It shouldn’t have come as a surprise that an economic system based on amassing wealth for the few by gambling with other people’s money, while at the same time producing less and less of tangible value, should eventually burst. And I suppose it should also come as no surprise that almost everywhere you look there are urgent calls to shore up the existing system, which a few still stand to benefit from, instead of taking the opportunity created by the current disaster to get to the root of the problem and replace a failed system with something more viable.

But it’s certainly dismaying and worrisome. In my own little head, it doesn’t seem to be all that complicated of an issue. I’m not even thinking of a possible solution that is politically radical, as in doing away with capitalism and replacing it with — gasp! — the fair exchange of goods and services at the local level. I’m thinking of a much milder form of radical change, like creating wealth through the actual production of goods and the provision of needed services (and sharing that wealth with some slight degree of fairness with the workers whose labor created it and with those unable to work), instead of by financial shenanigans and selling fake “products” — as the various ways of speculating in the stock market are now bizarrely called — that are merely parasitic.

Economy 101 teaches that wealth is created by adding value. You start out with a raw material, then manufacture it into something more useful. Or you start out with seeds and plant them and grow them so they turn into edible crops. It’s not exactly an unknown process. On the other hand, personal wealth that is generated by sleight of hand, or outright theft, through speculation or usurious interest rates that amount to thievery, does not add anything of value to the collective wealth, and is therefore unsustainable. Forgive me for stating the obvious, as I am wont to do. Perhaps I’m missing something?

I’m not qualified to posit my own economic theories, so I’m always looking for someone who can explain things to me in a way that makes sense. I came across an excellent article in the April 2009 issue of Harper’s: “Infinite debt: How unlimited interest rates destroyed the economy,” by Thomas Geoghegan. It’s not available online except to subscribers, so I’ll try to summarize.

Geoghegan looks at three core issues, all of them having to do with laws that were passed in recent decades to enrich the wealthy and disempower workers and the middle class: 1) the virtual elimination of usury laws, which allowed interest rates on credit cards to run amok and therefore created the potential for enormous profits by banks, which in turn made manufacturing far less profitable by comparison, and therefore eroded America’s manufacturing base by siphoning capital into banking; 2) the loss of enforceable labor contracts, which allowed companies to simply ditch any gains acquired by workers through collective bargaining; and 3) the loss of workers’ ability to organize in the first place, since laws against union busting have become weak and largely unenforceable.

We dismantled the most ancient of human laws, the law against usury, which had existed in some form in every civilization from the Babylonian Empire to the end of Jimmy Carter’s term…. With no law capping interest, the evil is not only that the banks prey on the poor (they have always done so) but that capital gushes out of manufacturing and into banking. When banks get 25 percent to 30 percent on credit cards, and 500 or more percent on payday loans, capital flees from honest pursuits, like auto manufacturing…. Think of GM, which, like GE, really makes its money by running a bank on the side. “After a while,” said a friend from Detroit, “the only reason they were making cars was so that they could make loans….”

With loans generating such high rates of return, banks had no incentive to keep money in reserve, since any money they loaned out instead was so profitable. They also had no incentive to seek out borrowers who would be able to repay the loans: at such high interest rates, banks make more money by keeping the interest payments coming than by getting back the principal. But when borrowers who had been extended unrealistic credit began defaulting, the banks went broke, “victims” of their own boundless greed.

None of this addresses the global crisis per se, or the issue of what will happen to the poorest people in the poorest countries, but reforming credit and bringing back usury laws, along with restoring some basic labor rights, seem like basic steps to put the US economy in order. (Incidentally, the mild changes in credit card laws recently proposed by Obama don’t come close to real reform, though I suppose they will be better than nothing, if implemented. It’s dismaying, once again, what we have to content ourselves with.)

I’m posting this wondering if there’s some obvious fallacy that I’ve failed to understand. If anyone is reading this, perhaps you can offer some insight?