This paper develops a political economic explanation of the 2007–9 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgage-markets. Until the early 1990s, racial minorities were systematically excluded from mortgage-finance due to bank-redlining and discrimination. But, then, racial exclusion in credit-markets was transformed: racial minorities were increasingly given access to housing-credit under terms far more adverse than were offered to non-minority borrowers. This paper shows that the emergence of the subprime (...) loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macro-economy. Thus, subprime lending emerged from a combination of the long US history of racial exclusion in credit-markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation-process, these loans increased the depth of the financial expropriation of the working class by financial capital. The crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralised basis – that is, when housing-loans became not just extortionary but speculative. (shrink)

John Roemer's comment succinctly summarizes the logical structure of his own theory of capitalist exploitation, but misunderstands the main points of our critique. He reduces his argument to two propositions. The first is an “empirical proposition”about the “root causes of exploitation”: X + Y → Z, where X is the existence of differential ownership of means of production, Y is coercion in the labor process, and Z is the capitalist class structure and exploitation. The second is the strictly theoretical proposition (...) X + not- Y -” Z, the truth of which he demonstrates, given most of the assumptions of a Walrasian economic model. He concludes that these two propositions, taken together, demonstrate the primacy of DOPA in explaining capitalist class relations. This much is true – subject to the various limitations we have indicated in our article – but only within the restricted confines of a Walrasian framework. This purely theoretical conclusion has no force as an empirical conclusion: this is the point at which Roemer's interpretation goes awry. For obviously, DOPA is a crucial element of empirical reality. But because Roemer's Walrasian framework precludes other equally crucial elements of empirical reality, an irreducible distance remains therein between the theoretical and the empirical. (shrink)

Mainstream economics evaluates capitalism primarily from the perspective of efficiency. Social philosophy typically applies other or additional normative criteria, such as equality, democracy, and community. This essay examines the implications of these contrasting sets of criteria in the evaluation of capitalism. Its first two sections consider the criteria themselves, assuming that a trade-off exists between them. The last three sections question whether such a trade-off necessarily occurs, and explore the claim that improvements in nonefficiency dimensions of capitalist society may enhance, (...) rather than conflict with, efficiency. (shrink)

Mainstream economics evaluates capitalism primarily from the perspective of efficiency. Social philosophy typically applies other or additional normative criteria, such as equality, democracy, and community. This essay examines the implications of these contrasting sets of criteria in the evaluation of capitalism. Its first two sections consider the criteria themselves, assuming that a trade-off exists between them. The last three sections question whether such a trade-off necessarily occurs, and explore the claim that improvements in nonefficiency dimensions of capitalist society may enhance, (...) rather than conflict with, efficiency. (shrink)

This paper argues that exploitation is a central and non-redundant concept in a Marxian understanding of capitalism. This finding runs counter to John Roemer’s conclusion in his critical reexamination of exploitation. For a static setting with perfectly competitive markets, Roemer shows that exploitation is a property of agents which derives from unequal wealth endowments, that is, from differential ownership of productive assets, not a social relation between capitalists and workers. Further, he shows that DOPA suffices in this setting to generate (...) core phenomena in Marxian theory-accumulation, domination, alienation, and inequality-with no reference to an independent notion of exploitation. Roemer concludes that DOPA is the central analytical category in Marxian theory, and exploitation a redundant, indeed incorrect, concept therein. A direct implication is that distributive justice should be Marxism’s central ethical concern. The basis for Roemer’s sweeping conclusion is that his model is general, incorporating no special institutional assumptions and abstracting from any impediments to market equilibria. That is, his conclusion rests on an ahistorical, timeless economic model. (shrink)

This paper develops a political economic explanation of the 2007–9 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgage-markets. Until the early 1990s, racial minorities were systematically excluded from mortgage-finance due to bank-redlining and discrimination. But, then, racial exclusion in credit-markets was transformed: racial minorities were increasingly given access to housing-credit under terms far more adverse than were offered to non-minority borrowers. This paper shows that the emergence of the subprime (...) loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macro-economy. Thus, subprime lending emerged from a combination of the long US history of racial exclusion in credit-markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation-process, these loans increased the depth of the financial expropriation of the working class by financial capital. The crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralised basis – that is, when housing-loans became not just extortionary but speculative. (shrink)