Grounding the Robber Barons

The Robber Barons are back. The British Academy’s ‘Principles for Purposeful Business’ report argues, ‘the purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems’. This is taken by most economic commentators to be self-evident. In this paper Professor Pixley begs to differ. Corporate strategy is now driven by the realization of profit through financial disruption, the undermining of competitors, and the neutering of an independent politics. The welfare of citizens is secondary, indeed accidental, and the role of skilled workers and professionals is taken for granted and where necessary ignored, even on matters of safety. Holders of common stock are also at risk. The theorist who first described this predatory business model was the American economist Thorstein Veblen whose The Theory of the Business Enterprise (1904) explained how the Robber Barons extracted such vast fortunes from their enterprises.  Professor Pixley argues that the analysis is relevant once again, not least because of the re-financialization of the economy on finance’s terms.

The interest of the community at large demands industrial efficiency and serviceability of the product; while the business interest of the concern as such demands vendibility of the product; and the interests of those men who have the final discretion in the management of these corporate enterprises demand vendibility of corporate capital.

Thorstein Veblen wrote this in 1904 (in The Theory of Business Enterprise, pp. 157-8). The statement takes
a bit of decoding because this is not how we generally think of companies. Even (tepid) rethinking by
many of us is out of date whereas Veblen is now up to date – or rather capitalism has returned to its old
‘Robber Baron’ days. Large companies are complex organizations with intricate supply chains, and they
employ experts to manage them, with shareholders as the ultimate owners. Not so said Veblen.
Shareholders are merely pensioners of enterprises, the real owners are the financiers who buy, sell,
and consolidate companies often with credit, for example debentures or the issuing of bonds. Profit is
derived by outsmarting competitors in matters of financial engineering. The underlying physical assets
are irrelevant; most managers and owners are interested ‘to so manage the enterprise as to enable
them to buy it up or sell out … advantageously’. The successful company has to exhibit earning capacity
in relation to its stock market capitalization, which is determined by the ‘folk psychology’ of stock
markets and the PR skills of the company. What dribbles down into general economic welfare is
incidental, but it does simply because of the advantages of rationalization of production on a large
scale. Modern business capitalism ‘is dependent on the discretion of the great holders of immaterial


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