Illustration by Ron Coddington
As we struggle to emerge from the 2008 financial crisis, we may now have enough distance to understand its real significance.
Immediate judgments were often very flawed. For example, then-president of France, Nicolas Sarkozy, brandished a copy of Das Kapital before the press to show his deep, structural understanding of the catastrophic events in the international markets. The implied message: Capitalism is doomed, as anyone can see. But there was no Marxist revival, and capitalism has not collapsed. Indeed, in the global East it is positively flourishing. Capitalism seems to have an assured future, at least in the medium term.
More influential than Sarkozy's structural explanation is a moral one. This has been a short-term crisis caused, the argument goes, by greed and recklessness—whether of bankers or borrowers, depending on your political outlook. And yet in some ways, Sarkozy has a point that the moralists ignore. Our recent model of capitalism has involved spiraling inequality and unsustainable trade and financial imbalances. Debt, it is clear, was simply obscuring deep problems within the world economy, giving the lie to the laissez-faire belief that ever more open markets are the high road to stability.
The moral explanation of the crisis, then, explains neither its cause nor its lingering effects, and I've come to the conclusion that a Marxist view of the recession is helpful in highlighting a historical and structural, rather than a moral, perspective. For 2008 must be seen as a major turning point in the economic and political history of the world, as were 1929 and the 1970s.
But the Marxist lens is limiting because this period has been less a crisis of a class order than of a caste order. In particular, 2008 is the beginning of the end of the 30-year dominance of the modern merchant caste.
For Marx, economic class was the overwhelmingly critical factor explaining people's politics. But that approach left out much that is important beyond pure economic interest, such as ideas, values, and culture. Marx was right to see our occupations as central to identity. And the concept of "caste" allows us to understand the importance of work in its broader cultural context.
This is something the ancients understood. They saw society as an aggregation of various occupational groups that each has its own ethos. In the medieval West, they were called "orders," and in India they are still called "castes" (varna). According to ancient Hindu ideas, each varna has its own dharma, or morality and way of life. And many cultures identified four castes or orders: the priests or "sages," who specialized in ideas; the rulers/warriors, who were expert in force and authority; the merchants, who ran trade and finance; and the peasants and workers.
Of course, applying an archaic system like this to our modern age may seem simplistic and wrong-headed, but in fact this premodern sociology has modern resonances. The French sociologist Pierre Bourdieu's notion that social and occupational networks generate their own habitus, or set of practices and attitudes, is not far from the Indian concepts of varna and dharma.
The merchant, ruling without constraint, brings his own particular kind of catastrophe: roller-coaster economic instability and vertiginous inequality.
Also, while our modern societies are more complex than those of the medieval agrarian world, we can nevertheless understand our world in terms of the four main castes: warrior, merchant, sage, and worker. Warriors may have less status in the West than they once did, but they are still present in armies, police, and security forces—and in sport, where they compete for honor and fame. Sages have become far more influential—no longer as priests, but as professionals and technocrats. Worker power has waxed and waned, but the traditional values of the worker—equality and solidarity—remain important. However, it is the rise of the merchant, from a marginal position in premodern societies to near omnipotence today, that is most striking.
Of course, we are shaped not only by the ethos of our occupation. Family, gender, ethnic, and national identity have an influence, as does generational experience. But broad occupational categories are still central in forming our outlook and values. This is confirmed by recent research by Jason Jensen and others that shows that public-sector workers are likely to have more economically egalitarian outlooks than are those in the private sector. Similarly, as Herbert Kitschelt and Daniel Oesch have argued, those whose jobs allow substantial autonomy are more likely to be culturally liberal than are those whose jobs are highly managed. The same for those whose jobs involve interacting with people rather than with processes or technology.
It is, then, these castes, or occupational-cultural groups, that compete and ally with one another to achieve hegemony—not only over our politics and economics, but also over the way we think. History, therefore, is less the story of class struggle or the inexorable "progress" toward liberty than it is of cycles of caste alliances, which emerge and dominate their societies for periods of time before collapsing. Indeed, history has seen several sharp reversals of apparently hegemonic caste orders—the most vulnerable often being the least balanced and inclusive. That is because individual castes, if too dominant, have a tendency to undermine the prevailing order. Sage-technocrats, unchecked, often bring bureaucratic ossification; workers, ruling alone, find it difficult to achieve broader economic prosperity; and warriors fuel endless wars of honor and revenge. The merchant, ruling without constraint, brings his own particular kind of catastrophe: roller-coaster economic instability and vertiginous inequality.
The year 2008 marked the crisis of the merchant ethos at its most extreme, and we can best understand both the strengths and the fragilities of the merchant order if we look at the last time that merchants were allowed to become globally dominant—the 1920s.
Bruce Barton's The Man Nobody Knows was the nonfiction Da Vinci Code of its day. Loathed by critics, the 1925 work soared to the top of the U.S. best-seller lists and stayed there throughout 1926. Like Dan Brown's magnum opus, it offered a distinctly eccentric reading of the life of Christ. For Barton—co-founder of the Mad Men-type advertising company BBDO—Christ had been seriously misrepresented. Far from the "meek and lowly" beta male of the gospels, he was a real go-getter—the greatest ad man the world has ever known. As competition raged in the first-century market for religion—with supply far outstripping demand—Christ used inspired "ad campaigns," the miracles and parables, to build a whole new customer base.
Today, Barton's book seems a preposterous example of "roaring 20s" boosterism. But the book captured something important about the spirit of that age, and its popularity helps to explain why that gilded era crash-landed in 1929. Barton's Christ of the Latter-day Ad Men also sheds much light on our own economic troubles, and vividly illustrates the perils of allowing merchant values to hold sway in all spheres of life.
Crucial to the dominance of the merchant in the 1920s was a disillusionment with war and with the wartime influence of the soldier, of the worker (bolstered by labor unions), and especially of the sage—the planners and bureaucrats who built warfare states and the welfare states that came with them.
Barton, born in 1886 to a clergyman's family in Tennessee, had precisely this reaction to the war. He had been a mild Progressivist in his youth, like many educated people of his generation, believing in sage activism, state-led social reform, and strict regulation of "robber baron" tycoons. But the collectivism and labor power brought by World War I changed all of that.
Like many other Americans, he rejected the sages' wartime "statism," represented by bookish President Woodrow Wilson—the only Ph.D. who ever made it to the Oval Office. These Americans blamed European warrior-aristocrats for the killing fields, and saw Soviet Communism as giving a terrifying new power to the worker. The merchant became their hero—especially tolerant, "soft" merchants like Barton's affable Christ, "the most popular dinner guest in Jerusalem." And the merchant ideal spread throughout the wealthier parts of the world. In 1922 the Rotary businessmen's clubs renamed themselves "Rotary International," echoing the Communist International, and declared that their goal was to challenge Communism and "promote international peace" through a world fellowship of businessmen. Merchants of the world, like proletarians, were uniting.
Meanwhile Washington—eagerly assisted by London—helped spread merchant values across the globe. Private lending was used to revive a war-shattered Europe. Moreover, the gold standard—the touchstone of the merchant economy—was revived, for stability of the currency was sacrosanct, even while growth and jobs perished. Even the Soviet Communist Party went along with the fashion: Lenin introduced a limited market economy, and the ruble returned to the gold standard in 1924, with the unlikely support of Joseph Stalin.
History is less the story of class struggle or the inexorable "progress" toward liberty than of cycles of caste alliances, which emerge and dominate their societies for periods of time before collapsing.
Initially, the merchant seemed dizzyingly successful. In the mid-1920s, Wall Street loans flooded into Europe, and especially Germany. With the dollars came the first American age in Europe: a new consumer civilization of advertising, democratized Hollywood celebrity, and branded goods—from Carnation Milk to Kellogg's Corn Flakes.
The workerist left still had a good deal of power in this smokestack industrial economy, as did nationalists; and Europe's warrior empires still held sway over large areas of the globe. Even so, many believed that the merchant's time had come. In 1927 the popular French author André Siegfried published America Comes of Age, in which he argued that a new "American civilization" of mass production and consumerism was relegating old Europe "to a niche in the history of mankind."
However, as the German playwright Bertolt Brecht acidly wrote in 1930, the American age "looked like lasting a thousand ... but endured a bare eight years." For the merchant was brought low by two fundamental flaws: a high tolerance for extreme inequality and a love of "flexible," laissez-faire finance.
The problem was (and is) that merchants believed in the moral justice of market reward; they disliked redistribution, which they were convinced rewarded the lazy. But lightly regulated markets, where labor was weak, concentrated wealth in the hands of a few. And that left businesspeople with a conundrum—who would buy their goods? The merchant solution was straightforward: The wealthy lent the poor the cash to keep the economy going. This had the additional advantage of expanding a business—finance—in which merchants liked to invest (the 1920s saw the birth of the consumer-credit industry). This kind of economic model did not require the risky, technically complex long-term commitment of investment in productive industry, and it was far more profitable in the short term.
Yet this borrowing for consumption was unsustainable. And when the bubble burst, in October 1929, Barton's "soft" consumerist merchant suddenly turned much "harder" and more moralistic—insisting that debts be repaid, the gold standard upheld, and austerity imposed. The result was catastrophe: an American crash was transmitted globally to become a decade-long worldwide depression.
The disaster of the 1930s was so profound that merchant values came under severe attack—even in the United States. Franklin D. Roosevelt famously compared bankers and traders to the "money changers" Jesus Christ had expelled from the temple—a language we rarely hear today. For his New Deal he turned to sagely solutions—employing economic planners, breaking up the banks, and empowering government in welfare and direct job creation.
However, globally it was not the sage who emerged victorious from the wreckage of the merchant rule of the 1920s—it was the warrior. That is because debt crises bring social and international conflict in their wake, with confrontations between lenders and borrowers over who should repay the debts and bear the burden of deflation (i.e., falling living standards). And in these charged circumstances, both radical left and right looked to the warrior for solutions. Debt-crippled Germany was hit particularly hard, creating the social context for Hitler's rise. In the Soviet Union, too, the failures of the market-friendly 1920s convinced Stalin that the highly militarized and bureaucratic "command economy" was the only option. The soldier, banished from power after 1918, was returning to the stage, albeit in a less aristocratic, more populist guise.
Ultimately, it took the horrific experience of world war and the deaths of some 60 million to lay the foundations for a new caste compromise, in which the sage-technocrat would take the leading role. The massive mobilization of people, material, and science brought the rise of a confident technocratic ideology of modernization and development—a compelling alternative to merchant liberalism. For all remembered the disasters of merchant rule in the 1920s; indeed, they blamed it for the rise of fascism and the onset of war.
Technocratic sages emerged ascendant everywhere in the two decades following World War II—from Nehru's India to Mao's China. But even in Western Europe and America, there was a new determination to impose limits on merchant power. Most important, the Bretton Woods international financial system of 1944 imposed strict regulation on the movement of international finance; no longer could bankers shift capital around the globe at whim or will. This prevented them from sabotaging government policies designed to build welfare systems and invest in long-term economic development. It also delivered 25 years of relatively dynamic growth. In much of Northern Europe, government, banks, and labor unions achieved a degree of harmony that permitted high levels of investment and training in contrast with the 1920s; even in the more free-market United States, defense and higher-education spending encouraged economic growth.
Given this success, why did this sage-led caste order collapse? Again, as in the past, particular castes became too dominant—in this case sages, and to some extent labor—bringing their concomitant problems of bureaucratic rigidity on the one hand and an exclusivist workerism on the other. At the same time, the Bretton Woods system largely excluded the third world, contributing to anti-Western feeling, which in turn encouraged Washington's cold-war militarism.
By the late 1960s the system seemed to many to be working exclusively in the interests of white, middle-aged Western males, whether middle-class technocrats or working-class trade unionists. The Vietnam War symbolized many of these injustices—waged by that arch-corporate technocrat sage Robert McNamara, with his carefully calculated kill ratios, this was a white global superpower bullying a nonwhite peasant society. The 60s protests also showed that a new social group had emerged from the hugely expanded universities, a new, educated "creative" sagely caste, which prized autonomy and was more interested in cultural, gender, and ethnic equality than economics.
So when, by the early 1970s, the postwar economic system began to buckle, groups on both the merchant right and the anti-technocratic left could agree that the merchant's flexibility offered a solution. Moreover, this generation had not lived through the catastrophes of the 1930s. The merchant could now return triumphant—not as Barton's The Man Nobody Knows, but in a new form, promising a world made perfect through peaceful trade.
The fall of Communism seemed to be the final vindication of the merchant's reign, and until 2008 he ruled almost unchallenged. He has dominated the international economy through bond markets. But he has also reordered many national economies by radically restructuring the labor market—through outsourcing and insistence on flexibility, and the deprofessionalization of work. In Europe we even saw the introduction of a mini-gold standard, in the form of the euro—predictably boosting speculation and burdening the poorer economies of the south with mountains of debt. And, as in the 1920s, the rehabilitation of the post-Soviet economies was pursued through private finance, not Marshall Aid-style state largess.
For a while, the attractions of this model seemed overwhelming. The merchant helped finance an alluring consumer culture, now spreading to India and China. Perhaps more strikingly, it is under the auspices of the merchant order that the gender, ethnic, and sexual hierarchies of the old West have finally begun to crumble. For creative sages were right—the merchant could, in some cases, be their ally in promoting a (market-friendly) agenda of cultural equality and rights.
But again, as in the 1920s, the flaws of a purely merchant-dominated order began to emerge. The 1990s saw banking crises, commodity and property bubbles, while the real wages of the majority were stagnating; living standards were actually being maintained through credit. Free global movement of capital also produced grotesque international imbalances between creditors and debtors—though in contrast with the 1920s, the main debtor was now the United States. The lessons of history had been forgotten and repeated.
So what does history suggest will happen now? Are we likely to see a rerun of the conflicts of the 1930s and 1940s? Or can we limit the merchant's power more rapidly and peacefully?
A striking difference with the 1930s has been the sheer resilience of the merchant order. There has been little real challenge to the basis of merchant power, particularly where it is most entrenched, in the United States and Britain. Banks are still the main allocators of our resources, and short-termism is still rife in our stock-market-dominated corporations. Meanwhile, Angela Merkel has become a German Hoover, insisting that debts be repaid, austerity imposed, and the euro "gold standard" remain sacrosanct.
What explains the merchant's resilience? In part, governments have prevented the crisis from becoming as severe as it was in the 1930s, through quantitative easing and some fiscal stimulus, and welfare systems have prevented outright destitution. But perhaps more important, our leaders belong to a generation formed by the crisis of the 1970s and 1980s, and remain deeply mistrustful of the sage. Also, among opponents of the merchant, it has proved difficult to forge alliances between the "creative" castes, with their "new left" critiques of technocracy, racism, and sexism, and some worker groups, which remain more focused on economic inequality.
There are slivers of the global economy that have not succumbed entirely to merchant domination. In parts of Northern Europe, something of the sage-led caste compromise of the postwar era has survived, and those economies have been more resilient as a consequence. Similarly, China has permitted the sage more influence.
But we will continue to have an unstable economy until merchants everywhere become willing, or are forced, to share power: with the sage-technocrats, who are capable of shaping the institutions necessary for a productive and environmentally sustainable economy; with the world's workers, who need higher wages if they are to sustain the global economy; and with the creative sages, who rightly argue that greater democracy and equality at work will improve employee well-being as well as productivity.
At the moment, though, a caste compromise of this kind seems unlikely. At the recent Davos gathering of global leaders and CEOs, we saw an only slightly moderated retread of the old market optimism; in the place of rational markets, we now have "resilient dynamism." But this is a theological rather than a practical response, and a dangerous one, too. For if the merchant refuses to share power, he becomes vulnerable to the politics of the warrior. We are already seeing echoes of 1930s-style social tensions: serious civil conflict in Greece; political impasse in Italy; and the rise of a populist right across the Continent and in the United States. Meanwhile, at an international level, trade and currency disputes among states are becoming sharper, while an angry nationalism has erupted in China and Japan.
Adam Smith is rightly seen as the most influential defender of merchants and their ethos. But he was no supporter of unbridled merchant power. His supposed followers would do well to note his categorical warning: "Merchants and manufacturers ... neither are, nor should be, the rulers of mankind." For it is warriors who are the ultimate beneficiaries, and once they become dominant on the political stage, it is very difficult to dislodge them.