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Finance will get less aggressive and smaller”

An interview with Robert Guttmann
Robert Guttmann et Cédric Durand

Notes de la rédaction

Robert Guttmann, who teaches at Hofstra University in New York and also works at the CEPN in Paris, is a specialist in monetary theory who has focused in particular on financial instability. He integrates different heterodox traditions to shed light on the cyclical growth dynamic of the monetary production economy, using “la theory de la regulation” as a vector for his attempts at cross-fertilization. Among Professor Guttmann’s most important contributions are “Asset Bubbles, Debt Deflation, and Global Imbalances” (International Journal of Political Economy, 2009), “The Heterodox Notion of Structural Crisis” (Review of Keynesian Economics, 2015), as well as his books How Credit-Money Shapes the Economy: The United States in a Global System (M. E. Sharpe, 1994), Cybercash: The Coming Reign of Electronic Money (Palgrave Macmillan: 2003) and Finance-Led Capitalism: Shadow Banking, Re-Regulation, and the Future of Global Markets (Palgrave Macmillan: 2016). He is currently working on a new book about carbon finance.

Texte intégral

11. You’re US regulationist… It’s a rather rare species! How did you get there?

2While I have lived in New York City since 1978, I grew up in post-war Austria. Most of my education and early political formation took place in Europe – as a left-wing undergraduate student in Vienna, at the FU Berlin when it was a center of Marxist thinking, with the Post-Keynesians at Thames Polytechnic in London (today University of Greenwich) where I did my doctorate in the late 1970s, and so forth. In 1980 I made contact with followers of « la théorie de la régulation, » notably Robert Boyer, Alain Lipietz and Pascal Petit, after which I spent many summers at CEPREMAP during the 1980s. These Parisian visits had a powerful impact on my thinking and anchored in me Regulation Theory as a good way to integrate different heterodox approaches.

32. Definitely there should be a French touch somewhere… because the US are not short of vigorously living heterodox traditions. How do you relate to the US field of Economics? What are there – in comparison to France – the prospects for heterodox approaches? To what extent is there a living tradition of Regulation Theory?

4There are clearly some influential US economists sympathetic to the Régulationist approach, such as Will Millberg at the New School or Jerry Epstein at UMASS-Amherst. There is, more broadly speaking, a distinctly American tradition of heteredox economics – URPE (Union of Radical Political Economics) and its « Social Structure of Accumulation » approach as espoused by David Gordon, Tom Weisskopf, Sam Bowles, Richard Edwards, or Michael Reich – which in many ways is very similar to the French Régulationists.

5Of course, both France and the US are dominated by mainstream neo-classical economics. But it seems to me that the situation for heterodox economic thinkers may well be more dire in France than in the US. This has much to do with the difficulties my generation encountered in finding and implanting successors at French universities or research labs, and the centralized nature of the French university system where a small group of neo-classical economists controls basically who gets hired and promoted in all of France. The US has a much more decentralized education system, and so there is a lot of space for the ten to fifteen percent of economists with heteredox leanings in the country to find some space in which to launch an academic career. Once in place, they can build their networks, launch their journals, communicate via blogs, and get together in conferences.

6Because of the crisis of 2007/8 and longer-term challenges gaining recognition in the media, such as the growing income inequality and secular stagnation, there is definitely a growing voice for heterodox economists to make themselves heard in the United States today as compared to, say, twenty-five years ago.

73. You’re last book entitled Finance-led capitalism. Shadow Banking, Re-Regulation, and the future of Global Markets is ambitious and original. It explains the context and the mechanisms of the development of financialised capitalism in order to analyze the logic of the 2008 crisis and, above all, articulate a new theoretical framework explaining this period. It mobilizes Regulation Theory, Minskian instability hypothesis, the long wave perspective and Marxist sensibility to the revolutionary power of capitalism. How do you conceive this original combination?

8Well, I have been exposed to different heteredox approaches throughout my entire adult life. I started out as a Marxist while a student, and this crystallized into an interest in the international monetary system when I encountered Elmar Altvater while studying for a year in Berlin (1974/5). Then I ended up at Thames Polytechnic in London with a doctoral grant, a center of Post-Keynesian thinking under the leadership of Philip Arestis. My thesis was on Britain’s industrial policy, but embedded theoretically within a Kaleckian framework. My post-Keynesian « education » deepened when I came to the US and was hired at Rutgers University where I had the chance to work with the three greatest American Post-Keynesians of their generation – Paul Davidson, Alfred Eichner, and Jan Kregel. I already told you about my exposure to the French Régulationists in the 1980s.

9Ever since my early days as a Marxist I had been interested in questions of money and finance, an interest incidentally pushed forward not only by Altvater and Davidson but also by French Marxist economist Suzanne De Brunhoff with whom I formed a close friendship in 1979 when she came to New York and who provided me with the opportunity to contact the Régulationists at CEPREMAP a year later. In my second year at the University of Vienna, in 1970, the Belgian Marxist economist Ernest Mandel gave a two-week workshop on « long waves », and I have been hooked on that notion ever since. My interest in Regulation Theory stems precisely from these origins – as a means to conceive of successive long waves in terms of different accumulation regimes with distinct modes of regulation.

10Since the turning points of long waves empirically have to do with systemic financial crises, it was only a matter of time before I would discover the work of Hyman Minsky, a discovery I owe in particular to Jan Kregel. I had a chance to meet Minsky a few times in the late 1980s and early 1990s. He was even harder to understand than to read, but my effort at comprehending his unique approach paid off inasmuch as I got at some point a better sense of how profound and truly innovative his work on financial instability actually was. Of course, in seeking to revive Minsky’s early work on the long-wave dynamic of financial instability and integrate that work in a Régulationist setting, you end up giving new meaning to the post-Keynesian notion of financialization and arrive more or less inevitably at the notion of finance-led capitalism.

114. You make an audacious conceptual move in this book when you suggest the rise of a « transnational » Mode de Regulation since the early eighties. This emergence at the meta-economic level could be perceived as a reminiscence of the Marxian intuition according to which Capital has from the outset a worlwide horizon. It could be also perceived as a refinement of the Braudelian tradition and its core idea of World Economy. However, it seems at odds with the regulationist, post-keynesian and “Varieties of Capitalism” approaches, which analyze in their own specific way the internal coherence of national models of capitalism but, most of the time, do not question their asymmetric complementarity and the interdependency of their fates…

12Accumulation regimes emerge out of structural crises which oblige capitalism to reorganize itself, and the last one was no exception. You had a stagflation crisis building throughout much of the 1970s, which led to a conservative counter-revolution in 1979/80 under Thatcher and Reagan. Financial deregulation was part of this policy shift, and that in turn unleashed significant forces towards accelerated financial globalization – the driving force behind the emerging new accumulation regime of finance-led capitalism and its « transnational » mode of regulation. It is « transnational, » inasmuch as it is driven and dominated by globally organized banks operating beyond the reach of national monetary authorities in a privately controlled payments system which they have created for themselves and their multi-national clients. Of course, this is the vector for relentless globalization of money, finance, production, and exchange, ultimately also labor, in the context of which nation-states suffer steady erosion of their sovereign policy space and against which disaffected populations ultimately revolt with a resurgence of nationalistic sentiments – a process we are facing now.

13I have always felt that Marx’s emphasis on the « propagandistic » and « civilizing » tendencies of capitalism was one of his great contributions to political economy, especially as it motivates the global extension of capital’s accumulation dynamic. Yet Marx too understood the importance of national or regional differences in the ways capitalism gets organized and institutionally shaped. This geographic and historic differentiation obviously persists today, but cannot escape the global reach of capitalism and its hierarchically organized power relations.

14Incidentally, the transnational mode of regulation of finance-led capitalism obliges us to rethink economic theory whose international (open-economy) extension still views the world economy from the point of view of national economies linked to the rest of the world via balance of payments and exchange rates. Even post-Keynesian open-economic macroeconomics, like the two-sector stock-flow consistent models, treat the world economy just as the sum of its parts and so as a matter of simple linear aggregation. But the world economy today, thanks to financial globalization, is much more than just 195 national economies connected together via balance of payments and exchange rates. It has its own dynamic of unequal exchange, uneven development, chronic external imbalances, and centrifugal versus centripetal capital flows of gigantic proportions when measured in gross terms.

15So we need a kind of a meta-economic revolution in economic thinking today to capture the complex dynamic of the world economy better, akin to what Keynes faced and achieved with his macro-economic revolution during the Great Depression of the 1930s when he demonstrated so convincingly how a national economy was so much more than the sum of its markets and industrial sectors.

165. A major contribution of your book is to propose a theory of Shadow Banking as Network Finance which has properties that are radicaly distinct from traditional banking intermediation and market finance…

17Yes, I put shadow banking at the center of my book and tried to analyze it in terms of « network finance » in contradistinction to indirect finance (commercial banking involving the taking of deposits and making of loans) and market finance (securities and their markets organized as public exchanges). That theoretical extension is rooted in the crisis of 2007/08 which originated in the (previously ignored and ill-conceived) shadow-banking system and rapidly turned systemic as it spread through an interwoven web of connected networks which until then we had never seen as inter-dependent.

18We never understood « Shadow Banking » as a unique type of finance, because it operated in the « shadows, » that is off the books of banks and so beyond the regulatory reach of the monetary authorities. And for the same reason all of us, ignorant of this invisible global funding machine and its local differentiations, failed to see the systemic crisis coming.

19What was so stunning about that crisis in 2007 and 2008 was the sudden disappearance of crucial funding activity, such as mortgage-backed securitization or in the money markets (as concerned, for instance, tripartite repos or asset-backed commercial paper). When you have market finance organized as public exchanges, with third-party settlement and open access to price information, you can have market crashes but trading continues no matter. When, in contrast, you have financial transactions organized in so-called over-the-counter « markets » you have prices set by an insider network of brokers who keep transactional information private and selectively accessible. Such a network depends on trust in counterparties and confidence that promises made will be kept. When trust erodes or confidence ebbs, the networks simply disintegrate which brings trading to a sudden halt from one day to the next.

206. You mobilize the concept of Fictitious Capital several times in your book and raise the idea of a centralisation of capital’s powers via global finance. You also assume a link between financial crisis and productive over-accumulation at the world scale. There is thus a theoretical radicality in you writings. However, it seems to evaporate at the end of the Book when, in contrast with many analysts – for example Barry Eichengreen in his book Halls of Mirror, you suggest that regulatory changes since the crisis are sufficiently substantial to challenge the dominant position of finance in the accumulation regime in the making. Why?

21Marx’s notion of fictititous capital, in contradistinction to interest-bearing loan capital as the other form of financial capital, is a major conceptual innovation in Volume III of « Das Kapital. » (especially Chapter 29). He treats this notion in just a few lines of incomplete notes, and his partner Friedrich Engels did not do much to clarify issues when he edited those notes for the posthumous publication of the book in 1895. So there is a lot to explore with that sketchy notion barely defined and treated by Marx. But it is obvious that under finance-led capitalism we came to live in the age of fictitious capital inasmuch as we define it as financial claims issued without any counterparty in productive surplus-value creation and traded for speculative gain.

22Of course, in the end this super-rapid, almost explosive expansion of fictitious capital in the course of three consecutive asset bubbles over the last quarter of century enjoyed only « relative » autonomy from productive capital. Those bubbles emanated from the United States, but engulfed the entire world economy when the surpluses of other advanced capitalist economies (e.g. Germany, Japan) and emerging-market economies (e.g. China) got recycled to fund the external US deficits. American deficit spending and the export-led growth of much of the rest of the world thus got connected and mutually fed each other to ultimately unsustainable levels. When the systemic crisis of the 2007/08 hit, it destroyed this automatic worldwide recycling circuit, and so the world suddenly found itself unable to sustain global levels of aggregate demand in line with the preceding build-up of global production capacities. We are now going through a global overproduction crisis and its brutal adjustments.

23It is true that many of my leftist friends in the US and elsewhere have criticized the end of my book, not least with regard to my take on re-regulation efforts. Many of my heteredox colleagues, such as Jamie Galbraith, Dean Baker or Gennaro Zezza, consider those new financial regulations as entirely inadequate and more or less meaningless, an attitude of dismissal often justified by these leftists’ call for a return to Glass-Steagall’s separation of commercial banking from the rest of finance that dominated the post-war period until financial deregulation created universal banks integrating all types of finance under one roof in the 1990s.

24To me this all-or-nothing attitud of my leftist colleagues misses the key point, which is that the new regulatory principles introduced as part of the global re-regulation effort since 2010 are very significant in profoundly re-shaping the structure and behavior of financial institutions as well as markets. And at the same time they also will finally give regulators a much better handle over the regulatory dialectic whereby banks use financial innovation to escape regulatory constraints until their excess leads to crisis and re-regulation. In the new regulatory regime we are now creating the authorities make continuous regulatory adjustments as the financial institutions concerned respond and reorganize.

25I am not sure whether or not the days of finance-led capitalism are numbered. This regime certainly has had its systemic financial crisis, the structural-crisis side of which (deleveraging, elimination of excess capacities, etc.) is still going on. So the trans-national universal banks, as well as other financial institutions (e.g. hedge funds, insurance companies), are dealing with post-crisis and re-regulatory restructuring on a massive scale which in the end will make most of them less aggressive and even smaller.

26And at the same time we are beginning to face climate change, with the COP21 accord of December 2015 the kind of landmark agreement needed to give impetus for this effort. That too will change finance, and I have begun to work on carbon finance as my next book project. Eventually we will move toward a new accumulation regime, one driven by renewable energy and a different relation between society and nature.

277. You also advance the idea of a potential destabilization of financial institutions by emerging actors from the digital economy. How could it be possible? Do you consider that private electronic money could one day substitute state-backed money?

28The spread of the payments system onto the internet and the appearance of digital currencies, as exemplified in its most advanced form by Bitcoin, is sufficiently powerful to transform finance. Just one innovative element of Bitcoin, the block-chain technology reorganizing the modus operandi of decentralized online networks for simultaneous transfers and their verification, will revolutionize the way financial institutions and markets organize their transactions.

29Less clear is how the regulators will respond, and there are many different response modes by different regulators to date. Nor is it clear how the world’s leading banks can avoid being sidelined by these radical technological changes. That is why fintech has become such a hot battleground between Wall Street and Silicon Valley.

308. The book concludes on a somehow surprising call to transform finance – the most extreme form of money fetichism – into a progressive force. Is it a « possibilist » attitude? Or are you convinced that cognitive functions of finance could be reshuffled in a perspective of social and environmental justice?

31Well, that is another dimension of my book often critizised by my heteredox colleagues. In my opinion, we do not have a choice but to make the transformation of finance into a potentially progressive force a major part of a new political (post-crisis) agenda for the 21st century. Otherwise we can kiss the planet good-bye, as finance’s contribution to the fight against climate change will be stunted if left in the hands of today’s leading bankers dominated by their short-term and speculative biases.

32And we should also not forget that finance has a long history of progressive experimentation, from the mutual savings societies of the 19th century assuring long-term funding for working-class housing to the credit unions and cooperatives of the 20th century to the micro-finance and crowd-funding schemes of the early 21st century. It is in reconnecting to such a tradition that we have to make progressive finance and its contribution(s) to the fight against climate change part of a reformist platform.

339. There is in the US more than in Europe a backlash against the Banks and the financial sector and also a retreat of the support toward Free Trade. The strength of two outsider candidates in the presidential race, Donald Trump and Bernie Sanders, but also the rise of public figures such as Senator Elisabeth Warren are symptomatic of this shift. How do you explain that? According to you, is there any near prospect of a domestication of Wall Street? More broadly, do you see in this reconfiguration of politics in the US the possibility of a post-neoliberal turn, similar in its significance to the neoliberal turn of the late seventies relative to Keynesianism?

34Well, political changes emanating from the United States are crucial, given that country’s leadership position in the organization of global capitalism. It has therefore been quite fascinating to see this year’s election campaign unfold with the domination of two « outsider » candidates able to muster huge political support. Of course, there are substantial differences between Sanders and Trump. But even Trump has spoken out against the privileged tax treatment of hedge-fund managers. Both presidential candidates have successfully exploited widespread disaffection with the status quo, with « Wall Street » identified at the heart of the country’s elite and bankers hated by many for having caused the crisis while getting bailed out with taxpayers’ money (while those same taxpayers get shafted by that crisis). Senator Elizabeth Warren of Massachussetts gives Sanders’ arguments an additional voice of growing weight.

35Much depends in the short run on how Clinton integrates these arguments of the Democratic Left into her own platform and whether she wins the battle for the White House. Once elected president, it is not clear that she will be able to translate her electoral mandate into bipartisan legislation any better than Obama was able to.

36But no matter what happens to Clinton’s campaign, Sanders, Warren, and other left-leaning members of Congress are getting stronger. So we are entering a new political cycle in the United States fuelled much by demographic changes tied to the integration of immigrant communities and political mobilization of the young. And this will play out over the coming years in several election cycles, helped along not least also by divisions among the right wing crystallized around the Trump candidacy.

37All this may lead to very different policy outcomes over the next decade, akin to a Reagan Revolution in reverse.

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Robert Guttmann et Cédric Durand, « Finance will get less aggressive and smaller” »Revue de la régulation [En ligne], 20 | 2e semestre/ Autumn 2016, mis en ligne le 20 décembre 2016, consulté le 23 avril 2024. URL : ; DOI :

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Robert Guttmann

Hofstra University, New York  and CEPN, Paris, Robert.P.Guttmann AT

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Cédric Durand

Maître de conférences HDR, Centre d’Économie de Paris-Nord, université Paris-13,

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