The Financial Crisis as an Expression of Macrohistorical Trends: World Hegemony, Neoliberal Globalization, and Financialization in 21st Century Capitalism

Many studies try to understand the financial crisis that began in 2007 by utilizing short-term perspectives, but few step back far enough to see how macrohistorical transformations created the environment for a crisis of immense magnitude. In this work, I apply Arrighi’s theory of systemic cycles of accumulation to the current crisis and find that, while this theory elucidates some broad features of the global political economy that fostered the crisis, Arrighi’s explicit limitations lead to further areas of inquiry that help to understand this crisis in its specificity.

By analyzing large-scale historical lines unique to the late 20^th century, I show that financialization and globalization – mediated through US world hegemony and neoliberalism – created feedback loops promoting, not just a quantitative rise in the use of finance, but qualitative changes to overarching production, distribution, and consumption practices throughout the global economy. Some of these changes include the integration of many new and varied actors into the financial sector, the financialization of the globalized production process, the increased use of finance by lower and middle classes to reproduce labor in the face of stagnant wages, and the increased use of derivatives for profit-making.

Additionally, I elaborate market-level changes in the US financial sector and show how the aforementioned macro-level transformations expressed themselves through the crisis. The use of “slice and dice” and “originate and distribute” models crippled the functions of derivatives and promoted their widespread misuse, even in the face of highly regarded theories of risk management. A historical view of derivatives shows that, while their use may be a fundamental cause of the crisis, derivatives express deeper trends in the evolution of capitalism: derivatives increase alienation, change the way we view ownership, and increase competition in our globalized political economy.

This long-term view allows me to elaborate how the nexus of financialization, globalization, neoliberalism, and world hegemony came together to create the most far-reaching financial crisis since the Great Depression.