Process Theology, Neo-Liberalism, and the Financial Meltdown – November 2008
Question: Can process theology shed light on the financial meltdown?
Publication Month: November 2008
Dr. Cobb’s Response
There is no direct route from how we think about God, the world, and human well being to the interpretation of a complex socio-economic phenomenon. On the other hand, how we understand and respond to such a phenomenon is deeply affected by our whole way of understanding and thinking.
This has been quite apparent. For the dominant sector of society, the meltdown of the “paper economy” and leading financial institutions called for emergency steps to restore them. The initial proposal worked out by Wall Street bankers in the government with those still on Wall Street was simply to give public money to Wall Street while guaranteeing that bankers would not be prosecuted for the questionable acts that brought about the crash. Congress modified this inner Wall Street proposal but did not challenge its basic assumption that the basic system is to be restored.
The alternative proposal was to use the money congress was prepared to spend to support the “real” economy, that is, to help home owners keep their homes and provide credit to businesses. The bill as finally passed allows for some of this, although the decision as to how to spend the money is left in the hands of Wall Street bankers. Clearly the difference between top-down thinking and bottom-up thinking makes a practical difference! Clearly also, those who follow Jesus, whether influenced by process thought or not, support the latter.
Why does top-down thinking dominate? One reason is obvious. The top is more powerful than the bottom. Rarely can anyone be elected to a national office without the support of the top. This is because the top not only supplies most of the money needed to run for office but also controls the media from which most of the electorate receives its (dis)information. The top controls the leadership of both the major parties.
The other reason is not as widely recognized. It is that ideology is very powerful, and the dominant ideology supports the top. Actually the situation is worse than that. There is only one well-articulated ideology. It is called “neo-liberalism.” It teaches that government exists primarily to serve the economy and the goal of the economy is growth as measured by GDP. Growth is best achieved by privatizing almost everything, removing government regulations, ending government interference in the market (subsidies and bailouts), freeing capital to move globally, and keeping labor docile.
Basically, the leadership of both political parties subscribes to this ideology. The Democrats are more likely to moderate their application of this ideology with concerns for the effects on workers and the environment. But it was under Democratic leadership that NAFTA was passed and banks were freed from the Glass Steagall Act, whose provisions would have at least sharply limited the financial meltdown. The Republicans are more likely to support government involvement in the economy when that means massive giveaways to large corporations, but many Democrats support these too.
There are many who are critical of this ideology and especially of the ways in which it is implemented. Globally they have expressed this criticism by throwing off the shackles of the IMF and blocking expansion of the World Trade Organization. But they have not developed an alternative ideology. In the United States there are those who would re-regulate the banking industry, increase social spending, and give some priority to environmental concerns, but they have no alternative ideology.
In the 1980s I worked with Herman Daly, a Whiteheadian economist, to show that the philosophical assumptions underlying the now dominant ideology are, at least from a process perspective, mistaken or inadequate. We proposed an alternative set of assumptions, such as that the economy should serve human community rather than destroy it, that justice should play a role in basic economic thinking, and that sustainability is of crucial importance and requires careful attention to the natural environment of human economic activity. Much more work is needed to develop our suggestions.
The reigning ideology treats economics as a science and simply expects the other dimensions of life to be subordinated to it. Our process alternative argues that economics is not a science and that economists should redirect their thinking to the support of a just and sustainable society. This means that economic theory as such cannot become the overarching ideology. The ideology needs to view social, cultural, religious, psychological, political, and economic matters in their interconnectedness and understand them all in historical terms. Further, it needs to locate human history in the context of the history of life on this planet. Nowhere in our universities is this kind of thinking encouraged. Hence we are at a considerable disadvantage in opposing the now dominant ideology.
How does all this related to the financial crisis? First, it indicates that finance should serve the real economy which should serve the well being of the world. Viewed in this light, financial institutions have become an almost total failure. There is no justification for trying to prop them up. We can deal with the real need of the world for finance with far simpler and more limited institutions. There is real need is for individuals and businesses to be able to borrow for constructive purposes such as buying homes and expanding businesses. But in recent years a great deal of borrowing has been for purposes of making money out of financial transactions as such, without regard to the effects on the real economy. There is no reason to make further sacrifices in order to enable people to live on the profit from this kind of speculation.
It is helpful to view matters historically. As long as people borrow money and pay interest on it, it is necessary to increase the money supply. Through much of history this was done by rulers, that is, governments, creating the needed money. They could do so simply by spending it, so that governments could and can finance much of their activity simply by creating the money to do this. The American constitution envisions this financial system. Some of the colonies had employed it until the Bank of England persuaded parliament to forbid the colonies to create money.
In the United States the power of the government to create money was taken over by private banks. They create money by lending it at interest. They lend out many times the amount of money that is deposited by savers. The more money is loaned out at interest, the greater is the need for additional lending to supply the money to pay the interest. Thus most of the profit of the banks comes from their creation of money. This is fundamental to the financial system in this country. If the government recovered the money-creation function, it could reduce both the debt and taxes, while rebuilding the nation’s infrastructure and providing better health care.
This would mean the end of the fractional reserve system, which is banking as we have known it. Banks would only be able to lend the money their depositors entrust to them, making their profit by collecting more from borrowers than they paid depositors. The government could still insure deposits, so that banks could lend most of the money deposited in them without fear of a run. If the credit thereby provided proved insufficient, the government could supplement with its own banks. The Federal Reserve Bank, which, despite its name, actually belongs to Wall Street, could either be turned into a national bank or abolished.
Needless to say opposition to any moves in this direction would be enormous. What in the nineteenth century was called the “money-power” would not yield its privileged place in society easily. Only a much more extensive unraveling of the financial sector might open the way to dramatic change. Even then the proposals I am making could occur only if a significant segment of the public was prepared support them.
The financial sector now dominates the economy and the politics of our nation. It speeds the concentration of wealth in fewer and fewer hands, while contributing nothing to the common good. The most powerful members of this sector are using the present crisis to further concentrate power and we will find that some leaders will press for further reduction of social services in light of the increased national debt and even for further removal of federal regulations of the financial sector.
Nevertheless, the collapse of the financial bubble provides an occasion in which more people may learn how the “money-power” has monopolized the wealth that should belong to all of us. It may be the occasion when a political move for the government to recover this power becomes a real possibility.