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Abstract The analysis argues that the outsourcing of production from the metropole generated problems of monetary connectivity that motivated the banking sector to develop and market a new species of derivative: the financial derivative. Virtually non-existent until 1973, such derivatives would soon become a 100 trillion dollar market. Making a market for these derivatives opened the door for speculative capital just as the attempt by this market to capture the risks embodied in local monetized relations led to emergence of a notion of abstract risk. The notion of abstract risk, embodied in the derivative and propelled by a self-expanding speculative capital, is globally significant because abstract risk functions as a social mediation, creating a new form of interdependence in the sphere of circulation even as circulation itself grows increasingly autonomous from production. We show that what makes the emergent culture of financial circulation historically new is that it is defined and determined through the objectification of abstract risk. Keywords: riskmediationcultures of circulationfinancial derivative Notes The book, entitled Cultures of Circulation: The Performativity of Economic Life (University of Minnesota Press), develops a sustained argument about the ascension of circulation as a quasi-independent sphere of the capitalist economy. The analysis underlines how a new regime of objectification and subjectivity is coming into being in the propulsion towards novel forms of connectivity whose effect, in simultaneously decomposing and then knitting together once nationally/state-distinct capitalism, is to engender a new form of the striving towards totality that imbues capitalism with a determinately directional character. The centre of the account is our endeavour to define the performative subject and to grasp how the character of the performative subject in capitalism is distinct from the forms of economic life that defined all non-capitalisms in all their many and characteristically non-universalizing forms. There are those who argue that the level of world trade is no greater now than it was during some earlier historical periods (e.g. Hirst and Thompson ). If the standard of trade is finished goods, especially finished manufacturing goods, then this is true. It is also completely irrelevant because it assumes that 'trade' consists of domestically produced goods which nations then exchange with one another. The reality is that domestic production is all but extinct, even if it continues to appear in economic statistics and trade agreements. This is particularly true in the fasting-growing segments of the world economy, such as technology and communications. But even in the production of something as pedestrian as clothing (such as men's cotton shirts assembled in places like the Maldives, Honduras and India), the design, licensing agreements, materials production and weaving, computerized technology, capital formation and distribution networks more usually involve transactions in multiple currencies (frequently ten or more). What does it mean when a French-based corporation whose largest shareholders are British and Saudi uses German capital to enter into a joint venture with an Egyptian firm to purchase cotton from local growers, and then, supplementing this purchase with cotton from other regions assembled by an Israeli broker, sends the material to Morocco to be woven into fabric and Tunisia to be dyed, the finished materials delivered on Liberian ships to the Maldives where a design licensed from an Italian 'house' and delivered to the Maldives via a computer program (licensed from an American company) and, there, the cotton is sewn into a shirt, packaged and distributed via an international assortment of distributors and direct purchasers? David Harvey, of course, in The Limits of Capital () argued that devaluation is the flip side of over-accumulation and that devaluation occurred when value was quiescent because it existed as unsold or unusable commodities, reserves of money or the production of non-values. The argument made here is that the system of financial circulation can itself serve as a means of eliminating capital from the production cycle. The derivatives data for JP Morgan Chase and other commercial banks can be found on the US government web site: www.occ.treas.gov/ftp/deriv/dq101.pdf. The law requires commercial banks (though not investment banks such as Goldman Sachs) to report their derivative exposure every quarter to the US Comptroller of the Currency, which, in turn, prepares a report called the Bank Derivatives Report. See also Hamilton (). Methodologically, the data and conclusions are the result of reading published accounts, examining patterns of currency trading on the world markets, interviewing portfolio managers (e.g. Morgan Stanley) and from our own experience of trading derivatives for our own accounts. An irony in the evolution of this process is that the statistical methods developed within the financial community occurred almost entirely independently of the field of mathematical statistics. Reading the literature on derivatives one can easily get the sense that it is often attempting to reinvent a not always perfectly round wheel (e.g. Taylor ). This is important to the present discussion in that mathematical statistics has determined that probability is a measure of sets in an abstract space of events, meaning that for real world problems, such as pricing derivatives, analysis needs to identify and specify that space of events for the particular problem at hand (Salsburg : 301). It can now be understood that for derivative pricing the objectification of abstract risk provides a means of specifying a heterogeneous and often apparently indeterminable space of events. For some incisive critiques from slightly different angles, see Maurer (, ), Stiglitz () and Soros (, ). Up until 2000 when, responding to the global financial markets, the ANC-led government was compelled to abandon its original economy policy (which was designed to stimulate employment and redistribution) and adopt in its stead a neo-liberal agenda, the research reports issued by firms such as Goldman Sacks, Morgan Stanley, J.P. Morgan Chase and Credit First Swiss routinely described the government's newness and economic policy as a major risk for investors, domestic and foreign. The pressure that has been exerted by the financial markets is so enormous that the president of South Africa's central bank, a former communist trade union leader who spent most of his adult life struggling against capitalism and apartheid, is compelled, against his own better economic judgement, publicly to parrot the economic refrains of Alan Greenspan. For a detailed discussion based on over five years of research, see chapter 4 of The Political Culture of Democracy in South Africa () by Edward LiPuma and Thomas Koelble, a political scientist from the University of Cape Town. It should be noted that the financial community knows about abstract risk in the sense that commentaries on risk sometimes talk explicitly about the different types of risk that a type of derivative aggregates. However, even in these cases, the commentaries do not grasp the role of abstract risk in constituting a circulatory system, and hence they see the aggregation of risks simply as a feature of a derivative product designed to mitigate uncertainty and potential loss. Because, in these commentaries, individual risks always add up to aggregate or abstract risk, and do so independently of their concrete specificity, risk appears to create abstract systemic risk simply because of the natural intersection of uncertainties. Thus, simply analysing the way that derivatives aggregate risks will never by itself allow investigation to discover the systemic properties of risk-based circulation. In fact, the character of risk encountered in the sphere of production becomes indistinguishable from that constitutive of financial circulation. Against this conventional view, our account argues that, in its sphere, the socio-structures of production imbue risk with its basic character, whereas, in the sphere of global circulation, risk itself is a constitutive force because it imparts an objective and systemic character to connectivity through the instrumentation of the derivative and the propulsion of speculative capital. Additional informationNotes on contributorsEdward LiPumaEdward LiPuma is a professor of anthropology at the University of Miami. He is the author of Encompassing Others: The Magic of Modernity in Melanesia (2000), (with Benjamin Lee) Financial Derivatives and the Globalization of Risk (2004) and (with Thomas Koelble) a forthcoming book, The Political Culture of Democracy in South Africa.Benjamin Lee is co-director of the Center for Transcultural Studies and the Graduate Dean at the New School for Social Research. He is the author of Talking Heads (1997) and (with Edward LiPuma) a forthcoming book, Cultures of Circulation.Benjamin Lee, Graduate Dean, New School for Social Research, New York, New York, 1003, USA. Email: leeb@newschool.edu.
LiPuma et al. (Mon,) studied this question.