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Yet another crisis of capitalism

Every crash in America has been followed by obits on capitalism and the role that greed played during periods of speculative exuberance. The book brings to life America’s love-hate relationship with the Street’s aristrocrats, and its own economic ideals, says Alam Srinivas.

Alam Srinivas        Print Edition: November 13, 2008

It was an expected debate. As renowned institutions went bankrupt, as a financial tornado squashed global money markets and stock markets, as governments hastily approved huge bailout packages, experts discussed the future of capitalism. Francis Fukuyama, who predicted the End of History, wrote that “it’s hard to fathom how badly these signature features of the American brand (a certain vision of capitalism and liberal democracy) have been discredited”. Jacob Weisberg of The Slate Group called it “the crisis of capitalism”.

Die-hard supporters like Newsweek’s Fareed Zakaria noted that the “history of capitalism is filled with credit crises, panics, financial meltdowns and recessions. It doesn’t mean the end of capitalism. But it might well mean the end of a certain kind of global dominance for the US.” In its lead edit, The Economist wrote that “financial markets need governments to set rules for them; and when markets fail, governments are often best placed to get them going again. That’s pragmatism, not socialism.”

Wall Street: A Cultural History

Price: Rs 361

Pages: 632

By: Steve Fraser

Published By: Faber and Faber

Target audience: General readers

Quick read tip: The chapters on the Great Depression will help you understand the current turmoil

Language: Easy

Style: Argumentative

Similarly, there were discussions everywhere about greed, manipulations and ignorance that plagued both the Wall Street and the Main Street. People were angry when they saw, heard and read that Lehman Brothers’ employees went holidaying days after the approval of the first bailout by the American government. CNN started a series on the villains of the crisis. And almost everyone blamed the global policymakers for neglecting the crisis as it was brewing.

The beauty of this book is that it tells you that such condemnations, allegations and obituaries on capitalism have invariably been the talk of the town each time there has been a crash on the Wall Street. Throughout its history, spanning over 200 years, the men and women on the Street have been revered and loathed, loved and hated. Their greed has been blamed for all the crises, and policymakers have been ruthlessly criticised for not doing enough to control these financial bandits. In documenting such issues, this book is more of a socio-politicoeconomic history of the Wall Street.

Cut to the 1857 crisis, when railroad shares plummeted and bubbles of land speculation burst. Immediately, the South (of America), “which until then prided itself on immunity from the vicissitudes of Northern capitalism, was particularly enraged. The New Orleans Crescent decried New York as the ‘center of reckless speculation, unflinching fraud and downright robbery’. The New York Ledger editorialised in favour of ‘a system of moral and economic regulation and called for endorsement of the laws against gambling, defamation of character, and conspiracy to defraud.’”

The next crash, which led to the biggest depression in the 19th century in 1873, was yet again due to railroad speculation, and was a direct result of a nexus between politics and the Wall Street. Using political lobbyists, railroad companies cajoled the treasury to help them and also grant land. By 1880, “federal, state, and local governments had contributed $700 million to the building of the railroads and donated 155 million acres of public land—more than the size of France.” When markets went into a tailspin, it “ushered in 65 months of depression”.

A dole queue during the Great Depression
A dole queue during the Great Depression
By early 20th century, there were rumblings that Wall Street financiers controlled the US economy. Before he became the president, Woodrow Wilson said that “there are vast confederacies… bound together by the fact that the ownership of their stock…are determined by comparatively small and closely interrelated groups who…may control…both credit and enterprise.” Editorial opinion in those days warned that a group of financiers dictated the “capitalistic end of industry”, which may force people to view socialism as “lesser of two evils”.

When Americans were confronted with the Great Depression, they quickly wrote off capitalism as an ideology. “Just as the Civil War had called into question the legitimacy of the nation state, the Crash and Depression posed a similar challenge to capitalism.” What made the Depression “one of the two great turning points in American history” was “not just the misery alone, but the conviction that the nation’s bankruptcy was also the bankruptcy of an (pro-capitalist) elite—of its beliefs, traditions, and sense of entitlement.”

Logically, each of the Wall Street crises has been followed by an immediate era of socialistic policies, excessive regulation and an end of the free market era. The government took on larger responsibility, dictated the movement of economic resources and caged the so-called entrepreneurial urges. The same is happening today as governments bail out companies, take control of private institutions and initiate policies to safeguard the interests of the middle class. And it has set in motion the “protracted cultural warfare about what should matter most: God or Mammon, risk or social welfare, equality or hierarchy, work or wealth, democracy or elitism, individual freedom or communal integrity, imperial hegemony or national selfdetermination.” Read this book to find all the related arguments over the past 200 years.

Read our review of the book: Grow your Money

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