I should begin by explaining the model of capitalism that I work with
Most economists, Marxists included, locate the origins of capitalism writ large in Europe generally and Great Britain specifically. According to this model, capitalism began when feudalism ended. Toward the end of feudalism capitalism began to sprout via a process of primitive accumulation, a process in which non-capitalists systems are brought into a capitalist system. The most famous example of this process is the enclosure of “the commons” in England. The commons were areas of land on which all the local peasants could graze their animals and grow food. They were “commonly” owned, hence their name. In the eighteenth century, England began enclosing the commons– that is, transfering them to private ownership. Another example of primitive accumulation is when Henry VIII seized the church lands and handed them over to private owners. After this period of primitive accumulation, capitalism moved into a period of industrial capitalism (the well-known industrial revolutions of the 18th through 19thcenturies. Industrial capitalism (sometimes called commodity capitalism) is the mode of capitalism that inspired classical economic theory as well as Marx’s understanding of capitalism that he lays out in Capital. Economists tend to see the current era of capitalism as merely a more complex version of industrial capitalism while Marxists tend to see the current era of capitalism as an entirely new phase that they call alternatively monopoly capitalism, finance capitalism, or late capitalism. This linear history of capitalism is NOT the one that I work with.
Instead, I prefer Giovanni Arrighi’s model that he lays out in his 1994 book The Long Twentieth Century. In Arrighi’s history, rather than undergoing several centuries of linear expansion, capitalism has undergone 4 distinct cycles of accumulation. Each cycle effected an expansion of global capital and was overseen by a different governmental block: the 14th-15th-century cycle overseen by the Italian city-states, the 16th-17th century cycle overseen by the Dutch, the 18th-19th century cycle overseen by the British, and of course the current cycle overseen by the U.S. While each cycle effects an expansion of global capital and is overseen by a different governmental block, they all go through the same two phases: a phase of material expansion in which capital accumulates via modes of commodity production and a phase of financial expansion in which capital accumulates (within the ruling block at least) primarily via financial transactions (speculation, credit, investment in national debt, etc.). This does not mean that during phases of material expansion there aren’t modes of financial accumulation operating; and of course it does not mean that during phases of financial expansion commodity production comes to a halt (although there will be a dramatic decrease within the ruling block as we’ve seen in the U.S in past few decades). It simply means that the dominantmode of accumulation is either material or financial– in other words, more capital accumulates via material or financial modes of accumulation during their respective phases. Arrighi locates the transition to U.S. control after WWII. So after WWII the US-centered cycle entered its phase of material expansion, and the US became the workshop of the world (Britain had been the workshop of the world in the mid-19th century). But around 1970 the US entered its financial phase, and indeed this is precisely when manufacturing jobs began to be shipped oversees. So for the past 40 years the dominant mode of capital accumulation in the US has been financial.
Arrighi calls the financial phase the “autumn” phase of a cycle because during this phase, vast amounts of capital begin to move out of the governing block. When the the governing block loses control over all this capital, it loses influence in the global economy.
So why does capital move out of the governing block, in this case the US? The fundamental job of capital is to accumulate, to produce more of itself and investors are constantly looking for ways to do that most efficiently. During phases of material expansion competition among producers increases over time, which drives down profits, which in turn leads investors to take their money out of commodity production and look for more profitable investments elsewhere. Some may turn to financial investments within the U.S (real-estate speculation is a great example, which is what we’ve seen in the past decade) but they may also turn to investments outside of the US. Remember that capital has no national allegiance (unless its owner does, which is Warren Buffet’s problem, as I’ll discuss in a later post). It’s only goal is to accumulate more capital, and it will do so wherever or however it can do so most efficiently. So a lot of US capital has been invested in various oversees projects in the past 40 years; some of those projects have been moving US manufacturing jobs oversees to take advantage of cheaper labor costs.
Another characteristic of financial phases is their volitility. The economy is much more volatile during these phases because so much capital is floating around in speculation rather than commodity production. And of course speculation is just that– think about all of the bubbles and crises we’ve exprienced since the 70s– the energy crisis of the 70s; the S&L crisis of the 80s; the .com crisis of the 90s; and of course the mortgage crisis of this decade. All of these crises (with the possible exception of the energy crisis) were caused by speculative bubbles. Investors have a lot of capital on their hands that can’t be profitably invested in manufacturing so they’re looking for other kinds of investments, and when there’s a lot of extra capital sitting around, investors get desperate enough to make risky investments, or maybe they are just deluded.
A final characteristic of financial phases is increased competition between nation-states for control over this global capital. Every country is trying to attract as much of that free-floating investment seeking capital to its jurisdiction, and sometimes this leads to escalated tensions. Certainly, we’ve seen a number of challenges to US power in recent years.