Nobody should be all that surprised by the recent unraveling of the financial system. Crises are endemic to capitalism, as Marx argued long ago, and as generations of Marxist economists since have repeatedly demonstrated. Capitalism often has periods of dynamic growth; but these tend to turn into crises of underconsumption, or of overproduction and/or the overaccumulation of capital, because the very processes that boost productivity and profit end up increasing the imbalance between what is produced, and what workers and consumers are able to afford to buy. For a while this imbalance is alleviated by easy credit — consumers are able to buy beyond their means, and businesses are able to produce even more — but eventually the mismatch is replicated on a larger scale, and the whole house of cards tumbles down.
It is only in the fictional models of neoclassical economics that any sort of equilibrium is maintained, or that “efficiency” and “optimal” conditions are achieved. Neoclassical economics borrows its models from a 19th century physics that physicists do not accept any more (as Robert Nadeau points out). In the real world, there is no such thing as a perfect match of supply and demand in which the markets are cleared. Indeed, conditions that are far from any equilibrium, and in which (for instance) large amounts of productive capacity lie fallow and unutilized, while large numbers of people remain in a state of deprivation, can in many circumstances become self-perpetuating: this is something that Keynes understood over seventy years ago, but that was forgotten in the recent spate of “irrational exuberance.”
In 1997, in his essay “Culture and Finance Capital,” Fredric Jameson argued for the congruence between “the narrativized image fragments of a stereotyped postmodern language” without reference to anything beyond itself, and the relentless circulation of finance capital, in the ever-more-abstract form of derivatives and other arcane financial instruments. Postmodern culture seems to involve the autonomous play of stereotypes, signifiers that are “independent of the formerly real world,” precisely “because the real world has already been suffused with culture and colonized by it, so that it has no outside in terms of which it could be found lacking.” Similarly, “finance capital brings into being… a play of monetary entities that need neither production (as capital does) nor consumption (as money does), which supremely, like cyberspace, can live on their own internal metabolisms and circulate without any reference to an older type of content.” Fictitious capital and fictitious stereotypes can both circulate indefinitely, without any “grounding” or external reference. The play of media-driven simulacra that do not refer to any external reality, because they are themselves as “real” as anything else, and which largely constitute the human and material conditions to which they ostensibly refer, is the same thing as the play of arcane financial instruments that are themselves as “real”, in their effects, as (for instance) the houses whose subprime mortgages they are supposedly, at many removes, based upon — houses which, ironically, would not have been built in the first place were it not for the financial instruments in which their deferred debts could be embodied.
Jameson ended his essay with the lines:
Stereotypes are never lacking in that sense, and neither is the total flow of the circuits of financial speculation. That each of these also steers unwittingly towards a crash I leave for another essay and another time.
He was much criticized, as I recall, for the Cassandra-like prophecy of these lines. Academics didn’t like the fact that he was impugning the viability both of the novels of Don DeLillo, and of their TIAA-CREF accounts. (Me, even though I pay into my own TIAA-CREF account regularly, I take it for granted that I will never be able to afford to retire). But of course, the “crash” of which Jameson warned (and which it required no particular prophetic skill, but only a basic understanding of Marx, to be able to foresee) is precisely what we are dealing with today.
I don’t have much to add to the accounts of others. Jane Dark gives a better and more detailed account of what has actually happened than I ever could. Also, I am afraid that I share Ben’s pessimism as to whether anything good can come out of this crisis. Ben cites Gilbert Achar to the effect that, it is not in periods of crisis, but in ones of prosperity and “rising expectations”, that it becomes possible to envision radical change.
Marx got capitalism right as to its structural tendencies; his mistake was to think that the inevitable, and in the long run inevitably worsening, crises to which capitalism is prone were the points at which the system itself could be overthrown. But in point of fact, not only are these crises so demoralizing that they effectively work to block any hope of action to make things different, they are positively useful to capitalist domination — and even perhaps necessary to that domination. Capitalism will never resolve its “contradictions”; and a crisis is the point at which these “contradictions” come to a head. But for that very reason, crisis is the point at which capitalism is able to reinvent itself, and prolong thhe “contradictions” that are its paradoxical conditions of possibility.
In other words, orgies of destruction of capital, such as we are witnessing now, are part and parcel of the “creative destruction” (Schumpeter’s term, very much following Marx’s observations) that is the modus operandi of capitalism. Individual capitalists may suffer (though usually far less than the rest of us do), but these convulsions clear up the system, unclog it, so that new rounds of exploitation and capital accumulation may then take place. Crisis is the mechanism that transforms the abundance which capitalism produces into the condition of scarcity and deprivation which is necessary to its continued functioning. Or, crisis (as the flip side of manic speculation) is the way that Bataillean expenditure and excess can be reintroduced into the “restricted economy” of calculation and universal equivalence.
All this is why I don’t think the current crisis marks the end of neoliberalism and market fundamentalism. For the sole aim of all the government intervention that is happening now is precisely to restart (reboot) the currently clogged market. Whether it works or not is still open to quesiton; but if it does work, this will not mean a paradigm shift of any sort, but only the restoration of corporate and financial business as usual. In times of prosperity, the best we can hope for is trickle-down (though often even that is not guaranteed; the last twenty-five years have instead involved a redistribution of wealth from everyone else to the already-rich). But in times of crisis, recession, and depression, all we can hope for is to “share the pain” that the corporate and financial sector is feeling, and thereby to restore that sector at our own expense. The game is rigged, in times of prosperity and calamity alike.
But no matter what, the worst never leads to the better. Revolution will never come from sacrifice. It is only under conditions of (relative) prosperity and abundance — which capitalism does provide, after a manner, during one part of its cycle — that we will ever find the power to imagine things differently, and that people will have the motivation and the energy to devote themselves to hopes for the future, rather than being stuck in the moment-to-moment struggle for bare survival. Abundance and non-commodified leisure are the only things that capitalism is unable to endure. Both the crazed accumulation and conspicuous consumption that characterized the financial sector over the last two decades, and the crazed destruction and disaccumulation that are overtaking that same sector today, serve the purpose of averting the threat of a generalized abundance and leisure for everybody. Abundance and leisure — which are technologically attainable, but economically unthinkable — must be revived as the basis for any sort of political struggle. Now more than ever is the time to (as Lenin’s Tomb suggested some years ago) “be unrealistic, demand the possible.”