From Industrial Money to Generalized Capitalization
Simone Polillo
VIVIANA ZELIZER’S APPROACH TO MONEY was not initially seen as an intervention into high finance, financial markets, or for that matter the financial system at large. Business monies were different, it seemed, in a world apart from the relational concerns of households. This chapter will argue, instead, that revisiting Thorstein Veblen alongside Zelizer opens fruitful lines of inquiry into the nature of investment and earmarking in large industries, as well as new understandings of contemporary processes of financialization, extending well beyond the financial sector. To budget money for investing is to earmark it—to decide to spend it on some things as opposed to others. But setting money aside also means delaying consumption, on the basis of expected changes in the value of one’s current holdings. To earmark is thus to imagine a future (Beckert 2016), to control or influence some part of it. How have businesses engaged in earmarking, and how have these practices resembled the micro-level experiences of households?
This chapter investigates these questions by analyzing three historically constructed categories of money: industrial money, business money, and generalized capitalization. I do so in three steps. First, I argue that there is a temporal dimension of money, oriented toward the future. It is associated with double-entry bookkeeping, a way of representing business concerns that became dominant with the rise of capitalism and that emphasizes calculability of spending. Without such representations, future growth is stunted. But even with modern accounting, what I will call (borrowing from Veblen) “industrial money” reflects concerns beyond economic growth projections. Accounting practices distinguish between personal and business expenses even as property becomes increasingly socialized (Carruthers and Espeland 1991). And while helping its accountants keep track of costs, industrial money allows for other qualitative distinctions about those costs.
The second step in my analysis focuses on how goods turn into assets, and how the calculation of future performance becomes the primary way of assigning value to those assets. With the rise and increased visibility of financial markets—institutional arenas where future-oriented value is calculated in a public manner—industrial money becomes what I call, also borrowing from Veblen, “business money.” Consider, for instance, how the value of a corporation now varies in terms of the day-to-day fluctuations in the value of its stock (Fligstein 1990); or how the financial stability of a country takes priority over its commitment to social policy (Major 2013). The common denominator is a way of understanding money and monetary value in financial terms, oriented toward the future, and using future expectations about an asset’s value—and specifically, expectations about the revenue stream the asset will generate in the future—as a way of calculating value in the present. Business transactions, in other words, require an interpretive framing made visible by earmarks, which in the context of this discussion I adapt from Zelizer to refer to the process of setting up, making explicit, or alternatively obfuscating and altogether removing boundaries between expected revenue streams originating from different sources. Veblen traces the emergence of business money to the US corporate consolidation and merger movement of the 1890s (Roy 1997; Perrow 2002), prior to what we now consider the rise of financialization (Arrighi 1994; Krippner 2005), therefore enhancing our understanding of the historical rootedness of finance.
The third and final step shows that under an economic regime increasingly dominated by finance, capitalization spreads and thus becomes ritualized. I use “ritual” to mean an ensemble of meaningful social practices that, when enacted together, create a new subjective reality for those who invoke and participate in them (see Collins 2004). This subjective reality includes the intense focus of attention by ritual participants on a set of symbols, temporally ordered scripts for evoking those symbols, and the shared mood the symbols and scripts generate. In the same way, capitalization consists of three main parts. First, to say that an aspect of economic life is capitalized means that it is now expected to behave as an asset. Second, the value of this newly formed asset is expected to take the form of a revenue flow over time, potentially subject to changes, thereby generating opportunities for profit. Third, one’s commitment to the asset (one’s financial position) is understood not to be binding, as assets can be liquidated as long as one finds willing buyers, or they can be bundled together to form collateral for yet more levels of financial operations. Capitalization makes it possible for assets to behave in this fashion through, among other things, accounting formulas (which help to organize the ensemble of objects and actors), projections of future value, and narratives that Beckert (2016) describes as “fictional,” depicting shared symbols and the ritual’s intensity.
Capitalization is ritualized in the sense that it turns into a social mechanism that selectively focuses attention on these three aspects of an activity or good. On the assumption that the asset will now behave according to the assumptions of capitalization, it constructs a newly shared reality that has powerful consequences. Put differently, as capitalization is ritualized, the conventions and practices necessary for turning an activity or good into an asset acquire wide recognition, and their invocation becomes efficacious, likely to face little contestation. Thus, for instance, Leyshon and Thrift (2007) discuss how the Tchenguiz brothers, two of Britain’s richest property owners and managers, built their fortune by turning the income stream of the buildings they managed as rental units into securitized assets they would then use as collateral for new rounds of credit, an operation that allowed them to expand their business and diversify the range of activities they invested in.
Other asset classes have been found to be particularly good candidates for capitalization: among them are “highways, streets, roads and bridges; mass transit; airports and airways; water supply and water resources; wastewater management; solid-waste treatment and disposal; electrical power generation and transmission; telecommunications; and hazardous waste management” (Leyshon and Thrift 2007: 101). In all these cases, capitalization entails a focus on predicting future income streams rather than on, say, the environmental or social impacts of these assets. Or, to be more precise, those environmental and social impacts are only considered to the extent they can be themselves capitalized, impacting over time the performance of the asset.
As Zelizer cautions us in her critique of money as an all-powerful tool of commensuration, assigning value to goods is not tantamount to making them equivalent. Likewise, capitalizing a good or a relationship (turning them into assets) is a far cry from making them commensurable with other capitalized goods. But investors who identify, construct, and capitalize new assets no longer meet the kind of resistance encountered by life insurance providers in nineteenth-century North America, as documented by Zelizer. As more and more realms of social life are capitalized and evaluated under the assumptions that make capitalization work, the spread of capitalization produces intersubjectively compelling assessments of value.
The spread of capitalization is accompanied and made possible by broader structural transformations, first and foremost the diffusion of institutions that specialize in providing credible guarantees, endorsements, and cognitively simplified accounts about the nature of an asset—what Carruthers and Stinch-combe (2001) evocatively call “minting work.” This chapter, however, restricts itself to investigating how social practices outside the institutional framework of finance and its “minting” organizations contribute to shifting expectations about what money represents. It concerns itself with the “everyday life” of finance (Langley 2008) from the specific perspective of how shifts in dominant understandings of money among industrial concerns result in a diffusion of financial practices beyond the industrial system itself.
Industrial Production and Industrial Money
Veblen’s impact on sociology has been historically limited to his theory of conspicuous consumption: his Theory of the Leisure Class ([1899] 2007) famously proposes that members of ascending social groups tend to spend money on high-priced goods so as to dramatize their higher social standing and distinguish themselves from those of lesser means. Recently, scholarly attention has been drawn to his other writings, especially those organized around the contrast between what Veblen calls “industry” and “business” (Nitzan 1998; Nitzan and Bichler 2009; Nesvetailova and Palan 2013). In this area, Veblen delineates how industrial concerns earmark money differently depending on whether they compete over improving their ways of producing (thus behaving as industries), or if they strive to predict the future success of their competitors in order to sabotage them in due time (thus behaving as businesses). Veblen is sensitive to the consequences of earmarking money in different ways, depending on the broader meanings and strategies attached to those transactions. In this chapter, therefore, I focus exclusively on Veblen’s work that concerns money in the industrial system, and specifically his 1904 Theory of Business Enterprise, which constitutes the most mature elaboration of his thoughts on the matter.
Witnessing the rise of the modern business corporation in the United States in the late nineteenth century, Veblen (1904) understands it as a watershed moment that introduces a radically destabilizing element into the organization of production. It shifts the range of practices that make money meaningful from a focus on the past as a guide to future action, to a focus on the future as the source of expectations anchoring the present (see also Beckert 2016). Before discussing this change, we need to introduce what Veblen thinks the business corporation is displacing.
Veblen sees industrial development up until the late nineteenth century as being characterized by an industrial logic, which he associates with interdependence and coordination. On one level, an industrial logic organizes production, Veblen recognizes, to the extent that production depends on mechanization. As machines become essential factors in production, industry thrives. Veblen also ties his description of industry to the more general idea that the division of labor increases interdependence while creating the conditions for a generalized improvement in welfare. This idea, of course, is not original to Veblen, but he expands on it by stating that industrial production is a culmination of the division of labor and should therefore be understood as a thoroughly social activity, one that, much like the division of labor itself, rests on diffuse and coordinated activities that become systematized.
The systematic and coordinated approach to production, in short, marks the advent of industry. As result, industrial production is deeply embedded in the larger community in which industry takes place: the fate of the community now depends on the extent to which industrial production runs smoothly. “The management of the various industrial plants and processes in due correlation with all the rest, and the supervision of the interstitial adjustments of the system, are commonly conceived to be a work of greater consequence to the community’s well-being than any of the detail work involved in carrying on a given process of production” (1904: 6). As a consequence, anonymous market exchanges conducted in the manner envisioned by Adam Smith have no place in Veblen’s vision of production. Veblen understands the economy from the point of view of coordination. To be sure, his vision stops short of a fully relational economics of production. His focus is on how machines create a need for coordination that market transactions cannot fulfill of their own accord, and not on the social conditions that drive the adoption of certain kinds of machineries as opposed to others. Though Veblen does not quite capture the relational nature of markets—something economic sociologists have drawn much attention to in the wake of Harrison White’s (2002) theory of how producers behave in markets—he nevertheless highlights the relationship between producers and the larger environment in which they operate: “The industrial process shows two well-marked general characteristics: (a) the running maintenance of interstitial adjustments between the several sub-processes or branches of industry, wherever in their working they touch one another in the sequence of industrial elaboration; and (b) an unremitting requirement of quantitative precision, accuracy in point of time and sequence, in the proper inclusion and exclusion of forces affecting the outcome, in the magnitude of the various physical characteristics (weight, size, density …) of the materials handled as well as of the appliances employed” (Veblen 1904: 8).
Given the high level of coordination that industry demands, measurement of inputs and outputs is crucial to its success. Through measurement, long and complex production processes can be organized. But it is not only accuracy in time and sequence that matters. Money plays an important role in the organization of industrial production too. As we have seen, Veblen claims that industrial complexity requires active management, organization, and coordination. Importantly, in this system, money facilitates coordination in production as well as the sale of goods. On the one hand, echoing Weber’s classic statement on the centrality of rational accounting to the calculability on which modern capitalism depends (Weber [1923] 1981; Collins 1980), for Veblen, money is a way of keeping track of costs, so that the different elements that make up the system can be fairly remunerated for their contribution.
In the specific case of industrial capital, for instance, Veblen claims that “the basis of capitalization was the cost of the material equipment owned by any given concern” (1904: 137). As we learn from Carruthers and Espeland’s historical sociology of double-entry bookkeeping, in the period of industrial growth, accounting is employed to maintain a distinction between income and capital, as well as between private expenses and industrial costs. More generally, the role of double-entry bookkeeping is to maintain “an accurate record of business transactions or as a means of evaluating past investments” (Carruthers and Espeland 1991: 47). To be sure, the systematic record-keeping of costs also permits future planning: concerns with past investment go hand in hand with envisioning how one business may fare in the future. But, as we shall see in a moment, this is not the same as arguing that future growth becomes the primary driver of economic decisions.
On the other hand, Veblen argues that with the rise of industry, money grounds the economy so as to give rise to a “money economy,” the main characteristic of which is the “ubiquitous resort to the market as a vent for products and a source of supply of goods” (Veblen 1904: 150). In other words, the other side of industry is consumption mediated by commercial processes. In agreement with classical liberal thinkers, the rise of the market and the rise of industry go hand in hand. And as a consequence, “under the regime of the old-fashioned ‘money economy,’ with partnership methods and private ownership of industrial enterprises, the discretionary control of the industrial processes is in the hands of men whose interest in the industry is removed by one degree from the interests of the community at large” (ibid.: 158).
Perhaps Veblen is too forceful, and even naive in arguing that industry produces such a harmonious balance of interests. In this respect, Zelizer’s more nuanced understanding of social relations as a means of negotiating potentially difficult transactions is vastly superior. But Veblen’s analysis points in a similar direction when he grounds the industrial system in the relational life of the workman: “[H]e embodies the work of his brain and hand in a useful object,—primarily, it is held, for his own personal use, and, by further derivation, for the use of any other person to whose use he sees fit to transfer it. The work man’s force, ingenuity, and dexterity was the ultimate economic factor,—ultimate in a manner patent to the common sense of a generation habituated to the system of handicraft, however doubtful such a view may appear in the eyes of a generation in whose apprehension the workman is no longer the prime mover nor the sole, or even chief, efficient factor in the industrial process” (Veblen 1904: 77–78). In other words, it seems to me that Veblen understands industry in terms that are not entirely inconsistent with Zelizer’s general approach to the study of economic life. And while it would be an overstatement to argue that Veblen’s ideas can be shown to seamlessly accommodate Zelizer’s concerns, the kind of industrial system he describes is a world of creativity, social relations, and connections across different realms. In this world, money facilitates the development of complex social arrangements. Industrial money, then, is an integral part of the economic lives of industrial communities.
The Rise of Business and Business Money
Veblen makes a second contribution to our understanding of the development of the division of labor in the industrial age, one that is not found in classical analyses of the division of labor. As we have seen, he claims that industrial complexity requires active management, organization, and coordination through the application of systematic knowledge. And yet, each of these aspects of industry opens a space for what Veblen calls “business.” Business, he specifies, is management of industrial concerns with “pecuniary interests” in mind. As he puts it, “the adjustments of industry take place through the mediation of pecuniary transactions, and these transactions take place at the hands of the business men and are carried on by them for business ends, not for industrial ends in the narrower meaning of the phrase” (1904: 27).
Of course, it is not that industry can dispense with money: therefore, business is different from the mere intrusion of money into a sphere where it does not belong. No “hostile world” vision here! Rather, business is concerned with the vendibility of corporations as bundles of assets. None of these observations are particularly controversial, especially in light of later analyses of the rise of the modern business corporation. For instance, Perrow (2002) understands the rise to dominance of the large organization in the American landscape in great part as the result of massive concentration in wealth and power: “One can also attribute the integration drive to the desire of the major capitalists of the time to eliminate competition in order to hold on to their wealth and power” (7). More forcefully, William Roy (1997) shows how a power logic rather than a logic of efficiency drove the corporate consolidation movement that swept through late-nineteenth-century North America, and that this power logic was unleashed by the massive amounts of capital that expansive financial markets, originally created to circulate government debt, were for the first time making widely available. Roy argues that as large business entities, fueled by several decades of government-financed railroad and infrastructural expansion, leveraged the size of their balance sheets to gain market power and dominate others, “the rise of the corporate institution fundamentally changed institutional practices, loosening the link between revenues and survival and, more important, changing who survives or fails” (100).
What Roy calls the “socialization of property” is, in Veblenian terms, the transformation of industrial concerns into bundles of assets that can be bought and sold in stock markets (Veblen 1904: 157–58). The more industry grows, therefore, the more the pecuniary side of the enterprise draws the business owner’s attention. As a result, Veblen notes that the “chief attention for the business man has shifted from the … surveillance and regulation of a given industrial process … [t]o an alert redistribution of investments from less to more gainful ventures, and to … coalitions with other business men” (ibid.: 24).
Veblen’s argument is distinctive in the extent to which he attributes the rise of business to forces endogenous to industrial organization. On the one hand, business by definition thrives on disruption and sabotage, whereas industry privileges coordination and harmony in the name of efficiency and stability (Nitzan 1998; Nesvetailova and Palan 2013). Business, in other words, is entirely parasitical on industry. On the other hand, the rise of business is facilitated by the very contradictions intrinsic to industrial society, as business emerges from tendencies and vulnerabilities that are inseparable from industrial success. There is a Zelizerian sensibility at work here, even though the language is on the surface one of “hostile worlds”: when different economic spheres come together through incessant processes of negotiation and relational work, the potential for increased ambiguity and uncertainty is balanced by common meanings, norms of appropriateness, and distinctive media of exchange (Bandelj 2012; Zelizer 2010).
Consistent with this interpretation, as Veblen differentiates between industry and business, he makes another distinctive contribution: when industry gives way to business, money changes in nature. More precisely, whereas industrial money serves to keep track of costs, and therefore to keep good accounts of one’s accumulated expenditures (for example, the cost of material equipment) so that money facilitates serviceability, “business money” serves as an index of one’s market power. This rise of “business money” is predicated on a set of interrelated assumptions: that the value of the object/good that money evaluates constantly shifts over time (the good, that is, becomes an asset), and that shifts in value hold the key to profit, which in turn becomes a “reasonable expectation” attached to any economic activity. Let’s take each argument in turn.
First, Veblen argues that, as gain and loss become the dominant parameters that business people use to judge the value of their concern, industrial performance comes to be assessed in terms of a monetary baseline. Deviations from the average performance of business are understood to derive from the earning potential of the concern. So on the one hand, “in place of the presumption in favor of a simple pecuniary stability of wealth, such as prevails in the rating of possessions outside of business traffic, there prevails within the range of business traffic the presumption that there must be in the natural course of things a stable and orderly increase of the property invested” (Veblen 1904: 85–86). This, Veblen argues, is a historical novelty. For instance, “under the agrarian manorial regime of the Middle Ages it was not felt that the wealth of the larger owners must, as a matter of course, increase by virtue of the continued employment of what they already had in hand. Particularly, it was not the sense of the men of that time that wealth so employed must increase at any stated, ‘ordinary’ rate per time unit” (ibid.: 86). With the rise of business, by contrast, “the ‘ordinary’ rate of profits in business is looked upon as a matter of course by the body of business men. It is part of their common-sense view of affairs” (ibid.: 87).
How is this expectation about profitability as a normal course of business produced so effectively—and institutionalized? This is the second key component of business money as theorized by Veblen. Business money shifts the construction of value away from the past and orients it toward the future. “Under the exigencies of the quest of profits, … the question of capital in business has, increasingly, become a question of capitalization on the basis of earning-capacity” (Veblen 1904: 89). Earning capacity is prospective rather than backward looking. It quantifies an expectation of future performance rather than the past accumulation of earnings.
Veblen’s point is prescient and will further be developed by Keynes later on in his famous discussion of convention, confidence, and long-term expectations (Keynes 1936). Keynes argues that economic decisions are characterized by uncertainty, not only because any attempt to forecast the future can only have a degree of confidence attached to it, but also because we do not quite know for sure how likely even our best forecast is to be wrong. There are, in other words, two ways that uncertainty characterizes forecasts: the probability that something will happen with respect to other things we foresee as potentially happening too; and the probability that our expectations are indeed justified with respect to things we cannot predict and of which we cannot have a priori knowledge. Keynes therefore argues that in the face of uncertainty, in order to do anything at all, we must proceed on the basis of convention, or “the assumption that the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change” (1936: 137).
Before the emergence of what Veblen calls “business,” and what Keynes more specifically identifies with financial markets, conventions were stable. Industrial owners and economic actors more generally were forced to commit to whatever undertaking they financed, and their commitments contributed to the reproduction of the state of affairs, unless severe and generalized crises forced a global update of conventions. But with the spread of financial markets, there is increased freedom to pull out of one’s financial commitments. As investors do not have to commit their resources for the long-run, they become more sensitive to temporary shifts in the state of expectation, which they confuse with potential mistakes in their forecasts. More problematically, and in line with Veblen’s concerns, a new class of professionals rises to the top of the economy, and this class is explicitly invested in manipulating the state of long-term expectation so as to exploit shifts in convention. Professional speculators profit from persuading investors that prospective, future shifts in value warrant a reassessment of one’s current assessments.
These shifts inform the familiar story of how the business corporation comes to be seen as a “bundle of assets.” In one of the best short treatments of the 1960s conglomerate movement in the United States, for instance, Espeland and Hirsch show how, through accounting practices that foregrounded future growth as the basis for present value, the firm was given the “deceptive public image … of a corporation capable of sustaining perpetual, escalating earnings; the persona of the men who managed these firms was that of the financial genius … whose ability to uncover hidden assets in other men’s companies was uncanny” (Espeland and Hirsch 1990: 80). These fictions (and the rituals recounting them) helped organize how various actors engaged with firms and what the actors understood to be the fundamental properties of finance. A decade or so later, “the capacity to meet security analysts’ profit projections” became the core of “shareholder value” (Dobbin and Zorn 2005: 181; but see also Heilbron, Verheul, and Quak 2014), a concept that constitutes a watershed moment in the way corporate control is exercised (Fligstein 1990).
To summarize, business money appears under two fundamental guises: first, as a “reasonable rate of profit” that business people will expect if they are to enter into a business proposition. And second, since this “reasonable rate of profit” is an expectation, money’s use for keeping track of costs is replaced by capitalization on the expectation of a future revenue flow. Business money, that is, appears under the guise of a bet on future value (moreover, one that business interests can use to exercise leverage over competitors in the present.)
The contrast with industrial money is striking and instructive. In industry, money signals long-term commitment; it mediates complex processes vulnerable to disruption. Money does not serve to compare one’s success vis-à-vis (let alone at the expense of) the success of others; it is rather a means of sustenance and survival through which industrial concerns strengthen and widen their embeddedness in a social context. Industrial money behaves in the ways captured by Zelizer’s theory of circuits of commerce. Applying Zelizer’s language to the case of industrial money, we find that “participants [in industry] are making decisions and commitments that assume the continuing availability of shared resources and mutual guarantees. Second, by their very interactions they are transforming shared resources and mutual guarantees—degrading or improving the collective fortune such as a family house [or an industrial concern], creating or destroying means of internal coordination such as household budgets [or a firm’s capital], expanding or contracting trust, such as the probability that one person [or bank] will repay money borrowed from another, and so on” (Zelizer 2005b: 292). We can expect that industrial concerns will earmark money so as to pay for different processes necessary for the robustness of the concern as a whole; that they will accumulate and spend money to generate goodwill; that they will engage in vibrant commercial, and even credit-based transactions, so as to strengthen the large community within which they operate (Guinnane 2001; Berk and Schneiberg 2005).
Veblen’s notion of industrial money intersects in useful ways with Ronald Dore’s discussion of goodwill. Pondering on the refragmentation of Japanese industry in the 1980s after a long period of concentration, Dore highlights “relational contracting”—or “moralized trading relationships of mutual good-will”—as the main ingredient making such a shift possible. He discusses a stylized example of a finisher with a cost advantage deriving from investing in a more efficient dyeing process to illustrate how the system works. “He may win business from one or two converts if they had some other reason to be dissatisfied with their own finisher. But the more common consequence is that the other merchant-converters go to their finishers and say: ‘Look how X has got his price down. We hope you can do the same…. If you need bank finance to get the new type of vat we can probably help by guaranteeing the loan” (Dore [1983] 2011: 459). Dore highlights how an industrial logic privileges relationships over short-term gains; trust over immediate advantages. Whether this logic can be reestablished after the takeoff of business would leave Veblen skeptical. But that important pockets of industrial logic persist in the face of larger, structural change reinforces the usefulness of Veblen’s distinction between industrial and business money.
For business concerns, by contrast, money as business money is the central unit of success. Its relationship with the “assets” it prices is unstable and short-term-oriented because the main purpose of money is to price the “earning capacity” of an industrial concern and to monetize that value in the present. Since the future is unknowable, however, what money actually does is to serve as a metric whereby the relative success of competing businesses can also be measured and instantaneously fed into the business owner’s and manager’s decision to retain the concern or sell it (Nitzan 1998). Money in business, in other words, takes the empirical form of corporate capital, intended as the monetization of the concern’s “earning capacity” vis-à-vis competing concerns. There is nothing objective or given about this earning capacity: earning capacity is nothing but a more or less successful effort to impress on others the force of one’s vision. As persuasively argued by Beckert (2016), the production of “fictional expectations” is a central dynamic of capitalist growth, which in turn generates a politics of impression-management with wide-ranging ramifications.
Beyond Industrial and Business Money: Generalized Capitalization
Capitalization, to be sure, has a long history, one that is perhaps as long as capitalism. Thus classical theorists of the caliber of Weber, Sombart, and Schumpeter understand capitalization as the representation of business activities through double-entry bookkeeping and associate it with the rise of rational calculability that makes capitalist enterprise possible. More recent sociological analyses also emphasize the rhetorical and symbolic aspects of capitalization. Carruthers and Espeland (1991: 35), for instance, argue that “double-entry account is an ‘account’ or interpretive framing of some set of business transactions, and it has a rhetorical purpose.”
So far, I have followed Veblen’s discussion of the shift from industry to business as a drawn-out historical process that came to full fruition in the early twentieth century with the rise of the modern business corporation. But scholars increasingly emphasize how a second, just as important, shift took place in the 1970s, when the kind of regulated, mass-production-oriented capitalism that was dominant in the post–World War II era of embedded liberalism was replaced by a new, flexible regime broadly identified as “post-Fordist” (Ruggie 1982; Steinmetz 1994; Davis 2009; Krippner 2011). A central component of this new regime was the growth of financial markets (and of the instruments on which they are based) along with the rise of “shareholder value” as a technique of corporate control (Fligstein 1990). Veblen’s dichotomy between industry and business reflects this shift but backdates it to the 1890s. For Veblen, capitalization took root as the basis of business value almost a century before financialization. Veblenian scholars like Nitzan (1998; cf. Nitzan and Bichler 2009) consistently argue for the continuity between business capitalism and financial capitalism (a term they altogether reject).
What Veblen could not see from his early-twentieth-century perspective is that capitalization actually becomes generalized in the vein depicted by Carruthers and Espeland (1991)—as an interpretive framework with a rhetorical purpose. By the same token, generalized capitalization becomes ritualized—it turns into a general-purpose social mechanism that focuses the attention of the parties on the transaction script for how to properly capitalize a set of assets. Capitalization then spreads in the wake of its symbolic power. A seemingly endless range of goods, activities, and relationships can come under its purview. In this third section of my chapter, accordingly, I argue that what is notable about capitalization in the late twentieth century is that it diffuses business money beyond the corporate economy. It becomes generalized capitalization.
As we have seen, to capitalize means to make a bet on the future and to monetize that bet in the present. Since it is oriented toward the future, capitalization is dependent on expectations, and those expectations are shared by way of convention in the manner explained by Keynes and more recently Beckert (2016). Capitalization requires constant verification in light of competitive countermoves that threaten the stability of convention; verification goes hand in hand with visibility, most powerfully in stock and other financial markets (Preda 2002).
To capitalize also means making second-order assumptions. These assumptions are not necessary for industry to operate, but they are crucial for business to keep producing the measures through which it makes pecuniary decisions. Among the most important is the assumption of the ever-expanding nature of the economic system, along with the notion that there is a certain rate of profit—one that the business community considers reasonable and acceptable—that must be met before an asset is considered worth buying. These assumptions generate “benchmarks” against which the performance of capitalized assets can now be compared (see Nitzan 1998). As financial markets increase in number and size, they both reinforce the assumptions that underlie capitalization and put pressure to join in on industrial concerns reluctant to engage in financial operations.
Let us focus here on one core aspect, the supply of assets available to capitalization. Discounting assumes that changes in the worth of the asset being valued can generate profits because, more specifically, value derives from a projected future cash flow that can be monetized in the present. As Davis documents, with the expansion of financial markets a new rhetoric of diffuse “ownership” in a portfolio society also emerges, and investment becomes “the dominant metaphor to understand the individual’s place in society and a guide to making one’s way in a new economy” (2009: 193). The “supply” of assets to be discounted thus expands dramatically. Davis attributes this shift to the breakdown of what he calls “corporate feudalism”: the stable employment experience afforded by the big corporation of the postwar period is replaced by a world of risk and uncertainty, as “changes in the organization of production and the structure of corporations have changed the nature of the employment relation and economic mobility” (ibid.: 194).
Armed with Veblen’s theory of industrial and business money, and Zelizer’s sociology of the social meaning of money, we can pin down the argument. The social conditions underlying the breakdown of “corporate feudalism” are the same social conditions promoting the spread of capitalization into aspects of social life that were previously not understood to have a financial dimension. When relationships become social capital, and “talent, personality, friends, family, homes, and communities all [become] kinds of securities” (Davis 2009: 194), the tension that surrounds debates over what should and should not be commercialized is attenuated (see also Steiner 2009), but a new type of conflict emerges. Paraphrasing Zelizer (2005a), even when the bridge between the allegedly separate spheres of solidarity and commercial transactions is well-built and sturdy, anticipating the durability of one’s commitment to aspects of one’s life that are now treated as “securities”—and just as important, whether others’ commitments can be expected to be as durable, and whether the worth of those securities can be expected to grow over time—becomes problematic. It is not simply that we cannot trust others to honor their long-term commitments, let alone take those commitments more or less for granted, as theorists like Giddens (1991) would put it. It is also that the spread of capitalization legitimizes people’s orientation toward their intimate lives as capitalized assets.
Put differently, capitalization diffuses as individual commitments to broad, encompassing, and symbolically powerful identities weaken, because capitalization equips individuals with a new way of framing their future in terms of personalized portfolios of assets. In this respect, capitalization becomes generalized because it complements the “motivated indifference” that Collins (2000: 40) argues is now prevalent in everyday interaction. In contemporary society, individuals are no longer likely to identify with broad social categories, and by like token, they are no longer likely to recognize the categories others use to define themselves. Identity becomes decoupled from whatever collective membership individuals uphold, and individuals become more responsive to fleeting situational dynamics than to symbols of collective membership, argues Collins. A new type of inequality emerges—a “situational stratification” that rests less on class, status, and reputation as sources of power, and more on an individual’s ability to muster up whatever local resources are needed to exercise dominance within a situation.
In similar fashion, generalized capitalization allows individuals to make short-term commitments that can be easily liquidated. Individuals cease to differentiate between the short term and the long term, in the sense that, when they do pay attention to long-term perspectives, it is only to aspects that can be explicitly discounted into present value. With the aid of capitalization, individuals constantly verify the value of their personal holdings, and recalibrate them according to the scripts of capitalization whenever the present value of a new course of action seems to offer a superior alternative.
This is shown in an exemplary manner by Paul Langley (2008). He debunks accounts of the surely unequal but diffuse “democratization of finance” in the 1990s that attribute this process to irrational exuberance. Rather, he argues that one must explain what makes “investment [appear] as the most rational form of saving.” This alternative account focuses on “multiple networks of everyday investment,” marked by “their close interconnections with the networks of the capital markets; the significant presence of occupational and personal pension fund and mutual fund networks which provide individuals with an investment stake in the markets without direct ownership; and a contingent nexus of specific calculative tools and technologies of risk” (2008: 48). In the case of pensions, the result of ritualized capitalization is that “while thrift and insurance calculate and manage risk as a possible hindrance, danger, or loss to be minimized, risk is represented through the calculations of everyday investment as an incentive or opportunity to be grasped” (ibid.: 48). Individuals resort to capitalization when they want to “domesticate” risk. They invoke capitalization as they face pressure to turn a facet of their lives into a manageable but risky opportunity.
Capitalization rests on the assumptions of future and differential growth such that discounting the future value of assets only imperfectly captures the value of financial instruments. Therefore, in line with Bruce Carruthers’s argument (in chapter 4 of this volume), generalized capitalization can have destabilizing effects on its home turf, on the very financial markets from which it originates. Consider an example from the core of the financial system: Abolafia and Kilduff’s (1988) discussion of financial bubbles, in the case of the Hunt brothers’ temporary success in cornering the market for silver futures in Chicago in 1980. The authors show that even a speculative financial market requires a commitment to tacit institutional rules for its orderly functioning and reproduction to be guaranteed: the Hunt brothers brought the silver future market to its knees simply by following trading rules to the letter, while disregarding the conventional understandings that made those rules consistent with the long-run viability of the market.
By like token, generalized capitalization introduces a language and attitude of temporally oriented calculation that pays little attention to what discounting formulas leave out, and therefore creates the potential for manipulation and malfeasance. Financial elites, like the traders in Chicago who were able to summon regulatory authorities to intervene against the Hunt brothers, can rely on their personalized connections and localized reputations in order to protect their interests. Those with the means of the Hunt brothers can turn financial processes to their advantages, at least until their attack on entrenched interests provokes an institutional response. But the everyday investors who turn their economic lives into assets to be traded in markets enter a world of indifference to their long-term plans, a world run by the relational concerns of more powerful others over which they can only exercise limited control.
Conclusion
In this chapter, I set out to engage Veblen in a theoretical conversation with Zelizer in order to document shifts in how money is constructed to articulate value. By discussing money in the context of three broad historical periods—centered on industry, business, and generalized capitalization—I construct a stylized narrative about the kinds of tensions and concerns that money expresses in response to different kinds of social relations, meaning systems, and social structures (Carruthers and Stinchcombe 2001). I distinguish among industrial money, which is past-oriented and serves to facilitate coordination; business money, which is future-oriented and attaches to leverage and manipulation; and generalized capitalization, which expands beyond the realm of commodities and market exchange to encompass an expansive realm of social relations.
Jens Beckert, in his recent analysis of the centrality to capitalist dynamics of “fictional expectations” about the future (Beckert 2016), calls for a historical sociology of expectations. This chapter has responded to his call, proposing that one component of such a project centers on the rise of business money and the spread of capitalization as a taken-for-granted, ritualized way of thinking about one’s future. In broad terms, one would need to look at how finance has become more entrenched and visible in public discourse, as financial news and availability of financial data (representing markets narratives) have proliferated. Generalized capitalization does not guarantee commensurability and frictionless or meaningless exchange. In fact, capitalization shifts conflicts and debates over the relationship between money and intimacy to new ground, on the evaluation of the future. One consequence is that the ability to put a price on the future value of goods and relationships we care about becomes a powerful resource in the hands of those who have a stake in shaping that future, from entrepreneurs to policymakers. A critical theory of capitalization would therefore need to further investigate the implicit, tacit frameworks that need to be in place before capitalization can deliver its promise to discount future value into the present, enacting information that feeds into consequential decisions.
References
Abolafia, Mitchel Y., and Martin Kilduff. 1988. “Enacting Market Crisis: The Social Construction of a Speculative Bubble.” Administrative Science Quarterly 33(2): 177–93.
Arrighi, Giovanni. 1994. The Long Twentieth Century: Money, Power and the Origins of Our Times. London: Verso.
Bandelj, Nina. 2012. “Relational Work and Economic Sociology.” Politics & Society 40(2): 175–201.
Beckert, Jens. 2016. Imagined Futures: Fictional Expectations and Capitalist Dynamics. Cambridge, MA: Harvard University Press.
Berk, Gerald, and Marc Schneiberg. 2005. “Varieties in Capitalism, Varieties of Association:
Collaborative Learning in American Industry, 1900 to 1925.” Politics & Society 33(1): 46–87.
Carruthers, Bruce G., and Wendy Nelson Espeland. 1991. “Accounting for Rationality: Double-Entry Bookkeeping and the Rhetoric of Economic Rationality.” American Journal of Sociology 97(1): 31–69.
Carruthers, Bruce G., and Arthur L. Stinchcombe. 2001. “The Social Structure of Liquidity: Flexibility in Markets, States, and Organizations.” In When Formality Works: Authority and Abstraction in Law and Organizations, edited by Arthur L. Stinchcombe, 100–139. Chicago: University of Chicago Press.
Chandler, Alfred D. 1977. The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Belknap Press.
Collins, Randall. 1980. “Weber’s Last Theory of Capitalism: A Systematization.” American Sociological Review 45(6): 925–42.
———. 2000. “Situational Stratification: A Micro-Macro Theory of Inequality.” Sociological Theory 18(1): 17–43.
———. 2004. Interaction Ritual Chains. Princeton, NJ: Princeton University Press.
Davis, Gerald F. 2009. Managed by the Markets. New York: Oxford University Press.
Delaney, Kevin J. 2012. Money at Work: On the Job with Priests, Poker Players and Hedge Fund Traders. New York: NYU Press.
Dobbin, Frank, and Dirk M. Zorn. 2005. “Corporate Malfeasance and the Myth of Shareholder Value.” Political Power and Social Theory 17: 179–98.
Dore, Ronald. [1983] 2011. “Goodwill and the Spirit of Market Capitalism.” In The Sociology of Economic Life, edited by Mark Granovetter and Richard Swedberg, 159–80. 3rd ed. Boulder, CO: Westview Press.
Espeland, Wendy Nelson, and Paul M. Hirsch. 1990. “Ownership Changes, Accounting Practice and the Redefinition of the Corporation.” Accounting, Organizations and Society 15(1): 77–96.
Fligstein, Neil. 1990. The Transformation of Corporate Control. Cambridge, MA: Harvard University Press.
Giddens, Anthony. 1991. Modernity and Self-Identity: Self and Society in the Late Modern Age. Stanford, CA: Stanford University Press.
Guinnane, Timothy W. 2001. “Cooperatives as Information Machines: German Rural Credit Cooperatives, 1883–1914.” Journal of Economic History 61(2): 366–89.
Heilbron, Johan, Jochem Verheul, and Sander Quak. 2014. “The Origins and Early Diffusion of ‘Shareholder Value’ in the United States.” Theory and Society 43(1): 1–22.
Hirsch, Fred, and John H. Goldthorpe. 1979. The Political Economy of Inflation. Cambridge, MA: Harvard University Press.
Hobson, John M., and Leonard Seabrooke. 2007. Everyday Politics of the World Economy. New York: Cambridge University Press.
Ingham, Geoffrey. 2001. “Fundamentals of a Theory of Money: Untangling Fine, Lapavitsas and Zelizer.” Economy and Society 30(3): 304–23.
———. 2003. “Schumpeter and Weber on the Institutions of Capitalism.” Journal of Classical Sociology 3(3): 297–309.
Keynes, John Maynard. 1936. The General Theory of Employment, Interest and Money. London: Palgrave Macmillan.
Krippner, Greta. 2005. “The Financialization of the American Economy.” Socio-Economic Review 3(2): 173.
———. 2011. Capitalizing on Crisis: The Political Origins of the Rise of Finance. Cambridge, MA: Harvard University Press.
Langley, Paul. 2008. The Everyday Life of Global Finance: Saving and Borrowing in Anglo-America. New York: Oxford University Press.
Leyshon, A., and N. Thrift. 2007. “The Capitalization of Almost Everything: The Future of Finance and Capitalism.” Theory, Culture & Society 24(7–8): 97–115.
Major, Aaron. 2013. “Transnational State Formation and the Global Politics of Austerity.” Sociological Theory 31(1): 24–48.
Nesvetailova, Anastasia, and Ronen Palan. 2013. “Sabotage in the Financial System: Lessons from Veblen.” Business Horizons 56(6): 723–32.
Nitzan, Jonathan. 1998. “Differential Accumulation: Towards a New Political Economy of Capital.” Review of International Political Economy 5(2): 169–216.
Nitzan, Jonathan, and Shimshon Bichler. 2009. Capital as Power: A Study of Order and Creorder. London: Routledge.
Perrow, Charles. 2002. Organizing America: Wealth, Power, and the Origins of Corporate Capitalism. Princeton, NJ: Princeton University Press.
Polanyi, Karl. 1944. The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon Press.
Porter, Theodore. 1996. Trust in Numbers: The Pursuit of Objectivity in Science and Public Life. Princeton, NJ: Princeton University Press.
Preda, Alex. 2002. “Financial Knowledge, Documents, and the Structures of Financial Activities.” Journal of Contemporary Ethnography 31(2): 207–39.
Remund, David L. 2010. “Financial Literacy Explicated: The Case for a Clearer Definition in an Increasingly Complex Economy.” Journal of Consumer Affairs 44(2): 276–95.
Roy, William G. 1997. Socializing Capital: The Rise of the Large Industrial Corporation in America. Princeton, NJ: Princeton University Press.
Ruggie, John Gerard. 1982. “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order.” International Organization 36(2): 379–415.
Sawyer, Steven. 2004. “The Influence of Thorstein Veblen’s Theory of Business Enterprise on the Economic Theories of Edward Chamberlin.” Journal of Economic Issues 38(2): 553–61.
Schumpeter, Joseph. 1911. The Theory of Economic Development. Cambridge, MA: Harvard University Press.
Schwartz, Herman M. 2009. Subprime Nation. Ithaca, NY: Cornell University Press.
Seabrooke, Leonard. 2006. The Social Sources of Financial Power: Domestic Legitimacy and International Financial Orders. Ithaca, NY: Cornell University Press.
Steiner, Philippe. 2009. “Who Is Right about the Modern Economy: Polanyi, Zelizer, or Both?” Theory and Society 38(1): 97–110.
Steinmetz, George. 1994. “Regulation Theory, Post-Marxism, and the New Social Movements.” Comparative Studies in Society and History 36(1): 176–212.
Veblen, Thorstein. [1899] 2007. The Theory of the Leisure Class. New York: Oxford University Press.
———. 1904. The Theory of Business Enterprise. New Brunswick, NJ: Transaction Publishers.
Weber, Max. [1923] 1981. General Economic History. Reprint, New Brunswick, NJ: Transaction Publishers.
Wherry, Frederick F. 2012. “Performance Circuits in the Marketplace.” Politics & Society 40(2): 203–21.
White, Harrison C. 2002. Markets from Networks: Socioeconomic Models of Production. Princeton, NJ: Princeton University Press.
Zelizer, Viviana. 1978. “Human Values and the Market: The Case of Life Insurance and Death in 19th-Century America.” American Journal of Sociology 84(3): 591–610.
———. 1989. “The Social Meaning of Money: ‘Special Monies.’” American Journal of Sociology 95(2): 342–77.
———. 1994. The Social Meaning of Money. New York: Basic Books.
———. 2005a. “Circuits within Capitalism.” In The Economic Sociology of Capitalism, edited by V. Nee and R. Swedberg, 289–322. Princeton, NJ: Princeton University Press.
———. 2005b. The Purchase of Intimacy. Princeton, NJ: Princeton University Press.
———. 2010. Economic Lives: How Culture Shapes the Economy. Princeton, NJ: Princeton University Press.
Zelizer, Viviana, and Charles Tilly. 2006. “Relations and Categories.” In Categories in Use, edited by A. B. Markman and B. H. Ross, 47:1–31. Amsterdam: Elsevier, Academic Press.