Histomat: Adventures in Historical Materialism

'Historical materialism is the theory of the proletarian revolution.' Georg Lukács

Monday, April 09, 2012

Guest post: Elaine Hirsch on Karl Polanyi and Haute Finance

[This blog is open to guest posts (contact histomat@hotmail.co.uk but prepare to be very patient), and Elaine Hirsch (elainehi86@gmail.com) has got in touch with a timely post about Karl Polanyi, author of among other works The Great Transformation (for more on Polanyi see the recent work of Gareth Dale - reviewed here) and Polanyi's theories about how "haute finance" is subordinating society.]
Haute Finance and the Post-Financial Crisis Economy
Elaine Hirsch

In the first half of the 20th century, philosopher/economist Karl Polanyi began charting economic progress and financial growth since the Industrial Age, especially focused on the laissez faire market conditions of the early 1900s and the impact they had on the world. It seemed to Polanyi that a mysterious, international force had developed during this time, an intangible yet powerful institution that called no single organization or government home, but existed more in the minds and emotions of financiers or investors across the first world. This system subordinated traditional society in the name of financial and economic growth, a process which Polanyi viewed as backwards. He called this force haute finance(high finance), a name that stuck through the ages.
So much for economic history. But haute finance began to take on a new meaning in a much closer era – the vibrant and often over-optimistic markets seen in the 1990s (perhaps stretching back to the 50s) and 2000s. While Polanyi's haute finance mechanisms was ended via the Great Depression and second World War, this new period of haute finance came crashing down through the financial crisis of 2007. Although this has resulted in growing attention in accredited MBA programs in sustainability, the vast majority of the “haute finance” mindset remains unchanged, leaving the world to wonder: If haute finance keeps failing, is it really such a valuable institution?

World Peace
Polanyi felt haute finance was a primary force for peace, since it focused primarily on financial gain across the board. Because war imbalanced financial gain and disrupted the status quo of the day, he believed the haute finance would always work against war and promote equality. Unfortunately, the lengthy wars of the 20th and 21st centuries, even after Polanyi's work was published, counter this particular argument. War with certain countries has become less likely through trade and greater financial reliance, but if this is haute finance it has proved a fickle creature, focusing only on markets with the most immediate benefit (Brazil, China, India…) and leaving other markets to fend for themselves or suffer (Iran, Iraq, Cuba…).
The start of the 21st century, with its move toward online trading and international corporations, punctured a hole in the haute finance theory. Looking back, we see that Polanyi's hopeful "Balance of Power" existed only on the sides that had financial power. Far from being ultimately flexible, haute finance conditions proved ultimately rigid. The dot-com bust and real estate market collapse in the 2000s proved that: a full-on pursuit of wealth creates problems, not peace.

All for One…
This "permanent" and "most elastic" agency of haute finance also begins to falter when looking at the investment markets leading up to the Great Recession. Analysts noted the rise of several major firms during this time period, including Lehman Brothers, Ernst & Young, Merrill Lynch, and others. They were haute finance in motion, nearly as tangible as an intangible force can get. But the drive to wealth, and concentrated wealth at that, served the purpose of no nation, no company, and in the end no individual. Lehman Brother's crashed to the dirt with its blindness and over-reliance on real estate. Other firms barely survived through mergers and bailouts. Corporations proved how greedy they were, and how that greed kept little peace and encouraged no stability.
The post-crisis market was left reeling from decades of an haute finance mentality, raising key criticism: Does the haute finance mechanism ever work, or should it always be looked at with suspicion? Free market capitalism is a discussion for the Ayn Rand battlefields, but here the overarching spirit and attitude are the key factor. Should the United States attempt to change its financial zeitgeist? Will this help avoid or diminish inevitable market cycles? As business becomes more global and a new haute finance oligarchy forms, perhaps a look to the past will serve as a useful reminder of what happens with too much wealth obsession.

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At 12:59 pm, Blogger Alexander Kurz said...

"Unfortunately, the lengthy wars of the 20th and 21st centuries, even after Polanyi's work was published, counter this particular argument." --- this is only true if one simplifies Polyani's arguement too much. Polyani as a very nuanced view on the attitude of high finance to war. Eg:

“haute finance was not designed as an instrument of peace; this function fell to it by accident”

“Not peace at all cost, not even peace at the price of any ingredient of independence, sovereignty, vested glory, or future aspirations of the Powers concerned, but nevertheless peace, if it was possible to attain it without such sacrifice”

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