Abstract
It borders on cliché at this point to note that the 2007–2008 global financial crisis has prompted a wide-ranging reflection on the place of finance in contemporary capitalism. At the heart of this, cutting across critical perspectives, have been engagements with interlinked problems of value, valuation, and risk.
Carolyn Hardin’s excellent Capturing Finance: Arbitrage and Social Domination is a conceptually rich, thoughtful, and engaging entry into this canon. Readers interested in the political economy or cultural economy of finance will find much of value in this book. I will develop a sympathetic critique of some of the book’s main arguments and their implications in what follows. None of this should take away, however, from the message that this is an excellent book well worth reading.
Hardin’s starting point is the disjuncture between the nearly ubiquitous presence of “arbitrage” in business school and practitioner discourses about finance, and its near absence from critical studies of finance in sociology and cognate disciplines (p. 2). “Arbitrage” refers to trades taking advantage of different prices for the same thing in different markets. Arbitrage, in textbook definitions, is “self-financing”—that is, carried out with borrowed capital, not the trader’s own—and “riskless.” Arbitrage trades, at least in theory, do not involve the possession of assets over time.
Arbitrage, in this sense, occupies a “privileged and bizarre ontological position in the world of finance” (p. 3). Risk and return are meant to be correlated, and an efficient market in which prices were “correct” would not permit arbitrage. In economic theory, arbitrage functions primarily as an enforcement mechanism—“arbitrage is assumed to be both absent as a condition of formal economic models, and present as the assumed real-world mechanism that polices the system to bring it in line with the model” (p. 4). Yet, for financial market participants themselves, arbitrage is a means of making a profit, and indeed, a materially attractive one at that. Given that it comes with no risk attached, returns on arbitrage are a “proverbial free lunch” (p. 5).
Hardin’s book asks what a critique of finance might look like that puts arbitrage at the center. She interrogates the material, technological, and social relations that make arbitrage possible. The body chapters of the book interrogate the construction of arbitrage in economic theory, setting this against the complex technical and material arrangements required to make arbitrage work “in real life.” The “riskless” character of arbitrage in theory is premised on the ability to trade assets in different markets instantaneously. In practice, this condition can only be simulated—through contractual mechanisms, or often through technological advantage. Hardin traces a history of efforts to simulate or approximate instantaneity, and hence secure arbitrage opportunities, through locational and technological advantages. She traces this thread from the rise of transoceanic communications between the London and New York stock exchanges in the late nineteenth century through to contemporary high-frequency trading.
Hardin uses this analysis to set up a broader engagement with the question of “value” and critique of finance in capitalism. Drawing on Moishe Postone, she draws a contrast between “traditional Marxist” views of value, centered on the exploitation of labor, and a Postonian critique centered on the operation of “abstract domination.” The problem with capitalism, in this reading, is not that value is extracted from workers, but that workers are subject to domination by abstract social structures constituted in part by their own actions. Extending Postone’s arguments, Hardin suggests that “for finance, the principle that enacts abstract domination within society and is the condition of possibility of the capture of value is risk” (p. 75).
The key examples through which this claim is fleshed out are a discussion of mutual fund “timing” and of the subprime lending boom in the buildup to the 2008 financial crisis. The finer details of these accounts are perhaps beyond the scope of this review. The key point for present purposes is that Hardin suggests, rightly, that large-scale arbitrage profits through these means have been enabled by wider social and political changes that have compelled more and more people to borrow, and invest, in order to secure their own livelihoods. As Hardin puts it, “One may easily revise Postone’s concise statement ‘One must labour to survive’ as ‘one must invest to survive.”’
What Hardin’s argument is missing, for me, is a sense of how intimately linked together peoples’ subjection to “risk” and investment in this sense is to their subjection to the abstract domination of capital through work. Hardin often seems to discuss dynamics of financial risk-taking and laboring as if they were analogues—the compulsion to participate in financial risk is like the mute compulsion to work. They could equally be understood as one and the same process. Mortgage, credit card, and student debt (and rent) stem from the same basic source—the commodification of the conditions of survival and flourishing—as the compulsion to labor. And, indeed, debts perform an important function of labor discipline. Indebted workers must find a way of earning enough to meet payments.
This is in the background of the examples above. Hardin discusses the vicious retrenchment of the welfare state and assault on well-paying unionized jobs in the United States from the 1970s onward as key factors driving the compulsion for many people to undertake riskier investments in order to secure a viable retirement (pp. 77–79). But the way the argument about value and domination is framed ultimately prevents these dynamics from being theorized as clearly as they might have been.
This matters, ultimately, politically. Hardin’s is one of a number of recent contributions to argue that the axes of vulnerability, stratification, and power in contemporary capitalism have less to do with “work” than they may have in the past. Her claim here is that a progressive politics able to deal with the real operations of finance will need to be articulated on the terrain of “risk.” In concrete terms, she raises a pair of examples: efforts to address the specific ways that credit risks are calculated with an eye to redressing racialized disparities, and through “household unions” in which contractual payment streams (debt service, along with, for example, utility payments) are organized collectively. Instead of making payments directly to service providers, a “union” might enable the strategic withholding of payments.
It is here that the book’s somewhat ambivalent position on the links between risk and exploitation shows its limits. If we take seriously the idea that the compulsion to “risk” is driven by the remaking of work and social welfare over the preceding decades, surely it is precisely in confronting the underlying social conditions through which that compulsion is enacted that we might find a response. If there is cause for hope, it must be in reinvigorated labor movements, in campaigns for affordable housing, in a growing movement for the abolition of student debt and for free education, and for public health care.
All of that said, this is a rich and provocative book. I took a good deal out of reading and thinking with it, and I suspect many others will find the same.