Paul Krug­man sug­gests an answer to an “obvious question” that I’ve been won­der­ing about: “How dif­fer­ent, really, is [Bernard] Madoff’s tale from the story of the invest­ment indus­try as a whole?”:

Con­sider the hypo­thet­i­cal exam­ple of a money man­ager who lever­ages up his clients’ money with lots of debt, then invests the bulked-​up total in high-​yielding but risky assets, such as dubi­ous mortgage-​backed secu­ri­ties. For a while—say, as long as a hous­ing bubble con­tin­ues to inflate—he (it’s almost always a he) will make big prof­its and receive big bonuses. Then, when the bubble bursts and his invest­ments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.

O.K., maybe my exam­ple wasn’t hypo­thet­i­cal after all.

So, how dif­fer­ent is what Wall Street in gen­eral did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply steal­ing his clients’ money rather than col­lect­ing big fees while expos­ing investors to risks they didn’t under­stand. And while Mr. Madoff was appar­ently a self-​conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money man­agers got rich; the investors saw their money disappear.

What’s inter­est­ing about Krugman’s non-​hypothetical hypo­thet­i­cal is that it’s awfully close to a schematic view of how cap­i­tal­ism as such car­ries on. Strip out all the qual­i­fiers like “risky” and “dubious” and you get a pretty basic pic­ture of how a firm oper­ates in the macro­econ­omy. Con­sider how easily Krugman’s sketch can be adapted to the dot-​com boom:

A Sil­i­con Valley entre­pre­neur lever­ages his investors’ money with lots of debt [from a bank], then invests the bulked-​up total in high-​yielding but risky assets, such as dubi­ous 22-year old Stan­ford com­puter sci­ence grad­u­ates. For a while–say, as long as the inter­net econ­omy con­tin­ues to grow–he (it’s almost always a he) will make big prof­its and receive big bonuses. Then, when the bubble bursts and his invest­ments turn out to be duds, his investors will lose big–but he’ll keep those bonuses.

Now, I grant that there are a few dif­fer­ences that trou­ble the anal­ogy–for exam­ple, an entre­pre­neur takes a lot of his com­pen­sa­tion in the form of options, which tie him to future per­for­mance in the way a year-​end cash bonus never does. But I think the ques­tion remains: how is what’s hap­pen­ing now so dif­fer­ent from how things have worked through­out the his­tory of capitalism?

If you’re a true believer in the system, I think you’d have to stake every­thing on those qual­i­fiers I wanted to strip out, so that you’d argue that a fac­tory is not like a CDO, or that a car is not like a credit-​default swap. But is a brand-​new Hummer that no one wants to buy really so much better than a finan­cial prod­uct that no one understands?

The root prob­lem, it seems, is that there’s no such thing as intrin­sic eco­nomic value, and so to have an econ­omy you have to choose some fun­da­men­tal (but, because chosen, arbi­trary) theory of value on which to build your system. Capitalism’s found­ing prin­ci­ple is that the value of a thing is always and only equal to what some­one is will­ing to pay for it. Marxism’s, mean­while, is that the value of a thing is essen­tially related to the labor that cre­ated it. But there are no eco­nomic sys­tems that escape that basic arbi­trari­ness, and that means that there are no eco­nomic sys­tems that escape their depen­dence on whichever belief–a fun­da­men­tal meta-​credit–they use to estab­lish value.

The ques­tion that really inter­ests me about this whole finan­cial crisis is a diag­nos­tic ques­tion: whether it is “merely” a credit crisis–some­thing entirely con­tained within the scope of one form of cap­i­tal­ism or another–or whether is it a meta-​credit crisis, a moment at which the fun­da­men­tal prin­ci­ple of our eco­nomic system has a real chance of chang­ing. I know that there are plenty of people who hope it’s the latter, but I’m hon­estly not so sure. I’m also not sure that that would be a good thing–call it a lack of imag­i­na­tion or intel­lect, but I just can’t buy the labor theory of value. And if the alter­na­tive isn’t going to be that, then what?