Freud puts capitalism on the couch


A fascinating article has been written by Eliot Spitzer for The Slate which details the massive lying that went on during the GFC. It raises an intriguing question. What functions do lying and truthfulness play in financial systems? The assumption commonly made is that lying and deception are “bad” and truth telling is “good”. This is certainly true in a personal moral sense (with qualifications), but I do not think it readily translates into the corollary — that lying is a social “bad” and truth telling is a social “good”. Especially when it comes to dealing with finance. Various forms of deception are so common in finance that they cannot be separated out. Yet at the same time the system relies utterly on trust. It is that contradiction that needs to be understood, and it is by no means a simple matter.

Spitzer starts his critique by personalising the banks’ deception, a telling way of conveying moral outrage. Except, of course, banks are not people:

Imagine you walked into a bank, applied for a personal line of credit, and filled out all the paperwork claiming to have no debts and an income of $200,000 per year. The bank, based on these representations, extended you the line of credit. Then, three years later, after fighting disclosure all the way, you were forced by a court to tell the truth: At the time you made the statements to the bank, you actually were unemployed, you had a $1 million mortgage on your house on which you had failed to make payments for six months, and you hadn’t paid even the minimum on your credit-card bills for three months. Do you think the bank would just say: Never mind, don’t worry about it? Of course not. Whether or not you had paid back the personal line of credit, three FBI agents would be at your door within hours.

Yet this is exactly what the major American banks have done to the public. During the deepest, darkest period of the financial cataclysm, the CEOs of major banks maintained in statements to the public, to the market at large, and to their own shareholders that the banks were in good financial shape, didn’t want to take TARP funds, and that the regulatory framework governing our banking system should not be altered. Trust us, they said. Yet, unknown to the public and the Congress, these same banks had been borrowing massive amounts from the government to remain afloat. The total numbers are staggering: $7.7 trillion of credit—one-half of the GDP of the entire nation. $460 billion was lent to J.P. Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley alone—without anybody other than a few select officials at the Fed and the Treasury knowing. This was perhaps the single most massive allocation of capital from public to private hands in our history, and nobody was told. This was not TARP: This was secret Fed lending. And although it has since been repaid, it is clear why the banks didn’t want us to know about it: They didn’t want to admit the magnitude of their financial distress.


Due to some excellent research by Bloomberg journalists — yes, real journalism remains as achievable as it ever was, the MSM need not be asleep — a pattern of wholesale deception has emerged. There is a secret government, in effect, that is bought and sold by Wall Street. No surprise there, or that democracy has been undermined. It is a common enough pattern for wealth to co-opt power: I cite the entire history of modern civilisation as demonstration. The real miracle is that democracy can occur at all, that the powerful and wealthy can be subjected to constraints.

The truth is that finance is always based on, if not outright lies, at least various shades of deceptiveness. Because the future is unknowable, it is inevitable that the basis of future transactions will always be biased towards whatever suits the players or traders. They will lie about the future; it is only when they lie about the present that they may contravene the law. Such lies about the future are really an integral part of doing business. Without it, a lot of business would not be possible. Yet as I say, the system itself is based on trust, hence words like provident, mutual, shares, bankers’ trust abound. This is not a simple matter and it cannot be understood with reference to personal morality.

The neo-liberal view is that free markets are better because they tame our wicked natures. As Keynes said, capitalism is the astounding belief that the most of wickedest of men will do the most wickedest of things for the greatest good of everyone. And of course that wickedness includes lying. The “belief” is often traced to Adam Smith, who, conveniently, was a Scottish moral philosopher, giving the whole thing a comforting gloss. But Slavosj Zizek traces it to Kant:


“The paradigm here, in many ways, is the way that the market operates: human nature is egotistic and there is no way to change it, so what is needed is a mechanism that would make private vices work for common good. In his famous essay on “Perpetual Peace,” Immanuel Kant provided a precise formulation of this key mechanism:

Many say a republic would have to be a nation of angels, because men with their selfish inclinations are not capable of a constitution of such sublime form. But precisely with these inclinations nature comes to the aid of the general will established on reason, which is revered even though impotent in practice. Thus it is only a question of a good organization of the state (which does lie in man’s power), whereby the powers of each selfish inclination are so arranged in opposition that one moderates or destroys the ruinous effect of the other. The consequence for reason is the same as if none of them existed, and man is forced to be a good citizen even if not a morally good person.

The problem of organizing a state, however hard it may seem, can be solved even for a race of devils, if only they are intelligent. The problem is: ‘Given a multitude of rational beings requiring universal laws for their preservation, but each of whom is secretly inclined to exempt himself from them, to establish a constitution in such a way that, although their private intentions conflict, they check each other, with the result that their public conduct is the same as if they had no such intentions.’

A problem like this must be capable of solution; it does not require that we know how to attain the moral improvement of men but only that we should know the mechanism of nature in order to use it on men, organizing the conflict of the hostile intentions present in a people in such a way that they must compel themselves to submit to coercive laws. Thus a state of peace is established in which laws have force.

One should follow Kant’s line of thought to its conclusion: a fully self-conscious liberal should intentionally limit his altruistic readiness to sacrifice his own good for the good of others, aware that the most efficient way to act for the common good is to follow his private egotism. Here we have the logical obverse of the motto “private vices, public benefits” – namely, “private goodness, public disaster.”

There is in liberalism, from its very beginning, a tension between individual freedom and the objective mechanisms which regulate the behaviour of a crowd, as was already observed by Benjamin Constant who clearly formulated this tension: everything is moral in individuals, but everything is physical in crowds; everybody is free as individual, but a cog in a machine in a crowd.

The inner tension of this project is discernible in two aspects of liberalism: market liberalism and political liberalism. As Jean-Claude Michea has brilliantly argued, these two aspects of liberalism are linked to two political meanings of “Right”: the political Right insists on market economy, the politically-correct Left insists on the defence of human rights – often its sole remaining raison d’etre.”

It is a well made point and, as Zizek points out, leaves no place for what George Orwell described as “common decency”. Wall Street has no place for such frippery.

Once again, however, we are using binary analytics that leave us with as much confusion as light (Zizek is a Hegelian, using binary dialectics).


I want to propose a different way of looking at the problem of lying and truth, barbaric natures versus controllable systems. Think of Freud’s three sided model of mind: the Id, the ego and the superego. If we apply it to finance I think we get closer to how we should look at things.

The id, which is the unconscious, that of which we are unaware, is, in financial systems, trust. It is our unacknowledged social natures, the inter-dependence on which we depend. It is the simple fact that without a basic level of trust there can be no transactions — we see the graphic failure of trust in the freezing of the inter-bank lending system in the GFC and increasingly, now.

The ego is the unalloyed self interest described by Keynes and Kant. It is ugly, the Ayn Rand world of remorseless self interest. It is not redeemable, even if it is understandable and to a large extent necessary. It is certainly inevitable.


The super ego is the world of morality used by Spitzer. It is what the regulators should, and aren’t doing.

If we look at it this way, we can get some way out of the confusing contradictions of finance. For instance, the ground of the system is not the self interest of egos, it is the need for trust and co-operation of the id that is the glue of any social system, even the global system we now have. The ego is essential and is where most of the conscious action occurs, including all that lying and deception. It is necessary and should be seen as such. But it needs to be constrained by the super ego — you know, moral stuff. Sadly, the super ego, government, has abrogated its responsibilities and its ability to say: “stop it”. But there is always hope.