language, my purpose is to politicize the role of financial institutions by making visible the discursive frameworks they impose. This is a step toward effectively resisting the power of financial institutions to protect accumulated wealth. But I differ from the conception of resistance of many in the radical left, especially in the autonomist tradition, who think that we can best resist accumulation, which remains inevitable, by slowing it down. A recent proposal along these lines has been to generate an alternative currency, called “Commoncoin,” that loses value if it is not respent into circulation, and thus cannot be hoarded to preserve value, as fiat currencies sometimes are, or used to develop exploitative credit relations.12 The political goal of Commoncoin is to empower an environmentally responsible alternative economy that prefigures “a geolocalised techno-social transformation of material production and manufacture.”13 Without dismissing the more experimental aspects of this approach, I question the emancipative democratic potential of an autonomous (and notionally prefigurative) sector, for example in the Eurozone, that would have allowed those dispossessed by the financial crisis to operate without euros in those areas of the social and economic life where Commoncoin is accepted.14 In opposition to this view, my project is to develop an analytic and activist language that enables an interoperative and confrontational use of alternative currencies and payment systems that index changes in the systems they also hope to subvert. Acceleration: An alternative to resisting capital accumulation by slowing it down could be to advance its self-destructive tendencies by promoting its acceleration. There is, of course, a sense in which I, too, favor using the logic of financialization against itself by hastening its development in order to bring about its transformation and demise. But my purpose is to supersede capitalist accumulation through the use of financial vehicles that capture and redirect its proceeds. If I do not unequivocally favor opposing capitalist accumulation by retarding it, neither do I unequivocally favor increasing capital accumulation by accelerating it— especially if this means deepening injustice— simply so that we can hasten whatever will come next.15 I have thus argued for leveraging points of vulnerability in the financial supply chain as a way to exercise the potential power for resistance that financialization calls forth. In my view, accelerationism underemphasizes the important ways in which anticapitalist movements that are parasitical on capitalism’s selfdestructive tendencies may see this as a strategy for subverting it.

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Subversion: Am I, therefore, straightforwardly arguing for a strategy of subversion? Once we recognize how little— or how few of us— it would take to crash the financial system, we can see evidence all around that a broad public already believes, perhaps in exaggerated form, in our financial systems’ extreme vulnerability to being hacked.16 I am open to some forms of politics that build upon this. But I also recognize that the very idea of “hacking” to exploit security vulnerabilities remains morally ambiguous in popular culture.17 I have thus argued that is imperative to envision a popular movement broad enough to legitimate the acts of sabotage that are possible in our name. Do numbers matter? Do intentions? Michel Feher’s recent book Rated Agency proposes a new form of “investee” activism that challenges investors “on their own ground,” by creating for companies bad publicity of a kind that would alter “the conditions of investment accreditation,” thus leading their investments to lose value unless and until . . . what? Is the answer that meeting the challengers’ demands would or could create so much good publicity for investors that the value of their investment would increase? This is possible, but I doubt that it is generally the case that complying with the demands of protesters necessarily produces better publicity than the bad publicity the protest has generated. What seems more likely is that political correctness is prima facie a good investment strategy if protests are avoided that would make it seem hypocritical, and that good corporate publicity is good for investors whatever the reasons for it. To me, however, the best way forward is to harness the effect of turbulence on asset valuation, which oppositional movements can cause in order to build a movement that can be resilient to setbacks while advancing a contingent claim on the wealth that has been accumulated thus far.18 Transformation: And so I fall back on a concept that means little in itself, except in contrast with those previously listed. Like that of Marx, my political project is to transform the cumulative injustice of capitalist development into a measure or index of financial capitalism’s latent political power to transform itself into something just while still conserving underlying value.19 One reason that an approach like mine has not already been developed is that the economic language of conditional, intertemporal claims to redress has so far been confined to options pricing theory, where it was originally developed. This book is a first effort to repurpose that language while retaining its capacity to index forms of wealth that are held as financial assets in identifiable financial accounts.

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Thus, I conclude with the question of how and where historical justice can be both situated and valued within the intertemporal language of finance. In my view, our agenda as both social analysts and social critics must be to

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look at the way in which justice-seeking subjects have been extinguished and can potentially be called into being. My pragmatic innovation here has been to set the present value of greater justice in society at par with the market price of a macroeconomic liquidity premium. Optionality of the kind that finance illustrates is more broadly about synchronizing heterogeneous temporalities,20 indexing heterogeneous cultural discourses, tokenizing the relative rates of change within and among heterogenous systems of valuing and ranking— the list could go on. Such forms of heterogeneity no longer need to be reduced to a general equivalent if liquidity can be added through options that can index their changes to those in other, disparate value realms.21 I thus imagine a highly financialized political activism that is both materially subversive of the liquidity of major financial markets when it chooses to be, and symbolically (democratically) more legitimate than those markets at those very moments. But although much of the foregoing argument has been about the valuation and source of funding of historical justice in the present, its underlying purpose has been to find a new voice in which a justice-seeking subject can speak, calling other such subjects into being. I worry that important lessons learned in the 2007– 9 financial crisis are most often voiced ironically to acknowledge that a financial order which no longer seems natural and resilient must be kept going for as long as possible precisely because we now know that it is too fragile to survive serious attack. The demand for historical justice is thus displaced onto another time; it is always either too soon or already too late. And often, with considerable irony, the processes of capital accumulation are accepted for the time being without needing to be defended as just. My response has been to seek a nonironic modality through which justice can be voiced today. I believe that such a voice would relink present injustice to evils that are not entirely past, and proclaim that justice in the present must be a redemption of that past. But I also believe that, to be politically persuasive, the voice of justice must be tethered to its present valuation— and to a political practice aimed at raising that valuation now and in the future. A powerful method for doing this, I have argued, is rooted in the theory of options that underlies the financial system we have now, and which may yet be mobilized against that system to transform it into something else. My contribution to such a future has been to argue— against today’s politics of austerity— that historical justice is an option.

AFTERWORD: SPRING 2020 “Shouldn’t you have called it ‘Justice Is a Joke’?” That was the response of an old friend when I told her the title of this book early in the Covid-19 crisis. There is little doubt that Covid will still be with us when Justice Is an Option comes out, and I therefore feel compelled to say something about the difference in circumstances since I wrote it. One important difference from the Great Recession is that the threat to the financial system posed by Covid did not in any obvious way originate in the financial system itself, thus making emergency measures to protect the financial system easier for government to justify than they were in 2008. That said, the early measures taken by the Fed to backstop capital markets in 2020 build upon those of Ben Bernanke in 2008, and in some ways already far exceed them. Thus far, moreover, the Fed’s use of its 2008 approach to protect financial markets from Covid appears to be among the first and most successful responses of the US government to a biological contagion that it has not otherwise been able to control. Thanks to the Fed’s guarantee of their liquidity, financial markets quickly recovered to pre-Covid levels, when they were at all-time highs, even as GDP was expected to plummet because of economic shutdowns that were necessitated by Covid, with no end in sight. If, however, the financial markets turn out to be the only element in the economy that has been spared by government from the negative effects of Covid, questions of justice are likely to be even more acute and widespread than they were in 2008. It is still too soon to say whether and for how long the present liquidity supports for the financial system will be effective— and how much more must be done to maintain the confidence of financial markets if Covid worsens. Experience suggests, however, that if the government does anything— for example, to save lives or support incomes— that makes investors fear that their interests will no longer come first, it will be obliged to do whatever it takes to allay those fears, even if this deepens disparities resulting from historical injustice and worsens the pandemic. And it is not too soon to say that Covid

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has already both exposed and widened preexisting injustices of the kind addressed in this book. These are now more widely acknowledged to be cumulative and compounding, and it is the cumulative and compounding character of capitalist inequality that in my view makes an historical injustice even worse in retrospect than it would have been when it began. Such a claim may prove useful to the myriad of social justice movements that Covid-19 could bring forth if it is not soon resolved. Justice Is an Option is, thus, a framework for understanding what is wrong with allowing wealth accumulation to deepen historical injustice in the context of the present disconnect between the rapid recovery of asset markets and a dramatic fall in GDP. The essence of my argument is that such an apparent disjunction should be considered normal in today’s financialized capitalism, and that greater justice is unlikely to be achieved by aggressive government efforts to tether capital market growth to GDP growth in the way that some progressive economists, like Piketty, still hope to do. When I argue that justice is an option, I mean to suggest concrete alternatives to their approach that would, for example, recognize a widening divergence between these two rates of growth and allow that divergence to be hedged in ways that benefit those in society who would otherwise be further disadvantaged as a result. In this way, the ultimate dependence of the financial system on liquidity backstops from the state, which is normally a sign of its political power, can be transformed into a political vulnerability for big finance, especially as the cumulative character of capitalist injustice becomes more visible and less accepted. As I write, there is much in the twenty-fourhour news cycle surrounding Covid to suggest that this is happening. It is too soon to say for how long this will last, but I have recently begun to wonder whether my views are more conventional than I thought, or whether their time has come. This is not to claim, however, that all my choices in this book were prescient. One limitation is my heavy reliance on financial macroeconomists who advocate state provision of liquidity to capital markets, however “bubbly” asset prices may be at the onset of a crisis. Their argument is that expected liquidity guarantees will prevent a financial panic from leading to another depression. But they do not consider whether such a policy could still be effective if generalized price deflation were already underway in the broader economy, and neither do I. Today, however, the possibility of a devastating economic depression and subsequent political upheaval cannot be disregarded. Neither, however, can we disregard the more utopian possibility that government efforts to combat Covid may be largely successful even before there is a cure or vaccine, and that the broad levels of social compliance

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required for public health policies to succeed will bring about a new public discourse focused on the common good in times of common peril. Were this to happen, we might see income support programs for people out of work due to illness, quarantine, or government shutdowns of the economy. In addition to income security, there might also be greater housing security, health care security, and so forth. Such discussions have already begun; whether they bear fruit will depend on the social forces that mobilize around them. But if they do, this book shows how such possibilities could be funded by collecting a premium for the liquidity guarantees that government now provides to prevent financial panic during a prolonged public health emergency. There is also the possibility, however, that financial panic in the midst of a plague would lead to political panic, which is yet another form of contagion. There are many paths by which this could occur. For example, governments could try to put a damper on a medical panic through costly and highly visible efforts to save more lives; and this could shake investors’ confidence that they will always come first. Governments might then try to avoid financial crisis by adopting austerity measures when they should be spending freely. These measures might be protested and otherwise resisted, thus leading to repression and further protest that heightens divisions in society and further politicizes the public health crisis. There may be potential here for a revolutionary moment, depending on what movements arise and are already in place, but this is far from assured. More likely, political panic responding to a financial panic during a public health panic could have little to do with revolutionary justice as described in this book. This toxic scenario does not, however, diminish the force of my analytical argument that revolutionary justice, as the reversal of unjust accumulation, has value as an option insofar as meaningful democracy is itself a suspended revolution. If revolutionary justice is indeed an option that democracy can make valuable, political panic is not the inevitable result of demanding greater social justice in the midst of a plague. A democratic response to the financial dimension of Covid could make society more just if, unlike in 2008, we collectively make the holders of accumulated wealth pay a price for preserving it. To me, the reasons this book provides for demanding justice then can provide an even stronger basis for demanding justice now: the idea that justice is an option is a forward path for those who fear that is becoming a joke.

ACKNOWLEDGMENTS This book has benefited from many collaborations and conversations over a decade. Its origin lies in a 2009 conversation with Stephen Bruce, who studied Marx with me in the 1970s as an undergraduate at the University of California, Santa Cruz, and then went on to be successful in finance. When he proposed funding a series of campus events that would reflect our mutual interests, I suggested that we study the financialization of capitalism from a variety of perspectives: economic and political, but also cultural, philosophical, legal, technological, and theological. The result of our collaboration was UCSC’s Bruce Initiative on Rethinking Capitalism, which sponsored three- day conferences on campus in 2010 and 2011 and cosponsored another conference at New York University in 2014, with the Institute for Public Knowledge. I am grateful to the fellows we brought in for the Santa Cruz events, including Randy Martin, Dick Bryan, Prabhat Patnaik, Dick Walker, Shyam Sundar, Lynn Stout, Bill Maurer, Andrew Barry, Bob Brenner, Wendy Brown, Michael McDonald, Darel Paul, Karin Knorr Cetina, Paolo Quattrone, Kim Stanley Robinson, Nelson Lichtenstein, Woody Brock, Philip Goodchild, Graham Ward, Karen Ho, Julia Elyachar, Kristin Peterson, Rei Terada, and Rakesh Bhandari. Among UCSC faculty, support came especially from Dan Friedman, Lisa Rofel, and Warren Sack. My research assistant Bernie Richter coordinated these events; Peter Dimock interviewed the participants and published a newsletter; and Bernie, and later Sasha Calder, created a website. I am also grateful to the dean of social sciences, Sheldon Kamieniecki, and the director of the Institute of Humanities Research, Irena Polic, for administrative support, as well as to Benjamin Lozano, who taught the undergraduate component of the Bruce Initiative project and is responsible for my understanding of financialization as Deleuzian economics. The Bruce Initiative has also been important to this project in other ways. Through it, I became friends with Randy Martin, who introduced me to the Cultures of Finance Working group at NYU. I soon entered into

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close collaboration with its founding members, including Randy, Ben Lee, Ed LiPuma, Arjun Appadurai, and Robert Wosnitzer. Peter Dimock also attended many of our sessions, and we were sometimes joined by Emanuel Derman, Elie Ayache, and occasionally Dick Bryan from Sydney. From 2011 until well after Randy’s death in 2015 we met, often monthly, and arranged a series of events in both New York and Santa Cruz that brought in younger scholars such as Hannah Appel and Michael Ralph, along with senior figures such as Andrew Ross, Craig Calhoun, Doug Holmes, and Patricia Clough. The edited collection Derivatives and the Wealth of Societies (University of Chicago Press, 2016) came out of these meetings, as did three large conferences at NYU and a two-week summer institute at NYU with approximately thirty advanced graduate students, including Lana Swartz, Mukul Kumar, and Cary Hardin, who are now established scholars in the field. I am grateful to Craig Calhoun, who was then director of NYU’s Institute for Public Knowledge, for sponsoring and funding many of these activities, and to others who participated from time to time, including Tim Mitchell, Ivan Ascher, Leigh Claire La Berge, JanaLee Cherneski, and Fiona Allon. Another Bruce Initiative fellow, Bill Maurer, introduced me to Akseli Virtanen, founder of an organization now called ECSA (Economic Space Agency), who was for three years a visiting scholar of the Initiative. He brought important visitors to the campus, such as Geert Lovinck and Bifo Berardi, and since then he has continued to involve me in the world of alt-finance and cryptocurrency in sometimes daily document exchanges, weekly online meetings with colleagues from all over, and marathon recorded sessions with as many as thirty people at my house in Santa Cruz once or twice each year. The participants in these conversations are too numerous to mention, and include financial engineers, computer scientists, fintech entrepreneurs, political activists, and fellow academics. I have learned much from the regulars, especially Jorge Lopez and Pekko Koskinen, along with Ben Lee, Dick Bryan, Jonathan Beller, and (occasionally) Brian Massumi and Erik Bordeleau. Through ECSA, I have been invited to present my ideas at the Athens Biennale, where I entered into fruitful dialogue with Andrea Fumagalli, and Tiziana Terranova. Much of this book was written at the University of Chicago, where I became a regular visitor at the Chicago Center for Contemporary Theory (3CT) beginning in 2015. I am immensely grateful to Lisa Wedeen, codirector of 3CT, for hosting me and for creating, along with Don Reneau, an intellectual and social environment conducive to my work on this project. At 3CT, codirector Kaushik Sunder Rajan and former codirector Moishe Postone have been wonderful interlocutors, as have Bill Sewell and the regular members of the Social Theory Workshop. Anwen Tormey facilitated every aspect of my stay and helped organize public occasions in which

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I could present my work in both human rights and finance, including events with Postone, Sandro Mezzadra, and Étienne Balibar. At Chicago I have also been welcomed by Karin Knorr Cetina, who invited me to present this work at the Money, Markets, and Governance and Capitalisms workshops, and who has been an important interlocutor since we first met at the Bruce Initiative in 2011. Rohit Goel engaged extensively with my work on both finance and human rights when I arrived at the University of Chicago, and remains connected to it. I have greatly valued conversations with other colleagues there, especially Michael Dawson and Jonathan Levy, over the past several years. One of the great pleasures of my time at Chicago has been talking with its graduate students. Lisa Simeone has commented on many versions of this manuscript and sat in on my course at UCSC. Kelly Mulvaney, Charlotte Robertson, Rachel Howard, Emily Katzenstein, Alejandra Azuero, and Eilat Maoz have discussed aspects of this project with me on and off over the years. I was privileged to have the full manuscript workshopped over an entire term by an extraordinary group of Chicago graduate students: Kelly Mulvaney, Rachel Howard, Eilat Maoz, Emily Katzenstein, Lucas Pinheiro, Yaniv Ron-El, and Natacha Nsabimana. I am grateful to Kelly for organizing this, and to Celeste Cruz-Carandang for facilitating it. My academic home throughout this project has been the History of Consciousness department at UCSC. Early on, it created an initiative called Crises and Cultures of Capitalism, which admitted an exciting cohort of students with whom I have been in continuing dialogue. These include Lindsay Weinberg, Asad Haider, Robert Cavooris, Natalia Koulinka, Aaron Wistar, Colin Drumm, Jack Davies, Stefan Yong, Adrian Drummond-Cole, Justin Gilmore, Emmett Peixoto, Xindi Li, and Katayoun Sadri. Students from other UCSC departments have been full and enthusiastic participants in the capitalism cohort— especially Toni Rouhana, James Sirigotas, Rob Davenport, and Mark Howard. In addition to these students, other members of my Rethinking Capitalism seminar have stood out—in particular, Janet and Michael Singer, Andrew Wood, Leigh Johnson, Caroline Kao, Jasmine Syedullah, Theresa Enright, Rachel Cypher, Elaine Gan, Milad Odabaei, Gabriel Filartiga, Nick Fountain, Max Fox, Matt Ray, Anton Haffner, and my college friend John Hunter, who has audited every iteration of it. I should also mention the intellectual stimulation I get from History of Consciousness advisees who do not work primarily on capitalism: Isaac Blacksin, Laura Cisneros, Andrew Sivak, and Daniel Butler. Many friends have commented on earlier versions of this manuscript. First among them is Peter Dimock, who had acquired my previous book, After Evil, for Columbia University Press. He had confidence that this could be a book before I did, and he read the early versions before I showed them

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to anyone else. Ben Lee has by now read every version, as have Dick Bryan and Randy Martin (while he could). Ed LiPuma has been a continuing interlocutor, as has, more recently, Jon Beller. I have also received valuable responses to specific parts of my argument from Alok Rai, Michael Dawson, Verónica Gago, Gil Anidjar, Jon Levy, Karin Knorr Cetina, Gustavo Rojas y Paez, Oscar Guardiola-Rivera, Mahmood Mamdani, Mike Rafferty, Bill Sewell, Wendy Brown, Rohit Goel, John Hunter, Timothy Mitchell, Jerry Neu, Shaina Potts, Eyal Amiran, Luciana Parisi, Michael Ralph, Melinda Cooper, Manuel Schwab, Brent Duckor, Rajeev Dhavan, and JanaLee Cherneski. Glenn Shafer invited me to talk to his fellow mathematicians in Guanajuato and made particularly important comments on the chapter I presented there. Lisa Simeone and Sabrina Foster have given detailed responses to this manuscript in several of its iterations. My research assistant Aaron Wistar read a complete version of it and thoughtfully interrogated every line, drawing on his own important dissertation research on the intellectual history of central banking. I have greatly benefited from the responses of Colin Drumm, who is finishing his dissertation on the relation of sovereignty, money, optionality, and fate throughout history. One of the rewards of this project has been to reconnect with Mike MacDonald, and in this and earlier work I have been able to count on the advice of my longtime friends Mahmood Mamdani, Wendy Brown, Alok Rai, Shelly Errington, and Jerry Neu. It has been a pleasure to work with Priya Nelson, my acquisitions editor at the University of Chicago Press, and with her assistant, Dylan Montanari. I am grateful for the detailed, perceptive letters Priya solicited from anonymous reviewers. Renaldo Migaldi has been a meticulous, thoughtful copy editor, and he was patient with me as I continued to obsess over passages that I could have left alone. Derek Gottlieb completed the index promptly, and with great care and comprehension. In completing this book, I have been fortunate to have the support and companionship of my new wife Smeeta Srivastava, who has brought me calm and joy. And I am grateful for my two sons, Andrew and Tom, who always make me proud. I have benefited from speaking about this material in several venues over the years, including the University of California, Berkeley; the University of California, Irvine; the University of California, Santa Cruz; the University of Southern California, San Francisco State University; New York University; City College of New York; Columbia University; the New School for Social Research; the University of Chicago; the University of Illinois at Chicago; Northwestern University; the Wyoming Humanities Council; the University of North Carolina at Chapel Hill; Williams College; the University

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of Sydney; the University of Oslo; Stockholm University; the University of Leicester; the University of Ghent; Athens Biennale; the University of Delhi; Jnanapravaha Mumbai; Makerere University; Pontificia Universidad Javeriana; Universidad Libre at Bogotá; Centro de Investigación en Matemáticas (CIMAT); the American University in Beirut; and the Beirut Institute for Critical Analysis and Research. I am grateful to the organizers, discussants, and audiences at these institutions. Some of the arguments in various chapters are substantial revisions of previously published work, which appeared in Representations (2011), Rethinking Capitalism (2011 and 2012), CalFac (2011), n+1 (2013), Contexts (2013), Social Text (2015 and 2019), Public Seminar (2017), Post-Modern Culture (2017), Salon (2018), and Critical Historical Studies (2020).

NOTES PRE FACE 1. Joshua Green, “How Anger over the Financial Bailout Gave Us a Trump Presidency,” Bloomberg Businessweek, August 30, 2018, https://www.bloomberg.com /news/articles/2018 - 08 -30/the-biggest-legacy- of-the-financial- crisis-is-the-trump -presidency. For more on “sin eaters” becoming “scapegoats,” see Margaret Atwood, Payback: Debt and the Shadow Side of Wealth (London: Bloomsbury, 2008); René Girard, The Scapegoat, trans. Yvonne Freccero (Baltimore: Johns Hopkins University Press, 1989). 2. Philip Stephens, “Populism Is the True Legacy of the Global Financial Crisis,” Financial Times, August 30, 2018, https://www.ft.com/content/687c0184-aaa6 -11e8 - 94bd-cba20d67390c. 3. “We need ‘distributional national accounts’ that track how growth is allocated among different segments of the population.” Paul Krugman, “For Whom the Economy Grows,” New York Times, August 30, 2018, sec. Opinion, https://www.nytimes.com /2018/08/30/opinion/economy-gdp-income-inequality.html. 4. Andrew Ross Sorkin, “From Trump to Trade, the Financial Crisis Still Resonates 10 Years Later,” New York Times, September 10, 2018, sec. Business, https://www .nytimes.com/2018/09/10/business/dealbook/financial-crisis-trump.html. 5. David Dayen, “He Was the Resistance inside the Obama Administration,” New Republic, September 11, 2018, https://newrepublic.com/article/151159/tim-geithner -resistance-inside-obama-administration. 6. Ben S. Bernanke, Timothy F. Geithner, and Henry M. Paulson Jr., Firefighting: The Financial Crisis and Its Lessons (New York: Penguin Books, 2019). 7. Adam Tooze, Crashed: How a Decade of Financial Crises Changed the World (New York: Viking, 2018), 296, and ch. 13 more generally. 8. Tooze, Crashed, 11– 13. 9. See, e.g., Mark Fisher, Capitalist Realism: Is There No Alternative? (Winchester, UK: Zero Books, 2009). 10. Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge, MA: Harvard University Press, 2012). Describing the political influence of finance, even at its weakest moment in 2008, Tooze says the following: “It took a month of panic, political confusion and unprecedented financial turmoil to reach the point in mid-October when the barons of Wall Street would listen when Paulson thumped the table and declared that everyone must take the Treasury’s money. Even then, the

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executive branch had the power that it appeared to do in large part because J. P. Morgan swung behind the Treasury proposal. If this was an act of sovereignty, whose sovereignty was it? The American state’s, or that of the “new Wall Street”— the network personified by figures like Paulson and Geithner who tied the Treasury and the Fed to America’s globalized financial sector?” Tooze, Crashed, 198. 11. Paul Krugman, Arguing with Zombies: Economics, Politics, and the Fight for a Better Future (New York: W. W. Norton, 2020). 12. There have been financial elites in every period of capitalist development. Their influence waxes and wanes, and has been described by some Marxist historians as cyclical. For versions of this view, see Giovanni Arrighi, The Long Twentieth Century: Money, Power, and the Origins of Our Times, 2nd ed. (London and New York: Verso, 2010); Robert Brenner, The Economics of Global Turbulence: The Advanced Capitalist Economies from Long Boom to Long Downturn, 1945– 2005 (London and New York: Verso, 2006). 13. Servaas Storm, “Financial Markets Have Taken Over the Economy: To Prevent Another Crisis, They Must Be Brought to Heel,” Institute for New Economic Thinking, February 13, 2018; Gerald Davis and Sun-Tae Lee, “The Financializaiton of the Economy,” Review of Sociology 5:203– 21; Dick Bryan and Mike Rafferty, “Political Economy and Housing in the Twenty-First Century: From Mobile Homes to Liquid Housing?” Housing, Theory & Society 31, no. 4 (2014): 404–12; Bruce G. Carruthers, “Diverging Derivatives: Law, Governance and Modern Financial Markets,” Journal of Comparative Economics 41, no. 2 (May 2013): 386– 400; Duncan Wigan, “Financialisation and Derivatives: Constructing an Artifice of Indifference,” Competition & Change 13, no. 2 (June 2009): 157– 72; Paul Langley, The Everyday Life of Global Finance: Saving and Borrowing in Anglo-America (Oxford and New York: Oxford University Press, 2008). 14. Randy Martin, Financialization of Daily Life (Philadelphia: Temple University Press, 2002); Randy Martin, An Empire of Indifference: American War and the Financial Logic of Risk Management (Durham, NC: Duke University Press, 2007). 15. Fredric Jameson, Postmodernism; or, The Cultural Logic of Late Capitalism (Durham, NC: Duke University Press, 1991). 16. Stated in the language of Marx’s Grundrisse, Randy showed that the formal subsumption of capitalist production to the demands of financiers had become a real subsumption in which the logic of financialization, rather than of commodification, was the basis of subjectivity and selfhood under capitalism. Karl Marx, “Fragment on Machines,” in Grundrisse, trans. Martin Nicolaus (London: Penguin, 1993), 690– 712; Massimiliano Tomba and Riccardo Bellofiore, “The ‘Fragment on Machines’ and the Grundrisse: The Workerist Reading in Question,” in Beyond Marx, ed. Marcel Linden and Karl Heinz Roth (Boston: Brill, 2013), 345– 67; Paolo Virno, “General Intellect,” Historical Materialism 15, no. 3 (January 2007): 3– 8. 17. Randy Martin, “Thinking Finance Otherwise,” https://vimeo.com/12410766; Martin, “Dance and Finance,” Bruce Inititative on Rethinking Capitalism, University of California, Santa Cruz, April 9, 2011, https://vimeo.com/25193625; Martin, “Dance and Finance: Social Kinesthetic and Derivative Logics,” NYU, May 14, 2014, https:// vimeo.com/95306125; Martin, “A Precarious Dance, a Derivative Sociality,” TDR/ The Drama Review 56, no. 4 (Winter 2012): 62– 77; Gerald Nestler, Contingent Optionality. Portrait of a Philosophy Series III, Randy Martin, 2015, https://vimeo.com /127505126.

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18. Our reading of contemporary financial macroeconomics aimed to make its insights directly useful to anticapitalist political movements in ways that resembled what Marx himself did in making classical political economy accessible to a rising working class. For extended discussion of this approach, see Robert Meister, Political Identity: Thinking through Marx (Oxford: Blackwell, 1990). 19. We later learned from our collaborators— Ben Lee, Ed LiPuma, and Arjun Appadurai— that money itself functions in exchange both as a token or medium that changes hands, whether physically or virtually, and as a type through which the exchange is represented as occurring at a “price.” For the fruits of this collaboration, see Benjamin Lee and Randy Martin, eds., Derivatives and the Wealth of Societies (Chicago: University of Chicago Press, 2016). 20. J. M. Keynes, “The General Theory of Employment,” Quarterly Journal of Economics 51, no. 2 (1937): 212–19; Fabian Muniesa, “On the Political Vernaculars of Value Creation,” Science as Culture 26, no. 4 (October 2017): 445– 54.

I N T RODUC T ION 1. The most nuanced elaboration of this view is still David Harvey, The Limits to Capital (Chicago: University of Chicago Press, 1982), chaps. 9– 10. For recent updates that take account of financialization, see Costas Lapavitsas, Profiting without Producing: How Finance Exploits Us All (London and New York: Verso, 2014); Cédric Dugard, Fictitious Capital: How Finance Is Appropriating Our Future (London and New York: Verso, 2017). I do not, of course, deny that speculative bubbles can exist, but believe it is important to distinguish the zero-sum effects of a bubble bursting from the political vulnerabilities of capitalism that are revealed by the continuing possibility of a liquidity crisis. 2. Cf. Robert Meister, After Evil: A Politics of Human Rights (New York: Columbia University Press, 2011). Other writers use the term “performative allochronism” to describe the mapping of historically incommensurable “times” (or temporalities) onto what could otherwise be considered redistributive conflicts among groups coexisting in the present. See, esp., Berber Bevernage, “Writing the Past out of the Present: History and the Politics of Time in Transitional Justice,” History Workshop Journal 69, no. 1 (Spring 2010): 111– 31; “The Past Is Evil / Evil Is Past: On Retrospective Politics, Philosophy of History, and Temporal Manichaeism,” History and Theory 54, no. 3 (October 2015): 333– 52. 3. These observations are demonstrated quantitatively in Thomas Piketty, Capital in the Twenty-First Century, trans. Arthur Goldhammer (Cambridge, MA: Belknap Press, 2014). Piketty does not, however, stress the importance of finance within capitalism. 4. See, e.g., Kenneth Scheve and David Stasavage, “Wealth Inequality and Democracy,” Annual Review of Political Science 20 (2017): 451– 68. 5. Maurizio Lazzarato, Governing by Debt, trans. Joshua David Jordan (South Pasadena, CA: Semiotext, 2015); Jonathan Nitzan and Shimshon Bichler, Capital as Power: A Study of Order and Creorder (New York: Routledge, 2009); Richard H. Robbins and Tim Di Muzio, Debt as Power (Manchester: Manchester University Press, 2016). 6. Michel Aglietta, Money: 5,000 Years of Debt and Power, trans. David Broder (London: Verso, 2018), pt. 1. Cf. John G. Gurley and Edward S. Shaw, Money in a Theory of Finance (Washington: Brookings Institution, 1960).

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7. Émile Durkheim, The Division of Labor in Society (New York: Free Press of Glencoe, 1964); René Girard, Violence and the Sacred, trans. Patrick Gregory (Baltimore: Johns Hopkins University Press, 1977). 8. To the extent that financial markets are regimented by liquidity as an interpretable norm and not merely a putatively natural cause, we must attend to sociolinguists like Paul Kockelman: “For an entity to have norms requires two basic capacities: it must be able to imitate the behaviour of those around it, as they are able to imitate its behavior; and it must be able to sanction the non-imitative behavior of those around it, and be subject to their sanctions.” Paul Kockelman, “Semiotics: Interpretants, Inference, and Intersubjectivity,” in The SAGE Handbook of Sociolinguistics (London: SAGE Publications, 2011), 165– 79. 9. John Maynard Keynes, The General Theory of Employment, Interest, and Money (London: Macmillan, 1967), ch. 17. 10. J. M. Keynes, “The General Theory of Employment,” Quarterly Journal of Economics 51, no. 2 (1937): 218. 11. Fischer Black, “Fundamentals of Liquidity,” 1970, https://speculativematerialism .files.wordpress.com/2013/07/fischer-black-fundamentals-of-liquidity-1970.pdf; Perry Mehrling, “Credit Derivatives,” 2015, http://www.perrymehrling.com/wp - content /uploads/2015/05/Lec-20 - Credit-Derivatives.pdf. 12. Black’s concept of volatility incorporates the problem traders have of distinguishing in the moment between noise and information whenever a price changes. Fischer Black, “Noise,” Journal of Finance 41, no. 3 (July 1986): 528– 43. 13. Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities,” Journal of Political Economy 81, no. 3 (June 1973): 637– 54. 14. I here leave aside the treatment of any dividends on the stock. Interest on bonds can easily be addressed by assuming that they are zero- coupon bonds, purchased at a discount. 15. A sold put option would thus give its purchaser the legal right to force the seller of the put to buy the stock at a predetermined price under future market conditions in which it could be simultaneously resold only at a lower price, thereby taking a net loss. But the buyer of the put has no liability to pay anything to the seller beyond the original premium, if the market price is higher. A sold call option gives its purchaser the legal right to force the seller of the call to sell the stock at a predetermined price under future conditions when the market price is higher and the stock can be resold simultaneously at a higher price, thereby producing a net gain. Once again, the buyer of a call has no obligation to pay the seller anything more than the original premium. As the stock price rises, however, the seller of the call may have to pledge increased collateral unless the collateral posted already consists of the underlying stock whose rising price would cover potential losses on the sold call. 16. Simple puts and calls are often described by financial professionals as “vanilla” options. “Exotic” options are made up of combinations of puts and calls, perhaps with different strike prices or expiration dates. But not all options have the underlying payoff matrix of a put or a call. Some are path-dependent, in the sense that the payoff depends on how long or how frequently it was in the money. And some are parametric, in the sense that the payoff is contingent on a statistic other than the price of the underlier. 17. Emanuel Derman and Nassim Nicholas Taleb, “The Illusions of Dynamic Replication,” Quantitative Finance 5, no. 4 (August 2005): 323– 26.

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18. Black, “Fundamentals of Liquidity,” 6– 8. 19. Mehrling, Fischer Black and the Revolutionary Idea of Finance (Hoboken, NJ: Wiley, 2005). 20. Perry Mehrling, “Financialization and Its Discontents,” Finance and Society 3, no. 1 (2017): 1– 10; Mehrling, Fischer Black and the Revolutionary Idea of Finance. 21. Forward swaps, especially of interest rates, are by far the largest asset class now traded in global capital markets. But this is partly because there is also a market in options on those swaps (“swaptions”) that allows traders to leverage the upside and/ or hedge the downside of their forward contracts by paying a premium for doing so. 22. See, e.g., Elena Esposito, “Beyond the Promise of Security: Uncertainty as Resource,” Telos 170 (Spring 2015): 89– 107. 23. Karl Marx, Capital: Volume III, trans. David Fernbach (London: Penguin, 1993), ch. 25; David Harvey, The Limits to Capital (Chicago: University of Chicago Press, 1982), 266– 70. 24. Alain Badiou, Logics of Worlds: Being and Event, 2, trans. Alberto Toscano (London: Bloomsbury, 2008); Bruno Bosteels, Badiou and Politics (Durham, NC: Duke University Press, 2011). 25. See, e.g., David Rosenberg, “From Trump to Erdogan, Populists Are Assaulting Central Banks. What’s Stopping Bibi?” Haaretz, July 11, 2019, https://www.haaretz .com/israel-news/.premium-from-trump-to-erdogan-populists-are-assaulting-central -banks-what-s-stopping-bibi-1.7492071. 26. For an example of how this idea typically plays out on the left, see Wolfgang Streeck, “The Crises of Democratic Capitalism,” New Left Review, no. 71 (October 2011): 5– 29. 27. Servaas Storm, Macroeconomics beyond the NAIRU, ed. C. W. M. Naastepad (Cambridge, MA: Harvard University Press, 2012). 28. Walter Bagehot, Lombard Street: A Description of the Money Market, ed. Walter Bagehot, 7th ed. (London: Paul, 1878). 29. Roman Jacobson, “Linguistics and Poetics,” in Selected Writings, vol. 3, ed. Stephen Rudy (The Hague: Mouton De Gruyter, 1962), 18– 51; Roman Jacobson, “Poetry of Grammar and Grammar of Poetry,” in Selected Writings, vol. 3, ed. Stephen Rudy (The Hague: Mouton De Gruyter, n.d.), 87– 97. 30. This does not mean that I would always necessarily advocate using an actual derivatives market, for example, in racial preferences that would measure the present value of past discrimination— a possibility I broach in After Evil and discuss below. 31. Walter Benjamin, “On the Concept of History,” in Walter Benjamin: Selected Writings, Volume 4: 1938– 1940, ed. Michael W. Jennings (Cambridge, MA: Harvard University Press, 2003), 389– 400; Hayden V. White, Metahistory: The Historical Imagination in Nineteenth-Century Europe (Baltimore: Johns Hopkins University Press, 1973).

CHA P TE R ONE 1. For examples of this kind of Marxist criticism of financial capitalism, see Robert Brenner, The Economics of Global Turbulence (London: Verso, 2006); Costas Lapavitsas, Profiting without Producing: How Finance Exploits Us All (London: Verso, 2014). 2. And these could be the same coins that sovereigns circulated to collect taxes and requisition goods and services: a use that long preceded the treatment of all goods as

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commodities exchangeable for state- created money. Christine Desan, Making Money: Coin, Currency, and the Coming of Capitalism (Oxford: Oxford University Press, 2014), 59, 71, 220– 24. 3. Katharina Pistor, The Code of Capital: How the Law Creates Wealth and Inequality (Princeton, NJ: Princeton University Press, 2019), ch. 4. Pistor points out that debt was far less convertible into money when the collateral was primarily feudal estates, the owners of which had ways of avoiding repayment by invoking other forms of power. 4. Marie-Thérèse Boyer-Xambeu, Ghislain Deleplace, and Lucien Gillard, Private Money and Public Currencies: The Sixteenth- Century Challenge, trans. Azizeh Azodi (Aramonk, NY: M. E. Sharpe, 1994); Desan, Making Money; Karl Marx, Capital: Volume I, trans. Ben Fowkes (London: Penguin, 1990), pt. 8. 5. Christine Desan, “The Constitutional Approach to Money: Monetary Design and the Production of the Modern World,” in Money Talks: Explaining How Money Really Works, ed. Nina Bandelj, Frederick F. Wherry, and Viviana A. Zelizer (Princeton, NJ: Princeton University Press, 2017), 109– 30. 6. Robert C. Merton, “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,” Journal of Finance 29, no. 2 (May 1974): 449– 70; Robert C. Merton and Zvi Bodie, “Deposit Insurance Reform: A Functional Approach,” in Carnegie-Rochester Conference Series on Public Policy, vol. 38 (Elsevier, 1993), 1– 34. 7. I here draw upon the now famous restatement of debt and equity as puts and calls in Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities,” Journal of Political Economy 81, no. 3 (June 1973): 649– 50. 8. This is a central reason why many left-Ricardians thought land could be heavily taxed, or even nationalized, without causing price inflation or reducing production. Henry George, Progress and Poverty: An Enquiry into the Cause of Industrial Depressions, and of Increase of Want with Increase of Wealth: The Remedy (New York: Sterling, 1879). 9. Karl Marx, Theories of Surplus-Value, ed. S. Ryazanskaya, trans. Emile Burns (Moscow: Progress Publishers, 1969), chs. 9– 18. 10. See Marx, Capital: Volume I, trans. Ben Fowkes (London: Penguin, 1990), 3– 5. 11. In relation to financial theory, Marx’s great innovation was to extend of the logic of economic “rents,” from David Ricardo’s treatment of land as a vehicle of wealth accumulation, to the investment in producer goods, especially raw materials, which fall under his rubric of constant capital. This logic today extends into the manufacture of purely financial products, such as credit-backed derivatives, and to nonfinancial commodities (consumer goods and services) that mimic financial products, such as cell phone contracts and “price-fare locks” on airline tickets. 12. In his effort to address this problem, Marx’s materialism sometimes suggested a kind of conservation principle applied to value (by analogy with energy or matter), such that real growth in accumulated wealth (its value rather than its price) cannot be greater than the profits produced by total employment (wages) multiplied by the real rate of exploitation. This meant that any duplication of the value of physical capital in the form of a financial instrument, such as a debt secured by such assets, would not count as an additional asset. For a critical view of analogies between economics and physics, see Philip Mirowski, More Heat Than Light: Economics as Social Physics, Physics as Nature’s Economics (Cambridge, UK: Cambridge University Press, 1989). 13. See Marx, Capital III, esp. chs. 25, 29– 33.

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14. Adolf A. Berle Jr. and Victoria J. Pederson, Liquid Claims and National Wealth: An Exploratory Study in the Theory of Liquidity (New York: Macmillan, 1934), 60. 15. Black and Scholes, “The Pricing of Options,” (June 1973). This approach could have been derived from the definition of put-call parity described below. Emanuel Derman and Nassim Nicholas Taleb, “The Illusions of Dynamic Replication,” Quantitative Finance 5, no. 4 (August 2005): 323– 26. 16. “Theory of Rational Option Pricing,” Bell Journal of Economics and Management Science 4, no. 1 (Spring 1973): 141– 83. In Merton’s derivation, the actual market price— what people are currently willing to pay for an option— is indistinguishable from the process of laying out all possible scenarios and then assigning probabilities to the spreads between them in comparison to the risk-neutral baseline. In the baseline scenario, this is the zero spread between the option price and its perfect hedge; in alternative scenarios it is the nonzero spreads that occur when different possible payouts have different probabilities of which their actual market prices are the best prediction. See Nicolas Gisiger, “Risk-Neutral Probabilities Explained,” 2010, https://ssrn .com/abstract=1395390. I owe this reference to Janet and Michael Singer. 17. In both derivations of what we now call the Black-Scholes-Merton (BSM) formula, the expected return on risk-free bonds is an important analytical element for pricing puts and calls, and thus for hedging (preserving the value of ) an accumulated capital position. The formula is notable for the fact that in options pricing there is no reliance on psychological factors, such as expected return, or on transactional factors, such as supply and demand. 18. For a constructivist view of financial markets, see Donald MacKenzie and Yuval Millo, “Constructing a Market, Performing Theory: The Historical Sociology of a Financial Derivatives Exchange,” American Journal of Sociology 109, no. 1 (2003): 107– 45; Donald MacKenzie, An Engine, Not a Camera: How Financial Models Shape Markets (Cambridge, MA: MIT Press, 2006). 19. The eventual abolition of bonded labor meant that human labor power would no longer be pledged to raise cash. This is why Marx saw wage workers and essentially uncreditworthy, and why their labor must be hired (rented) for a money wage denominated in a unit of time, such as dollars per hour. But limitations on the legal capacity of free workers to indenture their own labor power, and thus become enslaved, did not extend to the ability of enslavers to collateralize and borrow against the labor power of those who were already enslaved. Especially before the financial panic of 1837, slavebased collateral was used extensively in the US South to finance the expansion of cotton production, and thus provided the most essential raw material for expanded industrial production of textiles in England and the US North. It follows from my discussion above that the expansion of slavery and the plantation system was a form of accumulation for the surplus value that was realized in the price of finished cotton cloth. Caitlin Rosenthal, Accounting for Slavery: Masters and Management (Cambridge, MA: Harvard University Press, 2018); Matthew Desmond, “American Capitalism Is Brutal: You Can Trace That to the Plantation.,” New York Times Magazine, August 14, 2019. 20. Duncan K. Foley, Understanding Capital: Marx’s Economic Theory (Cambridge, MA: Harvard University Press, 1986), 14– 15. 21. To summarize the paragraph above: Marx’s M-C-M1 formula can describe the purchase of a capital asset in three ways: (1) as an arbitrage opportunity; (2) as a play on the spread between two ways of valuing labor, under the assumption that the wage can

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be neither invested nor collateralized; and (3) as a hedged portfolio that can include both debt and equity and, also, puts and calls. 22. For the parity to hold there must be identical underliers, strike prices, maturities, etc. 23. The formula for put- call parity allows you to solve for the price of any of its elements if you know the others. The theoretical price of a put can be found by shorting stock (subtracting it from both sides); the price of a call can be found by borrowing at the risk-free rate to buy the stock along with full put protection (subtracting debt from both sides). In both cases, the option prices derived are those that would balance the formula in a fully hedged portfolio. 24. An automaker stockpiling large amounts of steel could thus purchase a put that protects it against the possibility that the steel in which it has invested might suddenly fall in value if, for example, the demand for cars collapses. Such a bought put could be financed, at least in part, by the premium received for selling a call that would allow the automaker to benefit up front from having bought the steel before it could be known whether its price would rise, perhaps because of a spike in the demand for cars. It would be theoretically possible, at perhaps a prohibitive net price, to hold a portfolio of bought puts and sold calls that eliminates all risks associated with the fluctuating market price of producer goods. 25. It is worth pausing for a moment to ask why the stability of currency is of interest in Marx. The reason is that money is not merely a medium of exchange that establishes an equivalence (through price) of otherwise disparate products. It is also, in his terms, a “store of value.” Thus, the transformation of value into its money form does not mean merely the exchange of a commodity for a price. It also means that value can be held— that is, preserved and accumulated— in the form of money rather than in the form of any commodity of equivalent price. The very fact that money gives its holder the option of not investing it, but rather hoarding it, makes it a potential store of value such that the source of funds for investment can be described by the Federal Reserve as “dishoarding.” See Morris A. Copeland, “Social Accounting for Moneyflows,” Accounting Review 24, no. 3 (July 1949): 254– 64. 26. We should note in passing that the shadow of illiquidity looms over Marx’s account of social reproduction through workers’ purchase and consumption of wage goods. To the extent that wage goods do not provide their purchaser with liquidity, the money spent on them is not an investment (as it would be for a shopkeeper), and those who consume them must constantly return to the labor market in order to fund their consumption for wage goods. 27. Moishe Postone, Time, Labor, and Social Domination: A Reinterpretation of Marx’s Critical Theory (Cambridge: Cambridge University Press, 1993), chs. 4– 5, 7. 28. The investment could be in raw materials to be used in production, or a house, or a long-term bond, or perhaps a financial option to buy or sell any of the above at a predetermined price. For useful discussions of the various uses of “liquidity” to describe financial innovation, see Morgan Ricks, The Money Problem: Rethinking Financial Regulation (Chicago: University of Chicago Press, 2016); Anastasia Nesvetailova, “‘Liquidity’ in Light of the Shadow Banking System: Lessons from the Two Crises,” in Economic Policy and the Financial Crisis, ed. Łukasz Mamica and Pasquale Tridico (London: Routledge, 2014), 132– 47; Anastasia Nesvetailova, “The Crisis of Invented Money: Liquidity Illusion and the Global Credit Meltdown,” Theoretical Inquiries in Law 11, no. 1 (January 2010): 125– 47.

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29. Jack L. Treynor, “The Economics of the Dealer Function,” Financial Analysts Journal 43, no. 6 (December 1987): 27– 28. 30. See Perry Mehrling, “Modern Money: Fiat or Credit?” Journal of Post-Keynesian Economics 22, no. 3 (Spring 2000): 402– 6; Perry Mehrling, “What Is Monetary Economics About?” (Mimeo, January 2, 2000). For a succinct statement of the mid-century (Keynesian) view of money creation, cf. Abba P. Lerner, “Functional Finance and the Federal Debt,” Social Research 10, no. 1 (February 1943): 38– 51, esp. 38– 41. 31. For an explicit recognition of this, see George-Marios Angeletos, Fabrice Collard, and Harris Dellas, “Public Debt as Private Liquidity: Optimal Policy,” NBER working paper no. 22794 (National Bureau of Economic Research, 2016). States and banks are the paradigm case of public/private partnership. Both can create money by either spending or lending it into existence; either can incur debts (liabilities) that are expected to remain liquid rather than be repaid. The difference is that states can repay or refinance their debts by either issuing or withdrawing (taxing) money of their own creation, whereas banks are obliged to use state money for this purpose. In this sense, banks are both backed and regulated by the state’s monopoly power to issue and tax currency. 32. This is the gist of Tooze, Crashed, 2018. 33. Capital II concludes with an extended discussion of the need to balance the two “departments” of production: producer goods and consumer goods. But then Marx surprisingly insists that such a balance could not constitute what economists would now call equilibrium, but is merely a point passed through in the continual oscillation between boom and bust. His implicit conclusion is thus that the lack of any stable equilibrium is inherent in the logic of accumulation through overproduction, described in Volume I and Volume III. I am grateful to Moishe Postone for clarifying this point, and I look forward to the posthumous publication of his University of Chicago seminar on Volume II. 34. Marx, Capital III, pt. 3. 35. See, e.g., Dugard, Fictitious Capital. 36. This position is directly defended in a recent book by Piketty’s sometime collaborators, defending greater economic justice through more rigorous taxation of all forms of income attributable to wealth. Emmanuel Saez and Gabriel Zucman, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay (New York: W. W. Norton, 2019). 37. For a survey, see Don Patinkin and Otto Steiger, “In Search of the ‘Veil of Money’ and the ‘Neutrality of Money’: A Note on the Origin of Terms,” Scandinavian Journal of Economics 91, no. 1 (March 1989): 131– 46. The term “veil of money” goes back at least as far as David Hume’s 1752 essays on money, and is taken up in Joseph A. Schumpeter’s History of Economic Analysis, ed. Elizabeth Boody Schumpeter (New York: Oxford University Press, 1954). For uses of the term in Böhm-Bawerk and Fisher, see Mauro Boianovsky, “Böhm-Bawerk, Irving Fisher, and the Term ‘Veil of Money’: A Note,” History of Political Economy 25, no. 4 (Winter 1993): 725– 38. 38. Michel Feher, Rated Agency: Investee Politics in a Speculative Age, trans. Gregory Elliott (New York: Zone Books, 2018). 39. “In every country where the capitalist mode of production prevails, it is the custom not to pay for labour-power until it has been exercised for the period fixed by the contract, for example, at the end of each week. In all cases, therefore, the worker advances the use-value of his labour-power to the capitalist. He lets the buyer consume

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it before he receives payment of the price. Everywhere the worker allows credit to the capitalist. That this credit is no mere fiction is shown not only by the occasional loss of the wages the worker has already advanced, when a capitalist goes bankrupt, but also by a series of more long-lasting consequences. Whether money serves as a means of purchase or a means of payment, this does not alter the nature of the exchange of commodities. The price of the labour-power is fixed by the contract, although it is not realized till later, like the rent of a house. The labour-power is sold, although it is paid for only at a later period.” Marx, Capital I, 1990, 278– 79. 40. Workers were most often paid by their employers in credit or scrip. See, e.g., John Rule, The Labouring Classes in Early Industrial England, 1750– 1850 (Routledge, 2014), ch. 4, https://doi.org/10.4324/9781315836805; Peter Mathias, The Transformation of England : Essays in the Economic and Social History of England in the Eighteenth Century (New York: Columbia University Press, 1979), ch. 5. 41. Lapavitsas, Profiting without Producing. 42. This is necessary even in some European Union countries, such as Spain and Italy, where significant sectors of the population depend on nonwage sources of funding such as credit, government transfer payments, support from family members, and participation in the informal economy. There are also many underutilized workers, as well as some who are more fully employed but whose wages are only a part, and often a minor part, of a funding package that now includes the return on various financial products purchased to insure their households against ill health, old age, and so forth in a period when wages are either unavailable or insufficient to support basic needs. See, e.g., Beggs, Bryan, and Rafferty, “Shoplifters”; Bryan and Rafferty, “Political Economy and Housing in the Twenty-First Century.” 43. See, especially, the end of Capital I, 1990, ch. 25 and appendix; Capital: Volume II, trans. David Fernbach (London: Penguin, 1992), pt. 3; Capital III, pt. 3. 44. Postone, Time, Labor, and Social Domination, 188–89. 45. Brunhoff, “Value, Finance and Social Classes,” 45. 46. Sohn-Rethel, Intellectual and Manual Labour, 53. 47. Paul Kockelman, “A Semiotic Ontology of the Commodity,” Journal of Linguistic Anthropology 16, no. 1 (June 2006): 80. 48. Jan Assmann, The Price of Monotheism (Stanford, CA: Stanford University Press, 2010). 49. Pseudo-Dionysius, Pseudo-Dionysius: The Complete Works, ed. Colm Luibhéid and Paul Rorem (New York: Paulist Press, 1987). 50. “This self-relation, which negates the existence or difference of any other, preserves the meaning of being in a later, more developed logical form: it defines something that is simply there, given, exists and is meaningful for itself, unrelated to others. The concrete universal is thus the ‘mediation,’ the relation between particulars which constitutes them, but it is itself not ‘mediated.’ . . . i.e., does not depend for its existence or meaning on the relation to an other. It is ‘positive, identical, universal,’ a second immediate. . . .” Charlotte Baumann, “Adorno, Hegel and the Concrete Universal,” Philosophy and Social Criticism 37, no. 1 (2011): 84. 51. Cf. Marcel Gauchet, The Disenchantment of the World: A Political History of Religion (Princeton, NJ: Princeton University Press, 1997); Jan Assmann, The Price of Monotheism (Stanford, CA: Stanford University Press, 2009). 52. Meister, “Randy Martin: Politics beyond the Commodity Form.” 53. Shortly before his death, Postone drew upon his argument in Time, Labor and

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Social Domination, that “the underlying social forms of capitalism become anachronistic while remaining necessary,” to acknowledge that financialization in its present iteration may be something new that “can be understood as an unintentional effort to abolish value within a framework that remains structured by value . . . [in which] the search for wealth becomes perversely reflexive, like an autoimmune disease.” I would like to suggest— and this is no more than a suggestion— that it is possible to regard the crisis-ridden end of the enormously productive, postwar Keynesian-Fordist configuration of capitalism as the expression of a secular crisis of valorization. . . . One could see the expansion of the debt economy as an attempt to develop new sources of revenue. This in itself is not necessarily new. Marx’s analysis of the tendency for value to become anachronistic, however, could cast a different light on the current configuration of financial capital. Within this framework, financialization now would not be exactly the same as financialization in the past, for now the expansion of a debt economy would be occurring against the background of stagnating surplus value production.

See Moishe Postone, “The Current Crisis and the Anachronism of Value: A Marxian Reading,” C T & T: Continental Thought and Theory 1, no. 4 (October 1, 2017): 50– 52. I thank Charlotte Robertson for calling my attention to this article. 54. For a fuller development of my relation Postone, see “Moishe on Value and Wealth.” Critical Historical Studies, Spring (2020):113–25. 55. This reading of the “counter-tendencies” is developed by Randy Martin in “From the Critique of Political Economy to the Critique of Finance,” in Derivatives and the Wealth of Societies, ed. Benjamin Lee and Randy Martin (Chicago: University of Chicago Press, 2016), 174– 96. 56. In his general formula for capital, M-C-M1 (where M > M1), Marx states the problem of surplus value by directly invoking what later financial economists will call “the law of one price.” This law, otherwise known as the “non-arbitrage principle,” precludes making money by buying or selling a single commodity at two different prices at the same time. This is the basis for distinguishing between zero-sum transactions that harvest but also eliminate arbitrage opportunities arising when the law of one price is temporarily breached, and the real economic growth that can occur even without such arbitraging of price disparities. 57. Duncan Foley’s reconstruction of the entirety of Capital suggests that they are mutually consistent, but only if we limit our interpretation of Marx’s argument to what we now call the macroeconomic level. See Foley, Understanding Capital. 58. J. M. Keynes and Donald Moggridge, “A Monetary Theory of Production,” in The Collected Writings of John Maynard Keynes, vol. 13 (London: Macmillan, 2012), 408– 9. 59. In a book on historical justice, more than a footnote should be devoted to the anomalous role of New World slavery in the financial history of capitalism. Slavery was an exception, within capitalism, to the principle that human labor power cannot be pledged as collateral: the legal ability of slaveholders to pledge the labor of their slaves was a driver of innovation in the fields of banking and insurance that were fundamental to increased investment in cotton production during the early nineteenth century, and which fed an industrial revolution in the production of textiles. Desmond, “American Capitalism Is Brutal”; Jonathan Levy, Freaks of Fortune: The Emerging World of Capitalism and Risk in America (Cambridge, MA: Harvard University Press, 2012); Rosenthal, Accounting for Slavery: Masters and Management.

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60. The reason for this equivalence is that forward contracts— here a forward liquidity swap— will always have a positive intrinsic value to one of the counterparties and a negative intrinsic value to the other. Such a contract might have been structured so that it could be entered without cost; no money needs to change hands, because each of us would be paying for the full gains of being on the winning side by assuming the full loss of being on the losing side. But once the contract is in place and markets move, one of us will be in the money and the other will be out of the money. It should thus cost approximately that amount of money to reverse or breach the forward contract, because in a forward contract one’s gains or losses depend entirely on the direction in which the market moves. Salih N. Neftci, Principles of Financial Engineering, 2nd ed., Academic Press Advanced Finance Series (San Diego, CA: Elsevier Academic Press, 2008), chs. 1, 5. 61. NB Forward contracts can be entered costlessly in the sense that their potential downside “pays” for their potential upside. This would occur, for example, in a forward contract that locks in the current (“spot”) price, and thus exposes one to the same possibility of future gain or loss that one would get by purchasing the underlying asset. But a forward contract need not lock in the spot price, in which case one party or the other would need to be paid to enter it. 62. Bethany McLean, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, ed. Peter Elkind (New York: Portfolio, 2003); Madeleine Fairbairn, “‘Like Gold with Yield’: Evolving Intersections between Farmland and Finance,” Journal of Peasant Studies 41, no. 5 (2014): 777– 95; Ellen Hanak, Who Should Be Allowed to Sell Water in California? Third-Party Issues and the Water Market (San Francisco, CA: Public Policy Institute of California, 2003). 63. Jennifer Clapp and S. Ryan Isakson, “Risky Returns: The Implications of Financialization in the Food System,” Development and Change 49, no. 2 (2018): 437–60; Lena Lavinas, “The Collateralization of Social Policy under Financialized Capitalism,” Development and Change 49, no. 2 (2018): 502– 17; Razmig Keucheyan, “Insuring Climate Change: New Risks and the Financialization of Nature,” Development and Change 49, no. 2 (2018): 484– 501. 64. Zoltan Pozsar, “Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System,” Financial Markets, Institutions & Instruments 22, no. 5 (2013): 283–318; Pozsar et al., “Shadow Banking,” Federal Reserve Bank of New York Economic Policy Review 19, no. 2 (December 2013): 1– 16. 65. Pistor, Code of Capital, 199. 66. One development economist sums up this process: “Anything which can be collateralized, will be collateralized.” Servaas Storm, “Financialization and Economic Development: A Debate on the Social Efficiency of Modern Finance,” Development and Change 49, no. 2 (2018): 313.

CHA P TE R T wO 1. Timothy Mitchell, Carbon Democracy: Political Power in the Age of Oil (London: Verso, 2011). 2. This framing of the question builds on the work of Dick Bryan and his collaborators based in Sydney. See, e.g., Dick Bryan, Randy Martin, and Mike Rafferty, “Financialization and Marx: Giving Labor and Capital a Financial Makeover,” Review of Radical Political Economics 41, no. 4 (December 2009): 458– 72; Dick Bryan, “Real Finance: Finding a Material Foundation to Global Finance,” Second Annual Conference of the

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International Forum on the Comparative Political Economy of Globalization, Renmin University of China, Beijing, 2006; Dick Bryan and Michael Rafferty, Capitalism With Derivatives: A Political Economy of Financial Derivatives, Capital and Class (Houndmills, UK: Palgrave Macmillan, 2006). 3. Robert Triffin, Gold and the Dollar Crisis: The Future of Convertibility (New Haven: Yale University Press, 1960). 4. Pozsar, “Institutional Cash Pools and the Triffin Dilemma.” Cf. Massimo Amato and Luca Fantacci, The End of Finance (Cambridge, UK: Polity, 2012), pt. 2. 5. Gerald R. Ford, “October 8, 1974: ‘Whip Inflation Now’ Speech,” Miller Center, October 20, 2016, https://millercenter.org /the -presidency/presidential-speeches /october-8-1974-whip-inflation-now-speech. 6. L. Randall Wray, Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems (Houndmills, Basingstoke, Hampshire, UK, and New York: Palgrave Macmillan, 2012). 7. On the relation between base money creation and government borrowing, see Chris Cook, “A Very Secret Agent,” Asia Times, July 17, 2011; Izabella Kaminska, “Predatory Profits in an Age of ‘Negative Carry,’” FT Alphaville (blog), July 5, 2012, http:// ftalphaville.ft.com/2012/07/05/1071671/pariah-profits-in-an-age-of-negative-carry/. 8. See Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009). 9. David Stasavage, States of Credit: Size, Power, and the Development of European Polities (Princeton, NJ: Princeton University Press, 2011); Richard A. Musgrave, “Schumpeter’s Crisis of the Tax State: An Essay in Fiscal Sociology,” Journal of Evolutionary Economics 2, no. 2 (June 1992): 89– 113; Joseph A. Schumpeter, “The Crisis of the Tax State,” in The Economics and Sociology of Capitalism, ed. Richard Swedberg (Princeton, NJ: Princeton University Press, 1991), 99– 140. 10. For an account of these debates, see Geoffrey Colin Harcourt, Some Cambridge Controversies in the Theory of Capital (Cambridge: Cambridge University Press, 1972). 11. Standard deviation is derived by squaring the deviation of the drift factor, summing the squares, averaging the sum, and finally taking the square root of the average. 12. By the 1990s, as we will see, BSM allows the change in an option’s price to become a major tool for measuring and predicting changes in an asset’s expected volatility, and thus for extracting financial value from shocks and crises. 13. Sam Gindin and Leo Panitch, The Making of Global Capitalism: The Political Economy of American Empire (London and Brooklyn, NY: Verso, 2012). 14. Pierre-Olivier Gourinchas and Olivier Jeanne, “Global Safe Assets,” BIS working paper no. 399 (Bank for International Settlements, 2012); Manmohan Singh and Peter Stella, “Money and Collateral,” IMF working paper no. 12/95 (International Monetary Fund, 2012). 15. For a seminal paper arguing that liquidity is not already priced into what we now call an “underlying” expected return (because, e.g., its risk of default can be split off and sold separately as what we now call a “derivative”), see Black, “Fundamentals of Liquidity.” 16. The above formulation describes the project of controlling 1970s “stagflation,” undertaken through “central bank autonomy” combined with “financial innovation.” See Alasdair Roberts, The Logic of Discipline: Global Capitalism and the Architecture of Government (Oxford: Oxford University Press, 2010); Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge, MA: Harvard University

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Press, 2012). Key events in the history of US central bank autonomy are the Fed-Treasury Accord of 1951 and the Monetary Control Act of 1980, which set the stage for the development of today’s financial services industry based on the liquidity of credit. 17. Robert A. Mundell, “A Reconsideration of the Twentieth Century,” American Economic Review 90, no. 3 (June 2000): 327– 40. 18. Alan S. Blinder, Central Banking in Theory and Practice (Cambridge, MA: MIT Press, 1998). 19. Pozsar, “Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System”; Pozsar et al., “Shadow Banking.” 20. Pierre-Olivier Gourinchas, Hèlène Rey, and Nicolas Govillot, “Exorbitant Privilege and Exorbitant Duty,” October 25, 2017, http:// helenerey.eu/Content/_Documents /duty _23 _10_2017.pdf. 21. The expected liquidation value of an asset, for example in the event of bankruptcy, would probably be less than its mark-to-market price as a performing asset. This is why secured lenders almost always require borrowers to post a capital cushion, or take a “haircut,” as the margin on pledged collateral that may have to be sold into a falling market. Gary B. Gorton and Andrew Metrick, “Haircuts,” Federal Reserve Bank of St. Louis Review 92, no. 6 (December 2010): 507– 19; Izabella Kaminska, “One Man’s Haircut Is Another Man’s Unsecured Risk,” FT Alphaville (blog), November 25, 2011, http://ftalphaville .ft .com/2011/11/25/760761/one -mans -haircut-is -another-mans -unsecured-risk/. 22. See Hyman P. Minsky, Stabilizing an Unstable Economy (New Haven: Yale University Press, 1986). 23. Amato and Fantacci, End of Finance, pt. 1. 24. Singh and Stella, “Money and Collateral.” Cf. Richard Duncan, The New Depression: The Breakdown of the Paper Money Economy (Hoboken, NJ: Wiley, 2012), pt. 1. 25. Mehrling, Perry, “Credit Default Swaps: The Key to Financial Reform,” in Time for a Visible Hand: Lessons from the 2008 World Financial Crisis, ed. Stephany Griffith-Jones, José Antonio Ocampo, and Joseph E. Stiglitz (Oxford and New York: Oxford University Press, 2010), 186– 92; Perry Mehrling et al., “Bagehot Was a Shadow Banker: Shadow Banking, Central Banking, and the Future of Global Finance,” in Shadow Banking within and across National Borders, vol. 40 (Hackensack, NJ: World Scientific Studies in International Economics, 2015), 81– 97, http://www.ssrn.com/abstract=2232016. 26. Martha Poon, “From New Deal Institutions to Capital Markets: Commercial Consumer Risk Scores and the Making of Subprime Mortgage Finance,” Accounting, Organizations and Society 34, no. 5 (July 2009): 654– 74; Michel Callon and Fabian Muniesa, “Peripheral Vision: Economic Markets as Calculative Collective Devices,” Organisation Studies 26, no. 8 (August 2005): 1229– 50. 27. See Frances Coppola, “The Financialization of Labor,” Pieria, May 7, 2013, http:// www.pieria.co.uk/articles/the_financialization_of_labour; Louis Hyman, Debtor Nation: The History of America in Red Ink (Princeton, NJ: Princeton University Press, 2011); Levy, Freaks of Fortune. 28. Moishe Postone and others have argued that in its mode of production, the Soviet Union was hypercapitalist. See, e.g., Time, Labor, and Social Domination, 14n8. If so, however, this did not extend to its mode of finance, which could not compete internationally with a newly financialized global capitalism. 29. Eric Arias and David Stasavage, “How Large Are the Political Costs of Fiscal Austerity?” Journal of Politics 81, no. 4 (October 1, 2019): 1517– 22.

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30. Andrew Leyshon and N. J. Thrift, Money/Space: Geographies of Monetary Transformation (London: Routledge, 1996); Mark Kear, “Governing Homo Subprimicus: Beyond Financial Citizenship, Exclusion, and Rights,” Antipode, September 1, 2013; Philip Mader, “Contesting Financial Inclusion,” Development and Change, March 1, 2018. 31. Martin, Financialization Of Daily Life. 32. See Philip Mirowski, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (London: Verso, 2013). 33. William Davies and Linsey McGoey, “Rationalities of Ignorance: On Financial Crisis and the Ambivalence of Neo-Liberal Epistemology,” Economy & Society 41, no. 1(2012): 64. 34. For a prescient account of this dynamic, see Martin, Empire of Indifference, 2007, ch. 1. 35. Marieke de Goede, “Financial Security,” Finance and Society 3, no. 2 (2017): 159– 72. 36. By threatening to pull that trigger, Wall Street got the US government to effectively guarantee the total global credit market, with collateral valued at over $90 trillion, by pledging $13 trillion (the value of its total tax base). 37. Friedrich A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35, no. 4 (September 1945): 519– 30; Kenneth J. Arrow, “The Economics of Information: An Exposition,” Empirica 23, no. 2 (June 1, 1996): 119– 28, https://doi.org /10.1007/BF00925335; Joseph E. Stiglitz, “The Revolution of Information Economics: The Past and the Future,” National Bureau of Economic Research Working Paper Series, September 8, 2017, https://www.nber.org/papers/w23780.

CHA P TE R THRE E 1. For a recent development of this idea, see Bevernage, “Past Is Evil.” 2. See, e.g., Jeremy Waldron, “Superseding Historic Injustice,” Ethics 103, no. 1 (October 1992): 4– 28; Jeremy Waldron, “Redressing Historic Injustice,” University of Toronto Law Journal 52, no. 1 (Winter 2002): 135– 60. For the view that a Rawlsian approach has not yet been attempted in the area of historical justice, see Charles W. Mills, Black Rights / White Wrongs: The Critique of Racial Liberalism (New York: Oxford University Press, 2017). 3. For many Rawlsians, I would add, such a postponement of justice could be for the best, insofar as demands for equality and justice are seen to be divisive or unproductive. It is in this vein that humanitarianism in the era of finance has come to understand justice in terms of demands for “adequacy” and “choice” rather than equality and the repair of cumulative social injuries from past historical harms. Adequacy and choice, after all, are much more consistent with what donor agencies are willing to fund, because the demands and responses are made on “humanitarian” rather than redistributive and therefore “divisive” grounds. For an example of such a view, see Amy Gutmann, Democratic Education (Princeton, NJ: Princeton University Press, 1987). 4. The term originated as a successor to “sovietology.” Johan Cornelis van Zon, “Problems of Transitology, towards a New Research Agenda and a New Research Practice,” Emergo: Journal of Transforming Economies and Societies 1, no. 1 (1994): 6– 20; Roger D. Markwick, “A Discipline in Transition? From Sovietology to ‘Transitology’?” Journal of Communist Studies & Transition Politics 12, no. 3 (1996): 255– 76. Based on earlier theories of transitions from authoritarianism to democracy, it was generalized and

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applied to the growth of humanitarian law by thinkers such as Ruti Teitel. Ruti G. Teitel, Transitional Justice (Oxford and New York: Oxford University Press, 2000); Globalizing Transitional Justice: Contemporary Essays (Oxford: Oxford University Press, 2014). 5. This underprosecution is sometimes blamed on the West’s need to “change enemies” after World War II and thus rely on anticommunists despite their Nazi pasts. In contrast, Eastern European communist regimes were more aggressive in their purge of ex-Nazis from official positions. See Noel Gilroy Annan, Changing Enemies: The Defeat and Regeneration of Germany (New York: Norton, 1995); Jeffrey Herf, Divided Memory: The Nazi Past in the Two Germanys (Cambridge, MA: Harvard University Press, 1997); István Rév, Retroactive Justice: Prehistory of Post- Communism (Stanford, CA: Stanford University Press, 2005). 6. Anne Sa’adah, Germany’s Second Chance: Trust, Justice, and Democratization (Cambridge, MA: Harvard University Press, 1998). 7. Meister, After Evil, ch. 9. See also Robert Meister, “Anticipatory Regret: Can Free Speech Be Protected When It Matters?” Boundary 2 32, no. 3 (Fall 2005): 169– 97. 8. Meister, After Evil, ch. 9. See also Carlos Santiago Nino, Radical Evil on Trial (New Haven: Yale University Press, 1996); Jaime E. Malamud Goti, Game without End: State Terror and the Politics of Justice (Norman: University of Oklahoma Press, 1996); Naomi Roht-Arriaza et al., eds., Impunity and Human Rights in International Law and Practice (New York: Oxford University Press, 1995); Carla Hesse and Robert Post, eds., Human Rights in Political Transitions: Gettysburg to Bosnia (New York and Cambridge, MA: Zone Books, 1999). 9. Goodin, Robert E., “Disgorging the Fruits of Historical Wrongdoing,” American Political Science Review 107, no. 3 (2013): 478– 91. 10. Judith N. Shklar, “Putting Cruelty First,” in Ordinary Vices (Cambridge, MA: Belknap Press of Harvard University Press, 1984), 7– 44. 11. Ian Hacking, Rewriting the Soul (Princeton, NJ: Princeton University Press, 1995), ch. 13. 12. Didier Fassin and Richard Rechtman, The Empire of Trauma: An Inquiry into the Condition of Victimhood, trans. Rachel Gomme (Princeton, NJ: Princeton University Press, 2009); Didier Fassin, Humanitarian Reason: A Moral History of the Present (Berkeley: University of California Press, 2012). 13. Joseph R. Slaughter, “The Enchantment of Human Rights; or, What Difference Does Humanitarian Indifference Make?” Critical Quarterly 56, no. 4 (December 2014): 49. 14. Slaughter, 46– 47. 15. There is such a thing as sadism, of course, which importantly is not indifferent to the pain of others. But sadism is (or can be) deliberately cruel, and cruelty disrespects the other person’s dignity. I am grateful to Lisa Simeone for helping me to clarify the claims made above. 16. Wayne Booth, “Individualism and the Mystery of the Social Self; or, Does Amnesty Have a Leg to Stand On?” in Freedom And Interpretation: The Oxford Amnesty Lectures, ed. Barbara Johnson (New York: Basic Books, 1993), 69– 102. See also Joseph Slaughter, “A Question of Narration: The Voice in International Human Rights Law,” Human Rights Quarterly 19, no. 2 (May 1997): 406– 30. 17. From this perspective, the paradigmatic questions of justice would indeed arise in the treatment of refugees rather than citizens. Do Syrian refugees matter to the

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European Union, for example, as much as Vietnamese “boat people” once mattered to the United States? 18. An impressive group of intellectual historians have recently argued that the post– Vietnam turn toward human rights was a turn away from theories aimed at making capitalist democracy more just in order to compete with the communist challenge. Kenneth Cmiel, “The Recent History of Human Rights,” American Historical Review 109, no. 1 (February 2004): 117– 35; Cmiel, “The Emergence of Human Rights Politics in the United States,” Journal of American History 86, no. 3 (December 1999): 1231– 50; Samuel Moyn, The Last Utopia: Human Rights in History (Cambridge, MA: Belknap Press, 2010); Moyn, Human Rights and the Uses of History (London: Verso, 2014); Moyn, Not Enough: Human Rights in an Unequal World (Cambridge, MA: Belknap Press, 2018); Barbara J. Keys, Reclaiming American Virtue: The Human Rights Revolution of the 1970s (Cambridge, MA: Harvard University Press, 2014). 19. Ronald Dworkin, Justice for Hedgehogs (Cambridge, MA: Belknap Press, 2011), 335. 20. See Hans Joas, The Sacredness of the Person: A New Genealogy of Human Rights (Washington: Georgetown University Press, 2013), chap. 4; Jeffrey C. Alexander, Trauma: A Social Theory (Cambridge, UK: Polity, 2012); Jeffrey C. Alexander et al., Cultural Trauma and Collective Identity (Berkeley: University of California Press, 2004). 21. George Kateb, Human Dignity (Cambridge, MA: Belknap Press of Harvard University Press, 2011). Cf. Joseph R. Slaughter, Human Rights, Inc.: The World Novel, Narrative Form, and International Law (New York: Fordham University Press, 2007). The latter work connects mainstream human rights discourse with the developmental logic of Bildungsroman. 22. I consider the position of Derek Parfit on this topic in chapter 4. 23. See, e.g., Amartya Sen, “The Place of Capability in a Theory of Justice,” in Measuring Justice: Primary Goods and Capabilities, ed. Harry Brighouse and Ingrid Robeyns (Cambridge, UK: Cambridge University Press, 2010), 239– 53; Sen, Development as Freedom (Oxford ; New York: Oxford University Press, 2001); Martha Craven Nussbaum and Amartya Sen, The Quality Of Life (Oxford and New York: Clarendon Press and Oxford University Press, 1993). For a defense of Rawls against this view, see Thomas Pogge, Realizing Rawls (Ithaca, NY: Cornell University Press, 2000); Pogge, “A Critique of the Capability Approach,” in Measuring Justice: Primary Goods and Capabilities, ed. Harry Brighouse and Ingrid Robeyns (Cambridge, UK: Cambridge University Press, 2010), 17– 60. 24. Martha C. Nussbaum, Creating Capabilities: The Human Development Approach (Cambridge, MA: Belknap Press, 2011), 24– 25. 25. Rachel Yehuda and Amy Lehrner, “Intergenerational Transmission of Trauma Effects: Putative Role of Epigenetic Mechanisms,” World Psychiatry: Official Journal of the World Psychiatric Association 17, no. 3 (October 2018): 243– 57, https://doi.org/10 .1002/wps.20568; Olga Khazan, “Inherited Trauma Shapes Your Health,” Atlantic, October 16, 2018, 26. Adrian Johnston and Catherine Malabou, Self and Emotional Life: Philosophy, Psychoanalysis, and Neuroscience (New York: Columbia University Press, 2013); Catherine Malabou, Before Tomorrow: Epigenesis and Rationality (Cambridge: Polity Press, 2016); Bernard Stiegler, “The Initial Trauma of Exosomatization,” trans. Daniel Ross, Italian Society of Psychopathology National Congress, Rome, 2020, https://www.academia .edu/42053212/Bernard_Stiegler_The_Initial_Trauma_of_Exosomatization_2020_.

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27. John Rawls, A Theory of Justice (Cambridge, MA: Harvard University Press, 1971), 3– 4. 28. Meister, After Evil, 34– 35, 53– 58. 29. Meister, Political Identity. I look forward to Nadia Abu El Haj’s forthcoming work on uses of the trauma concept in military psychiatry to treat the moral injuries suffered by soldiers deployed in arguably unjust occupations and invasions. 30. Hayden V. White, Tropics of Discourse: Essays in Cultural Criticism (Baltimore: Johns Hopkins University Press, 1978); Fredric Jameson, Allegory and Ideology (London: Verso, 2019). 31. Ranabīr Samāddār, “The Justice- Seeking Subject,” in The Borders of Justice, ed. Étienne Balibar, Sandro Mezzadra, and Ranabīr Samāddār (Philadelphia: Temple University Press, 2012), 145– 66; Sandro Mezzadra and Brett Neilson, “Borderscapes of Differential Inclusion: Subjectivity and Struggles on the Threshold of Justice’s Excess,” in The Borders of Justice, ed. Étienne Balibar, Sandro Mezzadra, and Ranabīr Samāddār (Philadelphia: Temple University Press, 2012), 181– 203. 32. Benjamin, “Concept of History.” 33. My view is, rather, that the variation of inequalities is a measure of historical injustice, which is better defined as the trace of an evil supposed-to-be past that is observable in present distributions of accumulated wealth. 34. In our post-Holocaust world, it seems realistic to recognize that any society, no matter how advanced, can turn this corner in an instant. We also know, however, that preemptively acting on such fears makes it more likely that this worst- case scenario will come true: a realistic fear of suffering genocide can make committing genocide conceivable. Meister, After Evil, chs. 3– 4; Rebecca Littman and Elizabeth Levy Paluck, “The Cycle of Violence: Understanding Individual Participation in Collective Violence,” Political Psychology 36, no. S1 (February 2015): 79– 99. 35. Max Weber, The Protestant Ethic and the Spirit of Capitalism (New York: Scribner, 1948). 36. Frank H. Knight, Risk, Uncertainty and Profit (Boston: Houghton Mifflin, 1921); Frank H Knight and Thornton W. Merriam, The Economic Order and Religion (New York: Harper and Brothers, 1945). On the difference between diversifiable and systematic risk in the capital asset pricing model (CAPM), see William F. Sharpe, “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk,” Journal of Finance 19, no. 3 (September 1964): 425– 42. 37. This part of Dupuy’s argument comes from René Girard: the mimetic, ultimately self-referential, of choice under uncertainty makes us choose to preserve the possibility of choice in the face of a deferred apocalypse, thereby creating the kind of contagion that threatens to hasten that apocalypse. Jean-Pierre Dupuy, Economy and the Future: A Crisis of Faith, trans. Malcolm B. DeBevoise (East Lansing: Michigan State University Press, 2014), 13– 17. Dupuy here cites Girard, Violence and the Sacred, 256– 60. For a broader statement of Girard’s view, see, e.g., Girard, I See Satan Fall Like Lightning (New York: Orbis Books, 2001); Girard, “Overview of the Mimetic Theory,” in The Girard Reader, ed. James G. Williams (New York: Crossroad Herder, 1996), 7– 29. 38. He here draws on René Girard, and quotes Girard’s disciple, the financier and serial entrepreneur Peter Theil. Dupuy, Economy and the Future, 84– 87. 39. Dupuy, Economy and the Future, 85– 86. 40. Our initiation into this awareness of catastrophic risk is today’s equivalent of Gnosticism and calls forth a desire for secular salvation from the end of the world as we

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know it that corresponds to the messianic faith of Christianity. For Dupuy, the apparent question is whether faith alone can save the world— the same question Weber raises about the Protestant ethic as “the spirit of capitalism.” Dupuy, Economy and the Future, chs. 3– 4; Max Weber, The Protestant Ethic and the Spirit of Capitalism, trans. Talcott Parsons (New York: Scribner, 1948). 41. This is the title of Dupuy’s chapter 4 in Economy and the Future. 42. What philosophers call “counterfactual conditional propositions” are backwardlooking inferences from what doesn’t happen (false preconditions), as distinct from “causal conditional propositions,” which are forward-looking inferences from what does happen (true preconditions). According to Dupuy, mainstream economics suffers from assuming what he calls “the causalist hypothesis”— i.e., that “a variable depends counterfactually on another only if it depends on it causally; and if one variable depends causally on another, then it depends counterfactually on it.” Dupuy, Economy and the Future, 21– 30; all italics in original. 43. Dupuy, Economy and the Future, 108. 44. Dupuy, Economy and the Future, 30. 45. Dupuy, Economy and the Future, 41ff. 46. Dupuy, Economy and the Future, 110. 47. Dupuy, Economy and the Future, 90. 48. David K. Lewis, “Counterfactual Dependence and Time’s Arrow (1979),” in Philosophical Papers, vol. 2 (New York and Oxford: Oxford University Press, 1983), 38; italics in original. 49. Dupuy praises Orléan’s Empire of Value for considering value to be a “trace of the future in the present” rather than an “objective magnitude determined by the past.” He goes on to say: “The uncertainty of economic life has the consequence that several prices for any commodity are possible because several futures are possible.” Dupuy, Economy and the Future, 2014, 161n73. For a similar view based on Luhmann rather than Girard, see Elena Esposito, “Predicted Uncertainty: Volatility Calculus and the Indeterminacy of the Future,” in Uncertain Futures: Imaginaries, Narratives, and Calculation in the Economy, ed. Jens Beckert and Richard Bronk (Oxford: Oxford University Press, 2018), 219– 35. Cf. Niklas Luhmann, “The Future Cannot Begin: Temporal Structures in Modern Society,” Social Research 43, no. 1 (1976): 130– 52.

CHA P TE R F OUR 1. This subsidiary principle has been used to justify retention of resources to which one has had no original right, whether that is because they were found by accident or acquired as a consequence of someone else’s wrongdoing for which the present resource holder is blameless. It is sometimes asserted in postcolonial contexts to trump claims of ancient right or primal wrong as a reason not to force the disgorgement of wealth, if no one in the present comes forward with a better claim than the benefit of repose on which one has thus far relied. Meister, After Evil, ch. 8 (“Adverse Possession”); Randy J. Kozel, “Settled versus Right: Constitutional Method and the Path of Precedent,” Texas Law Review, no. 7 (2012): 1843. Eva Mackey, ed., Unsettled Expectations: Uncertainty, Land and Settler Decolonization (Halifax, NS: Fernwood Publishing, 2016); Joseph William Singer, “The Reliance Interest in Property,” Stanford Law Review 40, no. 3 (1988): 611, https://doi.org/10.2307/1228814. 2. George A. Akerlof and Robert J. Shiller, Animal Spirits: How Human Psychology

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Drives the Economy, and Why It Matters for Global Capitalism (Princeton, NJ: Princeton University Press, 2009). 3. Lon L. Fuller and William R. Perdue Jr., “The Reliance Interest in Contract Damages.,” Yale Law Journal 46, no. 2 (1936): 52– 96; Lon L. Fuller and William R. Perdue Jr., “The Reliance Interest in Contract Damages: 2,” Yale Law Journal 46, no. 3 (1937): 373– 420; Peter Benson, “The Expectation and Reliance Interests in Contract Theory: A Reply to Fuller and Perdue,” Issues in Legal Scholarship 1 (2001), i– 62. 4. Gerald A. Cohen, “On the Currency of Egalitarian Justice,” Ethics 99, no. 4 (July 1989): 906– 44; Richard J. Arneson, Luck Egalitarianism: A Primer (Oxford: Oxford University Press, 2011); Arneson, “Rethinking Luck Egalitarianism and Unacceptable Inequalities,” Philosophical Topics, no. 1 (2012): 153. 5. Their rewards if any, should capped by their savings on insurance premiums that they did not pay. 6. Elizabeth S. Anderson, “What Is the Point of Equality?” Ethics 109, no. 2 (January 1999): 287– 337. See also Samuel Scheffler, “What Is Egalitarianism?” Philosophy & Public Affairs 31, no. 1 (Winter 2003): 5– 39; Ronald Dworkin, “Equality, Luck and Hierarchy,” Philosophy & Public Affairs 31, no. 2 (Spring 2003): 190– 98. 7. Robert Huseby, “The Beneficiary Pays Principle and Luck Egalitarianism.,” Journal of Social Philosophy 47, no. 3 (2016): 332– 49; Kasper Lippert-Rasmussen, Luck Egalitarianism, Bloomsbury Ethics Series (London: Bloomsbury Academic, 2016). Arneson, “Rethinking Luck Egalitarianism and Unacceptable Inequalities.” 8. Daniel Butt, “Repairing Historical Wrongs and the End of Empire,” Social & Legal Studies 21, no. 2 (2012): 227; Butt, “Why Worry About Historic Injustice?,” in Rectifying International Injustice: Principles of Compensation and Restitution between Nations (Oxford: Oxford University Press, 2009), 32– 52. 9. Robert E. Goodin, “Disgorging the Fruits of Historical Wrongdoing”; Robert E. Goodin and Christian Barry, “Benefiting from the Wrongdoing of Others,” Journal of Applied Philosophy 31, no. 4 (November 2014): 363– 76; Daniel Butt, “On Benefiting from Injustice,” Canadian Journal of Philosophy 37, no. 1 (March 2007): 129– 52; Butt, “‘A Doctrine Quite New and Altogether Untenable’: Defending the Beneficiary Pays Principle,” Journal of Applied Philosophy 31, no. 4 (November 1, 2014): 336– 48. 10. Daniel Butt, “The Polluter Pays? Backward-Looking Principles of Intergenerational Justice and the Environment,” in Jean-Christophe Merle, ed. Spheres of Global Justice: Fair Distribution- Global Economic, Social and Intergenerational Justice, vol. 2 (Berlin: Springer, 2013), 757– 74. 11. Saul Levmore, “Variety and Uniformity in the Treatment of the Good-Faith Purchaser,” Journal of Legal Studies 16, no. 1 (1987): 43– 65. 12. One of the best-known versions of this argument is Robert Nozick’s “Wilt Chamberlain” example in Anarchy, State, and Utopia (New York: Basic Books, 1974), 161– 63. 13. There is a deeper philosophical question about whether and in what sense equality itself is intrinsic to the concept of justice or, rather, a legitimate procedural constraint in reasoning about justice. Several of my teachers made deep contributions to this problem more than fifty years ago, and I shall not address it here except in the specific context of “pattern-based” versus historically based conceptions of justice in the Rawls-Nozick debate. On whether equality as such is part of justice, see Gregory Vlastos, “Justice and Equality,” in Social Justice, ed. Richard B. Brandt (Englewood Cliffs, NJ: Prentice-Hall, 1962), 31– 72; Isaiah Berlin, “Equality,” in Concepts and Categories: Philosophical Essays, ed. Henry Hardy (New York: Viking, 1979), 81– 102. In sidestepping

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such controversies, John Rawls, following Kant, argues that equality is a moral constraint on the procedures for justifying principles of justice. See A Theory of Justice (Cambridge, MA: Harvard University Press, 1971), ch. 1.4, on “the original position.” 14. The relation between ordinal and cardinal measurement is a perennial problem in the history of welfare economics. For a locus classicus, see John Hicks, Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory (Oxford: Clarendon, 1939). 15. Cf. Benjamin, “On the Concept of History”; Benjamin, “Paralipomena to ‘On the Concept of History,’” in Walter Benjamin: Selected Writings, Volume 4: 1938– 1940, ed. Michael W. Jennings (Cambridge, MA: Harvard University Press, 2003), 401– 11. This idea is developed further by Quentin Meillassoux in “L’inexistence divine,” dissertation, Université de Paris I, 1997. For relevant excerpts see Graham Harman, Quentin Meillassoux: Philosophy in the Making (Edinburgh: Edinburgh University Press, 2011), 175– 238. 16. “. . . I shall briefly describe a theory which is widely held but which assumes what I consider the very opposite of the true aim of the social sciences; I call it the ‘conspiracy theory of society.’ It is the view that an explanation of a social phenomenon consists in the discovery of the men or groups who are interested in the occurrence of this phenomenon (sometimes it is a hidden interest which has first to be revealed), and who have planned and conspired to bring it about. This view of the aims of the social sciences arises, of course from the mistaken theory that, whatever happens in society— especially happenings such as war, unemployment, poverty, shortages, which people as a rule dislike— is the result of direct design by some powerful individuals and groups.” Karl R. Popper, The Open Society and Its Enemies, Volume II: Hegel and Marx (Princeton, NJ: Princeton University Press, 1966), 94– 95. 17. For Popper, the project of reversing the cumulative effects of historical injustice by a Marxist party in power is no less likely to fail— though in this case, Popper implies that such an attempt would be an actually existing conspiracy using the hypothetical existence of a previous conspiracy as a pretext for exercising unfettered political power in the present: “The conspiracy theory of society is very widespread and has very little truth in it. Only when conspiracy theoreticians come into power does it become something like a theory which accounts for things which actually happen. . . . For example, when Hitler came into power. . . . But the interesting thing is that such a conspiracy never— or ‘hardly ever’— turns out in the way that is intended. This remark can be taken as a clue to what is the true task of a social theory. Hitler, I said, made a conspiracy that failed. Why did it fail? Not just because other people conspired against Hitler. It failed, simply, because it is one of the striking things about social life that nothing ever comes off exactly as intended. Things always turn out a little bit differently. We hardly ever produce in social life precisely the effect that we wish to produce, and we usually get things that we do not want into the bargain. Of course, we act with certain aims in mind; but apart from the question of these aims (which we may or may not really achieve) there are always certain unwanted consequences of our actions, and usually these unwanted consequences cannot be eliminated.” Italics in original. Popper, The Open Society, vol. 2, 123– 24. 18. See, e.g., Nozick’s “Wilt Chamberlain” example, cited in note 12, above. 19. Karl Popper, The Open Society and Its Enemies, Volume I: The Spell of Plato (London: Routledge and Kegan Paul, 1945), ch. 10. See also Karl R. Popper, The Poverty of Historicism (London: Routledge and Kegan Paul, 1957). 20. Friedrich A. Hayek, “The Results of Human Action but Not of Human Design,”

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in Studies in Philosophy, Politics and Economics (Chicago: University of Chicago Press, 1967), 96– 105; Hayek, The Constitution of Liberty (Chicago: Regnery, 1978), ch. 4. Popper’s books on social science are dedicated to Hayek. 21. “[The conspiracy theory of society], which is more primitive than most forms of theism, is akin to Homer’s theory of society. Homer conceived the power of the gods in such a way that whatever happened on the plain before Troy was only a reflection of the various conspiracies on Olympus. The conspiracy theory of society is just a version of this theism, of a belief in gods whose whims and wills rule everything. It comes from abandoning God and then asking: ‘Who is in his place?’ His place is then filled by various powerful men and groups— sinister pressure groups, who are to be blamed for having planned the great depression and all the evils from which we suffer.” Karl Popper, Conjectures and Refutations: The Growth of Scientific Knowledge (New York: Basic Books, 1962), 122– 23. 22. Edna Ullmann-Margalit, “Invisible-Hand Explanations,” Synthese 39, no. 2 (October 1978): 263– 91; Ullmann-Margalit, “The Invisible Hand and the Cunning of Reason,” Social Research 64, no. 2 (Summer 1997): 181– 98. 23. Ullmann-Margalit, “Invisible-Hand Explanations,” 276– 77. 24. Nozick, Anarchy, State, and Utopia, chs. 1, 7; Nozick, “Invisible Hand Explanations,” in Socratic Puzzles (Cambridge, MA: Harvard University Press, 1997), 191– 97. 25. This requires being able to prove both that the outcome would have happened because of the presence of the proposed cause, and that it would not have happened in its absence. “To know that p is to be someone who would believe it if it were true, and who wouldn’t believe it if it were false. . . . Knowledge is . . . having a specific real factual connection to the world: tracking it.” Robert Nozick, Philosophical Explanations (Cambridge, MA: Belknap Press, 1981), 178. 26. Nozick, Philosophical Explanations, 21– 22. 27. Nozick, Philosophical Explanations, chs. 2, 5, 9. 28. Nozick, Philosophical Explanations, 152– 55. 29. The conservative legal scholar Robert Bork famously applied a similar argument to antitrust, which had been termed in the Sherman Act “conspiracy in restraint of trade.” For Bork, the legal test for antitrust liability was whether an alleged conspiracy adversely affected prices— that is, whether the same prices could have been the result of an invisible hand. Here the well-functioning Walrasian market is defined as the opposite of a conspiracy in the sense that no buyer and no seller can influence price, and, thus, that price itself is the only information that needs to be known by all. Here, evidence that there was in fact a conspiracy to fix prices can be conclusively rebutted by demonstrating the market itself was sufficiently robust to defeat the conspiracy. In this case the failure of the conspiracy would be legally sufficient to prove that there was none. Robert Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Free Press, 1978). 30. The fact that a historical reason names an action does not rule out treating it also as a cause, and sometimes the cause of the action thus described. See Donald Davidson, “Actions, Reasons, and Causes,” Journal of Philosophy 60, no. 23 (November 1963): 685– 700. Unlike Nozick, Davidson focuses on the explanation of actions rather than structural patterns. “Beliefs and desires conspire to cause, rationalize, and explain intentional actions. We act intentionally for reasons, and our reasons always include both values and beliefs. We would not act unless there were some value or end we hoped to achieve (or some supposed evil we hoped to avoid), and we believed our course of actions was a way of realizing our aim. . . . For we all, whether we think about it or not,

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make our decisions in terms of how we weigh the values of various possible outcomes of our actions, and how likely we think one or another course of action is to attain those values.” Here, Davidson is laying out the foundational assumptions of decision theory, which Nozick also embraces in other contexts. Donald Davidson, “The Emergence of Thought,” Erkenntnis 51, no. 1 (1999): 9– 10. 31. G. A. Cohen, Rescuing Justice and Equality (Cambridge, MA: Harvard University Press, 2008). 32. For James Tobin and others in the Keynesian mainstream, the emphasis was squarely on growth: “When a distinguished colleague in political science asked me about ten years ago why economists did not talk about the distribution of income any more, I followed my pro forma denial of his factual premise by replying that the potential gains to the poor from full employment and growth were much larger, and much less socially and politically divisive, than those from redistribution.” Tobin, “On Limiting the Domain of Inequality,” Journal of Law and Economics 13, no. 2 (October 1970): 263. Tobin goes on, however, to carve out some areas to limit the effect of income inequalities on the availability of basic social goods. 33. Rawls, Theory of Justice, 1971, ch. 1. A convinced Rawlsian liberal might therefore think that he has no moral disagreement with Marxism, but only empirical doubts about what its practical consequences will have been if egalitarian redistribution makes everyone worse off. This need not, however, persuade a Marxist who believes that the imperative is not to find consensus on principles of justice going forward, but to eliminate the effects of past injustice— a project Rawls finds incoherent and that I try to recuperate in After Evil. 34. Cohen, Rescuing Justice and Equality, esp. ch. 6. On the social relations underlying finance, see Edward LiPuma, The Social Life of Financial Derivatives: Markets, Risk, and Time (Durham, NC: Duke University Press, 2017). 35. Meister, Political Identity. 36. Simon Kuznets, “Economic Growth and Income Inequality,” American Economic Review 45, no. 1 (March 1955): 1– 28. Cf. Piketty, Capital in the Twenty-First Century; Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012). 37. We might express this in Derman-like terms by using the language of financial swaps: At what price would those left best off at the notional end of a proposed growth scheme be willing to swap revenue streams with those who would otherwise be worst off? The premium for this swap, assuming the best- off get to keep it, could be an approximate measure of the amount of forward-looking inequality allowed in a Rawlsian scheme of distributive justice. 38. Derek Parfit, Equality or Priority: The Lindley Lecture (Lawrence, KS: Department of Philosophy, University of Kansas, 1991), 35– 39. 39. Cass R. Sunstein, Worst- Case Scenarios (Cambridge, MA: Harvard University Press, 2007). Cf. Piketty, Capital in the Twenty-First Century. 40. What societies owe to nomads, refugees, and others who are passing through has become a more salient political and moral question than it was in Nozick’s time. Nearly 200 million global refugees now make potential demands on the welfare structure of societies that might accept them or may otherwise contribute to their detention in camps. In areas of the world undergoing desertification, pastoralists encroach increasingly on sedentary farmers. 41. Dupuy, Economy and the Future, 105ff.

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42. Nozick, Anarchy, State, and Utopia, 152. 43. Boris I. Bittker, The Case for Black Reparations (New York: Random House, 1973). 44. Nozick, Anarchy, State, and Utopia, 152– 53. 45. For one of my early attempts to address this question from the perspective of comparative law, see Robert Meister, “Discrimination Law through the Looking Glass,” Wisconsin Law Review 1985, no. 4 (1985): 937– 88 (review of Marc Galanter). 46. Nozick, Anarchy, State, and Utopia, ch. 4. 47. Both Butt and Goodin, for example, see Nozick as a precursor of their arguments for redistributing the fruits of historical wrongdoing even if the current possessors of those benefits are themselves morally blameless. Butt would limit “beneficiary pays” to international contexts, such as the aftermath of colonialism. Here reparative justice would take the form of expecting former conqueror- occupiers to transfer at least some of the wealth extracted from their colonies to the newly independent successor states. In domestic politics, however, Butt believes that forward-looking principles of distributive justice, such as Rawlsianism or luck egalitarianism, should apply. Robert E. Goodin, “Disgorging the Fruits of Historical Wrongdoing”; Daniel Butt, “Compensation for Historic International Injustice,” in Rectifying International Injustice: Principles of Compensation and Restitution between Nations (Oxford: Oxford University Press, 2009), 98– 133; Butt, “Why Worry about Historic Injustice?” 48. Nozick, Anarchy, State, and Utopia, 231. 49. Their careers in Cambridge may have overlapped, and Black had earlier studied philosophy at Harvard with Nozick’s colleague, Quine. For Black’s intellectual trajectory, see Mehrling, Fischer Black and the Revolutionary Idea of Finance. 50. See Meister, After Evil, ch. 8. There, I suggest that those who are “long” the put (inheritors of the victim position) would be contingently entitled to impose a disadvantageous transaction on inheritors of the beneficiary position rather than merely be restituted the price (or “premium”) that was unjustly extracted from them in the form of a historical detriment. My thought was that when the “put” was in the money, this would mean that beneficiaries of past injustice would have to pay more in restitution than their differential benefits were worth to them at that time, and that this reflects what I took to be the truism that revolutions occur at moments when the cumulative value of historical injustice is falling from its peak. In contrast to historical justice (as in Nozick), forward-looking distributive justice (as in Rawls) caps differential benefits on the way up. 51. Similarly, students of philosophy in the 1970s would have regarded a scheme of preferential admission to higher education as meaningful only for those whose academic performance gave them an actionable opportunity to attend a university. It would not have occurred to us to think of a “preference” as a contingent claim that could have value as a tradeable option whether or not its holder had the opportunity to exercise it. There could now, for example, be a market in “preferences” in which students from failing schools could sell them to more advantaged students who need a boost in test scores to qualify for college admissions. For a discussion of credentials from massive online courses as “out of the money” options to receive credits toward degrees from highly-ranked first-world universities, see Robert Meister, “Can Venture Capital Deliver on the Promise of the Public University?,” N+1, May 17, 2013, https://nplusonemag.com /online-only/online-only/can-venture-capital-deliver-on-the-promise-of-the-public -university/. 52. Derek Parfit, Reasons and Persons (Oxford: Clarendon Press, 1984).

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53. Parfit points to the absurdity of asking in the abstract whether it would be “more just” for everyone to be one- eyed than for half the population to be blind. The question of justice is not, he argues, one of equality as such, but rather one of priority. Parfit, Equality or Priority, 16– 18. 54. Parfit, Reasons and Persons. 55. Derek Parfit, On What Matters, 2 vols. (Oxford: Oxford University Press, 2011). 56. Claude E. Shannon and Warren Weaver, The Mathematical Theory of Communication (Urbana: University of Illinois Press, 1963). 57. “The less ordered the system is (the higher its ‘entropy’),” the greater capacity its signals have to convey information. “With . . . higher entropy . . . we associate the concepts of potential message variety, large vocabulary, surprisal value, and unexpectedness.” But if higher entropy is associated with the capacity to convey information, lower entropy (greater “order and constraint”) creates a “higher capacity to store information.” Lila L. Gatlin, Information Theory and the Living System (New York: Columbia University Press, 1972), 48– 49. 58. Elie Ayache, The Medium of Contingency: An Inverse View of the Market (Houndmills, UK, and New York: Palgrave Macmillan, 2015). 59. For appreciations of Parfit, see Larissa MacFarquhar, “How to Be Good,” New Yorker, August 29, 2011, https://www.newyorker.com/magazine/2011/09/05/how-to -be-good; Dylan Matthews, “The Whole Philosophy Community Is Mourning Derek Parfit: Here’s Why He Mattered,” Vox, January 3, 2017, https://www.vox.com/science -and-health/2017/1/3/14148208/derek-parfit-rip-obit. 60. See, e.g., Ruth Chang, “The Possibility of Parity,” Ethics 112, no. 4 (July 2002): 659– 88; Chang, “Parity, Interval Value, and Choice,” Ethics 115, no. 2 (January 2005): 331– 50; Chang, “Hard Choices,” Journal of the American Philosophical Association 3, no. 1 (Spring 2017): 1– 21. 61. Cass R. Sunstein, Worst-Case Scenarios (Cambridge, MA: Harvard University Press, 2007); Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven: Yale University Press, 2008). 62. David Chandler, Freedom vs. Necessity in International Relations: Human- Centred Approaches to Security and Development (London: Zed Books, 2013). Chandler argues that “capacity-building” theory has replaced “human capital” (an earlier form of neoliberalism) as the foundation of development studies. 63. Robert J. Shiller, Macro Markets: Creating Institutions for Managing Society’s Largest Economic Risks (Oxford: Oxford University Press, 1993). For his popular presentation of this approach, see Finance and the Good Society (Princeton, NJ: Princeton University Press, 2012). 64. See Martin, The Financialization of Daily Life. For an account of the epistemic categories of pre-financial capitalism, cf. Postone, Time, Labor and Social Domination. 65. Sandro Mezzadra and Brett Neilson, “Operations of Capital,” South Atlantic Quarterly 114, no. 1 (January 2015): 2. See also Bryan and Rafferty, “Political Economy.” 66. Martha Poon, “Corporate Capitalism and the Growing Power of Big Data: Review Essay,” Science, Technology, & Human Values 41, no. 6 (November 2016): 1088– 1108. 67. Michel Foucault, The Birth of Biopolitics: Lectures at the Collège de France, 1978– 79, ed. Michel Senellart, Francois Ewald, and Alessandro Fontana; trans. Graham Burchell (New York: Picador, 2008); Gary S. Becker, Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education (National Bureau of Economic Research, 1964).

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68. Derman was the first physicist hired by Fischer Black to work as a “quant” at Goldman Sachs. On Derman, see Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance (Hoboken, NJ: Wiley, 2004); Jeremy Bernstein, “The Einsteins of Wall Street,” Commentary 118, no. 2 (September 2004): 64– 70. 69. Emanuel Derman, “Remarks on Financial Markets,” in Derivatives and the Wealth of Societies, ed. Benjamin Lee and Randy Martin (Chicago: University of Chicago Press, 2016), 199– 240. 70. In his textbook, he ascribes this added surplus value to the “convexity” of the payoff curve of an option contract. Emanuel Derman and Michael B. Miller, The Volatility Smile (Hoboken, NJ: Wiley, 2016), 48– 52. In a more popular exposition, Derman writes of “curvature” rather than “convexity”: “A derivative is a contract whose value is determined by the non-linear relationship between its payout and the value of some other, simpler security called its underlyer [sic]. The most interesting characteristic of a derivative is the curvature of its payout. . . .” Derman, “The Boy’s Guide to Pricing & Hedging,” December 2002, 5, https://papers.ssrn.com/abstract=364760. An important difference between a futures contact and an options contract is that, though both are convex, in the former the payoff of the derivative is a linear function of the underlier, whereas in the latter it is a curved (or exponential) function of the underlier because expected volatility is squared in the BSM formula. This squaring of expected volatility reflects the surplus value added by the element of optionality that is lacking in a futures contract in which the gains and losses are zero-sum. See my discussion, below, on the “volatility of volatility,” which increases the value added by optionality. 71. Kenneth J. Arrow and Gerard Debreu, “Existence of an Equilibrium for a Competitive Economy,” Econometrica 22, no. 3 (July 1954): 265– 90. 72. “Once you own an option, you have ‘paid implied volatility’ to obtain exposure to both volatility and index level. . . . By hedging away the index exposure . . . you can gain pure exposure to realized volatility . . . Therefore, the fair value of a derivative contract that delivers pure realized volatility is approximately equal to the level of current implied volatility. Historically, implied index volatility is typically several percentage points higher than past realized volatility over the same period, probably because, as with all risky products, market makers determine prices by factoring in their transactions costs as well some protective risk premium.” Emanuel Derman et al., “Investing in Volatility,” Futures and Options World: Special Supplement on the 25th Anniversary of the Publication of the Black-Scholes Model, 1998, 6– 7, http://www.stockoptions.org.il/Admin/App _Upload /Investing%20in%20Volatility(1).pdf. 73. See Derman and Miller, The Volatility Smile; Glenn Shafer and Vladimir Vovk, Probability and Finance: It’s Only a Game! (New York: Wiley, 2001); Ayache, The Medium of Contingency. For Derman’s seminal work on the “volatility smile,” see Emanuel Derman and Iraj Kani, “Riding on a Smile,” Risk 7, no. 2 (February 1994): 32– 39; Derman, Kani, and Joseph Z. Zou, “The Local Volatility Surface: Unlocking the Information in Index Option Prices,” Financial Analysts Journal 52, no. 4 (August 1996): 25– 36; Derman, Kani, and Neil Chriss Goldman, “Implied Trinomial Trees of the Volatility Smile,” Journal of Derivatives 3, no. 4 (Summer 1996): 7– 22. 74. Emanuel Derman, “Model Risk,” Risk 9, no. 5 (May 1996): 139– 45; Derman, “Models,” Financial Analysts Journal 65, no. 1 (2009): 28– 33; Derman, Models Behaving Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life (New York: Free Press, 2011).

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75. On the latter point, see Lauren Berlant, Cruel Optimism (Durham, NC: Duke University Press, 2011). 76. Isaiah Berlin, Two Concepts of Liberty (Oxford: Clarendon, 1958). 77. These parameters appear in the options valuation formula as time to expiration and the risk-free rate. 78. Piketty, Capital in the Twenty-First Century; Anthony B. Atkinson, Inequality: What Can Be Done? (Cambridge, MA: Harvard University Press, 2015). 79. For a detailed critique of how these supposedly empirical assumptions play out in rationalizing Rawls’s deviation from strict equality, see Cohen, Rescuing Justice. 80. I am grateful to Lisa Wedeen for insisting that I clarify this point. 81. Stated in terms of options theory, my point is that we can price contingent claims that are not exercisable, even if they do not yet have a knowable “intrinsic value,” positive or negative, when exercised. The possibility I raise here is whether in a prerevolutionary moment one can extract “time value” from unexercisable claims on the injustice of accumulated wealth as such. This possibility is relevant to whether uncertainty about the intrinsic value of revolution would lead counterrevolutionaries to rightly conclude that they could call the revolutionaries’ bluff by getting them to “sell out.”

CHA P TE R F Iv E 1. See Treynor, “Economics of the Dealer Function.” 2. When the federal government takes the short side of a macroeconomic put, it offers to give away the long side to potential buyers of the asset who are presumed to be unwilling to pay upfront the cost of buying put protection for themselves. The fact that they are not expected to pay, whether in cash or by limiting their future gains, means, as we shall see, that they can keep all of the upside potential of their investment with none of the downside risk. 3. Bengt Holmström and Jean Tirole, Inside and Outside Liquidity (Cambridge, MA: MIT Press, 2011), esp. ch. 54. For detailed discussion of the effect of liquidity crises on asset prices, see Franklin Allen et al., eds., Liquidity and Crises (Oxford: Oxford University Press, 2011), esp. chs. 5, 15. 4. I have in mind the possibility that redistributive measures, such as those attempted in the welfare state, could be redesigned, broadened, and financed by describing their payoff and funding mechanisms in the language of complex derivatives that are parametrically linked to both societal and financial metrics. In the terminology of options theory, both the payouts and the funding of such programs could then be described as contingent claims that would “knock in” and “knock out” within various bands pegged to the relevant societal and financial metrics. I will sketch a few such possibilities later, but alluding to them now is a way to underscore my belief that questions of historical injustice cannot be reopened in the twenty-first century without incorporating the logic of finance. For further discussion of historical justice as a claim against a fund, see Meister, After Evil, ch. 8. 5. Is this a version of the Rawlsian forward-looking justice I criticize in chapter 4? If it is, my claim would be that Rawlsian justice is a derivative of historical justice, and that minimizing inequality has appeal only when the price of rectification is very high. I would view this as a historical compromise, and not as “the original position.” 6. I am grateful to Glenn Shafer for comments on an earlier version of this chapter

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that helped me see that there was little point in calling justice an option if it could not be continuously priced through a proxy the price of which is knowable. 7. An apparent problem with my use of the liquidity premium as an analytical tool to price revolutionary justice is that we cannot say what the financial effect of a revolution that didn’t happen would have been. Optimists who cling to the utopian hope of postrevolutionary abundance trust that the overall magnitude of accumulated wealth could be preserved over the course of its redistribution. For pessimists, the real possibility that asset prices could fall to zero as a result of revolution calls forth ideals of revolutionary asceticism, based on denying that wealth which disappears before it can be redistributed was ever worth having. The truth is that we can’t exclude the possibility that aggregate accumulated wealth would rebound under more equal social conditions if the postrevolutionary regime engages in class compromise with defeated financial elites. But neither can we exclude the possibility that the value of all pure financial assets would be wiped out if the revolution tried to call the bluff of a counterrevolutionary capital strike. Such a waste of accumulated wealth in the name of revolutionary purity (wiping out the capitalists) could not be just, in Rawls’s sense, if no one benefits. For me, however, the problem is less a matter of a spiteful waste of existing resources than it is one of failure to harness the exponential processes through which asset values both accumulate and disaccumulate for the purpose of historical redress. To do this in the text above, I use the concept of revolution, hypothetically, to capture the present value of an option, the inverse of which would be the option of not destroying liquidity in the effort to advance justice. The hypothesis behind this hypothetical is that the present value of the revolutionary option is pegged to the present value of its inverse. 8. See, e.g., Holmström and Tirole, Inside and Outside Liquidity, 2011; Angeletos, Collard, and Dellas, “Public Debt as Private Liquidity”; Dale F. Gray, Robert C. Merton, and Zvi Bodie, “A New Framework for Analyzing and Managing Macrofinancial Risks of an Economy,” NBER working paper no. 12637 (National Bureau of Economic Research, 2006); Gray, Merton, and Bodie, “Contingent Claims Approach to Measuring and Managing Sovereign Credit Risk,” Journal of Investment Management 5, no. 4 (Q4 2007): 5– 28; Dale Gray and Samuel Malone, Macrofinancial Risk Analysis (Chichester, UK: Wiley, 2008). 9. Such potentially redistributive consequences of a bailout are sometimes suggested through allusion, but are never emphasized by these economists, who have no apparent wish to predict or create a public backlash against the policy makers who accepted their advice to bail out capital markets. 10. Arrow and Debreu, “Existence of an Equilibrium.” 11. Nicholas Dunbar, Inventing Money: The Story of Long-Term Capital Management and the Legends behind It (Chichester, UK: Wiley, 2000), 48. 12. Tobin, “On Limiting the Domain,” 23. 13. Wigan, “Financialisation and Derivatives.” 14. Holmström and Tirole, Inside and Outside Liquidity. 15. Here we have a full assimilation of intertemporal and interspatial markets in which the pricing of fully executable contemporaneous contracts (those making up the “spot market”) is exceptional. These self-terminating transactions are contracts that will not be traded as securities because no element of contingency or futurity is embedded in the price. All other contracts will include a price (“premium”) for optionality that will depend on the time remaining for the event that makes it exercisable to occur— or not— and on the degree of variance (volatility) in the underlying situation that is currently

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expected to occur during that time. It is the fluctuation in these present expectations that makes the trading of these past contracts a vehicle for continuously repricing future risks. For more on this point, see Meister, After Evil, chs. 8, 10 and conclusion. 16. Robert C. Merton et al., “On a New Approach for Analyzing and Managing Macrofinancial Risks,” Financial Analysts Journal 69, no. 2 (2013): 22– 23. 17. Merton et al., “Analyzing and Managing Macrofinancial Risks,” 23. 18. Mario Draghi, Francesco Giavazzi, and Robert C. Merton, “Transparency, Risk Management and International Financial Fragility,” NBER working paper no. 9806 (National Bureau of Economic Research, 2003), esp. 14– 25. See also Merton et al., “Analyzing and Managing Macrofinancial Risks.” The original framework for this analysis was developed in Merton, “Pricing of Corporate Debt” (1974). 19. Merton et al., “Analyzing and Managing Macrofinancial Risks,” 26. “The key implication here is that the payoff function of the guarantee resembles the payoff function of a put option on the underlying assets of the borrower. For a home mortgage bond, the put option is on the value of the house; for a corporate bond, the put option is on the value of the corporate assets. For a sovereign bond, the put option is on the value of whatever sovereign assets the creditor gets claim to, including taxing power. . . . Remember, risky debt is nothing more than risk-free government debt minus a guarantee/ put.” Merton et al., 24. 20. It also explains the increasing liquidity premiums paid for assets that are substitutable for cash during periods of credit rationing. Holmström and Tirole, Inside and Outside Liquidity, ch. 4; Douglas W. Diamond and Philip H. Dybvig, “Bank Runs, Deposit Insurance, and Liquidity,” Journal of Political Economy 91, no. 3 (July 1983): 401– 19; Douglas W. Diamond, “Liquidity, Banks, and Markets,” Journal of Political Economy 105, no. 5 (October 1997): 928– 56. 21. Merton et al., “Analyzing and Managing Macrofinancial Risks,” 25– 26. In the more technical parts of their discussion, this “nonlinearity” is graphed as the “convexity” of options pricing— i.e., the difference between the curvature of an option contract’s payoff and the “hockey-stick” payoff of a futures contract, which does not have the added value of optionality. 22. Merton et al., “Analyzing and Managing Macrofinancial Risks,” 25– 26. 23. Merton et al., “Analyzing and Managing Macrofinancial Risks,” 27. Italics added. 24. Luigi Zingales, A Capitalism for the People: Recapturing the Lost Genius of American Prosperity (New York: Basic Books, 2012), 58– 59. 25. Zingales, A Capitalism for the People, 67. 26. Zingales, A Capitalism for the People, 89. 27. “Adding all sectors together, total credit market debt averaged around 150 percent of GDP between 1946 and 1970. That ratio moved up gradually to 170 percent by the end of the 1970s, but then accelerated sharply during the 1980s, ending that decade at 230 percent. The rate of debt expansion slowed during most of the 1990s but surged again from 1998. By 2007, total credit market debt to GDP had hit 360 percent.” Duncan, New Depression, 77. See, generally, Duncan, chs. 2– 3. Duncan bases his analysis on Board of Governors of the Federal Reserve System, “Flow of Funds Accounts of the United States: Flows and Outstandings,” Statistical Release (Washington, Q1 2011): 60, https://www .federalreserve.gov/releases/z1/20110609/z1.pdf. 28. Board of Governors of the Federal Reserve System (US), “All Sectors; Debt Securities and Loans; Liability, Level,” FRED, Federal Reserve Bank of St. Louis, Q4 2018, https://fred.stlouisfed.org/series/TCMDO. For further discussion, see Robert

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Meister, “Liquidity,” in Derivatives and the Wealth of Societies, ed. Benjamin Lee and Randy Martin (Chicago: University Of Chicago Press, 2016), 143– 73. 29. Bank for International Settlements, “OTC Derivatives Market Activity in the First Half of 2008,” November 2008, 6, https://www.bis.org/publ/otc_hy0811.pdf. 30. See Manmohan Singh and James Aitken, “The (Sizable) Role of Rehypothecation in the Shadow Banking System,” IMF working paper no. 10/172 (International Monetary Fund, 2010). 31. Tobias Adrian and Adam Ashcraft, “Shadow Banking: A Review of the Literature,” FRBNY Staff Reports, no. 580 (Federal Reserve Bank of New York, 2012), 4; Zoltan Pozsar et al., “Shadow Banking,” Federal Reserve Bank of New York Economic Policy Review 19, no. 2 (December 2013): 1– 16; Manmohan Singh and Zoltan Pozsar, “The Nonbank-Bank Nexus and the Shadow Banking System,” IMF working paper no. 11/289 (International Monetary Fund, 2011). 32. Perry Mehrling, “Financial Globalization and the Future of the Fed,” in Keynesian Reflections: Effective Demand, Money, Finance, and Policies in the Crisis, ed. Toshiaki Hirai, Maria Cristina Marcuzzo, and Perry Mehrling (New Delhi: Oxford University Press, 2013), 280. 33. Hyman P. Minsky, Can “It” Happen Again? Essays on Instability and Finance (Armonk, NY: M. E. Sharpe, 1982), ch. 6 (“Financial Instability Revisited: The Economics of Disaster”). 34. She thus attacks our “demonetized” financial system for purporting to “liquefy any type of asset,” an assertion that undermines the notion that liquidity is “an attribute of assets per se”— and specifically of state- created money— making the concept as applied to other financial assets a questionable surrogate for confidence in the “prevailing price level.” For this reason, she rejects the widespread assumption that financial innovation creates more liquidity in the economy, suggesting instead that it “decreases the liquidity of the economy” by creating a higher demand for cash (“traditional liquid assets”) in place of cash substitutes. Nesvetailova, “Crisis of Invented Money,” 127, 134, 138, 146– 47. Her argument that finance is “alchemy,” a frequent claim in the literature, is elaborated in Nesvetailova, Financial Alchemy in Crisis: The Great Liquidity Illusion (London: Pluto Press, 2010). Cf. Mervyn King, The End of Alchemy: Money, Banking, and the Future of the Global Economy (New York: Norton, 2016). The point of Nesvaitalova’s “financial alchemy” claim seems to be that the meaning of “liquidity” has magically changed to describe the existence of stable markets for new financial instruments, but that these markets themselves are under the illusion that the old meaning of being “liquid” (convertible at par for cash) still obtains. But why was this an “illusion” if there is an implicit guarantee to convert these instruments at par that was actually honored? See, e.g., Thomas Ferguson and Robert Johnson, “Too Big to Bail: The ‘Paulson Put,’ Presidential Politics, and the Global Financial Meltdown: Part I: From Shadow Financial System to Shadow Bailout,” International Journal of Political Economy 38, no. 1 (2009): 3– 34. 35. Ricks, The Money Problem, 44. This implies that the premium for providing “money services” should be priced differently from a liquidity premium, and that the proliferation of highly liquid credit instruments may increase the demand for money services (currency reserves) in the banking system. He thus proposes drawing a sharp regulatory line between currency issuance and credit creation, and argues for an outright ban on the issuance of near-money (negotiable short-term credit instruments) by any entity other than a regulated bank. Ricks, The Money Problem, pt. 1, esp. chs. 2– 3.

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36. See Perry Mehrling, “Financialization and Its Discontents,” Finance and Society 3, no. 1 (2017): 1– 10; Perry Mehrling, “Essential Hybridity: A Money View of FX,” Journal of Comparative Economics 41, no. 2 (May 2013): 355– 63. 37. This basic question has driven the development of Keynesian economics and its central concept of liquidity preference. See James Tobin, “Money, Capital, and Other Stores of Value,” in Essays in Economics: Macroeconomics (Cambridge, MA: MIT Press, 1987), 217– 28. See also Tobin’s seminal essay, “Liquidity Preference as Behavior toward Risk,” in Essays in Economics: Macroeconomics (Cambridge, MA: MIT Press, 1987), 242– 71. Cf. Aglietta, Money, 2018. 38. Those who are so inclined can avoid, or at least soften, this appearance by describing institutions such as the repo market using Marxist-Hegelian language: their existence converts money for itself into money in itself by providing holders of negotiable assets with a vehicle for generating funds. The token form, currency, is the signifying medium through which stored value is transmitted among persons, across space, and between times. The value of the security as a typification of money (money for itself ), is parasitical on the possibility of tokenizing the security’s price to satisfy the need for funds to meet the discipline of payments. Monarchs used to collect a fee, known as seigniorage, for minting coins (tokenizing assets) that could be used for purposes of payment. Today, the “haircut” taken by money market traders is the everyday price that having cash (or money in itself ) commands over holding the most liquid negotiable security (which would otherwise represent money for itself ). 39. Aglietta, Money, 40– 41. 40. Gorton and Metrick, “Haircuts.” 41. One doesn’t need to go into all the details here; the repo and reverse repo markets are well explained in Marcia Stigum and Anthony Crescenzi, Stigum’s Money Market, 4th ed. (New York: McGraw-Hill, 2007). The central point is that one doesn’t need collateral (security) if one has funds, but that even the safest (most liquid) collateral (AAA US Treasury obligations) is not pledgeable dollar-for-dollar as a source of short-term funds. There is always a haircut requiring one to pledge in the present value of a Treasury more than can be borrowed against it in dollars. See Adrian and Ashcraft, “Shadow Banking”; Pozsar et al., “Shadow Banking”; Emmanuel Farhi and Jean Tirole, “Shadow Banking and the Four Pillars of Traditional Financial Intermediation,” NBER Working Papers, no. 23930 (National Bureau of Economic Research, 2017). 42. See www.rethinkingcapitalism.ucsc.edu. I am grateful to Stephen Bruce for funding the Bruce Initiative at UCSC, and to the Institute for Public Knowledge’s project on “Cultures of Finance” at NYU. 43. As noted above, debt-cycle theorists in the Minskyan tradition, such as Nesvaitolova, argue that financial innovations like these reduce liquidity by creating shortages of truly safe financial assets (stores of value) when they are most needed. See, e.g., Anastasia Nesvetailova, “Hyman Minsky and the Credit Crisis: How Much Do Regulators Know about Today’s Finance?” Credit 9 (April 2008): 26; Nesvetailova, “Beyond the Political Economy of Hyman Minsky: What Financial Innovation Means Today,” in Financial Crisis, Labour Markets and Institutions, ed. Sebastiano Fadda and Pasquale Tridico (Milton Park, UK: Routledge, 2013), 60– 78. Although such a Minskyan perspective on debt cycles is useful as a counterbalance to some of the hype surrounding modern finance theory, my analysis suggests a more strongly political interpretation of the 2008 bailout. 44. MacKenzie, An Engine, Not a Camera.

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45. My view thus differs from MacKenzie’s performativity thesis because the putative erasure of differential liquidity— the closure of liquidity spreads— that can come about by performing BSM (in MacKenzie’s sense) presupposes the continuing validity of a distinction between the added liquidity that is thus produced and the liquidity of completely safe assets that can always be collateralized to get cash. These are, by definition, government-issued bonds that in addition to financing public expenditure secure the funds— the money— on which the discipline of payments in private capital markets is ultimately based. 46. Pozsar, “Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System”; Pozsar et al., “Shadow Banking.” 47. James Felkerson, “$29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient” (Annandale-on-Hudson, NY: Levy Economics Institute, December 2011), 29– 31, http://www.levyinstitute.org/pubs/wp _698.pdf. 48. Felkerson, “$29,000,000,000,000,” 10– 13. 49. Felkerson, “$29,000,000,000,000.” 50. Felkerson, “$29,000,000,000,000,” 13– 15. 51. Felkerson, “$29,000,000,000,000,” 28– 30; Tooze, Crashed, 285. 52. For a broad summary of the Fed’s liquidity support programs, see Tooze, Crashed, 206– 10. For an account of TARP’s eventual transformation for an asset purchase program to a recapitalization of the banks see pp. 179– 84, 196– 99. 53. Lerner, “Functional Finance and the Federal Debt”; Wray, Modern Money Theory. 54. Daniela Gabor, “The (Impossible) Repo Trinity: The Political Economy of Repo Markets,” Review of International Political Economy 23, no. 6 (2016): 967– 1000; Perry Mehrling et al., “Bagehot Was a Shadow Banker.” 55. Gabor, “The (Impossible) Repo Trinity,” 969– 70. 56. Gabor, “The (Impossible) Repo Trinity,” 974, 981– 82. 57. Gabor, “The (Impossible) Repo Trinity,” 988. 58. Gabor, “The (Impossible) Repo Trinity,” 993. 59. Gabor, “The (Impossible) Repo Trinity,” 971. 60. Mehrling et al., “Bagehot Was a Shadow Banker”; Perry Mehrling, The New Lombard Street: How the Fed Became the Dealer of Last Resort (Princeton, NJ: Princeton University Press, 2011). 61. Annelise Riles, Collateral Knowledge: Legal Reasoning in the Global Financial Markets (Chicago: University of Chicago Press, 2011). 62. There are still many details to be worked out after adopting the basic conservation principle that the premiums for long and short macroeconomic positions must be equated. The first type of detail has to do with the index of recovery to which the government’s call is tied. Should it be a bond or money market volatility index, a broader equity or asset price index, or an index, perhaps custom designed, on a macroeconomic spread? Then there is the question of which accounts are liable for settlement of the call: Which financial institutions or sectors would be considered to “short” the recovery to the extent that their underlying collateral was guaranteed by the state? They should be among the principal counterparties to the government’s long call. 63. “Financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law of contracts. This is the case especially in times of financial crisis when the full enforcement of legal commitments would result in the selfdestruction of the financial system. This law-finance paradox tends to be resolved by

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suspending the full force of law where the survival of the system is at stake.” Katharina Pistor, “A Legal Theory of Finance,” Journal of Comparative Economics 41, no. 2 (May 2013): 315– 30; Posner, Last Resort. 64. Merton et al., “Analyzing and Managing Macrofinancial Risks.”

CHA P TE R S Ix 1. The financial industry is now already using military techniques to identify and preempt “cyberthreats.” And business journalism is now replete with “war room” analogies comparing the security measures of banks to national security policies against military threats. See, e.g., Stacy Cowley, “Banks Adopt Military-Style Tactics to Fight Cybercrime,” New York Times, May 20, 2018, https://www.nytimes.com/2018/05/20 /business/banks-cyber-security-military.html. 2. In reaching this conclusion, I draw on, e.g., Nina Boy, “Sovereign Safety,” Security Dialogue 46, no. 6 (December 2015): 530– 47; Boy, “Finance-Security: Where to Go?” Finance and Society 3, no. 2 (2017): 208– 15; Boy, J. Peter Burgess, and Anna Leander, “The Global Governance of Security and Finance: Introduction to the Special Issue,” Security Dialogue 42, no. 2 (April 2011): 115– 22. 3. Marieke de Goede points out that “finance and security studies have shared technical and epistemological genealogies.” Speculative Security: The Politics of Pursuing Terrorist Monies (Minneapolis: University of Minnesota Press, 2012), 50– 51. See also de Goede, “Financial Security.” My claim has been that the financialization of capitalism allows any well-priced asset to be used instead of hoarding cash as a vehicle for preserving and accumulating surplus value. In de Goede’s terms, it is thus the liquidity of financial assets that allows capital accumulation to continue by premediating an event of illiquidity. For further elaboration, see Meister, “Liquidity”; Robert Meister, “Reinventing Marx for an Age of Finance,” Postmodern Culture 27, no. 2 (January 2017). 4. See Louise Amoore, The Politics of Possibility: Risk and Security Beyond Probability (Durham, NC: Duke University Press, 2013), 7– 13. See also chs. 1– 2. For the constitutive role of fictional futures in “completing” financial markets, see Jens Beckert, Imagined Futures: Fictional Expectations and Capitalist Dynamics (Cambridge, MA: Harvard University Press, 2016). 5. Amoore, Politics of Possibility, 57– 64. Her account of associative factors affecting our ability to visualize an imagined possibility builds explicitly on the analysis of the derivative form in Martin, Empire of Indifference. 6. Berle and Pederson, Liquid Claims, 60. 7. Adolf A. Berle, Jr. The 20th Century Capitalist Revolution (New York: Harcourt, Brace and Co., 1954); Berle, The American Economic Republic (New York: Harcourt, Brace & World, 1963). 8. On “quilting,” see Jacques Lacan, Écrits: A Selection, trans. Alan Sheridan (London: Tavistock, 1977), 303. 9. In a chapter devoted to the question of why the financial bailout was not accompanied by a more serious economic stimulus, Adam Tooze states that the Obama administration was primarily concerned “that government deficits would not only squeeze private investment but could set up a negative spiral of confidence and expectations and might trigger a sudden panic in financial markets. Faced with the huge deficits produced by the financial crisis of 2008, there was thus no contradiction between the

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maximum-force approach to bank stabilization and the cautious approach to fiscal policy. Concern for confidence in the financial markets was their common denominator.” Tooze, Crashed, 282. 10. This is what Mario Draghi famously promised to do for European banks and financial institutions: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Mario Draghi, speech given at the Global Investment Conference in London, July 26, 2012, https://www.ecb.europa .eu/press/key/date/2012/html/sp120726.en.html. See also Tooze, ch. 18. 11. Marieke de Goede, Stephanie Simon, and Marijn Hoijtink, “Performing Preemption,” Security Dialogue 45, no. 5 (October 2014): 417. See also de Goede, “Financial Security.” 12. The best treatment of this affective process is Joseph Masco, The Theater of Operations: National Security Affect from the Cold War to the War on Terror (Durham, NC: Duke University Press, 2014). 13. See Hayek, “The Use of Knowledge in Society.” 14. Robert Meister, “Debt and Taxes: Can the Financial Industry Save Public Universities?” Representations 116, no. 1 (Fall 2011): 128– 55. 15. Tyler Durden, “So You Want to Short the Student Loan Bubble? Now You Can,” Zero Hedge, March 3, 2013, https://www.zerohedge.com/news/2013-03-03/so -you -want-short-student-loan-bubble-now-you-can. Cf. Owen Davis, “Shorting Student Debt Is the World’s Hottest Completely Hypothetical Trade,” Dealbreaker, February 10, 2017, https://dealbreaker.com/2017/02/shorting-student- debt-hypothetical-trade; Kelly Bit, “Greg Lippmann’s LibreMax Plans to Start Student Loan Fund,” Bloomberg, December 10, 2013, https://www.bloomberg.com/news/articles/2013 -12-10/greg -lippmann-s-libremax-plans-to-start-student-loan-fund. 16. A major political point that could be illustrated by the performance of such a hypothetical security is that rapidly rising tuitions currently take the upside of widening income inequality away from students by burdening whatever “education premium” may be reflected in their lifetime earnings with onerous debt service that would delay, for example, their ability to invest in pensions paying off at the end of their careers, thereby putting them on the downside of what financial advisors like to call “the miracle of compound interest.” 17. I explained this by arguing that university administrators are now manufacturing and selling what was essentially a financial product whose value depended primarily on the ranking of the university itself. For upwardly mobile academic administrators, controlling costs are thus no longer a paramount concern; budgets can always be cut in areas that don’t affect the rankings, and permanent deficits can be run in areas that do. Meister, “Debt and Taxes.” 18. Feher, Rated Agency. 19. Of course, the accusation of sabotage can be thrown back at employers who threaten to go out of business rather than negotiate a labor contract, or at bankers who threaten to crash the market rather than write down the value of the assets they have taken as collateral. 20. For a discussion of hacking as a computer-age successor to industrial sabotage, see McKenzie Wark, A Hacker Manifesto (Cambridge, MA: Harvard University Press, 2004). 21. Randy Martin, Under New Management: Universities, Administrative Labor, and the Professional Turn (Philadelphia: Temple University Press, 2011), 30.

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22. Martin, Under New Management, xiv. For later and earlier elaborations of Martin’s view, see also Randy Martin, Knowledge LTD: Toward a Social Logic of the Derivative (Philadelphia: Temple University Press, 2015); Martin, Financialization Of Daily Life, 2002; Martin, Empire of Indifference. 23. Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder (New York: Random House, 2012); Judith Butler, Precarious Life: The Power of Mourning and Violence (London: Verso, 2004). 24. Benjamin H. Bratton, “On the Nomos of the Cloud: The Stack, Deep Address and Integral Geography,” Berlage Institute, Rotterdam, 2011, https://www.youtube.com /watch?v=XDRxNOJxXEE. 25. Our concern was later articulated by Bratton, who writes: “At some dark day in the future, when considered versus a Google Gosplan, the National Security Agency may even come to be seen by some as the ‘public option.’ ‘At least it is accountable in principle to some parliamentary limits,’ they will say, ‘rather than merely to stockholder avarice and flimsy user agreements.’” The Stack: On Software and Sovereignty (Cambridge, MA: MIT Press, 2016), 363. 26. Finn Brunton, Digital Cash: The Unknown History of the Anarchists, Utopians, and Technologists Who Created Cryptocurrency (Princeton, NJ: Princeton University Press, 2019), 1. 27. Brunton, Digital Cash, 2– 4. 28. For an accessible and thorough discussion of digital coins, see Paul Vigna and Michael J. Casey, The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order (New York: St. Martin’s Press, 2015). 29. An underlying idea of the “blockchain” is that transfers on the ledger are authenticated by verifying that all copies of the resulting ledger are identical. Here, the concept of a “coin” has semiotic significance as a transferable unit that is “native” to a particular blockchain, as distinct from whatever value it may have as a financial asset off that chain. 30. Based on this conclusion, it is highly likely that corporations, both financial and nonfinancial, and even governments will develop and use proprietary and permissioned encryption systems the results of which are not publicly verifiable. This would reduce their need to pay for outside protection against hackers and intruders, but without making the authentication of their ledgers publicly verifiable. 31. Paul Vigna and Michael J. Casey, The Truth Machine: The Blockchain and the Future of Everything (New York: St. Martin’s Press, 2018), 45. In the lore of smart contracts and distributed ledgers captured by this quote, the only exogenous threat to security would be what their inventor, Nick Szabo, called the use of “rubber hose” techniques on account holders to force disclosure of their “private key” (or, more colloquially, their “passwords”). Responsibility for security is thus squarely placed on the account holder, who must at all costs protect the secrecy of the private key, the loss of which harms only that person rather than compromising the ledger, which is still deemed to be secure even though access to an individual account is not. Nick Szabo, “Formalizing and Securing Relationships on Public Networks,” First Monday 2, no. 9 (September 1997), https:// doi.org/10.5210/fm.v2i9.548. See also Nick Szabo, “Smart Contracts: Building Blocks for Digital Markets,” http://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech /CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2 .html. 32. Vigna and Casey, Truth Machine, chs. 2– 4, 10. For a Hayekian interpretation of the possibilities afforded by smart contracts and cryptocurrencies, see Mark S. Miller

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and K. Eric Drexler, “Markets and Computation: Agoric Open Systems,” in The Ecology of Computation, ed. Bernardo Huberman (North Holland, NY: Elsevier, 1988), 133– 76. 33. Different platforms vary in the internal values to which their coins are pegged, and in the relative importance they attach to stabilizing the dollar value of their internal coins (i.e., to not using dollars for this purpose). Some transactional platforms, like Ethereum, have created disintermediated markets for the “smart contracts” envisioned by the cypherpunks, though the legal status of such self-executing contracts is thus far largely unadjudicated, in part because they don’t depend on the judicial process for enforcement. See Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System,” 2008, https://bitcoin.org/bitcoin.pdf; Vitalik Buterin, “Ethereum White Paper: A NextGeneration Smart Contract and Decentralized Application Platform,” 2013, http:// blockchainlab.com/pdf/Ethereum _white_paper-a _next _generation _smart _contract _and_decentralized_application_platform-vitalik-buterin.pdf. 34. Don Tapscott and Alex Tapscott, Blockchain Revolution: How the Technology behind Bitcoin Is Changing Money, Business, and the World (New York: Penguin, 2016). A more recent account is Vigna and Casey, Truth Machine. 35. See, e.g., Henning Diedrich, Ethereum: Blockchains, Digital Assets, Smart Contracts, Decentralized Autonomous Organizations (Lexington, KY: Wildfire, 2016). 36. As the financial basis of late feudal commodity exchange in the fourteenth to sixteenth centuries, these letters of exchange, executed between known and trusted counterparties, could function as privately created money that was deliverable in the future on the basis of the previously negotiated spread among publicly issued coinages from various realms. By referencing the public currencies in this way, these private letters of exchange instantiated an important difference between themselves and the actual coins to which they referred. This was a transitional phenomenon. By the 1570s, the Spanish discovery of New World silver made coinage itself more abundant, and letters of exchange less necessary to facilitate mercantile trade. State-supported capitalism and the money wage come after this monetary change. Boyer-Xambeu et al., Private Money and Public Currencies; Aglietta, Money, ch. 3. 37. Boyer-Xambeu et al., Private Money and Public Currencies. 38. Desan, Making Money, esp. 27– 69, 414– 41. 39. In today’s world of emerging cryptocurrencies, we can see online analogs to earlier struggles among anarchists, terrorists, capitalist buccaneers, and advocates of centralized state control. On the political right, for example, so- called crypto-anarchist groups are using online techniques or the decentralized manufacture of plastic handguns on 3D printers, which is already possible. Reuben Jackson, “What Is ‘Crypto-Anarchy’? It Could Soon Shape Your World,” Big Think, August 12, 2018, https:// bigthink.com /what-is-crypto-anarchy-it-could-soon-shape-your-world-2605019621.amp.html. Anarchists on the left, especially those from the autonomist tradition, believe that we can resist financialization by relying on cryptocurrencies to subsist outside its grip. Giorgio Griziotti and Carlo Vercellone, “Biorank vs. Commoncoin: Algorithms and CryptoCurrencies in the Bios of Cognitive Capitalism,” Effimera, June 8, 2014, effimera.org /biorank-vs-commoncoin-algorithms-and-crypto-currencies-in-the-bios-of-cognitive -capitalism-di-giorgio-griziottiand- carlo-vercellone/. As an alternative to resistance, some now celebrate new financial technologies as a step toward the financialization and datification of everything. Nick Land, “Teleoplexy: Notes on Acceleration,” in #Accelerate: The Accelerationist Reader, ed. Robin Mackay and Armen Avanessian

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(Falmouth, UK: Urbanomic, 2014), 509– 20. And two small countries have experimented with a permissioned distributed ledger, with the central government controlling access to accounts, as a future platform for public finance on both the taxation and the expenditure sides. On Estonia, see Kaspar Korjus, “Welcome to the Blockchain Nation,” E-Residency (blog), July 11, 2017, https://medium.com/e-residency-blog/welcome-to -the-blockchain-nation-5d9b46c06fd4. On Lichtenstein, Oliver Smith, “Why Blockchain Is Booming in Liechtenstein, the Sixth Smallest Country in the World,” Forbes, May 7, 2018, https://www.forbes.com/sites/oliversmith/2018/03/07/why-blockchain -is-booming-in-liechtenstein-the-sixth-smallest-country-in-the-world/. 40. Michael Silverstein, “Axes of Evals,” Journal of Linguistic Anthropology 15, no. 1 (2005): 6– 22. See also Asif Agha, “Money Talk and Conduct from Cowries to Bitcoin,” Signs and Society 5, no. 2 (Fall 2017): 293– 355. 41. Gorton, “History and Economics.” 42. For a Foucauldian discussion of accounting as constative and transacting as performative, see Susan Bassnett, Ann-Christine Frandsen, and Keith Hoskin, “The Unspeakable Truth of Accounting: On the Genesis and Consequences of the First ‘NonGlottographic’ Statement Form,” Accounting, Auditing & Accountability Journal 31, no. 7 (September 2018): 2083– 2107. 43. OPEC understands this well when it exercises its power to make market prices more volatile through various measures to limit the supply of oil. As a result of such price shocks, the option of not drilling proven reserves becomes automatically more valuable without having to be traded in advance. 44. Michael Lewis, The Big Short: Inside the Doomsday Machine (New York: Norton, 2010), chs. 2, 5. 45. This question has been posed with considerable effect by Bill McKibben’s www .350.org. 46. This could happen for much the same reason that the Saudi sovereign wealth fund was once rumored to be considering a major investment in Tesla to hedge its present exposure to fossil fuels. 47. My tactical idea is that the demand for these coins would increase as a symptom of the anxiety that financial institutions can be made to feel about the future liquidity of capital markets. The value (desirability) of the coin could here become symptom, in the manner of a Lacanian “quilting point” that conflates signifier and signified in a metonymic chain. Jacques Lacan, The Psychoses 1955– 1956, ed. Jacques-Alain Miller, trans. Russell Grigg, The Seminar of Jacques Lacan, Book III (New York: Norton, 1993), 266– 69. Cf. Jacques Lacan, Anxiety, ed. Jacques-Alain Miller, trans. A. R. Price, The Seminar of Jacques Lacan, Book X (Cambridge, UK: Polity, 2014). 48. These agencies could regulate alternative financial movements out of existence if they became a real threat, by applying securities laws to off-grid organizations or by banning them altogether as threats to investor confidence. In speaking of investor “confidence,” we are adopting the language of the subjectivity of finance— what Keynes called “animal spirits.” This underlies the logic of using regulation to calm market fears as a benign alternative to repression of anticapitalist forces. See Akerlof and Shiller, Animal Spirits. 49. In the United States, however, the existence of a welfare state also made it politically possible for coal and steel strikes to be suppressed by a New Deal president (Truman) without great opposition from within his own party, and with compliance from the

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federal courts, which only gradually softened the Taft-Hartley legislation that allowed such suppression. On early-twentieth- century labor militancy among coal miners and steel workers, see, e.g., Erik Loomis, A History of America in Ten Strikes (New York: The New Press, 2018), ch. 4; David Brody, Labor in Crisis: The Steel Strike of 1919 (Urbana: University of Illinois Press, 1965). On labor politics under the Truman administration, see Gerald Pomper, “Labor and Congress: The Repeal of Taft-Hartley,” Labor History 2, no. 3 (1961): 323– 43; Barton J. Bernstein, “The Truman Administration and the Steel Strike of 1946,” Journal of American History 52, no. 4 (March 1966): 791– 803; Rick Hurd, “New Deal Labor Policy and the Containment of Radical Union Activity,” Review of Radical Political Economics 8, no. 3 (October 1976): 32– 43. 50. This view is taken in Berle, The 20th Century Capitalist Revolution. 51. We could go on from here to say that the earlier industrial platform happened to be “lossier” in harvesting its informational by-products. Today, for example, we throw off data by getting sick or by committing a crime that can be no less valuable to investors than the information that has always been collected as a by-product of working, voting, and consuming. Such data is then captured as one of the raw materials used to create valuable new financial products that are then sold back to us and others. Just as advertisers and investors may want to log what we do online, we too may be willing to pay, e.g., for data on what pages in an online book were most highlighted by other readers, or for records of our own attention and responses that can be used to certify completion of a course we take online. It is now becoming harder to disentangle the production and use of real economic output from the creation and ranking of economic and other data and the subsequent ability to monetize and securitize expectations based on it. services. For an approach to platform theory that can encompass political and economic regimes, see Nick Srnicek, Platform Capitalism (Cambridge: Polity, 2017); Bratton, The Stack.

CHA P TE R S E v E N 1. In this chapter I will focus mainly on the first two questions, not because the third is unimportant, but because the theoretical perspective outlined in this book does not yield any insight on the matter that is not widely shared by many other philosophers concerned with justice. 2. The US Federal Reserve issues quarterly reports on both the flow of funds (FOF) and national income and product (NIPA) accounts for the US economy, commonly described as GDP. In 2018, for example, GDP was approximately $20 trillion, while national net wealth was $95 trillion. In that year the size of the national balance sheet (both assets and liabilities) was $244 trillion, of which $98 trillion was the balance sheet of the domestic financial sector. Board of Governors of the Federal Reserve System, “Z. 1 Financial Accounts of the United States; Flow of Funds, Balance Sheets, and Integrated Macroeconomic Accounts,” Statistical Release (Washington, Q1 2019), https://www .federalreserve.gov/releases/z1/20190606/z1.pdf; Benjamin M. Friedman et al., eds., Flow-of-Funds Analysis: A Handbook for Practitioners (Armonk, NY: M. E. Sharpe, 1996). 3. The theoretical tradition of autonomist Marxism, also known as operaismo (workerism), was developed by Antonio Negri, Mario Tronti, Silvia Federici and others in Italy in the 1960s and 1970s. The basic idea is that the working class can organize itself to resist capital independently of institutions that have historically mediated such resistance (such as the trade union, the party, and the state). For more on the history of this

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tradition, see Steve Wright, Storming Heaven: Class Composition and Struggle in Italian Autonomist Marxism (London: Pluto Press, 2002). 4. For a valuable ethnographic discussion of the global financialization of sovereign debt and its reflection in domestic austerity policies, see Laura Bear, Navigating Austerity: Currents of Debt along a South Asian River (Stanford, CA: Stanford University Press, 2015). 5. Richard A. Musgrave, Fiscal Systems (New Haven: Yale University Press, 1969), 11– 13. Musgrave also discusses “demerit wants,” such as tobacco, liquor, and, in some societies, luxury goods, that should be taxed to a degree that would reduce consumption rather than maximize the state’s revenue yield. 6. Musgrave, Fiscal Systems, pt. 1. 7. Henry C. Simons, Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948); Milton Friedman, “A Monetary and Fiscal Framework for Economic Stability,” American Economic Review 38, no. 3 (June 1948): 245– 64. 8. As Western economies transitioned away from planned economies of the Great Depression and World War II, a central question in the public finance literature was how the fiat money that government spent for goods and services could simultaneously function as money for the purposes of restoring an efficient, if limited, laissez-faire market in goods and services. This mid- century problematic was shared, before the takeoff of financialization, even by precursors of the Chicago School, who into the 1940s advocated a welfare state and opposed fractional reserve banking. See, e.g., Henry C. Simons, A Positive Program for Laissez-Faire: Some Proposals for a Liberal Economic Policy (Chicago: University of Chicago Press, 1934). 9. Schumpeter, “The Crisis of the Tax State.” For discussion of the broader tradition of fiscal sociology extending from Schumpeter and Goldscheid, see Richard A. Musgrave and Alan T. Peacock, eds., Classics in the Theory of Public Finance (New York: St. Martin’s Press, 1958); Musgrave, “Schumpeter’s Crisis of the Tax State”; Oskar Lange, On the Economic Theory of Socialism, ed. Benjamin Lippincott (Minneapolis: University of Minnesota Press, 1938). 10. This is the question of justice in taxation. But whether “just” taxation and spending by the state creates greater justice in society as a whole depends on the relative size and importance of the economic functions performed by the private sector, and on what social goods are publicly produced without the intermediation of markets. A fiscal system might thus be internally just— in the sense of fairly burdening those who are similarly situated, or in the sense of fairly benefiting those receiving goods and services at taxpayer expense. But equities in taxing and public expenditure might still affect only the marginal impact of the state in redistributing income and wealth in the private sector. For a definitive mid- century study in comparative fiscal sociology, see Musgrave, Fiscal Systems, especially pt. 3. See also Berle, The American Economic Republic. 11. See, e.g., Joseph A. Schumpeter, Capitalism, Socialism and Democracy (Harper & Brothers, 1942); Friedrich A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1944). 12. Hyman P. Minsky, John Maynard Keynes (1975; repr., New York: McGraw-Hill, 2008), 164. This was published in 1975 with the stated intent of rescuing the Keynesian revolution from its co-optation by otherwise conservative economists whose view in the 1960s was that inflationary policies could stimulate growth. Their approach was largely discredited in the 1970s by high inflation without growth.

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13. For an early formulation of Minsky’s “financial instability hypothesis,” see Minsky, Can “It” Happen Again?, chs. 3– 6. 14. For arguments that Keynesian policies in the 1960s caused stagflation in the 1970s, see, e.g., Friedrich A. Hayek, “The Campaign against Keynesian Inflation,” in New Studies in Philosophy, Politics, Economics and the History of Ideas (Chicago: University of Chicago Press, 1978), 191– 231; Friedrich A. Hayek, A Tiger by the Tail: The Keynesian Legacy of Inflation, ed. Sudha R. Shenoy (London: Institute of Economic Affairs, 1972). Cf. Geoff Mann, In the Long Run We Are All Dead: Keynesianism, Political Economy, and Revolution (London: Verso, 2017). 15. Minsky, Can “It” Happen Again? 66. 16. Minsky, Can “It” Happen Again? ch. 3. 17. See Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica 1, no. 4 (October 1933): 337– 57. Cf. Minsky, Can “It” Happen Again? ch. 10. 18. Keynes, The General Theory of Employment, Interest, and Money, 16– 62. Minsky, Can “It” Happen Again? 57. 19. Minsky, John Maynard Keynes, 158. 20. Minsky, John Maynard Keynes, 180. Cf. Keynes, General Theory, 226. Proposals for making the creation of new money through loans a function of government, rather than one of the fractional reserve banking system, were made from the right by Henry Simons in the 1950s and from the left by Ole Bjerg in 2015. On the differences and similarities, see Ole Bjerg, “Is There Life after Debt? Revolution in the Age of Financial Capitalism,” Finance and Society 1, no. 1 (2015): 81– 89. 21. Minsky, Can “It” Happen Again?, 86. Storm, Macroeconomics beyond the NAIRU. 22. This Keynesian perspective is often asserted to limit the impact of the Chicago School. See, e.g., Akerlof and Shiller, Animal Spirits, 2009. 23. A good summary of these developments is provided in Gray and Malone, Macrofinancial Risk Analysis, ch. 2. 24. The Chicago School of Law and Economics developed an approach to legal interpretation that meshed with these concepts. For a view of Supreme Court jurisprudence as decision making under uncertainty, see Adrian Vermeule, The Constitution of Risk (New York: Cambridge University Press, 2014). See also Vermeule, Mechanisms of Democracy: Institutional Design Writ Small (New York: Oxford University Press, 2007); Vermeule, Judging under Uncertainty: An Institutional Theory of Legal Interpretation (Cambridge, MA: Harvard University Press, 2006). 25. This paradox is addressed in Acemoglu and Robinson, Why Nations Fail. 26. See, e.g., David A. Reisman, Anthony Crosland: The Mixed Economy (New York: St. Martin’s Press, 1997). 27. The standard explanation is that the judicial process is well-suited to this task because judges can control which interests are represented and how they are to be weighed in different stages of the litigation. They can then fashion remedies addressed to the parties before them while giving a principled rationale for the incidence of benefits and burdens on nonparties whose interests may have to be addressed by legislation once rights and remedies are established in the courts. See G. Edward White, “The Evolution of Reasoned Elaboration: Jurisprudential Criticism and Social Change,” Virginia Law Review 59, no. 2 (February 1973): 279– 302; Henry Hart Jr. et al., The Legal Process: Basic Problems in the Making and Application of Law (Westbury, NY: Foundation Press, 1994). 28. Following the US Constitution’s doctrine of separation of powers, the new federal

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rules were promulgated by the Supreme Court following consultation with Congress in accordance with enabling legislation enacted by Congress four years earlier. Charles E. Clark, “‘The Federal Rules of Civil Procedure: 1938– 1958’: Two Decades of the Federal Civil Rules,” Columbia Law Review 58, no. 4 (1958): 435– 51. 29. The goal of civil rights injunctions was to prioritize the interests of historically disadvantaged groups in the formation of forward-looking policies that could remain under judicial supervision for decades. They did so by creating miniaturized political processes, run by unelected judges and magistrates, that explicitly sought to reduce the future effects of past injustices that would otherwise grow. Owen M. Fiss, The Civil Rights Injunction (Bloomington: Indiana University Press, 1978); Owen M. Fiss and Doug Rendleman, Injunctions, 2nd ed. (Mineola, NY: Foundation Press, 1984). 30. The earliest use of the private attorney general doctrine is Associated Industries of New York State, Inc. v. Ickes, 134 F.2d 694 (2d Cir. 1943). Its fee-shifting provisions were subsequently applied to civil rights enforcement actions, a practice that was statutorily mandated in the “Civil Rights Attorney’s Fees Award Act,” 42 U.S.C. § 1988 (1976). 31. Ronald Dworkin, Taking Rights Seriously (Cambridge, MA: Harvard University Press, 1977). 32. For a contemporaneous development of such a view, see, e.g., Louis Hartz, The Liberal Tradition in America (New York: Harcourt, Brace & World, 1995). Cf. Louis Hartz, The Founding of New Societies: Studies in the History of the United States, Latin America, South Africa, Canada, and Australia (New York: Harcourt, Brace & World, 1964). 33. Such ideas might be reasonably extended to the presumed constitutional rights of illegitimately conquered or captured minority populations in states that now constitute and legitimate themselves as democracies. See, e.g., Lea Brilmayer, “Carolene, Conflicts, and the Fate of the ‘Inside-Outsider,’” University of Pennsylvania Law Review 134, no. 6 (1986): 1291– 1334; Robert Meister, “The Logic and Legacy of Dred Scott: Marshall, Taney, and the Sublimation of Republican Thought,” Studies in American Political Development 3 (Spring 1989): 199– 260. 34. John Hart Ely, Democracy and Distrust: A Theory of Judicial Review (Cambridge, MA: Harvard University Press, 1980). According to Ely’s reasoning, civil rights legislation that was apparently neutral in its language could be interpreted by the Supreme Court as requiring racial quotas as a remedy. Even legislation that directly used racial classifications to correct historical injustice could be upheld as constitutional because, unlike the direct use of racial classifications to benefit historically advantaged groups, it would be considered a remedy rather than a violation of the right to equal protection under the law. The tensions in Warren Court jurisprudence are explored in Paul Brest, “Palmer v. Thompson: An Approach to the Problem of Unconstitutional Legislative Motive,” Supreme Court Review 1971 (1971): 95– 146; Robert Meister, “Sojourners and Survivors: Two Logics of Constitutional Protection,” Studies in American Political Development 9, no. 2 (Fall 1995): 229– 86. For alternative approaches, cf. Griggs v. Duke Power Co., 401 U.S. 424 (1971); Palmer v. Thompson, 403 U.S. 217 (1971). 35. See Laurence Tribe, American Constitutional Law, 2nd ed. (Mineola, NY: Foundation Press, 1988). Tribe’s book was the first overall view of US constitutional structure since the Civil War. However, his treatise excludes constitutionally mandated criminal procedure under the Fourth Amendment. For a discussion of these general currents, see also Meister, “Logic and Legacy of Dred Scott”; Meister, “Sojourners and Survivors.”

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36. Paul M. Bator et al., Hart and Wechsler’s The Federal Courts and the Federal System, Third Edition, 3rd ed. (Westbury, NY: Foundation Press, 1988). Cf. Akhil Reed Amar, “Law Story,” Harvard Law Review 102, no. 3 (January 1989): 688– 720 (review of Bator et al.). 37. Such judicially designed processes to reorient the long-term priorities of largescale institutions were often criticized as overreach— and to the extent that they continue, they are still attacked for preempting public spending on other needs. An example is California Governor Jerry Brown’s denunciation of the costs of compliance with judicial supervision of health care and living conditions in California prisons, which dates from the 1980s. See Richard Gonzales, “On California Prisons, It’s the Governor vs. the Courts,” NPR .org, April 30, 2013, https://www.npr.org/2013/04/30/180062890 /on-california-prisons-its-the-governor-vs-the-courts. 38. The locus classicus is James S. Coleman et al., “Equality of Educational Opportunity” (Washington: National Center for Educational Statistics, 1966), https://eric.ed .gov/?id=Ed012275. 39. Economists often stress the importance of early childhood education for “atrisk” students from disadvantaged families, arguing that it allows them to develop the social capital, such as interpersonal skills, necessary for upward mobility. See, e.g., James Heckman and Pedro Carneiro, “Human Capital Policy,” NBER Working Papers, no. 9495 (National Bureau of Economic Research, 2003); Flavio Cunha and James J. Heckman, “The Economics and Psychology of Inequality and Human Development,” Journal of the European Economic Association 7, no. 2-3 (May 2009): 320– 64. 40. The career of Arne Duncan as head of the Chicago Public Schools, and later as US Secretary of Education, exemplifies the path from increased mandatory assessment, to assessment-based funding, to public school closure, to state funding of private educational providers, and to data- driven school curricula organized around near- continuous assessment. See, e.g., “The Legacy of Arne Duncan, ‘A Hero in the Education Business,’” The Nation, accessed September 19, 2019, https://www.thenation.com/article /the-legacy-of-arne-duncan/. 41. My approach to reducing the income gaps attributable to education failure assumes, of course, that the negative social impact put with which public school students are endowed would be tradeable in a market, and that its economic value would rise as socioeconomic gaps increase. In this respect, my negative social impact put would differ from the call feature that is embedded in currently existing “social impact bonds.” Such bonds carry an incentive for achieving, according to a predetermined metric, the socially desirable goal for which the required funds are being raised. But there is typically no secondary market in the call feature embedded in such bonds. See Angela Mitropoulos and Dick Bryan, “Social Benefit Bonds: Financial Markets inside the State,” in Markets, Rights and Power in Australian Social Policy, ed. Gabrielle Meagher and Susan Goodwin (Sydney: Sydney University Press, 2015), 153– 68. 42. By extending this framework, we could usefully describe what I have been calling the cumulative effects of past injustice as misappropriation of a negative social impact put. The deep difficulty with taking this next step is whether the value would continue to increase if the effect of buying such a put is to reduce negative social impact by redistributing wealth. If this is certain to be so, why would an investor buy it for a price at which it would be worthwhile for the seller to sell? And what follows for the future of inequality— and possibly for its past— if the lasting effects of settling an historical

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injustice can never be certain? An answer to this question could be the topic of another book. 43. A more realistic version of this approach would be to allow students in disadvantaged schools who may never qualify for college to sell “affirmative action” securities to students from advantaged schools, who might use them for admission to more selective colleges. Isn’t this a fairer way of addressing the economic disparities that result from unequal educational opportunity than our present system, which preserves the illusion that admission to institutions is more about promoting class mobility than about legitimating class reproduction? 44. Raghuram G. Rajan and Luigi Zingales, Saving Capitalism from the Capitalists: How Open Financial Markets Challenge the Establishment and Spread Prosperity to Rich and Poor Alike (New York: Crown Business, 2003). 45. Rajan and Zingales, Saving Capitalism from the Capitalists, ch. 2. 46. Rajan and Zingales, Saving Capitalism from the Capitalists, 66– 67. 47. Rajan and Zingales, Saving Capitalism from the Capitalists, ch. 3. 48. Rajan and Zingales, Saving Capitalism from the Capitalists, ch. 4. 49. Rajan and Zingales, Saving Capitalism from the Capitalists, 307. See, generally, chs. 12– 13. 50. Zingales, A Capitalism for the People, xiv. Rajan was by this time governor of the Reserve Bank of India, a position he held until the election of Narendra Modi. 51. Zingales, A Capitalism for the People, 28. 52. Zingales, A Capitalism for the People, 56– 59. 53. Zingales, A Capitalism for the People, chs. 4– 5. 54. Zingales, A Capitalism for the People, 89. 55. Zingales, A Capitalism for the People, 83– 91. 56. Robert J. Shiller, The New Financial Order: Risk in the 21st Century (Princeton, NJ: Princeton University Press, 2003); Shiller, Finance and the Good Society. 57. Shiller plausibly regards this as a democratization of finance because opportunities to fine-tune risk exposure in the way he proposes are currently easy to access for financial insiders, but are not typically on offer as consumer financial products. 58. For extended discussion see, e.g., Shiller, Macro Markets, esp. ch. 4; Shiller, The New Financial Order, ch. 9, esp. 126– 27. 59. In more technical terms, Shiller proposes that the schedule of income tax rates be indexed to a measure of income inequality known as the Lorenz curve, so that the after-tax proportion of national income earned by households at each income level does not change (that is, the after-tax Lorenz curve would not steepen) as pre-tax income inequality widens. Shiller, New Financial Order, 149– 56. 60. Shiller, New Financial Order, 149– 52. Italics added. 61. This would be today’s version of the scenario in the film The Godfather Part III, in which a Mafia boss’s son attempts to “go legitimate” by investing the proceeds of his organization’s illegal activities in Las Vegas casinos. 62. Roy Kreitner, “Legal History Of Money,” Annual Review of Law and Social Science 8, no. 1 (2012): 426; Desan, Making Money. 63. Roy Kreitner, “The Jurisprudence of Global Money,” Theoretical Inquiries in Law 11 (2010): 177– 208; Desan, “The Constitutional Approach to Money.” 64. Aglietta, Money. 65. See, esp., Marx, Capital I, ch. 31.

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66. Barry Eichengreen, Globalizing Capital: A History of the International Monetary System, 2nd ed. (Princeton, NJ: Princeton University Press, 2008), 30. See also C. George Caffentzis, “Marxism after the Death of Gold,” in Beyond Marx, ed. Marcel Linden and Karl Heinz Roth (Brill, 2013), 395– 416. 67. In this respect and many others, he differed from his approximate contemporary, Henry George. In an 1881 letter to Adolf Sorge, Marx rejected George’s view that “everything would be all right if ground rent were paid to the state,” while acknowledging that he and Engels had endorsed a similar demand as “transitional” in their 1848 Communist Manifesto. “Letter to Friedrich Adolph Sorge in Hoboken,” June 20, 1881, https://www .marxists.org/archive/marx/works/1881/letters/81_06_20.htm. While George’s analyses of industrial capitalism lacked the breadth and depth of Marx’s developed account in Capital, his ability to link them to disruptive policy had wide appeal to populist movements of his era, and is carried forward in the work of “Georgist” economists across the policy spectrum, ranging from Milton Friedman and William Vickrey to Joseph Stiglitz and Robert Solow. For a recent approach along such lines, see Eric A. Posner and E. Glen Weyl, Radical Markets: Uprooting Capitalism and Democracy for a Just Society (Princeton, NJ: Princeton University Press, 2018). 68. Today it is standard for macroeconomics textbooks to discuss the tradeoffs involved in prioritizing fixed exchange rates over other policy goals, namely capital mobility or monetary policy autonomy. The original papers that developed the trilemma model were Robert A. Mundell, “Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates,” Canadian Journal of Economics and Political Science 29, no. 4 (November 1963): 475– 85; J. Marcus Fleming, “Domestic Financial Policies under Fixed and under Floating Exchange Rates,” Staff Papers (International Monetary Fund) 9, no. 3 (November 1962): 369– 80. 69. James Tobin, “Financial Globalization,” Proceedings of the American Philosophical Society 143, no. 2 (June 1999): 163. For a definitive historical account of financial macroeconomics over the twentieth century, see Mundell, “A Reconsideration of the Twentieth Century.” 70. Michal Kalecki, “Political Aspects of Full Employment,” Political Quarterly 14, no. 4 (October 1943): 322– 30, 351. 71. See Angus Burgin, The Great Persuasion: Reinventing Free Markets since the Depression (Cambridge, MA: Harvard University Press, 2012); Mirowski, Never Let a Serious Crisis Go to Waste; Krippner, Capitalizing on Crisis, 2012. 72. See, e.g., Antonio Negri, “Capitalist Domination and Working-Class Sabotage,” in Working-Class Autonomy and the Crisis (London: Red Notes, 1979), 92–137. 73. Daniel L. Thornton, “What the Libor-OIS Spread Says,” Economic Synopses, no. 24 (2009), https://research.stlouisfed.org/publications/economic-synopses/2009/05 /11/what-the-libor-ois-spread-says. 74. Ricks, Money Problem, 2016, 97– 100. 75. As early as 1997, it was already clear that currency-based derivatives could be issued by nonstate entities and used as vehicles through which investors such as George Soros could short the policies of mainstream banks. It is not only Soros who would do such a thing. Capital markets cannot not arbitrage a spread. This is both their truth and, I am suggesting, their Achilles’ heel. 76. Pierre-Olivier Gourinchas et al., “Exorbitant Privilege.” 77. See, e.g., Amato and Fantacci, End of Finance.

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78. Niall Ferguson and M. Schularick, Moritz, “‘Chimerica’ and the Global Asset Market Boom,” International Finance, 2007; Niall Ferguson and Moritz Schularick, “The End of Chimerica,” International Finance 14, no. 1 (2011): 1– 26; Niall Ferguson and Xiang Xu, “Making Chimerica Great Again,” International Finance 21, no. 3 (December 2018): 239– 52. 79. Tooze, Crashed, ch. 1. 80. Milton Friedman, “The Euro-Dollar Market: Some First Principles,” Federal Reserve Bank of St. Louis Review, July 1971, 16– 24. 81. A practical question that remains is whether the exchanges on which all financial derivatives are traded should be publicly regulated and subject to review by courts. And, if so, by whose courts? 82. A regulatory question raised by recent developments in cryptocurrency is their potential weaponization by those seeking to weaken or ultimately subvert a financial system. Some countries, most notably China, have recently tried to ban their internal financial markets from trading cryptocoins. One political effect has been to increase the strength of the state security apparatus within China. Another has been to assert a state monopoly on trading such cryptocoins in foreign markets where they could potentially be used to short the US dollar and undermine its position in world trade. How and by whom could such activity be banned? 83. Cf. the Bancor model, noted in chapter 7. 84. Ricardo J. Caballero, “Sudden Financial Arrest,” IMF Economic Review 58, no. 1 (August 2010): 6– 36. How these funds should then be used, and who should ultimately decide that question, must be the subject of future discussion within (and about) the still-emerging political movements which my analysis hopes to enable. 85. The idea of anticapitalist movements being funded through the sale of alternative currencies— literally, through making money— presupposes that that the most relevant currencies would be liquid, in the sense of convertibility into dollars. 86. Harman, Quentin Meillassoux; Badiou, Logics of Worlds.

C ONCLU S ION 1. Covid-19, and the US government’s response to it, has produced a heightening of the cumulative inequalities arising from historical injustice. “No justice, no peace” has been the slogan on the streets. For works that set the stage for this demand see, e.g., Nikole Hannah-Jones, “The 1619 Project Introduction,” New York Times, August 14, 2019; Desmond, “American Capitalism Is Brutal. You Can Trace That to the Plantation”; Saez and Zucman, The Triumph of Injustice. 2. This covariance of a stock’s price with the movement of the overall market is called its Sharpe ratio. Sharpe, “Capital Asset Prices.” 3. As Aaron Wistar reminds me, Bretton Woods and the gold standard made different choices when faced with the Mundell trilemma: Bretton Woods opted for monetary policy autonomy, where the gold standard opted for freedom of capital flows. From Mundell’s perspective, it thus makes sense to say Bretton Woods deprioritized the “uncontrolled flow of capital across borders,” but not that it deprioritized exchange rate stability or ultimate gold convertibility, See Mundell, “Reconsideration of the Twentieth Century.” 4. Leigh Johnson, “Climate Change and the Risk Industry: The Multiplication of

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Fear and Value,” in Global Political Ecology, ed. Richard Peet, Paul Robbins, and Michael Watts (Routledge: London, 2011), ch. 9. 5. Gurley and Shaw, Money in a Theory of Finance. 6. The History of Consciousness student Colin Drumm is writing a brilliant doctoral dissertation that demonstrates this. 7. Carl Schmitt, The Nomos of the Earth in the International Law of Jus Publicum Europaeum, trans. G. L. Ulmen (New York: Telos Press Publishing, 2006). 8. There is also a “nomos of the cloud” that changes the means of appropriating, contesting, increasing, and partially harvesting the liquidity premiums on which the continuing existence of capitalist accumulation depends. Benjamin H. Bratton, On the Nomos of the Cloud: The Stack, Deep Address and Integral Geography (Rotterdam: Berlage Institute, 2011). 9. It is in this respect an example of what the sociolinguist Michael Silverstein calls a “metapragmatic” discourse, and what his mentor Roman Jacobson called a “poetics”— that is, a self-consciously interdiscursive practice that connects heterogeneous practices and modes of thought by registering the changing rates of change among them. 10. Antonio Negri, “Postface,” in Crisis in the Global Economy: Financial Markets, Social Struggles, and New Political Scenarios, ed. Andrea Fumagalli and Sandro Mezzadra, trans. Jason Francis McGimsey (Los Angeles: Semiotext(e), 2010), 263– 72; Carlo Vercellone, “The New Articulation of Wages, Rent and Profit in Cognitive Capitalism,” Queen Mary University School of Business and Management, London, 2008, https:// halshs.archives-ouvertes.fr/halshs- 00265584/documen. 11. See, e.g., Yann Moulier-Boutang, Cognitive Capitalism (Cambridge: Polity, 2011). Vercellone takes a similar position. 12. Michel Bauwens, “The Political Economy of the Common: An Interview with Andrea Fumagalli,” Commons Transition, July 31, 2018, http://commonstransition .org /the-political- economy- of-the- common-an-interview-with-andrea-fumagalli/; Tiziana Terranova and Andrea Fumagalli, “Financial Capital and the Money of the Common: The Case of Commoncoin,” in MoneyLab Reader: An Intervention in Digital Economy, ed. Geert Lovink, Nathaniel Tkacz, and Patricia de Vries (Amsterdam: Institute of Network Cultures, 2015), 150– 57. 13. Griziotti and Vercellone, “Biorank vs. Commoncoin.” 14. I regard the essence of this proposal to be the creation of a subsistence sector outside the present financial system— a version of what earlier generations of political economists called the “development of underdevelopment.” For clear versions of this thesis, see Clifford Geertz, Agricultural Involution: The Processes of Ecological Change in Indonesia (Berkeley: University of California Press, 1963); Walter Rodney, How Europe Underdeveloped Africa (Brooklyn: Verso, 2018). 15. Today’s “accelerationism” has many precursors. Its most recent form is based on the cultural theorist Nick Land’s argument that what I here call financialization is itself a process of accumulation-by-acceleration. By this, Land has in mind the ways in which algorithmic “cross- excitation of production/consumption” promotes imagineering, virtualization, and the forms of premediation and preemption we found earlier in the work of Louise Amoore and Marieke van de Goede. Although Land himself now identifies with the alt-right, earlier versions of his ideas have as much in common with Marx and Georges Bataille as with Carl Schmitt. The “#Accelerate Manifesto,” which was largely inspired by Land, presented itself as a document on the left that opposed, as “Canutism,” the naive view that withdrawing from capitalism is a way to resist it. Land

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himself, however, has become so immersed in the logic of acceleration-by-accumulation that he seems to believe that resistance is futile. Sadie Plant and Nick Land, “Cyberpositive,” in #Accelerate: The Accelerationist Reader, ed. Robin Mackay and Armen Avanessian (Falmouth, UK: Urbanomic, 2014), 303– 14; Land, “Circuitries,” in #Accelerate: The Accelerationist Reader, ed. Robin Mackay and Armen Avanessian (Falmouth, UK: Urbanomic, 2014), 251– 74; Land, “Teleoplexy: Notes on Acceleration.” For the leftist mainstream of accelerationism, see Alex Williams and Nick Srnicek, “#Accelerate: Manifesto for an Accelerationist Politics,” in #Accelerate: The Accelerationist Reader, ed. Robin Mackay and Armen Avanessian (Falmouth, UK: Urbanomic, n.d.); Nick Srnicek and Alex Williams, Inventing the Future: Postcapitalism and a World Without Work (London: Verso, 2015). 16. It therefore warily acquiesced to even the most hypocritical acts of the Obama administration when it invoked espionage law against journalists publishing national security leaks and brought its full force to bear on leakers like Chelsea Manning and Edward Snowden. Consider, also, the legal persecution of public-spirited hackers of corporate property, like Aaron Swartz, who merely wanted digitized academic journals to be in the public domain. 17. Are McKenzie Wark’s “hacktivists” the coal miners of today? Or are they more like the popular caricature of bomb-throwing anarchists, whose sabotage of established institutions would be difficult if not impossible to legitimate through broad collective support? Does their apparent success merely feed the popular demand for more secure systems, or does it rather undermine trust in the integrity of gatekeepers who need us to believe that the financial system is not always already hacked? Wark, Hacker Manifesto. 18. In my approach, the potential funding for historical justice grows within and lives off the body of financialized capital, in much the way that a parasite depends upon its host while ultimately turning it into something else. Michel Serres, The Parasite, trans. Lawrence R. Schehr (Baltimore: Johns Hopkins University Press, 1982). For a development of similar ideas, see Kockelman, “Enemies, Parasites, and Noise.” 19. The sociolinguist Michael Silverstein calls this process “transduction,” by analogy to the change of, say, water power into electricity. His point, I think, is to distinguish this kind of process from a translation in which there is a direct correspondence between the source and the output, and a transformation in which there is no correspondence. In a “transduction,” something (e.g., power) is conserved without preserving its preexisting form. Michael Silverstein, “Translation, Transduction, Transformation: Skating ‘Glossando’ on Thin Semiotic Ice,” in Translating Cultures: Perspectives on Translation and Anthropology, ed. Paula G. Rubel and Abraham Rosman (Oxford: Berg, 2003), 75– 107. 20. On this point see, e.g., Massimiliano Tomba, Marx’s Temporalities, trans. Peter D. Thomas and Sara R. Farris (Leiden, Netherlands: Brill, 2013); Sandro Mezzadra, “The Topicality of Prehistory: A New Reading of Marx’s Analysis of ‘So-Called Primitive Accumulation,’” Rethinking Marxism 23, no. 3 (2011): 302– 21. 21. A preliminary version of this idea is expressed in Economic Space Agency, “On Intensive Self-Issuance: Economic Space Agency and the Space Platform,” in Moneylab Reader #2: Overcoming the Hype, ed. Inte Gloerich, Geert Lovink, and Patricia de Vries (Amsterdam: Institute of Network Cultures, 2018), 232–42.

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INDEX absolute liquidity, 4. See also liquidity accelerationism, 196, 254n15 accumulated wealth, 10– 12, 76, 137, 191, 194, 241n3 adverse possession, 82 affirmative action, 213n30, 232n51, 251n43 After Evil (Meister), 2, 13– 14, 61– 62, 65– 66, 74, 77, 82, 99, 211n2, 226n34, 231n33, 232n50, 235n4, 235n15 Agency Mortgage-Backed Security (AMBS), 130 Aglietta, Michel, 3– 5, 185 agricultural production, 16– 18. See also Ricardo, David; Smith, Adam Akerlof, George A., 245n48. See also animal spirits American Constitutional Law (Tribe), 172 Amoore, Louise, 138– 39, 254n15 Anarchy, State and Utopia (Nozick), 97, 99, 106 animal spirits, 83, 168, 245n48 anticapitalism: beneficiary pays and, 86– 87; coal miners and, 45– 47, 160; coinage and, 154, 158; diversity of movements and, 141, 192; financial opportunities created by, 154– 57, 182; luck egalitarianism and, 85– 86; movements and, 9; political resistance and, 45– 47, 54, 58– 60; premium extraction and, 137; sabotage accusations and, 145– 46, 242n19; security industry and, 137– 38; student debt resistance

movement, 144– 45; tokens of resistance and, 158, 190; volatility and, 43, 144– 45, 154– 57, 159– 61, 182, 190, 194– 95. See also capitalism; historical injustice; historical justice; justice apartheid, 65– 66 arbitrage, 20, 111– 12, 170, 190. See also non-arbitrage principle Arrow, Kenneth, 116– 17 Arrow-Debreu securities, 117 asset prices, 5, 10, 49, 134, 187; BSM and, 127; inflation and, 52; liquidity and, 112, 116, 119– 20, 135; options theory and, 168– 69; regulation of, 30; state support of, 53, 121, 128, 130, 133, 144. See also collateral; financial markets; liquidity; optionality atheism, 35 austerity, 27, 55, 115, 131. See also neoliberalism autonomism (autonomia), 163, 196, 244n39, 246n3 Ayache, Elie, 101 Bagehot, Walter, 13 Bank of International Settlements, 124 Bear, Laura, 247n4 beneficiary pays, 86– 87, 232n47, 232n50 Benjamin, Walter, 14, 76 Berle, Adolf, Jr., 139– 40 Berlin, Isaiah, 95, 106 Bernanke, Ben (Bernanke Put), 178, 199 Bitcoin, 151. See also cryptocurrency

282 Bittker, Boris, 98 Black-Scholes-Merton formula (BSM), 6– 9, 17– 18, 22– 23, 48– 51, 54– 55, 126– 28, 132, 215n17. See also options blockchain, 148, 151, 181, 243n29. See also cryptocurrency bonds, 26, 48– 51, 125– 32, 174, 188. See also optionality; spreads; volatility Booth, Wayne C., 69 Bork, Robert, 230n29 Boyer-Xambeu, M.-T., et al., 182, 244n36 Bratton, Benjamin, 243n25, 246n51, 254n8 Bretton Woods agreement, 47– 48, 51– 52, 187, 253n3 Brown vs. Board of Education, 98, 171 Brunhoff, Suzanne de, 33 Brunton, Finn, 147 BSM. See Black-Scholes-Merton formula (BSM) capability theory, 71, 233n62 Capital (Marx): abstract labor time and, 33; currency and, 183– 84; exploitation of wage labor and, 31– 32; liquidity and, 24; surplus value and, 19– 21, 27– 28 capital accumulation, 2, 22– 29, 32, 51– 55, 82– 83, 111, 114, 196– 98, 241n3 Capital in the Twenty-First Century (Piketty), 29– 30 capitalism: abstract time and, 33; accelerationism and, 196, 254n15; anticapitalism and, 45– 47, 54, 58– 60, 81, 84, 86– 87, 154– 57, 159– 60; choke points of, 45– 46, 55– 60, 81, 146, 188, 193; class and, 39– 40, 91; cognitive, 59, 195, 244n39; crony, 176– 77; currency and, 17; debt and, 3– 5, 17, 55; deindustrializing of, 103; democracy and, 159– 60; direct mediation and, 36; distinction between producing and consuming and, 195, 241n51; elites and, 176, 210n12; exploitation and, 55– 58, 191; faith-based origins and, 77– 80; financial institutions and, 155; financialization of, 6, 15, 41, 44, 51– 53, 126– 27, 160, 241n3; financial stability and, 166; forward contracts and,

Index 40– 41; fragility of, 55– 60; historical justice and, 1– 2, 12; inequality and, 32; labor-saving technology and, 20; liquidity gradients and, 24; liquidity swaps and, 39; luck and, 84– 86; Marx on, 1; as a monetary economy, 40; money and, 33; nationalizing credit markets and, 167– 68; protection against destabilization and, 159; the protocapitalist farmer and, 15– 17; resistance to, 196; risk and, 83– 84; selfdestruction and, 113– 14; shorting of, 9, 156– 57, 192; stability of, 9; subversion of, 197; surplus value and, 19; transformation towards justice and, 197; volatility and, 155– 57, 186; welfarestate, 139– 40. See also anticapitalism; financialization; Marx, Karl Capitalism for the People, A (Zingales), 177 capital markets: BSM and, 55; class and, 94– 95; illiquidity and, 135, 192– 93; liquidity and, 26, 81, 111– 12; outside liquidity and, 118– 21, 178; privatizing of, 167– 68, 170; regulatory policy and, 169– 70; stability of, 168; state support for, 49, 81; US government and, 53. See also financial markets capital strikes, 113– 14, 142 capital theory, 49 Case for Black Reparations, The (Bittker), 98 cash. See money causal dependence, 79– 80 Central Bank Liquidity Swap (CBLS), 129 central banks, 52 Chang, Ruth, 101– 2 Cherry, Colin, 101 Chicago Board of Options Exchange, 50 Chicago School of economics, 163– 64, 168– 69, 179 Chimerica, 187 China, 187, 253n82 choice, 101– 5, 107 choke points (of capitalist flows), 45– 46, 55– 60, 81, 114, 146, 188, 193 civil rights, 230n29 class: capitalism and, 91, 103; capital markets and, 94– 95; compromise,

Index 57– 58, 192; consciousness, 9, 57; liquidity swaps and, 39– 40; mobility, 144, 174; power, 3; struggle, 3, 30; volatility and, 146. See also anticapitalism; capitalism climate change, 157– 58, 192 cognitive capitalism, 59, 195, 244n39 Cohen, G. A., 95 coin, 147– 49, 152– 55, 164, 182– 83, 185, 213n2, 239n38, 243n29, 244n33, 244n36, 245n47. See also cryptocurrency; currency collateral, 6, 16– 31, 37– 38, 43– 44, 49– 55, 59– 60, 97– 99, 118– 41, 166– 67, 193– 94, 212n15, 239n42. See also asset prices; optionality; volatility collateralized debt obligations (CDOs), 127 commodification, 103, 146, 191, 210n16 complete market, 116– 18 confidence (investor), viii, 4, 10, 57, 83, 112, 119, 123, 128, 139– 42, 149, 159, 166, 168, 199, 201, 238n34, 241n9, 245n48 conservation principles, 38 conspiracy, 88– 92, 229nn16–17, 230n21, 230n29 consumption, 31, 40, 44– 46, 54, 103– 4, 160, 168, 195, 216n26, 247n5, 254n15 contingent claims analysis (CCA), 116, 118– 20. See also options continuous hedging, 22 contract law, 84– 85 convexity, 119– 20, 234n70, 237n21 counterfactual conditional propositions, 14, 97, 227n42 counterfactual dependence, 79– 81, 97– 98, 175 counterrevolutionaries, 66 Covid-19, 199– 201 credit markets: debt and, 132– 34; nationalizing of, 165– 68; outside liquidity and, 112, 135, 183; realization problem and, 21– 22; risk and, 56, 118– 19; strengthening of the financial sector and, 56– 57; total credit market debt (TCMD) and, 53; 2008 financial crisis and, 122– 23. See also financial markets; liquidity

283 creditworthiness, 31, 55, 103– 4, 215n19 cryptocurrency, 147– 56, 181, 194, 243n31, 244n39, 253n82. See also currency cryptodollars, 188, 193– 94 currency: capitalism and, 17; Central Bank Liquidity Swaps (CBLS) and, 129; confidence in, 4– 6; globalization and, 50– 52; liquidity and, 26, 131, 153; Marx and, 25, 31; Shiller-Case index and, 179; sovereignty and, 183– 85; tax state and, 164; US, 47– 48, 186– 87. See also coin; cryptocurrency; money cybernetics/information theory, 101, 106, 160, 233n57 cybersecurity. See financial markets; security industry cypherpunks, 150– 51. See also cryptocurrency Davidson, Donald, 91– 92, 230n30 dealer function, 111– 13 Debreu, Gérard, 116– 17 debt: austerity programs and, 27, 55; BSM and, 18, 22– 23, 48– 51, 126– 28; capitalism and, 3– 5, 17, 55; contingent claims analysis and, 120– 21; credit markets and, 132– 34; creditworthiness and, 103; cryptocurrency and, 148; financial stability and, 166– 68; global financial system and, 48; government bailouts and, 130– 31; liquid, 166– 67; Marx and, 21, 23– 25; monetizing of, 4, 48– 49; money and, 3– 4; options and, 7– 8; personal, 17, 27, 31– 32, 55– 56, 128; political resistance and, 45– 46; protocapitalist farmer and, 16, 18; public, 17, 27, 128– 34; shadow banking system and, 53; student loans and, 144– 45 debt- deflation spiral, 167 debt validation problem, 54 default risk, 119, 121 de Goede, Marieke, 138 democracy: capitalism and, 159– 60; equal protection clause and, 172; financialization and, 3; historical injustice and, 2– 3, 12, 65– 67, 82, 194; historical justice and, 10– 12, 108, 170; insecurity of the rich and, 154; pricing

284 democracy (continued) of the option of justice and, 115, 135; revolutionary justice and, 201; South Africa and, 65 derivative form, xii– xiii, 45, 241n5 derivatives. See optionality derivative sociality, xi, 37, 104, 147 Derman, Emanuel, 104– 7, 231n37, 243n68, 234n70 Desan, Christine, 17, 153 disaccumulation, 10– 12, 20, 27– 28, 115, 137, 139– 42 distributed ledgers, 150– 51, 243n31 distributive justice, 13, 86, 93, 96– 99, 102. See also historical injustice; historical justice; justice dollarization, 51, 186– 87. See also Eurodollars Draghi, Mario, 94, 242n10 drift, 49– 50, 107 Dupuy, Jean-Pierre, 78– 81, 97, 105, 175– 76, 226n40, 227n42, 227n49 Durkheim, Émile, 4 Dworkin, Ronald, 70

Index

education, 173– 76, 250n41 Ely, John Hart, 172 Empire of Trauma, The (Fassin), 73 Empire of Value, The (Orléan), 227n49 encryption, 150, 243n30. See also cryptocurrency equality, 95, 228n13. See also human rights; justice equitable remedies, 86 Ethereum, 151. See also cryptocurrency Eurodollars, 47– 48, 51, 185– 87 evil, 2, 61, 65 evolutionary theories, 89– 90 existential uncertainty, 77– 79

fictitious capital, 1– 2, 211n1 financial assets, 19– 21, 37, 114, 154, 169, 236n7, 239n43, 241n3 financial crises, 21– 22, 154– 57. See also anticapitalism; 2008 financial crisis financial derivatives. See Black-ScholesMerton formula (BSM); mediation; optionality; trauma financialization: capitalism and, 6, 44, 51– 53; of daily life, 31– 32, 55– 56, 146; democracy and, 3; historical injustice and, 1– 2, 12, 65– 67, 74, 82, 88– 91. See also capitalism financial markets: actualization of, 41– 42; government bailouts and, 128; liquidity and, 4– 5, 9– 10, 26– 27, 115, 177; liquidity premium and, 6, 10, 116– 22, 132– 36, 140– 41, 162– 70, 188, 194, 236n7, 237n20, 238n35, 254n8; metadata and, 139, 143; options and, 42– 43; security and, 138– 39, 142– 44; volatility and, 8– 9, 57– 58. See also capital markets financial products: as drivers of inequality and, 30– 31; volatility and, 43 financial revolution, 8– 9, 176– 77. See also revolution financial stability/instability, 51, 166– 67, 190 financial theory, 14, 105– 6 fiscal policy, 163– 64 Fisher, Irving, 167 Foley, Duncan, 24 for-profit school industry, 173– 76 forward contracts, 40– 43, 118, 220nn60– 61 forward swaps, 42, 213n21 Friedman, Milton, 163, 168 full employment, 52, 167– 68, 184

Fassin, Didier, 68, 75 Federal Reserve (US), 124– 25, 185, 193, 199 Federal Rules of Civil Procedure, 171 Feher, Michel, 31, 197 Felkerson, James, 129 feudal Europe, 16, 152– 54, 164– 65, 172, 182, 239n36

Gabor, Daniela, 130– 31 Geithner, Timothy, viii– x, 94, 210n10 general equilibrium theory, 80, 117 general strike, 45– 46, 160, 191 General Theory, The (Keynes), 5– 6 George, Henry (Georgists), 214n8, 252n67

Index Girard, René, 4, 226n37. See also mimetic theory globalization, 50– 52, 186– 87 global monetary system, 48– 52 global netting system, 54 global securities industry, 54 global security industry, 54 God, 34– 35, 67 gold standard, 50, 183, 253n3 Gorton, Gary, 155 Granger causality tests, 120 great convergence, 93– 95, 192 Greenspan, Alan (Greenspan Put), 178 Grundrisse (Marx), 195 Hayek, Friedrich von, 89, 91– 92, 143 Hempel, Carl, 89– 90 hidden-hand explanations, 90– 91 historical injustice: accumulated wealth and, 194; beneficiaries of, 65– 67, 82; conspiracies and, 88– 91; democracy and, 2– 3; financialization and, 1; historical compromise and, 61; jurisprudence and, 171– 73; measuring the ongoing effects of, 88; Nuremberg trials and, 62– 65; as option, 2, 12; South Africa and, 65– 66; transmission of, 74. See also distributive justice; historical justice; justice historical justice: accumulated wealth and, 76; analogy with a put option and, 109– 11; capitalism and, 1; capital market illiquidity and, 135; current worth of, 13– 14; democracy and, 10– 12, 108, 170; inequality and, 76; language of global finance and, 10– 11; leveraging political risk and, 113; transitology and, 62– 65; trauma and, 67– 72, 74– 75; value of, 111, 115, 141; the welfare state and, 140. See also distributive justice; historical injustice; justice Homer, 230n21 human development, 71– 72 Human Development Index, 71 humanitarianism, 67, 69, 71– 72, 74– 75 human rights, 62– 65, 67– 69, 77, 225n18

285 illiquidity. See anticapitalism; asset prices; financial crises; optionality indexation, 88, 179– 80 inequality: beneficiary pays and, 86; capitalism and, 32; compounding, 1; educational, 173– 76; financial products and, 30– 31; historical justice and, 76; historical nature of, 110– 11; income, 29– 30, 181; socioeconomic, 179– 81; volatility and, 105. See also justice inflation, 12, 49, 52. See also stagflation information theory/cybernetics, 101, 106, 160, 233n57 inside liquidity, 110– 13. See also dealer function Internet, 146– 47 inverse securities, 180– 83 investors. See confidence (investor) invisible-hand theories, 90– 92 Joas, Hans, 70 Judgment at Nuremberg (film), 63 justice: cryptocurrency and, 154; education industry and, 173– 76; equality and, 222n13; government power and, 26– 27; jurisprudence of remedial, 171– 73; liquidity premiums and, 167; mattering and, 73; optionality of, 107– 8; redistribution and, 93, 95; socioeconomic, 163; students and, 173– 76, 242n16; trauma and, 73– 74; 2008 financial crisis and, 115, 133– 36; value of, as an option, 115– 16, 198. See also anticapitalism; historical injustice; historical justice; Nozick, Robert; Rawls, John Kalecki, Michal, 184 Kateb, George, 70 Keynes, John Maynard, 5– 6, 39, 42, 83, 93, 126, 165– 68 kinestheme, xi. See also Martin, Randy Knight, Frank H., 78, 83 Kockelman, Paul, 34– 36, 212n8 Kuznets, Simon, 95– 96 labor militancy, 45– 47, 114 Land, Nick, 244n39, 254n15

286 Lapavitsas, Costas, 31, 211n1 law of adverse possession, 82 law of equitable remedies, 86 law of one price. See non-arbitrage principle leverage, 39– 40, 213n21 Lewis, David, 80 liberalism, 62, 73, 86, 93– 100, 107, 135 liberty, 95, 99, 106– 7 liquidity: of an asset, 119; asset prices and, 112, 116, 119– 20; capital markets and, 26, 111– 12; credit markets and, 123; crises, 112– 13, 177; currency and, 26, 131, 153; differential, 132; Federal Reserve and, 124– 25; financial markets and, 4– 5, 26; fully collateralized, 125; inside, 111– 13; Marx and, 23– 24; national security and, 142; options and, 94, 104; outside, 112– 13, 178; power and, 3; realization problem and, 25– 26; security and, 138– 39; systematic, 132; threatening of, 9– 11. See also asset prices liquidity coin, 158 liquidity preference, 5– 6 liquidity premiums: as an analytical tool, 236n7; disaccumulation and, 10; Federal Reserve and, 168; justice and, 167; Keynes and, 6; pricing of, 118– 21; regulatory policy and, 169– 70; 2008 financial crisis and, 122– 24; value of, 140– 41 liquidity swaps, 39– 40 luck egalitarianism, 84– 86, 232n47 MacKenzie, Donald, 127, 240n45 macroeconomic guarantees, 129, 134, 235n2, 238n34. See also Bernanke, Ben (Bernanke Put); Greenspan, Alan (Greenspan Put); Paulson Put; 2008 financial crisis Macromarkets (Shiller), 180– 81 Martin, Randy, xi– xii, 36– 37, 102– 4, 146– 47, 210nn16– 17 Marx, Karl: accumulation through overproduction and, 217n33; asset and commodity markets and, 1, 20– 21;

Index collateral and, 37– 38; commodification and, 191, 193; currency and, 25, 31; debt and, 21, 23– 25; liquidity and, 23– 24; the machine and, 195; materialism and, 214n12; monetary economy and, 39; money and, 216n25; realization problem and, 21– 26, 54; self- destruction of capitalism and, 114; surplus value and, 15, 19– 21, 32, 104; theory of exploitation and, 24. See also Capital (Marx); capitalism mattering, 70– 73, 100, 102 mediation: direct, 34, 36; social, 33– 34 Mehrling, Perry, 8, 124, 126, 131 Merton, Robert C., 22, 116– 22, 128, 215n16 messianic history, 14 metahistory, 14 mimetic theory, 32, 80, 226n37 Minsky, Hyman, 54, 124, 165– 68 Mitchell, Timothy, 45– 47 modern finance theory, 132. See also financial theory modern monetary theory, 130 monarchs, 164– 65 money: cash, 125– 26; currency issuance and, 183– 85, 193; debt and, 3– 4; Marx and, 183– 84, 216n25; wealth and, 33. See also currency money markets, 125– 26, 128, 130 monotheistic theology, 35 moral philosophy, 86– 107 mortgages, 142, 179– 80 movements. See anticapitalism Musgrave, Richard A., 232n50, 247n5 negative liberty, 106 negative social impact put, 174– 75, 250nn41– 42 Negri, Antonio, 184, 195 neoliberalism, 62, 87, 184. See also austerity Nesvaitolova, Anastasia, 124– 25 neuroscience, 73 Nixon, Richard, 50 non-arbitrage principle, 20, 38, 104, 219n56. See also arbitrage

Index non-inflation accelerated rate of unemployment (NAIRU), 12 Nozick, Robert, 90– 92, 95– 101 Nuremberg trials, 62– 65 Nussbaum, Martha, 71– 72, 102 Obama, Barack, vii– viii, 255n16 Occupy movement, 141 oil, 47– 48, 51– 52 one price. See non-arbitrage principle On What Matters (Parfit), 100 Open Society and Its Enemies, The (Popper), 89 optionality: capability theory and, 72; capital accumulation and, 2; cash and, 6; complete markets and, 118; Eurodollars and, 51; financial derivatives and, 5; of justice, 108, 198; Martin and, 103; of nonfinancial products, 195; Parfit and, 100; preserving, 105; value of, 22– 23, 78, 102, 104, 106 options: distributive justice and, 93– 100, 135; financial markets and, 42– 43; historical justice and, 2, 109– 11; inflation and, 52; laddered call and, 133; liquidity and, 94, 104; pricing of, 6– 8, 105– 7; put-call parity and, 7– 8, 24– 25, 212nn15– 16, 216n23; theory, 101; time value and, 43; valuation of, 1, 43; valuation of financial assets and, 43, 94– 95, 229; volatility and, 6– 8, 42, 105– 6. See also Black-Scholes-Merton formula (BSM); contingent claims analysis (CCA); debt; financial instruments; historical justice; liquidity; risk Parfit, Derek, 100– 102, 233n53 parity (co-referentiality vs. commensuration), 14, 33– 36, 88, 100– 104 Paulson, Henry, ix, 233n34. See also macroeconomic guarantees Paulson Put, 238n34 Peircean semiotics, 34– 35, 212n8 Piketty, Thomas, 29– 30, 32, 107, 192, 200, 211n3, 217n36 Pistor, Katharina, 44, 240n63 platform (capitalism), 149– 51, 160

287 political risk. See risk Popper, Karl, 88– 89, 92 populism, 177 Postone, Moishe, 32– 36, 38, 217n33, 218n53, 222n28 premeditation/preemption of disaster, 138 “Pricing of Options and Corporate Liabilities, The” (Black and Scholes), 6– 8, 55. See also Black-Scholes-Merton formula (BSM) Primary Dealer Credit Facility (PDCF), 129 private debt. See debt private sector taxation, 163– 66 protofinancialization, 37– 38 public debt. See debt public education, 173– 76 public sector: role and size of, 163– 65; taxation and, 164– 65. See also welfare state put- call parity, 7– 8, 24– 25, 215n15, 216nn– 23. See also options Rajan, Raghuram, 176– 77, 251n50 Rated Agency (Feher), 197 Rawls, John, 73, 93– 96, 107, 110, 223n3, 228n13 real economy, 25 realization problem, the, 21– 26, 54 rectificatory justice, 98. See also distributive justice redemptive history, 14, 76, 87, 134, 198 redistribution. See distributive justice regulatory arbitrage, 170 regulatory policy, 169– 70 remedial justice, 98, 171– 73, 178. See also rectificatory justice repo market, 193, 239n38, 239n41 resistance, 196, 244n39, 246n3, 254n15 See also anticapitalism revolution, 8– 9, 11– 12, 114, 139– 40, 191, 201, 236n7 revolutionary justice, 115– 16, 135, 140, 201, 236n7 Ricardo, David, 16, 18– 20, 214n11. See also Smith, Adam

288 Ricks, Morgan, 124– 25, 127, 238n35 risk: capitalism and, 83– 84; credit markets and, 56, 118– 19, 132; default, 119; political, 113; security industry and, 138; volatility and, 105– 6, 127; welfare state and, 140. See also uncertainty (Knightian); volatility risk models, 105– 6 sabotage/subversion, xii, 30, 46– 47, 60, 114, 145– 46, 156, 160, 197, 242n19 Saving Capitalism from the Capitalists (Rajan and Zingales), 177 Schmitt, Carl, 194 Schumpeter, Joseph, 164– 65 securities industry, 54, 137, 139, 182, 241n1 security premium, 137 seignorage, 153– 54, 182 self-transcendence, 80– 81 self-valorization, 184– 85. See also valorization (of commodities) Sen, Amartya, 71– 72 service-based gig economy, 54 shadow banking system, 44, 51– 53, 124– 25, 131, 239n41 Shafer, Glenn, 235n6 Shannon, Claude, 101 Sherman Act, 230n29 Shiller, Robert, 178– 81, 251n57 Shiller-Case index, 179 short selling, 39 Simons, Henry, 163, 247n8, 248n20 slavery, 215n19, 219n59 Smith, Adam, 16– 20. See also Ricardo, David social domination, 33– 35, 75, 191 socially created wealth, 1 social structure, 96– 97 socioeconomic inequality. See inequality Sohn-Rethel, Alfred, 33 South Africa, 65– 66 sovereignty, 3– 5, 148, 172, 182– 85 spot market, 41– 42, 236n15 spreads, 21, 36, 42, 47, 54, 59, 76, 87– 88, 96– 105, 121, 149, 153, 179, 215n16

Index Srnicek, Nick, 246n51, 254n15 stagflation, x, 166– 67, 184, 221n16, 248n14. See also inflation states: capitalist, 3– 4, 13, 91; currency and, 26, 152, 154, 185, 193; fiscal responsibility and, 131; illiquidity and, 26– 27; oil-producing, 46– 48; outside liquidity and, 113; rich, 164; risk-free debt and, 49, 132; taxation and, 170. See also China; United States strikes. See anticapitalism student loans, 144– 45 surplus value: absolute vs. relative, 19– 21, 38; Marx and, 15, 18– 19, 37– 38, 104, 191 syntagmatic grammar, 13 synthetic Treasuries (AAA securities), 127 Szabo, Nick, 243n31 TARP. See Troubled Asset Relief Program (TARP) taxation, 4, 55– 57, 163– 65, 247n10 tax state, 164– 65 Term Securities Lending Facility (TSLF), 129 theodicy, 67 theology, 35 Theories of Surplus Value (Marx), 18 theory of hard choices, 101– 2 Theory of Justice, A (Rawls), 94– 95 Time, Labor, and Social Domination (Postone), 34 time value, 6, 8, 43, 103– 5, 162, 235n81. See also options Tobin, James, 117, 184, 231n32 “too big to fail,” 122– 25, 177– 78 Tooze, Adam, ix– xi, 187, 209n10, 241n9 total credit market debt (TCMD), 53 transformation, 197 transitional justice, 61– 63, 65– 67 transitology, 62– 67, 77 trauma, 67– 77 Tribe, Laurence, 172 Troubled Asset Relief Program (TARP), viii, 130

Index 2008 financial crisis: China and, 187; confidence in the financial markets and, 241n9; failure to collect a premium for, 134; global financial market liquidity and, 186; government bonds and, 128– 29; government costs of bailout and, 129– 31; incentivization of government bailouts and, 122– 25; liquidity premium and, 122– 24; necessity of the bailout and, 134– 35; option of justice and, 115; value of liquidity put provided, 118– 21, 133, 135. See also United States Ullmann-Margalit, Edna, 89– 90, 92 uncertainty (Knightian), 77– 79 United States: Bretton Woods and, 48; debt, 48, 53; dollars, 47– 48, 50, 53, 152, 185– 87; global financial system and, 58, 123; national security of, 137, 142– 44; remedial justice and, 170– 72; shadow banking system and, 124. See also states; 2008 financial crisis valorization (of commodities), 15, 32, 218n53. See also self-valorization valuation (of financial assets): anticapitalist movements and, 141, 197– 98; BSM and, 49– 50, 80, 102; of choice, 104– 5; finance and, 15; of immaterial forms of wealth, 114; Marx

289 and, 21, 28; options and, 43, 94– 95, 229; state support of, 5, 133– 34; 2008 financial crisis and, 60 valuation of life choices, 100– 101, 231n32 value form, xii, 26, 32– 38 victimhood, 66 volatility: anticapitalist movements and, 43, 144– 45, 154– 57, 159– 61, 182, 190, 194– 95; capitalism and, 155– 57, 186; class and, 146; of data, 60; financial markets and, 8– 9, 57– 58; financial products and, 43; government bonds and, 49; options and, 6– 8, 42, 105– 6; pricing of, 49– 52, 57, 105– 7, 127; time value and, 103– 5; trading of, 9. See also anticapitalism; risk volatility smile, 105 Walzer, Michael, 95 wealth: appreciation of, 1, 9, 28– 29, 32, 87, 179, 194; capitalism and, 38; money and, 33; value and, 32– 33. See also accumulated wealth Weber, Max (Protestant ethic), 77– 79, 83, 226n40 welfare state, ix, 46, 52, 55– 56, 139– 40, 160, 235n4, 245n49, 247n8 White, Hayden, 14 World Trade Center attack (9/11), 142 Zingales, Luigi, 122– 23, 176– 78