The socio-structural genesis of circulation,The explosive rise of short-term speculative capital, embodied in and animated by the circulation of the risk-bearing derivative, seems to reflect, amplify and arise from ongoing transformations in the basic socio-structures of the globalizing economy (Eatwell and Taylor 2002). This much more than economic transformation turns on the evolving relationship between the rising importance of circulation and the development of financial institutions and instruments that specialize in the circulations of capital (Pryke and Allen 2000). It appears that the internal dynamic of modern capitalism that compels it to drive towards higher, more globally encompassing levels of production seems to be generating such progressively ascending levels of complexity that connectivity itself is becoming a socio-structuring value. Though it went unnoticed at the time, beginning in the 1970s EuroAmerican industrial manufacturing had begun to exhaust much of its productive potential (Brenner 1998) and to require a spatial remedy or a ‘fix’ (Harvey 2000: xxx; James 2001: 204). Industries of many types needed to discover new ways to incorporate more marginal regions (particularly South Asia) to shore up critical contradictions instigated by its compulsion to overproduce goods and over-accumulate capital. As Spiro (1999) has shown, EuroAmerican capitalism was generating and absorbing (especially from OPEC members) more capital than it could profitably reinvest in the majority of existing industrial sectors. So Harvey observes that ‘if equilibrium is to be re-established, then the tendency towards overaccumulation must be counterbalanced by processes that eliminate the surplus capital’ (1982: 193) circulating through the production system.
A key dimension of the metropolitan response was a global restructuring in which EuroAmerican companies began to outsource much of the production of industrial materials and component manufacturing to the more developed regions of the more advanced developing nations. Southeast Asia generally and China in particular were the main beneficiaries of this restructuring (Singh 2002: 241-6). The hinterlands of the advanced periphery as well as entire countries, such as Pakistan, became outsourcing centres for raw materials and manual labour production (e.g. textiles). Still other states, particularly though not only in sub-Saharan Africa, participated in this process in only the most marginal and episodic sense. Analysts such as Bond (2001) have argued that countries such as Mozambique and Chad seem isolated from all but the most exploitative aspects of the global economy.
This reorganization of production has continued to generate problems of connectivity immune to traditional solutions (Hoogvelt 1997: ch. 3). In contrast to previous forms of international trade, this reorganization that began in the 1970s arose from a fragmentation of the production processes at the level of basic inputs (Jones 2000). The proliferation and institutionalization of contractual outsourcing (an agreement to supply a product over a given time span) reconfigured and increased the risks that corporations had to deal with. New and seemingly less easily manageable risks-such as political, counterparty and currency risks-appeared on the horizon. To hedge against these risks, financial institutions began, as Shiller (1993) observes, to develop derivatives and their markets for their corporate clientele. In order for these derivatives to be effective, their markets needed to be liquid, the principals able to buy and sell as their needs demanded. The demand for liquidity together with the self-expansive structure of these markets furnished a new avenue and opportunity for absorbing the over-accumulation of capital in the metropole, giving birth to new institutions, such as hedge funds and new banking divisions, that specialized in managing speculative capital. And, as the pools of capital expanded, as financial technicians cast new derivative contracts to expand the reach and maximize the leverage of speculative capital, and as new technologies permitted instantaneous around-the-clock trading worldwide, the economic power of such capital grew exponentially. The numbers are truly staggering: the value of the financial derivatives now traded annually approximates 100 trillion dollars, the vast majority in the unregulated over-the-counter market (OTC). According to the US Treasury (2003), the banking conglomerate, JP Morgan Chase, presently has derivatively based positions that control over two trillion dollars in foreign currency, more than the gross national product of all but a few nations. So production’s most important product is fast becoming the production of connectivity-the logistics, communication networks, financial instruments and technologies used to aid and amplify connectivity.
Speculative capital, financial derivatives and risk.As intimated, financial derivatives are part of a socio-structure of circulation that has three interconnected elements. The first of these elements is speculative capital. This is a huge, discretionary, non-production directed and continually expanding pool of mobile, nomadic, opportunistic capital that resides in the hands of major investment banks (e.g. Goldman Sachs), privately owned hedge funds (e.g. LTCM) and the financial divisions of especially the largest corporations (exemplified by GE Capital). These banks, funds and divisions are located in the cultural and mental if not always geopolitical landscapes of Europe and the United States. The second element is the financial derivative products and markets. This set of linked institutions participates in global markets in many ways, the most significant of which is increasingly the marketing of these products. This is important because financial derivatives are the principal instrument that speculative capital uses in the global marketplace. Financial derivatives are essentially wagers on changes in the price of money (i.e. interest rates) or relationships among national currencies. From the viewpoint of the market, they appear to be necessary and natural because they are motivated by the risks associated with the connectivities lying at the heart of globalization. The final element is a newly minted and determinative conception of risk: new because risk has here become abstracted from the concrete universe of uncertainties and determinative because it constitutes the basis for the production and pricing of derivatives. The construction and combination of the elements constitute the molecular structure of what we call the culture of financial circulation. Though none of the three elements is itself new, their combination, redefinition, institutionalization and technological amplification are producing a fundamental shift in how the world economy works, characterized by the growing power and autonomy of the sphere of circulation.
