Cullen Roche put up a post at Pragmatic Capitalism today that argues the neoliberal position that the primary purpose of private firms is to increase shareholder value, that is, to maximize owner utility. The neoliberal idea behind this is that by doing so, the invisible hand of the market will guide the economic toward utility maximization for all participants.
I regard that as a gratuitous assumption. It also overlooks functional differences among firms in the economy.
Most pertinently here, the financial sector has fiduciary responsibilities that the non-financial sector does not. Its role in financial intermediation also makes it a lynchpin in the performance of the economy. Moreover, systemic risk due to leverage hangs over the economy like a sword of Damocles.
As a result of these and other factors, there is considerable public interest at stake in financial institutions, rules, incentives, processes, and potential outcomes. Much negative externality involved, especially since the financial sector deals much more in extracting rents rather than earning gains from productive contributions.
Moreover, modern banking is institutionally constructed by law as a public utility, and it is therefore subject to careful regulation, oversight and accountability as far as what is allowed, with a view to public safety and interest.
In addition, modern banking, including central banking, is based on the premise that banks are franchises of government, as it were, in money creation denominated in the nation's currency as the unit of account and settled in the currency of unit of account and medium of exchange, and saving in banks is also denominated in the unit of account and enjoys government guarantees.
So representing banks as purely private enterprises seems to be going beyond the facts. Is this view the way the author would like things to be or the way they actually are, as he believes?
Read it at Pragmatic Capitalism
Misunderstanding Banking is Helping Bankrupt an Entire Society
by Cullen Roche