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.”

18 thoughts on “Crisis”

  1. TIAA-CREFF DIDN’T TANK, according to the last time I checked. But I think it depends on whether you put money into the TIAA part, or into the CREFF part. CREFF tanked, while TIAA didn’t.

    Fox is blaming ACORN for utilizing an obscure law that mandated loans via Freddie Mac and Fannie Mae, which then tanked.

    The highend golden parachutes that then resulted seem to be at least as much responsible for the heavy losses sustained everywhere from Reykjavik to Tokyo.

    Was this what Pol Pot was trying to prevent by taking Cambodia off the international financial grid?

    Pot argued that there was to be NO EXCHANGE under the Khmer Rouge. A bag of rice was only worth itself, and couldn’t even be exchanged for another bag of rice which was identical in weight and size and quality.

    The money for the bailout has been allocated but not yet delivered. Once it’s delivered, it may yet make some difference, and cause a rally in confidence.

    This seems to be mostly about confidence — with confidence anything can happen. Without it, nothing can.

    It seems to me there was a concerted effort to undermine confidence in the market — perhaps started by journalists chirping incessantly about the housing bubble. They themselves are poorly paid and were perhaps trying to prick the bubble. Once that bubble blew, it seems to have caused a kind of black hole that was bigger than anyone anticipated.

    But I don’t know anything at all. I lack the kind of confidence that Marx had in the validity of his description, or in the validity of his prescription.

    I’m too much of a nut to be more than a gnat.

  2. Steve, I have to disagree with your ending sentiments – although I agree that given the strength of the left in the US that the consequence of the crisis will move towards a restoration of capitalism. I think, however, that this crisis does signal the end of neoliberal capitalism. The ideology has been discredited already in places like Argentina, Venezuela, and Russia. The recent crash only confirms this decline. Now we have found that the state power that has been the dominant force in propagating its practice is in crisis. The trust at the foundation of the credit markets has eroded significantly and do I don’t think that there will be another bubble to replace the deflating one. We are probably in for a Japanese-style “lost decade” during which different forces within the US political economy contest for a new hegemonic project to replace the failing neoliberal one. My own belief is that we on the left will either become a significant force or we are in for a much more authoritarian capitalism as replacement. Schematic, I know. Cheers.

  3. Sorry, I meant to add that there is no universal pattern vis-a-vis the conditions for revolutionary change. The Russian Revolution certainly did not occur during a period of prosperity, nor the Chinese, Nicaraguan, or Cuban. The revolts of the 60’s in the West certainly differ. But I don’t see a one-size-fits-all model here.

  4. Kirby, are you honestly arguing that the mortgage crisis was provoked by vindictive journalists? If their reporting was truly motivated by their financial lot in life, as you speculate it was, wouldn’t it be in their best interests to keep the ruse going? Stretch those meager scribe’s wages into a comfy little two-story they couldn’t otherwise afford? Your logic is baffling.

    You are guilty of recoding “confidence” in the same way Bush has in recent weeks. To slacken confidence in the resiliency of America’s economy is an act of national treason, according to W’s recent garden chats. Citizens must simply believe that the housing, credit, and banking industries will rebound, and by cyclical certitude it shall happen. Confidence in a corrupt market is a nationalistic faith exercise in this perverse reasoning. Bush and free market/neo-liberal cabalists have effectively stripped the “confidence” signifier of its economic weight and padded its moralistic valence. Suggesting that the bubble burst because of spite rather than structural wobbliness is simply another sad treatment of market “confidence” as collective wish rather than economic will.

  5. Hi Steven.

    Fine article, and timely.

    My perspective:

    We are not witnessing the end of neoliberalism or capitalism or any such thing.

    We are simply witnessing the results of more than 20 years of unipolar imperialism coming up against the limits of geology, compounded by a phantom economy, neoliberal trade policies, and a series of governments led by people who don’t believe in government as anything other than the means by which the interests of the ruling classes are protected and projected.

    The anaesthesia of time has imparted a social amnesia. Forgetting isn’t the opposite of memory – as Marker noted, it’s the lining… Those old enough to be an adult during the Reagan era don’t remember that his regime left the United States with more debt than ALL preceding administrations COMBINED. We don’t remember that his economic guru, the incompetent Stockman, who archictected the disaster said, when faced with a trillion dollar debt and multi-billion dollar deficits

    “None of us really understands what’s going on with all these numbers”

    The National Debt was at $1.0 Trillion in 1981, was on a political trajectory via the legacy of the Reagan/Bush1&2 budgets, towards the $10 Trillion it reached recently, causing the debt clock in NYC to be shut down because it ran out of numbers. Vice President Dick Cheney said “Reagan proved that deficits don’t matter”.

    We are seeing how they do matter.

    The Reagan era was a Republican president with a democratic congress, and in order for them to arrive at a political compromise, they did the classic capitalist move, and discounted the future by piling up debt: guns for Reagan and the Republicans and butter for the Democrats. This was briefly, and only marginally, interrupted by Clinton, but not long enough to matter, and the power of exponents took over from there under the Bush coup d’etat of 2000.

    Exponential growth is possible when there is an infinite amount of energy to draw on in order to fuel the growth. Once the resources choke, especially energy, the system itself cannot do as much “work”.

    Oil production peaked in May 2005. That fact of geology, when combined with a rapacious commodity capitalism and a recently deregulated finance capitalism was a short fast ride to oblivion.

    You then have people squandering fortunes on resource wars to deal with the energy problems, a casino of an economy based around a ponzi scheme in real estate, combined with a completely irresponsible gov’t that had been squandering its money for (literally) decades.

    As of January of THIS YEAR (readers of my blog would know this) the federal reserve was reporting that the non-borrowed assets of the entire American banking system were in negative numbers. (aka the h3 report)

    You can read the facts here:

    The entire system has been insolvent and running on fumes for months.

    This collapse was as unnecessary as it was expected. Responsible adults would not have let it get to this, but we’re dealing with greedy unipolar imperialists, who are, by definition, not adults, as adults know you can’t “go doing things this way”.

    I’ve been arguing about this all day. I’m tired.

    more later.

  6. Steve, I think you’re right that lower-case neoliberalism, aka government in the service of free capital, isn’t going anywhere. Phil, your vision of Neoliberalism includes only that section of capitalists who want to stamp out government entirely. Remember the unholy trinity! Nation, state, and capital are all necessary to back each other up.

    But Steve, I’m a bit concerned that you don’t see any possible way to capitalize on crisis like capital does. Surely the great instances of everyday political activism of the 1930s were due in part to the clear picture people had of capitalism at that moment? I’m a teacher, so I see it like this: Crisis equals capital investment, and education is a kind of capital investment in one’s labor. While laid-off workers take courses in computers or nursing, isn’t there an opportunity for more radical topics to be taught as well?

  7. Kyle, I think the idea on the part of the journalists was not necessarily vindictive. More like — let’s see if we can pop this bubble. Then, it popped. Adam Smith says somewhere that money is an idea, and it follows that confidence in it, like confidence in love, or in sports, is half the game.

    Restoring that confidence — is important but it has to be based on some rational foundation. Money is now so funny — it used to be backed by gold and God — the latest dollar coin actually scraps “In God We Trust,” and it isn’t made of gold or silver.

    Currency is odd.

    Think of it now as being something like the art market. There is actually nothing at all intrinsically valuable about a Warhol or a Duchamp. They are just objects whose value would not be apparent to let’s say, a Yanomamo. A sandwich, of course, has an immediate and obvious value.

    But money doesn’t.

    Unless it means something.

    Marx wanted money to be founded on labor value.

    That idea has been gone in the art market since at least Whistler, when he argued that his Nocturne — which took him ten minutes to paint — was backed by his lifetime in art, and his reputation.

    If reputation is all there is, then anythng that undermines reputation, can cause the whole house of cards to fall.

    Perhaps this collapse is a chance to rethink how we place value.

    I’m still open-minded about what happened and what should happen, and what should be the basis of value. But I’m hoping that labor value isn’t the basis that’s being stressed here. If I spend a year on a poem and it’s no good, then it’s no good.

    If you spend a year farming, and the crops don’t come up, then you can’t cash in the labor itself.

    Misspent labor, or purposely sweating over nothing, can’t be counted as labor.

    The product has to be what’s valuable.

    The basics of life shouldn’t be hogged, Locke said (I see Locke rather than Marx as the central idea forward –), and it’s true that the Republicans don’t seem to mind hogging — McCain with his 8 houses comes to mind.

    But I still prefer free enterprise on a Smithian paradigm to the closed economy of Marx, with its control by the the Party — including the production of intellectual ideas as controlled by the Party.

    I don’t see anything wrong with neoliberalism, especially as it can be traced back to Locke and Smith.

    NOT going back there is what’s caused this mess to some extent (forced loans through the twin FMs to affirmative action lendees who never had the wherewithal to pay) — this is what seems to have undermined the confidence in the true value of the money being lent.

    Marxism tries to build society on what doesn’t work — rather than on what is competitive, and does work. Marxism is against competition, and thus against nature itself. It is unnatural, and causes collapses in the ecosystemic nature of capital, which has to be built on nature, if it is going to create a living system rather than a cesspool of death and collapse.

  8. 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.

    It just doesn’t. Please show me one single neoclassical text of a reputable author that argues that market economies are efficient and run at an optimum. They just aren’t and everybody knows it. The discourse of “efficiency” was always directed towards enterprises and not the economy as a whole. There is one exception though: specialization of economies according to “comparative advantages”. David Riccardo is the god of the free traders.

    Market economies shall be robust by means of autonomous, competing and redundant entities. If one car vendor goes out of the race plenty of others vendors are available to replace it. That’s the idea. It were the planned economies of real socialism that aimed for avoidance of overallocation and strived for efficiency of the national economy.

    What we see right now is that autonomy of companies isn’t sufficient to prevent the emergence of global networks in which every entity is interwoven with each other. A breakdown of a few of such entities leads to a collapse of the whole network. No one can effectively decouple from it. Risks are distributed across the network and accumulate silently. Responsibility cannot be localized anymore. Now, just because a few house owners in the US couldn’t pay their debts, global economy is going down. I’ve never experienced a more beautiful illustration of the butterfly effect.

    I’m going to repeat it: confusing enterprises with economies is a fallacy. Markets are inefficient and excessive and that’s exactly what they are doing right. Entrance and failure of single enterprises is the norm and while it might be sad for the concerned employees and entrepreneurs, it’s usually not a big deal. However market economies can’t obviously prevent the growth of global pattern in the financial markets that destroy them. Apparently J.M.Keynes hasn’t gone far enough.

  9. “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.”

    N Pepperell makes a good argument for why this is actually not the case. That is, that “Marx makes the point that contradictions and crises are characteristic of the reproduction of capital, rather than phenomena that by themselves point beyond capital, in various places.”

    Otherwise, great post. The concluding sentiment resonated with something I have picked over the years in my buddhist practice: “doing something” matters more when it seems to matter the least (i.e. in “good” times as opposed to “bad”), and vice versa.

  10. Joe,

    thanks for this clarification and citation of N Pepperell. It was overhasty to attribute to Marx a claim which has been prevalent in the Marxist tradition, but which Marx himself was too nuanced and clearsighted to endorse. Marx is still ahead of all of us (myself very much included) who try to make “use” of him.

  11. “Revolution will never come from sacrifice.”

    This strikes me as counter-intuitive to the crucifixion — the ultimate revolution, and the ultimate sacrifice.

    But the soul is another kind of coin, not stamped with Caesar’s image, but with that of God, another kind of coinage altogether.

    I am hoping that McCain and Obama will figure out in tomorrow night’s debate about how to separate these two discourses, and not subjugate everything to the realm of Caesar.

    The ultimate revolution was that of overturning the tables of the money-changers, and arguing that there is a separation between the economy and our true lives, that they are not conjoined at the hip in the manner of Siamese twins, but separate, and free, but not enemies either — there is room for both in our lives.

  12. >>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.

    You’re right in saying that the imagination of things that are not there come sith prosperity. But that is just the thinking part, I mean, the creation of the horizon.

    The actual, physical, political, social Revolution NEVER comes from “conditions of (relative) prosperity and abundance”. Never a man who HAS things have changed the rules to have less.

    So I can’t agree on the resolution of your text.

    Ah, the full-belly revolution. That consumer utopia, making the world better from my sofa… A trap so close to our skin we cannot see ir…

  13. Schumpeter’s cycles of capitalism, characterized as “creative destruction”, are an interesting Irony of Circumstance; that is, a standard Tower of Babel scenario of ever increasing arrogance, followed by a dose of destruction and confusion upon the face of the Earth.

    Irony…all is Irony.

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