Futurity, Pro-cyclicality and Financial Crises

† The article draws on concepts and ideas that evolved in discussions I have had with Yuval Milo, Anastasia Nesvetailova, Jean-Philippe Robé, Amin Samman and Herman Schwartz.

Abstract

Nearly a century ago, one of the leading forefathers of the school of evolutionary economics, John R. Commons, coined the term ‘futurity’ to describe an epochal change in the late nineteenth-century advanced economies. Futurity refers to the reorientation of economies towards the future, and specifically to the fledgling practice of treating businesses as ‘going concerns’ and measuring its value in terms of their anticipated future profits. Curiously, the implication of such epochal changes on the performance of the financial system had rarely been discussed, let alone addressed. This article presents a theoretical argument that suggests that futurity encourages pro-cyclical dynamics that are pulling the financial systems in ever more violent and disastrous swings.

Keywords:

• futurity
• financial crisis
• Old Institutional Economics
• pro-cyclicality
• Keynesianism

Acknowledgements

I thank the anonymous referees for their helpful comments.

Notes on contributor

Ronen Palan is professor of International Political Economy at City University London. He works on tax havens, the offshore economy and evolutionary thought.

Notes

† The article draws on concepts and ideas that evolved in discussions I have had with Yuval Milo, Anastasia Nesvetailova, Jean-Philippe Robé, Amin Samman and Herman Schwartz.

1. Commons was clearly influenced by Webber, Rickert and the debate on the difference between science and the social sciences that took place in the late nineteenth-century Germany. Oakes describes Rickert's position as follows:

natural science is nomothetic. It has no intrinsic interest in the individual events of concrete reality. On the contrary, the individual datum is relevant to natural science only to the extent that it can be represented as a type. The interest of historical science, on the other hand, is idiographic. Here the purpose of knowledge is to comprehend the distinctive properties of the unique events itself. History is interested in a phenomenon not because of what it shares with other phenomena but, rather, because of its own definitive qualities. (1988: 44)

2. The concept of intangible is complex and highly contested (for discussion of economic impact, see Corrado et al. 2006). John Commons traces the historical evolution of the meaning of property from the original common law conception of a physical corporeal thing held for one's own use to its current meaning of ‘intangible property' in law, that is, withholding rights from others or what they need but do not own. This distinction between the thing itself and ownership of the thing being exchanged is central to an institutional analysis of property. The thing itself may be scarce (have value) in a physical sense, but it takes a property right to endow it with institutional scarcity. As Chamberlain (1963: 81) pointed out, ‘A stolen object or asset is no less scarce for being stolen rather than purchased, but in a going society it acquires institutional meaning only when a transfer of title has been legalized.' Property rights are the social relations that the state vests in the owner or property. These rights are created by the imposition of duties upon other persons.

3. In the words of Jean-Phillipe Robé, they were valued as ‘dead enterprises’ (personal communication, 15 May 2014).