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Commentary ::
An interview with David Laibman on the source of the Financial Crisis
07 Aug 2009
A conversation with David Laibman: Professor of Economics at Brooklyn College and the Graduate Center, City University of New York. He is the Editor of Science & Society, the longest continuously published journal of Marxist scholarship, in any language, in the world, and the author of Deep History: A Study in Social Evolution and Human Potential(2007). He is also a fingerstyle guitarist.
Q: Economics, according to the dictionary, is the branch of social science that deals with the production, distribution, and consumption of goods and services and their management. From this definition it seem pretty clear, to me at least, that economic theories are really descriptions of how social relationships and social power are set up so that the material world can be managed. So this also means that any economic crisis exposes either structural flaws built into the social order or a corruption of the social order into something all together different. To what extent do you think that the current crisis exposes flaws intrinsic to the capitalist order and to what extent are we living in a corrupted system? Is there something wrong with capitalist social relationships that naturally leads to this Ponzi economy?pp

A: Let me begin with your definition of economics. I like it better than the one economists generally use. Economists generally define economics as the science of optimal choice, and they turn it into a kind of a logical analysis of choice among alternative uses of scarce resources and things like that which drive all of the actual social content out. The dictionary definition, the distribution and consumption of goods and services, is good, but I'd go further. I'd say it's the study of the social relations into which people enter as they reproduce their lives through their metabolism with nature.
Now, do I think that the current crisis indicates structural flaws? I do. Do I think that these structural flaws mean that the system is inevitably doomed to come to an end on some date for certain? I don't. I think that Capitalism has been a remarkable engine of economic growth over recent centuries. It's survival results from its capacity to solve problems that previous systems couldn't, and to manage our productive relationships with nature, which are continually developing and evolving, in a more dynamic and efficient way. And Marx paid high credit to Capitalism along those lines. You know famously he said, although it's sometimes forgotten, that the bourgeoise in one generation had created more wealth, and had made more progress in the production and management of wealth than all preceding generations together. That Capitalism had done an enormous job. I think then, however, what his perspective indicates is that there is a transition toward a maturing of Capitalism which suggests that increasingly it in turn, from having been a source of human development becomes a break or an obstacle to human development. That's a structural flaw.
The Ponzi aspect of the current crisis, the extension of financial means beyond all capacity for repayment and the vast overextension in the mortgage market for example, is the sort of thing that economists who don't look at the Capitalist system as a social system would focus on as the unique triggering incident, the specific event that defines or explains the current crisis. I think that the potential for that kind of excessive financial development always exists as the Capitalist process unfolds, but when it leans to a serious crisis that crisis itself has to be explained by looking for deeper causes, for things that are beneath the surface of that.
There will always be greed. There will always be emergence of expectations that are not founded in reality. Under those circumstances it's rational for speculators in a Capitalist process to jump on the bandwagon because if you don't your competition will.
So the question "Couldn't these people have seen what they were dong?" is kind of a silly question. Of course they could. Anyone who is vaguely aware of history knows that a Ponzi scheme cannot last. It has to crash. The kind of debt overhang that developed in 2007 and 2008 could not last forever. Of course, people knew that, but from an individual point of view in the struggle to for the accumulation of wealth it was perfectly rational to go ahead and do it.

<b>More of the transcript of the interview is available at <a href=";>the Examiner</a>. This interview was recorded for the Diet Soap Podcast and can be heard in its entirety in <a href="";>episode 17</a>.</b>
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