History and the Financial Crisis

I wrote the following for the “Faculty Corner” of my school’s student newspaper. I thought I’d share it with you. I should mention that I had a 1000 word limit; this clocks in at 995! Comments welcome!

History and the Financial Crisis

I grew up in a devoutly Republican household. By the age of twelve, I could name all of President Reagan’s cabinet members. When we finally got cable television in 1986, I obsessively watched CNN and railed about every criticism leveled at Reagan, and repeated every charge against the Democrats with glee. Despite it being a school-night, my parents allowed me to stay up and watch the 1984 presidential election returns, and I rejoiced at Walter Mondale’s humiliating defeat. I argued with my grandfather about our nation’s support for the Contras in Nicaragua — to me, they were freedom fighters taking on a dictatorial communist regime, and not the drug-running thugs that the Democrats claimed, and which they turned out to be.

That personal history makes my next statement all the more surprising: Karl Marx was (partly) correct.

Growing up during the Cold War, I never found anyone who could fully explain to me the meaning and context of what Marx and Engels wrote in The Communist Manifesto or Das Capital. I knew only to despise it as anti-American, and like many others, I deemed even the discussion of their arguments somehow treasonous.

And then, while a teaching assistant in graduate school, I actually read not only the Manifesto, but also a fascinating essay about Marx and Engels and their work in Robert Heilbronner’s The Worldly Philosophers. When it came time to teach my own courses, I made sure to include both of these books on my reading list. That leads us to where I think Marx proved to have great insight, considering the considerable financial crisis we face today. Consider this excerpt from The Worldly Philosophers, p. 147:

The economic base of capitalism — its anchor in reality — was industrial production. Its superstructure was the system of private property, under which a portion of society’s output went to those who owned [the means of production]. The conflict lay in the fact that the base and the superstucture were incompatible.

Why? Because the base of industrial production … was an ever more organized, integrated, interdependent process, whereas the superstructure of private property was the most individualistic of social systems. Hence the superstructure and the base clashed: factories necessitated social planning, and private property abhorred it; capitalism had become so complex that it needed direction, but capitalists insisted on ruinous freedom.

Heilbronner here explains Marx’s interpretation of industrial capitalism, but as the United States hardly produces anything anymore, the crisis of our day is due to financial capitalism — the mindless shuffling of bits of paper from here to there that somehow made some in our society very wealthy. The final sentence holds the key: the concept that capitalism had become so interconnected at home and abroad, it needs direction (or what we might call regulation) but the capitalists insist on no regulations whatever.

Since the “Republican Revolution” of 1995, both of our major political parties have participated in major de-regulation of the financial sector. Historically speaking, however, the Republican Party bears the greatest burden, as it controlled Congress from 1995 until 2007, and the White House from 2001 until 2009. They and some Democrats gleefully stripped away legislation introduced during the Great Depression to avoid exactly the mess we find ourselves in today. One example is the Glass-Steagall Act of 1933 that put a “fire-wall” between certain kinds of banks and other financial institutions — to prevent them from becoming too entangled. The absence of such legislation allowed some corporations to grow so large and become so interconnected in various sectors of the economy that they were, in the words of some economists and politicians, “too big to fail”; that is, if this bank or that investment house were allowed to collapse — as they ought to in a capitalist system! — they would drag down the rest of the economy.

Heilbronner further explained:

The result [of the “ruinous freedom” of capitalism] was … capitalism would sooner or later destroy itself. The planless nature of production would lead to a constant disorganization of economic activity — to crises and slumps and the social chaos of depression. The system was simply too complex; it was constantly getting out of joint, losing step…

And so it did, at least in the financial sector. The absence of common-sense regulation since 1995 allowed one segment of our society to grow fabulously wealthy, but when their house of cards collapsed, it has negatively affected all of us. Billions of dollars of wealth has evaporated since last summer, thousands of businesses have shuttered their doors, and unemployment is now the highest since 1983, at 8.1%. The “ruinous freedom” of the financial services sector has brought us to ruin. Marx, it seems, was not completely crazy as many in the West had for so long presumed.

This crisis is not, however, solely the responsibility of politicians or the wealthy. We live in a nation whose popular culture has for many generations now venerated the acquisition of material goods over all other personal endeavors. That is, you and I have been socialized to think of material wealth as the highest possible goal. This streak within the American character has contributed in its own way to our current difficulties, and we must understand that before we can move forward.

Finally, following a different thread, I return to where I began: a young man who took so much about the world for granted, and was encouraged to do so. The beliefs with which we are raised are often hard to shed, or even to examine more fully, because we so often fear losing what is comfortable. We should all take the time to investigate and better understand our long-held beliefs, not necessarily to negate or abandon them, but rather to reintegrate them into our conscious life through intellectual effort rather than cling to them out of laziness.

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