Derivatives, Money, Finance and Imperialism: A Response to Bryan and Rafferty

in Historical Materialism
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Abstract

This paper contributes to the debate on the role of financial derivatives for capitalism. It responds to Bryan and Rafferty’s defence of their analysis and their critique of my own. The paper argues that their analysis confuses what a financial derivative does, and mixes together different kinds of derivative – and non-derivative – that play very different roles. After detailing these points, the paper discusses the relationship between gold, money and derivatives, rejecting their notion that derivatives are some kind of new ‘commodity money’. An important theme absent from Bryan and Rafferty’s analysis is the relationship of financial trading and derivatives markets to parasitism in the imperialist world economy. To illustrate this, the paper notes advantages enjoyed by the major financial powers – the US and the UK – that are the main centres for the origination of derivatives and for derivatives trading.

Derivatives, Money, Finance and Imperialism: A Response to Bryan and Rafferty

in Historical Materialism

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References

BEA Survey of Current Business 2012 US Bureau of Economic Analysis July

BIS ‘Triennial Central Bank Survey: Report on Global Foreign Exchange Market Activity in 2010’ 2010a Bank for International Settlements December

BIS ‘Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2010 (Final Results)’ 2010b Bank for International Settlements December available at: <http://www.bis.org/publ/rpfxf10t.htm>

BryanDickRaffertyMichael ‘Money in Capitalism or Capitalist Money?’ Historical Materialism 2006a 14 1 75 95

BryanDickRaffertyMichael Capitalism with Derivatives: A Political Economy of Financial Derivatives Capital and Class 2006b Basingstoke Palgrave Macmillan

BryanDickRaffertyMichael ‘Financial Derivatives and the Theory of Money’ Economy and Society 2007 36 1 134 158

BryanDickRaffertyMichael ‘Why We Need to Understand Derivatives in Relation to Money: A Reply to Tony Norfield’ Historical Materialism 2012 20 3 97 109

ChenQianyingFilardoAndrewHeDongZhuFeng ‘International Spillovers of Central Bank Balance Sheet Policies’ 2011 BIS papers No. 66 available at: <http://www.bis.org/publ/bppdf/bispap66p.pdf>

EichengreenBarry Exorbitant Privilege: The Rise and Fall of the Dollar 2011 Oxford Oxford University Press

HelleinerEric States and the Reemergence of Global Finance: From Bretton Woods to the 1990s 1996 Ithaca Cornell University Press

MarxKarl Capital 1974 [1894] Volume 3 London Lawrence & Wishart

NorfieldTony ‘The Economics of British Imperialism’ Economics of Imperialism 2011 May 22 available at: <http://economicsofimperialism.blogspot.co.uk/2011/05/economics-of-british-imperialism.html>

NorfieldTony ‘Derivatives and Capitalist Markets: The Speculative Heart of Capital’ Historical Materialism 2012a 20 1 103 132

NorfieldTony ‘The City of London: Parasite of the World Economy’ Economics of Imperialism 2012b October 3 available at: <http://economicsofimperialism.blogspot.co.uk/2012/10/the-city-of-london-parasite-of-world.html>

NorfieldTony ‘Value Theory and Finance’ Research in Political Economy 2013 28 161 195

ONS The Pink Book 2012 July available at: <http://www.ons.gov.uk/ons/rel/bop/united-kingdom-balance-of-payments/2012/index.html>

WarnockFrancis E.WarnockVeronica C. ‘International Capital Flows and US Interest Rates’ International Finance Discussion Papers 2005 Number 840 Board of Governors of the Federal Reserve System September 2005

1.

Norfield 2012ap. 129.

2.

Bryan and Rafferty 2012.

3.

Bryan and Rafferty 2006b.

4.

Bryan and Rafferty 2012p. 98.

5.

Bryan and Rafferty 2012p. 99.

6.

Bryan and Rafferty 2012p. 100.

7.

Bryan and Rafferty 2012p. 104.

9.

Bryan and Rafferty 2012pp. 104–5.

11.

Bryan and Rafferty 2006ap. 87.

12.

Bryan and Rafferty 2007p. 153.

15.

BIS 2010ap. 32. There is yet another currency-related ‘derivative’ along these lines called a ‘currency swap’ in which among other things it is usually agreed to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity. The currency swaps market is only around 6–7% of the size of the single-interest-rate swap market however and I will not discuss it here.

16.

Bryan and Rafferty 2012p. 103.

17.

Bryan and Rafferty 2006bp. 12.

18.

Bryan and Rafferty 2006bp. 5.

20.

Bryan and Rafferty 2012p. 104.

21.

Bryan and Rafferty 2012p. 100.

22.

They refer to Chen Filardo He and Zhu 2011after stating that ‘the world’s leading central banks now have massive holdings of a range of securities and derivatives on their books all in the name of managing market liquidity and securing forms of monetary stability’ (Bryan and Rafferty 2012 p. 102). However Chen et al. do not refer to central banks buying derivatives but buying bond-type securities (Chen Filardo He and Zhu 2011 p. 235). One might argue that the Federal Reserve’s ‘Maiden Lane’ assets resulting from the demise of Bear Stearns and AIG are ‘derivatives’ but they are also made up from mortgages loans and various MBS and CDOs.

27.

Bryan and Rafferty 2006bp. 106.

28.

Bryan and Rafferty 2006bpp. 131–2.

29.

Bryan and Rafferty 2006bp. 153.

32.

Marx 1974Chapter 24 p. 397.

33.

Bryan and Rafferty 2006bp. 136.

34.

BIS 2010aTable B4 p. 12.

38.

ONS 2012Table 3.6.

40.

Bryan and Rafferty 2012p. 107.

42.

See Warnock and Warnock 2005.

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