Review: Absentee Ownership, by Thorstein Veblen

Thorstein Veblen's 1923 book Absentee Ownership continues his earlier analysis of how classical liberalism's premises (property and contract rights) and economic and political prescriptions (laissez-faire) were becoming irrelevant to an age of high technology, high finance and Big Business.

In brief: the developing industrial system was increasingly sophisticated and productive, yet fragile as well, with the latter point all the more problematic because of the way in which power over that system was distributed. The corporatization of economic life, and in turn, financial control of industrial corporations, such that shareholders' "absentee ownership" had become "the main and immediate controlling interest in the life of civilized man"--with interests different from, and in conflict with, all the rest of society. Where society as a whole needed life's essentials to be as abundant and cheap as possible, business subordinated production to profit, or more precisely, the largest possible "net gain in dollars," charging what the "traffic will bear," and to that end holding down supply, as they are permitted to do--Veblen calling the rights of property a "vested right of use and abuse over the current industrial knowledge and practice," a "legal right of sabotage." Still other industrial practices threw additional sand in the gears of the machinery. ("Competitive selling"--advertising--is an increasingly costly zero-sum game in his analysis.) And on top of all this, the conflicts between management and labor (where trade unions, too, get in on the game of sabotage for the sake of what the "traffic will bear" as they strike for higher wages) worked in a like manner. As all this generated more frequent disruptions that spread more quickly and widely, law and politics actually worked ever more in favor of business control; while at the same time the development and proliferation of the "machine process" makes the very foundations of that control (that sacredness of property and contract) seem less legitimate (as the unions, for all their limitations and flaws from this perspective, demonstrate).

Given my having just reviewed his earlier exposition of most the fundamentals of this argument (in his 1904 Theory of Business Enterprise) it seems appropriate to concentrate on those things this later book brings to Veblen's line of research.

First, there is a good deal of synthesis of earlier work here--as in his integration of his thinking in earlier works like The Vested Interests and the Common Man on the subject of the nation-state. An institution similarly devoted to a "pursuit of unearned income" by way of sabotage, it is increasingly on behalf of the same businesses engaging in such sabotage in private economic life, for it is they who control it and benefit from it in a "democratic" age.1

Second, those ideas he treated previously are presented here with a greater clarity and force, evident not just in the concision of his summation of the essentials in the brief introductory chapter, but in his being at the "top of his game" with regard to his prose, and particularly his penchant for linguistic "defamiliarization" effects of a kind we expect in experimental literature rather than social science texts--scandalizing adherents of the "conventional wisdom" just by calling familiar things what they really are (as the quotations given above serve to show).

Third and finally, in addition to presenting a fuller and better worked out outline of the new "order of things," he affords the reader a number of close looks at key parts of the system, ranging from the rise and decline of the inventor-entrepreneur "captain of industry" (since supplanted by the "captain of business"--the financial magnate, the "corporate financier"), to the ascent of technology based on basic chemistry and physics to the forefront, to the evolution of ever larger and more elaborate financial structures (as holding companies and "interlocking directorates" have become routinized, and the "investment banker" has waxed in prominence, while the sector as a whole has increasingly consolidated).

As might be expected, Veblen was especially interested in these as they operated in the United States, and devoted most of the second half of the book to close examination of elements within the American version of the situation. Notable among these are the American ideals of the self-made man, the independent farmer, the country town; and by way of these, the outlooks of American business and American politics more generally, from the obsession with rising real estate values, to the lack of public-spiritedness in regard to "public service" (the population in America accepting that "public office is a private job" to a degree other nationalities would not credit). These, in turn, are all explicable in relation to the cultural assumptions of the new country. (What others call the American Dream, Veblen declares in one of his most memorable turns of phrase, the expectation of "something for nothing," an expectation rooted in the experience of the frontier. In theory it was a "democratically equal opportunity of seizure" of all natural resources for the sake of a private gain identified with the public weal, leading to a rush to grab for oneself as much as one could as quickly as one could while leaving as little as possible to others--a process he deemed not just predatory but economically inefficient and ecologically disastrous in its "rapid exhaustion, with waste, of the natural supply." He who succeeds in this "pursuit of something for nothing" so as to achieve a "competence" is a respectable, "substantial" citizen, whereas he who "falls short . . . and so fails to avoid work in some useful occupation is a shiftless ne'er do well"--needing to have a job making you failure, loser, "bum.")

All of this comes together in Veblen's comprehensive image of a modern and especially American Big Business economy, centered on large industrial corporations within which "key industries" whose provision of energy, transport and essential materials to the rest sets the pace for the whole (coal, oil, electricity, railroads, steel); with the whole owned by an increasingly intricate, concentrated financial system obsessed with further consolidation and recapitalization; and the wheels of its machinery greased by the new Federal Reserve's sustaining the expansion of credit that he identified as the basis of economic boom, and which had been ongoing during and after the recent First World War. That war had two other consequences--inflation, behind which it seemed to him that (the rich who did well apart) the country was actually poorer rather than richer, and an intensification of conflict between labor and management. However, at the moment it seemed to him that, even if the triumph of the machine process and its associated ethos remained the long-term trend, the short-term outlook for progress was not very good, those on the side of things as they were still very much in power and still relentless--and successful--in propping up a system badly in need of change, with the likelihood in his view worsening disruption, with a "progressive, widening margin of deficiency in the aggregate material output and a progressive shrinkage of the available means of life" as the last sentence of the book states.

Reading all this nearly a century later it is undeniable that some of what Veblen wrote seems less than completely persuasive. The statistics we now have show that, in spite of indisputable inflation and inequality, the period during and after World War I was of extraordinary increases in American wealth.2 It is clearer still that the American economy, however short it may have been falling of its potential, attained extraordinary new peaks of efficiency as industry assimilated and refined Fordist mass-manufacturing. It may seem, too, that he did not show sufficient regard for the ways in which American finance had become bound up with global finance, which were to soon prove fateful; and that he took too much for granted the consistency of "easy-money policies" on the part of central banks (in that decade, moving toward austerity).

However, Veblen was more often right than wrong in his characterization of the American economy in the 1920s, and what he had to say about its fundamental mechanisms. As he expected, the 'twenties proved a very conservative decade, while financial control and the nation-state system did prove highly disruptive of industrial life. The post-war reparations payments system, and the international credit sustaining it, tied to a Wall Street bubble as bankers and brokers built up a colossal and colossally rickety structure of ownership and obligations, helped turn a stock market correction into an unprecedented, global crash. In the aftermath national governments quickly resorted to beggar-they-neighbor economic policies in the hopes of extricating themselves, a move that has been widely charged with deepening the downturn, and indisputably helped put the great powers on the road to a still greater war than the one that had so recently wrecked their credit and currencies--and a new order beyond that which was to see business' power moderated, finance reined in and the trading system reopened.

Veblen did not live to see the issue of these events, but in hindsight it seems that while Depression and war were followed by an era of reform and boom, it proved a brief aberration, with business and especially finance reasserting themselves in the name of those eighteenth century doctrines he regarded as having had their day--in alliance with a resurgence of those forces of intellectual torpor and social conservatism he identified at the century's outset. The result is that, for all the changes between our time and his, I suspect he would be disappointed but not confused by the situation of the world a hundred years later--where neoliberalism has prevailed over reform, fascistic politics are widespread and ascendant, and a vast, endlessly churning financial sector fueled by easy-money policies drives credit-inflated speculation booms that contribute to periodic crisis and continuing stagnation that leaves the population at large stressed and increasingly deprived while finance's beneficiaries reap historic riches.

1. The term "vested interest" in Veblen's use refers to a claim on such unearned income. The democratization of the Western nation-state, Veblen observes, merely transfers the absurdity of royal sovereignty by divine right--what he memorably calls "an inferiority complex with benefit of clergy"--to the populace at large in nominal terms, so that "each of these sovereign citizens . . . by grace of God owes unqualified and unalienable allegiance to his own person in perpetuity," and just as much as before "an establishment of force and fraud . . . against the outside," as starkly revealed in the "national graft" that is imperialism, with business the principal beneficiary in the external game as it is the internal one.
2. Admittedly, amid wartime inflation and post-war slump, and interest in living standards rather than growth and profits, he had plenty of reason to doubt.

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