Oct 12, 2008

On Capitalism and the Cult of the Invisible Hand

Wealth of Nations: revealed truth, or superstitious mystery?

Like many folks, I have spent quite a bit of time the last few weeks fretting about the possibility of a global economic collapse. My wife and I have likely seen $50K of our net worth evaporate in the last year between losses in our home equity and our 401-K and 403(b) accounts, and lately the churning of my stomach over the uncertainty of the future has been the source of sleepless nights. My thoughts, though, turn away from the simple matter of my lost wealth and instead turn toward the question of the nature of political economy and the ideal methods of socioeconomic organization.

At the end of the trading day, even the values of the strongest blue-chip stocks are nothing more than a sort of agreed-upon fiction. So long as there is a consensus on fictional value, the economy hums along, but when people begin to doubt the high priests of the Cult of the Invisible Hand, the result is an uncontrolled implosion, as investors rush to protect as much of their mythical wealth as possible, something that stock market analysts like to call a secular bear market. Such a "secular" downturn is a sustained decline in the major stock indices of at least 40 percent (coupled with even more losses in secondary investments) and where the period of decline lasts a minimum of three to five years.


Now, this is not a call to some specious, doe-eyed, neo-Marxist utopian scheme, but rather a critique of the irrationality of those who implore us to "have faith" in the markets and to "believe" that prosperity will return. It is no accident that such religious rhetoric is used - the devotees of the free market believe in The Invisible Hand just as fervently as the most devout Christian or Muslim. When skeptical people begin to question the tenets of the faith of the followers of the Cult of the Invisible Hand, they react in the same fashion as do zealots to heretics.

There is an opportunity here in the current economic crisis for people to set aside their acquired and reinforced beliefs about the ideals of capitalism, and to open frank dialogue about how best to allocate resources in a world of increasing scarcity. Will we honestly question the irrationalities inherent to capitalism - daring to question the revealed truths and underlying myths of the system - or will we continue to muddle along the path that we have been groomed to follow?

I do not have any influence over those who try to solve the current economic woes, and I can do little more than post on a few Internet boards or compose an essay for a few hundred people who might stumble across such thoughts on my blog. Yet to sit back and do nothing is much more frustrating than my relative insignificance as a writer, so I will trudge on.

Yet as a historian I know this much: the likelihood is quite slim that American-style capitalism is indeed the Alpha and Omega of socioeconomic organization, despite the concerted efforts of the neoconservatives to indoctrinate us about its supremacy over the last few decades. Like empires, economic systems rise and fall over time, and only fools believe in the presentist fallacy that Western liberal capitalism is the the end of history.


Anonymous said...

mike, you sound like a commie today.


historymike said...

(waves hammer-and-sickle flag, looks for bourgeoisie to denounce)

All kidding aside, I think it's time to move beyond Marxism as the sole alternative to capitalism. Marx had some blistering critiques of capitalism that still have merit, but I remain as skeptical of doctrinaire Marxist uptopianism as I do of unfettered multinational corporate capitalism.

More thoughts soon on the outlines of a popst-capitalist world...I have too many papers to grade and lectures to prepare to get into the topic tonight.

steve said...

I think the root of capitalism's problem, is that it is viewed as an "end", rather than a "means". Capitalism is the most powerfull economic tool yet devised, but that's all it is, an economic tool. It shouldn't be the "be all end all" organizational goal of society. The capitalist says that an encroachment on capitalism is an encroachment on freedom, but sometimes unrestrained capitalism is an encroachment on all of our freedoms. Simply put, capitalism, as a useful economic tool needs restraints and a referee to keep the system fair for everybody. I guess I would like to see this economic dichotomy between capitalism and marxism framed not so much in black and white, or all or nothing, but a closer examination of the merits of each and a blending of the best tenents of each economic organization... if that psychobabble makes sense.

dr-exmedic said...


Please don't confuse the crony capitalism/kleptocracy of the Bush/Halliburton years with actual free markets. Bush talks a good lasseiz-faire game, but it's hard to square that with the policies he's pursued.

Brian Schwartz said...

I believe in capitalism because I have absolutely no faith in government "allocation" of resources. As a working person and wage earner, I would rather be subjected to the harsh realities of unfettered capitalism than the tender mercies of government allocation.

Government meddling in the economy is the cause of, not the solution to problems. I guess I'm one of the adherents to the belief that the market sorts itself out over time. It rewards good practices and destroys those who practice poor business decisions. It did that with Enron and other corporations. We should let it weed out mismanaged banks and brokerage houses.

Nature will fill the vacuum left with new, better entities better able to carry out those functions