Counterrevolution

Cooper adopts the conventional Keynesian framing of the crisis of the 1970s according to which wage demands from workers squeezed industrial profits. While these demands could be mitigated by calling on the “reserve army” of primarily racialized members of the working class who had been left out of the New Deal bargain, the spread of the revolt in the form of the civil rights movement undermined this strategy. In order to recover profits, industrial firms were compelled to raise prices, leading to a wage-price inflationary spiral. Rising inflation, in turn, eroded financial asset values. In response, industrial and financial capitalists banded together to restore discipline, waging class war to take back control of the state by expanding and intensifying their lobbying efforts. As they did, these elites and their political allies were armed with a range of new economic ideas.

The politics of the “counterrevolution” that followed consisted of implementing a combination of “supply-side” and “Virginia School” economics. Cooper traces how “Virginia School” austerity politics, on the one hand, and what she refers to as supply-side “tax expenditure,” on the other, came together to form the economic policy at the heart of the Republican and Democratic Parties. Supply-side economics revolves around the use of tax incentives to direct investment into particular asset classes. Since providing tax breaks means forfeiting tax revenues, in economic terms they constitute a form of spending — effectively transferring public money into the pockets of asset owners, including corporations, real estate developers, and wealthy individuals. Yet on the other hand, the Virginia School emphasized budget discipline and austerity, prominently calling for constitutional limits on taxation and spending.

Cooper shows that there was no necessary contradiction between these two ideologies. Rather, austerity for workers and spending for the wealthy emerged as complementary pillars of a coherent policy paradigm for restoring the power of asset owners following the crisis. Hence the peculiar mix of “extravagance and austerity” that defined neoliberalism and reshaped class politics in the United States: massive deficit spending and low interest rates to drive up asset values, on the one hand, and ever-deeper cuts to social spending, on the other. To be sure, the implementation of this paradigm depended on reining in inflation and restoring class discipline, which required the draconian hike in interest rates known as the “Volcker Shock.” Skyrocketing interest rates raised the costs of borrowing, thereby slowing investment and consumption, leading to layoffs and high unemployment. By the 1990s, confident that the working class had been subdued, Federal Reserve chairman Alan Greenspan felt it was safe to reduce rates and hold them there — ensuring a flow of investment into state-funded asset classes, further boosting their prices.

This involved a substantial expansion of the powers of the Federal Reserve, which was made possible by the elimination of the “gold constraint” on monetary policy. After 1971, the value of the dollar was untethered to gold, creating a purely “floating” exchange rate regime. Theoretically, this move allowed the state to print an unlimited amount of dollars. As Cooper argues, this created a need to find a new anchor for the dollar so as to prevent the use of this spending capacity to finance the expansion of New Deal programs. An answer came in the form of central bank “independence,” which ensured that the levers of money creation would remain in the right hands. The pivotal function of the central bank would be to maintain class discipline, and thereby contain the wage-push inflation that eroded real asset values, while simultaneously facilitating asset price inflation. The latter therefore constituted a “non-Keynesian stimulus” to economic growth.

With the consolidation of neoliberalism, therefore, the state had in effect been transformed into a political machine for economic extraction, draining resources away from society as a whole and funneling them into the pockets of the superrich. The notion of tax expenditure is key to this analysis: through this process, the state was not merely “retreating” by enacting laissez-faire policies, nor implementing one-off tax breaks, but was rather engaging in active, ongoing spending to sustain the continuous increase in asset prices. In the absence of counterbalancing cuts to spending, tax cuts lead to deficits and are thus indistinguishable from deficit spending. Since this spending takes the form of targeted tax policies that incentivize investment in protected asset classes, the tax code actively shapes the market allocation of capital. Tax cuts, therefore, can be seen as a form of industrial policy.

For Cooper, this industrial policy paradoxically led to the decline of industry, as investment migrated away from fixed capital and into financial assets. In fact, Cooper takes her argument about industrial decline to a particular extreme — even going so far as to suggest that capitalism is no longer a mode of production. As she says, “capital itself switched from a regime of accumulation, organized around production and measurable in terms of growth, to a regime of asset price appreciation, pivoting around capital gains.” Cooper argues that this fundamental change in the logic of capital means that “growth rates and industrial profits [are] a weak measure of dominant economic trends.” But this is a claim that she can only sustain by ignoring all the historical evidence and economic data that might challenge her analysis — including the strong recovery of industrial profits by the 1990s that partly resulted from financialization as well as the post-COVID recovery of the US economy.

Given the uneven distribution of asset ownership, the primary beneficiaries of this new capitalist regime were the wealthy. But although policymakers had initially aimed at restarting industrial investment, the implementation of supply-side economics ended up transforming the capitalist class itself. Accelerated depreciation schedules, for example, aimed to boost industrial corporate profits and increase investment, but ended up enriching a generation of real estate tycoons like Donald Trump. On top of this, the repeal of estate taxes on inheritance meant that the family became more important for the transgenerational appreciation of assets, which could be passed on to inheritors at little or no cost. The role of the family in securing the continuity of asset inflation also led to the rise of the private family business, as opposed to the public corporation, as an increasingly central form of capitalist organization.

A new hereditary oligarchy, supported by an extractive state and with little connection to the industrial economy, came to supplant the industrial managers and commercial bankers of Fordist capitalism. While the new aristocracy supported both Democrats and Republicans, it played a particularly crucial role in financing hard-right politics. The centrality of the family and the private firm to this new class made it the perfect vehicle for a reactionary politics defined around nostalgia for the white, male, sole-breadwinner household of the postwar years. Cooper compellingly demonstrates that the emphasis on the family in this politics was not merely a matter of “values,” but hard economic interests. Indeed, the aristocrats found willing partners in a middle class that had itself come to be defined around asset ownership, and therefore rising asset prices, especially housing. Small business proprietors within this class also relied extensively on family labor.

One of the most fascinating aspects of Counterrevolution is Cooper’s illustration of the gendered and racialized nature of the neoliberal attack on the working class. As she shows, any substantial solidarity between private and public sector unions at the end of the 1970s was undermined as the Right successfully appealed to “blue-collar” men in framing the attack on increasingly militant public sector unions as a reassertion of masculinity over the privileged, taxpayer-funded, racialized women who made up a large portion of the unionized public sector workforce.

Subsequent “supply-side” policies were often sold as part of an effort to rebuild white male authority, vehicles for restoring traditional family gender roles, and the single-earner household. So too did the Right capitalize on middle-class resentment against state support for racialized welfare recipients. High taxes, inflation, and the decline of patriarchy were all seen as interrelated problems of the liberal welfare state.

The social groups that resented the New Deal order also found themselves undercut by the 2008 financial crisis. While the multiracial working class bore the brunt of the Great Recession, small business and sole proprietor types — many of which employed cheap immigrant labor — suffered as well, even despite the generosity of state bankruptcy laws. This fueled petit bourgeois resentment against big corporations, finance, and the state. Out of this crisis, Cooper argues, emerged the social bloc which would become the basis for the MAGA movement: small business owners committed to the precarious legal status of migrants and resentful of big government, taxes, and finance.

Managing the 2008 crisis demanded the radical extension of state power to uphold the neoliberal paradigm, powers that the federal government further expanded during the pandemic. Now, officials in the Fed “felt free to break that last taboo of central bank independence — the prohibition against monetizing the federal debt.” That is, the Fed took to “printing money” to support the continuation of asset inflation. For Cooper, this proves that in the context of unemployment and underutilization of economic capacity, state spending is constrained only by politics. If the state can spend to support asset prices, why can’t it do so on social programs, even without raising taxes? The capitalist state, it seems, has the capacity to support social democracy without limit. A socialist transition, in which production would be reorganized to serve social needs rather than private profit, and class structures of property and privilege would be fundamentally transformed, had therefore become unnecessary.

Finance, Industry, and Capitalism

For all of its virtues, Counterrevolution suffers from two central problems. Most glaringly, the book effectively contains no economic analysis. Indeed, there is essentially no mention of profits at all — in fact, Cooper explicitly rejects the idea that profit is fundamental in regulating the capitalist economy. Consequently, the role of finance in strengthening capitalism after the 1970s crisis cannot be assessed. Nor, for that matter, does Counterrevolution offer any discussion of the financialization of the corporation, which was critical for the globalization of production that facilitated the post-crisis recovery.

Similarly, Cooper also neglects to mention the role of different financial assets within a changing financial system. By refusing to engage with how assets, defined vaguely throughout Counterrevolution, are integrated into the financial system as well as the rest of the capitalist economy, Cooper can reduce finance to simply a tool through which an unproductive and parasitic elite extract value with the support of the state. Ironically, this is a position that bears a strong resemblance not only to the views of Brenner and Riley, but even the theories of neo-feudalism Cooper explicitly criticizes.

The second major problem is Cooper’s theorization of the state. For Cooper, the state has simply become the instrument of a relatively unified elite. Cooper’s “counterrevolution” took shape as corporations lobbied a passive state, eventually conquering it and forcing it to do their bidding. The state appears as essentially neutral, only doing capitalist things because particular capitalists force it to. Cooper thus upholds what Leo Panitch used to call the “waiter theory of the state” — the idea that, “after having eaten two or three babies for breakfast,” a unitary capitalist elite calls up the President “every morning and, amidst satisfied belches, gives . . . instructions on what the government should accomplish that day.” This characterization erases the state’s structural interconnection with capitalism, developing capacities as it navigates the system’s contradictions and crises. In reality, the state must be relatively autonomous from particular capitalists to organize what Nicos Poulantzas called an “unstable equilibrium of compromise” around the general, long-term interest of the system as a whole.

In Cooper’s analysis, the 1970s crisis did not stem from structural constraints on capitalism’s ability to sustain the New Deal class compromise. Instead, she understands the neoliberal restructuring of that decade as the outcome of a “business revolt.” Cooper adopts the conventional Keyensian interpretation of the crisis as having arisen from excessive working-class wage demands, which squeezed corporate profits. However, she treats declining profits not as a fundamental economic barrier, but rather as merely creating the conditions for a political backlash. As rising wages ate into profits, corporations were forced to raise prices to protect their margins. The resulting inflation, in turn, eroded the value of financial assets, leading finance to join forces with industry around the objectives of curbing wage growth and boosting asset prices. For Cooper, this did not represent a specifically “economic” crisis but was merely the catalyst for a business alliance to undo the New Deal and discipline workers.

In reality, the crisis of the 1970s was rooted in the exhaustion of the postwar wave of technological development. Falling productivity led to declining profits, forcing capital to find ways to ratchet up the rate of exploitation. Although capital initially tried to accomplish this by increasing investment, these efforts failed to bear fruit. Declining profits ultimately meant declining investment and economic stagnation. Restoring growth, therefore, hinged on reviving profitability by slashing taxes and compelling workers to accept restructuring, which they were temporarily able to block by waging defensive battles.

The difference between this interpretation of events and Cooper’s is striking. Not only does this latter, Marxian, theory allow for a more realistic assessment of the strength of labor — which was nowhere near in a position to impose a system-wide crisis — but it also illustrates the importance of socialist politics. In the absence of a wider political capacity to force at least some democratization of investment, continued wage militancy was a dead end: the system simply could no longer support real wage growth.

Moreover, as we have shown elsewhere, based on extensive archival research, the state is by no means merely the passive tool of corporate lobbying. Rather, what we observe in the 1970s is a capitalist state systematically carrying out its crisis management functions amidst great uncertainty. Though not discussed by Cooper, for nearly a decade state officials fumbled in the dark for a resolution, as Richard Nixon, Gerald Ford, and Jimmy Carter sought to contain inflation through various wage and price control schemes. Business by no means possessed unified, objective, self-evident interests it sought to simply impose on the state. Rather, extensive state-corporate collaboration took place around how to address the crisis — typical of the “integral state” structure that had brought together state and corporate power for a century. The Business Roundtable and other lobbies reluctantly supported controls as the best among bad options, biding their time and hoping inflation would come down without the need for more drastic action — which eventually came in the form of the Volcker Shock.

The “counterrevolution” was not the contingent result of business activism, but necessary to restore capital accumulation. In the last year of his presidency, Carter finally accepted the need to engineer a recession through monetary tightening. Business went along, despite concerns about the pain this would cause. Ultimately, the Volcker Shock restored discipline and paved the way for globalization, opening the vast low-wage workforce of the global periphery to exploitation and slashing labor costs.

As the integration of global finance provided the infrastructure for industrial firms to circulate investment internationally, and was thus critical for restoring their own profits, industrial firms accepted the empowerment of finance this entailed. Far from hollowing out production, finance enabled multinational corporations to construct global production networks, intensifying competitive discipline on all firms to maximize efficiency and labor exploitation. Finance and industry were certainly not separate but became ever more closely entangled.

As we argue in our recent book, it is simply incorrect to suggest that the rise of finance was a matter of capitalists directing investment away from production and toward speculation on asset values. The idea that the neoliberal period was marked by declining corporate profits, investment, or spending on research and development (R&D) is simply a myth. On the contrary, it was the very high profits of the neoliberal years that made possible both strong returns to investors in the form of dividends and stock buybacks, which boosted asset prices, and a sharp increase in corporate investment and spending on R&D alongside sky-high management salaries. If this represented a decline in industrial capital, capitalists would have been surprised to hear it. Cooper therefore suggests that production was being hollowed out and replaced by a new logic of asset inflation at the very moment when financialization was facilitating the rejuvenation of industrial capital.

Asset values certainly became more significant for accumulation during the neoliberal period. Yet for us, the rise of what we call “asset-based accumulation” was linked with the restructuring of the credit system and the production of surplus value. Naturally, the empowerment of finance has been reflected in its ability to capture a larger share of the total social surplus. One important way it has been able to do so is through ownership of stocks and bonds (assets par excellence). Indeed, the stock market today is not so much a vehicle for raising capital as it is a mechanism for distributing surplus value to investors. Of course this can be done through dividend payments, but it can also be achieved through stock buybacks — that is, a firm elevating its share price by repurchasing its own stock. The increased stock price therefore effectively transfers surplus value from the firm to investors, one of the most important ways financiers “get their cut” of the productive surplus.

Clearly, a firm’s ability to undertake such expenditures is related to its underlying profitability. As one would expect, the period in which finance has been hegemonic has seen an increase in stock buybacks. But this by no means suggests that industry is being “hollowed out” as investors simply loot industrial firms. All that has changed is which capitalists are in possession of the surplus. Regardless of whether industrial managers or financial asset owners control these funds, some portion will be consumed, some saved, and some reinvested wherever returns are the highest. It is hard to see how this interconnection between money-capital and the industrial economy could be severed. Even if Cooper’s neo-feudal oligarchy were to consume all of these gains, that would still entail buying things, generating profits for industrial capital, and calling forth new investment.

The growing importance of financial assets in the economy was also linked to the transformation of the credit system. Most important in this regard was the development of so-called market-based finance beginning in the 1980s. As we explain in our book, this involved a shift from traditional bank lending toward a model in which the credit creation process occurred through the complicated exchange of financial assets among a series of parties. The backbone of the system was stable assets, especially Treasury bonds and mortgage-backed securities, that served as collateral to support the extension of credit. In order for the system to function, investors had to accept these assets as “good as gold.” Therefore, when the value of mortgage-backed securities was thrown into doubt amidst the chaos of the 2008 crisis, the state had to support their value, lest the entire credit system collapse. These assets were simply too fundamental to fail.

The value of these financial assets thus has to be understood in terms of their interconnection with the financial system, and their role in securing the creation and circulation of credit across the economy — which Cooper totally fails to do. It is therefore very misleading to see the 2008 rescue as a matter of “escalating plunder” of the public designed to enrich the wealthiest by sustaining asset inflation. It is of course true that the state acted to support the value of the key assets at the center of the market-based financial system, and that this enriched those who owned those assets. Yet focusing on this effect of the state’s crisis-management efforts alone is to miss the forest for the trees. In shoring up these asset values, Fed and Treasury officials were acting as they felt they needed to, with the support of “centrists” in both political parties and amidst great uncertainty, to avoid a complete financial collapse and potentially another Great Depression.

The increasingly deep interconnection between the financial system and the state that resulted led to what we refer to as the “statization of finance.” This involved extending the supports the state had afforded to the traditional banking sector after the 1930s crisis to the “shadow banks” at the center of market-based finance. At the same time, however, this came with tight new regulations on the biggest banks, which were deemed “too big to fail” and effectively fused with state power — further drawing into question the interpretation of this process as merely a matter of “plunder.” Later, during the COVID-19 and regional banking crises, this process of statization advanced further as “repo” markets and even nonfinancial corporate bond markets came to be even more tightly encased within state power. All of this is better understood as the crisis-management of a relatively autonomous state.

Of course, quantitative easing did fuel the general inflation of asset prices, especially stocks. This led to the rise of the post-2008 regime that we have referred to as the “new finance capital” marked by historically unprecedented concentration of ownership in the hands of the Big Three asset management firms: State Street, Vanguard, and especially BlackRock. These firms are today the largest owners of nearly every publicly traded firm in the US economy. Contrary to Cooper’s assertions about the declining significance of industrial capital and profits, this regime is anchored in control of industrial corporations and surplus value production. As managers of “passive” funds, the Big Three cannot trade other than to track indexes. Consequently, their primary concern is the production of surplus value within the firms they own. These firms are not parasitic rentiers that hollow out their portfolio firms but wield their power to pressure these firms to maximize efficiency and profits — intensifying the ruthless competitive logic that has always been central to financialization.

While the consolidation of the new finance capital involved the rise of private equity companies, these are nowhere near as powerful as the big public asset managers. To be sure, private equity firms are ultimately oriented toward selling the firms they own. Clearly, such firms often do not survive the process intact, as their assets are competitively and profitably reorganized. But it would be a gross oversimplification to see these firms as mere parasites, let alone to reduce the entire process of restructuring since 2008 to the rise of an extractive hereditary oligarchy. While Cooper’s analysis of the growing importance of private firms and their support for the hard right in the United States is interesting, this remains just one component of the new finance capital that emerged from 2008. As such, these observations cannot support her extreme conclusions about the general remaking of the capitalist class, and the political shifts that have accompanied it, in the current period.

The Socialist Challenge

For Cooper, the political challenge is to enact a “very different style of revolution than the one we associate with classical Marxism”: one that does not involve transforming the state or the social relations it reproduces, but using the existing state to finance expansive social spending through “printing money.” This apparently provides the grounds for a social democratic compromise: If such spending incurs no cost to capital (or anyone else), why would it face opposition?

However, this view drastically overestimates the scope of reform within capitalism, and overlooks the central point that achieving a democratic society entails controlling investment, not just expanding welfare programs. Indeed, where the printed money is allocated is itself a matter of political conflict and social power. Printing money in itself does not alter property structures or class relations, nor does it change the fact that the economy is organized around profit maximization and market competitiveness.

Understanding the role of central banks in linking state power and the financial system is a critical frontier for state theory, particularly amidst the expansion of the powers of these institutions and their linkages to the financial system. Insofar as Counterrevolution advances this, it is a laudable undertaking. Unfortunately, however, Cooper winds up echoing the conclusion that central banking is essentially a matter of “escalating plunder,” or worse, a transition to some kind of post-capitalist feudal-oligarchic order. On the contrary, accounting for the power of central banks within contemporary capitalism should serve to counter common perceptions that capitalism is in decline. Over the past decade and a half, these institutions have repeatedly demonstrated their capacity to sustain and rebuild capitalist finance despite unprecedented crises, contradictions, and challenges. And as they have done so, their power within the state has been continually reinforced.

Cooper does draw on some of the most important post-Keynesian theories of money, finance, and credit. However, we can only understand the critical role played by central banks within capitalism today if we situate them within the basic “laws of motion” of the system. Marx himself left only a few fragments on central banking and the credit system, often in chapters that are but mere sketches. Subsequent developments within both the Marxian and post-Keynesian schools offer important lessons that help us understand how finance has been essential to the flexibility and dynamism of capitalism, defying repeated predictions, over nearly a century and a half, of its imminent demise under the supposedly inexorable weight of its own internal contradictions. As we show in our book, these theories are important for helping us grasp the workings of finance, and its deep interdependence with industry. It is therefore unfortunate that Cooper depicts the two as rigidly separate.

Reorganizing production to serve social and ecological needs, rather than private profit, demands bringing investment under public control. This, in turn, requires radically transforming the state such that it can become the central organ of a socialist economy. It remains unfortunately true that “the working class cannot simply lay hold of the ready-made state machinery, and wield it for its own purposes.” The capitalist state is by no means “neutral” in the class conflict: its various apparatuses evolved historically in order to reproduce the system of class rule. What Marxists have called the relative autonomy of the capitalist state from the economy, whereby state power resides “outside” the “private” economic sphere, must be fundamentally overcome. The institutions of the state must be deeply transformed, remade to support new forms of bottom-up democracy and worker and community self-management in implementing social policy and economic planning.

Clearly, if workers were able to seize the central bank and the entire credit system, as Cooper suggests, they would be able to accomplish a lot of good. But we are just as far from this as we are from a more substantial socialist transition. The key question, then, is how to build a socialist movement, grounded in the working class, through the fight for reforms. As the interests of both financial and industrial capital have become more closely entangled than ever around globalization, this necessarily involves a radical confrontation with capital. Unlike the postwar “Golden Age,” neither finance nor industry is today open to a social democratic compromise with workers: the competitive disciplines secured by free capital mobility suit them just fine. Winning space for the kinds of reforms that Cooper envisions requires, first and foremost, breaking with the globalization that has destroyed workers’ communities and constrained the scope for progressive politics.

That even the most robust social democratic regimes have been at least partially dismantled is proof that socialists must move beyond the politics of class compromise. Today’s world of integrated finance and hypermobile capital means that the old dilemma of “reform or revolution” is less relevant than ever. The real challenge is building reforms that can withstand the pressures of global capitalism. And this, in turn, requires finding space to construct institutions that are sufficiently insulated from market dependence and to increase social ownership and control of the economy. Making inroads toward democratizing the central bank, such that it enacts the priorities of the working class and the environment rather than internationalized capital, could be important for supporting this. But unless this represents a step toward something more, any success will be transient.