society at large. Zones of indeterminacy, Vogl writes, ‘have an ambiguous relation to both sides, they are encouraged and restricted by state authority, they can either boost or inhibit the exercise of political power, and they can stimulate or obstruct (for example through monopolization) market mechanisms’. Financial systems need state regulation to remain responsible and trustworthy, but too much regulation drives money away and thereby undermines the viability of the state. States, in turn, don’t just need robust banking systems for the economy but also for credit for themselves, for which they must be in a credible position to promise conscientious repayment, with interest. If they default, they may lose access to financial markets, and their financial industry – and perhaps that of allied countries too – may have to default as well.
It is in crisis situations, when banks are about to collapse or states teeter on the edge of insolvency, that the liberal notion of a clear distinction between markets and the state is exposed as a myth. On such occasions, as financial and political elites join forces in a virtual boardroom, functional differentiation – the pet category of functionalist sociology – loses its meaning and sovereignty reveals a Schmittian face, declaring a state of emergency and die Stunde der Exekutive. As Vogl shows in his account of the Wall Street ‘rescue operation’ of autumn 2008, in the hour of the executive, huge public funds suddenly become available to exclusive circles of bankers and their presumptive overseers. Working together as the clock ticks, they take command decisions whose consequences nobody can predict in an effort to maintain at least the appearance of control over events, and to prevent the pyramid of promises that is financialized capitalism from collapsing under the weight of mounting suspicion that it might have become unmanageable.
In calmer times, the two poles of seigniorial power – the state and the market – meet and merge in the central bank, the hybrid institutional core of capitalism’s ‘zone of indeterminacy’. Vogl offers concise, but for that reason all the more impressive, comparative histories of the Bank of England, the Federal Reserve, the Bundesbank, the Banco Central de Chile under Pinochet and the European Central Bank. Such bodies mediate between the financial market’s need for state backing and the state’s reliance on capitalist assistance in the form of a healthy financial industry that can serve as a conduit for the administration of monetary policy and the delivery of capital to all sectors of the economy. Private outposts in the state and public outposts in finance, central banks have historically moved back and forth between very different institutional forms: private, public and various combinations of the two. Far from constituting a rational-functionalist formation, they have performed widely diverse and often barely related functions – from the administration of state debt to the issuing of currency and the supervision of private banks – cobbled together more or less ad hoc according to political expediency, just as one would expect in a world of ‘indeterminacy’. What distinguishes them as a type is that they exist to protect finance from the fickleness of political rulers – absolutist or democratic – while providing the latter with at least the illusion of control over the fickleness of financial markets. Institutional independence is crucial, nowadays meaning above all insulation from electoral politics. Monetary questions must be de-politicized – which is to say, de-democratized. Central banks, Vogl argues, constitute a fourth power, overshadowing legislature, executive and judiciary, and integrating financial market mechanisms into the practice of government.
Central banks’ claim to autonomous authority is based on their assumed, and asserted, technical competence. As they and their aficionados in the media and in economics departments are fond of telling us, central bankers know things about the economy that normal people, inevitably overwhelmed by such complexity, cannot even begin to fathom. They command theories with which to make the economy do what is in society’s best interest – in the long run at least, when regrettably we will all be dead. Central bankers themselves have always been aware, although they hide it as best they can from the unwashed, that central banking is ‘not a science but an art’. This means that what they sell to the public as a quasi-natural science is in fact nothing more than intuitive empathy, an ability acquired by long having moved in the right circles to sense how capital will feel, good or bad, about what a government is planning to do in relation to financial markets. (Economic theory is best understood as an ontological reification of capitalist sensitivities represented as natural laws of a construct called ‘the economy’.) At critical moments, such as when the Bank of England went off the gold standard in 1931, rather than deploying road-tested knowledge of the ‘if, then’ kind, central banking relies on the trained intuition of great men and their capacity to make others believe that they know what they’re doing, even when they don’t. At a university event in London almost a decade after the 2008 crash, Alan Greenspan was remembered by an enthusiastic admirer as having had ‘a complete model of the American economy in his body’. Presumably this enabled him always to make the right call, and meant that it was completely unnecessary for him to share his in-the-flesh database-cum-structural equations with the outside world.
Today, central banking’s peculiar mix of scientism, intuition, faith healing and showmanship is losing its magic. For years now, central bankers have tried to turn quantitative easing into common sense, even as their friends from finance tell them that ‘it cannot go on forever’. But hopes that QE together with zero interest rates would stimulate inflation, insure against deflation, devalue debt and as a result, restore growth, have been dashed. The new key term is ‘radical uncertainty’, introduced by none other than Mervyn King, former governor of the Bank of England. In his book The End of Alchemy (2016), King lets his readers know that ‘in a world of radical uncertainty there is no way of identifying the probabilities of future events and no set of equations that describes people’s attempts to cope with, rather than optimize against, that uncertainty’. He adds: ‘The economic relationships between money, income, saving and interest rates are unpredictable, although they are the outcome of attempts by rational people to cope with an uncertain world.’ Operating by scientific or legal rules makes no sense if the real organizing principles of the economy are no longer understood, or if things refuse to be ruled. In such circumstances, even the pretence of control becomes difficult to maintain. According to an email from global investment house PIMCO to its customers in July 2016, most forecasting has become futile because ‘the real world is far from stationary’ – meaning that, to quote again, ‘stuff happens’. ‘Structural breaks’, the investment house advises, have made it necessary to ‘think the unthinkable’. And ‘if the future is radically uncertain, the modern central bank practice of giving markets “forward guidance” may be, well, misguided’, since it ‘creates the illusion that the future is predictable’.
Rising political-economic volatility implies a loss of power for Vogl’s central banks, and a loss of respect as well. In July 2017, a year after its embrace of radical uncertainty, the same investment house explained to its clients why interest rates were, and would remain, so low. Central banks do not figure in the story at all. Instead the culprit is the ‘superstar firm’, its rise made possible by new technology and globalized markets. To quote: ‘Superstar firms make higher profits, save more than they invest, and pay out a smaller share of their value-added to labour.’ This explains ‘key macro phenomena such as the global ex ante excess of saving over investment, rising income and wealth inequality, and low wage inflation despite falling unemployment, all of which have contributed to the current environment of low natural … and actual interest rates, which in turn supports high valuations for the superstars.’
In this ‘winner takes most’ world, economic concentration is increasing. Large firms sit on huge cash hoards while labour’s income share declines. High wages for the privileged few employed by superstar firms, combined with weak wage pressure in an increasingly fragmented low-wage sector, make for worsening inequality, adding to the global savings glut as ‘high-income, wealthy individuals have a higher propensity to save than low-income, less wealthy ones’ – an account remarkable for its similarity with standard ‘radical’ explanations of the crisis of contemporary capitalism.
Together, these dynamics keep inflation down even if central banks want prices to go up. Therefore, the experts say, ‘the investment strategy of choice’ must be one calibrated to a ‘long-term low interest-rate environment’. PIMCO mentions three potential risks for such a strategy: (1) ‘A surge in protectionism that