Abstract
Modern financial systems betray the social nature of finance. Finance has come increasingly to rely on what Keynes regarded as ‘the most anti-social’ of principles, namely the ‘fetish of liquidity’, which implies the transformation of all relationships into a negotiable security, through the liberalisation of capital markets, the adoption of fair value accounting, the rise of securitisation and other financial innovations. After discussing the theoretical and practical implications of failing to recognise the social dimensions of finance, the chapter explores various routes for its resocialisation.
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Notes
- 1.
This characterisation of the object of economic science may be traced back to John Stuart Mill: ‘What is now commonly understood by the term “Political Economy” is not the science of speculative politics, but a branch of that science. It does not treat of the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging of the comparative efficacy of means for obtaining that end’ (Mill 1844, v.38).
- 2.
The reference is to Mauss’ essay On Gift, where, moving from the peculiar obligation that arises from various archaic forms of giving, he observes that ‘[t]he nature and intentions of the contracting parties, the nature of the thing given, are all indivisible’ (Mauss 2002 [1950], 77).
- 3.
The methodological implications of the basic structure of financial matters have not been taken into adequate consideration by economics. In fact, when it is a matter of finance, it makes no sense to break the unit of analysis down to a hypothetical and abstract ‘isolated individual’. This observation, however trivial, calls into question the possibility for economic theory to address financial activity following an approach of methodological individualism, based on a representative agent. No single agent can be the representative of the financial system as a whole: the properties of finance appear only in the creditor/debtor nexus.
- 4.
In the Christian tradition, interest-bearing loans used to be banned altogether. In Islamic finance, they still are.
- 5.
Financial markets have replaced finance, even as an object of scientific enquiry. So much so that the overwhelming majority of the contributions collected in the ‘Handbook of sociology of finance’ are actually dedicated to financial markets, and the two expressions are used as synonyms by most contributors, as if no other finance were conceivable apart from financial markets (Knorr Cetina and Preda 2012; on the importance of marking the distinction between the two concepts see Amato and Fantacci 2014).
- 6.
Even the word ‘stock’, well before being used to designate a negotiable security (equity), referred to the relationship of creditor and debtor as a dyadic unit: in fact, it was the name of the larger piece of paired tally sticks that were used for centuries in England as a form of bookkeeping and that gave symbolic and physical evidence to the creditor–debtor nexus (Basu and Waymire 2006, 210).
- 7.
For example, Basel III sets Liquidity Coverage Ratios to ensure that financial institutions have enough highly liquid assets to meet their short-term obligations even in the event of unfavourable scenarios.
- 8.
In a footnote, Keynes also provides a pre-emptive critique to fair value accounting as a further factor of short-termism: ‘The practice, usually considered prudent, by which an investment trust or an insurance office frequently calculates not only the income from its investment portfolio but also its capital valuation in the market, may also tend to direct too much attention to short-term fluctuations in the latter’ (Keynes 1936, 157n).
- 9.
On the other hand, it should be noted, finance continues to preserve its social character, despite the fact that liquidity tends to negate it. In fact, as Keynes observes, liquidity itself rests upon a convention: that nothing will change unless there are positive reasons to expect a change. In other terms, the fiction of liquidity on financial markets entails the abolition of uncertainty by convention. This produces a shift from trust to confidence as the basis of finance: the investment system no longer relies on trust—in the debtor, in his or her willingness and ability to meet his or her obligations, in good faith—but on confidence in the maintenance of the convention by an indeterminate plurality of individuals (Cf. Swedberg 2012).
- 10.
As will become apparent, I do not either intend socialisation of finance to be seen as the need for financial institutions to address social issues or endorse social values, as is broadly understood in certain approaches to ‘social finance’ (see e.g. Lehner 2016).
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Fantacci, L. (2017). Resocialising Finance to Exit the Crisis. In: Magatti, M. (eds) The Crisis Conundrum. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-47864-7_5
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