Vox Popoli

An Italian economic historian appears to have inadvertently exposed the way in which Clown World migrates The Empire That Never Ended from a declining power to its successor empire:

It pays to revisit the work of the Italian political economist and historian of global capitalism Giovanni Arrighi (1937-2009). Arrighi, who is often simplistically pigeonholed as a Marxist historian, a label far too constricting given the breadth of his work, explored the origins and evolution of capitalist systems dating back to the Renaissance and showed how recurrent phases of financial expansion and collapse underpin broader geopolitical reconfigurations. Occupying a central place in his theory is the notion that the cycle of rise and fall of each successive hegemon terminates in a crisis of financialization. It is this phase of financialization that facilitates the shift to the next hegemon.

Arrighi dates the origin of this cyclical process to the Italian city-states of the 14th century, an era that he calls the birth of the modern world. From the marriage of Genoese capital and Spanish power that produced the great discoveries, he traces this path through Amsterdam, London and, finally, the United States.

In each case, the cycle is shorter and each new hegemon is larger, more complex and more powerful than the previous one. And, as we mentioned above, each terminates in a crisis of financialization that marks the final stage of hegemony. But this phase also fertilizes the soil in which the next hegemon will sprout, thus marking financialization as the harbinger of an impending hegemonic shift. Essentially, the ascending power emerges in part by availing itself of the financial resources of the financialized and declining power.

Arrighi detected a first wave of financialization starting around 1560, when the Genoese businessmen withdrew from commerce and specialized in finance, thereby establishing symbiotic relations with the Kingdom of Spain. The subsequent wave began around 1740 when the Dutch began to withdraw from commerce to become “the bankers of Europe.” The financialization in Great Britain, which we will examine below, emerged around the end of the 19th century; for the United States, it began in the 1970s.

Hegemony he defines as “the power of a state to exercise functions of leadership and governance over a system of sovereign states.” Central to this concept is the idea that historically such governance has been linked to the transformation of how the system of relations among states functions in itself and also that it consists of both what we would call geopolitical dominance but also a sort of intellectual and moral leadership. The hegemonic power not only rises to the top in the jockeying among states but actually forges the system itself in its own interest. Key to this capacity for the expansion of the hegemon’s own power is the ability to turn its national interests into international interests.

Observers of the current American hegemony will recognize the transformation of the global system to suit American interests. The maintenance of an ideologically charged ‘rules-based’ order – ostensibly for the benefit of everyone – fits neatly into the category of conflation of national and international interests. Meanwhile, the previous hegemon, the British, had their own version that incorporated both free-trade policies and a matching ideology that emphasized the wealth of nations over national sovereignty.

Returning to the question of financialization, the original insight into its epochal aspect first came from the French historian Fernand Braudel, of whom Arrighi was a disciple. Braudel observed that the rise of finance as the predominant capitalist activity of a given society was a sign of its impending decline.

Arrighi adopted this approach and, in his major work called ‘The Long Twentieth Century,’ elaborated his theory of the cyclical pattern of ascendency and collapse within the capitalist system, which he called the ‘systemic cycle of accumulation.’ According to this theory, the period of ascendency is based on an expansion of trade and production. But this phase eventually reaches maturity, at which point it becomes more difficult to profitably reinvest capital in further expansion. In other words, the economic endeavors that propelled the rising power to its perch become increasingly less profitable as competition intensifies and, in many cases, much of the real economy is lost to the periphery, where wages are lower. Rising administrative expenses and the cost of maintaining an ever-expanding military also contribute to this.

This leads to the onset of what Arrighi calls a ‘signal crisis,’ meaning an economic crisis that signals the shift from accumulation by material expansion to accumulation by financial expansion. What ensues is a phase characterized by financial intermediation and speculation. Another way to think about this is that, having lost the actual basis for its economic prosperity, a nation turns to finance as the final economic field in which hegemony can be sustained. The phase of financialization is thus characterized by an exaggerated emphasis on financial markets and the finance sector.

Financialization is the first stage of decline and fall, but because it looks like an economic boom, it confuses everyone as to the fact that the mantle of hegemonic power is already being passed on. And part of the chaos of today’s world likely stems from the apparent fact that China belatedly rejected both financialization as well as its role as the next seat of the travelling empire, while both China and Russia are systematically destroying every attempt to expand the hegemon to global proportions.

It’s a long piece, but read the whole thing. The Long Twentieth Century is definitely going on the reading list.

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