Cooper 2015 - Shadow Money and The Shadow Workforce

South Atlantic Quarterly
Melinda Cooper
Shadow Money and the Shadow Workforce:
Rethinking Labor and Liquidity
New Deal monetary reforms established a par-
ticular kind of banking institutionthe federally

insured commercial bankand a new relationship between money, labor, and the state. By agreeing to insure the deposits held by private banking
institutions, the New Deal state recognized the
private creation of money as a public good, necessary to the long-term stability of both the financial
system and industry (Ricks 2011, 2012). New Deal
money was federally insured moneyprivate
bank money buttressed by the faith and full credit
of the state. And it was this architecture of guaranteed money that allowed the US state to underwrite the extraordinary expansion of social insurance that sustained the postwar compact with
industrial labor. Insofar as the historical mutations of money can be said to express a particular
kind of social relation, federal deposit insurance
can be seen as emblematic of the class compromise of the New Deal, guaranteeing the funds
of ordinary people while also serving to greatly
relax the survival constraints of banks and allowing them to engage in new forms of credit extension (Konings, this issue: 263). Today this class
compromise is long since broken and money itself
has partially evolved beyond the boundaries of New
The South Atlantic Quarterly 114:2, April 2015

doi 10.1215/00382876-2862773 2015 Duke University Press
Published by Duke University Press

396 The South Atlantic Quarterly
April 2015
Deal banking regulations, into a shadow space of federally uninsured transactions and private collateral.1 This new source of private money creation
known as the shadow banking systemwas at the heart of the recent financial crisis, an event that might be more accurately described as a crisis of
money.2 It is therefore imperative that we look to the novelty of this new
form of liquiditywhat I refer to as shadow moneyif we are to understand
the politics of money today.
The broker-dealer banks that constitute the shadow banking sector
fulfill many of the traditional roles of New Deal depository institutions,
albeit on behalf of institutional investors and firms rather than everyday
depositors (Gorton 2010a, 2010b; Mehrling 2011; Ricks 2011, 2012). Like traditional banks, they perform the function of credit intermediation or maturity transformationthe conversion of short-term IOUs into long-term
investmentsalthough they do so outside the regulated institutional space
of the New Deal commercial bank. Instead of collecting deposits from individual savers, broker-dealer banks finance themselves in the money market
by raising short-term IOUs (sale and repurchase agreements, or repos) that
they then invest in portfolios of longer-term financial assets in the credit
marketsasset-backed securities composed of mortgages, student loans, or
consumer credit. Their IOUsrepos, rather than depositsexhibit many of
the properties conventionally attributed to money.3 They are highly liquid, of
continuous, instantaneous maturity, and subject to negligible price fluctuation (Ricks 2011: 92; 2012: 731).
Unlike New Deal depository institutions, however, shadow banks issue
money without explicit access to central bank liquidity or risk management
backstops such as federal deposit insurance or the federal discount window
(Mehrling 2011: 118; Pozsar et al. 2012; Adrian and Ashcraft 2012: 1). Shadow
money is uninsured moneymoney whose value is not formally underwritten or backstopped by the state. Instead, right up until the financial crisis,
investors in the repo markets attempted to provide extrastate guarantees for
the value of shadow money by using collateral in exchange for deposits and
securing this collateral with the use of a credit derivative instrument known
as the credit default swap. In lieu of federal deposit insurance, depositors
in the repo markets would receive a bond in exchange for the cash lent
(Adrian and Ashcraft 2012: 14). The nature of these bonds changed as the
market became more heated. During the early 1990s, Treasury bills were
presumed to be the safest form of collateral, but as T-bills became scarce,
they were increasingly replaced by private forms of collateral such as AAArated asset-backed securities, which were in turn protected by credit deriva-

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Shadow Money and the Shadow Workforce 397
tives issued by the likes of American International Group (AIG) (Gorton

2010b: 43). In this way, the liquidity of shadow money came to be guaranteed
by an entirely private system of collateral and credit risk management, one
that was not formally underwritten by the Federal Reserve.
The widespread use of credit derivatives in the shadow banking system is remarkable not only because it constitutes a private source of risk
management, but also because it fundamentally challenges the actuarial calculus of risk on which the New Deal banking system relied. Although it is
commonly referred to as an insurance contract, the credit default swap is
neither classified nor regulated as a form of insurance in law and differs in
key respects from the insurance contract as it came to be defined in the late
nineteenth century. In a credit default swap contract, the seller of protection
is under no obligation to calculate the actuarial probability of the event in
question (in this case, default) much less provide for adequate reserves, while
the buyer of protection need not have any insurable interest in the protected asset (Janeway 2012: 164). Like the derivative contract in general, the
credit default swap is oriented toward nonstandard, exotic, or nonprobabilistic risk: its risk management function can be described as fractal rather than
Gaussian, in the sense that fractal mathematics implies a continuous deflection from limits rather than the asymptotic progression toward an infinite
limit that undergirds classical, Gaussian probability theory (Mandelbrot
2006; Ayache 2010). In this respect, issuers of credit default swaps are better
described as private dealers (Mehrling 2011) or speculatorsrather than
insurersof last resort for the shadow banking system, sustaining liquidity
for exotic assets whose value is uninsured or uninsurable.
The banking panic that broke out in August 2007 originated in the
market for private, uninsured money, or repo. When a decline in house
prices triggered an unexpected rush of defaults among subprime mortgage
holders in 2006, the value of the AAA-rated securities that were routinely
used as collateral in the repo market became uncertain. Broker-dealer banks
such as Bear Stearns and Lehman Brothers that had used mortgage-backed
securities and collateralized debt obligations to borrow from depositors in
the repo market found themselves forced to accept haircuts on the value of
their collateral. As the market value of collateral came under threat, issuers
of credit derivatives such as AIG refused to sell protection on AAA-rated
securities that had until recently been considered as safe as Treasury securities. And with the disappearance of this last form of private guarantee,
liquidity vaporized from the repo market. Ultimately, the private system of
guarantees formed by collateral and credit default swaps proved incapable of

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holding up the edifice of shadow money and shadow credit intermediation of

its own accord, and the Federal Reserve was compelled to step in to absorb
extraordinary levels of private debt. In the words of Perry Mehrling (2011:
115), the central lesson of the crisis is that the American system requires the
Feds support as dealer of last resort, not just in the money market ... but
also in the capital market, and not just for Treasury securities ... but also for
private securities. In effect, by assuming the risk management role of credit
derivative issuers such as AIG, the Federal Reserve refashioned itself as market maker of last resort to the shadow banking system, turning private,
uninsured money into sovereign money and the credit default swap into a
federal function (Mehrling 2011: 132). The scope of the Federal Reserves
response to the financial crisis is without historical precedent. And yet it is
far from clear that this intervention presages a long-term class compromise
of the kind inaugurated by the New Deal, nor is it clear what form such a
compromise might take in the current conjuncture.
The phenomenon of shadow moneylike many of the new monetary
forms of the post-Fordist era, such as financial derivatives, floating exchange
rates, and the demonetization of goldchallenges the conceptual limits of
classical sociological theories of value, all of which define money in terms
of the abstract exchange of equivalents. Whether we look to the resources of
Marxist value-form theory, Georg Simmels or Max Webers sociology of
money, or neoclassical economics, the mathematics of money is thought to
reside in the dynamics of equilibrium or the standardization of risk, both
derived from nineteenth-century theories of thermodynamics and Gaussian
probability. This framework may have been adequate for conceptualizing the
operations of the nineteenth-century gold standard or the mid-twentiethcentury institution of federally guaranteed money. But how does it account
for the general destandardization of monetary forms that has followed the
rise of the dollar as global reserve currency, uncoupled from gold, in the
1970s; the adoption of floating exchange rates; and the proliferation of financial derivative contracts that monetize contingency itself? And how does it
explain the phenomenon of repo, or shadow money, which was specifically
created as a way of evading the actuarial, standardizing logic of federally
insured New Deal money? When we talk about shadow money we are dealing no longer with an instrument to standardize risk but rather with the
abstract form in which uninsured or nonstandardized risk becomes liquid. What
it provokes us to conceptualize is the exchangeability of nonequivalence or
the liquidity of nonmetric differencea problematic that has long been

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familiar to mathematicians of topological or fractal geometry but which has

been largely neglected by economists.4
Recent theories of financialization have pointed to the increasingly
intimate relationship between the everyday life of consumer credit and the
fortunes of high finance (Martin 2002; Langley 2008; Bryan, Martin, and
Rafferty 2009; Allon 2010). The dramatic expansion of consumer credit
that has characterized the past few decades has in turn been linked to the
long-term stagnation of wages and social welfare in the Anglo-American
economies (Barba and Pivetti 2009). And yet the question of the relationship between new forms of money and credit, on the one hand, and the
shifting composition of labor, on the other, has rarely been addressed
directly. In the wake of the financial crisis, for example, performativity theorists sought to understand liquidity crisis as a failure of epistemology,
whose causes were ultimately to be found in the self-referential intricacies
of financial models (MacKenzie 2011). And in the meantime, some of the
most radical attempts to rethink the epistemology of money beyond the limits of neoclassical economics simply presume that money, left to itself, is
capable of sustaining its own liquidity, a position that ends up attributing
crisis to the external interventions of the state in much the same fashion as
orthodox financial theory (Ayache 2010). Each of these perspectives seeks
to confine and resolve the question of liquidity within the internal workings
of financial markets, despite the widely recognized fact that financial assets
are increasingly imbricated with the income flows of everyday borrowers,
consumers, and workers. This article argues instead that the question of
liquidityand its failurescan only be understood if we theorize the dialogical nature of the relationship between labor and money, a term I borrow from Mikhail Bakhtin (1981) to signal a spectrum of strategic relations
ranging from open, irresolvable conflict to dialectical mediation. It is far
from coincidental, after all, that the financial derivative and precarious
labor have assumed such uncannily similar contractual forms in the present moment (see Bryan, Rafferty, and Jefferis, this issue). What is equally at
stake in the credit derivative and the zero-hour contract is the absolute
contingency of post-Fordist work timelabor that will be performed at
some unspecified place and timeand the challenge this poses to actuarial
modes of risk management.
The article seeks to theorize the relationship between shadow labor
and shadow money while avoiding the fetishism of neoorthodox theories of
finance, on the one hand, and the foundationalism of labor theories of value,

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on the other. It argues that the rise of the shadow banking sector must be
understood as a long-term response to the crisis of the New Deal social
statea crisis that precipitated the breakdown of the Keynesian monetary
consensus in the 1970s and the subsequent restructuring of labor around
uninsured or contingent labor contracts. The New Deal architecture of
money, credit, and securitization was viable only as long as the US state was
willing and able to sustain a core workforce of standard, long-term, insured
workersa workforce that excluded minorities and women of all races.
When this consensus was challenged from below in the 1960s and 1970s,
then defeated from above by the Volcker shock, the United States sought
to counteract the political fallout from the long-term precarization of labor
by a corresponding expansion of consumer credit into the frontier space of
uninsured risk. In a context where labor itself was increasingly insecure,
the market for securitized consumer debt could not expand any further
unless it adapted to include the nonstandard risk and the nonconforming
borrower. In other words, the migration of money creation, from the depository institution to the shadow bank, and the changing form of money, from
insured deposit to uninsured repo, represents an ongoing response to the
evolving risk profile of labor itself. Shadow money creation has grown in
concert with the expansion of the shadow workforcethe sector of the
post-Fordist workforce engaged in contingent, nonstandard, and uninsured
laborand, until recently, has offered a solution of sorts to the social insecurity of labor. It is this solution that broke down in the recent financial crisis, engendering a wholesale crisis of value whose tensions are far from
being resolved today.
The Fordist ConsensusUnderwriting Money and Insuring Labor
In 1933 Henry Steagall persuaded Congress to include federal insurance of
private money creationthe Federal Deposit Insurance Corporation (FDIC)
in the New Deal Banking Act. This innovation was designed to prevent the
bank runs that had devastated commercial banks and thrifts during the
Great Depression and, as such, was charged with the task of insuring deposits to a maximum limit, using premiums contributed by banks themselves.
By simultaneously guaranteeing consumer savings against bank default and
staving off the threat of bank runs, the FDIC sought to establish a consensus
of mutual confidence between bankers and savers (Russell 2008: 69). In retrospect, its promise seems to have been confirmed by the relatively few bank

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failures that occurred from 1933 up until the 1980s, when banks themselves
began to outrun the regulatory limits of New Deal banking reform.
Federal deposit insurance, as Martijn Konings (this issue) notes, can
be understood as emblematic of the New Deal class compromise. Its
model of public-private social insurancecollective insurance delegated to
the private sector but backstopped by the statewould be replicated, in various guises, in the panoply of social insurance, welfare, and credit programs
that were implemented by the New Deal social state. At their most ambitious, these programs offered a form of comprehensive social insurance to
a core labor force of unionized workers, establishing the insured industrial
worker as the privileged partner of the Fordist class compromise. The actuarial calculations of social insurance were literally built on the foundations
of Fordist laborwithout the standardization of work time and wages
implicit in the long-term contract of employment, it would have been
impossible to calibrate the difference between short-term deposits and longterm investments or to calculate average risks into the long-term future.5 In
this respect, the stabilizing role of federal deposit insurance extended well
beyond the realms of the banking sector. By underwriting the private creation of money, the FDIC stabilized the relationship between depositors and
banks and laid the foundation for a new class compromise between unionized labor and the state.
From the very beginning, this compromise rested on the rigorous
exclusions of the Fordist family wage, which defined white men as a privileged class of insured workers only by virtue of relegating minorities and
women of all races to the more marginal, nonunionized, and uninsured
sectors of the workforce. These divisions of labor were everywhere inscribed
in the social insurance policies of the New Deal. The Social Security Act of
1935 is hailed as the most comprehensive social policy creation in US history (Mettler 1998: 53). And yet until the 1960s, national old-age insurance
was unavailable to domestic, agricultural, and service workers as well as
those engaged in periodic or seasonal employment, with the result that
very few African Americans or Latinos had access to public pensions at all,
while white women benefited only through marriage (Mettler 1998: 5373;
Lieberman 1998: 2325). Unemployment insurance, which was also created
under the terms of the Social Security Act, remains rigorously tied to the
regular, long-term contract of employment until this day and as such offers
no protection to nonstandard and seasonal workers (Katz 2008: 22225).
Importantly, the Social Security Act did not overtly voice its exclusion of

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minorities and women but rather structured provision around the normative presumption of full-time, standard employment. The sexual and
racial divisions of labor that shaped the Fordist workplace therefore became
the decisive criterion in determining inclusion or exclusion from social
insurance.
New Deal labor legislation only entrenched these divisions still further by assigning distinctive social protections to different classes of worker.
The National Labor Relations Act (NLRA) of 1935, also known as the Wagner
Act, established the right of industrial workers to join trade unions, engage
in collective bargaining, and take legal industrial action. Over the following
decades, some of the most powerful industrial unions would avail themselves of this act of legislation to forge generous workplace compacts with
their employers, while also lobbying for improvements to universal social
insurance (Klein 2003). But as it became clear that the New Deal state was
never going to deliver the universal welfare system that many had hoped for,
the special bargaining powers awarded to unionized labor by the NLRA also
served to create a separate system of private workplace benefits for a powerful sector of the industrial working class, who were able to negotiate private
pensions that were much more generous than standard Social Security benefits and health insurance plans that were entirely unavailable to other workers. The privileges accruing to unionized industrial workers were tightly
linked to standard employment and closely modeled on a white male model
of participation in the workforce: the full-time, full-year worker (Klein 2003:
228). African Americans and women of all ethnicities were marginalized
from this system by virtue of the fact that they were underrepresented in
the most powerful industrial unions (Mettler 1998: 5051). Moreover, their
employment in agricultural, domestic, and seasonal work rarely conformed
to the model of full-time, standard employment that went along with private
workplace coverage (Klein 2003: 230).
Perhaps the most visible and lasting materialization of the New Deal
actuarial compact was the creation of a private housing market sustained by
federal insurance. In 1933, as the housing crisis of the Great Depression
intensified, President Franklin D. Roosevelt signed into law the Home Owners Loan Corporation (HOLC) and charged it with the task of protecting
small home owners from foreclosure. In its first few years of existence, the
HOLC refinanced tens of thousands of home owners in danger of default
and, in the process, replaced the short-term interest-only mortgages that
had hitherto dominated the market with a new and safer form of mortgage

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contractthe long-term, fixed-rate, amortized loan (the so-called vanilla or

conforming mortgage) (Jackson 1985: 19596). In 1934 Roosevelt created a
second organizationthe Federal Housing Administration (FHA)to provide federal insurance protection for mortgages issued by commercial banks.
These mortgages could then be sold on to long-term investors such as insurance companies or pension funds through the conduits of the Federal
National Mortgage Association (FNMA, or Fannie Mae, created in 1938), an
option that relieved the banks of default risk and freed them up for further
loan extension (Poon 2009; Hyman 2011: 4572).
By promising to compensate lenders in the event of default, the FHA
encouraged banks to expand their mortgage portfolios and lower interest
rates. Its federal guarantees led to a dramatic expansion of home ownership in the postwar era, rising from 44 percent of male-headed families in
1934 to 63 percent in 1972 (Jackson 1985: 21516). Yet in exchange for this
federal guarantee, lenders needed to comply with the FHAs strict underwriting criteria, which covered everything from the payment structure of
the mortgage to housing models, location, and borrower profile. The FHAs
insurance model left an indelible mark on the postwar landscape: it favored
suburban, single-family homes, to the detriment of inner-city tenements,
provoking a mass migration of whites from the city centers to suburban hinterlands, and required homes to conform to particular lot sizes, construction
methods, and housing models (Jackson 1985: 20513). Moreover, the very
terms of the conforming, vanilla mortgage were premised on the working
life of the standard, unionized worker, making it almost impossible for
minorities to gain access to mortgage credit, even in the absence of overt discrimination. Like the Fordist family wage itself, home ownership was a privilege reserved for the white, male industrial workerits gendered and racialized normativities starkly materialized in the standardized, single-family
allotments that proliferated in the postwar suburban landscape. African
Americansboth women and menwere systematically denied access to
state-insured housing credit through the urban risk ratings of the HOLC,
which routinely assigned the color red, for uninsurable, to the inhabitants
of inner-city ghettos (hence the term redlining) (Gordon 2005: 207). And
women of all ethnicities and classes were excluded from obtaining consumer credit in their own names (Hyman 2011: 191206).
It was not until the late 1960s that these exclusions to the New Deal
social insurance contract would be seriously contested, and this challenge is
intimately linked to the collapse of the Bretton Woods monetary regime.

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Fordism at the LimitsMoney, Labor, and Welfare beyond Standardization

By the 1960s, the very success of Keynesianism had shifted the balance
of power in favor of the working class, and it is at this point that its moderating promise ceased to be useful from the point of view of the state. Throughout the decade, strikes proliferated in a context of full employment (Panitch
and Gindin 2012: 128). But the militancy of the 1960s was not the sole
preserve of the white, unionized working class. The nonunionized sectors of
the industrial workforce, often African American and migrant workers, also
launched a succession of wildcat strikes and challenged the exclusiveness
of the New Deal trade unions, which too often colluded in the racial division
of the labor force (Georgakis and Surkin 1975). New York, Philadelphia, and
Chicago erupted in urban riots in the summer of 1964 as African American
migrants from the South protested their relegation to devastated inner cities and their continuing exclusion from the basic provisions of the New Deal
social state (Quadagno 1994). The challenge to the Fordist/Keynesian consensus, moreover, was not limited to the workplace per se but also targeted
the racial and gender politics of the family wage. In and of itself, the growing
presence of women in the workforce undermined the rationale of the family
wage, but as women entered the labor market in growing numbers they also
began to question their exclusion from New Deal labor protections, social
insurance, and consumer credit and the overt discrimination that kept their
wages consistently lower than that of men. At their most interesting, and
radical, what these movements called into question was the very normative
premises of the Fordist consensus and its foundation in the family wage.
Throughout the 1960s and 1970s, successive administrations sought
to meet and contain these demands by offering a measured expansion of
New Deal social programs and labor protections. President Lyndon B. Johnson launched the Great Society programs just months after the civil rights
march on Washington in 1963 and implemented them shortly after the
urban riots of the following summer. The New Deal had favored white,
industrial workers in the Rust Belt Northern states to the exclusion of African American agricultural and domestic workers in the South; the Great
Society sought to extend some of its provisions to the growing numbers of
African American workers who had migrated from the South in the postwar
period (Quadagno 1994: 1011, 3031). Under its auspices, the federal government poured funds into education, health care, and public housing, hoping to ease the endemic impoverishment of the inner-city ghettos. The Great
Society also sought to redress some, but not all, of the work-based exclusions

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of the New Deal. Although benefits continued to be eroded by inflation,

amendments to the public pension program of the 1935 Social Security Act
gradually extended coverage to the predominantly African American farm
and domestic workers who had been excluded from its original provisions
and to the service occupations in which many women were employed (Quadagno 1994: 158). And even as universal health insurance remained far from
the political agenda, in 1965 Congress approved two federal social insurance
programs, Medicaid and Medicare, to allow the aged, indigent, and disabled
a minimum level of access to health care.
The structural discrimination written into personal banking relations also came under increasing scrutiny during this period as women and
racial minorities pointed to their continuing exclusion from consumer credit
as one of the prime reasons for their economic disadvantage. Successive
regulations prohibited racial and gender discrimination in the credit market, even as housing credit itself was undergoing substantial reform. The
Fair Housing Act of 1968 and the Equal Credit Opportunity Act of 1974
extended racial antidiscrimination norms to housing and credit markets,
respectively. The Home Mortgage Disclosure Act of 1975 and the Community Reinvestment Act of 1977 explicitly outlawed redlining and introduced
systematic procedures to monitor the demographic profile of bank loans,
while Regulation B of the 1974 Equal Credit Opportunity Act enabled married and unmarried women to obtain full access to credit in their own names
(Gordon 2005: 21618; Dymski 2009: 153; Hyman 2011: 21317). Each of
these legislative reforms called for a more inclusive welfare state, one whose
privileges were no longer defined by the sexual and racial hierarchies of the
Fordist household. In the meantime, the very structure of housing credit
was reformed and standardized, as the federal government removed Fannie
Mae from its balance sheet, created a private competitor, Freddie Mac, and
authorized both to create and sell bonds (securities) out of the mortgages
they underwrote (Quinn 2009).
In many respects, the creation of a market in mortgage-backed securities foreshadows the later generalization of securitization within the private
banking sector and the subsequent expansion of a shadow banking system.
And yet the mortgage-backed securities of the late Fordist era remained
firmly within the actuarial framework of the New Deal monetary consensus
to the extent that they restricted credit to the standard subject of labor and
were implicitly insured by the state (Schwartz 2009: 184). Having divested
itself of the fiscal burden of mortgage credit, the federal government continued to underwrite the risks inherent in housing loans and therefore tended

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to favor safe, standard forms of credit such as the vanilla mortgage and conforming borrowers. Inevitably, this commitment to safe lending criteria
came into tension with the overt mission of the government-sponsored entities to overcome discrimination in credit markets. Under the impetus of
new antidiscrimination laws, these entities set out to redress personal bias
in the allocation of consumer credit by introducing standardized, nationwide credit risk scores that would evaluate borrowers according to employment rather than race or gender (Poon 2009: 660). Yet despite these considerable legislative and bureaucratic efforts, no antidiscrimination law could
alter the fact that high-risk, nonstandard workers were disproportionately
African American, Latino, and femaleclassified as nonconforming by virtue of their distribution in the labor market rather than any personal prejudice on the part of bank managers (Hyman 2011: 21517). As such, the antidiscrimination politics of the late Fordist era was only partially successful in
redressing some of the normative exclusions of the Fordist credit regime.
Most of the social programs implemented under the umbrella of the
Great Society sought to expand the provisions of social insurance without
altering the basic architecture of the New Deal class compromise. These
programs were designed to reduce inequalities and placate dissent without
challenging the limits of US Keynesianism, which rested on the distinction
between private and public social insurance, unionized and nonunionized
labor, social insurance for the deserving poor and public assistance for the
undeserving. These enduring distinctions were structural to the Fordist
family wage. But the militantism of late Fordist labor and welfare movements was such that it challenged these limits and pushed the state to pursue deficit spending beyond the sex- and race-based distinctions that were
written into the New Deal. The resulting increase in federal and state expenditures, pursued alongside the war in Vietnam, was enormous. By the end
of the decade, the Great Society programs led to a doubling of social expenditures, outpacing even defense spending on the war (Panitch and Gindin
2012: 128). Along with the rise of anticolonial movements in the global South,
whose power was made manifest in skyrocketing food and oil prices, the
domestic movements of the late Fordist era played a decisive role in the
destruction of the New Deal/Bretton Woods monetary order.6 They would
ultimately force the Republican administration of President Richard M.
Nixon to liberate the US dollar from the fiscal limitations imposed by gold,
thereby undermining the very architecture of money that had sustained US
power throughout the postwar era.
By the late 1960s, the growing militancy of Fordist social movements
had led to plummeting levels of corporate profitability and a vicious circle of

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wage and price inflation, as businesses attempted to offset wage concessions

to unionized labor by raising prices (Panitch and Gindin 2012: 135). The
challenge to the Fordist consensus was neatly reflected in the inability of
neoclassical Keynesian economics (the dominant vernacular of the time) to
account for the unique macroeconomic conditions of the early 1970s. A succinct expression of Keynesian economics as it had come to be understood
among US economists of the postwar era, the so-called Phillips curve postulated a stable negative relation between the level of unemployment and the
rate of change of wageshigh levels of unemployment being accompanied
by falling wages, low levels of unemployment by rising wages (Friedman
1977: 454). But after the full employment and stable inflationary conditions
of the 1960s, unemployment and inflation now combined together as stagflation and began a slow and seemingly inexorable rise in the early 1970s,
confounding any attempt by the state to utilize the standard instruments of
Keynesian fiscal management.
It is a matter of some considerable historical irony that some of the most
generous increases in New Deal social welfare were introduced under the
Republican administration of Nixon, only a few short years before the spectrum of political alternatives would swing decisively to the right, for Democrats and Republicans alike. At the beginning of his first term, Nixon did
make a brief attempt to quell inflation, but without an alternative social compromise in sight, the political costs of tightening monetary policy proved too
high. Well before his inauguration to a second term in 1972, then, Nixon just
as abruptly resumed his policy of welfare expansion and allowed inflation to
pursue its inexorable rise (Arrighi 2003: 10). Nixons concession to the militantism of the late Fordist era finally tested the limits of the Bretton Woods
regime of fixed exchange rates: as the US balance-of-payments deficit continued to widen, short-term speculative capital flows fled the dollar and the
United States was forced to formally abandon the convertibility of the dollar
against gold (Arrighi 2003: 35). The effect was liberating. Having exempted
itself of the monetary discipline of gold, the US government was able to
ignore both budget constraints and inflation and to pursue Keynesian deficit
spending beyond the mediating limits that had been built into the Keynesian
project from the very beginning.
For a brief moment, then, the militantism of the late Fordist era forced
the US state to extend wage and welfare concessions beyond the limits of the
standard subject of Fordist labor, a move that ultimately undermined the
workability of the New Deal monetary architecture. In this respect, the longterm reorganization of labor, credit, and money around nonstandard risk
must be understood as an effect of labors political insurgency during the

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1960s and 1970sits refusal to accept the normativities of New Deal social
insurance. By the end of the 1970s, however, this new order of floating
exchange rates and destandardized money, in combination with the austerity politics of monetarism, would be refashioned as a weapon to neutralize
the inflationary demands of the Fordist labor movement.
The Volcker ShockDestandardizing Labor and Money
Ultimately, the New Deal consensus was broken in 1979, when the chair of
the Federal Reserve, Paul Volcker, definitively abandoned Keynesian monetary and fiscal policies in favor of the austerity politics espoused by monetarists such as Milton Friedman. The monetarist turn was eminently political:
without the discipline of gold, there was no longer any external economic reason for limiting fiscal expenditures on welfare and wages. Yet Volcker was
determined that wage and price inflation needed to be curbed and that the
standard of living of the average American [had] to decline (quoted in Rattner 1979). By restricting the money supply, the so-called Volcker shock drove
up nominal interest rates to 20 percent overnight and induced an almost
immediate recession. In this atmosphere of heightened austerity, President
Ronald Reagan was able to launch a full-scale assault on unionized labor and
its expectations of a continuously rising standard of living (Panitch and Gindin 2012: 171). The strategy of targeting the trade union movementthe
most privileged sector of the labor movementappeared especially designed
to halt the momentum of Fordist militantism. Under the full employment
conditions of the 1960s, these movements had pushed at the limits of the
Fordist class compromise by calling for an extension of social insurance
beyond the standard subject of labor; the Reagan revolution radically shifted
the balance of powers in the other direction, by dismantling the entire edifice
of standard Fordist labor, along with the social insurance programs it made
possible. Its long-term effect was to prompt a three-decades-long decline in
wages and to restructure the entire workforce around nonstandard labor.
Over the following decades, the overall proportion of the US workforce
covered by standard work contracts would decline in favor of old and new
forms of nonstandard employment. Throughout the 1980s and 1990s, the
ranks of casual workers, on-call workers, temps, employees leased or subcontracted from business service firms, day laborers, independent contractors,
and the self-employed swelled across the entire workforce (Gleason 2006: 1).
Under the influence of Chicago school labor law, employers sought to replace

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the insured, long-term contract of employment that had defined the unionized Fordist workplace with commercial contracts that were breachable at
will, in the process redefining the worker as an independent contractor
(Epstein 1983; Fudge, Tucker, and Vosko 2002). These labor practices were
first introduced by temping agencies that employed an overwhelmingly feminized workforce in the 1960s and were later adopted by the public service sector as it sought to divest itself of newly powerful service-sector unions (Hatton
2011; Boris and Klein 2012). During the 1990s, nonstandard work arrangements spread throughout the labor force, extending beyond low-wage and
feminized service work to affect the professional business-service and knowledge sectors (Kalleberg 2013: 90, 102). By 2001, even the most conservative of
estimates identified one-third of US workers as nonstandardan estimate
that excluded informal workers and the many tens of thousands of migrant
agricultural workers on temporary entry visas (Parker 2002: 109). This
reserve army of nonstandard workers now represents a shadow workforce of
monumental proportions whose precarious attachment to New Deal labor
protections and social insurance coverage continues to sanction the erosion of
work conditions in the standard employment sector.
The trend toward the destandardization of labor has no doubt been just
as overwhelming in other OECD (Organisation for Economic Co-operation
and Development) countries. The effect on social insurance, however, has
been particularly acute in the United States because of the historical relationship between New Deal social protections and the collective bargaining powers of standard, unionized labor. As Jacob S. Hacker (2012: 45) explains, the
US New Deal was unique in having established a system of public-private
welfare that supplemented minimal universal rights to social insurance with
more generous workplace benefits for unionized workers (see also Katz
2008: 17480). This historical peculiarity of the US welfare state meant that
workers in the strongest, unionized sectors of Fordist industry enjoyed access
to workplace insurance benefits (particularly health and pension plans) that
were far more ample than the minimum offered to other standard workers
while nonstandard workers were entirely excluded from the basic minimum
until the 1970s (Mettler 1998: 6873). The Social Security Act of 1935 did not
include a provision for universal health insurance, and the United States only
achieved a minimal form of public health insurance in 1965, when Medicare
and Medicaid were introduced to help the aged, the disabled, and the poor.
With the exception of these programs for the nonworking poor, health insurance was always directly tied to full-time, standard employment in unionized

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industry, rendering it unforgiving in its exclusion of nonstandard workers

and particularly sensitive to the changing composition of the labor force
(Quadagno 2005).
This system of private-public welfare reached its high point under the
Republican administration of Nixon, who oversaw the most generous
increase to Social Security payments in the programs history and extended
federal insurance to private workplace pensions under the terms of the
Employee Retirement Income Security Act (ERISA) of 1974 (Quadagno
1994: 159; Hacker 2006: 11). By the mid-1970s, almost two-thirds of the
workforce were protected by some form of private health insurance; twothirds had access to the old-age benefits provided by Social Security, while
one-fifth enjoyed private workplace pensions (Fraser 2011: 451). Yet these
gains were abruptly reversed under Reagan, who inaugurated a politics of
anti-inflationary fiscal austerity that has since become a defining feature
of neoliberal government across partisan lines. The public-private welfare
regime that emerged from the New Deal has not survived the decline of the
unionized, manufacturing industries in which the social compact between
labor and capital was originally forged: the migration of industrial labor offshore and the recomposition of the domestic workforce around smaller,
service-based firms, has led to plummeting levels of social insurance coverage, both public and private.
In part, this decline in social insurance can be attributed to the changing nature of the labor contract itself. The vertically integrated firms of the
Fordist era now only retain a small core of workers on long-term employment
contracts, in-sourcing the rest of their workforce on a nonstandard basis,
as subcontractors, independent contractors, and tempsmany of whom are
disqualified from the established legal definitions of insurable labor. The
evolving composition of the workforce has had a particularly dramatic effect
on levels of health care coverage, given the absence of universal health insurance in the United States. The smaller firms that predominate in the service sector often do not provide in-house health insurance plans to their
workers, while larger corporations routinely exclude their contingent of
nonstandardbut often long-termcontractors (Swartz 2007: 34). At least
until the passage of President Barack Obamas health care reform (itself a
mandate to regulate and promote individual health insurance rather than a
universal health system as such), the problem was particularly acute for the
working and nonworking poor who fell outside the eligibility rules for Medicaid or Medicare. Yet by the 1990s, the erosion of health insurance no longer
applied only to low-income workers but had also come to affect the large

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numbers of professional, academic, and technical workers who were employed

as independent contractors. The number of firms offering old-age benefits
has simultaneously declined, leaving a growing proportion of the workforce
to rely on the basic provisions of Social Security, whose real value has stagnated relative to wages (Hacker 2006: 122, 129).
In the meantime, even the pension programs that are still provided by
private employers no longer follow the actuarial and redistributive logic of
New Deal social insurance. Beginning in the early years of the Reagan revolution, employers began to phase out established pension plans, which offered
guaranteed returns or defined benefits and replaced them with defined
contribution plans such as the 401(k)whose returns are neither predictable nor assured (Hacker 2012: 5). The traditional guaranteed pension plans
exemplified the public-private model of social insurance established during
the Fordist era: modeled on Social Security, the plans were funded by the
employer, and insured by the federal government, displacing risk from the
worker to the employer to the state. The new defined contribution plans, by
contrast, make no claim to insure the risks of labor: they are essentially individual savings accounts whose returns are contingent on the investment
decisions made by the individual worker and the vicissitudes of the financial
market (Hacker 2006: 113). This is a model that advocates of privatization
would like to extend to Social Security in general, since it redefines the worker
as an investor, responsible for managing his or her own life risks, and
removes any residual loyalties to the collective fate of labor.
The evolving risk profile of US labor has utterly eroded the conditions
that sustained mass consumption during the Fordist era: predictable work
histories, stable or rising incomes, and social insurance. And yet consumption has nevertheless been maintainedoften at extraordinary levels. In
effect, the Volcker shock was far from producing the absolute (fiscal and
credit) austerity that monetarists had hoped for. On the contrary, one of the
unexpected side-effects of the monetarist turn was to bring foreign investment flooding back into the market for US securities, thereby providing the
US state and household with an abundant and cheap source of credit
(Krippner 2011: 9294). After the Volcker shock, it became evident that as
long as investors were willing to invest their dollar reserves in US securities
and as long as inflation was kept under control, the United States would be
able to extend public and private credit to historically unprecedented levels
(Konings 2011: 13). The ensuing turn toward financialization meant that
consumer credit could keep expanding even as wages and social welfare
budgets stagnated. Over the following decades, successive administrations

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did everything in their power to counter income and consumer-price inflation while allowing assets (nonconsumables such as housing) to appreciate
without discernible limit. This peculiar combination of fiscal austerity and
financial abundance was to become an enduring feature of US and other
Anglo economies from the mid-1980s onward.
Post-Fordism, then, has been able to survive to the extent that it offered
a class compromiseor, rather, concessionof its own. As the social wage
of the post-Fordist workforce has stagnated, consumption has been sustained by the burgeoning of low-cost credit, leading to historically unprecedented levels of household indebtedness (Barba and Pivetti 2009). Heterodox economists have proposed the concept of privatized Keynesianism as a
way of understanding this process, arguing that post-Fordism has more or
less reinvented Keynesian demand management by substituting private deficit spending for the public deficit spending of the welfare state (Crouch
2009; Bellofiore and Halevi 2012). Their continuing deference to Keynesian
economics, however, obscures the extent to which the very institutional and
contractual forms of credit creation have had to mutate as an effect of the
changing profile of the post-Fordist workforce. The New Deal banking system
presupposed the existence of a core workforce of regular, insured workers
a workforce that could be relied on to maintain the long-term financial obligations of social insurance and consumer credit. Today these conditions no
longer hold even for the most privileged sectors of post-Fordist labor. As
work histories become less predictable, money and credit have had to evolve
to price nonnormal risks and, in the process, have migrated beyond the regulatory spaces of the New Deal banking system. In other words, the postFordist expansion of credit would not have been possible without a profound
transformation of the New Deal banking system itself, a transformation that
was facilitated by both external forms of deregulation and institutional innovation from within. I turn to this process in the following section.
Shadow Banking, Securitization, and Uninsured Labor
The rise of shadow banking can be traced to the early 1980s, when nonbank
financial firms began to compete with commercial banks to provide services
that were restricted under the terms of the New Deal Banking Act. In many
respects, commercial banks had been the privileged beneficiaries of New
Deal financial regulations. Federal deposit insurance guaranteed the security
of consumer deposits and insulated depository institutions from bank runs.
Regulation Q of the New Deal Banking Act restricted the interest payments

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that could be paid on deposits, in the belief that interest-rate competition

among banks had contributed to the economic crisis of 1929. The combined
effect of these regulations was to bolster the profitability of commercial banks
by providing them with a cheap, secure, and abundant source of funds. As
inflation rose in the 1970s, however, the Regulation Q controls on interest
rates became increasingly burdensome to bank depositors and a competitive
obstacle for the banks themselves (Russell 2008: 8485). Nonbank financial
firms, in the meantime, were unencumbered by the various regulatory limits
of the New Deal depository institution: they were not obligated to contribute
to deposit insurance, had no reserve requirements, and were not subject to
Regulation Q controls on interest rates. They therefore seized the opportunity
to fashion alternative transaction reserve accounts that would compete with
the traditional deposit (Russell 2008: 8687). These included money market
mutual funds, which evolved as an outright alternative to traditional depository institutions, and various money market instruments such as repos,
which offered a close substitute to deposits (Gorton 2010a: 4; Mehrling 2011:
89). By the mid-1980s, money market instruments were in high demand
among institutional investors such as pension funds that were managing
ever greater amounts of money and needed a short-term, safe, interestearning transaction account like demand deposits: repo (Gorton 2010a: 15).
What we call the shadow banking systema private, parallel system of
money creationemerged out of these competitive maneuvers.
The traditional commercial banks continued to lose market share to
nonbanks throughout the 1990sso much so that by the time of the recent
financial crisis, the scope of shadow money creation far exceeded that of the
New Deal banking sector with its government-insured money claims (Ricks
2011: 121; Adrian and Ashcraft 2012: 31). Yet the story is not one of simple
substitution, since regulatory reform in the early 1980s also allowed commercial banks to evade some of the restrictions of the New Deal Banking Act
and brought them into a symbiotic relationship with the shadow banking
sector itself. The rapidly rising interest rates generated by the inflation of the
late 1970s placed banks under extreme pressure, a situation that the federal
government sought to relieve by relaxing constraints on mortgage lending.
Reforms passed in the early 1980s authorized federal depository institutions
to issue variable-rate mortgagesproducts that replaced the calculable risks
of the long-term, fixed rate or vanilla mortgage, with the unpredictable risks
of volatile interest rates, while at the same time shifting these risks onto the
consumer (Porter and Twomey 2012: 14445). These loans would later be
marketed en masse to subprime borrowers.

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In the meantime, commercial banks were changing the way they managed loans in the long term. Heightened competition from nonbank institutions was making it unprofitable for banks to keep passive loans on their
books until maturity. The classic originate-to-hold model of bank lending was
therefore progressively replaced by the originate-to-distribute model of securitized credit intermediation, as banks chose to pool, repackage, and sell on
loans to securities markets, where they found ready purchasers among foreign and domestic investors looking to diversify their portfolios of Treasury
securities (Dymski 2009: 159; Gorton 2010a: 4). The turn to securitization
liberated the commercial bank from some of the risks that were endemic to
traditional credit creation: by separating loan making from the default and
liquidity risks that went along with holding loans to maturity, securitization
allowed banks to create risks they would no longer have to absorb, effectively
removing one of the intrinsic limits to credit expansion as it had existed under
the New Deal banking regime (Dymski 2009: 174). Using nonstandard mortgage products to attract uninsured or exotic borrowers and securitization as
a way of repackaging these risks into an ostensibly safe product that could be
sold on to third parties, the federally insured depository institution was able to
escape some of the limits written into the New Deal Banking Act. These innovations brought it into ever-closer alliance with the shadow banking sector
since the broker-dealer banks that issued repo were some of the principal
investors in mortgage-backed securities and other securitized debts.
Between the 1980s and 1990s, securitization itself evolved, moving
beyond the purview of government-sponsored enterprises such as Fannie
Mae, Freddie Mac, and Sallie Mae, whose portfolios were implicitly guaranteed by the state, into the market for private-label consumer credit that had
no public backstop. During the 1980s, the market in asset-backed securities
was dominated by the government-sponsored entities, which followed strict
underwriting criteria and favored standard, vanilla or conforming, loans
that is, loans made to borrowers with minimal default risk and a regular,
documented source of income. Default rates on these loans were traditionally as low as 0.5 percent. As Herman Schwartz (2009: 184) suggests, vanilla
securitization was a product of the (late) Fordist era, testimony to the efforts
of Johnson and Nixon to expand the market for social insurance and stateinsured consumer credit as far as possible without questioning the racialized and gendered divisions of the labor market. Despite successive antidiscrimination laws prohibiting personal prejudice in the allocation of credit,
vanilla loans were always subject to the premise of a standard labor contract
and therefore ended up excluding most women and minorities on purely

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objective grounds. As such, vanilla securitization continued to restrict credit

to the standard, insured worker at a time when labor itself was rapidly losing
its standard profile.
By the mid-1990s, however, private lenders were entering the market
en masse and, in a context of rising house prices and heightened competition, were willing to extend credit to those who, until recently, had been
excluded from the consumer credit market. The vanilla loans favored by the
government-sponsored enterprises operated within an actuarial calculus of
risk, standardizing borrowers around a middle-class family norm and regular forms of employment (Schwartz 2009: 184). The new generation of private brokers, by contrast, replaced these traditional, actuarial models of risk
standardization with a much more speculative strategy of risk optimization
through diversification into some of the more high-risk segments of the consumer credit market (Poon 2009: 66668). Having saturated the market
for safe borrowers, mortgage brokers began to aggressively market credit to
both subprime (low-income) and Alternative-A, or Alt-A (credit-blemished),
borrowersprecisely those borrowers who would have been automatically
excluded from the federally guaranteed loans issued by Fannie Mae and
Freddie Mac. In short, private-label brokers expanded into the market for the
exotic or uninsured risk, extending credit to those who were employed in
irregular, nonstandard, and undocumented work in the low-wage shadow
workforceAfrican Americans and Latinos in general, African American
and Latina women in particular, and a disproportionate number of women
of all ethnicities (Dymski, Hernandez, and Mohanty 2013). The subprime
market allowed unprecedented numbers of previously marginal borrowers
and nonnormative households (single mothers and those living in other
nonnormative arrangements) to aspire to home ownershipbut often at an
exorbitant price. It was expected that a sizable number of these borrowers
would default, perhaps after rescheduling their loans several times. And yet
as long as house prices continued to appreciate, these higher-than-average
default rates would be more than compensated for by the higher-than-average returns to be gleaned from rescheduling fees and the punitive conditions of subprime loans.
In a certain sense, then, financialization did resolve the enduring problems of race- and gender-based credit exclusion that had never been effectively
addressed by antidiscrimination laws, simply because these new kinds of
credit brokers were willing to price the risks of nonstandard labor. For a brief
moment, the private-sector expansion of uninsured money and uninsured
credit embraced the nonstandard subjects who had once been summarily

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excluded from the New Deal social consensus, seeming to confirm the notion
that financialization would usher in a superior form of social democracya
social democracy beyond the norm (Shiller 2003). Not surprisingly, however,
the rates of interest it extracted from these nonstandard borrowers proved
unsustainable in the long run.
No doubt much of this lending was predatory. It is estimated, for
example, that up to 50 percent of subprime borrowers could have qualified
for standard loans at the height of the housing boom (Brooks and Simon
2007). But the charge of extortion, repeated by so many critics on the left,
cannot account for the evolving, symbiotic relationship between the organization of labor, the form of money, and the terms of credit. Above and beyond
the obvious and undeniable cases of extortion, the increasing recourse to
nonstandard loan structures and exotic securitization also reflected a rational response to the evolving profile of the US workforce as more and more
workers moved into the space of shadow employment and standard labor
itself came under the shadow of social insecurity. How is one to standardize
risk when so few workers are protected by long-term employment contracts
or reliable social insurance? And how is one to sustain the consumption levels
of the Fordist era when wages are not only stagnant but also unpredictable?
The actuarial requirements of federal mortgage institutions established during the New Deal and Great Society era are supremely incompatible with the
contingent working conditions of the post-Fordist labor force. If consumption levels have nevertheless been maintainedat extraordinary levelsit
is thanks largely to the proliferation of private, federally uninsured forms of
money and credit that have sprung up beyond the regulatory parameters of
the New Deal banking system.
And yet the stabilizing promise of financialization became less and
less plausible as labor itself became increasingly contingent. What the subprime crisis made abundantly clear is the fragility of a system that depends
on the continuous extension of consumer credit to workers who have very
little chance of sustaining any form of long-term financial obligation at all.
The financial crisis may have originated in the most high-risk segments
of the subprime market, that is, among the ranks of the lowest-paid nonstandard workers. But what it points to is a more pervasive fault line that cannot so easily be confined to the post-Fordist underclass. The looming student
debt crisis, unfolding in a context of declining graduate job prospects and
stagnant professional wages, is more indicative of the full amplitude of the
problem, since it suggests that the fault line extends well beyond the lowwage service sector to implicate even the most privileged echelons of the

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workforcethose who were supposed to be the winners of the postindustrial

economy (McClanahan 2011; Consumer Financial Protection Bureau 2012).
Despite the mutual imbrication between the fortunes of labor and
those of high finance, social studies of financeeven the most avowedly
criticalhave remained strangely blind to the connection, instead searching for final causes in external economic laws or the intricacies of financial
models. But what the recent financial crisis brought to light is not an extrinsic limit to redistribution first encountered in the inflationary context of
the 1970s and artfully deflected by the turn to financialization, as Greta R.
Krippner (2011), following the neoconservative philosopher Daniel Bell
(1976), has argued. Nor does it reflect the scientific failure of mathematical models to calculate the nonstandard, nonprobabilistic risk. The attempt
to update neoclassical or indeed performative financial models in light of the
insights of fractal mathematics, although pertinent, remains a technocratic
exercise that cannot in itself account for the possibility of crisis (Taleb 2010;
Ayache 2010; Esposito 2013). The income flows that travel through an assetbacked security or collateralized debt obligation are interest payments
extracted from the volatile, unpredictable wages of post-Fordist workers. It
follows that the possibility of default cannot be divined from the internal
workings of the financial model but is intimately attuned to the endemic
insecurity of post-Fordist labor. The credit default swap, for example, not
only challenges the limits of actuarial risk management in a formal sense (it
is not legally the same thing as an insurance contract) but also points to the
political implausibility of underwriting consumer credit in a context where
the average working life is unpredictable, volatile, and uninsured. However
deftly it is designed, the credit default swap will never be able to calculate the
average risks of an asset-backed security when its future income streams are
themselves funded by the unpredictable wages of post-Fordist workers. What
the recent financial crisis made manifest, then, was not an extrinsic natural
law of scarcity or a failure of epistemology but an internal political limit
inhering in the post-Fordist mode of accumulation, which imposes fiscal
austerity on wages and welfare even while it seeks to enlist workers/consumers in the infinite obligations of credit.
Conclusion
The term shadow banking refers to a system of private, uninsured money
creation that evolved beyond the limits of the New Deal banking system in
the early 1980s, progressively assuming an ever more significant role in

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domestic credit and global asset markets. Until the crisis of 2007, this elaborate system of money and credit creation operated without the formal backstop of the Federal Reserve; indeed, its participants claimed to have developed their own parallel system of private risk management and collaterala
claim that was duly confirmed by the AAA classifications granted by ratings
agencies. When this private system collapsed, however, the Federal Reserve
was willing (some would say compelled) to absorb unprecedented levels of
private debt onto its books, in the process transferring the nonstandard risks
assumed by private investors onto the public balance sheet. As Andrew Bowman and colleagues point out, the scope of central bank interventions after
the global financial crisis has gone well beyond the limited and temporary
lender of last resort role advocated by classical theorists of money management from Walter Bagehot to John Maynard Keynes and Hyman Minsky.
Indeed, central banks after the crisis have operated in a post-normal
world of non-Gaussian risk, involving nonstandard monetary-policy crisis
measures applied on a heroic scale (Bowman et al. 2013: 457). These nonstandard interventions on behalf of private investors stand in stark contrast
to the fiscal austerity measures imposed on social servicesa politics that
has remained more or less unchanged, although applied with varying
degrees of intensity, since the late 1970s. What has changed, no doubt, is the
political context in which decisions concerning fiscal austerity are made.
Having undertaken such extraordinary measures to bail out private investors, it is no longer so simple for the central bank to deflect calls for political
accountability or to hide behind the screen of scientific expertise. Whether
this change in context will lead to some kind of new social democratic compromise, to some effort by the state to recollateralize the risks of labor,
remains to be seen. At present, such a compromise seems far from the political agenda. What I have attempted to suggest, in any case, is that moments
of social democratic consensus such as that achieved during the New Deal
always come at the price of new lines of exclusion and new inscriptions of
social valuedivisions of labor and welfare that invariably anchor value in
the proper reproduction of sex and race (i.e., in the proper form of the family)
and on this basis distinguish between the deserving and underserving poor.
A truly ambitious anticapitalist critique, then, cannot limit itself to the task
of reconstituting labor as the foundation of value. If any lesson can be drawn
from the social movements of the late Fordist era, it is that political activism
is at its most interesting and disruptive when it refuses to settle for either the
politics of austerity or the constitutive exclusions of consensus.

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Notes
1
2
3
For a discussion of the peculiar legal spaceelsewhere and nowhereopened up by

shadow banking, see Palan and Nesvetailova 2014.
The term shadow banking was first coined by the US economist Paul McCulley (2009),
at a speech delivered to a Federal Reserve conference in 2007.
I here follow Dick Bryan, Michael Rafferty, and Chris Jefferis (forthcoming), who locate
a minimal definition of money in the quality of liquidity: One thing about money
cannot be disputed: it must relate to some assets that are liquid in the sense of being
readily convertible into something else without significant loss of value. Illiquid money
is either an oxymoron or a definition of monetary crisis. In other words, money itself
may well represent a promise to pay and therefore a form of debt, but what distinguishes it from other debt and credit instruments is the expectation that it is immediately and universally transferable, at minimal cost, into other forms of value. All other
forms of debt and credit are characterized by less immediate and less universal powers
of transferability. For example, their maturity dates may require a certain waiting
period, and their transferability may be limited to certain classes of assets or may exact
a significant loss of value.
But see Ayache 2010 and Taleb 2010 for critiques of neoclassical equilibrium economics and the mathematics of the normal distribution developed within the world of
financial practitioners. Much of this work has precedents in poststructuralist philosophy. Gilles Deleuze offers a philosophical formula for conceptualizing the liquidity of
uninsured risk when he attempts to theorize the repetition of irreducible inequivalence. See Deleuze 1994: 280325. On the sources of Deleuzes thinking in topological
mathematics, see DeLanda 2002: 944. The notion of repeatable difference also has
affinities with the fractal mathematics of Benot Mandelbrot. For his application of fractal mathematics to economics and his critique of equilibrium theory, see Mandelbrot
2006. I prefer the term liquidity to exchangeability because the latter seems to imply
that only the measurable can circulate.
There exist numerous historical accounts of the relationship between probability calculus, statistics, and the rise of social insurance. On the French welfare state, see Ewald
1986; on the New Deal in the United States, see Witt 2004; and for a consideration of the
law of averages in nineteenth- and twentieth-century statecraft, see Desrosires 1998.
This article focuses on the domestic pressures that led to the collapse of the New Deal
and Bretton Woods monetary consensus. For a complementary reflection on the impact
of anticolonial movements, see Martin, this issue.
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South Atlantic Quarterly

New Deal monetary reforms established a par-

ticular kind of banking institutionthe federally

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tives issued by the likes of American International Group (AIG) (Gorton

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holding up the edifice of shadow money and shadow credit intermediation of

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familiar to mathematicians of topological or fractal geometry but which has

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contractthe long-term, fixed-rate, amortized loan (the so-called vanilla or

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Fordism at the LimitsMoney, Labor, and Welfare beyond Standardization

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of the New Deal. Although benefits continued to be eroded by inflation,

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wage and price inflation, as businesses attempted to offset wage concessions

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industry, rendering it unforgiving in its exclusion of nonstandard workers

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numbers of professional, academic, and technical workers who were employed

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that could be paid on deposits, in the belief that interest-rate competition

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