All Mouth, No History

By William Dixon, 3 February 2009

A purely linguistic analysis of financialisation and contemporary production fails to account for the current crisis, argues William Dixon in his review of Christian Marazzi's latest book

Perhaps the oddest thing about Christian Marazzi's book Capital and Language: From the New Economy to the War Economy, is that it has been published at all. On page 145 we find out that, ‘As I'm writing this, [it is] exactly six months after the 11 September terrorist attack'. The book was indeed first published in Italian in 2002, but now this translated version appears in the shadow of a crisis that demands its own analysis. The question really is whether this book may help orientate us to the current episode. Of course, this is a somewhat unfair question given the scale of what we are confronting today. One focus of this book is on securities, and we shall return to that, but the current crisis is peculiarly about banking, securitised mortgages, housing, and government responses. There are relevant points that can be carried through, but just how far out of its depth, however involuntarily, this book is, may be seen in its discussion of the strategy to reduce government debt and to financialise pensions. The current crisis can be judged by the dramatic turnaround on government spending, on government debt as a percentage of GDP, and on state control of aspects of the economy. Marazzi could, reasonably, respond that he has dealt with the turn to war following 9/11 as a crucial element of government spending, but really we have now entered a new phase. The prospect we face at the moment is the transformation of a private debt crisis (banks, mortgages and credit cards) into a government debt crisis as governments attempt to avoid getting locked into deflation. These outcomes aren't discussed in this book.

The thesis of the book is that language and communication are crucial both to production and to finance and that, ‘it is for this very reason that changes in the world of work and modifications in the financial markets must be seen as two sides of the same coin' (p.14). The point is that work is developing in such a way that the general intellect resides with workers themselves and is not simply encrusted in fixed capital. In finance, especially as we look at shares, their movement depends on what others are doing; there is a reflexivity here that means conventions are crucial, as are language and communication.

On the finance point, we are looking at territory already marked out very distinctly by Keynes and that has been explored in different ways by people such as Minsky or, more recently, Shiller, who identifies a financial contagion as the cause of the crisis. Marazzi quotes Keynes and Shiller but appears, with his focus on language, to be adding something to these writers. It is not clear, however, whether anything meaningful is added. Keynes argued that in financial markets, knowing conventions may be more important than fundamental knowledge of the matter in hand. So communication, language, is indeed important. The question in the study of financial matters is whether conventions can really overcome fundamentals, i.e. issues such as profitability. This question is clouded, though, since it is really future profitability that is at issue and that, of course, can be subject to all manner of thoughts and speculations that will be prone to conventions. The speculative dotcom bubble, in the aftermath of which Marazzi was writing, was built on a developing convention boosted by all manner of communications. Of course this did indeed fall very flat. Once the price earning ratio reaches absurdly high levels, as it did during the dotcom bubble, the bet on future earnings is so extraordinary that fundamentals must reassert themselves. The eventual fall put the so called ‘real economy' at risk because the investment of pensions in shares resulted in a need for individuals to boost their pension pots with extra savings, hence withdrawing them from consumption.

Given this potential for seemingly aberrant fluctuations of markets, how can we set out an understanding? For Marazzi, ‘to explain the workings of financial markets in the era of post-Fordism what we need is a linguistic theory of their operations' (p.29). What follows is a study of language analysis ‘from the point of view of its biological foundation' (p.29). Discussion of language is interesting, but what use is this to understanding financial markets? One point Marazzi makes is that language may be performative, in the sense of performing rather than informing. Basic performativity is seen in the statement, ‘With this ring I thee wed'. It produces the act. Marazzi then refers to the absolute performativity of the statement, ‘I speak', in which what is produced is purely a language event. This is an ‘especially useful' category for Marazzi because ‘it is immediately applicable to the crisis of the financial markets as a crisis of the overproduction of self-referentiality' (p.35).

This does point to some reality in financial markets. However to rely on a philosophy of language at this point tends to mystify what has happened. Marazzi writes just at the end of the dotcom boom. Like previous financial manias there was a self-referential element, the contagion, in that share prices rose partly on the then objective basis that share prices were rising. The bubble is based on a convention that has an objective basis in the sense that it is autonomous from any particular individual, even resisting the attempts by Greenspan to talk it down. The theoretical understanding of this phenomenon was already outlined in Keynes' General Theory. Keynes' explanation had the considerable virtue of being better rooted in historical developments. The starting point was the separation of ownership and control through the introduction of joint stock companies and limited liability that in turn allowed the introduction of a proper market in company shares. A company could raise capital through share offers setting up three distinct groups: the shareholders, the managers and the entrepreneurs. The share made entry to investment easier because subsequent exit (sale) was easier and so allowed the raising of capital for large projects. This securitisation meant that individuals (but not societies) could revise decisions on investment ownership without entailing the sale of physical assets. This enabled the development of a portfolio capitalism in which risk was no longer particularised but could be subdivided and then diversified. Individual capital could aspire to be free from engagement through particular capital with particular labour power. We might say that this was in line with the tendency of finance, developed considerably further in recent years, to aim to be free to accumulate without being tied down.

In these terms, then, the nightmare is that capital must be validated, in its circuit, through the purchase of labour power. At this point it appears to be at risk. Securitisation seems to offer the compromise solution. The combination of limited liability and shares allows diversification that could free capital from one particular labour force, or indeed even one national labour force. This is where the self-referential element of financialisation enters the picture; the market in shares, that separation, in principle, of ownership and control and so also freedom from specific knowledge based responsibility, posed a problem of valuation. Keynes' argument was that the nature of investment in bourgeois society was inevitably uncertain because, with the separation of production from consumption, the future was unknown. The entrepreneur overcame this through gut instincts or ‘animal spirits' that were founded on some degree of domain knowledge involving the labour force, the consumers, etc. Such an entrepreneur could value future prospects on the basis of real, even if not guaranteed, knowledge. Securitisation undermined this because in opening a market, the value of the security depends on how others view the current prospects. Because of the inherent uncertainty along with the possibility of flight, i.e. sale, and because investors may not have domain knowledge, they are subject to ‘news' which can provoke rapid revaluations of shares. This puts the entrepreneur in a curious position when considering decisions about shares. S/he may consider the worth of a share on the basis of informed gut instincts, but will know that the actual price of a share will vary according to the estimations of everyone else, news, etc. This sets up what Keynes referred to as a ‘beauty contest'. I may know who I think is most beautiful but to work out who will actually win I have to work out who other people think will win. Now, consider that when investors make their judgements, they do so on the basis of what they think other investors will think, and vice versa. This can, as Marazzi suggests, be described as a problem of self-referentiality but it doesn't require a discourse on language to get there.

There is a problem of anticipating what other people will do when they are anticipating what I will do; this may result in Hobbes' problem - a war of all against all and, hence, the absence of community. Evidently, financial markets cannot work like that and nor can they resort to Hobbes' solution - the absolute sovereign - since this only recasts the problem at another level. It is a real insight to say, as Marazzi does, along with Keynes, that financial markets require conventions. It is also right, as Marazzi says, that this convention forms the community (and vice versa) which in this case is the market itself. The convention here concerns the valuation of securities, which in turn concerns the prospects for the future that can seem relatively stable but can also change with appropriate news that provokes dramatic revaluation. Whatever any one individual may think about the news, the key is to understand how others understand it since valuation depends on convention. In these circumstances news can take on an exaggerated importance. This has become a matter of great importance recently. We know that an aspect of the sub-prime market was the selling on of mortgages that were then, in turn, engineered into financial objects which were packaged up and sliced up to create mortgage backed assets. They were held by a number of institutions including, of course, banks. So far so good, in a manner of speaking. Once people began to renege on those mortgages and the complication of the financial objects came to the fore, then the exposure of risk became unclear. At a certain point no convention could hold sway with those securitised assets and no market could be made. It doesn't matter at this point that certain banks may still think there is value in these assets.

The failure to make a market may be seen as the collapse of a certain kind of community. This represents a serious crisis for bourgeois society. Banks faced a crisis in terms of balancing between assets and liabilities, so not only did banks want to hold on to cash but they also didn't want to lend to other banks that were essentially in the same peril as themselves - so the credit crunch. This had, of course, already induced an anticipatory collapse of shares as everyone began the quest for cash. Here was the irony of the situation. Securitisation, by which individual agents diversified risk, had locked everyone into the crisis. Securitisation enabled portfolios, but no portfolio could allow for the level of systemic risk. You can't diversify out of the system except through cash, but that then is part of the problem. The portfolio, in socialising returns, simply moved the possibility of crisis to a wider level. The result now with credit contracting is a deflation that could well become long term stagnation. Ironically also, with the liquidity subsequently pumped into the system, with banks holding dubious assets, and with governments now taking on large debts, we have the preconditions in terms of the supply side (money) and even demand for inflation (solving the problem of toxic assets and government debt by turning the telescope around) for a quite dramatic inflationary episode, if there is some move to recovery.

The point about the above is that it gives an account of self-referentiality with a historical basis. It used to be a strength of autonomist analysis that it could ground theoretical developments in historical developments. It is no leap forward to replace, as Marazzi does, history with the philosophy of language. Keynes, in maintaining some historical perspective, gets further. The analysis can be developed further still. Securitisation can be related directly to the nature of class dispositions. The portfolio allows not just the development of machinery but also some outflanking of particular working class demands. These two points are essentially the same, though, since the rising organic composition, machinery, is anyway a response to the ‘refractory hand of labour', and just as this poses the issue of raising a larger scale of capital, it also poses the need to diversify risk.

The use of machinery also relates to that other aspect of Marazzi's story - the rise of the knowledge worker for whom language is important. The presentation of this knowledge worker would also have been considerably deepened with a historical perspective. In what way is this worker different from the skilled workers of the past, of the start of the 20th century? They were replaced, restructured, through scientific management and assembly lines, or what Marazzi refers to as Fordism. A study of F.W. Taylor and then H. Ford shows that the reformulation of work practices from the late 19th to early 20th centuries was intended to shift control from workers to management, and a key element of this was the introduction of explicit measurability. This led to the massification of the worker and the subsequent turn against work. Marazzi suggests something entirely new has occurred today, since the general intellect is located with knowledge workers, posing the problem of control and measurability. It would help if there was an explicit comparison with the previous period of the early 20th century and those skilled workers by whom a project of workers' control had been imagined. A comparison would help us orientate ourselves. The same applies to Marazzi's discussion of the expansion of information under the ‘New Economy' that is attended also by an expansion of work time, hence the problem of an attention deficit. All of this needs quite a bit more working out, since it is not clear whether this problem, however interesting, is new or even important. Like much of the rest of the book, there is here the suggestion of importance through a rhetorical strategy of radical nominalism, a dependence on naming that boosts the credentials of the work but not necessarily the analysis. We are given some familiars like Fordism, and post-Fordism to which are added the New Economy, Empire (Negri and Hardt), the attention economy and the war economy. These are backed by a host of supporting ideas, such as ‘the overproduction of self-referentiality', that are signalled to us by the imperious use of italics. This is a path by which the rhetorical strategy separates profundity from understanding. I would have preferred more analytical explanation and less naming.

Of course, we must always attempt some synthetic view when faced by a separation of disciplinary approaches that appear to exclude what matters - namely, us. I'd suggest that history provides a surer basis. The work of Sergio Bologna on class composition, for example, is solidly based. Even Negri's earlier work on Keynes is a start in this regard. A combination of history and analysis can keep our feet on the ground. We can take as an example the issue of pensions, which is undoubtedly a significant issue. Marazzi has this to say:

The diversion of savings to securities markets, initiated by the ‘silent revolution' in pension funds, has just this objective: to eliminate the separation between capital and labour implicit in the Fordist salary relationship by strictly tying workers' savings to processes of capitalist transformation/restructuring. (p.37)

There are a number of problems here. Pension funds, even if they tie workers in the way suggested, also tie capitalist performance to consumption. So if the objective is to eliminate the separation of capital and labour, how it is achieved remains ambiguous. Also how would this elimination of separation be any different from the salary relationship? Workers were as tied to capitalist restructuring by the wage as by any pension. Indeed pensions can be argued to have delivered considerably less than was promised. The more interesting thing in the USA (and the UK) in particular is the shift of emphasis from the wage to consumer debt. Cheap money and liquidity have been only part of the story here. More important was the deregulation of credit. This was a form of privatised Keynesianism. It allowed rising living standards, a developing financial sector, rising imports - ultimately from China - and also, of course, the great dream of home ownership, considered to be the crucial stake in society. Here are all the ingredients of the current reckoning. In the UK, the Tories are distancing themselves from all of this, despite having started it, by blaming Brown and so giving themselves the ideological space to impose severe austerity should they get elected next time. Marazzi refers to a liquidity crunch in October 2000 that ‘until then had seemed unimaginable' (p.69). That crunch was dealt with with relative ease, but the current one really is ‘unimaginable' and needs something more than a philosophy of language to get to grips with often mind boggling figures and developments.

William Dixon <w.dixon AT> researches the nature of economics, especially in relation to morality, political considerations and the development of society


Christian Marazzi, Capital and Language: From the New Economy to the War Economy, translated by Gregory Conti, introduction by Michael Hardt, New York: Semiotext(e), 2008