Fetishes and Fallible Abstractions: Marxism and the 2008 Financial Crisis

Brandon LIU (2016), London School of Economics and Political Science, Msc Sociology.

The 2008 financial crisis needs no introduction. Much ink has been spilt over lengthy expositions on the details of the crisis, the long string of events leading up to the apogee, and the lingering aftermath of the crash. The worst financial crisis since the Great Depression sparked a newfound interest in Marxist political economy, and a whole host of Marxist authors took the opportunity to proclaim how the crisis exposed the inherent contradictions of capitalism. For lay observers, one contradiction was plainly evident: the vast sums of wealth owned by the banks suddenly vanished, evidently sustained only by a collective delusion. When the music stopped playing, the value of the financial goods disappeared. Marxists understood this as only one of many contradictions between representation and reality that plague the credit system and financial markets (Dodd 2014; Harvey [1982] 2006, 2014). In their view, money had been fetishized as magical good that would naturally grow through compound interest, and the financial instruments swirling around Wall Street were naught but fictitious capital. Indeed, the Marxist framework has provided much insight into the workings and contradictions of crisis-ridden capitalism (Harvey 2010, 2014; Callinicos 2010; Marazzi 2010). However, in this essay, I argue that the Marxist concepts of contradiction, fetishization, and fictitious capital are limited in their analysis of certain features of the 2008 financial crisis. I propose a new conceptual tool — fallible abstraction — to complement the existing Marxist theoretical framework. This concept brings into analytical purview two issues central to the 2008 crisis that have been under-theorized in Marxist accounts. First, I recover the role of social agency in the construction of “false” representations, fetishes, and fictitious capital. Marxism contributes to the mystification of capitalism when it describes the formation of fictitious capital with functionalist accounts that obfuscate the social and institutional processes within capitalism. In particular, Marxism fails to theorize the role of securitization, a deliberate process of fictitious capital formation central to the 2008 crisis (U.S. Senate 2011; FCIC 2011; IMF 2013). Second, I bring into theoretical view the possibility of contingent failures of representation and fictitiousness (the fallibility of abstraction). This is analytically distinct from the omnipresent gap between reality and representation touted by Marxists. Rather, I emphasize contingent events — including fraud and human error — that cause carefully constructed facades to collapse. The failure of an interest payment, for instance, may not necessarily relate to a gap with underlying productive activity (as Marxists would have it), but could also result from an accounting error or deliberate deception in the original loan. An account of contingency provides a stronger Marxist theorization of financial regulation, and also provides a deeper account for the role of fraud, misinformation, and ignorance in the financial crisis.

Fallible Abstractions: Imperfect Concealments of Complexity

In this essay, I refer to an abstraction as something that specifies the terms of an interaction, such as a legal contract, a formal specification, or a technological interface. Abstractions are always the result of human agency and social effort, and are never naturalized. For instance, in the case of finance, an interest-bearing loan is accompanied by a written (or in informal cases, perhaps verbal) contract that dictates the various terms of the loan: the sum to be loaned, the payment schedule, and so on. The abstraction itself (i.e., the contract) is indifferent to the concrete means by which the participants carry out their obligations. The borrower herself could finance the interest payments through industrial production (as per the canonical example in Marxist economics; see Harvey 2006), but she could also pay from her savings or through a Ponzi scheme. In general, so long as the borrower repays the loan with interest, the lender is not particularly interested in how the borrower produces the money. As a technological example, the Android operating system provides a technological interface that allows a user to interact with a wide variety of physical phones in an identical manner; in this way, the user does not have to understand the underlying technological details of a phone to use it. This is the principle role of abstraction: to hide away complexity in order to facilitate the smooth interaction of multiple parties (both human and non-human), and hence promote the division of labor in an advanced society. In the case of credit finance, the abstraction turns a concrete social relationship between a particular borrower and lender into an abstract relationship of borrowing and lending. This effectively commodifies the relationship, and allows for financial market-making and engineering in all sorts of manners.

What if a borrower fails to repay the loan? In this case, the abstraction fails, because the borrower was unable to fulfill their obligations as specified in the terms of the loan. Oftentimes in this process, the lender becomes more acutely aware of the concrete conditions of the borrower that led to the loan default. Hence, an abstraction can be fallible in two senses. First, an abstraction can fail, if one of the parties are unable to perform their portion of the interaction: a borrower defaults, or a mobile phone malfunctions. Second, an abstraction may misconceal underlying complexity and reveal something about the particular parties. A default might reveal a subprime mortgagor’s low income, or a malfunctioning technology might reveal something about its internal workings (e.g., that an Internet connection is required). When the abstraction fails in this manner, it disenchants the (fictitious) commodification and hinders the smooth exchange of financial goods. This is related to what Harvey (2014: 4) sees as “the most important contradiction of all”: the general tension between reality and appearance that any abstraction must face. What Marxists like Harvey fail to theorize though, is how different abstractions may be better or worse at resolving this tension, and how social efforts (e.g., state intervention or bureaucratically regularized processes) address or exacerbate these tensions. Whereas Marxist accounts of credit bubbles and busts often depend on universalist statements about representation and reality with regard to credit moneys (e.g., Callinicos 2010; Harvey 2010), I give analytical attention to the particular social actions and dynamics of representation directly tied to the 2008 financial crisis, thereby providing a richer theoretical account of its unique features: securitization, misaligned incentives, and outright fraud.

Social Agency and the Deliberate Construction of Abstraction

The first theoretical contribution of using “fallible abstractions” is to recover the role of social agency in the production of abstraction, fetishization, and fictitious capital. In the Marxist account, money and credit are fetishized as having magical powers coming from nowhere, whereas an account based on abstraction can explain the concealment of complexity while also recognizing the institutional and social processes that take place “behind” the abstraction. Take, for instance, Harvey’s fetishization of money as having “the magical power to increase itself at a compounding rate” (Harvey 2014: 5). Somehow, when money is deposited into a bank account, it self-accumulates without any further effort by the depositor. In this sense, money becomes a kind of fictitious capital, because it appears to be accumulating of its accord. Harvey (2014: 6) believes the fetish of money is self-evident because one may “ask the question ‘What is money?’ and the answer is usually a baffled silence.” In doing so, Harvey exaggerates the fetishization of money deposited in a savings account; one’s ignorance of finance and economics does not necessarily indicate a fetishization. In fact, one interacts on a daily basis with technological (e.g., electronics, automobiles) and social (e.g., state apparatus, social norms) phenomena that similarly baffle the layperson, but without resulting in any pervasive fetish.

Harvey contributes to the mystification of money by deliberately obfuscating the fact that complex social processes (foremost, a bank) are at work to generate the interest payments. In a sense, Harvey reifies the abstraction of a savings account (one deposits savings in return for a modest interest) and fails to demystify the concrete social and political conditions that allow a savings account to exist. Instead, a savings account should be understood as a fallible abstraction: it is a contract between a depositor and a bank that allows a bank to aggregate capital from many depositors for a small fee (the interest). The depositor receives the interest without having any understanding of what the bank does to produce the interest, although this abstraction is fallible because the bank may become insolvent (perhaps during a financial crisis).

Marxists do understand in the abstract that “money is never a ‘thing,’ […] but a complex amalgam of social, economic, and political relations” (Dodd 2014: 72) but their functionalist approach to social explanation inhibits the micro- or meso-level explanations that would give a richer account of the social relations behind various financial phenomena. Harvey’s account of credit as fictitious capital — probably the most influential and sophisticated account today — is based on the functional role of fictitious capital in resolving the issues posed by fixed capital to the circulation of capital. Harvey’s (2006: 269) explanation essentially comes down to his assertion that “fictitious capital is as necessary to accumulation as fixed capital itself,” which is a typical example of functionalist logic: whatever is necessary for the systemic whole must exist, and vice versa. In contrast, I use the theory of abstractions in a more agent-based way; any satisfactory account of an abstraction must include the role of social action in generating that abstraction.

The importance of recovering social agency becomes most apparent in the theoretical treatment of securitization in the 2008 financial crisis. Marxist accounts of the financial crisis do mention securitization (as any reasonable account of the 2008 crisis must), but they are conspicuously lacking in any substantive theorization of the issue. Securitization is only mentioned in terms of its effects: principally the spreading of risk and surplus value, and the facilitation of a credit boom (Harvey 2010: 174). It is surprising, to say the least, that Marxists fail to mention that securitization is the epitome of the social process of transforming fictitious capital into purer forms. Securitization begins with a set of debt relationships that have already been turned into fictitious capital, such as a bundle of subprime mortgages. These bundles of mortgages (already abstracted as income streams with a certain risk of default) are then transformed into a new set of financial securities with new risk-reward profiles. The process allows for the creation of hierarchical categories of newly formed financial instruments, known as tranches, in which the most senior tranche carries the least risk and the smallest income stream. This is made possible through the division and recombination of the original loans, such that the holder of the final security technically owns a fraction of each of hundreds or thousands of individual financial obligations. Thus, securitization is a financial technology that, through the arbitrary manipulation of financial obligations, effectively creates new and higher forms of fictitious capital, even further removed from the original production of surplus value than ever before. Securitization takes existing tensions between reality and representation already immanent in credit moneys, and intensifies to the point that there is hardly anyone who knows what’s “inside” some of these financial instruments (IMF 2013). The complex financial instruments characteristic of the 2008 crisis are no fetish; they are the product of intensive financial engineering that necessarily mystifies the underlying connection to the productive economy.

A theory of securitization that accounts for social agency allows for a richer understanding of its dynamics, its effects, and, of course, its contradictions. The existing Marxist formulation cannot account for the emergence of securitization in recent years (rather than earlier or later), the unevenness of its development, and its particular dynamics without discarding the functionalist approach to social explanation. A detailed exposition of securitization — which cannot be undertaken in this brief essay — would have to recognize that it is a financial innovation (a contingent human achievement rather than a natural feature of advanced capitalism) that could have occurred only within certain regulatory and institutional frameworks. For instance, the deregulation of derivatives and exotic financial instruments, beginning in the 1980s, along with the particular institutional apparatus of mortgage lenders, special interest vehicles, investment banks, and credit rating agencies all provide a specific context in which securitization was able to flourish (Krippner 2011). A full Marxist account of the contradictions resulting in the 2008 crisis will have to recover social agency in order to illuminate the contradictions of securitization.

Misinformation and Deception in Fallible Abstractions

A theory based on fallible abstraction also allows for contingency, which brings a wider range of dynamics into analytical perspective. If the fetishization of credit is not a natural feature of capitalist systems, but rather constructed through social processes, then we can begin to see how poor judgment, misinformation, or fraud can destabilize and compromise abstractions and cause them to fail. Consider again the case of loan made at a given interest rate. Marxist theories have hitherto concerned themselves with the relation between the loan capital and circuits of commodity production; ultimately, interest must be derived for surplus value, or else the credit system cannot last for long (Harvey 2006: 269). Indeed, this is a fundamental contradiction of credit that, as we’ve seen, is further exacerbated by securitization. While detachment of financial markets from the real productive economy is one of the contradictions that led to the 2008 crisis, it does not capture the entirety of the events that conspired.

Loans can fail for a whole host of different reasons: an industrial capitalist may have overestimated their rate of profit; a lender may not have adequately vetted a borrower for trustworthiness; or perhaps a borrower deliberately misleads an investor in some fashion. When this occurs, the abstraction of a loan breaks down because the lender does not receive back their principal and interest in accordance with the terms of the loan. Unlike the universalist statements that Marxists make about the general contradiction between representation and reality, these are contingent events that are specific to particular lender-borrower relationships, and not a general characteristic of loans. The existence of these contingent complications have motivated a great deal of financial regulation and inspection to ensure that abstractions are reliable and that financial markets may function smoothly. Financial regulation may compel agents to fully disclose relevant information, sanction illegal behavior, or organize financial institutions to avoid misaligned incentives (which may give rise to principal-agent problems and other moral hazards). Whereas Marxists can only understand financial regulation as a broad effort to rationalize the contradictions of capitalism in order to avoid crisis, we now see that a theory that includes contingency provides a deeper theorization of financial regulation as well. This opens up the possibility for analyzing the extent to which financial regulation can actually rationalize certain contradictions, or whether it can only delay or shift the contradictions without resolving them (Harvey 2001; Streeck 2014).

The official U.S. Senate (2011) report on the 2008 financial crisis cites four major causes of the crisis: high-risk lending, regulatory failures, inflated credit ratings, and investment bank abuses. Marxist theory can only adequately account for the first cause, which can be interpreted in terms of the contradictions inherent to loan capital that is tenuously tied to productive investment. The remaining three causes must be understood as misinformation or fraud that leads to the breakdown of fallible abstractions. Regulatory failures resulted in widespread risky (and borderline illegal) behavior that often constituted a moral hazard (for instance, the lender making risky loans would pass them onto a bank or other investor, and thus avoid the bearing the risk themselves). Credit agencies were being paid to give high credit ratings to risky financial securities, thus misleading other investors who depended on these credit ratings (for instance, pension funds might only be allowed to invest in the highest rated securities, and rating inflation exposed them to risky securities; see White 2010). Investment banks were also caught engaging in fraudulent behavior, which included selling securities to investors that they knew were going to implode (U.S. Senate 2011). All of these factors resulted in fallible abstractions: the financial securities collapsed not because of the inherent contradictions of credit, but because of human error or fraud in constructing those financial securities. The credit ratings and interest rates constituting the abstracted debt obligations were not representative of the underlying borrower’s ability to pay, and thus the abstractions were doomed to fail, bringing the  circulation of financial securities down with them.

All of these conditions severely exacerbated the underlying contradictions of credit money, but they were particular to the institutional environment of the 2008 crisis, rather than immanent features of capitalism. Given this, it is no wonder that Marxists have difficulty theorizing the role of fraud and misinformation. Indeed, both Harvey (2010) and Callinicos (2010) hardly mention fraud at all in their Marxist readings of the financial crisis. Whereas Marxist theory has fallen short, the theory of fallible abstractions has brought contingency into analytical focus, providing a theoretical account for the causes and effects of financial regulation (or lack thereof), fraud, and misinformation.


The contradictions of capitalism escalated in 2008 to a feverish pitch, and did indeed expose themselves to the world in the tumultuous years of crisis. However, the Marxist concepts of fetishization and fictitious capital have been inadequate in describing the full extent of these contradictions. Indeed, they may even contribute to the mystification of capitalism and its processes by obfuscating the social and institutional processes that undergird financial phenomena like money, credit, and banking. I have suggested that the conceptual tool of the “fallible abstraction” complements Marxist vocabulary and opens up a more detailed examination into the contradictions of capitalism. By viewing finance in terms of fallible abstractions, one is able to reclaim social agency and contingency into theoretical purview, and thus incorporate a broader range of social phenomena into the analysis than the Marxist-functionalist approach would allow.


Callinicos, Alex. 2010. Bonfire of Illusions: The Twin Crises of the Liberal World. Cambridge: Polity Press.

Dodd, Nigel. 2014. The Social Life of Money. Princeton: Princeton University Press.

Financial Crisis Inquiry Commission (FCIC). 2011. The Financial Crisis Inquiry Report. Accessible at: <>.

Harvey, David. [1982] 2006. The Limits to Capital. London: Verso.

Harvey, David. 2001. “Globalization and the ‘Spatial Fix.’” Geographische revue 2(3): 23-31

Harvey, David. 2010. The Enigma of Capital and the Crises of Capitalism. Oxford: Oxford University Press.

Harvey, David. 2014. Seventeen Contradictions and the End of Capitalism. Oxford: Oxford University Press.

International Monetary Fund (IMF). 2013. Securitization: Lessons Learned and the Road Ahead. IMF Working Paper WP/13/255. Accessible at: <>.

Krippner, Greta R. Capitalizing on Crisis: The Political Origins of the Rise of Finance. Cambridge, Mass.: Harvard University Press.

Marazzi, Christian. 2010. trans. Kristina Lebedeva. The Violence of Financial Capitalism. Los Angeles: Semiotext(e).

Streeck, Wolfgang. 2014. Buying Time: The Delayed Crisis of Democratic Capitalism. London: Verso.

U.S. Senate. Permanent Subcommittee on Investigations. 2011. Wall Street and the Financial Crisis: Anatomy of a Financial Collapse. Accessible at: <>.

White, Lawrence J. 2010. “Markets: The Credit Rating Agencies.” Journal of Economic Perspectives 24 (2): 211–226.


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