The western banking crisis is an historic event on two counts. First it demonstrates that Karl Marx is again relevant and that his analysis of capitalist society is not quite ready for the dustbin of history. Second, state intervention to save the banks and the free market from itself undermine whatever remaining legitimacy there is in the intellectual foundations of neo-liberalism, setting the stage for a new vision of the world in ways that have not been seen since the 1930s.
Nearly a generation ago after the collapse of Soviet Marxism writers such as Francis Fukuyma proclaimed in The End of History that western capitalism had won. More specifically, writers such as him and later Thomas Friedman in The World is Flat heralded that free markets had emerged as the winner in the Cold War and that the future was one of less government intervention in the economy in an increasingly globalized capitalist economy. The winners would be those with flat economies fully integrated into the market, the losers those outside. The triumph of capitalism and the fall of the Berlin Wall had proven Marx wrong.
However much in the same way that Mark Twain once stated that news of his death was greatly exaggerated, so too is the demise of Marx and his analysis of capitalism.
The core of Marx's writings, including his most famous Communist Manifesto, may yet prove to be accurate on many counts. In his writings Marx asserted that capitalism would ultimately be undone by capitalists themselves. In a famous passage in the Manifesto often referred to as the "gravedigger's thesis," Marx contends that the forces within capitalism itself would push individuals to seek profits in such a way that it would eventually lead to more severe economic booms and busts, the increased consolidation of industry and business, and the eventual destruction of the very foundations of capitalism itself.
While Marx was mostly writing about what capitalism would do to itself within one country, his followers, such as Rosa Luxemburg and Lenin took the analysis international. They and others described a world of advanced capitalism where the crisis would go global, wrecking national economies that were globally interconnected.
Essentially what Fukuyma and Friedman wanted is what is called neo-liberalism. This is the world of Milton Friedman, Alan Greenspan, and Ronald Reagan. It is a world of free market economics, little if any government regulation and intervention, and a full integration of all economies of the world into one global marketplace. Daniel Yergin's Commanding Heights describes this world accurately as one where it would no longer be the government as the central place of power in the world. The marketplace would displace the nation state as the new institution to govern the world.
For a time from the 1990s neo-liberalism appeared to reign supreme but now the world economic crash and the rush for state intervention has proven Marx is not so wrong and Fukuyma, Friedman, and company not so right. The events of the last few weeks show that Marx might still be prescient in his analysis. Consistent with his arguments and those who followed him, capitalism is heading for a major global crash as a result of the zealous pursuit of profit. It is this behavior that supposedly demonstrates the inherent instability of capitalism and the production of a new economic system to replace it.
Solutions by the G-7 finance ministers to address the current worldwide banking crisis by taking them over or investing in them take a page out of the Communist Manifesto. "Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly" is one of the central planks of the program for the communist party in Marx's Communist Manifesto.
While one may doubt that the actions of the west to save the banks are a sign of the communist revolution, what is clear are three points. First, both Milton and Thomas Friedman are wrong. Government intervention to save the world economies demonstrates the poverty of neo-liberalism. Even if it survives in some mutated form, it is intellectually dead--the market as a stable self-regulating entity is fiction. Second, if any economies emerge as winners it is those whose markets were not flat, to use Thomas Friedman's term. The events of the last few weeks should lead to a demand to rethink globalization as governments around the world look to protect themselves from the next crisis.
Finally, we are at a defining point in history much in the same way it was after the stock market crash of 1929 and the United States presidential elections of 1932. The elections this year, along with the actions of the other major western economies, have the potential to reshape the world for generations to come.