Invitation to a Feast

by Doug Dowd

(Monthly Review, Oct 1997)
Doug Henwood, WaIl Steet: How It Works and for Whom (New York: Verso, 1997), 372 pp., $25.

The feast is there for all who will read this marvelous book. The strengthened understanding it provides is needed most by those left of center. Let’s face it: capitalism’s rule is stronger and more ubiquitous today than ever; vital among the reasons for that is our analytical malnutrition. However serious that has been regarding hydra-headed U.S. capitalism, it has been arguably at its perilously worst regarding the functioning and role of finance, now the economic system’s capo dei capi.

Understanding alone does not assure a successful politics, of course; but its absence surely guarantees failure. It is common among us to decry the “false consciousness” of large segments of the working class — among others — as though our own aim is just right. A careful reading of this penetrating and readable book is invaluable in showing us how we must adjust our own sights. This is not to say that the financial system is all that must be understood and fought; rather, that because in the past quarter century or so the system’s altering needs and possibilities have allowed Wall Street to claw its way to the strategic hot seat of the economy’s functioning and power, it is essential for our politics to catch up and deal with that.¹

Henwood’s work takes us a long way toward understanding the nuts and bolts, structures and processes, and enormous powers of today’s financial system.² When most of us think of the personnel and activities of “Wall Street,” we are so repelled as to react with scorn, arising often as not from disdain, distaste, disgust-much like that of J. M. Keynes when he characterized capitalists as “a congeries of possessors and pursuers,” and their activities as resembling those of a gambling casino. However appropriate such “dissing” might be, standing by itself (and Keynes, as Henwood explains, did not leave it at that) it is more likely to allow finance to strengthen rather than weaken its hold over the economy and thus over the society as a whole.

This book has therefore filled a dangerous analytical hole. There have of course been a number of left economists (I am not one of them) who have worked valiantly and usefully on one aspect or another of the financial system since World War 11 (much of it noted and used in the book).³ But even taken together their work has not come close to combining all the qualities that make this book a treasure-trove.

Wall Street is both a comprehensive text and a withering critique of finance; it is an extraordinarily deft blend of the particular with the general, of the empirical with the analytical, and of thoroughgoing scholarship, all delivered crisply and clearly. Of the several deeply rewarding components of the book, one (for this old geezer of a prof) is Henwood’s ability to illuminate, clarify, and/or criticize contemporary theory, practice, and policy by retrieving appropriate referents and support in Adam Smith, David Ricardo, Keynes and, among many others, most often and most rewardingly (and, these days, surprisingly), Marx.⁴

This most serious but never solemn work is both lightened and strengthened by a wit as unobtrusive and penetrating as a stiletto.⁵ And the analysis is much assisted by numerous, timely tables and charts (of the same clarity one finds in his Left Business Observer, where many first appeared)-efficient and lucid, transforming matters that are usually dense and chaotic in presentation (if presented at all) into a compelling, logical progression of facts and analyses. Even those who (like myself) have thought they had a good grip on the powers, the absurdities, and the great dangers of the financial system will find that grip tightening as they read this book.

Let us go then, you and I, to study the menu and savor a few delicacies from the banquet Henwood has placed before us.

After a brief introduction in which Henwood introduces himself and the nature of the beast he is to analyze, the book progresses through seven chapters, presenting first all you need to know about what’s being traded, by whom, and their ways and means (chapters one, two, and three — “Instruments,” “Players,” and “Ensemble,” respectively).

The “instruments” of Wall Street are about as numerous as those in a symphony orchestra-including the noisiest, that complex world of “derivatives” (which brought both Baring Brothers and Orange County down). As Henwood escorts us through the world of stocks and bonds, treasuries and munis, futures, and options, we see how finance gains its profits and power by transforming “real” economic activity (that which creates steel, grain, health care, etc.) into paper claims of diverse kinds that become money via processes of varying kinds and degrees of speculation. Aristotle and Aquinas and many others have argued that “money is barren.” That may be; what they neglected to add is that the processes concerning which it becomes energized are also dangerous to society’s health.

The chapters on “players” and “ensemble” detail those who are doing the dealing — banks, thrifts, brokers, mutual funds, etc. — and the behavior patterns of the various financial markets. The complexities suggested by all that are substantial; suffice it to say that Henwood guides us easily through what is otherwise a daunting labyrinth. Your scorn for the “players” will not be lessened when you read the observations of various financial bigshots. Item: “The United States does not have an automatic call on our resources. There is no mindset that puts this country first.” Item: “To be in business, your first mandate is to make money, and money has no heart, soul, conscience, homeland.”⁶

From his valuable elucidation of those complex realities, the book progresses to an examination of reigning theories as to how “the market” works, and some less abstract and more pertinent views (chapters four and five — “Market models” and “Renegades”). The dominant theories, which twirl around each other in outer space, are given well-deserved and well-placed jabs in their imaginary ribs, and the more creditable works of the “renegades” are given something like a gentle pat on the back.

Then, in chapter six (“Governance”), the book’s raison d’etre, Henwood gets to his bottom line: who rules over what and how:

If money is an instrument of control, then financial markets are a lot more than the institutional matchmakers for saving and investment. You can see that clearly by looking at how an owning class’s power is asserted over corporations and governments through financial mechanisms. (p. 246)

Which is then probed, and the book gets down to the name of the game: power — or, more usefully, the dynamic relationships among and between profits and power and the private and public spheres. As we quote his concluding paragraph on these matters, keep in mind that earlier (see Ch. 3) Henwood told us the main story about debt (which you’ll not learn by studying “economics”): the rise of debt — household, business, public, national and international — has been a giant elevator for redistributing income, wealth, and power upward (along with whatever else has eased that same process):

Behind a “fiscal crisis”⁷ lurked an entire class agenda, one that has been quite sucessfully prosecuted in subsequent crises for the next two decades. But since these are fought on the bankers’ terrain, using their language, they instantly win the political advantage, as nonbankers retreat in confusion, despair, or boredom in the face of all those damned numbers.

At the national level, rampant borrowing by the U.S. government throughout the 1980s and early 1990s stimulated a boom for a while, but ended with the austerity packages of the mid-1990s. Tripling the outstanding load of federal debt not only made Wall Street a lot of money-underwriting, trading, and holding the bonds — it greatly increased rentier influence over policy. The opinion of “the markets” — essentially the richest 1–2 percent of Americans and the professionals who manage their money — is now the final word on economic and social policy. Liberals and populists who are sanguine about deficit financing should recall that creditors speak with one voice, and they’re able to get things effected. Those effects generally involve enriching the creditors at the expense of everyone else. (p. 297)

Chapter 7 — “What is (not) to be done?” — brings the book to a close (except for about thirty pages of statistical appendices and charts and bibliography). After a useful warning of the need to move gingerly over land strewn with mines, a warning grounded in Marxian cautions, Henwood walks us through a good sampling of current policy proposals and realities from across the political spectrum.

1. “Social Security privatization: a truly horrible idea.”

2. “Democratizing the Fed”: a “transformation [that] could succeed only as part of a broader transformation of financial realtions.”

3. “Investing socially”: it’s more likely than not to be coopted.

4. “Taxes: soaking the fat boys”: Right on! Henwood identifies many possibilities and their plausibilities, not only despite but because they would “make Wall Streeters scream....”

5. “Transforming corporations” — “[to] a combination of worker, community, customer, supplier, and public control..., technically and politically would be difficult as hell.” But the effort must be made.

Probably everyone will be made uncomforable with one aspect or another of the combined critical and constructive treatment of these matters. His discussion of reforms is at one with the analytical chapters preceding it: unblinkingly honest, radical, studiously informed and instructive.

He brings his book to its end with this characteristically unpretentious conclusion:

Off-the-shelf utopias may be useful thought experiments, but they’re of limited political use, except maybe as long-term inspiration. A future society has to emerge out of this one, on the basis of experimentation and struggle. I’ve outlined the fundamental principles of where I think we should go. Consider these closing pages fragments of a first draft for a project aiming to end the rule of money, whose tyranny is sometimes a little hard to see. (p. 321)

It’s a lot easier to see that tyranny now, thanks to this book.

NOTES

1. And not only in the United States, of course. The Masstricht Agreement of 1992 and the accompanying effort to have a common currency-and, thus, common monetary and fiscal policies mandating U.S.-type social policies — signify the same ascendance in Europe, among other areas. return to text

2. It would be more natural for me to say “Doug” rather than “Henwood,” for we have a friendly relationship; I am more comfortable with Henwood in this context. That friendship began after many years’ reading of his monthly Left Business Observer (LBO), familiar to many MR readers. LBO serves somewhat the same purpose for the ongoing political economy as I. F. Stone’s Weekly did for politics during the Cold War — except that, and this is not a criticism of “Izzy” but praise for Henwood, LBO’s focus requires deeper digging and more analysis, whether implicit or explicit. Saying this may also serve as a disclaimer: the friendship was an outcome of my growing respect for LBO, not vice versa. return to text

3. Those that come to mind include essays and books by the late Hyman Minsky, Bob Pollin, Jim(s) Crotty and Cypher, Edward(s) Herman and Wolff, Richard DuBoff, David Kotz, Bob Finch and, to close the list nearer to home, the many articles of Harry Magdoff and Paul Sweezy in these pages from the 1970s on. return to text

4. When I first met Henwood, and having become familiar with his work through LBO, I asked him — guessing the answer in advance — had he been an econ major in the university. “No,” he replied; he had studied literature. I note this not so much to admire his self-taught mastery of the history of economic thought (which I taught for several decades) and the workings of the economy, but to make this point: I am utterly confident that virtually all who have taken a Ph.D. in econ in the past 20–30 years or so, far from having achieved any such mastery, are completely unlikely to have ever read any of the principal figures noted in the text, let alone any economic history. What they do study — as touched on by Henwood — is math and, whether they know it or not, ideology. Their cultivated ignorance enables them to be shamelessly arrogant in their pronouncements-a behavior pattern noted long ago by Thorstein Veblen as “a trained incapacity” to understand social realities. return to text

5. As for example, in discussing the incomes in FIRE (finance, insurance, and real estate), which in 1991 exceeded those from manufacturing (and have risen both relatively and absolutely ever since), (p.76) he points out that they are “what makes Manhattan the most income-unequal county in the United States after one in Hawaii that used to be the site of a leper colony.” (p. 79) return to text

6. The quotes are on p. 113, the first from an exec of Colgate-Palmolive, the second from a Canadian CEO explaining the shift of his production to Mexico (NAFTA-facilitated). return to text

7. The reference here is to New York City in the 1970s. Its crisis was part of a larger process, for the nation as a whole, and for much — especially the “developing” part — of the world. There, as elsewhere, the crisis was manipulated not only to the advantage of those who benefitted from the processes of its creation, but the politics and consequences of that treatment facilitated the rightward drift (of that city and of the nation). return to text

June 23, 2003