JEL categories: B00, Z13, N10
Abstract:
The 2008 financial crisis, apart from firing up the age-old debate between market fundamentalism and Keynesian liberalism, raises deeper questions about ethics and morals. This is reflected in David Colander’s (2008) call for ethical responsibility on the part of the economic model builders and Amartya Sen’s (2009) thoughtful reminders about the moral and legal obligations and responsibilities associated with capitalist enterprise. Even as Martin Wolf (2009) advises against the easy appeal of morality tales, Joseph Stiglitz (2010) traces the source of the crisis to a fundamental moral deficit in society. There appears to be little doubt that the spirit of capitalist enterprise is caught in the cross-pulls of pecuniary gain versus ethical shortfall, a problem against which the conventional policy fixes are likely to be hopelessly inadequate.
Interestingly enough, this is precisely what Thorstein Veblen, the sage philosopher and preeminent institutional theorist, had surmised nearly a century ago. Although effectively sidelined in the long march of neoclassical economic thought and gradually pushed into irrelevance, Veblen’s ideas provide by far the clearest mapping of the recent crisis, it is contended here. In The Theory of Business Enterprise (1904) and Absentee Ownership (1923) Veblen traces a long arc from rent-seeking and capitalization at the foundational base of capitalist enterprise all the way to its mature expression in risk-taking, pecuniary predation and systemic volatility. As a result, the now infamous risk-payoff structure of capitalization is seen clearly to rely on legalized channels of accumulation which in turn lead to ever newer configurations of private property rights within progressive capitalism. Furthermore, capitalist enterprise is shown to rely on an expanding domain of impersonal exchange which links Marshall’s neoclassical tenets to the corporate excesses which have lately earned a lot of public indignation.
Although long faulted for avoiding policy questions, Veblen’s analysis of the dynamics of enterprise in terms of pecuniary abstraction and ethical obfuscation carries clear policy implications. He saw an unabashed pursuit of pecuniary gain to be a social problem insofar as it often succeeds in obliterating the lines of distinction between the enabling and disabling processes concerning individual livelihood. This in combination with what he considered to be a natural drift in capitalist enterprise toward gratuitous risk-taking and gaming creates a clear imperative for responsible regulation and the installation of social safeguards. In the current policy environment, as policymakers stand ready to socialize the cost of the speculative misadventures of a powerful few and the conventional fiscal and monetary fixes are frustrated at every turn, Veblen assumes special relevance. He serves us a powerful reminder that the growing demand for ethical responsibility on the part of our corporate leaders and leading economic practitioners needs to be complemented by an equally serious reexamination of the value-underlining of capitalist enterprise; this way we may prevent a repeat of the latest crisis.