April 22, 2008
Hitchens on the Continued Relevance of Marx
Christopher Hitchens notes in this month's Atlantic that Marx's observation that capitalism creates chronic crises through the over-supply of goods was proven once again by the current crisis. In this case, the over-supply was of credit -- capital itself:
As I write this, every newspaper informs me of frantic efforts by merchants to unload onto the consumer, at almost any price, the vast surplus of unsold commodities that have accumulated since the credit crisis began to take hold. The phrase crisis of over-production, which I learned so many long winters ago in "agitational" meetings, recurs to my mind. On other pages, I learn that the pride of American capitalism has seized up and begun to rust, and that automobiles may cease even to be made in Detroit as a consequence of insane speculation in worthless paper "derivatives." Did I not once read somewhere about the bitter struggle between finance capital and industrial capital?
The "giant pool of money," as This American Life put it, created by the emergence of productive capitalist Asian economies in the 1990s, flowed into derivatives markets that remained dangerously unregulated thanks to the corruption of the political process by finance capitalists and simplistic free market dogma, which took over both parties during the 1990s, MIT economist Simon Johnson noted in his "Quiet Coup", also in the Atlantic.
I thought the thing that Hitchens missed about the current moment is that finance capitalism not only created the current economic crisis, it also sapped the American economy of the productive capacity of its workforce. It did so by diverting capital to finance, which is parasitical and generates no wealth, away from public goods (e.g., education, infrastructure, R&D labs).
To put it a different way, in 2007, almost half of graduating seniors from Harvard went to work in business, consulting or finance. Meanwhile, the best and the brightest physicists became "quants" for firms like AIG, not IBM. They created complex models based on simplistic assumptions and greed, which resulted in complex financial instruments like CDS that destroyed, rather than created wealth. This may prove to be the largest and most disruptive contradiction that capitalism has ever created.
It's depressing to think about how much wealth America could have generated had our physicists spent the last 20 years making solar panels more efficient -- or teaching school children, or doctoring the ill ‹- rather than creating the conditions for American taxpayers to incur a $4 trillion debt bailing out banks. One wonders how all of the unemployed finance professional will look back on their life's work.
But it also gives me hope that if America's best and the brightest were to spend the next 20 years doing things in the interest of a productive economy, we could realize some genuine economic, technological, and social breakthroughs.