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Capitalist seeds of its own collapse
By Wang Yong |
January 30, 2010, Saturday
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Print Edition
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IN identifying the root cause of the global financial crisis, one ought to heed the hymn of caution of renowned economist John Kenneth Galbraith (1908-2006), who contended that financial collapse was built into the capitalist way of business and life.
Galbraith taught at Harvard and Princeton universities and wrote more than 40 books. "A Short History of Financial Euphoria" published by Penguin in 1994 remains today a quick and clear guide to how capitalism functions, or rather dysfunctions.
"Recurrent descent into insanity is not a wholly attractive feature of capitalism," Galbraith wrote. "The circumstances that induce the recurrent lapses into financial dementia have not changed in any truly operative fashion since the Tulipomania of 1636-1637."
He concludes by asking: "When will come the next great speculative episode and in what venue will it recur?" He was sure in 1994 that there would be a next speculative episode, and the way he framed his question shows he didn't really care about when or where. It would come.
It did come, in the form of a dotcom bubble first and a sub-prime "surprise" later -- it was a surprise to many, but not to any Galbraithian observer. Galbraith wrote: "There can be few fields of human endeavor in which history counts for so little as in the world of finance."
Which is to say, there's nothing new under the sun over the financial world. It's always a boom-and-bust game. "The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version," the economist observed.
Galbraith offers a clear look at how a financial boom turns to bust in a capitalist world: Initial investors tout the current speculation as splendid and original. The big financial institutions promote speculation for their own benefit. The public, locked and lost in mass euphoria, ignores or vilifies those who warn about the inevitable bust. At last the bubble bursts, a few token guilty parties end up in jail, but no one questions the speculation itself or the aberrant optimism behind it.
He couldn't be truer.
If you have followed Western officials and academics for their explanations about the current global financial crisis, you would know that they have often found scapegoats in human greed, low interest rates, poor government regulation, and other elements.
True, human greed, low interest rates and poor government regulation all played a part in boosting the boom mentality toward Wall Street's proud invention of sub-prime mortgages. But few Western officials or academics have been bold enough to denounce the financial dementia and its midwife: capitalism.
This is not to say capitalism is bad in all aspects, but once you add "ism" to "capital," you bet it can't be all right when capital calls all the shots. Men are indeed greedy, but they can be less greedy if a society in which they live redefines happiness as something beyond the possession of capital.
People trust in accumulating capital as the best way to happiness only when they feel insecure without capital. But a society secured only in capital is on shaky grounds.
While people in China are free, or freer, to discuss the advantages and disadvantages of capitalism, talking about socialism or Communism in a positive way remains almost taboo in the West.
Whatever "ism" a country chooses, that country ought to be brave enough to admit its own problems -- systemic as well attendant ones.
Galbraith's book is also a hymn of caution to China, where many local officials and academics have thrown their weight behind stock and housing bubbles, some even shouting that it's "patriotic" to buy houses (at a time when housing prices are way above ordinary people's income).
Galbraith taught at Harvard and Princeton universities and wrote more than 40 books. "A Short History of Financial Euphoria" published by Penguin in 1994 remains today a quick and clear guide to how capitalism functions, or rather dysfunctions.
"Recurrent descent into insanity is not a wholly attractive feature of capitalism," Galbraith wrote. "The circumstances that induce the recurrent lapses into financial dementia have not changed in any truly operative fashion since the Tulipomania of 1636-1637."
He concludes by asking: "When will come the next great speculative episode and in what venue will it recur?" He was sure in 1994 that there would be a next speculative episode, and the way he framed his question shows he didn't really care about when or where. It would come.
It did come, in the form of a dotcom bubble first and a sub-prime "surprise" later -- it was a surprise to many, but not to any Galbraithian observer. Galbraith wrote: "There can be few fields of human endeavor in which history counts for so little as in the world of finance."
Which is to say, there's nothing new under the sun over the financial world. It's always a boom-and-bust game. "The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version," the economist observed.
Galbraith offers a clear look at how a financial boom turns to bust in a capitalist world: Initial investors tout the current speculation as splendid and original. The big financial institutions promote speculation for their own benefit. The public, locked and lost in mass euphoria, ignores or vilifies those who warn about the inevitable bust. At last the bubble bursts, a few token guilty parties end up in jail, but no one questions the speculation itself or the aberrant optimism behind it.
He couldn't be truer.
If you have followed Western officials and academics for their explanations about the current global financial crisis, you would know that they have often found scapegoats in human greed, low interest rates, poor government regulation, and other elements.
True, human greed, low interest rates and poor government regulation all played a part in boosting the boom mentality toward Wall Street's proud invention of sub-prime mortgages. But few Western officials or academics have been bold enough to denounce the financial dementia and its midwife: capitalism.
This is not to say capitalism is bad in all aspects, but once you add "ism" to "capital," you bet it can't be all right when capital calls all the shots. Men are indeed greedy, but they can be less greedy if a society in which they live redefines happiness as something beyond the possession of capital.
People trust in accumulating capital as the best way to happiness only when they feel insecure without capital. But a society secured only in capital is on shaky grounds.
While people in China are free, or freer, to discuss the advantages and disadvantages of capitalism, talking about socialism or Communism in a positive way remains almost taboo in the West.
Whatever "ism" a country chooses, that country ought to be brave enough to admit its own problems -- systemic as well attendant ones.
Galbraith's book is also a hymn of caution to China, where many local officials and academics have thrown their weight behind stock and housing bubbles, some even shouting that it's "patriotic" to buy houses (at a time when housing prices are way above ordinary people's income).
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