Monetarism and Crisis - Werner Bonefeld

3 Monetarism and Crisis
Werner Bonefeld

INTRODUCTION

Keynesianism appeared to be a spent force by the mid-1970s. The spectre of a socially reformed and economically vibrant capitalism stood shamefaced when confronted with mass unemployment, hyperinflation, balance of payments deficits, depressed rates of profit and sluggish economic growth. Keynesian 'economic planning' stumbled when called upon in the 1970s. As indicated by Holloway,1 the abandonment of the Bretton Woods2 system signalled the breakdown of the cornerstone of Keynesianism after the Second World War. The Bretton Woods system regulated the international deficit financing of demand on the world market on the basis of an inflationary supply of dollars to the rest of the world. The international framework of inflationary demand management was built around the recognition of the dollar as the dominant international currency. The dollar was defined in parity to gold. National currency was subordinated to the dollar which performed the dual function of international and national currency. National currency was tied to the dollar by fixed exchange rates, which could be altered only in the case of fundamental disequilibrium. However, the dual function of the dollar implied that the stability of Bretton Woods depended on a US trade surplus compensating for balance of payments imbalances. As long as the US maintained a large trade balance, the dollar functioned as credit that was supplied to other countries as a means of exchange for US-produced commodities. These dollars did not perform as a means of payment but as credit whose realisation as means of payment existed in the form of a claim on the future exploitation of labour. The Bretton Woods system established the connection between the exploitation of labour and the realisation of surplus value in circulation on the basis of a global expansion of the money supply.

The abandonment of the Bretton Woods system in 1971-3 was a response to the enormous increase in money capital divorced from the exploitation of labour. In the late 1960s and early 1970s credit expansion boosted the world economy and so helped to integrate labour into the capital relation through full-employment guarantees as well as an inflationary erosion of real wages. Faced with working class unrest in the late 1960s, falling rates of profit, decreasing rates of growth and readily available credit, capital not only started to run all over the world in search of profitable returns in 'bloody Fordism' (cf. Lipietz, 1982, 1984 ). It also started to gamble with the future exploitation of labour (see Holloway, 1990). The expansionary response to the class conflict accelerated the liberation of money from production and, as a consequence, aided the monetarist offensive which gathered strength by the mid-1970s. During the 1920s and 1930s, monetarists like Hayek and von Mises had repeatedly warned about the dangers inherent in a reformed capitalism. Keynes and Hayek had argued for different responses to the slump. This battle was lost by Hayek. The slump of 1929 and the underlying 'labour question' (cf. Holloway's The Abyss Opens', Chapter 2 in this volume) led to a development in which 'crude capitalism' was to be modified in terms of a 'self-interested adjustment to the potentially revolutionary threats from below' (Keegan, 1993, p. 22). By the 1960s Keynesianism was celebrated and Keynes hailed as a saviour. The Age of Keynes was announced. However, soon after the breakdown of Bretton Woods, Keynesianism became castigated as a destructive doctrine and the End of the Keynesian Era3 was proclaimed. Monetarism 'succeeded' Keynesianism not because of its intellectual cunning. Monetarism took over by default. The practical importance of monetarism did not arise from its coherence as a doctrine. What gave monetarism its practical importance was the deregulation of global financial relations in the early 1970s.

During the 1970s, the monetarism of the New Right articulated the new capitalist offensive of deflation. Capitalism was 'living beyond its means' and monetarism sought to make that good by making workers pay the costs through the intensification of exploitation, lower direct and indirect wages, cuts in services, and a tight control of the relationship between public expenditure and wages. Monetarism provided a radical response to the crisis of capitalist reproduction: as full-employment growth guarantees became a danger to 'domestic' accumulation, monetarism declared the destruction of employment guarantees to be a condition for economic recovery; as the amount of public expenditure triggered a financial crisis of the state, monetarism declared the abolition of the Keynesian relation between public expenditure and wages:4 as the corporatist strategy of social integration failed to secure social peace, monetarism declared trade unions to be undesirable; as unemployment increased dramatically, monetarism declared in favour of market freedom and a natural rate of unemployment. Market freedom was declared as the basis of all democratic and economic freedom.

While Keynesianism was concerned with the future of capitalism, monetarism is preoccupied with the preservation of the present. Rather than mortgaging the future exploitation of labour through deficit spending, monetarism called in the receiver. The importance of monetarism is the rejection of the commitment to a policy of full employment in favour of the subordination of social relations to so-called market freedom. The concerted attempt by monetarism to bring back the ideology of the market to the centre of the political stage involved, fundamentally, the imposition of so-called economic freedom on the working class. The role of the state is to secure economic freedom of equal exchange on the market as opposed to the so-called coercion of market forces through collective provision of resources. Monetarism attacked the institutional forms that underpin the political strength of labour to command a living standard 'incompatible' with the limits of the market. The imposition of monetary austerity upon social relations involves two things. First, any attachment to any values other than those of material gain are ruthlessly penalised. Secondly, for those who already possess it, money is the means of freedom and prosperity. For those who do not have money their lack of money defines their poverty and also their existence as a labouring commodity. As with any other market agent, the proprietors of labour power have to conform their expectation to the limits of the market, without the state meddling in the market through policies designed to guarantee employment and income.

Since the mid-1970s, the commitment to full-employment policies as the primary aim of economic, financial and welfare policy has been abandoned. The reconstitution of social relations on the basis of economic freedom implies the destruction of the way in which labour had been politically integrated since the Second World War. The regaining of control over the money supply involved, fundamentally, the destruction of the Keynesian relation between public expenditure and wages, i.e. an integration of labour on the basis of social reform and material concessions. Since the late 1970s, the attempt to cut back on credit has meant an attack on the entire way in which social relations had been constituted since the war: pushing the trade unions out of the state, cutting back on social welfare expenditure, deregulating wage protection and making the unemployed work for their benefits, and making the whole state more repressive through bureaucratic forms of control with which to enforce the imposition of tight money upon social relations.

But something went wrong. In the beginning, monetarism promised a 'return to basics': you cannot spend what you have not earned. However, when, in 1982, Mexico threatened to default, monetarist orthodoxy was relegated to the dustbins of history. Rather than 'engendering' the capitalist world through the repayment of debt, as well as prudent government inactivity, the new orthodoxy was to spend and spend and spend. During the 1980s, rather than cutting back on credit, credit expanded to a degree unprecedented in modern history. However, monetarist policies were retained insofar as social relations were held responsible for the increase in debt. While the governments of the New Right privatised public corporations in order to balance their books, debt was socialised through fiscal reforms, rescue of banks, the use of public expenditure as a means of imposing the discipline of poverty, and the encouragement of credit-based private consumption. There was an unholy alliance between mass unemployment and sluggish productive investment, on the one hand, and growing public and private indebtedness, on the other. This alliance did not last. The crash of 1987 is intrinsically connected with the eruption of the debt crisis in 1982. The western world had responded to the events of 1982 with expansionary policies which were not checked by the creation of assets against which to balance the debt. In other words, the dissociation of money from production continued unabated during the 1980s. The market, helped by the deregulation of credit controls, took the freedom to liberate money from labour and toil. Monetarist regimes indulged in an expansion of credit during the boom. When the shock arrived in the early 1990s there was a widespread fear of a credit crunch. The recession of the 1990s showed that the economic miracle of the 1980s was, in fact, an illusion. However, it would be wrong to see monetarism as a sinful doctrine. It did not preach monetary tightness only to practice profligacy in debt. Monetarism was, in the 1970s at least, an ideology of hope in increased productivity and thus an evangelist of a stronger link between money and exploitation.

This chapter looks at monetarism's fate. It will be argued that monetarism has not overcome the crisis of Keynesianism.

IN THE BEGINNING WAS HARMONY

In the late 1960s and early 1970s, class conflict had forced political authorities 'to hold back from encouraging aggressive employers for fear of the destabilising political impact of such class confrontation' (Clarke, 1988, p. 281). In response to the tremendous social unrest at that time, expansionary policies were invoked as a means of transforming protest into demand and full employment guarantees. Deficit financing of accumulation and accelerated inflation were thus constituted as means of pacifying social conflict.

The breathing space created by credit expansion gave the illusion of restored accumulation which, in fact, was sustained in an increasingly speculative dimension. The proliferation of speculative investment decreased the strength of the link between money and exploitation at the same time as the Keynesian consnsus reached its peak. The expansionary response supported the boom between 1970 and 1972 which was the 'fastest two-year period of expansion since 1950-1 in the aggregate GDP of the advanced capitalist countries' (Maddison, quoted in Keegan, 1993, p. 48). It seemed, at the time, that the Keynesian consensus of the post-war period was beyond reproach. The expansionary response to the crisis was based on, and boosted by, the 'collapse of the Bretton Woods exchange rate system and the subsequent easing of demand management constraints' (Maddison, quoted in Keegan, 1993, p. 48). In other words, the pacification of the class conflict through policies of social reform were boosted by the abandonment of the system which was 'designed' to cope with balance of payments deficits. As Cleaver (1989, p. 22) indicates, the abandonment of Bretton Woods 'constituted the de facto admission on the part of national governments that they had no longer the power to manage accumulation internally in ways compatible with global accumulation'. Originally, Keynesians viewed the deregulation of international money as a liberation from the constraints on domestic management imposed by Bretton Woods. 'The floating of exchange-rates was celebrated as successful in making Keynesian policy universally more elastic by removing the restrictions of the international balance of payments' (Itoh, 1978, p. 1; see also Mandel, 1987). Expansionary policies were a pragmatic response to class struggle. However, there was a price to be paid: the Keynesian consensus was threatened in its entirety.

Credit-sustained expansion postponed economic recession until shortly after the official abandonment of Bretton Woods in 1971-3. Following upon the quadrupling of oil prices at the end of 1973, which in its effect coincided with a downturn of accumulation, output stagnated or fell in most industrial countries. By 1974, the recession had hit all advanced capitalist countries. The chain of bankruptcies and defaults was not confined to productive capital, but included the banking system. When the crisis struck, the banking system was overextended. The most serious international aspect of the crisis was in the unregulated Eurodollar markets5 where some banks failed and where many banks came within a hair's breadth of default.6

DEMAND MANAGEMENT, MONEY AND THE FUTURE

The expansionary response to the events of the late 1960s presented an attempt to avoid a direct confrontation with labour in the present, and to seek a solution to the labour question in the future. In other words, the expansion of the money supply created a massive claim on the future exploitation of labour. The flight from the present into the future presented thus, as Suzanne de Brunhoff (1978, p. 47) put it, 'a quest for future capitalist production in order to escape the possibilities of overproduction in the present'. This flight from the present lies at the heart of Keynesian demand management (see Negri, 1988b). The link between the future and the present is constituted by credit expansion, an expansion which is underwritten by the state through its reserves and fiscal power. However, the guarantee of the future, that is the guarantee of the future settlement of credit obligations depends on the exploitation of labour in the present. Growing indebtedness which is not matched by an expansive exploitation of labour, i.e. capital growth, sooner or later becomes intolerable as interest charges absorb a growing proportion of the surplus value and make productive investment increasingly unprofitable. At the same time speculative pressures on currencies intensify because of inflationary devaluation and an accumulation of deficits which is not 'validated' by the exploitation of labour. In order to maintain credit as a claim on the future, the exploitation of labour has to provide a real resource transfer with which to service the interest on the credit and if possible repay debt. In other words, credit-sustained accumulation calls for an effective exploitation of labour so as to provide the resources with which to service debt. In the absence of an effective exploitation of labour, the ratio of debt to surplus value will continue to increase, undermining profitability and future accumulation of capital, and so creating bad debt and financial crisis.

Deficit Financing, Floating and Monetarism

The inflationary growth of globally unregulated credit redefined the 'power of money'.7 The movement of money capital on globally unregulated markets integrated nation states through a synchronisation of falling rates of profits, of balance of payment problems and of the business cycle. These developments undermined attempts to 'control the cycle in one country' (O'Connor, 1984, p. 2): After the breakdown of Bretton Woods, capital movements within the international economy began to dominate balance of payment and exchange rate considerations. Under conditions of high inflation and little economic growth the spectrum of economic activity about which decisions have to be made shifted to a much quicker and more unstable regime, led by the exchange rates. The crisis of accumulation manifested itself to the state in the form of adverse effects of the floating of exchange rates. The breakdown of Bretton Woods involved the abandonment of currency relations in a fixed relation to the dollar and the deregulation of currency relations. This deregulation is referred to as the floating of exchange rates. Floating established multi-currency standards with flexible rates between them. Floating exchange rates established a market for currency speculation by money capital. The integration of the multiplicity of states on the basis of floating rates imposed monetary discipline over the national organisation of money through the destabilising movements of speculative money capital against national currency. While the deficit financing of employment sustained, in particular, weaker capitals, the inflationary devaluation of national currency made it harder to 'protect domestic accumulation' against adverse effects of floating exchange rates.

The implications for the national organisation of money are fundamental. The deregulation of global credit relations replaced the formalised structures of currency adjustment between states with an imposition of money upon states. The dissociation of money from exploitation involved a gamble with the future, a gamble which was 'policed' by the movement of speculative capital. The movement of this capital imposed global monetary tightness upon expansionary solutions to the 'labour question'. The deregulation of money involved 'speculative capital' performing the role of an international policeman.

If any given nation state was having difficulties in imposing tight money upon social relations and in guaranteeing the value of its currency through effective exploitation of labour, massive movements of funds out of that country or out of its currency would reinforce its financial crisis. The ultimate sanction for a domestically engineered management of accumulation (expansive policy) that is in some way 'incompatible' with global accumulation is speculative pressure on its national currency. This pressure restricts national authority over money and credit expansion and subordinates national policies to the international 'terrorism of money' (cf. Marazzi's 'Money in the World Crisis', Chapter 4 in this volume).

Expansionary policies maintained producers at the cost of increasing inflation and indebtedness on a global scale (see Mandel, 1987). The 1970s were characterised by stagnation. In this context, deficit financing meant that borrowing from unregulated dollar markets was not matched by an effective exploitation of labour. Rather, the validity of credit was backed by the states as lenders of last resort. Additionally the state finances balance of payment deficits by credit from Eurodollar banks. The state incurs thereby an accumulation of debt. At the same time at which the exploitation of labour is sustained by credit, the validity of the credit depends on the capacity of the state to guarantee the convertibility of credit into central bank money. The Keynesian integration of labour became more speculative the more capitalist reproduction was sustained by an inflationary growth of credit divorced from production. The crisis of the capitalist integration of labour came to a head in the form of inflation and a fiscal crisis of the state.8 The barrier to sustained economic reproduction appeared in the form of limited supply of official reserves with which to support national currency in the face of speculative movement of money capital. Floating currencies increased the demand for international reserves because of the greater difficulty in stabilising exchange rates. 'This meant that national authorities needed larger, not smaller, reserves to defend floating currencies, while the latitude to pursue domestic policies independently of external considerations was reduced, not increased' (Clarke, 1988, p. 344). Larger reserves provide the security to sustain the formal exchange equality of international money. Failure to secure acceptance by international money holders of the political guarantee of convertibility of money into central bank money involves, firstly, speculative pressure on currency, prompting a diversion of the global flow of money and threatening to undermine the integration of 'domestic production' in the world market. It involves, secondly, a destabilisation of international credit relations as creditors demand cash payment, threatening to undermine the reproduction of all social relations which rest on credit. Expansionary policies changed from being the answer to the labour question to being the main problem confronting capital's integration of labour.

During the 1970s the capacity of states to underpin the credit system gradually eroded as the guarantee of money by central bank reserves was increasingly in question. Following upon the bank crashes of 1974, banks became, by 1976 and 1977, increasingly worried about the security of their loans to countries such as Argentine, Turkey, Peru and Indonesia, all of whom had asked for the postponement of payments. Fears about a renewed financial crisis were not limited to these countries: the British 'IMF crisis' of 1975, the pound sterling crisis of 1976, the dollar crisis of 1977 and the 'near' insolvency of Italy in 1976 (see Mandel, 1987) were stark reminders that labour's integration into the capital relation was achieved by borrowing from the future.

The financial difficulties of states indicated that expansionary responses to the 'labour question' were faltering. This made it harder for governments to resist pressures to deregulate existing guarantees of income, employment, and welfare. Higher unemployment was the price to be paid for lower inflation. The contradiction of the containment of labour on the basis of deficit financing is that credit expansion is not guaranteed by an effective exploitation of labour but by the state through its reserves and its revenues. Credit-sustained accumulation depended on the capacity of the state to guarantee the convertibility of credit into cash payment. The implication of unregulated global credit relations is that the state transforms from redistributor of wealth in the last instance to lender of last resort in the last instance. This development made the balance of payments and budget deficits important variables for the ability of nation states to guarantee formal exchange equality on the world market.

Since the early 1970s, rapid monetary accumulation has coincided with depressed rates of profit and sluggish productive accumulation. The net creditors on financial markets were productive capitals (Altvater, 1985).9 At the same time as productive capital placed earned profits on financial markets, it financed productive investment by credit. The growing indebtedness of functioning capital manifested itself in the form of a decreasing importance of boom lending and a growing importance of what Hilferding (1910/1981) called 'circulation credit', or what Altvater (1985) refers to as 'recycling credit'.10 Recycling credit does not finance expansive accumulation but, rather, alleviates illiquidity by enabling producers to service debt without defaulting. This form of credit is purely speculative as it is supplied to debtors to enable them to meet difficulties in servicing interest on credit, so preventing insolvency. The increasing use of such credit indicated the difficulty of turning credit into effective command over labour, a command which guarantees credit growth through the surplus value extorted from the worker.

For capitalists receiving this kind of credit, it exists not as means of purchase, but as means of payment or, in the face of insolvency, as a means of deferring liquidation and, hence, postponing credit default. The speculative dimension of this credit maintains solvency on an ever-more fictitious basis, calling for an ever more drastic imposition of exploitation in production so as to maintain financial solvency. However, recycling credit does not really leave the banks as it exists as interest payment. At the same time, the burden of debt increases for the debtor and the anticipated exploitation of labour produces inflationary pressure through a 'pseudo-social validation of private labour' (cf. De Brunhoff, 1978). Against the background of an accumulation of monetary claims on not-yet existing surplus value, credit came to function largely as a means of preserving the social relations of production on an increasingly speculative basis.

During the 1970s, economic growth, though it recovered by 1976, remained slow in comparison with the rates achieved in the 1960s. Labour was integrated into the capital relations on the basis of a speculative deferral of capital liquidation. The attempt to sustain accumulation through an inflationary erosion of wages and expansionary policies came into conflict with the results it produced. There was no breakthrough in productivity and the cost of exploiting labour increased through the effects of 'deflationary inflation' (cf. Mattick, 1980). The inflationary growth of credit will reduce profits for productive investment as the ratio of debt to surplus value increases. Besides, inflation will devalue money capital, leading to outward flows of capital and downwards pressure on the exchange rate. The speculative deferral of insolvency came up 'against the real impossibility of using inflation to finance future investments' (see Marazzi's 'Money in the World Crisis', Chapter 4 in this volume).

Against this background capitalist reproduction depended on a deflationary integration of labour into the capital relation so as to reduce the ratio of debt to surplus value through an effective exploitation of labour. In other words, money has to command labour for the purpose of exploitation rather than keeping unproductive producers afloat through an inflationary expansion of credit. The eradication of debt entails a shift from inflationary demand management to a policy of sound money so as to improve the reserves. The regaining of control over the money supply involves a deflationary attack on social relations through the intensification of work and a reduction in public spending that put money into the hand of workers. The containment of labour within austerity was articulated by monetarism's assertion that 'poverty is not unfreedom' (cf. Joseph and Sumption, 1979) and by its demand that 'you cannot spend what you have not earned'.

The notion that poverty is not unfreedom lies at the heart of monetarist orthodoxy. Monetarism is a theory of hope in that it has faith in unfettered market freedom. Rather than borrowing from the future and thereby mortgaging the future exploitation of labour, monetarism calls for the collection of unpaid debt. During the 1970s, the monetarism of the New Right developed as a response to the dissociation between money and exploitation. Behind the deregulation of the global flow of money and the detachment of the dollar from gold lay the pressure to deflate. Monetarism called in the receiver: in order to repay and service interest on credit, it called upon patriotic sentiments according to which one has to live on less than that which 'the nation has produced' and earned in order to achieve the capitalism's golden formula of equilibrium between demand and supply.

By the mid-1970s, monetarism's call for a return of the market was apt. The proposal for a capitalism of 'value for money' encapsulates the notion of a closer relationship between money and exploitation. Rather than allowing for deficits and an accumulation of potentially worthless debt, it promised monetary tightness and a leaner and fitter economy. Strengthening the link between money and exploitation depended upon the decomposition of the working class into a profitable labour force. As von Mises (1949, p. 591), puts it, 'as far as there are wages, labour is dealt with like any material factor of production and bought and sold on the market'. Like any other factor of production, labour will be thrown on the scrap-heap if it is no longer needed or if its productive potentials have been exhausted in production. Instead of income guarantees, people are asked to price themselves into jobs; instead of full-employment guarantees, unemployment is seen as 'natural'; instead of providing welfare guarantees, the use of public expenditure provides poverty level wages as a means of encouraging enterprise and of forcing people into poverty, tax, as well as debt traps. During the 1970s, governments of all persuasions espoused the monetarist sermon of hope in market freedom with almost indecent haste. Governments banked on the disciplining role of mass unemployment and debt. There was a belief that a policy of tight money would encourage employers to reassert their right to manage so as to stay in business through an effective exploitation of labour. The idea was that this reassertion would integrate labour into the capital relation on the basis of profitability rather than credit-sustained postponement of bankruptcy.

The target of the subordination of social relations to tight money was the political power of the working class, as well as the trade unions and their ability to bargain effectively. The imposition of non-coerced exchanges on the market represented an attempt to create an effective role for money in managing the accumulation of capital through the encouragement of greater wage flexibility, the liberation of the market from the 'rigidities' of collective bargaining, legally enforceable minimum labour standards and protective social legislation. The monetarist attempt to strengthen the link between money and exploitation acknowledged the circumstance that money must command labour.

MONETARISM AND DEBT

The focus of international credit relations was the dollar and American banks. The stability of international currency and credit relations depended on the stability of the dollar which started to deteriorate in 1977. In the face of a balance of payment deficit of $20 billion, and a rise in inflation from 6.8% in 1977 to 9% in 1978, Carter let the dollar depreciate. 'From late 1977 the dollar was allowed to float down on the foreign exchange market, but this turned to a rout in Autumn 1978 as short-term capital cut and fled' (Evans, 1985, p. 116). In an attempt to alleviate pressure on its reserves, Carter introduced deflationary measures so as to push up interest rates and stem the flow and borrowed on international currency markets. High interest rates in the United States restored confidence in the dollar, marked by appreciation of the dollar relative to other currencies. However, this step turned the overliquidity of money into a scarcity of money. The dollar crisis and the restoration of the dollar through high interest rates was merely a first tremor, foreshadowing worse. The transformation of overliquidity into monetary scarcity signalled that accumulation was heading for a renewed recession by the end of the 1970s.

Monetarist policies had been adopted in all western capitalist countries by the mid-1970s. However, the political strength of the working class had been recognised in corporatist forms of class collaboration. The debate of the late 1970s on neo-corporatism, the crisis of Modell Deutschland, and on the crisis of the crisis state (see Panitch, 1986; Esser and Fach, 1981; Hirsch, 1980; Negri, 1988c, 1988d; London, 1980, among others) indicates that the imposition of 'austerity by consent' (cf. Bologna, 1977/1994) was faced with grave problems. Carter's deflationary policies paved the way for the much more rigorous monetarism of the New Right which was led by Thatcher in the UK and Reagan in the United States.

Monetarist regimes supported the recession of the early 1980s through pro-cyclical policies. They sought to tighten the money supply, to squeeze 'credit' through high interest rates and to reduce the ratio of debt to GDP through public expenditure cuts. Rather than supporting productive capital through easy credit, low interest rates, and deficit spending, deflationary policies reinforced the difficulties of hard pressed producers through a monetary squeeze on their solvency. Tight money attacked, in the face of a deep recession, working class wages directly by increasing unemployment and indirectly through increased job insecurity. Control of the money supply was based on the formidable idea that mass unemployment and poverty would support the decomposition of the working class into a profitable labour force.

The deep recession of the early 1980s brought to the fore the contradictions of credit-sustained accumulation. When the crisis struck, costly and scarce money reinforced mass insolvency and liquidation of functioning capital as well as mass unemployment. More advanced producers faced intense financial pressure because the introduction of new methods of production at the end of the 1970s was largely financed by credit, permitting a prevalidation of the productive potentials of fixed capital at a time of a looming recession. Further, by clamping down on credit the anticipated profitability of new investment programmes fell below the rate of interest, so permitting a continued transfer of earned profits into money markets. Upon credit default, banks invested new recycling credits (see Mandel, 1987, pp. 210-11 ). The spill over of capital into speculative channels continued, precipitated by high interest rates and a lack of profitable opportunities in productive investment. Capital continued to speculate on its own future while profits that were indeed produced declined so reducing the base from which the interest could be lopped off. Although high interest rates prevented banks from defaulting in the early 1980s, the effects of restoring the confidence of money capital through a policy of tight money threatened to bring about a severe financial crisis as the default of productive activity involved a massive default of credit which threatened the stability of banks because of the overextension of credit (Guttmann, 1989). Further, the rapid deterioration and devaluation of reproductive capital left gaping holes in the shareholders' dividend. At the same time as functioning capitals went into receivership, slashed investment and devalued productive capacity, the money supply, far from contracting, exploded as companies borrowed heavily from global credit markets so as to maintain solvency and cash flow (Sutcliffe, 1983; Clarke, 1988).

During the recession political authorities were not able to inflict substantial damage on the relation between public expenditure and wages. The tendency in public expenditure was upward (Mullard, 1987; Friedman, 1989; Malabre, 1988). High interest rates made additional means of payment for financing public expenditure more expensive. Further, the destruction of productive activity aggravated the fiscal crisis of the state and balance of payment problems, putting pressure on national reserves. At the same time, banks sought to augment their reserves by discounting bills of exchange with the central bank ( Guttmann, 1989). The synchronisation of balance of payment difficulties and debt problems threatened to undermine the attempt to maintain formal exchange equality through a policy of state austerity.

The tightening of the money supply substantially raised the cost of servicing debt for so-called debtor countries. During the 1970s, real interest rates had been negative because inflation rates had been higher than nominal interest rates: 'In those days every time a Third World country borrowed to pay obligations instead of dipping into reserves, inflation meant it got the goods or services for less in the end' (George, 1988, p. 28). However, when interest rates began to rise rapidly, these countries were left holding the baby. The tightening of the international money supply called into question the ability of so-called debtor countries to turn credit into means of payment, precipitating a threat to the stability of global credit relations. On average, between 1973 and 1982, debt increased by 20% annually in the debtor countries, as compared with a 16% annual increase in net exports and a 12% annual increase in GNP. External debt increased from $11 billion in 1972 to almost $800 billion in 1982 (Altvater and Hubner, 1987, p. 21). High interest rates turned credit into the source of an acute liquidity crisis in those countries.

The imposition of tight money escalated the crisis of money to a crisis of the state. As credit was called upon as means of payment, growing international demand for cash in the face of faltering repayment of credit increased the vulnerability of the international system of finance and credit. The compulsion to export under any circumstances in order to repay debt, and growing social tension, forced Poland (1981), Argentina (1982) and Mexico (1982) to declare insolvency. The debtor crisis fed back into metropolitan countries through the international flow of money and pressure on banks. Monetarism was faced with the real possibility that money would turn its power against itself.

The attempt to contain social reproduction within the limits of its capitalist form through a policy of state austerity had come into conflict with the results it produced. When Mexico came within a hairbreadth of default in 1982, global credit relations ruptured to such an extent that the political authorities in metropolitan countries, especially the United States, reduced interest rates sharply and abnegated monetarist 'economic' policies and reinvoked credit expansion. The danger of a major slump was averted by a huge reflation package which had restored pseudovalidation on a global scale by 1982.

The monetarist attempt to reimpose the limits of the market precipitated a potential destruction of the market itself. Monetarism, while it was made politically strong and credible through the failure of Keynesianism, reproduced the contradiction between monetary and productive accumulation in an intensive form. The failure to convert credit into effective command over labour indicates labour's productive and disruptive power which capital had sought to contain by imposing tight money upon social relations. The shift from a policy of state austerity to a policy of deficit financing reintroduced an integration of labour on the basis of deficit financing of demand. The failure to impose control through a policy of tight money, and the reassertion of command over labour in the form of mass unemployment and mass liquidation of productive capacity, undermined claims on future exploitation to such an extent that the international financial system was severely shaken. The transfer of debt to the United States was a response not to the possible collapse of international credit relations simpliciter, but to the crisis of capitalist domination over the productive power of labour that made itself felt in the possible collapse of international credit relations. Rather than improving the strength of the relation between money and exploitation, the imposition of tight money undermined exploitation and therewith money itself. The imposition of tight money threatened to destroy money's own precondition, that is, labour's productive activity. A massive claim on surplus value defaulted. The limits of accumulation asserted themselves in the form of a scarcity of the credit with which labour's productive power had been contained on the basis of a speculative deferral of overaccumulation. In the face of a looming collapse of international credit relations, monetarism as an economic policy was dropped and replaced by a policy of fiscal redistribution and credit expansion, containing labour through a renewed speculative deferral of overaccumulation and crisis. The unmitigated failure to contain labour through a contraction of the money supply led to the reintroduction of those policies the New Right officially proclaimed against, that is, the fiscal and credit expansionism of Keynesianism.

Monetarism and Credit Expansion

Western capitalist countries responded to the crisis of 1980-2 with Keynesian deficit demand management on a world scale. The driving force of the recovery was the United States which supported the boom through two spectacular deficits: the budget deficit and the trade deficit. Demand management particularly in the area of military expenditure paved the way. As Mandel (1988) put it, the most committed Conservatives became the most ardent Keynesians. Their monetarist rhetoric notwithstanding, they supported the boom with huge deficits.11 This support was not dissimilar to Keynes's 'deficit spending', i.e. the creation of debt, the inflation of the money supply, and the spending of money which prevalidates the exploitation of labour. The budget deficit of the United States grew enormously. During the 1980s. 'interest on the debt and the cost of defence account for nearly 40% of all federal expenditures' (Malabre, 1988, p. 110). The average budget deficit for 'the six years 1982-7 was $184 billion' (Friedman, 1989, p. 19). By 1986 the United States had accumulated over $250 billion foreign debt: 'This $250 billion is only the foreign debt: as of 1986, the US government owed an additional $1,750 billion to American purchasers of government securities, so its total public debt was actually $2 trillion' (George, 1988, p. 25).12 The financing of the United States trade and budget deficits through capital imports transformed the United States from the biggest creditor to the biggest debtor in the world. The dollar was sustained by the inflow of speculative capital and debt bondage forced upon so-called debtor countries: 'It's clear that the Third World can't pay- and yet it does! For Latin America alone, new capital inflow (both aid and investment) came to under $38 billion between 1982 and 1985, while it paid back $144 billion in debt service. Net transfer from the poor to rich: $106 billion' (George, 1988, p. 63). Reagan's attempt to make the United States politically and economically strong again by 'living beyond its means' turned the supply-side policy into a policy of importing speculative capital. The money flow into the United States was made possible by high interest rates in the United States. High interest rates did not prove an effective brake on the inflationary expansion of credit. Creditors were shielded from the full burden of outstanding debt (see George, 1992) while debtors were shielded from the debt burden through fiscal relief. Embarrassed creditors, like the big banks, were refinanced upon their gambling losses (Mandel, 1987). Banks received tax relief on 'bad debt' and sold 'bad debt' to public institutions. While indebted countries were, during the 1980s, not allowed to grow out of debt, the banks were able to socialise their debt problems. As George (1992, p. 106) put it, 'during the 1980s, the only thing that was socialised rather than privatised was debt itself'. In the United States, tax cuts laid the basis for the fiscal absorption of high interest rates. In the United Kingdom, tax cuts were implemented on the basis of public expenditure restraint and earnings from privatisation. The failure to decompose the working class into a profitable labour force would have implied, as indeed it did, a progressive dissociation between money and exploitation expressed in higher rates of inflation, financial instability and depressed rate of growth in productive activity. During the boom there was a record number of bank failures. In scale these failures far exceeded the 1930s (see Mandel, 1987, p. 300; Dziobek, 1987). Many of the surviving banks were themselves for a time 'technically bankrupt' (cf. Keegan, 1993, p. 185).

The expansionary response to the debtor crisis acknowledged the circumstance that the only consistent way to contain labour within the capital relation is expanded accumulation. However, the expansionary response did not mean that monetarism was simply abandoned. Indeed, monetarist policies continued. There was a 'juxtaposition' of two different policies. On the one hand, we find policies of monetary expansion (relaxation of credit and controls and fiscal expansionism) and, on the other, an imposition of austerity upon social relations. The former policy acknowledged the circumstance that the deregulated global credit relations had meant the liberation of 'domestic' monetary targets. The latter policy comprises an attempt at monetary adjustment, i.e. at guaranteeing credit expansion through the control of public expenditure. After 1982 monetarism's policy of market freedom focused on the control of that part of public expenditure which supported policies of social reform. The imposition of tight money upon social relations involved an attempt to strengthen the link between consumption and work. The idea was that by controlling public expenditure, economic growth would translate into a fall in the share of public expenditure relative to GDP. This would fend off speculative pressure on the exchange rate because the convertibility of debt into real money was guaranteed by state revenue. This would allow tax cuts designed to offset the pressure of credit costs on debtors and to provide incentives for enterprise. In other words, accumulation was sustained by a relaxation of credit constraints as well as a massive redistribution of national wealth to capital through fiscal policies.

The expansionary response to the 'crisis of 1982' and the attack on the Keynesian relation between public expenditure and wages went together. The adjustment between credit expansion and the control of the money supply focused on the working class. As Gamble (1988, p. 122) put it, 'Keynesian techniques continued to be used, only now the objective was to restore financial stability rather than to preserve high levels of employment and growth'. The retention of tight monetary policies aimed at reducing wage costs and living standards through restrictive monetary policies that discriminated against the working class, and through divisive fiscal policies which increased the overall tax burden while favouring capital through fiscal incentives. It also meant that the welfare state was used not as a means of alleviating the effects of unemployment but as a means of administering social control by the imposition of economic and financial insecurity as well as forced labour.13 In order to contain the class struggle through the only consistent way of imposing the wage relation, i.e. sustained accumulation, political authorities relaxed monetary policies and sought to contain the fictitious – or speculative – integration of labour into the capital relation through restraint in public expenditure and the imposition of 'market freedom' upon the working class through the weakening of trade union bargaining power, unemployment, deregulation of wage protection, segmentation of labour markets, tax and poverty traps, and use of the welfare state as a means of keeping people in poverty and debt and of making people work for their benefits. In this context, the shift to expansionary policies made impossible the restoration of a Keynesian-inspired collaboration with trade unions. Instead, social peace was to be imposed rather than negotiated in an attempt to make the social environment stable without thereby making extensive monetary concessions to the working class. Under the impact of relaxed credit controls and Reagan's 'military Keynesianism' (Clarke, 1988; Gamble, 1988; Harman, 1993; Mandel, 1987), monetarist policies attacked those institutions associated with an integration of labour through social reform.14

During the 1980s, the global liberalisation of financial markets and the deregulation of credit controls made possible an orgy of speculation; the breeding of profits by speculative capital through unproductive investment in money markets. Under the impact of financial deregulation, 'consumer expenditure surged forward, financed by a fall in personal savings as inflation moderated and by a rapid growth of consumer credit' (Ciarke, 1988, p. 336). In the United States, savings fell dramatically from about 6% of personal income in the 1970s to 2.9% in 1985 (Guttmann, 1989, p. 42; for the United Kingdom see Keegan, 1989). The unregulated and uncontrolled banking system made it possible for a great number of people to maintain, in the face of a policy of state austerity, living standards through access to private credit. In the United Kingdom, the decline in the saving ratio was reinforced by an increase in personal financial liabilities of individuals. These liabilities 'rose from 45 per cent of pre-tax incomes at the beginning of the Eighties to 81.3 per cent at the end of 1987' (Keegan, 1989, p. 209). For many people, the only way to sustain living standards was to incur debt. Monetarist policies developed, after 1982, in two ways: credit-sustained accumulation and the unrestricted and unregulated expansion of credit on the one hand, and the integration of private debt through austerity policies with an abrasive law and order control of social relations on the other. The ballooning of global deficit financing of demand indicates that the New Right had lost faith in their own gospel when confronted with the realities of a major slump in the early 1980s. Their transformation into unbelieving Keynesians mortgaged the future exploitation of labour at the same time as law and order spending of all kind increased dramatically.

The 'extremely Keynesian politics of the Reagan administration' (cf. Wolf, 1988) was a Keynesianism dressed in new clothes. While Keynesians emphasise the anti-cyclical dimension of deficit spending, the Keynesianism of the New Right sustained the boom through a pro-cyclical credit expansion. The deficit financing of aggregate demand took place not during the recession but during the boom. Further, the pro-cyclical deficit spending of the 1980s did not reduce the level of unemployment. The Keynesian commitment to redistribution of income and employment was abandoned at the same time as governments pursued expansionary policies associated with Keynesianism. In other words, the erstwhile monetarists remained anti-Keynesian not because Keynesian policies were expansionary but because they were redistributive. Since the 'crisis of 1982', Keynesian policies of credit expansion were used pro-cyclically, favouring those who have and imposing austerity upon those upon whose exploitation capitalist reproduction rests. Expansionary policies and state policies of austerity coincided. Welfare provisions were dismantled in favour of discipline by austerity; fiscal policies were used to discipline people through tax and poverty traps; draconian measures were instituted against trade unions. The idea was to make people pay for the increase in credit through worsening conditions, intensification of work and lower wages. Expansionary policies were thus to be checked by poverty and credit was to be guaranteed through a stronger link between consumption and work. Worsening conditions and any increase in poverty was the mirror image of the boom of the 1980s.

However, the coexistence of mass unemployment, deficit spending and growing indebtedness defined the speculative character of the boom. Growing indebtedness was in no way matched by an expanded exploitation of labour. Indeed, during the boom the investment in money increased enormously while investment in direct exploitation of labour lagged behind dramatically (see Glyn, 1992; Mandel, 1987). Keynesian deficit financing provided financial investment opportunities. Earned profits were financialised rather than invested productively. While it might be argued that indebtedness was induced as a means of delaying a much deeper recession than the one of the early 1980s, or possibly even of delaying a slump of the proportion of 1929-32 (see Mandel, 1987, 1988), the result was the accumulation of increasingly irredeemable debt. No surprisingly the Economist reported in May 1987 that American economists were wondering what lay ahead that year, continued growth or slump? The Keynesianism of the New Right was a desperate measure of crisis management. Rather than tightening the relation between money and exploitation, the link between the two declined progressively. While monetarism proclaimed in favour of the virtues of market freedom, capital made money out of money in a desperate attempt to accumulate as much as possible without getting dirty in the contested terrain of production.15

The boom of the 1980s rested on intensification of work and increase in productivity. The increase in productivity was based, to a great extent, on the liquidation of unproductive producers in the early 1980s. Also, productivity increased because unemployment rose as output fell (see Glyn, 1992; Nolan, 1989). The boom was a boom in 'money' as money was transformed into a saleable thing. Despite downward pressures on wages and the decomposition of class relations through unemployment, and despite the recomposition of working practices, and an increase in the rate of exploitation (see Harman, 1993), ongoing resistance to industrial restructuring prevented either a sufficient rise in profit rates on productive investment or the generation of state surpluses to induce or finance a new cycle of investment. The recovery of accumulation was consumption-led – a return to an integration of labour into the capital relation on the basis of the deficit financing of demand. Capital has opted for monetary over productive investment, fuelling property bubbles, takeover mania and the esoteric art of speculation – because of the tremendous opportunities offered in these investments. However, all these investments represent a considerable avoidance of real investment, an aversion to precisely the supply-side launching of accumulation which the deficit financing of demand had tried to induce.16 The credit-sustained boom of the 1980s was a response to the failure to decompose the working class into a profitable labour force. During the boom the dissociation between monetary and productive accumulation accelerated, a dissociation which fuelled the boom and which led to the crash in 1987 and the recession of the 1990s. Capital, when confronted with the possibility of a major slump in the early 1980s, started to gamble and the affluence of the 1980s was the affluence of a gambler. Monetarist politicians which had preached that government should get off the back of people, had forgotten their erstwhile predictions which von Mises (1944, p. 21) had summarised long ago: 'Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump'.

The crash of 1987 signalled the failure of the Keynesianism of the New Right.17 The crash, while bringing home dramatically how precarious were the foundations of the boom, did not result in an entire meltdown of the stockmarket. This was prevented by a huge reflation package which included the lowering of interest rates, the relaxation of controls on the money supply, and financial support for banks and other financial institutions. The reflation package helped to sustain the credit-sustained boom. Samuel Brittan's advice was well observed: 'When a slump is threatening, we need helicopters dropping currency notes from the sky. This means easier bank lending policies and, if that is not enough, some mixture of lower taxes and higher government spending' (quoted in Harman, 1993, p. 15). The crash led to the abandonment of the monetarist rhetoric which surrounded the Keynesianism of the New Right. As the Economist stated after the crash: 'The immediate task is a Keynesian one: to support demand at a time when the stock market crash threatens to shrink it' (quoted in Harman, 1993, p. 15). Keynesianism was thus officially resurrected and hailed again, even by its erstwhile critics, as a saviour.

The credit-sustained boom lasted until 1990. By the late 1980s inflation began to rise on a global scale. The recession of the 1990s has been the longest and deepest since the end of the Second World War. There were more bankruptcies than during the previous recessions since the 1960s (see Harman, 1993). The property market crashed in the United States, the United Kingdom and Japan, and Germany is in its deepest recession since Weimar.18 Unemployment increased dramatically and corporate default on debt caused banks to write off bad debt on an enormous scale. The consumer boom collapsed. Credit was not only squeezed: credit expansion came to a crunching halt.

The divorce of monetary accumulation from the exploitation of labour in production impinged on the state in the form of a disunity as between the so-called 'overheating of the economy' and speculative pressure on currency. By the early 1990s the credit expansion with which the impact of the crash of 1987 had been smothered was increasingly 'incompatible' with the global limits of credit markets. The expansionary response to the crash led to a development in which the composition of social capital looks more than ever like an upside-down pyramid: 'Phantom credits' accumulated in the form of a speculative betting on the future of capitalism's ailing life-blood, that is, the integration of labour as the variable component of expanded exploitation. However, the increase in the ratio of debt to surplus value meant that the exploitation of labour looked less and less likely to support shareholders' dividends. Big firms such as Pan Am and Maxwell Communications went bust. Everywhere profits dived. Against this background it became not only increasingly 'unprofitable' to make money out of the growing ratio of debt to surplus value; it became also more dangerous. Against the background of the Savings & Loans and property crises, the junk bond market collapsed in the late 1980s. Investors were confronted with a huge amount of non-recoverable debt and the rapid increase in bankruptcies meant that banks ended up with bad debt problems. Credit became more expensive to get and banks called in debt so as to protect their reserves. The precarious financial situation of producers intensified at the same time as credit-based consumer spending came to a halt. By the early 1990s, there was growing concern that a global credit crunch was imminent. Many industries had been swamped with debt and more than a few of these companies lacked the means with which to pay off their debt. Just as rampant speculation fed into itself for years, so too did the new scepticism. Investors began to run for the exits.

National states are not insulated from the rest of the world19 but integrated through the exchange rate mechanism and their containment of labour within global accumulation is 'policed' through speculative capital movements. While governments might have been tempted to inflate the debt away and thereby to reduce the burden of debt on many firms as well as devalue real wages and erode standards of living, speculative runs on currency would result in a liquidity crisis, reinforcing the fiscal crisis of the state and making it difficult to finance balance of payments deficits. Against the background of the Savings & Loans crisis of the late 1980s and speculative pressure on currencies, governments responded with tighter monetary policies increasing interest rates so as to fend off speculative pressure and to make it possible for banks and other financial institutions to compensate for debt defaults and speculative losses. By 1988-9 employers had to concede higher wages as unemployment fell from its previous height and as workers demanded financial compensation for the growth in manufacturing productivity during the 1980s (see Harman, 1993). Unit labour costs accelerated (see Financial Times, 14 October 1989). By the late 1980s, there was growing concern that the increase in profitability during the 1980s was no longer sufficient to maintain expanding investment. The fall in profits triggered a vicious circle as companies were forced to borrow so as to overcome difficulties. High interest rates cut into profits at the same time as the life-blood of the boom, i.e. credit, changed, by the early 1990s, into a forcible collection of unpaid debt which is the backbone of the policy of state austerity. The irony of a Keynesian policy in a monetarist framework was that when the recession came in 1990 there was not much leeway for a Keynesian anti-cyclical policy of deficit spending. Monetary policies tightened because of the danger of rampant speculation on the future direction of policy, the liquidity of national states, the ability of companies to honour credit obligations, and the stability of the property market.

In the United Kingdom inflation moved almost into double figures in 1990. Against the background of the London poll tax riot of April 1990 and worries in the international financial markets about the economic and political situation in Britain, the then Thatcher government joined the ERM in an attempt to anchor monetary policy and so to insulate speculative betting on domestic policies (see Smith, 1992). As in the early 1980s, monetary policy was tightened at the start of recession. The aim was to externalise the responsibility for the deflationary consequences of a policy of high interest rates and to gather support for sterling from other European states. Against the background of huge balance of payments deficits and budget deficits,20 the monetary constraints of the ERM meant that interest rates which had been raised to 15% by 1989 were only reduced to 14% prior to entry and fell to 10% in the summer of 1992 (see Stewart, 1993, pp. 62-3). However, there was no fall in real interest rates 'because meanwhile the inflation rate fell from around 10 per cent to around 4 per cent' (Stewart, 1993, p. 63). The defence of sterling against speculative runs was initially successful in that unemployment started to rise from less than 6% in 1990 to 9% in 1991 and over 10% in 1992 (Stewart, 1993; McKie, 1993). The number of bankruptcies as well as company liquidations increased dramatically by 1990 and continued to rise (see Smith, 1992, p. 257). Additionally companies slashed investment. There was a massive devaluation of capital. Wage demands subsided and strikes fell to a very low level (see McKie, 1993). High interest rates had originally been regarded as a means of deflating the economy without seriously undermining big companies. Their profits were seen to be high enough to protect them. Initially, high interest rates forced smaller business into bankruptcy and attacked social relations through consumer debt default, including mortgages. The British government hoped for a soft landing by making social relations pay for inflationary pressure. The socialisation of the debt problem meant a dramatic increase in homelessness, repossessions, personal bankruptcies, and unemployment. However, the socialisation of debt through the imposition of poverty did not check the downturn.

In response to the breakdown in consumer spending, retailers were hit by debt deflation. Retailing capacity became redundant, causing the property market, against the background of mortgage default and closure of offices, first to bubble and then to burst. The crisis in the property market fed back into the financial system causing debt default at the same time as bad debt problems caused by company failure mounted. Bigger companies were not shielded through their profits for long. Corporate indebtedness had increased dramatically during the 1980s. The debt burden was at around 20% of the capital stock compared with 8% in 1980-1 (see Smith, 1992, p. 193). Manufacturing investment fell sharply by 1990-1 (Smith, 1992, p. 193). Profits did not withstand high interest rates and so started to dip seriously. The banking system was on the 'brink of collapse under the weight of corporate failures and personal bankruptcies' (Smith, 1992, p. 244). Banks sought to support their accounts by higher bad debt provisions and to socialise their debt problems through redundancies, higher fees, and wider interest rate margins on loans. Credit became more expensive and more difficult to obtain. At the same time, 'consumers' and 'companies' were reluctant to borrow and endeavoured to service their debt (see Stewart, 1993, p. 102).

The level of lending decreased on a global scale. For example, in the United States, business borrowing fell: 'Previously the pattern was for firms to increase their borrowing in recessions: total bank loans rose by 12.2 per cent in 1973, by 3.5 per cent in 1980s and 5.4 per cent in 1981. But in 1990 total loans fell by 3.6 per cent' (Harman, 1993, p. 42). However, the availability of money was not in question. There was a lack of profitable opportunities to spend it (Harman, 1993, p. 44 ). There was thus a lack of lending and a global shortage of capital at the same time as companies required additional credit to maintain solvency. While credit was hard to come by, past debts fell due. As Harman (1993, p. 45) indicates, 'the discussion about the “credit crunch” is an indication that the system has reached an impasse'.

During the recession, the ratio of debt to GDP rose allowing for a growing share of interest payments in government budgets (seeFinancial Times, 27 September 1993). With government becoming increasingly vulnerable to a sharp rise in interest rates, public spending pressure increased as unemployment rose. High interest rates, persistently slow economic growth, public spending pressure and loss of revenue tightened the fiscal crisis of the state. Budget deficits increased at the same time as the guarantee of global credit relations through the reserves and state revenue decreased in strength. As a consequence speculative policing of domestic attempts to safeguard currencies through deflationary control of social relations increased, reinforcing the fiscal crisis of the state through runs on currency and thus through a drain on the reserves. Against the background of both huge balance of payments deficits and budget deficits, as well as sluggish economic growth and a stumbling banking system, the pound sterling became a target of market rule. The pound sterling crisis of 1992, when its membership in the ERM was suspended and sterling devalued, and the near suspension of the ERM in 1993, indicated that the recession had reached an impasse. In 1993, the decision to increase the fluctuation margins in the ERM to 15% either side of the central rates amounted to an admission on the part of governments that tight monetary policy had not succeeded in controlling social relations through austerity and that they thus could not fend off speculative pressures.

Against the background of reduced rates of inflation, mass unemployment, and the turmoil on the currency markets, budget deficits everywhere were at a high level in 1992: 'The average for the main OECD countries had risen to 43.6 per cent, from 22.7 per cent in 1979, and by the end of 1993 all the European Community countries were expected to be outside the Maastricht target for government debt of 3 per cent of GDP' (Harman, 1993, p. 49). Will the debt crisis which beset the Third World in the 1980s move north? There is a renewed Keynesian stimulus to demand as deficits increase and as the first green shoots of recovery are visible due to wage restraint, a massive devaluation of capital, as well as the socialisation of bad debt problems: 'Keynesianism does seem to be making a comeback' (Gamble, 1993, p. 80). What, however, does that mean? Keynesian policies of deficit financing on a global scale have 'already been used up to support the cyclical expansion of the 1980s, leaving in its wake a tremendous overhang of government debt whose servicing takes up a larger and larger share of Federal outlays' (Burkett, 1994, p. 12). In the wake of the Los Angeles riots, Clinton announced a 'war on poverty' and, in Britain, Major promised, against the background of the abandonment of the poll tax, to create a 'classless society'. Should we indeed see the return of the so-called 'affluent society' which captured the imagination of so many during the late 1950s and early 1960s? The image of prosperity is seductive especially against the background of mass unemployment, growing poverty and increasing homelessness. However before we let ourselves be seduced we will first have to return to basics: 'The weakness of the present upturn signifies the reemergence of a long-run crisis having the same basic character as in the 1930s' (Burkett, 1994, p. 9).

Keynesianism in the 1990s is expensive. Governments all over the world are preaching the gospel of rising productivity and competitiveness. The promise is thus that fewer and less paid workers will produce more. As Burkett (1994, p. 13) puts it, 'under current conditions, rising productivity translates primarily into higher unemployment'. In other words, a rise in the productive power of labour makes it very difficult for capital to regard the unemployed as a variable component for the purpose of expanded exploitation. Against the background of consumer debt and recent attempts by governments to balance their books by further cuts in the welfare state, targeting, for example, single mothers and pensioners, and higher tax burdens for those who do-not-have, the attempt to avoid a slump by boosting the exploitation of labour through deficits is not without its problems. As the Financial Times (9 September 1993) points out: 'Governments know that if policy ceases to be credible, international markets will simply switch off the financial tap.' Without an effective exploitation of social labour power accumulation will remain a speculative gamble: 'Little wonder the IMF privately fears that the debt threat is moving north. These days it is the build-up of first world debt, not Africa's lingering crisis, that haunts the sleep of the IMF officials' (E. Balls in Financial Times, 27 September 1993). Clinton's promise of a 'war on poverty' should be taken seriously. Political regimes in so-called debtor countries supply not only ample evidence of a monetarism in crisis, but also present the more likely future of a capitalism which continues to invest in the future because it can not redeem itself in in the present.

MONETARISM: A CONCLUSION

Since the late 1960s, depressed rates of productive accumulation have coincided with a rapid monetary accumulation. There has been a dramatic dissociation between money and exploitation. Credit has not been transformed into command over labour for the purpose of expanded surplus value production. Capital has opted for speculation rather than the generation of surplus value. The significance of monetary speculation lies in the avoidance of a direct relationship with the working class. Speculation does not meet with the same resistance that capital encounters in the factory. Since the mid-1970s, the attempt to rebuild profitability without enduring a slump on the scale of the 1930s has been associated with a policy of deflation, and the sacrifice of the commitment to full employment and a policy of social reform.

The breakdown of Bretton Woods and the deregulation of international credit and money markets proved to be the single most important event of the class struggle in-and-against the form of the capitalist state. Behind the deregulation of international money lay the strategy of austerity as a means of decomposing class relationships through the ruthless impartiality of monetary intervention and the intensification of work. However, the rule of money exists only through the reproduction of this command's precondition: the harnessing of labour into expanded profitable reproduction. Keynesian and monetarist policies depend on sustained accumulation so as to contain labour through the fragmenting imposition of the wage relation. Both policies accentuate different moments of the contradictory unity of surplus value production, stimulating a breakdown of both, money and production, through the sacrificing of one moment of the contradiction in favour of the other. The dissociation of monetary accumulation from productive accumulation constituted the contradictory unity of surplus value production in the form of a crisis-ridden disunity between functioning capital and the credit system. Both of these poles of the contradiction exist as different moments of the circuit of social capital, a crisis-ridden contradiction which entails the crisis of domination over labour. It has been emphasised that neither Keynesianism nor monetarism succeeded in containing labour and in solving the 'labour question'. The attack on the working class during the 1980s and 1990s radicalised established trends. This radicalisation was confined and precipitated by the crisis of Keynesianism. Monetarist policies responded to the crisis of Keynesianism without overcoming it.

During the 1980s, Keynesian economic policies continued to be used while the attack on the welfare state did not weaken the relation between wages and public expenditure. The increase in private debt contradicted the attempt to strengthen the connection between consumption and work. The result was the deepening of the crisis of Keynesian policies of state austerity. The recession of the 1990s expresses the failure of the Keynesianism of the New Right.

During the 1980s, the class struggle over credit and monetary policies involved the struggle over the imposition of monetary austerity upon social relations in and through unemployment, deflationary attack, imposition of poverty, and the intensification of work and law and order control. However, the intensification of work, the shedding of labour and the microchip revolution did not result in a profitable integration of labour into the capital relation. The circuit of social capital was based on a renewed speculative deferral of overaccumulation and crisis, precipitated by renewed global deficit financing of demand. Labour was integrated into the capital relation on the basis of debt.

The speculative accumulation of the 1980s stretched the limits of the market through credit and the ultimate barrier to accumulation appeared to be the availability of credit. However, the availability of credit is the availability of money capital that reasserts the limits to capitalist accumulation in the form of speculation and (eventually, as in 1987) a financial crisis. The debt crisis of the 1980s, the crash in 1987, and the recession of the 1990s, expressed the crisis of capitalist domination over labour for the purpose of exploitation. Within the context of the persistence of crisis, and the failure of past policy measures to achieve a solution, money asserted itself in a repressive rather than a creative way. The imposition of tight money upon social relations has not been matched by a recomposition of class relations capable of relaunching a new cycle of accumulation. Far from stimulating investment, employment and output, the result of credit expansion in a tight monetary framework was the deterioration of conditions and mass unemployment. There was no breakthrough in investment. Credit expansion was used for speculation rather than for the generation of surplus value. The reconstitution of the circuit of social capital does not just require, as during the 1980s, a divisive and fragmenting decomposition of class relations in terms of the property owner and citizen. Rather, it involves the imposition of valorisation upon the labour process. Such an imposition implies not just the intensification of work and the repressive exclusion from production of those whom capital is forced to disregard as a variable for exploitation. Rather, it entails the transformation of money into truly productive capital, that is, a capital which exploits labour on an expanding scale. This transformation presupposes the recomposition of the relation between necessary and surplus labour. The recomposition of this relation is still beyond the horizon.21

By the early 1990s, the weakness of productive activity and the instability of the financial system presents the failure of neo-liberalism to secure the future exploitation of labour in the present. Against the background of the deep and prolonged recession of the early 1990s, there is nostalgia for Keynesianism. There is a growing number of studies which, after so many years of deficit spending, argue for a return to Keynesian policies. These studies emphasise that market economies are not self-stabilising and so in need of some sort of Keynesian intervention (see Stewart, 1993; Keegan, 1993). Keynesianism is seen, again, as a means of making capitalism safe for capitalists. In the 1990s it has become old fashioned to demand from government that it should get off the backs of people and provide greater scope for market forces. There is a demand for a new consensus. Old style Keynesianism is criticised for its excessive interventionism while monetarism is rejected for its excessive deflationary zeal and its religious belief in market self-regulation. Excessive deflation as well as excessive encouragement of expansion is damaging (cf. Keegan, 1993). One cannot rely on market forces but it is not advisable to return to full-blown state intervention (see Stewart, 1993). There is a demand for a new 'realism': market and state have to cooperate (cf. Mitchell, 1989, p. 51). Would the 'fine tuning' of this relationship involve also a return to a 'social capitalism' (cf. Keegan, 1993), i.e. a capitalism of social reform? There are proposals for a reformed Keynesianism and a 'market socialism'.22 As in the past, the reformist left proposes to defend market forces against their inherent disruptive constitution. They wish to humanise the inhumane.23 The so-called Keynesian era did not start in the 1930s but developed through the experience of fascism and war.

References
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• 1See Holloway's 'The Abyss Opens', Chapter 2 in this volume.
• 2On this system see Burnham (1990) and Burnham's 'Capital, Crisis and the International State System', Chapter 5 in this volume; see also Bonefeld (1993a, 1993b) as well as Brett (1983) and Pilbeam (1992).
• 3Skidelsky (1977); Lekachman (1966). This part is indebted to Gamble (1993, p. 42).
• 4See Callaghan, quoted in Holloway's 'The Abyss Opens', Chapter 2 in this volume.
• 5On these markets see Holloway's 'The Abyss Opens', Chapter 2 in this volume; see also Cleaver's 'The Subversion of Money as Command', Chapter 7 in this volume, as well as Bonefeld (1993a) and Wachtel (1990).
• 6See Itoh (1978); Mandel (1987); Wolf (1988); see also Sampson (1983).
• 7On the redefinition of the 'power of money' see Marazzi's 'Money in the World Crisis', Chapter 4 in this volume; see also Bonefeld's 'Money, Equality and Exploitation', Chapter 8 in this volume.
• 8On the fiscal crisis see: O'Connor (1973); Gough (1975), Hirsch (1978a, 1978b). See also Offe's (1984) work on the crisis of the welfare state. For an assessment of these approaches, see Clarke (1991, 1992, 1988).
• 9OPEC countries contributed also to the growth of the Eurodollar market (see Wachtel, 1990). However, the so-called petrodollar represented a small proportion of the rise of the volume of money placed on this market (Schubert 1985). See also Altvater and Hübner (1987).
• 10The following quote by Marx (1966, p. 515) might help to clarify the argument:

  The demand for loanable capital is demand for means of payment and nothing else; it is by no means demand for money as a means of purchase. [This] demand for means of payment is a mere demand for convertibility into money, so far as merchants and producers have good securities to offer; it is a demand for money-capital whenever there is no collateral. so that an advance of means of payment gives them not only the form of money but also theequivalent they lack, whatever its form, with which to make payment.

• 11The following is close to Mandel ( 1988, p. 105).
• 12On the debt in other western capitalist countries see Mandel (1988, 1987), Wolf (1988). In the United Kingdom budget deficits and the trade deficit improved during the 1980s due to the earnings of North Sea oil (Keegan, 1984, 1989), privatisation (Gamble, 1988); a higher tax burden (Rowthorn, 1992), and drastic cuts in that public expenditure which supported policies of social reform. See also Clarke (1988); Bonefeld (1993a); and the contributions in Michie (1992).
• 13See the workfare programmes in the United States and training programmes in the United Kingdom.
• 14After the abandonment of the 'monetarist economics', the British Prime Minister Thatcher promised to 'kill Socialism in Britain' (see Bonefeld, 1993a) and fought the miners in 1984-5. The miners were branded as the 'enemy within' and defeated with the help of paramilitary policing (see Bonefeld, 1993a; Fine and Millar, 1985).
• 15See Cleaver's 'The Subversion of Money-as-Command', Chapter 7 in this volume.
• 16See n. 15 above.
• 17On the crash see the contributions to Capital & Class, 34; Harman (1993); Mandel and Wolf (1988); see also Bonefeld (1993a).
• 18See Hannan (1993) on the recession in Germany and Japan.
• 19See Holloway's 'Global Capital and the National State', and Burnham's 'Capital, Crisis and the International State System', Chapters 5 and 6 in this volume. See also Bonefeld (1992) and Burnham (1990, 1993).
• 20The balance of payments was in the red from 1987 onwards and has, since then, increased steadily (see Stewart, 1993). The PSBR was negative from 1987-8 to 1990-1 and deteriorated sharply in 1991-2 and increased dramatically in 1992-3 to 36.5 billion compared with a budget surplus of 0.5 billion in 1990-1 (see McKie), 1993.
• 21On the relation between 'money', on the one hand, and necessary labour and surplus labour, on the other, see Negri (1984, Lesson Two); see also Marazzi's 'Money in the World Crisis', and Bonefeld's 'Money, Equality and Exploitation', Chapters 4 and 8 in this volume.
• 22See McNally (1993) for a critique of market socialism.
• 23See Agnoli (1990) on reformism's affirmative critique and acceptance of the status quo.