Foundations of Marxist Financial Geography

Authored by: Patrick Bond

The Routledge Handbook of Financial Geography

Print publication date:  December  2020
Online publication date:  December  2020

Print ISBN: 9780815369738
eBook ISBN: 9781351119061
Adobe ISBN:

10.4324/9781351119061-4

 

Abstract

Since David Harvey’s Limits to Capital set out the first clear understandings of financial geography within Marxism in 1982, there have been rich explorations of Das Kapital’s spatial perspectives, several of which have been centered on the contradictory role of money within capitalist crisis. Nevertheless, major controversies remain because, when interpreting the spatial, power, and speculative dynamics of capitalism, the financial circuit has often confounded Marxist scholars and geographers alike. 1

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Foundations of Marxist Financial Geography

Introduction

Since David Harvey’s Limits to Capital set out the first clear understandings of financial geography within Marxism in 1982, there have been rich explorations of Das Kapital’s spatial perspectives, several of which have been centered on the contradictory role of money within capitalist crisis. Nevertheless, major controversies remain because, when interpreting the spatial, power, and speculative dynamics of capitalism, the financial circuit has often confounded Marxist scholars and geographers alike. 1

After fast-reviving US banking power was flagged during the late 1960s, a vast literature soon emerged. 2 From the early 1980s, Harry Magdoff and Paul Sweezy (1987) regularly alerted scholarly and popular critics to the ‘financial explosion’ gathering pace in the wake of the ‘Volcker Shock’. That was U.S. Federal Reserve chair Paul Volcker’s 1979 decision to raise interest rates dramatically, imposing a severe recession to fight inflation and restore the dollar’s strength, thereby shifting unprecedented amounts of capital from productive investment into the financial markets. By 1993, ‘a long-term shift from production to finance within the overall economy’ was unmistakable, according to Monthly Review (2019) editors, and the term ‘financialization’ was coined by ‘conservative political-analyst-turned-critic (and former advisor to Richard Nixon) Kevin Phillips, and was adopted not long after by left theorists’. After the turn of the twenty-first century—especially when a 2008–09 world economic meltdown was catalyzed by banks’ abuse of real estate credit—the question emerged again: Was it capitalist—and not just financial-deregulatory—crisis tendencies that required critique? With the short-lived Occupy movement three years later, radical critics identified not only a regulatory reform agenda (such as the U.S. Dodd-Frank legislation), but also proposals for mass debt repudiation, inspired by leading anarchist strategist David Graeber (2012).

Indeed, depending on whether the banks’ power or vulnerability is stressed by scholars and movement strategists, a profound divide between reformist and transformative perspectives exists within the financialization literature. This alone merits a return to the somewhat wobbly foundations of Marxist financial geography. After all, Marxists interested in money and credit were initially frustrated by Das Kapital’s third volume (completed by Friedrich Engels in 1894 from loose notes) as part of a general demolition of the mode of production’s laws of motion, including the tendency to crisis (Bond, 2018). But, soon thereafter, an excessively institutionalist, reformist grounding of Marxist finance was provided by Rudolf Hilferding (1981), whose 1910 book Finanz Kapital stressed the power and economic control functions of finance (Bond, 2020).

In reality, numerous instances of far-reaching capitalist crisis before and after Hilferding’s major work revealed how systemic fragility was a central problem for financial markets. Amelioration of credit and speculative bubbles certainly was possible, but financial crisis contagion prevailed at key moments—such as in the 1870s–80s, 1929–33, 1979–81, 1989–91, 1995–98 in the middle-income countries; 2001–02 in the dot.com sector; and 2008–09, 2009–13 in Europe and the early 2020s. Hence, the ideas of another original writer in the German political economy tradition, Henryk Grossman, are worthy of consideration in any search for Marxian geographical foundations. Six months before the world’s worst banking and stock market collapse, in October 1929, Grossman (1992) published a provocative book about capitalist ‘breakdown’: Das Akkumulations- und Zusammenbruchsgesetz des Kapitalistischen Systems: ZugIeich eine Krisentheorie (Kuhn, 2007).

But neither Hilferding nor Grossman provided the spatial elements needed to fill out a theory of geographical political economy, as was attempted by Harvey (1982). There, the critical question posed—and extended in this chapter—is how capitalist crisis tendencies are displaced through time and through space, using financial markets; and later, Harvey (2003) added the ‘accumulation by dispossession’ process, which includes usury, foreclosures, and repossessions, and other financial depravities. In the process, uneven geographical development is amplified, reflecting the ways the contradiction-prone characteristics of finance feed back into the rest of the economy, society, environment, and geopolitical terrain. This is a very different way to frame the underlying tendencies within financial geography than typically occurs within the discipline and, as a result, a more robust anti-capitalist politics with internationalist features can be envisaged, in contrast to a largely regulatory reform agenda.

Xiaoyang Wang (2017: 13) remarks: ‘Economic geographers have often ignored the spatialities of finance. Rare studies on financial geography published in the 1970s and 1980s hardly added up to a substantial or coherent body of theoretical or empirical research.’ When, in the 1990s, the field of financial geography began to develop, attention turned mainly to ‘financialization, promoted by a series of books and papers by economists and geographers’, in which the latter ‘argued that location and place remain of crucial importance’ (Wang, 2017: 13). For example, within ‘a quicksilver global economy’ of the twenty-first century, the major financial centers were, Wang (2017: 14) notes, ‘increasingly fulfilling gateway functions for spatial circuits of national and foreign capitals’ thanks to ‘a particular set of locational determinants, and local characteristics and localized information’ that ‘jointly define the advantages of a given location as a financial center’.

In this body of work, the task for financial–geographical research appears mainly to explore spatial and locational features of financial systems as they evolve (sometimes offering constructive reform suggestions where irrationalities are obvious), rather than to probe deeper-rooted contradictions and especially tendencies to crisis (not to mention suggesting much more revolutionary solutions). 3 This leads, Ewa Karwowski and Marcos Centurion-Vicencio (2018: 4) confirm, to a quasi-positivist agenda: ‘Three research strands can be distinguished within the financialization literature: (1) approaches addressing shifts in accumulation regimes, (2) approaches based on shareholder value and (3) approaches focusing on the financialization of everyday life.’

In contrast, Marxist economists Stavros Mavroudeas and Demophanes Papadatos (2018: 451) argue that ‘the financialization hypothesis is a theoretical blind alley’ because ‘[t]he spectacular ballooning of the financial system during the recent decades of weak profitability and accumulation does not constitute a new epoch, let alone a new capitalism. Instead, it represents a familiar capitalist response to periods of weak profitability.’ The same point was made by Monthly Review (2019) editors, in worrying that the term financialization ‘is reduced to a cyclical process based on shifts in regulation and nonregulation, downplaying the underlying trends and the stagnation-financialization trap. What distinguishes Marxian theory in that regard, in contrast, is precisely the analysis of the relation of financialization to the stagnation of investment/accumulation.’ For Mavroudeas and Papadatos (2018: 451), ‘The Marxist theory of crisis and fictitious capital offers an analytically and empirically superior understanding of this process.’ Moreover, adds Michael Roberts (2019), use of the term financialization ‘leads to the abandonment of the labor theory of value, an erroneous understanding of modern capitalism’s modus operandi and, I think, eventually to reformist politics.

To consider how such conflicts persist in relation to the geography of financialization and whether Marxian theory sheds light on their spatial character, this chapter considers, first, how money and credit play diverse, changing roles within capital accumulation. We then investigate how the ‘overaccumulation of capital’ emerges as a core crisis tendency within the economy’s productive sector, leading to falling rates of profits and then a shift of capital to speculative activities, as well as to new geographical outlets ranging from local to global. Uneven geographical development is logically amplified within the shifting circuits of capital, as finance roams through space and across scale in search of restored profitability, all the while exacerbating the problem with capital flows that Neil Smith (1990) termed a ‘plague of locusts’ —a metaphor capturing the profit system’s essential geographical characteristic. The chapter concludes by giving a reminder that the nature and success of financial-system reform depends both on the degree to which the underlying dynamics have been properly analysed, and the political narratives of resistance that correspond to the theoretical challenge of accurate diagnosis.

The Roles of Finance in Capitalism: Accommodation, Control, Speculation

By way of definition, first, ‘finance’ is a term considered to encompass external sources of funding beyond the normal revenue streams that generally consist of company profits, state tax receipts, the wages and salaries of households, and the revenues of other institutions. It thus includes myriad forms of debt, as well as corporate equity (shares) issued on stock markets. Financial capital refers to the totality of financial institutions and instruments that advance money (and credit and other financial paper) for the purpose of gaining a return (interest, dividends, increases in share value, and so on). But, like capital itself, financial capital is not a mere thing per se, but encompasses social processes as well. Also, by way of definition, ‘finance capital’ in Hilferding’s formulation was the merger of several branches of capital—financial, industrial, and commercial—under the guiding hand of the banks. And ‘fictitious capital’ is a way of referring to paper representations of capital such as records of equity ownership, securities, real estate titles, and the like.

It is important to clarify core economic processes. Under capitalism, money plays three well-known roles: it is (i) a medium of exchange and payment, (ii) a measure of value, and (iii) a store of wealth. Consider money as medium exchange. Marx termed credit ‘interest-bearing money capital’ and showed how it lubricates capitalist production and commerce in three ways. First, the smooth operation of markets depends on firms moving resources to where profits can be found, which has the effect of equalizing the rate of profit between firms. A well-functioning financial system is critical, both because credit is an extremely fluid means of allocating capital to where it is most highly rewarded, and because new investments (which add to competition and, hence, profit equalization) normally occur through borrowing.

Second, also lubricating exchange, the credit system allows more efficient forms of money (such as bills of exchange) to replace physical money handling. Hence, as Marx (1967: 436) put it, ‘credit accelerates the velocity of the metamorphosis of commodities, and with this the velocity of monetary circulation’. In the process, the turnover time of capital is shortened and profits are realized more rapidly. In the Grundrisse, Marx (1973: 359) argues that ‘the necessary tendency of capital is therefore circulation without circulation time, and this tendency is the fundamental determinant of credit and of capital’s credit contrivances’.

Third, credit also allows for greater centralization of capital. This is a precondition for large firms to become publicly traded on the stock market and, hence, to raise further investment funds easily. Moreover, with credit, the individual capitalist acquires ‘disposal over social capital, rather than his own, that gives him command over social labor. The actual capital that someone possesses, or is taken to possess by public opinion, now becomes simply the basis for a superstructure of credit’ (Marx, 1967).

These three accommodating characteristics of finance—providing lubrication to the payments system, speeding the velocity of capitalist production and centralization, and centralizing funds for investment or hiring large numbers of workers—are not the only characteristics to consider. With the movement of capital into more concentrated and centralized form over time, there also emerge controlling characteristics of finance. Then, there also arises another characteristic of finance: speculation. This function increases in importance as capitalist crises appear and intensify, once investment funds are drawn into financial assets that lose their grounding in the productive assets they are meant to represent (as securities, shares of stock, real estate titles, and the like). Securitization, derivatives, cryptocurrencies, and other exotic products are examples of financial innovations to this end. In short, the shifting emphasis on different characteristics and roles of financial capital reflect how a maturing economy evolves from using money merely to accommodate the real sector, to a controlling function when finance works to centralize capital, to a state in which greater profits are made within financial speculation than in production.

Hyman Minsky (1977) described the inevitable devolution of credit quality, from the ‘hedge’ stage (where repayment of a loan from future revenues is assured), to the ‘speculative’ stage (whereby repayment is a gamble, and principal must often be repaid from sale of assets), to a ‘Ponzi scheme’ (whereby new loans are advanced simply so the borrower can pay interest on old). Harvey (2003: 75–6) worried that the latter stage is now a general condition, as part of a renewed ‘accumulation by dispossession’ accompanying capitalist crisis:

The credit system and finance capital have, as Lenin, Hilferding and Luxemburg all remarked, been major levers of predation, fraud and thievery. Stock promotions, Ponzi schemes, structured asset destruction through inflation, asset stripping through mergers and acquisitions, the promotion of levels of debt encumbrancy that reduce whole populations, even in the advanced capitalist countries, to debt peonage, to say nothing of corporate fraud, dispossession of assets (the raiding of pension funds and their decimation by stock and corporate collapses) by credit and stock manipulations—all of these are central features of what contemporary capitalism is about.

The effect, in sum, is that as money and credit emerged from their most basic roles in the hoarding of wealth and early commerce to develop more fully as financial capital (i.e., money extended for the purpose of making more money), they also evolved from lubricating early capitalist relations to exhibiting controlling and speculative characteristics. But, as we consider next, the ultimate determinant over which of these characteristics emerges and dominates at any given point in time and space is the capital accumulation process, which gives meaning to the discrete acts of production, commerce, and value realization that money and credit were ostensibly developed under capitalism primarily to serve (not undermine).

Capital Accumulation, the Tendency towards Overaccumulation and the Rise of Finance

Capital accumulation refers to the generation of wealth in the form of ‘capital’. It is capital because it is employed by capitalists not to produce with specific social uses in mind but, instead, to produce commodities for the purpose of exchange, for profit, and, hence, for the self-expansion of capital. Such an emphasis by individual capitalists on continually expanding the ‘exchange-value’ of output, with secondary concern for the social and physical limits of expansion (size of the market, environmental, political and labor problems, etc.), gives rise to profound contradictions. These are built into the very laws of motion of the system.

The most serious of capitalist self-contradictions, the most thoroughly embedded within the capital accumulation process, is the general tendency towards an increased capital–labor ratio in production—more machines in relation to workers—which is fueled by the combination of technological change and inter-capitalist competition, and is made possible by the concentration and centralization of capital. Individual capitalists cannot afford to fall behind the industry norm, technologically, without risking their price or quality competitiveness such that their products are not sold. This situation creates a continual drive in capitalist firms towards the introduction of state-of-the-art production processes, especially labor-saving machinery.

With intensified automation, the rate of profit tends to fall. Profit correlates to ‘surplus value’ that is generated through the exploitation of labor in production. Labor is paid only a proportion of the value produced, with a surplus going to capital. Since capitalists cannot ‘cheat in exchange’—buy other inputs, especially machines that make other machines, from each other at a cost less than their value—the increases in value that are the prerequisite for production and exchange of commodities must emanate from workers. This means, in class terms, that capitalists do not and cannot systematically exploit other capitalists, but they can systematically exploit workers. This is the source of the central contradiction: with automation (which Marx conceived as ‘congealed labor’ reflecting past eras of exploitation), the living labor input from which surplus value is drawn becomes an ever-smaller component of the total inputs into production. And, as the labor content diminishes, so too do the opportunities for exploitation, for surplus value extraction, and, ultimately, for profits.

This situation exacerbates what becomes a self-perpetuating vicious spiral. Inter-capitalist competition intensifies within increasingly tight markets, as fewer workers can buy the results of their increased production. In turn, this results in a still greater need for individual capitalists to cut costs. A given firm’s excess profits are but only temporarily achieved through the productivity gains that automation typically provides, since every capitalist in a particular industry or branch of production is compelled to adopt state-of-the-art technologies just to maintain competitiveness. This leads to growth in productive capacity far beyond an expansion in what consumer markets can bear.

Countervailing tendencies to this process emerge, such as an increased turnover of capital, automation so as to raise productivity, and the speeding up of work, as well as expansion of the credit system to enhance demand. But these rarely overwhelm the underlying dynamic for long. The inexorable consequence, a continuously worsening problem under capitalism, is termed the overaccumulation of capital. Overaccumulation refers to a situation in which excessive investment has occurred and, hence, goods cannot be brought to market profitably, leaving capital to pile up in sectoral bottlenecks or speculative outlets without being put back into new productive investment. Other symptoms include unused plant and equipment, huge gluts of unsold commodities, an unusually large number of unemployed workers, and the inordinate rise of financial markets. When an economy reaches a decisive stage of overaccumulation, then it becomes difficult to bring together all these resources in a profitable way to meet social needs.

There are many ways to move an overaccumulation crisis around through time and space, but the only real ‘solution’ to overaccumulation—the only response to the crisis capable of reestablishing the conditions for a new round of accumulation—is widespread devaluation. Devaluation entails the scrapping of the economic deadwood, which takes forms as diverse as depressions, banking crashes, inflation, plant shutdowns, and, as Schumpeter called it, the sometimes ‘creative destruction’ of physical and human capital (though sometimes the uncreative solution of war). The process of devaluation happens continuously, as outmoded machines and superfluous workers are made redundant, as waste (including state expenditure on armaments) becomes an acceptable form of mopping up overaccumulation, and as inflation eats away at buying power. This continual, incremental devaluation does not, however, mean capitalism has learned to ‘equilibrate’, thus avoiding more serious, system-threatening crises. Devaluation of a more cathartic nature—the Great Depression and World War II were the most spectacular examples—is periodically required to destroy sufficient economic deadwood so as to permit a new process of accumulation to begin.

When overaccumulation becomes widespread, extreme forms of devaluation are invariably resisted (or deflected) by whatever local, regional, national, or international alliances exist or are formed in specific areas under pressure. This was observed by Tony Smith (2006: 141):

When overaccumulation crises break out, those who control capital mobilize their vast economic, political, and ideological weapons in the attempt to shift as many of the costs of the downturn as possible onto wage-laborers, through increased unemployment, lower wages, and worsened work conditions. Each unit of capital, each network of capitals, and governments of each region, will attempt to shift the costs of devaluing excess fixed capital onto other units, networks, and regions.

Hence, overaccumulation has very important geographical and geopolitical implications in the uneven development of capitalism, as attempts are made to transfer the costs and burden of devaluation to different regions and nations, or to push overaccumulated capital into the buildings (especially commercial real estate), infrastructure, and other features of the built environment as a last-ditch speculative venture. Moreover, the implications of overaccumulation for balance in different sectors of the economy—between branches of production (mining, agriculture, manufacturing, finance, etc.), between consumers and producers, and between capital goods (the means of production) and consumer goods (whether luxuries or necessities)—can become ominous. Indeed, because the rhythm of overaccumulation varies across the economy, severe imbalances between the different sectors and ‘departments’ of production (sometimes termed ‘disproportionalities’ or ‘disarticulations’) emerge and introduce threatening bottlenecks in the production and realization of value, which further exacerbate the crisis. This ‘uneven sectoral development’ is most acute between finance and other circuits of capital.

These processes enhance the control and speculative functions of finance. As overaccumulation begins to set in, as structural bottlenecks emerge, and as profit rates fall in the productive sectors of an economy, capitalists begin to shift their investable funds out of reinvestment in plant, equipment, and labor power, and, instead, seek refuge in financial assets. To fulfil their new role as not only a store of value, but as an investment outlet for overaccumulated capital, those financial assets must be increasingly capable of generating their own self-expansion, and also be protected (at least temporarily) against devaluation in the form of both financial crashes and inflation. Such emerging needs mean that financiers, who are competing against other profit-seeking capitalists for resources, induce a shift in the function of finance away from merely accommodating the circulation of capital through production.

Increasingly, finance takes on both speculative and control functions. The speculative function attracts further flows of productive capital, and the control function expands to ensure the protection and the reproduction of financial markets. For example, where consumer price inflation may be a threat, the control functions of finance often result in high real interest rates and a reduction in the value of labor-power (and, hence, lower effective demand). Where bankruptcies threaten to spread as a result of overenthusiastic speculation, the control functions of finance attempt to shift those costs elsewhere, especially in terms of using geography to displace the overaccumulation crisis, in what Marx termed the ‘annihilation of space by time’.

From Evidence to Retheorization of Overaccumulation and Rising Finance

Capitalist crises reflecting overaccumulation tendencies occurred during the periods 1825–45, 1872–92, 1929–48, and in the era that began around 1973 (Kondratieff, 1979; Mandel, 1980). These ‘long waves’ can be measured in various ways but, from a Marxist perspective, the crucial variables include capital intensity (‘the organic composition of capital’), surplus value rates, the velocity of circulation of capital, the geographical expansion of capitalist relations, capacity utilization, and inventory build-up. Within the long wave of accumulation, at a subnational scale, there are even more obvious ‘Kuznets cycles’ of durations ranging from15 years to three decades (Kuznets, 1930). These are witnessed in labor migration patterns and investment in buildings, infrastructure, and other facets of the built environment (Thomas, 1972). Harvey used empirical evidence of Kuznets cycles to reflect on the Marxist theory of overaccumulation, followed by devaluation (Harvey, 1989: 77).

The rise and fall of finance inevitably occur during the course of accumulation cycles, especially at the global level. To illustrate with international financial flows, during four particular periods—the late 1820s, the 1870s, the 1930s, and the 1980s—at least one-third of all national states fell into default on their external debt, following an unsustainable upswing of borrowing at a time of declining foreign-sourced productive sector investment. Another such debt crisis episode appears imminent, as even the World Bank and International Monetary Fund have remarked on how the 2008–09 global economic meltdown failed to clear away debt and financial bubbling, but simply added more, deflecting the crisis until a later date using bank bailouts, extremely low interest rates, and quantitative easing (which, together, inflated the price of financial assets). In their World Bank publication Global Waves of Debt, Ayhan Kose et al. (2020: 41–2) remark on the particular problem of emerging markets and developing economies (EMDEs):

Debt sustainability has deteriorated since the global financial crisis both in advanced economies and in EMDEs…EMDE borrowing costs have tended to rise sharply during episodes of financial stress, and higher debt servicing costs can cause debt dynamics to deteriorate and rollover risk to rise. A recent example is Argentina, where five-year U.S. dollar-denominated sovereign bond yields more than doubled during 2018, to over 11 percent by early September. Indeed, every decade since the 1970s has witnessed debt crises in EMDEs, often combined with banking or currency crises.

Christian Suter (1992) explained the ‘global debt cycle’ by way of stages in the long wave, beginning with technological innovation and utilizing international product cycle theory. At the upswing of a Kondratieff cycle, as basic technological innovations are introduced in a labor-intensive and unstandardized manner, both the demand for and supply of external financing are typically low; in any case, the residue of financial crisis in the previous long cycle does not permit rapid expansion of credit or other financial assets into high-risk investments. As innovations are spatially diffused, however, peripheral geographical areas become more tightly integrated into the world economy, supported by international financial networks. Moreover, as the power of innovation led growth subsides, and as the consumer markets of the advanced capitalist countries become saturated, profit rates decline in the core.

In turn, this process pulls and pushes waves of financial capital into peripheral areas where, instead of achieving balanced accumulation and growth, low returns on investment plus a variety of other political and economic constraints inexorably lead to sovereign default. In sum, at the global scale there is a three-stage process characterized by, as Suter (1992: 41) puts it, ‘first, intense core capital exports and corresponding booms in credit raising activity of peripheries; second, the occurrence of debt service incapacity among peripheral countries; and third, the negotiation of debt settlement agreements between debtors and creditors’.

Evidence is compelling at one level: the international scale. But, in transcending the world systems approach, a foundational Marxist theory of financial geography would seek to accomplish at least five other tasks on other terrains, as well:

  • More closely integrate trends in the productive circuits of capital with the dynamics of finance;
  • Incorporate evidence of financialization at global, national, regional, local, and household scales;
  • Encompass the speculative and control features of finance as integral—albeit often rapidly-shifting—features across scales and spaces;
  • Explain other forms of financial ascendance that occur during periods of crisis, including financial product innovation, volatile and unevenly-applied interest rates, explosions in speculative stock market and real estate prices followed by their inevitable devalorization, untenable consumer (and currently student) debts, the interplay of corporate and government exposure to credit markets (especially when bailouts occur due to systemic fragility), and a qualitative increase or decrease in the political clout of financiers; and
  • Interrogate the uneven successes of social protest and state-regulatory resistance to financial power.
However, one debilitating factor that partially explains the lack of synthetic study of financial geography from a Marxian perspective is that, for nearly a century following Hilferding’s defining work, most inquiries into money and credit were sidetracked by the presumption that finance capital continually concentrates, centralizes, and collects socio-political power, without facing debilitating contradictions (Bond, 2020). The roots of this mismeasurement in Hilferding (1981: 368) are illustrated in his claim that ‘taking possession of six large Berlin banks would mean taking possession of the most important spheres of large scale industry, and would greatly facilitate the initial phases of socialist policy during the transition period, when capitalist accounting might still prove useful’.

Grossman (1992: 200) rebutted this in 1929: ‘The historical tendency of capital is not the creation of a central bank which dominates the whole economy through a general cartel, but industrial concentration and growing accumulation of capital leading to the final breakdown due to overaccumulation.’ These two differing perspectives on finance—one highlighting power, the other vulnerability—allow a dialectical perspective in which, from opposite stances, there emerges a new synthesis, itself ripe with contradictions. It is here that the spatial processes of uneven development become critical subjects of study.

Space, Time and the Displacement of Overaccumulation

What is required to transcend this divide is an investigation into the limits of finance capital power, and the displacement of capitalist crisis (across space and time). Together, these are vital components in explaining the financial system’s failure to achieve a harmonious relationship by lubricating accumulation. Harvey (1982: 285) assists us by more clearly specifying ‘the contradiction between the financial system and its monetary basis’, in part because of a set of countervailing tendencies to capitalist crisis hitherto unexplored within the Marxist tradition: ‘Absorption of capital (and labor) surpluses through temporal and geographic displacement played key roles in the history of crisis resolution.’ For Harvey, credit serves a temporal displacement function—a so-called ‘temporal fix’ to overaccumulation—since finance not only accelerates the turnover time of capital, as Marx observed, but also sends surplus capital into ‘the production of goods that have long term future uses in production or consumption’. This helps to displace crisis in the short term, but exacerbates the overaccumulation problem down the road.

There is also a ‘spatial fix’ to overaccumulation. In serving a geographical displacement function (such as through foreign lending), finance sends surplus money elsewhere, according to Harvey (1982: 434): ‘The implication is that overaccumulation at home can be relieved only if surplus money capital (or its equivalent in commodities) is sent abroad to create fresh productive forces in new regions on a continuously accelerating basis.’ This amounts to a short-term solution to overaccumulation that comes back to haunt the lending country when, in order to pay off the debt, the borrower must cut imports from, and increase exports to, the lender. The same principle works at other geographical scales. In sum, the tensions and contradictions in value production and realization can only be resolved, says Harvey (1982: xvi), ‘at the price of internalizing the contradictions within itself. Massive concentration of financial power, accompanied by the machinations of finance capital, can as easily destabilize as stabilize capitalism.’ Harvey (1982: 283) thus highlights the constraints on the power of finance imposed by the full logic of the accumulation process, and ‘finance capital’ is therefore seen, far more usefully, in terms of ‘the countervailing forces that simultaneously create and undermine the formation of coherent power blocs within the bourgeoisie’.

The main geographical concept that arises from this theoretical explanation, then, is the financial system’s amplification of uneven development. There are three aspects: first, underlying dynamics of sectoral unevenness between and within the spheres of production, reproduction, and finance; followed, second, by uneven geographical development; and, third, by some considerations on the problem of scale in the relations between finance and uneven development.

The Uneven Development of Sectors

The issue, simply, is whether the power of finance is asserted through an intensification of processes of uneven development, as opposed to diminishing (or leveling) such processes (in part through the imposition of universalizing standards). Although Marx also used phrases such as ‘great leveller and cynic’ to describe money, the Marxist approach accepts this thesis only up to a point. Marx (1967) commented on uneven development as a necessary process under capitalism:

In the same relations in which wealth is produced, poverty is produced also; that in the same relations in which there is a development of the forces of production, there is also the development of a repressive force; that these relations produce bourgeois wealth, i.e. the wealth of the bourgeois class, only by continually annihilating the wealth of the individual members of this class and by producing an ever growing proletariat.

This ‘absolute general law of capitalist accumulation’ is a useful grounding for a theory of uneven development associated with financial systems. Whereas Neil Smith (1990), in his seminal study of Uneven Development, roots the equalization and differentiation of capital (the fundamental motions of uneven development) in the emergence of a division of labor, Ernest Mandel (1968: 210) searched even further back, to ‘private production’ among different producers within the same community. He insisted that ‘differences of aptitude between individuals, the differences of fertility between animals or soils, innumerable accidents of human life or the cycle of nature’ (Mandel, 1968: 210) were responsible for uneven development in production.

As a result, societies faced a choice: either engage in mutual aid (usually feasible in a society based on cooperation) to ensure the subsistence of an entire community, or save and lend money to those who need it (eventually gaining some rate of interest). The latter route led to the historical development of money and credit, which, in turn, paved the way for fully fledged commerce and, ultimately, for capitalist relations of production and distribution. In this abstract version of the capitalist development process, finance as an accommodating feature of early stages of economic growth had the effect of ameliorating uneven development, particularly in equalizing the rate of profit across firms and sectors.

This could also, presumably, be the case in the sphere of social reproduction, where the development of consumer and government credit markets offered finance the means to level certain reproductive relations. This phenomenon has been most important, of course, in advanced capitalist societies. When an overaccumulation crisis is absent as a factor, then the inherent unevenness of the reproductive sphere—‘disarticulated’ development, as Alain de Janvry (1982) called the differential production and consumption of durable goods along class lines—tends to be diminished by the role of credit in establishing what Michel Aglietta (1979: 232) termed a ‘consumption norm’. This sort of finance also serves to level the unevenness of productive–reproductive processes because it ‘absorbs the divergence between the rhythm at which income is received and the rhythm at which it is spent, given the lumpiness of durable goods’, according to Aglietta (1979: 232).

At the same time, the steady evolution of consumer savings and non-corporate contractual savings (pension and insurance funds), much of which is used to fund production, led finance ‘irrevocably into direct participation in determining the general strategy of accumulation’ (Aglietta 1979: 143). Astronomic growth in consumer credit—hire purchase, home mortgage bonds, car loans, credit for consumer durables, credit cards, and the like—after World War II reflected the mass consumption orientation of ‘Fordism’ and the ‘intensive regime of accumulation’. All this implies that, under relatively good economic conditions, unevenness in the reproductive sphere can be ameliorated by finance, but the cost of this is growing indebtedness that, in turn, leaves the sphere of reproduction increasingly subject to the power of finance. In these theoretical arguments, in sum, the basis of finance–production–reproduction relations is one of amelioration; credit levels natural differences.

Finance has the opposite effect on uneven development under other conditions, however. It is only when we look beyond accommodating features of finance, and look instead to the control and speculative functions, that we can clearly see the roles of finance (as both cause and effect) in the uneven development of capitalism. To some degree, uneven sectoral development is most directly a function of imbalances in production between capital goods and consumer goods, and here the role of finance is by no means ameliorative. Such problems have ‘all kinds of manifestations in shifting investment flows from productive to speculative outlets’, according to Aglietta (1979: 359). For example, the increased turnover of short-term stocks of capital goods during the boom phase leads to ever-shorter terms for credit. More generally, Aglietta argued: ‘Uneven development creates artificial differences in the apparent financial results of firms, which are realized only on credit. These differences favour speculative gains on the financial market.’

Aglietta (1979) documented how, in the United States, uneven sectoral development reached crisis proportions in the 1920s, leading to financial chaos during 1929–33 and the Great Depression. However, in considering the post-war era, Aglietta (1979: 378) invoked Hilferding in suggesting that finance can stabilize itself. The devaluation of money (inflation) and deflation of debt (write-downs in selected sectors) together permit a ‘threshold of resistance’ to crisis: ‘What is important to note here is that the entire structure of modern capitalism functions in such a way as to avoid this phase degenerating into financial panic.’ The overall message from Aglietta’s ‘Regulation School’ of political economy is that the development of a ‘mode of regulation’ to serve particular ‘regimes of accumulation’ makes finance and uneven development a much less explosive combination.

But, if the intrinsic unevenness within and between finance, production, and reproduction may be temporarily muted due to successful strategies of regulation, that does not mean that an overaccumulation crisis has been resolved; neither does it mean that we can dismiss theoretically derived tendencies towards sectoral unevenness that ultimately manifest themselves in financial crisis. As discussed above, the role of finance in accommodating production evolves into a much more contradictory function under conditions of overaccumulation crisis. It is here that finance accentuates other processes of uneven development in the productive circuit of capital. Consider, especially, the phenomenon of speculation. According to Harvey (1982: 326), financial speculation has the effect, at times, of restructuring productive capital, since it:

allows individualized and private experimentation with new products, new technologies (including organizational forms), new physical and social infrastructures, even whole new cultures, class configurations, and forms of class organization and struggle. It is this aspect to speculation that Marx ignores. The crash rationalizes and restructures production so as to eliminate extraneous elements—both old and new alike. It also disciplines all other aspects of social life to capitalist class requirements and hence typically sparks some kind of organized or unorganized response, not only on the part of labor (which goes without saying) but also from various affected factions within the bourgeoisie.

Consider, also, the damage to the productive sector wrought by speculation, unmitigated by any meaningful role in restructuring production to support renewed accumulation. Indeed, much of the displacement of capitalist crisis into speculative outlets, today and historically, is not merely unsustainable as the basis for regenerating productive development, it is also plainly self-destructive. For capital, the challenge at this stage becomes undergirding unproductive financial assets with productive assets. This was vividly expressed by Thomas Johnson, a leading US banker, in considering the potential implications of the Third World debt crisis during the 1980s: ‘There is a possibility of a nightmarish domino effect, as every creditor ransacks the globe attempting to locate his collateral’ (Smith, 1990: 161). This is the point at which the dynamic of uneven development reaches the brink. Expressed here is the transition from finance as an accommodating agent in the development of the productive forces of capitalism, to finance as both a controlling power and a speculative vehicle gone awry.

The Uneven Development of Space

It is by considering the process of spatial development during financial ascendance, that we can link analyses of unevenness more generally, between and within advanced capitalist settings and poorer countries. Ironically, while spatial metaphors are often easy for visionary bankers such as Thomas Johnson under conditions combining overaccumulation crisis and financial power, until Harvey, geographers wrote very little about finance in economic development. This was a serious oversight for, as Harvey (1989: 176) put it: ‘Money creates an enormous capacity to concentrate social power in space, for unlike other use values it can be accumulated at a particular place without restraint. And these immense concentrations of social power can be put to work to realize massive but localized transformations of nature, the construction of built environments, and the like.’

Mainstream economic geography has treated finance as a service enterprise with specific locational and employment features that can be incorporated into pre-existing models of the space-economy. The location of financial institutions and the distribution of their physical lending and deposit-taking functions are considered effective barometers of economic vitality, or of other productive sector activities less easily traced. The limits of such an approach, though, is that it assumes, rather than questions, the underlying rationality of the spatiality of finance. In the context of speculative financial markets and the rise of financial power, this assumption is immediately suspect. Yet, the spatial structure of financial organization has all manner of contingent features that flow from institutional and historical accidents. As a result, it is crucial to distinguish between the necessary and the contingent institutional features of a financial system in geographical terms. The financial penetration of space has, it seems, enormous implications for the nature of territorial divisions of production and reproduction, as well as for the operation of financial power across different scales.

Smith (1990: 150) situates the origins of uneven development in ‘the constant necessary movement from fixed to circulating capital and back to fixed. At an even more basic level, it is the geographical manifestation of the equally constant and necessary movement from use-value to exchange-value and back to use-value.’ The movement from exchange-value to use-value and back, after all, depends on money as a medium of exchange and store of value. (Later, credit amplifies these roles.) As a consequence, the dynamism of uneven development relates at least to some degree to the exercise of financial power. The abstract notion of money as a means of verifying trade and commerce takes on added meaning in practice, particularly when considered in relation to the actual development of capitalism. For example, during the epoch of imperialism, entire currency blocs battled each other for trading dominance. This sort of totalizing process was one through which finance seemed to level local dynamics of uneven development, in the course of imposing similar conditions drawing closer the various components of the global space economy into a universal law of value.

In moments such as these, it may well appear that financial power overwhelms nations, regions, cities, and suburbs—or, at least, compels them to operate under a substantially similar global logic of credit-based expansion or contraction. Yet, while finance levels certain local processes, this by no means implies the transcendence of uneven spatial development. To the contrary, there is growing evidence that under particular conditions—an overaccumulation crisis, financial ascendance, and, in turn, financial crashes—the application of financial power exacerbates processes of uneven development.

This would appear to be the case particularly if frictional constraints to the movement of financial capital across space diminish over time. Such friction takes the form of technological–logistical, political–economic, or natural geographical barriers to the free flow of capital, commodities, or labor power. To the degree that these constraints are gradually removed, finance will ‘sharpen differences in the territorial division of labor because small advantages will be easier to capitalize upon’, Harvey (1992: 2) remarks. As overaccumulation sets in, as the power of money tends to increase, and as financial markets are consequently liberalized, there is then less scope for the ameliorative capacity of finance to level territorial differentials (as Mandel suggested was the historical basis for money). The reverse is also true, in that the existence of such friction—especially in impeding the geographical shift of funds to where they are most needed—constrains the power of money. In other words, as finance exacerbates uneven development, geography simultaneously sharpens the contradictions within finance.

The depth of historical evidence for such phenomena varies depending on the contingencies of different national financial institutions and systems. Simon Clarke (1988: 110) assessed historical processes in Britain that suggest the role of friction in financial crashes:

In the initial phase of development of the credit system accumulation was frequently disrupted at an early stage by the failure of local banks. Although this was often put down to unsound banking practices, it was primarily a result of the geographical unevenness of accumulation which led to imbalances in the inter-regional flows of commodities and of capital, which resulted in an inflow of money into some regions and an outflow from others. Banks in some regions accumulated ample reserves of the money commodity, while banks elsewhere found themselves under increasing pressure.

Indeed, the process seems to unfold in two directions, both extremely sensitive to issues of scale. On the one hand, geographically uneven development prevents locally oriented banks from adapting to spatial changes in the productive circuits of capital. The solution to this problem is to permit banks to ‘jump scale’, such that highly concentrated national banking systems have emerged to level out such differentiations of scale. On the other hand, though, the effect of overaccumulation on the rise and fall of financial power is most spectacular precisely because it is during these moments that geographical differentiation is most ambitiously generated. Space becomes a much more crucial ‘means of production’ (Smith, 1990: 85–7) when the circulation of capital in productive sectors is overshadowed by increasingly futile attempts to realize surplus value through commerce or financial speculation, regardless of where (and whether) it is being created.

It is at this point that speculation takes on crucial geographical characteristics, especially when land titles become the preferred form of fictitious capital, because planting the seeds of future accumulation is often impossible. As Harvey (1982: 349) acknowledges, ‘monopoly control guarantees that the problem of land speculation will acquire deep significance within the overall unstable dynamic of capitalism’. Speculation is both cause and effect in this respect. As Harvey (1982: 397) continues: ‘The whole system of relations upon which the production of spatial configurations in the build environment is based, tends to facilitate and, on occasion, to exacerbate the insane bouts of speculation to which the credit system is any case prone.’ Examples of the insanity of financial speculation abound, including the ‘reckless overbuilding of commercial space that has taken place since 1974, continuing frenetically even through the trough of the severe 1981–82 recession’, argues Mike Davis about the United States (1985: 112):

This hypertrophic expansion of the financial service sector is not a new, higher stage of capitalism—even in America speculators cannot go on endlessly building postmodernist skyscrapers for other speculators to buy—but a morbid symptom of the financial overaccumulation prolonged by the weakness of the US labor movement and productive capital’s fears of a general collapse.

Moreover, overaccumulation and financial speculation in the built environment together generate spatial bottlenecks, just as the productive sector suffers from uneven development and periodic bottlenecks in production and commerce. Harvey (1982: 398) suggests that, in generating ‘the chaotic ferment out of which new spatial configurations can grow’, speculative tendencies in the built environment ‘are as vital to the survival of capitalism as other forms of speculation’. However, ‘Too much speculation, to be sure, diverts capital away from real production and meets its fate of devaluation as a consequence.’ The trick, Harvey (1982: 398) posits, is to calculate ‘how much appropriation is appropriate. To that there is no clear answer and even if there were there is no guarantee that the forces at work under capitalism could ever achieve it.’

Hence, at the local level, primarily through zoning decisions, the state attempts to work out the equilibrium of land as use-value and as exchange-value. That is sometimes helped, more often hindered though, by central bank decisions regarding credit supply, and by national housing and housing finance programs that set out to achieve broad macroeconomic goals.

We have traced the contradictory route of speculation through space, and thus turn next to the control function of finance, where there are any number of spatial implications. Consider some examples of manipulative corporate decision-making of various types that have generated publicity in recent years: the provision of funds to corporations for overseas expansion (‘loan-pushing’, especially to dictatorial regimes), the forced termination of the pension funds of overindebted companies (to speed loan repayments), wage takebacks imposed under similar circumstances, or the closing of factories deemed necessary by the financiers who pull industrialists’ strings (Bond, 1990).

The urban, regional, and national—and, increasingly, global—implications of these financial control functions are legion. Indeed, the reach of financial power extends beyond the corporation and into other arenas of production and reproduction where space is actively constructed. Various examples epitomize uneven geographical development. During the 1980s, financiers began to use ‘debt-for-nature swaps’ to force overindebted nation states to drop their sovereignty over tracts of land now slated for environmental conservation (having for prior years encouraged the degradation of such lands in order merely to record higher returns on Third World loans) (Potter, 1988). By the 2000s, financiers at the World Bank, Deutsche Bank, and various New York and London financial institutions drove the ‘neoliberal nature’ process, especially with (generally unsuccessful) strategies for carbon trading and ‘Payment for Ecosystem Services’ (Bond, 2012). The geographical impact of such forms of ‘structural adjustment’ imposed by international financial power is vast. At a local scale, Harvey (1985: 88) argues that over time urbanism itself has ‘been transformed from an expression of the production needs of the industrialist to an expression of the controlled power of finance capital, backed by the power of the state, over the totality of the production process’.

Across a variety of scales, uneven development is generally accentuated during those periods when financial institutions increase their range of movement, the velocity and intensity of their operations, and, simultaneously, their power over debtors (whether companies, consumers, or governments). But specifying the control function of finance, within a multi-faceted relationship between financial power and uneven spatial development, is not uncontroversial. To illustrate, the legacy of the notion of ‘finance capital’ can be seen in the work of Edward Soja. ‘Finance capital’, in Soja’s periodized account, was initially ‘relatively unimportant’ in structuring urban space at the turn of the twentieth century (this was still the turf of productive capital). Later, with intensified concentration of capital and greater demands on the built environment for ‘expanded reproduction’, Soja (1989: 101) attributed to finance a primary role in the planning of cities. But there is no need to periodize in this manner to capture the underlying dynamic of financial circuits in uneven urban development. Finance-driven spatial changes (especially speculative land and investment booms) are typical outcomes of overaccumulation in the productive sectors. They do therefore supplant the circuit of industrial capital. And they occur according to a transhistorical rhythm that does not seem to respect as much as determine the evolving role of the city in the reproduction of the capitalist system.

Still invoking periodization, Soja (1989: 101) attributed to a post-Depression ‘coalition of capital and the state’ factors such as the ‘intensified residential segregation, social fragmentation and the occupational segmentation of the working class’. To the degree, however, that these factors did actually reflect an inner logic of urban capitalism (rather than being necessarily functional to the urban ‘consumption machine’, as Soja seemed to imply), this is surely not a logic constrained by the parameters of the institutional prerequisite that Soja identifies: the supposed planning power of ‘finance capital’. In short, Soja demonstrated a focus on institutional form, to the neglect of process.

The contemporary manifestations of this lesson are crucial for, just as in the earlier period, financial power arises in ways that overwhelm built environment investment that came before it. The dynamic here, however, is not primarily a new urban form that an omnipotent ‘finance capital’ has appended to the existing socio-spatial landscape (though it may have that appearance) but, in contrast, a profoundly vulnerable reaction to a sustained crisis of overaccumulation that plays itself out increasingly in the financial circuit of capital. As in the speculative booms of the nineteenth century or the 1920s, the contemporary situation cannot continue in this state of displaced tension indefinitely. The search for surplus value realization in space becomes ever more fruitless, as the restructuring of the space economy becomes, concomitantly, more frenetically finance-driven. The power of finance over the course of uneven development is, then, at its most self-contradictory, and the spatial and socio-economic landscapes left in the wake of the inevitable collapse of financial power bear clearest witness to the fallibilities of the system. Hence, the need is clear to investigate the spatial dimensions of the non-accommodating roles of finance: the speculation and the control functions.

There is yet another concern, however: how to demonstrate the applicability of levers of financial speculation and power at different scales. Given the omnipresent dynamic of development and underdevelopment across scale, and the need to trace its well-spring to the operation of the laws of motion of capitalism at various scales, these challenges are central to the task ahead.

The Uneven Development of Scale

The issue of scale, Smith (1990: 134) insists, provides a ‘crucial window on the uneven development of capital, because it is difficult to comprehend the real meaning of ‘dispersal,’ ‘decentralization,’ ‘spatial restructuring’ and so forth, without a clear understanding of geographical scale’. In this section, financial and monetary aspects of the integration of capitalist circuits at various scales are briefly considered, mainly with a view to establishing the theoretical basis for the power of international money in relation to economic processes determined at national and subnational levels. But even power established and exercised at the highest scales is subject to challenge and to decay, depending on whether that power is geared to the accommodating, control, or speculative functions of finance at particular moments.

Smith, relying on production-bound understandings of scale derived from the division of labor, apparently considers the uneven power of finance at different scales a contingent (and relatively unimportant) feature of capitalist development. For Smith (1990: 123), the key to uneven development was found in the changing basis of the centralization and dispersal of productive capital across international, national, and urban scales, with finance subordinate: ‘Certainly the spatial centralization of money capital can be considerably enhanced by the centralization of social capital as a whole, but in itself the spatial centralization of money capital is of little significance.’

Here, Smith referred to the accommodating function of finance. But in the 1970s, for instance, as overaccumulation became generalized and financial power was ascendant, it was precisely the spatial centralization of money capital from petroleum consumers to the New York bank accounts of Middle East rulers that represented the most proximate catalyst and facilitator for the flood of Petrodollars to the Third World, with all that implied for the restructuring of the international division of labor and dependency relations of peripheral regions. After all, in contemporary times, the main way in which spatially centralized financial power is experienced is through the determination of national-level policies by the international financial institutions based in Washington, DC.

Smith’s (1990) Uneven Development is vital for advancing the theory of the geographical expansion of trade and investment beyond the limits of Lenin’s Imperialism and other period works. But, in concluding that point-of-production relations are definitive in a contemporary understanding of the national state, he appeared to err. In contrast, Suzanne de Brunhoff (1978: 61) drew out the regulatory functions of both labor and money into the ambit of state policy:

Public management of labor-power contributes to the reproduction of its value, which is something required by capital, but not guaranteed by capital itself. As for the reproduction of money as a general equivalent, this calls for state management of central bank money as the national currency lying ‘between’ private bank money and international money. The circuit M-C-M’, which represents the valorization of money capital, M, in circulation, cannot reproduce itself without these non-capitalist supports.

Indeed, while the national state ultimately acts to implement the workings of the law of value, such ‘political’ functionality assumes vastly different forms under a system in which national accumulation is oriented to (domestic) production, as opposed to (international) finance. Somewhere intermediate between national and international determinations are super-regional currency blocs, such as that of the European Union. Just such variability—whether in the past (such as the reign of import-substitution industrialization from the 1930s to the 1960s), or, as Samir Amin (1990) advocated, through the future ‘delinking’ of the Third World from the most destructive global circuits of trade, investment, and finance (e.g., the successful AIDS medicines struggle of the early 2000s that allowed for local generic manufacturers to violate Northern firms’ intellectual property rights)—inspires the need for concrete investigations. The most obvious hypothesis is that while jumping scales to higher levels of determination occurs under conditions of ascendant financial power, the subsequent collapse of finance allows the issue of financial power to be broached, again, at lower levels.

It is useful, therefore, to revisit de Brunhoff’s (1978: 40–3) typology of money according to three different scales: deposits in local banks, national currency, and international money. The dominant role of money during a particular stage of the accumulation process (whether accommodating, controlling, and/or speculative) and in different institutional settings make a great deal of difference to the exercise of financial power at these various scales. At the lowest scale, the mobilization of deposits in local banks was central to early capitalist development. In contrast, in tightly concentrated national banking systems characterized by high levels of financial power, local differentiation of scale can be washed away. Moreover, under certain institutional circumstances that tend to exist at the national scale, and during times when the tendency to overaccumulation is muted (such as the period from the mid-1940s to the 1960s in most of the world), national state-level policies emerge whereby control over financial power is quite feasible (a situation often described as ‘financial repression’) (Burkett, 1987). Indeed, there are many historical examples of the repression of finance (and likewise financial power) by those states that are temporarily prejudiced by the dictates of national productive capital, or that are influenced, electorally, by populist sentiments.

From the standpoints of monetary policy and financial regulatory policy, the issue of scale returns again and again. All the levers that concretize the uses and limits of financial power can, at times, be subsumed by the power of the national state (however that may be constituted at different stages)—and yet, at other times, when applied by the IMF or World Bank from above (or from below, by financiers within the national state), they overwhelm state bureaucrats. Are these different power relations reflective of changing aspects of the necessary functions of money management in the reproduction of capitalism as an international system, or are they contingent? A sensitivity to scale is crucial to working out the modalities of financial power, as the geopolitics of international financial power demonstrate.

A starting position is that uneven hierarchies of scale are exacerbated during times of financial ascendance; at the same time, unevenness in sectoral and spatial patterns of development is being generated. While the national scale of capitalist development usually occupies financial economists to the neglect of the subnational, it is the international scale of financial power that, since the late 1970s, turns the heads and quickens the pulse of analysts and practitioners alike. Enormous evidence has accumulated since the turn of the millennium to support the vivid claim of Hillel Ticktin (1986: 37), that international financiers ‘have knowledge, global forms of action and speed on their side. Against them social democracy appears as clumsy peasants attached to one nation and with the horizon of village idiots.’ The power of international money over development strategies at the national scale is today reflected across the Third World, as well as in many advanced capitalist countries.

Subnationally, the ramifications of international financial power are increasingly evident. For smaller, home-bound manufacturing industries not well-located near air or shipping lanes to serve global markets, the fluctuating interest rates and national currency values dictated from Washington (DC), New York, London, Tokyo, Frankfurt, and other sites of international financial control can be debilitating. The size of the national market, which was typically the key consideration in the expansion and contraction of production, has given way to trade liberalization enforced by the major financial institutions. Not just national states, but also cities and regions are increasingly caught up in the vortex of the international law of value, as more direct—often municipal-level—strategies of restructuring production and reproduction are brought into play, often at the behest of global financiers and aid agencies (Bond, 2000). In effect, the national state gives way to the city as a new unit of analysis, implementation and control, and as a means of enhancing the international competitiveness of production, via structural adjustment policies.

Other aspects of the determination of scale occur not by productive relations but, rather, by financial power. Uneven development of the built environment at the urban scale, for example, intensifies principally because the land rent structure becomes one in a set of portfolio options for financiers. ‘Rent’, Harvey (1982: 396) explains, ‘is assimilated as a form of interest identified specifically with locational attributes.’ Smith (1990: 148) confirms that: ‘To the extent that ground rent becomes an expression of the interest rate with the historical development of capital, the ground rent structure is tied to the determination of value in the system as a whole.’ Rent as an integrative lever—in this case, a means of universalizing capitalist space relations—is, hence, integrated into the broader capitalist economy by another lever of financial power: interest. The rate of interest, in turn, reflects a combination of factors, of which the most important are the demand for money and the concomitant balance of power relations between creditors and debtors of various sorts.

It is at this stage that Harvey (1982: 396) asserts the ‘hegemonic role’ of finance:

The power of money capital is continuously exerted over all facets of production and realization at the same time as spatial allocations are brought within its orbit. The credit system affects land and property markets and the circulation of state debt. Pressure is thereby brought to bear on landowners, developers, buildings, the state and users. The formation of fictitious capital, furthermore, permits interest-bearing money capital to flow on a continuous basis in relation to the daily use of fixed, long-lived and immobile use values. The titles to such revenues can even circulate on the world market though the assets themselves are immobile.

Harvey (1982: 396–7) shows how the exercise of financial power includes the vision to monitor the markets in various types of financial capital—land, shares, debt instruments—so as to receive ‘elaborate signals for investment and disinvestment from one place to another...The effect is to reduce time and space to a common socially determined metric—the rate of interest, itself a representation of value in motion.’ Moreover, financial power imparts the capacity to avoid ‘one-shot devaluations’ through their socialization, and the strength to occasionally absorb localized devaluations.

It appears, now, that, at its peak, financial power—specifically, the interest rate, which becomes the main weapon in the battle between productive and financial circuits—has the capacity to level differences of scale altogether. As Dick Bryan (1995: 41) insisted, ‘the money form of capital most readily converts distinct and spatially diverse activities into a common unit of measurement’. But contradictions are manifest, particularly in relating financial capital to surplus value extraction, and this means that, returning to Grossman (1992), the levelling process could equally as well represent a tendency to breakdown, rather than to renewed accumulation.

Conclusion: Finance, Uneven Development and Public Policy

The hypothesis is clear: in the context of overaccumulation tendencies and especially full-blown capitalist crisis, the rise of finance intensifies the amplitude of uneven geographical and sectoral development at crucial moments, accompanying a shift in the role of finance from accommodation towards speculation and control, and across a variety of scales. Conversely, when finance experiences conclusive devaluation, this can be the signal for a revived accumulation process that is locally determined, more proportional, and tightly-articulated between sectors, and better-balanced geographically. It would be a time to restore the role of finance as hand-maiden not master within capitalism.

There is not sufficient space to spell out how that might occur in different settings. 4 The most important question to pose is whether the return to the foundations of Marxist financial-geographical theory in the pages above can add to the insights being developed in other branches of financial geography and political economy. If the arguments above drawn from Das Kapital are less attractive to explore than a post-Keynesian version of the financialization hypothesis—as appears to be the case, given how few geographers have taken up these conceptual challenges—it may be, too, that the preferred politics of financial reform will differ markedly.

The degenerate forms of financialization so often railed against by scholars and activists alike—for example, in the ‘IMF Riots’ of the 1980s–1990s, the 2011 Occupy movement, and subsequent mass protests such as against financial power in 2019–20 stretching from Chile and Argentina to Ecuador and Haiti to Lebanon and Indonesia—are to some extent capable of regulation. For example, after the US financial meltdown in 2008–09 there was a Dodd-Frank Act; after China’s 2015–16 stock market crashes, exchange controls were re-imposed; after South African university student protesters opposed adding further debt to their post-graduation burden, free tuition was introduced in 2017. The sense in many of these struggles is that the central task is to restore financial capital to an accommodating mode and, in the process, to regulate away its control and speculative roles. Regulations are welcome, to be sure, since the pain of financial violence can be so acute. But the Marxist foundations of financial geography nevertheless require a far stronger response by those aiming for genuine change: a probe into why the mode of production itself is to blame for the depravity so much of the world faces at the hands of finance.

Notes

To illustrate, even prior to Harvey’s (1973) explorations of local financial market power over urban development, a major post-war US study, Empire of High Finance by Victor Perlo (1957), was rebutted in Paul Baran and Paul Sweezy’s (1966: 15) Monopoly Capital on grounds that the modern corporation had achieved ‘financial independence…and hence is able to avoid the kind of subjection to financial control which was so common in the world of Big Business fifty years ago’. Nevertheless, concern about growing bank power was soon revived in the 1968 Wright Patman Report of the U.S. Congress’ House of Representatives Banking Committee, in a 1969 critique of US capitalism by Stanislav Menshikov (1969), and in a fierce early-1970s debate within the US Left about financial control that revealed diverse ways of understanding capitalist dynamics. Robert Fitch and Mary Oppenheimer (1970) argued that financial institutions’ interlocking directorships, trust department shareholder voting weight, and debt financing gave bankers the upper hand, but they were scolded by Paul Sweezy (1972) for mistaking superficial institutional characteristics for underlying dynamics of accumulation.

Numerous Marxist, post-Keynesian, or otherwise radical scholars pursued crucial research into financialization’s processes or episodes in this period, in the process shedding light on the uneven geographic development of capitalism, especially at specific historical junctures of financial ascendance or collapse. Even if synthetic, theoretically grounded work such as Harvey’s is rare, political economists committed to radical critique of financial power and speculation since the 1970s have included Rawi Abdeal (2007), Suzanne de Brunhoff (1976), François Chesnais (2013), James Crotty (1985), Judith Dellheim (2018), Gerald Epstein (2005), Trevor Evans (2004), Ben Fine (2013), Susan George (1988), Ilene Grabel (2017), Laurence Goodwyn (1978), Gary Green (1987), William Greider (1987), Edward Herman (1981), Geoffrey Ingham (2004), Makoto Itoh (1978), David Kotz (1978), Jan Kregel (1998), Greta Krippner (2005), Costas Lapavitsas (2013), Alain Lipietz (1988), Hyman Minsky (1977), Beth Mintz and Michael Schwartz (1985), Fred Mosely (2004), Robin Murray (1988), Dani Nabudere (1990), R.T. Naylor (1985), Chris Niggle (1986), Henk Overbeek (1980), Cheryl Payer (1991), Robert Pollin (1987), GeorgeAnn Potter (1988), Howard Sherman (1991), Jan Toporowsky (2002), and Howard Wachtel (1986).

Of course, many scholars who pursue geographically informed financial theorizing and interpretation have also provided engaged critiques of underlying capitalist dynamics. Multiple works from the early 1990s onwards could be cited by authors including Manuel Aalbers, John Agnew, Charles Barthold, Sarah Bracking, Brett Christophers, Gordon Clark, Stuart Corbridge, Gerald Davis, Gary Dymski, Rodrigo Fernandez, Andrew Leyshon, Philip Mader, Thomas Marois, Daniel Mertens, Nigel Thrift, Natascha van der Zwan, Till van Treeck, and Dariusz Wójcik.

I have explored anti-neoliberal resistance strategies at various scales; for example, in the world financial system in Bond (2014), the United States in Bond (1990), the African continent in Bond (2004, 2006, 2019), Zimbabwe in Bond and Manyanya (2003), and South Africa in Bond (2013a, 2013b, 2015).

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