Of Finance and Decadence

I remember decades ago first encountering the cyclical theories of the rise and fall of great economic powers--the patterns those theories' proponents held to be evident across the history of such different polities as the city-state and thalassocracy of Venice, the Netherlands in its Golden Age, the United Kingdom in more recent times.

One development oft-noted as part of the cycle was how these powers' once-flourishing industrial capitalism became increasingly "financialized."

Those discussing the matter were stronger on registering the tendency than explaining it, but one thought I have had has been that industrial success provided both the capital and the need for a sophisticated financial system. Afterward the reality that real-world value creation with all its physical and temporal limitations cannot compete with "making money from money" from the standpoint of ease, speed, scale of gains (at least, until those gains turn out to be just so much paper); and the fact that the way of life of an aristocratic rentier is so much more alluring than the life of a bourgeois industrialist or merchant; meant that financial activity had a way of coming to prevail over industry in business, in policymaking, in the economy as a whole. It also seems plausible that the process was helped along by how, as conditions change, and the likely very specific advantages that made a country a great industrial success vanish, industrial success gives way to stagnation—for even if one is not prepared to go so far as to acknowledge the tendency of profit rates to fall that goes back at least to Adam Smith in the classical economics tradition, the fact remains that industrial success inspires imitation and even counter-measures, as technology and other circumstances change, so that old titans inevitably, and usually much sooner than they expect, find themselves at a disadvantage. (Thus did the Dutch United Provinces create the world's first modern economy, but then a bigger United Kingdom unburdened by the need to defend a land border against a hostile military superpower, with better access to the world's oceans, and massive surface deposits of bituminous coal--and as a result of its already exploiting them, the most developed transport infrastructure to be seen in the region--in an era in which the steam engine was becoming really useful increasingly have the advantage.)

On the social and cultural side the process also has its implications. Particularly obvious is that you get a bigger gap between poor and rich in a financialized economy--because where industry means high-productivity jobs for the many, finance means vast paper profits (and whatever it is that paper wealth's holders can cash them in for) for a few, the more in as this usually means not producing but taking what others have produced. Meanwhile those who have wealth become less inclined to any "enlightened" conception of their self-interest, showing themselves less far-seeing, as they become more indulgent of themselves and less ready to make any concessions toward the have-nots as in their ever greater sense of entitlement they contrive to lay their hands on ever more by any means necessary, and then show off what they have--making the "Puritan" virtues of "hard work," delayed gratification, restraint all look ever more like sanctimonious claptrap in circumstances where the winners are playing by very different rules, and life that much harder for those who would refuse those different rules. Indeed, there is a sense of degeneracy in the air that, in the Victorian version of all this, had "race theorists" claiming to detect an atavistic resurgence of the facial features of cave-men in slum-dwellers, and the habits of the worst of slum-dwellers in the lifeways of mansion-dwellers. (To put what one noted observer of the time into more contemporary reference, in its way of getting ahold of money and its pleasures alike the financial elite is nothing but a pack of Jerry Springer guests up on society's commanding heights, as another observer notably sensitive to the contrast between industrial and financial capitalism was moved to write of the survivals of barbarism in "the leisure class.") Reflecting this, while the great realist Balzac made his enduring mark on world literature portraying such a cultural moment (the highly financialized world of the Orleanist monarchy), it seems more characteristic of its mood that it throws up figures like a Baudelaire. Naturally at such times there is a widespread sense that "This can't go on"--but go on is what it often does for a long time, until it can't, by which time everyone caught up in this is really, really in trouble.