The Global Financial Crisis since 2008 has left in its wake the most severe economic downturn since the Great Depression. Governments and entire national economies have been sacrificed to save the financial sector and its major clients. Bailing out banks, bondholders and Wall Street brokerage houses – the institutions whose mismanagement, over-lending and outright fraud led to the crash – has widened economic polarization and caused fiscal strains.
This has led many countries to reconsider the character of macroeconomic management – and behind it, the body of economic and political theory guiding today’s societies. What seemed at first glance to be a systemic policy failure of mainstream economics is coming to be seen as not so much a failure as part of an orchestrated class to protect financial wealth and its allied rentier sectors. Economic policy has passed out of the hands of elected democratic government to central banks and other government agencies controlled by financial planners and the rentier class behind them. Their post-crisis management has enabled these interests to gain control of a large swath of the pubic domain of debtor countries, along with industries and real estate in the creditor nations themselves.
The Communist Manifesto’s classic dictum that “the executive of the modern state is nothing but a committee for managing the common affairs of the whole bourgeoisie” no longer seems to be an exaggeration, but it may be updated to describe modern governments above all as committees to subsidize and rescue the banking and financial sector, which has become the manager and central planner of today’s global economy.
The effect is to post-industrialize society, subordinating the forces of industrial capitalism to an extractive (and increasingly concentrated) financial superstructure consolidating its power by bank loans, bond and stock ownership – turning the rest of society into debtors, renters and buyers of monopolized goods and services.
What remains in dispute is just who comprises the today’s managerial class and where its policy program is leading. The present collection of essays trace how Thorstein Veblen described the way in which the mid-19th century’s industrial capitalism was becoming centered on what today is called the Finance, Insurance and Real Estate (FIRE) sector. Each author in this volume discusses the character of today’s capitalism, and how and why the capitalist class remains politically dominant despite the fact that it repeatedly fails to fulfill the requirements of economic leadership it claims to fulfill. Together, these papers contribute to a better understanding of “capital in the twenty first century,” to use the phrase that has become popular following Thomas Piketty’s best seller.
Veblen made numerous contributions to a diverse set of fields. Not surprisingly, he has been considered by some to be an economist, and by others a sociologist. To others he seemed broadly to be an anthropologist, political or cultural theorist. The authors of the current collection view him as a critic of “the established order of business,” continuing in the tradition of classical political economy to analyze the often dysfunctional modern world that, in his mind, required a restructuring.
Unlike today’s neoclassical economics, classical political economists distinguished between earned and unearned income, that is, the types of income accruing to productive and unproductive labor and investment respectively. The labor theory of value found its counterpart in the “rent theory” of prices. This distinction between intrinsic cost-value and market price (with economic rent reflecting the margin of price over value) provided a basis for analyzing the ownership of wealth and other special privileges to extract income without creating real value by producing goods and services.
The policy conclusion of this classical approach was that material wealth adding to overall well-being could be augmented only by productive investment. By the same token, a subset of unproductive rentier property and financial claims was extractive rather than productive – and hence, was a form of economic overhead, not real wealth. This was the essential theme of classical rent theory, which Veblen continued at a time when the economics mainstream was denying the distinction between rent extractors and industrial investors.
Pursuing the logic of classical rent theory, Veblen investigated the consequences of concentrating ownership in the hands of an evolving capitalist class. He described “absentee ownership” as the “latest stage of capitalism” and “the new order of business” at the outset of the twentieth century. “It may be said, of course, and perhaps truthfully, that the absentee owners of the country’s industrial equipment,” he wrote, “come in for a disproportionate share of the ‘national dividend,’ and that they and their folks habitually consume their share in superfluities; but no urgent moral indignation appears to be aroused by all that.”
This class of absentee owners comprised a new aristocracy. Like their feudal counterparts, they did not directly manage the means of production or other assets, which took on the form mainly of corporate bonds and stock. Real estate investment was largely for speculative purposes to obtain price gains, while the stock market likewise aimed increasingly at making purely financial gains.
For Veblen, absentee ownership as the latest stage of capitalism consisted of three pillars: “the mechanical system of industry, the price system, and the national establishment.” This tripartite social organization was centered on the financial sector, whose major business concern was to create industrial monopolies while gaining control of national politics. Veblen called these monopolists and political deep state the “vested interests.” The credit system was the core of the financial sector, which was employed to gain unearned income on behalf of these vested interests.
The result was bifurcation between the super rich absentee owners and the underlying population, whose survival has increasingly come to depend on credit, i.e., debt on the liabilities side of the balance sheet. In Veblen’s words, capitalism in the form of absentee ownership works in such a way that “the country’s assets should, at a progressively accelerated rate, gravitate into the ownership, or at least into the control, of the banking community at large.”
In view of Veblen’s argument that engineers would play a major or even the most progressive role in society, this book is significant largely because it is the product of an international conference on Veblen’s legacy organized by the Chamber of Electrical Engineers of Turkey in 2012 in Istanbul. It is hard to imagine such an attempt by an engineering association in any other country. We therefore are grateful to Chairman Cengiz Göltaþ of the 43rd Board of Governors of the Chamber of Electrical Engineers of Turkey, and to all other members of the 43rd Board for their support of the conference. Our thanks also go to Chairman Hüseyin Yeþil of the 44th Board of Governors and all other members of the 44th Board and Chairman Orhan Örücü of the Center for Continuing Education of the Chamber of Electrical Engineers for their support and interest in our project. And for their continued assistance throughout the project we would like to thank the Chamber members Oylum Yýldýr and Emre Metin. We would like to extend our heartfelt thanks to Sidney Plotkin for generously sharing his fine expertise with us in the preparation of the conference, Veblen, Capitalism and Possibilities for a Rational Economic Order, Istanbul, Turkey, 2012. We also would like to thank all the people who delivered papers or acted as moderators and chairs of sessions. In inviting some speakers, Sabri Öncü played a critical role. We are grateful to him for his valuable contributions to the success of our conference. Finally, we would like to express our genuine thanks to Ertuðrul Karabulut for his meticulous work in designing the cover and preparing the book for publication.