CHAPTER ONE

Understanding Backward

The Past as Imprisonment

 

 

 

Why do we Americans of the early twenty-first century still respond to economic calamity as if we’re citizens of the late nineteenth century? Because we still identify with the Populist revolt of the 1890s, when small farmers in the South and West rebelled against their corporate masters, and, having formed an insurgent third party, came close to nationalizing the banks, the railroads, and interstate communication. The distant echoes of this revolt are the most influential explanations of the Great Recession in our own time: from Left to Right, these explanations are reiterations of the antimonopoly tradition that the Populists once used to press their compelling case against corporate power.

They tell us (1) that avoidable mistakes were made by private-sector enthusiasts and/or policy makers in government, particularly at the Fed; or (2) that the monopoly power of banks “too big to fail” distorted the anonymous market forces that left to themselves would have yielded intelligible and satisfactory results; or (3) that the money supply is the source of all business cycles, so a “financial fix” is still the key to everything else; or (4) that when corrupted by lax credit, monetary sleight of hand, and mere fraud, morality becomes the backstory of every economic problem we face.

But how is it possible that these influential explanations of the recent economic crisis could be remnants of the nineteenth century? Therein lies a story.

In December 2010, in the drawing room of an Upper East Side townhouse, I was happily eating exquisite appetizers served by white-gloved young men when a well-dressed and thoughtful individual explained his opposition to the federal bailout of the banks by quoting William Jennings Bryan’s famous speech of 1896—“we shall not be crucified on a Cross of Gold,” he said, meaning to hell with what the bankers wanted—and the other guests, equally well dressed and thoughtful, started nodding their heads, murmuring their assent.

I stopped eating and asked myself, How did that happen? Why do these affluent New Yorkers respond to this reference? Do they know that Bryan called bankers mere predators, parasitic growths on the body politic, and proposed to abolish the banking system by making it the property of the federal government? And regardless of what they know about Bryan, why are we falling back on the political rhetoric of the nineteenth century to express our fear and loathing of finance capital? Yes, we: I was nodding my head along with everybody else.

Meanwhile I answered myself. I thought, Yes, we live forward but we understand backward, just like Søren Kierkegaard said. No wonder this well-dressed man is quoting Bryan. And then I thought, We Americans, who are said to lack a sense of history, we actually excel at understanding backward because historical narratives are what constitute us as a people and a nation: to be an American is to argue about what it means to be an American, and the only way to get into the argument is to think historically, to figure out what “original intent,” or slavery and civil war, or corporate “persons” entitled to free speech can mean in the present, where we live forward.

And then, finally, I thought, OK, but maybe this historiographical excellence of ours has become a curse. So I asked myself one more question, Does our eagerness to understand backward sometimes make us prisoners of the past?

Well, yes, sometimes it does. Our obsession with the “original intent” of eighteenth-century men who couldn’t possibly understand our present-day concerns is a good example of this self-imposed imprisonment, although the sentence is commuted daily by our willingness to reinterpret the Constitution. But there’s no better example of the same syndrome than our unwitting faith in the good old cause of Populism, the social movement composed mainly of small farmers that made William Jennings Bryan its presidential candidate in hopes of thwarting what it defined as a corporate-industrial conspiracy against the liberties of the people.

In their radical Omaha Platform of 1892, the Populists demanded the outright abolition of “the trusts”—the new industrial corporations—as well as government ownership of all banks and interstate communication companies (AT&T was incorporated in 1892), on the grounds that these “unnatural persons” were destroying the material groundwork of equality by acquiring too much market power. The Populists almost won the fight they started: until 1898, they held the balance of political power and cultural authority even outside their core constituencies in the Deep South. And even after they narrowly lost their bid for the presidency in 1896, a majority of the Supreme Court used their logic and took their side in antitrust cases. It wasn’t until 1911 that the legal standing of the new corporations was finally confirmed by a changed majority of the court, and its decision dissolved the Standard Oil Company!

In effect, the Populists were trying to abort the birth of corporate capitalism and to restore a smallholder economy—a free, competitive market, a “fair field and no favor.” That’s why we’re still faithful to their good old cause: we’re still worried about the social and political power of the large corporations, and we’re still impressed by the self-made man who owns enough property to be his own boss. Like the Populists, we hate to think of ourselves as wage slaves of the corporations; we hate to think of ourselves as creatures of faceless bureaucracies, whether public or private; and we like to think of bankers—not to mention lawyers—as paper-pushing middlemen who deduct their incomes from the value produced by others. We’re still unwilling to be crucified on a Cross of Gold.

But as a result, we can’t move beyond Populist explanations of economic crises or moral problems. Whether we’re conversing quietly in an Upper East Side townhouse or cheering noisily for Tea Party candidates in Iowa, we’re stuck in the 1890s, as if the restoration of the past is our purpose—as if we’re afraid to live forward. There’s a good reason for this deep emotional attachment to a past that can’t be retrieved: like most Americans then as now, the Populists were promarket and anticapitalist, thoroughly bourgeois and anticorporate, all at once. But how can that be?

The Populists assumed that when immunized by legislation against the concentrated economic power of monopolies—the power of corporations, “the trusts”—the market would yield intelligible, satisfactory consequences, and they thought of these consequences in terms of both politics and morality. If all producers were subject to the same anonymous forces of the market, for example, equality would reign, and so no demagogue (and no large corporation) could hold sway over the oppressed masses. If all producers were subject to the same anonymous forces of the market, they would be punished or rewarded according to the same objective standard. The market functioned in these ways as an inscrutable external force—a kind of godlike presence—that would balance good and evil, or progress and regress, as long as “big business” (the corporations, “the trusts,” the monopolies) didn’t become powerful enough to alter its laws.

So the Populists programmatically demanded a self-regulating market, a price system that wasn’t corrupted by the conspiracies of big business. That’s why their explanations of economic crisis came down to personifications of the problem at hand: somebody was to blame (probably the bankers) because something had disturbed the coherent moral universe the free market represented. The Populists needed what we would call “big government”—public ownership of the banks, for example—as a bulwark against the predatory power of big business; but their fundamental loyalties were to the anonymous forces of a free market that, when finally restored by outlawing “the trusts,” would equitably allocate economic resources, political possibilities, and moral properties among self-mastering smallholders.

In this fundamental sense, the most influential explanations of the recent economic crisis are distant echoes of the Populist revolt against the rise of corporate capitalism. Again, they tell us that mistakes were made, that monopoly distorted markets, that money was too easy—or too tight—and that morality went missing.

My explanation avoids these echoes of the antimonopoly tradition by showing that the Great Recession was the inevitable result of surplus capital—of redundant profits with no productive outlet, which eventually find their way into speculative markets that inflate bubbles. This explanation has intellectual roots in both Marx and Keynes, of course, but it also acknowledges the historical importance of what Ben Bernanke—that great admirer of the archmonetarist Milton Friedman—called the “global savings glut” before he became the chairman of the Fed. Like Bernanke, I explain the recent crisis by comparing it to the Great Depression. Unlike Bernanke, I explain both events as results of surplus capital generated by huge shifts in income shares away from labor, wages, and consumption, toward capital, profits, and corporate savings. And I draw the obvious conclusion from the historical comparison: if the New Deal succeeded by enfranchising working people and shifting income shares back toward wages and consumption—not by means of a “financial fix”—then a massive redistribution of income away from capital, profits, and corporate savings is our best hope of addressing the causes of the recent crisis and laying the groundwork for balanced growth.

On the way toward this explanation and the future it implies, I have to convince you that the Populists got it wrong. This means I have to convince you that the mistakes of policy makers, public and private, are more or less irrelevant; that the large corporation (a.k.a. monopoly) is more conducive to growth and innovation than small business; that a “financial fix” changes almost nothing because the money supply explains very little; and that morality accounts for even less. Otherwise you’ll think I’m ignoring the obvious explanations for our sorry condition. But here at the outset, the question will be, How did the Populist understanding of late nineteenth-century economic crisis become the “normal science” of contemporary theory?