I asked Warren Kinston about something I had recently written regarding Imaginist thinking and Obama’s success. (He points out that Imaginist isn’t appropriate at societal level; I was wrong and should study more.) But that got me thinking about the values in play, and I returned to hisWorking With Values to look at Ethical Choice. Warren is describing the Conventionalist approach but quotes Keynes. Oddly, this explains why today’s bankers — who almost all knew that the financial world was going to implode and possibly destroy the world’s financial markets — didn’t do anything:
Conventionalist choices are dominant in all societies and social groups. Despite the value which is assigned to enterprise and achievement in the West, failure is often preferable to success if that means violating convention. Keynes once noted that ‘a sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way with his fellows, so that no-one can really blame him.’
The quotation comes from “The Consequences to the Banks of the Collapse of Money Values”, an popular-press essay Keynes wrote in 1931, before the collapse of banking across the world and the complete collapse of the markets. Keynes’s essay is interesting to look at because it discusses how what Kinston calls ethical choice comes into play in even something so supposedly “rational” as banking. As Kinston points out, “rational” is an approach of ethical choice.
Here’s the Keynes quotation in context.
[p. 176-177] It is for this reason that a decline in money values so severe as that which we are now experiencing threatens the solidity of the whole financial structure. Banks and bankers are by nature blind. They have not seen what was coming…. A ‘sound’ banker, alas! is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him.
But to-day they are beginning at last to take notice. In many countries bankers are becoming unpleasantly aware of the fact that, when their customers’ margin have run off, they are themselves ‘on margin.’
…………….[p. 178] It is necessarily part of the business of a banker to maintain appearances and to profess a conventional respectability which is more than human. Lifelong practices of this kind make them the most romantic and the least realistic of mean. It is so much their stock-in-trade that their position should not be questioned, that they do not even question it themselves until it is too late. Like the honest citizens they are, they feel a proper indignation at the perils of the wicked world in which they live, — when the perils mature; but they do not foresee them. A Bankers’ Conspiracy! The idea is absurd! I only wish there were one! So, if they are saved, it will be, I expect, in their own despite. [Keynes, John Maynard. 1931/1991. “The Consequences to the Banks of the Collapse of Money Values”, inEssays in Persuasion. New York: W. W. Norton & Company]
Bankers indeed failed to prevent their collapse in 1932. In our current collapse, financial experts all knew that something bad was likely to occur but felt that they could not do anything and remain either (a) employed or (b) respected. Better to fail conventionally with everyone else than to be branded an extremist, even if that saves your livelihood.
People are not completely rational in their market choices and will often do what appears to be counter to their survival. As in our financial markets today.
(A quick aside: it may well be that time-horizons played a large part in our present collapse, where something that should have been managed at a longer time-horizon was run by those without them. There’s also the sociopath problem, of course, but the sociopaths you shall have with you always, until the end of the age.)
This led me to looking at some more current conversations about Keynes. His ideas are not those of the current leadership at the Federal Reserve or the Treasury. I was raised on Friedman, so finding James K. Galbraith’s 25th Annual Milton Friedman Distinguished Lecture at Marietta College may seem more related than it actually is. Galbraith argues that Friedman was simply wrong about how reality works in his monetary theories.
Finally Hyman Minsky taught that economic stability itself breeds instability. The logic is quite simple: apparently stable times encourage banks and others to take exceptional risks. Soon the internal instability they generate threatens the entire system. Hedge finance becomes speculative, then Ponzi. The system crumbles and must be rebuilt. Governments are not the only source of instability. Markets, typically, are much more unstable, much more destabilizing. This fact that is clear, in history, from the fundamental fact that market instability long predates the growth of government in the New Deal years and after, or even the existence of central banking. We had the crash of 1907 before, not after, we got the Federal Reserve Act. [James K. Galbraith. March 31, 2008. The Collapse of Monetarism and the Irrelevance of the New Monetary Consensus [PDF]
It is perhaps that Internet-time, that bane of marketers everywhere, has simply increased the speed at which we can destroy ourselves.
Run on East Side Bank, N.Y. 1912 February 16. Bain News Service via Library of Congress.