Let me start this piece on Samuel Knafo’s The Making of Modern Finance: Liberal Governance and the Gold Standard with a disclaimer: it makes no claims to neutrality or objectivity. I have witnessed the book’s development up close since approximately the turn of the century, when Sam and I were both graduate students at York University in Toronto. From there Sam moved to the University of Sussex, where the book spent some more years in the oven before it emerged in its current form. My own work has developed in close dialogue with Sam’s, and the conclusions of my The Development of American Finance parallel those of The Making of Modern Finance in key respects. The book was the subject of the reading group in the Department of Political Economy at the University of Sydney during its meetings from May to July, and, as has become something of a tradition, this post and the following pursue some of the reflections that emerged there.
A brief summary of sorts. The book starts off by observing a curious contradiction in the IPE literature. It is widely acknowledged that the gold standard never functioned in a way that is consistent with the liberal image of a subordination of states to the discipline of financial markets. Yet this has rarely prompted scholars to re-examine the nature of the gold standard. Instead, it has primarily motivated efforts to salvage the liberal hypothesis: the literature on the gold standard accordingly reads like an endless series of excuses and exemptions. Sam’s objective is to advance a qualitatively new interpretation of the gold standard, and to this end he delves deeply into financial history, exploring the sources of British finance and tracing how they shaped a particular gold standard regime and the way in which this came to serve as the basis of international finance during the heyday of British power. The formalization of the gold standard was not a decision of the state to tie its own hands to the mast, but an attempt to police finance and make it serviceable to political objectives.
The book is not the work of a historian: it does not unearth any new archives. On the other hand, its conceptual intervention is fully historical – there is no meta-theoretical claim. Somewhat predictably, that leaves the book open to ojections from two opposite directions. A recurrent theme in the reading group (and I should confess here that I was not able to make all the meetings) was that people felt somewhat in the dark about the author’s theoretical commitments – during the first few weeks, much time was spent wondering what the book was gearing up to do. In IPE it is common for an author to declare her or his theoretical affiliations up front, or even just to explicitly state her or his reasons for refusing such affiliations. IPE debates accordingly tend to assume the form of competing conceptual templates, each claiming to be able to integrate a greater amount of historical data. But working with this kind of theory-history relationship is to put the cart before the horse: it always ends up shoehorning historical material into a theoretical template that must be maintained for reasons that reflect not so much their explanatory capacity but rather the perceptual blinders or reputational investments produced by academic institutionalisation.
If there is no doubt something disorienting about the way the book sets up its contribution, to my mind many of the critical theoretical frameworks that might be considered suitable candidates have already been given a run for their money and found wanting. A “factions of capital” analysis would likely resemble Ingham’s claims about British finance, and a theory of financial cycles in the spirit of the currently fashionable financialisation literature would bring us close to Arrighi’s work. Neither of those approaches has been capable of rethinking the image of classic liberalism as the subordination of the state to financial markets. The efforts of critical theorists to re-interpret financial history along such lines have often had a rather abstract character, placing phenoma in a different framework but without offering a qualitatively new angle on their significance.
From the other end of the spectrum the opposite concern might be voiced: many historians would readily agree with the above points but question the extent to which the book really practices an appropriate degree of historical sensibility – after all, the book does not open up any new archival material and draws only on secondary resources. Nor should we be too quick to associate such an attitude exclusively with the historical profession: even in a field such as IPE, which prides itself on its theoretical reflexivity and imagines itself immune to charges of empiricism, the yardstick by which originality of contribution is measured often turns on empirical novelty – even when such new facts only confirm what we already knew. All too often, therefore, that kind of attitude amounts to an injunction to get on with the business of empirical fact-finding even as significant gaps in our existing theoretical frameworks persist. In a sense, then, The Making of Modern Finance is less interested in finding out new facts than in putting to productive use the facts that we already have but tend to ignore.
The book’s primary objective is thus to historicize, to think finance historically. Perhaps we can view this as a particular take on Marx’s dictum that people make history but not under circumstances of their own choosing. This has of course evolved into the kind of notion that few thinkers – Marxist or otherwise – disagree with, and is usually taken as arguing for a balance between structure and agency, between the material weight of history and the opennes of the future. But the book moves beyond such formulaic notions of “interaction” to give the idea of structuration a particular twist. Structure has no material existence: it works at the level of unintended consequences and it only makes itself felt as something that systematically distorts the projections of human agency. History, then, may be motored by designs and intentions, but its direction follows a much more complex logic and is centrally governed by the continuous emergence of unexpected constellations of social and economic forces.
One way of reading this approach is in terms of the influence on Sam’s work of Political Marxism, an approach that is usually seen to have its origins in Robert Brenner’s work on the transition to capitalism. The central idea taken from Brenner’s contribution is that capitalism was not incipiently present in the structures of feudalism: capitalism did not emerge through capitalists avant la lettre liberating themselves from feudalism’s institutional shackles, but was an unintended system-level effect of the changing logic of social and political competition. Over the last couple of decades the insights from Political Marxism have made their way into historical sociology and international political economy and much of this work has been done at Sussex. This has been accompanied by a certain divergence between “first-generation” and “second-generation” Political Marxists. Whereas Political Marxism’s original proponents (most notably Ellen Meiksins Wood in addition to Brenner) have tended to focus on capitalism’s laws of motion in a way that reproduced the structuralism they initially sought to break with, more recent contributions have tended to be more interested in the way institutions and logics of social power continue to evolve in capitalism. What remains is perhaps above all a sensibility, an acute awareness that history does not follow any principles or laws or but generates its own endogenous dynamics.
We can read this either an effective break with the substantive tenets of Political Marxism or as a renewal of the promise of a specifically political Marxism. The title of the book refers to the making of modern – not capitalist – finance, and so suggests the importance of differentiating “capitalism” from “modernity.” Modernity seems to have a specific political rationality that isn’t captured in the conception of capitalism as a system of exploitation based on wage-labour. The book’s critique of liberalism does not center on the role of capital or of the working class, but on that of the state and the ways in which it was able to develop institutional capacities that are suppressed in liberal theory and its many offshoots. The emphasis on the importance of unintended consequences does not by any means entail a relativization of agency tout court – the central claim of the book is about the emergence of a specific kind of agency, namely that of the English state, through this historical logic.
So the model that this suggests is one of human interaction creating interdependencies that offer new configurations of constraints and opportunities. The nature of those patterns is never fully grasped in the moment itself, and there is always an element of contingency in whether and how they are exploited. Innovation is essentially the process whereby actors reposition themselves within such evolving constellations of cooperation and competition. State policies do not escape this dynamic: to assume that the state “sees like a state” (to borrow James Scott’s phrase) is to beg all the interesting questions, and to ignore entirely the historical processes through which the particular vantage point of contemporary financial policy emerges. New patterns of social relations offer new, unanticipated opportunities for manipulation, and policymakers over time learn how to wield these. Modern financial policy is not a variation on a generic model of market and state interactions, but a specific historical accomplishment.
But as much as this framework allows the book to move beyond some widely held misconceptions, we may still ask whether it is entirely successful in eradicating all traces of idealism and offering a reading of history as an endogenously evolving process. It is hard to escape the impression that the state is seen to acquire its capacity for productive interventions by being at a few removes, or gradually distancing itself from, the historical logic of unintended consequences. Let me emphasize that I am not here questioning Sam’s emphasis on the importance of the state. That state and finance do not exist at each other’s expense should be considered a historical given that much contemporary scholarship has worked very hard to suppress. Rather, I wonder if (and let me add here that I think the very same question can be raised about my book on American finance) the narrative still tacitly assumes the working in history of a Hegelian cunning of reason. If the state enjoys no inherently privileged vantage point, how should we explain its systematic ability to access a rationality that remains out of reach to others? What is the principle of hierarchisation at work in the kind of contingent historical logic that Sam’s book describes and how can we theorize this wihout returning to statist assumptions?
This is not a purely theoretical quibble. I wonder if the book ends up setting too much store by the self-image of modern monetary policy and its claims to technical precision. With respect to the historical narrative, it seems to me that the lender-of-last resort question, which was prominently on the minds of contemporary observers such as Bagehot and is intimately connected to financial governance in its least sophisticated guise as too-big-to-fail bailouts, is sidelined a little too much. And this has implications for how we view the nature of twentieth century monetary policy, which Sam argues should be seen as the further development of the innovations introduced under the gold standard regime: if Keynesianism certainly formalized newly perceived ways of governing economic processes, its technical sophistication served to rationalize away some of the most banal aspects of what it means to finally see like a state. Such considerations have of course considerable contemporary relevance, as a whole new generation of critical thinkers is blindsided by the technicalities of risk management innovation and seem unable to discern the ways they institutionalize a form of central banking that above all works by systematically shifting risk away from large financial institutions.
But if the worst I can say about this book is that it bends the stick a little too far in the other direction, or that it doesn’t fully settle the questions it speculatively takes up in the conclusion, that only goes to underscore the fact that Sam has given us a fundamental reinterpretation of what we have always thought about British finance and its role in the making of the modern world.