A Macro-Level Account of Money and Credit to Explain Gendered Financialization

ABSTRACT

The paper intervenes in the debate on macroeconomics, money, gender, and financialization. Generally, there is an omission in gender studies on gender-specific effects of monetary policy. Not only is there a blind-spot about the role of monetary policy in feminist political economy, there is equally a blind-spot in meso-level analysis which focus on the social construction of institutional mechanisms and the predatory market power of oligopolistic banks. Yet, monetary policy is neither neutral in the short-term nor long-term. Such policies have gender-differentiated effects on employment, income, consumption, savings which in turn have feed-back effects on economic growth. My intent is to focus on the changing role of monetary policy and highlight the omission in gender studies on financialization, as well as argue that the shift of the credit cycle to fictitious capital (future revenue) is one of the central explanatory variables in the predatory banking model of subprime lending. Yet, the financial crisis of 2007 did not usher in a normalisation of the credit and finance system. Exactly the opposite happened. Unconventional monetary policy continues to facilitate a credit system based on future claims which has gendered distributional effects, in the process increasing the wealth inequality on a global scale.

KEYWORDS:

• Financialization
• monetary policy and credit cycle
• macroeconomics
• subprime mortgage lending
• feminist economics

Acknowledgement

I wish to thank the members of the Workshop ‘International Political Economy’, at the Goethe University Frankfurt (June 2019), particularly the discussant, Daniel Mertens, for his excellent macroeconomic comments of the paper, and Tobias Arbogast, who subsequently to the workshop provided many important insights and literature on the different interpretation of financialization and the role of money. I am also indebted to Philip Arestis for his helpful nuanced comments on the origin of the financial crisis on a previous draft, as well as Diane Elson, Susan Himmelweit and Lena Lavinas for their responses to my initial draft presented at the IIPPE Conference in Pula, Croatia, Sept 2018. I also gained very useful (albeit contradictory) insights from my discussions with Ben Fine and Sam Mohun on Marx's concept of interest-bearing capital at the IIPPE meeting. My special thanks also goes to Willi Semmler, New School for Social Research, for the many discussions on monetary policy and the credit cycle. Finally, I thank the two reviewers of this article. Had I taken all the advice given, the paper would have been rather different from my intent to understand the role of money and credit as an important macro-level phenomenon.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes on contributor

Brigitte Young is a Professor in International Political Economy, University of Münster, Germany. Her research areas include European monetary and economic integration; global and regional financial market governance; monetary and fiscal policy. She has published widely in English and German. Her latest article is on: The impact of unconventional monetary policy on gendered wealth inequality, Papeles de Europe, 2018. She received the Käthe Leichter State prize of Austria in 2016 for her work on Finance, Economics and Gender.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1 Routledge will publish an edited volume in late 2019, the International Handbook of Financialization (Mader et al. forthcoming).

2 For the purpose of this paper, financialization and finance-dominated capitalism will be used interchangeable.

3 I wish to thank Tobias Arbogast for his very helpful insights on interest bearing capital and providing his personal theoretical notes on this topic. Unfortunately, I was not able to engage in a more theoretical debate in this article remaining at a rather rudimentary level of interest-bearing capital, since entering into a more theoretical debate of IBC would detract from my purpose to demonstrate that that it was the role of money that radically changed the credit and finance system, and that studies on gender and financialization need to integrate the macro level of money (monetary policy) in their studies to better understand the process of financialization.

4 I will not discuss the ambiguities in Marx's definition of interest-bearing capital (see Lapavitsas 1997; Lapavitsas/Mendieta-Munoz 2018; Fine 2013/13) nor discuss the nuanced differences in the interpretation of IBC between Costas Lapavitsas and Ben Fine.

5 Feminist scholars have much less engaged in the debate on financialization, except for financialization of everyday life (Montgomerie 2006). Instead they focus mostly on the financial crisis without entering into a discussion about the structural re-orientation of the credit cycle in capitalist accumulation.

6 A repo agreement entails the sale of security, or a portfolio of securities, combined with an agreement to repurchase the security or portfolio on a specific date at a pre-arranged price. A repo is thus similar to a collateralized loan.

7 Arestis (2016) argues that the credit rating agencies (CRAs) played an important role in the global financial crisis and in the European sovereign debt crisis. The reason for the implication of CRAs in the crisis has to do with their role in providing information on the audit quality, namely the probability of default of financial products, but provide no information in terms of potential systemic risks. In addition, another feature has to do with the conflict of interest. In fact, CRAs are paid by the issuers, and not by investors. This could have led to over-optimism in their ratings of CDOs. Arestis cites a study that reports ‘that on a value-weighted basis 80 to 90 per cent of CMOs and CDOs received the AAA credit rating’ (Arestis 2016, footnote 16).

8 In fact, Schwartz argues that the US operated a global system of financial arbitrage. “At the macrolevel, the US systemically borrowed short term at low interest rates, from the rest of the world, and then turned around and invested in the rest of the world in longer term, high risk, higher return, active investment vehicles” (p. 265).

9 This study is in the process of being updated with the new ECB Survey Data of 2018.