Wall Street Crisis and Das Capitalism

One week of the collapse of the New York investment banking network, and its ‘rescue’ by the US federal government speaks louder than any arguments against the “free market”. The stock market, considered the ideal mechanism in identifying winners and losers and thereby contribute to an efficient system in contrast to ostensibly inefficiently run government enterprises, has spoken loudly and clearly. An unbridled, or insufficiently bridled, system where companies run by teams of specialists and accountable to no none but a small base of investors has run amok with the bad bad governments bailing out investment banks in the heart of what Maxim Gorky once called The City of Yellow Devil. The devil has certainly reared its bloody head all over Wall Street last few days with a vengeance.

The $700 billion bailout by the US federal reserves is nearly twice the GDP of the apparently roaring economy of India! While investment banks are in the business of making money out of nowhere, these do have an impact on the real economy since industries depend on investments by what is ultimately speculative finance capital for sustenance and growth. The whole web of finance transactions is said to be so complicated that the bankers themselves have lost track of the sources and direction of transactions.
It is good to remember at this point, briefly, the genesis of these banks. Investment banking was limited in nature till the 1973 oil crisis when petro dollars began to find their way into the New York banks, which then fed these dollars back into the economy initially by lending and later by investing in companies. As part of the programme to invest these amounts- because it is necessary for capital to continue to accumulate- it cannot remain constant in a capitalist economy- third world countries got huge amount of loans in the 1970s and 1980s at high rates of interest. When many of these countries began to default in their payments, these countries were asked to open up their markets so that this finance could be invested directly, bypassing the governments.

This picked up speed particularly in the 1990s though the process had begun much earlier in the 1980s- in UK under the iron lady Margaret Thatcher and in the US under Ronald Reagan. This push to what came to be called neo- liberalism also coincided with the collapse of another competing form of economic organization- the so- called “socialist” states and leading to an immediate triumph of the neo- liberal world view, whose most well remembered intellectual expression is the hyperbolic The End of History associated with Francis Fukuyama. The victory, as critics, especially Marxists know, was bound to be pyrrhic. The collapse of the banks last few days is an expression of the most recent crisis of world capitalism.

It was Marx who had analyzed the phenomenon of capitalism when it was still nascent- foretelling its demise not so much because it was his wish, but pointing out that that the system is inherently unstable and full of contradictions. The Marxist conception of the State as an expression of class power is again vindicated by the manner in which the federal governments in leading capitalist countries- the US, UK, Japan, Australia and even the puny India- has stepped into the rescue and “buy” back sunk investments. It suits these governments to step out of business activities when it suits the latter, and step in when it suits them too, that is having the cake and eat it too! Noam Chomsky once called the US (that’s true of most capitalist countries) – socialism for the rich.

This of course, is not unprecedented. Again it was Marx (or Engels) who commented in the preface to the second edition of Das Capital, that the crisis of the capitalism system of production (not to say of distribution) is inherent because while production grows in geometrical progression, markets expand only in an arithmetic progression. Since then, the web of conflicts and contradictions within the capitalist system has only grown more complex.

The First World War, the great crash of 1929, the second world war- these are all expressions of the capitalist system as it lurches from one crisis to another. The period between 1945- 1973 was the most stable one, with some controls forced upon by what was then a very successful alternative programme implemented in the Soviet Union and some of whose elements were borrowed and implemented by “welfare states” in the countries of advanced capitalism.

One of the early responses to these crises, starting particularly in the early part of the 20th century and illustrated by the Soviet Union but not only by it- was the wave of nationalizations and the rise of the public sector. It was held that the latter are accountable to the people at large because governments are accountable to the people in democracies (and in case of the formerly socialist countries, the state itself was said to be an expression of the interests of the working people) and hence offered a better alternative to a system driven by pure greed and controlled by a small coterie of individual capitalists and the investors on the stock market. This alternative system, called by various names (“mixed- economy” in India) dominated till the 1980s and offered a relatively more stable form of capitalist development.

This, of course, was not, and could not have been a Marxist solution (though it was identified closely with its 20th century incarnation), which envisages an economy managed and accountable to the working people. As the sad history of the Soviet Union shows 20th century nationalization was hardly a socialist solution given the class nature of the state- even the second greatest leader of its revolution Leon Trotsky was being generous when he called the USSR a “degenerate workers’ state”. Still, nationalization was successful in forestalling uncontrolled capitalism. That it can still be a practical solution in certain contexts is well borne out from the nationalizations underway in Venezuela and Bolivia- and even in Russia to some extent. The government takeover of investment banks in the last few days is another. In the case of nationalization by the state, who gains by it, depends on the class nature of the state. The .7 trillion dollar bailout is an indicator that in the advanced capitalist world, there are now no longer even to pretensions of the nature of the state and whose class interests it serves.

Let there be no illusion that the biggest collapse of the Wall Street translates into a collapse of world capitalism, but it is very likely that the nature of globalization driven by investments that traverse the world over the network of communications and computers, will change. In what direction it is difficult to envisage and will depend partly on the actions of governments and the response of capitalist financial institutions. It is unlikely to be reversed only because of this crisis but it is an indicator that we can expect a new phase in the rise (and fall) of neo- liberalism.


References: A Brief History of Neo- Liberalism by David Harvey
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13 thoughts on “Wall Street Crisis and Das Capitalism

  1. Pingback: The Wall Street Crisis and Das Kapital « The Blog and the Bullet

  2. Thanks, Jack. It is indeed a big fire in the belly of the beast and since investment banking has driven neo- liberalism, we can expect a change in the course. Also what comes out very clearly is the lack of the subjective factor- capitalism can fall by itself, but it can be replaced only by a consciously socialist alternative.

  3. Surinder S. Jodhka

    Enjoyed reading your comment on Wall Street. One is almost surprised to see how relevant Marx could be even today, in a world where shape and size of money has so completely changed. I also liked your linking the size of bailout package with the total size Indian GDP. The US state does act, precisely in the manner in which Marx had predicted.

  4. Thanks for your comment, Surinder. Good to see you here after a long time! I have a strong feeling that as the neo- liberal tide turns, it will have to look more and more towards old Marx’s breathtaking sweep.

  5. ishwar

    a nice post, bhupinder. Marx said (quoted by chris harman):
    “Banking and credit thus become the most potent means of driving capitalist production beyond its own limits – and one of the most effective vehicles of crisis and swindle.”
    The stagnation of production (and stagnation of growth rate, except UK in ‘mature’ capitalist economies) creates the crisis of liquidity. it encourgaes credit and investment activites, which ultimately lead towards the bursting of credit bubbles. I think the BIG question now is: is this economic crisis and slump big enough to be tranformed into the legitimation crisis of (capitalist) system. capitalist system is apparently ( at the level of ideology too) and structurally( at the level of essential relations) divided in a economy( socalled politics free zone) and polity( socalled autonomous zone ). This division gives capitalism a manipulating edge: State and economy are autonomous, yet interrelated and colloborators. Is recent crisis the end of the illusion? Many commentators are criticising USA for “privatisation of profit and socialisation of losses” of for ‘the transformation of USA into USSRA…’ ( see the blogs of Prof Nouriel Roubini). but there is a fact of a cycle of government intervention(phase of regulation, of nationalisation…) and government retreat (phase of deregulation…). If this is only a start of another phase (off course with new characteristics..) of regulation, then it wont be an end of capitalism. It may resulted into a retreat of neo-liberalism for some time.
    I agree with you that there is no point for left in returning to soviet type nationalisation model.

  6. The duality of state/politics and the market is in addition to others like media, education, world wide military presence and (perhaps an extension of the state) the massive prison system in the US. There are thus multiple pillars for the whole system to withstand shocks- and then there are the other capitalist countries that are closely tied to the center. All this is unlike the USSR which practically had just one pillar- that of the Party and when it crumbled, so did the entire edifice. I am optimistic about the turn away from neo- liberalism, but not about the collapse of the system as such. Any illegitimacy of an existing order has to be accompanied by an alternative vision and force- both of which are lacking at this point.

    Incidentally, this post was linked yesterday at Guardian’s Comment is Free Section in the “Best of the Web” Section.

  7. It is time to cease the argument regarding Socialism versus Capitalism, and begin the movement towards Peace and Prosperity

    10 years ago, we were succeeding in the fight against the Asian financial crisis, faced strong objections from the USA, and were criticized as having departed from the capitalist free economy competition principle. Now that a financial crisis has swept the USA, government has taken completely different actions, prompted criticism from academia along with the media, as demonstrated by the following headlines:
    More…. at
    http://fengbozhang.blogspot.com/

    Source: USA TODAY, WashingtonPost

  8. There have been previous attempts to go beyond capitalism and socialism. They go under the umbrella term called fascism.

    As for China, it is building something that probably combines the worst features of a statist regime with capitalism. Whatever be Den Xioping’s views about the colors of the cat, the fact is that the colors aren’t very cheerful.

  9. ishwar

    Your comment on multiple dualities of capitalist system is very nice.

    And your comment on fascism is also relevant for India, where Hindu nationalist BJP talks about Deen Dayal Upadhyay’s integrated humanism which, they claim, goes beyond both capitalism and socialism. Some sarvodayee’s also tried to go beyond both the systems and ended in supporting Hindu Right.

  10. Pingback: From One Wall to Another: Marx’s Spectre Looms Large « a reader’s words

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