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How Finance Exploits Us

Dick Bryan
Mike Rafferty

The new era of financial capitalism, with its explosion of household debt and its dependence on complex derivatives, has caused fundamental changes in the way capital exploits labor.

Traders gather around a post as they wait for shares of Slack to start trading at the New York Stock Exchange on June 20, 2019 in New York City. (Drew Angerer / Getty Images)

Interview by
Llewellyn Williams-Brooks

Australian political economists Dick Bryan and Mike Rafferty have been collaborating for twenty years, rethinking how Marxism should understand finance. Capitalism with Derivatives (2006) argued that financial derivatives are transforming twenty-first century capitalism as much as the joint-stock company did in the nineteenth century. In their most recent book, Risking Together: How Finance is Dominating Everyday Life in Australia (2018), they deal with the integration of ordinary households into financial markets, and the consequences for labor and capital in a post-2008 world.


LWB

This is the third book you two have written together — can you say something about how it fits into your long-standing project?

DB

Mike and I have been working together for a long time. We worked out, I think quite early in the piece, that innovations in financial markets — financial derivatives in particular — were really important innovations. And they weren’t just technology, but were actually changing the way in which capital organizes and values itself. Capitalism with Derivatives was published in 2006, but we’d been working on it for four or five years. We knew there was a class politics in there. The book was actually about how capital is reorganizing, but we couldn’t really think through quite how to discuss labor, and how to think about surplus value, and how to think about Marxism more widely. So this new book was actually quite a long time in the making, because we were trying to nut through some of these theoretical issues. We couldn’t just solve that by sitting in a dark room and theorizing. We decided we would try and think about the class dimension of financial innovation in an applied way. We had to look at some history and evidence, and the evidence we had most immediately at hand and by background was about Australia. That’s how the book came to be as a strategic, intellectual, and in its own way, political venture.

MR

Capitalism with Derivatives was actually the product of being rejected by a lot of Marxist or left journals on the basis that anybody who took these innovations in finance seriously must be, by definition, working outside of Marxism. Marxism had adopted a fairly moralistic view of finance — that it’s bad and it’s exploitative — therefore, you should deny not just that it’s important but that it has anything more to it.

The first thing to understand about derivatives is how they are reorganizing capital and the way capital thinks. It took several years before other people came around to some of those ideas. But that was really only half the project because relations within capital were only the starting point.

So we read Jacob Hacker’s work on The Great Risk Shift. And we read Elizabeth Warren’s book on The Two-Income Trap. They were actually taking finance and risk seriously, but outside of Marxism. I think our contribution is to bring risk and finance inside class relations. We’re saying that this is a really important innovation for capital because the derivative logic that’s reorganizing capital relations is also reorganizing capital-labor relations.

We’re using the same sort of data that Jacob Hacker and Elizabeth Warren were using, though for Australia. But I think we’ve taken it to another level, which is to say that risk shifting is not simply about distribution, but also new ways of capital getting labor to produce value in different ways.

DB

After the Derivatives book, there were people saying in the midst of the financial crisis, “Well, that’s the end of derivatives. They’ve been seen to be flawed products, and they’ll be outlawed, and it’ll be business as usual for interest-bearing capital notions of finance.”

We said, “No, this is just the opening up of a new frontier of financial innovation.” The global financial crisis was an expression of the vulgar forms of financial innovation, but they would be able to consolidate and become self-reproducing, self-innovating. This new book is actually trying to chart the way in which capital after the financial crisis innovated new forms, new frontiers of profitability.

Given that households are where most wealth lies, and housing is a principal form of wealth, and household contracts are a principal cash flow in the economy, it was entirely predictable that capital’s attention would head toward households. We wrote this book as a Marxist project of charting capital’s new frontier. We get castigated and told that we’re not good Marxists because we want to play with “conventional” Marxian taxonomy. We don’t want to play with the Marxian method, but we want to play with the taxonomy, and that’s seen to be unacceptable.

MR

My fear is that because of this analytical conservatism that seems to have grown up within Marxism, that too many types of Marxism have stopped being innovative, and that even the idea of being a bit speculative about historical change is now seen as something that most Marxists don’t do. That’s really my big disappointment, that even good Marxists who have been innovative in their own ways are quite reluctant to go into places where we’re trying to go. But I think that for younger people, the lived experience of this new role for finance is much more tangible, and I think we’re seeing a lot more openness to it from those younger people.

LWB

Risking Together does seem to have continuity with Capitalism with Derivatives as a value-oriented analysis. This book moves into labor analysis and risk. But you have chosen to focus specifically on Australia here, whereas the previous book was global in scope.

DB

We were writing a few articles, including with Randy Martin, about how labor gets transformed by financialization. And these were going okay, but they were reaching a point where, at the level of abstraction we were working at, there wasn’t a whole lot more to say. But we knew instinctively that the dynamism of finance was playing out in ways that we couldn’t capture at that level of abstraction. So we made a conscious effort to make our work more empirical.

It had to be able to tell stories, empirical stories, had to be able to give empirical data on the details. And the selection of Australia was really a result of being asked by unions to go and give talks about things, and some of these talks started to develop into some of the chapters. In principle it could have been about anywhere. But even if the data sets are pretty accessible internationally, the narratives and having the feeling for a place takes time. So we did it about Australia because it was convenient, pragmatic, and linked into Mike’s work with unions.

MR

Elizabeth Warren and Jacob Hacker and some other people in the United States and Britain have been writing about this. But we wanted to go beyond distributional politics, which is what Hacker and Warren were talking about. We’re saying it’s not just capital ripping off labor by shifting risk in a distributional sense. Capital got inside households to find new ways of getting labor to create value. And we couldn’t show that unless we could validate it through actual household data. Focusing on Australian data was a simpler task for us, but we would assert that that sort of story is probably happening in most other advanced capitalist countries, of course with variations.

DB

We contend that risk-absorption is a contribution to capital’s surplus. At least it absorbs capital’s risk so that rates of return on capital can require lower levels of risk-taking by capital. We frame it as households producing a safe stream of contract payments that feed into mortgage-backed and asset-backed securities. It’s not just that capitalism found in households is a source of surplus, but that in all the monitoring of big data that has happened since the financial crisis, it’s been grooming households so as to create reliable surplus. It has been working out exactly what minimal standards of living people can sustain so as to top up the rest of their income with contracts, working out what minimum thresholds of employment security will keep people turning up in the workplace. And these can only ever be talked about at an empirical level. They still resonate as abstract concepts, but when you’re wanting to challenge orthodoxies in their assertions of how the world works, it’s not sufficient just going toe to toe on abstract assertion and counter assertion. You’ve actually got to be able to verify a case.

So I’d like to think that people around the world could say, “Well, we don’t know anything about Australia, and frankly, we’re not terribly interested.” But they could still read this book as a methodological piece about how you use embedded Marxist theory to frame a certain set of questions that require historical context to give their full meaning. People in many countries would recognize some version of this happening.

LWB

There is a diagram periodizing twentieth-century capitalism and twenty-first century capitalism that seems to encapsulate your argument. Can you explain what makes twenty-first century capitalism different?

DB

The diagram is supposed to show that twenty-first century capitalism is about flows and about liquidity, whereas nineteenth century capital was more static: labor, capital, households in predictable financial relations that you can find in any textbook. Today, households and labor are getting incorporated into circuits of capital in new and continually changing ways.

MR

People have talked about class decomposition in various ways — the defeat of organized labor — but haven’t been able to specify the terms of that decomposition. What we’re saying is that if you think about capital-labor relations through finance, it’s not just flows. Aspects of labor that are important to capital have been decomposed. We can frame them as risks, and they’ve been shifted.

And that idea of decomposing attributes of labor so as to work out what sort of risks they pose for capital and then shifting them back onto labour — it’s a major act of capitalist imagination, and it’s expanded the frontiers of that relation. So it’s not just that capital has defeated organized labor. In that defeat, it has opened up a new frontier. The diagrams, while overly simple, are trying to feature this change.

LWB

The notion of “illiquidity” is at the core of your conceptualization of the household in twenty-first century capitalism. Can you explain that idea?

DB

One way of framing illiquidity is to go back to Capital with Marx talking about the value of labor-power as an anchor category in the theory of value. The value of labor-power is basically subsistence. And if you frame this in the profile of risk and finance, subsistence is about household illiquidity — it’s where you live and consume and socialize: the stuff you’ve got to do to be yourself. You can’t lay off your subsistence. Capital, on the other hand, has worked to make itself more and more liquid.

So you could say the old car plants that used to define the illiquidity of capital, they still exist, but the forms of accumulation now are moving toward more and more liquid and intangible forms of capital. So capital has become liquid, but labor power stays illiquid, and in any financial market, you don’t need a whole lot of complex financial theory to know that if you’re sitting still, illiquid, and every other player in the market is moving around you, they can pick off your illiquidity.

So the critical question is: how has capital invented new ways of picking off that illiquidity?

MR

In a way, the development of organized labor was about finding ways of collectivizing labor’s experience then forcing illiquidity onto capital through strikes. It could be thought of historically as a way of forcing illiquidity onto capital.

DB

To the extent that we talk about strategic responses that follow from our analysis, we are really trying to focus on the same thing in relation to finance. How do we force household illiquidity onto capital?

One possibility is the strategic nonpayment of bills that have been securitized, because securitized bills, like mortgage-backed securities, are highly liquid, highly leveraged markets. So if you organize a payment strike in these areas, you can crash them very quickly. And the securitized dimension here is critical, for it reveals capital’s vulnerability to its own liquidity. If you don’t pay the rent for a month the landlord loses income but still owns a house. But if the rent has been securitized, the owner of the security has no claims on the house — they only own the rent contract. So if you don’t pay (securitized rent) you actually crash the liquid asset.

But really that scenario is just an illustration of what could be a financialized response to financialized capital. More generally, our challenge is: can we think laterally about how this new engagement with capital through finance opens up possibilities for labor to treat its illiquidity not just as a burden, but to flip it over and impose illiquidity onto capital?

LWB

In your book, it often seems that the middle-income household in particular emerges as the major actor with debt obligations. How does this middle-income focus relate to classical Marxian notions of class and resistance?

MR

It’s not that wage labor is not a key site anymore. In fact, in some ways, it’s even more important because finance depends on people’s ability to repay on fixed contracts out of wage income. In a way, there’s not that much difference between mass production of motor cars and the mass production of financial exposure to risk.  In both cases, as Henry Ford said, “I want to make a car that everybody can afford.” And that’s why the wage was set at a dollar a day. And then later, this new frontier required mass exposure to financial risk. But the exposure is for people who’ve got the ability to repay. So that’s why we talk about middle incomes, but we’re still talking 60 percent of the population.

DB

In Marxism there is an aversion to defining class in terms of income, but we’re not actually doing that. We’re just saying if you are interested in the way in which household absorption of risk makes capital look profitable, and you look at where the risk is being absorbed, you find that it is not with the lowest-income people because by and large they’re excluded from finance because they can’t get loans.

Not every working-class person is on a low income but who we call a “working class” remains contentious, especially with the rise of fake independent contracting (like the gig economy). We are offering an additional perspective on the surplus-producing class, by extending it into how class relations are transformed by capital. We have shown that this surplus-generating role reaches significantly into the “middle class.” And I think it’s an analytical boon for Marxists to be able to identify expanding relations of surplus extraction even when we see a shrinking working class defined by conventional notions of wage labor. Capital understands the dynamics of capital accumulation, and it knows that risk shifting is a more fertile ground of securing profitability than it used to be, and probably even more profitable in lots of ways than simply producing commodities for the market. So we’re trying to pick up on that. The fact that the middle class is then prevalent in this story, I think, throws a whole new light on how we think about middle class-ness and class in general.

LWB

Another interesting thing in the book is the idea of debt unionism emerging as a political possibility. What is the existing terrain of debt unionism like, and what is the possibility for organizing in the future?

DB

It’s really contract repayment unionism, not just about credit as such. For households, all contracts — whether they are credit card debt or electricity bill payments — have the same politics. There have been student strikes on debt repayment for a long time, especially in the United States but also in parts of South America. There’s been a long history of refusal to repay rent. And it’s got to be said: the people who participated in this are incredibly brave and face a lot of personal risk both in the present and in the future because their credit scores get marked. Clearly, this form of politics requires critical mass, so that it is harder to isolate and exclude individuals.

What we’re talking about here is not prescriptive. We’re really saying that for the organizations that want to represent oppressed people — be they oppressed in the workplace or by financial contracts or by some other means — it’s really important for them to reframe forms of collectivism. We’re just saying to these organizations, “Please get inside finance, understand the logic of finance, and look there for spaces for organization.” The one we nominated is really just an example of how you might think about this. It’s dangerous for a couple of academics to be sitting around scheming how political activism should work. It’s an input into a debate and shouldn’t be taken any more literally than that.

MR

What we’re laying out is an emergent politics. It’s a corollary of saying that if the frontier of labor-capital relations is moving in financialized ways, labor’s organizational response has to open up toward that. What we’ve done is simply put out a couple of ideas in that terrain. Many people have said that capital has defeated organized labor. If that’s the case, what would a renewal look like? And I think it’s increasingly obvious that it’s not going to look like workplace trade unionism.

LWB

What are the lessons of the Great Recession around the capacity to organize politically? We saw mass defaults in the United States. We saw the state protecting finance capital, bailing out banks. Isn’t this a potential limitation of debt-orientated resistance? It may play into the political interests of finance capital if it’s on a large scale and tangled into derivative markets. How do you respond to that?

DB

It will be dangerous to generalize and say the Left took this or that position. But there was, I think, a widespread view that finance had stuffed up, that the state had bailed it out, and this was just verification that big finance controlled the state. And that’s a pretty good argument.

There was also the notion that finance needed to be tamed and that finance needed that for its own viability. A bit of that has happened, but what’s critically significant — and we get this more in the United States than anywhere else — is the idea that households need to be tamed. The emergence of big data about households and the ability to construct household financial profiles and manage household finance and find the limits on household capacity to keep paying contracts — that this was in a sense the big innovation of finance that came out of the Great Recession.

We might even consider that finance is quite interested in making sure that households have viable incomes because its major interest is that people can keep paying the bills. No one is going to win if default rates get not just high but higher than expected. If you don’t go inside the logic, the economic logic of the role of the household in capital accumulation, then you’re probably not going to start probing around saying, “What are the conditions for the reproduction of the working class? And what are capital’s interests in ensuring the reproduction of the working class, and how that’s going to be implemented over time, and how that’s currently being experimented with in advanced capitalist countries.”

MR

For a historical analogy, I’d go back to the nineteenth century and the Factory Acts. In a way, the state has followed finance inside the household. That looks to me like the shift from the formal to the real subordination of labor to finance. In other words, the state is now working out what its new role is in making this relationship between finance and labor sustainable. In order to do that, it is itself going through major innovation. For example, the central bank in the United States has a project on monitoring financial stability of households. So I think the crisis brought an important historical turning point for the state with respect to finance.

DB

The factory inspectors’ reports provided the empirical detail that Marx was reading that enabled him to incubate, develop the concept of relative surplus value: that surplus value was shifting from just lengthening the working day to incorporating labor into capital in new ways — the formation of relative surplus value.

And so by analogy, this is what we are trying to explore: what are the new innovations in relation to labor’s subsistence within the household? Capital innovates new ways of incorporating labor or households into the process of capital accumulation. People want to treat relative surplus value as a formal abstract theoretical category, but it was actually one that Marx was developing using contemporary evidence to describe his own historical period.

The concept of surplus value has been elevated to such significance in Marxist theory, and rightfully so. But we should, as Marxists, also be looking for the same sorts of changes in our own era. And while we’re not claiming to have found the next version of relative surplus value, we just want to keep poking away, probing the innovations of capital and capitalism, and asking, in this context, how finance causes capital to reorganize its relations with the class that it exploits.