Money, Banks and Finance in Economic Thought

Money Manager Capitalism and the Transformation of Banking: A Veblen-Minsky Analysis

Nersisyan Yeva, Franklin and Marshall College

In the Theory of Business Enterprise, Veblen argues that in a developed capitalist economy the interests of the community are separated from the interests of those who control the production process by two degrees. First, producers are interested in the vendibility of goods while the community needs them to be “serviceable”, i.e. to enhance its “life-process”. Second, with the rise of absentee ownership, the interests of the business enterprise as a going concern are distinct from the interests of the managers. The latter care about the vendibility of capital above all else. We use Veblen’s dichotomy between business and enterprise to understand the modern version of finance capitalism, which Minsky calls Money Manager Capitalism. We argue that there is yet another layer of separation between the interests of the community and the business enterprise in this system since assets are not held directly. Rather, they are controlled through organizations where ownership and control are separated too. At the very least, money managers’ interests are more in line with those of corporate managers, rather than their shareholders. More often, however, they simply try to increase their fee income, which leads to high turnover of assets and increased reliance on capital gains, encouraging speculation rather than enterprise. The efforts of money managers to earn higher returns and diversify their portfolios create an impetus for the financial system to produce more liquid financial instruments and to “liquefy” previously illiquid ones. This at least partly explains the decline in traditional banking and the rise of shadow banking, often within traditional banks.

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Keywords: Money Manager Capitalism, Shadow Banking

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