A short history of 'the casino economy'
It has always been a fantasy of mine that a boatload of 25 brokers would be shipwrecked and struggle to an island from which there could be no rescue. Faced with developing an economy that would maximize their consumption and pleasure, would they, I wonder, assign 20 of their number to produce food, clothing, shelter, etc., while setting five to endlessly trading options on the future output of the 20? (Warren Buffett, 1986)
You’ll find an odd kind of consensus between left debates and the business press from the middle of the 1980s. Despite the appearance of being in a boom, something was wrong with capitalism in the Anglo-American core. Financiers were getting very rich, without contributing very much to society or the economy, and capitalism in general was in a fragile, uneasy state. It was a special cause of concern that capitalism had become increasingly beholden to speculative profits earned on increasingly volatile financial markets.
It’s a common metaphorical refrain from writing at the time that leading economies were increasingly subordinated to the ‘casino’ of financial markets.
Warren Buffett, writing in the Washington Post towards the end of 1986, decried the rise of a ‘casino society’, increasingly oriented around short-term speculative transactions. Buffett (who was and is, of course, a billionaire asset manager) was not particularly interested in abolishing the capitalist financial system altogether, but did argue that it had taken on a new form. For Buffett, the financial system was increasingly distant from a useful role in allocating investment to the productive economy and focused on squeezing money out of productive enterprises and driving the ever-faster turnover in financial assets. Hence, the fantasy scenario quoted in the epigraph. Finance had gotten too fast, and too self-contained. Buffett argued that there should be a 100 percent tax on profits derived from sales of financial instruments that the owner had held for less than a year, arguing that this would lead to ‘the substantial brain power and energy now applied to the making of investment decisions that will produce the greatest rewards in a few minutes, days or weeks’ being ‘instantly reoriented to decisions promising the greatest long-term rewards’. (The casino metaphor remains, in 2022, a favourite of Buffett’s.) Business Week magazine had likewise, the year prior, run a cover story titled ‘The Casino Society’ (Bianco 1985). Similar to Buffett, Bianco worried that ‘More and more of what transpires on the trading floors of Wall and Lasalle Streets has no direct connection to the factory floors of Main Street’.
Buffett and Bianco were far from the only commentators to invoke the ‘casino’ metaphor to describe financial markets at the time. This is about the same time as Susan Strange’s Casino Capitalism was first published. Strange had quite a bit more of substance to say about why the financial boom was taking place — highlighting the way that the ‘non-decisions’ of US and UK authorities had led, in ways they often hadn’t predicted, to the formation of a runaway casino economy increasingly beyond their control.
The ‘casino’ metaphor has often had some purchase on the left as well. A manifesto on democratic planning, organized under the auspices of the Campaign for Labour Party Democracy in the late 1980s and written by Nicholas Costello, Jonathan Michie, and Seumas Milne, for instance, took the title Beyond the Casino Economy. They posed the growing power of the City as both the source of British economic malaise and a major obstacle to democratic planning: ‘The feverish speculative activity that was unleashed in the financial and securities markets by deregulation and financial globalization in the 1980s has created the most sophisticated and “efficient” markets in the world, but it has done nothing for the construction of a modern and competitive industrial base in Britain and it has certainly increased instability in the world economy’.
There was a resurgence in ‘casino’-themed commentary in the aftermath of the 2007/08 financial crisis as well.
The casino metaphor is normally attributed to Keynes’ General Theory of Employment, Interest and Money. In differentiating speculation (forecasting changes in prices, or ‘the psychology of the market’) from ‘enterprise’ (forecasting the long-run productive yield of assets), Keynes had argued that ‘when the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done’. Keynes’ metaphor was increasingly seized on from about the mid-1980s onward to describe changes in US and UK capitalism following the end of the Gold Exchange Standard and radical experiments in financial deregulation pursued by the Thatcher and Reagan governments.
The ‘casino’ metaphor lends itself more to condemnations of the moral degradation of modern-day finance than it did to understanding the restructuring of global capitalism. As Marieke de Goede’s Virtue, Fortune and Faith argues especially clearly, the boundary between financial speculation and gambling has never been entirely clear-cut and has often been contested. Drawing a distinction between the ‘casino’ economy oriented towards short-term speculative gains and properly-functional capitalism does something similar. The imagined inverse of ‘casino capitalism’ in most instances, was some imagined past of constrained, functional financial markets and productive investment. (Though, most overtly left accounts of ‘the casino economy’ at least have the merit of avoiding pat nostalgia for Fordist capitalism, as does Strange’s.) All of this, moreover, is draw too neat a line between ‘finance’ and ‘real’ economies, and perhaps to excuse or gloss over the exploitative, unstable, and socially destructive character of the latter under capitalism.
Marxist economists Harry Magdoff and Paul Sweezy, reacting to Bianco’s BusinessWeek report specifically, noted that debates about the ‘casino economy’ generally lacked any systematic diagnosis of why the financial boom was happening, leaving writers with ‘little to contribute beyond dark hints and ominous warnings of unknown perils that lie ahead’. (Magdoff and Sweezy’s own diagnosis leaves something to be desired on this front, but that’s probably for another blog…) The casino is a bad metaphor, ultimately, because it exceptionalizes financial activity rather than positioning it within the whole circuit of capital.
I’m interested here in the ‘casino’ here as a kind of precursor of debates that followed a few years later about ‘financialization’. The latter don’t always make their moralism explicit in the same way, but nonetheless rest on a sense that the financial system has grown out of control, misdirecting investment towards speculative activities and away from productive ones. The ‘casino’ metaphor, and its circulation in the 1980s in particular, is an important part of the genealogy of these debates. It’s best seen as authors fumbling with the kind of capitalist malaise that financialization debates ultimately give a sharper conceptual (and sometimes empirical) definition. At the same time, it makes explicit the kind of moralism, and the political horizons, that financialization debates often imply — a ‘productive’ capitalism with ‘less’ finance in it. And, I think, it expresses really clearly the sense that the financial system had become detached or divorced from the ‘real’ economy expressed very clearly in Bianco’s reference to the growing disconnect between Wall Street and ‘Main Street’, or Costello and colleagues’ reference to ‘feverish speculation’ that does ‘nothing’ to help build the UK’s industrial base.
One of Marx’s more useful injunctions here is that, insofar as financial profits appear to be ‘decoupled’ from productive activities, or purely speculative, then, they represent ‘the capital mystification in its most flagrant form’. The appearance of financial capital as self-referential, seeming to circulate M-M’, is further layers of fetish piled on top of that which happens in the simplest circuit of productive capital. The casino metaphor — and many of our recent debates about finance and financialization more generally — leans into this mystification, when the task should be to unpick it, to flesh out how ‘financial’ profits are enmeshed with the continual spatial and social restructuring of production.