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On Derivatives

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Dick Bryan and Michael Rafferty argue in their Capitalism with Derivatives (2006) “that derivatives have replaced gold” as the effective anchor to international exchange. [39] Milton Friedman revitalized Monetarist economic theory, which upheld the distinction between money and the “real” economy. According to the moral thesis that the market was populated by rational individuals whose only effective lack was information, exchange rates would tend toward equilibrium vis-à-vis commodities’ “fundamental values.” [40] Success in speculation, according to Friedman, had only to do with one’s available information and acting rationally upon it. [41] Poor (read: irrational) speculation would result in losses and ultimately expulsion from the market. Yet, without the empirical evidence to support such a “relationship between prices and fundamental values in the markets for financial assets,” there needs to be an anchor akin to gold in previous epochs. [42] Accordingly, “the role of derivatives as ‘proxy fundamentals’ became critical.” [43] Capital, as it were, developed financial derivatives so as “to hedge against monetary instability and provide mechanisms for price certainty in international financial markets.” [44] So, financial derivatives have, they argue, replaced the ideology of fundamental values and now primarily function as price anchors through their processes of commensuration. [45]

This approach to describing the global system of derivatives returns to Karl Marx’s assertion that there is an essential “divergence between price and value.” [46] There can be no fundamental price because what is fundamental to a commodity is its value, which perpetually changes besides, since value is historically and socially determined. Derivatives “are predicated on the notion that there are no ‘fundamentals’—all asset values have particular temporal and spatial determination, and prices are forever changing, and in unsystematic ways.” [47] Derivatives package conversions of different forms of capital, thereby making commensurable all sorts of “bits” of capital. They “are money (they perform a money function in pricing) and commodities (they are traded products) at the same time.” [48] Let us compare this characterization to Marx’s tripartite definition of money: (i) means of payment/exchange, (ii) measure of value, i.e. price, and (iii) money as money, a unique kind of commodity, which can be hoarded by the miser and transformed into a phase of capital by the capitalist. The one feature lost in the derivative form(s) of money is the possibility to hoard it. If banking capital, credit, interest-bearing capital, and so on, represent the formal subsumption of money by capital, then the derivative represents its real subsumption. Derivatives, as a global form of commodity money, “readily convert one form of money into another and a wide range of commodities into an even wider range of monetary units.” [49] Capital, by and for itself, moved the market “towards a new foundation to global money: financial derivatives.” [50] They provide, on an ongoing and flexible basis, “a network of anchors” for international exchange. Market stability exists today solely inasmuch as it is assumed by individual market participants: they “operative ‘as if’ the global financial system were stable.” [51]

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  1. Organisms in Reticula Florian Wiencek