PRINCETON – Karl Marx has returned, if not quite from the grave then from history’s dustbin. German Finance Minister Peer Steinbrück recently said that Marx’s answers “may not be irrelevant” to today’s problems. French President Nicholas Sarkozy allowed himself to be photographed leafing through the pages of Marx’s Das Kapital. A German filmmaker, Alexander Kluge, is promising to turn Das Kapital into a movie. Few of today’s new “Marxists” want to spell out the attractions of a man who wanted to unite German philosophy (building on Hegel) with British political economy (carrying on from David Ricardo), and thereby turn two rather conservative traditions into a theory of radical revolution. Marx was certainly a perceptive analyst of the nineteenth century’s version of globalization. In 1848, in The Communist Manifesto, he wrote: “In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations.” To be sure, there were plenty of other nineteenth-century commentators who analyzed the creation of global networks. But we do not see a new rush for the works of such figures as John Stuart Mill or Paul Leroy-Beaulieu. The implication of Marx’s renewed popularity is that capitalism is now universally accepted as being fundamentally broken, with the financial system at the heart of the problem. Marx’s description of “the fetishism of commodities” – the translation of goods into tradable assets, disembodied from either the process of creation or their usefulness – seems entirely relevant to the complex process of securitization, in which values seem to be hidden by obscure transactions. From the analysis of the deceptive nature of complexity, there followed the recommendation of the Communist Manifesto that seems most attractive to contemporary “Marxists.” It came as point five in a ten-point program. Point five, which was preceded by “confiscation of the property of all emigrants and rebels,” was “centralization of credit in the hands of the State, by means of a national bank with State property and an exclusive monopoly.” The major problem in the aftermath of today’s financial crisis is that banks are no longer providing credit for many transactions needed in the basic operation of the economy. Even the recapitalization of banks through state assistance has not been enough to revive economic activity. In the face of the difficulties of big automobile producers and smaller suppliers alike, many are demanding that, as part of the rescue package, the state should compel banks to lend. Everyone thinks of the horse that can be led to water, but cannot be made to drink. Even pro-market commentators have taken up the cry that the market will not provide the needed credit. State-compelled lending has been adopted in the past, and not just in the central planning systems of communist economies. It was part of the standard armory of early modern European states as they dealt with their creditors. Immediately after World War II, it was at the heart of French economic policy. More recently, in the early 1980’s, the International Monetary Fund and the central banks in the big industrial countries teamed up to pressure banks into extending more credit to the big Latin American debtor countries. Many bankers grumbled about having to throw good money after bad, but they gave in under the threat of greater regulatory intervention. The result of credit compulsion was rather paradoxical. The 1980’s solution saved the banks (and the bankers) from the debt crisis, but in the long run increased burden of repayment, and in this way decreased living standards in Latin America. A better solution would have been debt reduction at an earlier stage of the crisis. In today’s circumstances, the financial system would have been better off if some version of US Treasury Secretary Henry Paulson’s original plan to purchase toxic assets and take them off banks’ balance sheets had been realized. But that proved too complex, because valuing each asset raised different and unique problems. In running away from complexity, we have come to look for simple solutions. When opening a new building at the London School of Economics, the Queen of England asked why no one had predicted the crisis. In fact, the clearest anticipation was given by two British comedians (John Bird and John Fortune) in a television show over a year ago, at a time when high-powered financiers were still in denial. In other words, the financial world has reached a kind of carnival season, in which fools are wise and clever people turn out to be idiots. That does not necessarily mean that the idiot’s solution makes sense. When economic activity starts up again after a deep recession, it will not be as a consequence of people having been compelled to channel financial resources into the projects selected as politically desirable, but as a result of new ideas. The chances are higher that a large number of decision makers will be able to identify these new projects, and much slimmer that a centralized version of financial planning will do so successfully. The “Marxist” revival was probably an inevitable byproduct of the current crisis. But its acolytes should reflect on the uniformly disastrous results of centralized credit provision in the past. Harold James is Professor of history and international affairs at the Woodrow Wilson School, Princeton University and professor of history at the European University Institute, Florence.
