On responsibility in finance
Academia Letter (2022)
Is it possible to institute a moral politics, moral law or moral economics that would help most people to humanize the impersonal social forces that govern their lives? This question does not come to us out of nowhere and certainly not just in the circumstances of the current financial crisis (Hart 2021). I address here the possibility of legitimate government in capitalist states in two parts. The first traces an intellectual current that contrasts with orthodox economics while addressing the public and moral context of private action, culminating in the postwar Keynesian consensus. The second provides a brief sketch of the 1979-80 neoliberal counter-revolution, focusing on where it has ended up.
The genealogy of my problem begins with John Locke (1690) and, following his proposal for a middle-class revolution, the liberal 18th century European Enlightenment culminating in Immanuel Kant (1795). Locke sought a protected zone for private property free of interference by public agents (of the King). This led to the normative separation of public and private interests which was never actually achieved—the Bank of England, a private capitalist institution, nationalized King William’s war debts. This confusion was resolved in two ways:
1. The invention of utilitarian economics (Adam Smith, Jeremy Bentham) reduced public outcomes to the interplay of private individual interests, a proposition with which we are now all familiar.
2. Kant attempted to discover the grounds for a cosmopolitan moral politics. State laws end at territorial boundaries and geography generates endless cultural variations. So how can humanity make society in the world as a whole? His answer was the categorical imperative. We all want to be good or at least to be seen as being good. Cultures define the good differently, but the desire to be good makes a conversation across them possible. Kant’s project was still liberal, nourished by the American and French revolutions, plus the drive to abolish slavery. Liberalism emphasizes personal responsibility for one’s actions, especially in common law traditions, where intention is key to legal culpability. Civil law traditions retain a strong division between law and right, lex/ius, loi/droit.
In The Philosophy of Right (1821), G.W.F. Hegel argued that bourgeois morality could not address how and why societies move in history. Modern social thought has followed him. The main questions addressed by Marx, Weber and Durkheim can be found here: why capitalism generates poverty and economic inequality, the legitimation crisis of the modern state, and the sources of solidarity in an advanced division of labor. For example, a child insists on helping dry the dishes, then breaks a plate, bursts into tears and says “I didn’t mean to…” Hegel would say, “If you meant to, you would be a monster; but we are responsible for the social consequences of our actions and you must learn how not to break plates.” He identified three sources of social action: “abstract right” (Recht, from the family to hierarchy), “civil society” (Bürgerlichegesellschaft), and “the system of needs” (Sittlichkeit). In the last case, citizens internalize the laws as their own: you stop at a red light because it is right, safer and a habit.
Max Weber (1922) wanted to retain Kantian subjectivity, but also aspired to a Hegelian historical science of society. His three sources of social action were traditional (habit), charismatic (personality) and rational-legal (market and bureaucracy). Rationalization drives modern history, he felt, but at the expense of moral relations between persons. This is the legitimation crisis of the modern state, and he was pessimistic about our future: modernity is an iron cage made with bars stronger than individual will. Kant’s categorical imperative was for him a pipedream. The objective basis for world society was science organized in professional associations and peer-reviewed journals. Weber would not have understood how the world’s largest and most coercive bureaucracy (the Soviet Union) collapsed from the inside with almost no loss of life.
Talcott Parsons wanted to build a more hopeful American sociology in The Structure of Social Action (1937). Herbert Spencer, whose ideas fed the new rich in the late 19th century, had been killed off by a quartet: Emile Durkheim, Max Weber, Alfred Marshall and Vilfredo Pareto. Following the founders of British social anthropology, he took his lead from Durkheim’s (1893) project of looking for the basis of individual moral education in a capitalist division of labor. Parsons bowdlerized Weber, making him seem more Durkheimian than he was. The latter wanted to strengthen the social glue of the French Third Republic, whereas Weber was interested in the consequences of rulers’ ideological claims. His sources were historical records written by agents of the powerful. He couldn’t know if ordinary people believed in them. If the King claims divine right to rule, he should not kill the head of his church (T. S. Eliot, Murder in the Cathedral, 1935). Claims to legitimacy constrain the exercise of power.
Parsons wanted people to believe in their doctor, professor, lawyer or banker because they performed a social task responsibly and not just for their rational expertise. His vision was a mild form of the social democracy built by the leading Western industrial nations after 1945. For the first time a world revolution was driven by developmental states committed to raising workers’ purchasing power, providing for their needs (good jobs, education, health, transport, security) through expanded public services, and equalizing income distribution, since this maximizes home market demand (Marshall 1890) and reduces conflict between citizens. Capital flows were restricted and exchange rates fixed. I recall that an ethos of public responsibility did influence the actions of private individuals then. Many doctors cared for their patients and even bank managers gave advice reflecting their customers’ interests and not just their own.
Social democracy was weakened by a series of world crises in the 1970s, culminating in the election of neoliberal politicians bent on removing state controls from market economy—a return to Victorian utilitarianism and even to the Gilded Age of the 1890s (Hart 2015). It rested on the spurious claim that giving free rein to markets enhanced the public good. Economists, some of whom had acknowledged the social context of economic action before, now turned to a technical science based on manipulating prices. A credit boom fueled by money markets and the digital revolution reinforced the idea that this was a new era of rational economic management, where money’s contradictions had been overcome. Every Wall Street bank spawned a tell-all book confessing corporate malpractice. We can’t say that we had no way of knowing what was going on. Deregulation of finance generated political and cultural excess at all levels of the industry.
Then came the Lehman crash. Ever since, US and European governments have used public money to rescue the banks and investors, while concealing the true circumstances. They could have let the banks and currency fail, prosecute politicians and bankers, and limit household debt—as little Iceland did with positive economic results (Lewis 2011). But they didn’t. The main central banks now focused exclusively on keeping up asset market prices. The democratic deficit has grown inexorably—Trumpism and a partisan and ineffective Congress, the chaotic British Tories, the split between a German-dominated European Central Bank and Southern Europe. Failure to take responsibility for public transgressions is now endemic, not just in finance.
The emasculation of governments, privatization of public interests, free global movement for capital, corruption and wrongdoing have led to the collapse of “national capitalism” (Hart 2024), Hegel’s recipe for modern states that became general after the First World War and has been unraveling since the dollar left gold in 1971. The money circuit is now global and lawless. Central banks have no control over their own currencies. Transnational corporations outnumber countries by 2 to 1 in the top 100 economic entities. They mask their singular purpose of making money for shareholders with a rhetoric of corporate social responsibility. Industrial capitalism has been replaced by rent-seeking which, as in the Old Regime, grants wealth to political privilege rather than to those who sell competitive products for profit. A world dominated by the US has become increasingly plutocratic.
What is to be done? Can anything be rescued from this mess or are we condemned to another sequence of economi ccollapse, war and revolution until a more just world society emerges, as after 1945? If neoliberalism has restored the Old Regime—with a focus on wealth distribution rather than industrial profit—and a reversion to Stalin or even Keynes is impossible when FX daily turnover alone is $6 trillion, we could take inspiration from the anti-colonial revolution of mid-century which sought to rid the non-Western peoples of racist empire. The world is no longer unipolar, but the UN’s middle projection for 2100 has Asia and Africa with 2/5ths each of world population. Together they will chart the world’s future, not the West which wallows in nostalgia for when white men shaped world society in their own racist image. We are already in a world revolution whose unfolding is unknowable.
First, we could study where the contemporary divorce of morality from politics, law, and economics came from, drawing on the intellectual and social history of the last half millennium. Second, we must come up with sharp, original questions that help define the mess we now find ourselves in, helping us to return somehow to a viable democratic life in which all humanity has a common interest. Although we live in an age of unprecedented political rent-seeking, the rentier class represents itself by an ideology of heroic individualism. They do not see themselves for what they are—parasites on states that they have corrupted—but rather as rapacious capitalists making their money despite the government’s best efforts. This false consciousness of the “one percent” is their main weakness.
Market fundamentalism, as in the 1930s, has failed the large majority of human beings, making them easy targets for fascists of all colors. Those of us who aspire to a better world need to think again and acknowledge our predecessors more fully.
References
Durkheim, E. 2013 [1893]. The Division of Labor in Society. London: Palgrave.
Eliot, T.S. 2013 [1935]. Murder in the Cathedral (play). London: Faber and Faber.
Hart, K. 2015. How the informal economy took over the world.
Hart, K. 2021. A brief history of financialization since the industrial revolution.
Hart, K. 2024. The rise and fall of national capitalism. Economic Anthropology (In press).
Hegel, G.W.F. 1967 [1821]. The Philosophy of Right. Oxford: Oxford University Press.
Kant, I. 2003 [1795]. Perpetual Peace: A Philosophical Sketch. Indianapolis: Hackett.
Lewis, M. 2011. Boomerang: Travels in the new Third World. New York: W.W. Norton.
Marshall, A. 2001 [1890]. Principles of Economics, 8th edition. New York: Cosimo.
Parsons, T. 1967 [1937]. The Structure of Social Action. Glencoe: Free Press.
Weber, M. 1978 [1922]. Economy and Society (2 Vols). Berkeley: University of California Press.