The global financial crisis and its history.

Adam Tooze's Crashed: How a Decade of Financial Crises Changed the World (2018) is a hugely significant retrospective on the politics and economics of the past decade. Although written from a perspective sympathetic to the left, it centres on two areas--the daily operations of international finance, and the shifting configurations of global geopolitics--that still confuse and alienate socialist thinkers and movements. Crashed will already be familiar to many readers, and it has already attracted a huge range of reviews. Here, we gather three perspectives on the book's central arguments, and how they differ from other dominant analyses of our current moment.

The politics of 'macro-financial' economics

Sahil Jai Dutta

'The Economy' is the central object of politics. Indicators of its performance make headlines, promises of its renewal make social movements, and threats to its health are gravely feared. Governments may survive prolonged social crises, but crises of the economy are usually terminal.

'The Economy' is, of course, a modern entity: the product of technical innovations made by specialist statisticians and political economists working closely with state administrators in the nineteenth and twentieth centuries. Though traces of 'the national economy'--interrelated (samples of) transactions aggregated into a coherent whole--existed before, it wasn't until the interwar period that the modern concept of 'The Economy' was 'fixed' in place. Macroeconomics was the apparatus through which government economic policy was conceptualised and implemented. Peculiar proxies of social life became everyday numbers: 'balance of payments'; 'inflation'; and most of all 'economic growth'. (1)

This was an imaginary that turned state administrators into heroic CEOs responsible for national economic wellbeing. Private citizens and businesses could command their narrow interests, but it was only technocrats at the centre who were able see the whole picture. The necessity for--and, crucially, ability of--elite liberals 'to govern' from above owes deeply to this understanding of 'The Economy'. All of which makes Tooze's depiction of the financial crisis as, in part, 'a crisis of macroeconomics' so significant.

When the banking crisis hit, policy-makers and commentators found they had been led astray by a seemingly antiquated interest in trade balances, inflation, exchange rates and economic growth. Macroeconomics forewarned a crisis of 'global imbalances': the US's highly valued currency would eventually run up against its vast trade and government deficits. A dollar crash would follow and take the US and world economy down with it.

This is not what happened, partly because the US-led developments in banking and finance that had taken place throughout the post-war years had dramatically shifted the terrain upon which political economy played out. Where once banks accessed liquidity by raising deposits, now they relied on wholesale 'market-based banking'. The twin developments of liability management and securitisation unleashed a tidal wave of liquidity that swept away the Bretton Woods era of 'embedded liberalism'. Textbook macroeconomics could not speak as clearly to this new world.

Market-based banking demands that we turn common-sense assumptions about finance on their head. As Samuel Knafo has written, there is a long history of thinking about finance in terms of its functional role in economic growth and capitalist accumulation. (2) Finance is supposed to be the passive intermediary, transferring savings to investment and managing risk in the service of the macroeconomy.

But this theoretical ideal could not endure in the face of the substantive practice of real-world financial actors. The credit created by private banks could be financed in the absence of the 'loanable funds' provided by depositors, and the financial sector grew to a size that bore little meaningful relation to underlying 'fundamentals'. As Tooze puts it, 'credit is not a fixed sum constrained by the "fundamentals" of the "real economy". It is an elastic quantity, which in an asset price boom can easily become self-expanding on a transnational scale.' In these conditions fluctuations in liquidity are a defining force in social life.

Despite all of this, the pull to 'real economy' explanations remained strong. And this is part of what makes Crashed an important intervention. While so many accounts of the financial crisis focused on the loans banks made to consumers--hence the 'subprime' moniker--Tooze examined how banks financed these loans. It is bank liabilities, not their assets, that Crashed brings to the fore.

In centring this story, Crashed drew less from academic macroeconomists, and more from the heterodox field of 'macro-finance'. This stems from a lineage of practitioner monetary economists, notably at the Bank of International Settlements, and from dissident political economy departments.

The difference from macroeconomics, Tooze says, is the 'need to analyse the global economy not in terms of an "island model" of international economic interaction --national economy to national economy--but through the "interlocking matrix" of corporate balance sheets--bank to bank'. (3)

This stems from a fundamentally different reading of money from that found in textbook macroeconomics. Money is not neutral. It does not grease the wheels of real-economy exchange. It is instead generated by the credit system, a system of profit-driven financial behemoths where money is to be made by creating credit. In this system traditional public institutions--be it central banks or national treasuries --can guide credit creation and allocation only indirectly.

By narrating stories of 'The Economy' in the language of macro-finance, Crashed identifies the actors and practices that are often occluded by broader structural critiques of 'financial markets'. Drawing on the research of regulators, for example, Tooze notes how we can name the twenty-nine financial houses at the centre of systemic stability. At a time when globalisation and digitisation can make finance feel like an abstract, almost metaphysical force, reminders of concrete actors and institutions are important.

There are infinite stories to tell about the crisis. Matthew Desmond's Evicted (2016) focused on foreclosures in post-crisis America to narrate one of the most devastating working-class perspectives on the crisis. (4) In laying bare the 'plumbing' of global wholesale finance, Tooze's story is obviously different: a necessarily unabashed elite history.

It is a story of the elite governors of liberal capitalist democracy flailing for control as the world they thought they commanded spiralled to disaster. This narrow social perspective allows for a detailed examination of the politics of contemporary capitalism. There can be a tendency to privilege the 'public realm' as the space of political contestation. As Tooze's fellow historian David Edgerton has written, this is a liberal political economic ideal. (5) In the brute empirical materiality of financial capitalism, much of the public realm is invisible, and, frankly, irrelevant. The public were not on the side of the banks during the crisis and are not on their side today. It is just that we lacked the levers to force change.

That sense of disempowerment has led many to turn to national governments as a solution. This 'state versus market' analysis argues that financial markets constrain the political economic options democratic governments can take. Without domestic pools of capital, governments and home companies are reliant on winning the approval of international creditors. The concern is that while global capital flows freely, these markets will punish a progressive government policy mix.

The political programmes that follow from this analysis are about establishing a political constituency to back a programme for capital controls and a 'Developmental Statist' dash for growth. Tooze has explicitly positioned himself against this 'statist' turn. In telling a macro-financial story the analysis--if not the book itself--may open alternative options.

The reality of deeply interlinked global financial markets can't be wished away. Constructing an internationalist, or at least European, demos might be Tooze's utopian ideal, but until then the current governing infrastructure is still capable of asserting itself. One of the key claims Tooze makes is that globalised finance has been a crisis for the left, but not strictly a crisis of democracy.

It is not that global financial...