“The directors of … companies, being the managers of other people’s money rather than their own, it cannot well be expected, that they should watch over it with the same anxious vigilance … Negligence and profusion must always prevail … in the management of the affairs of such a company.” So wrote Adam Smith 250 years ago. And that remains a core concept in the right wing free market fundamentalism that drives us today.
Keynes recognised that the legislation protecting worker’s rights might lead to powerful trades unions, motivated by political ideals rather than the long term interests of their members, being the cause of wages led inflation damaging economic activity. His mistake was to argue that it was a political problem for governments, rather than a problem for economics. So no action was taken till the advent of the Thatcher government.
Today the boot is on the other foot. Free market fundamentalism is no less political than the unions were 30 years ago. The fervent ideological belief in private industry being good, public bad, regulation bad, and above all, the primacy of shareholder property rights and the purpose of industry being to maximise their value … all that is equally damaging to industry, perhaps even more so, than was unbridled union power.
Industry has always depended on credit. Without it we would not have had an industrial revolution. When Adam Smith described his pin factory which, through the division of labour, increased production from, at most, 20 pins per day per operative, to more than 48,000, all that was needed was a market for that massive increase in production. Markets had previously been small and localized affairs, requiring little in the way of transportation. Industrial markets required mass transportation which was first achieved with canals and turnpikes. But canals took many years to build before they could ever earn a penny return. That required a great deal of money and at that time money was scarce. Wealth was accrued in land and property rather than in spare cash. The only way such projects as canals could be financed was to get money from huge numbers of people whose repayment would come out of the future earnings of the projects themselves. The same applied to the later railways, and the whole industrialization process. So banks have always played a central role in the financing of industry.