Financial Crises and the Nature of Capitalist Money Financial Crises and the Nature of Capitalist Money Mutual Developments from the Work of Geoffrey Ingham Edited by Jocelyn Pixley Honorary Professor in Sociology, Macquarie University Senior Visiting Fellow, IRRC, Faculty of the Australian School of Business, University of New South Wales Professorial Research Fellow, Global Policy Institute, London Metropolitan University and G. C. Harcourt Visiting Professorial Fellow in the School of Economics, Faculty of the Australian School of Business, University of New South Wales Emeritus Reader in the History of Economic Theory, Cambridge University Professor Emeritus, University of Adelaide Editorial, introduction and selection matter © Jocelyn Pixley and Geoffrey Harcourt 2013 Individual chapters © Contributors 2013 Foreword © Richard Swedberg 2013 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2013 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: 978–1–137–30294–6 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. Contents List of Figures and Tables vii Acknowledgements viii Foreword by Richard Swedberg ix Notes on Contributors xiii Introduction to Positive Trespassing 1 J. F. Pixley and G. C. Harcourt 1 Requirements of a Philosophy of Money and Finance 19 John Smithin 2 Ingham and Keynes on the Nature of Money 31 M. G. Hayes 3 M oney: Instrument of Exchange or Social Institution of Value? 46 André Orléan 4 Group-think and the Current Financial Crisis 70 Charles Goodhart 5 A New Meme for Money 79 L. Randall Wray 6 Monetary Surrogates and Money’s Dual Nature 101 David M. Woodruff 7 R eforming Money to Exit the Crisis: Examples of Non-capitalist Monetary Systems in Theory and Practice 124 Luca Fantacci 8 T he Current Banking Crisis in the UK: An Evolutionary View 148 Victoria Chick 9 Money and the State 162 Malcolm Sawyer 10 The Real (Social) Experience of Monetary Policy 178 Sheila C. Dow v vi Contents 11 E conomic Policies of the New Consensus Macroeconomics: A Critical Appraisal 196 Philip Arestis 12 A Socioeconomic Systems Model of the Global Financial Crisis of 2007+: Power, Innovation, Ideology and Regulatory Failures 216 Tom R. Burns, Alberto Martinelli and Philippe DeVille 13 C redit Money, Fiat Money and Currency Pyramids: Reflections on the Financial Crisis and Sovereign Debt 248 Bob Jessop 14 G eoffrey Ingham’s Theory, Money’s Conflicts and Social Change 273 Jocelyn Pixley 15 Reflections 300 Geoffrey Ingham Index 323 List of Figures and Tables Figures 1.1 Correspondences 22 12.1 Phase model of the creative-destructive financial cycle 226 Tables 13. 1 Marx on the functions of money 253 13. 2 Marxian categories for the analysis of money, credit and capital 255 13.3 The hierarchy of money forms 260 13.4 The currency pyramid 261 13.5 Money and derivatives 263 vii Acknowledgements This book is an edited collection based on a definite idea. As the editors, we have been pleased and most interested in the serious intent of each author to this task. The chapters give great insights into very important aspects for joint ventures between sociology and economics on the nature of capitalist money. We thank them very much; and for the care with which they responded to our questions. As well, we are grateful for the suggestions of the anonymous referees and for the team at Palgrave/ Macmillan, notably our editor Taiba Baitool and Gemma Shields and our copy-editor Nick Brock. The authors and the publishers would also like to thank Presses Universitaires de France for permission to reproduce the following chapter in English: André ORLEAN, « La sociologie économique de la monnaie », in Traité de sociologie économique edited by Philippe Steiner and François Vatin, © PUF, 2009. J. F. Pixley and G. C. Harcourt Sydney, May 2013. viii Foreword The current financial crisis has placed two items firmly on the agenda for today’s social science: a better understanding of capitalism and a better understanding of finance. The work of Geoffrey Ingham con- tains interesting and helpful views on both of these topics, as do the essays in this volume. As its title indicates, one of Ingham’s very first books – Capitalism Divided? The City and Industry in British Social Development (1984) – was devoted to capitalism. And so is his latest one, Capitalism (2008). As readers of Ingham’s many books and articles know, he has also through- out his career been fascinated by the role of money, most importantly in The Nature of Money (2004) but also in the edited volume Concepts of Money (2005). What makes Ingham’s work even more relevant for today’s concerns is that the key novelty in his analysis of money – the idea of credit-money – is also central to his view of what makes capitalism into such a dynamic and volatile economic system. To get a full view of Ingham’s theory of capitalism, and properly understand its originality, it is helpful to take a quick look at its prede- cessors and competitors. This will also help to explain why he decided to cast his own theory of capitalism in the way he did. As we know, the theory of capitalism was created by Marx, most importantly in Capital (1867). Two aspects of Marx’s theory especially concern us here, namely that he saw capitalism as a system, and that this system has a central mechanism that explains how it works. To Marx, and also to Ingham, capitalism is not just a collection of institu- tions but a distinct socioeconomic system, that is, a whole where the parts interact and from which you can also read out what will happen. What drives the capitalist system according to Marx, is the continuous appropriation of surplus labour in the form of wage labour. While Marx was primarily interested in the production of surplus value in the factories, he also devoted quite a bit of attention to finance and viewed it as integral part of the capitalist system. As opposed to modern theoreticians of finance, Marx also saw financial crashes and scandals as natural to and inherent in capitalism. After Marx’s death in 1883, it was gradually realized that there was something wrong with his theory of capitalism. The working class was not becoming increasingly poor and radicalized; the first major ix