All sustainable processes of social construction (communities as well as enterprises) depend on the exercise of people’s autonomy and internal motivation, neither of which can be imposed from the outside—like pushing on a string. Thus the attempts by those in power to “generate” these results leads to pseudo-results, Disneyland neighborhoods, govt-promoted white elephant factories built to “develop” a region, and Jeff Sachs’ millennium (or rather Potemkin) villages in Africa, usually designed to deliver “measurable results” often in sync with political or bureaucratic funding cycles.

All this is fine, but my problem with the Austrian theory is, as usual , its failure to follow through with its own excellent principles when it is politically or ideologically inconvenient. Where is the analysis of what happens to genuine entrepreneurship and enterprise development in the massive economic processes over the last century brought about by absentee ownership of companies on the stock market? After correctly seeing the disconnect between govt Keynesian stimuli and the market process of enterprise development, the Austrians seem to have little to say about how the Wall-Streetization of the major companies has promoted the obsession with the quarterly manipulation of earnings and stock prices and corporate buying and selling of enterprises—all rather disconnected from genuine entrepreneurship and enterprise development. Austrians laser in on the inanities of politicians (who are not tasked with enterprise development) geared to a four-year political cycle, but apparently find it inconvenient to take on elite corporate management geared to a quarterly cycle! Some Austrians even seem to glorify the transition away from enterprise development by redefining “enterpreneurship” in terms of quickly spotting arbitrage opportunities, e.g., the stock-trader as “enterpreneur,” which is actually quite a different skill than building a company.

Perhaps I am just not widely enough read in the Austrian literature to know where it focuses in on and criticizes the almost century-old effects of absentee ownership and the stock-market-sponsored financialization of the commanding heights of the corporate economy—and on its long-term deleterious effects on the American economy.

The irony in all this is that there was one prominent economist who, above all others, emphasized how genuine enterprise was undercut by the short-termism and financial focus of a stock-marketized economy, and his name was John Maynard Keynes.

“The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own.” [Keynes, John Maynard 1933. National Self-Sufficiency. In The Collected Writings of John Maynard Keynes. Donald Moggeridge ed., London: Cambridge University Press, 235-6]

“Decisions to invest in private business of the old-fashioned type [i.e., direct investment, not 'investment' on the stock market] were, however, decisions largely irrevocable, not only for the community as a whole, but also for the individual. With the separation between ownership and management which prevails to-day and with the development of organised investment markets, a new factor of great importance has entered in, which sometimes facilitates investment but sometimes adds greatly to the instability of the system.” [Keynes, John Maynard 1936. The General Theory of Employment, Interest, and Money. New York: Harcourt, Brace & World., 150-1]

For instance, Keynes was much concerned with the adverse effects of the stock exchange on real investment and enterprise. Real investment in productive enterprise should be stable, and the management of enterprise requires a long term commitment in order for the application of “intelligence to defeat the forces of time and ignorance of the future.…” [Ibid., 157] But when investment is securitized as a marketable asset on the stock exchange, then it

“is as though a farmer, having tapped his barometer after breakfast, could decide to remove his capital from the farming business between 10 and 11 in the morning and reconsider whether he should return to it later in the week.” [Ibid., 151]

“The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only.” [Ibid., 160]

The stock exchange panders to the “fetish of liquidity” and thus continually undermines the bonds of long-term commitment that are so important to problem-solving and productive enterprise. Keynes, of course, wrote this long before today’s ultra-short-termism with quarterly reports, stock options, constant churning of M&A activity, and computerized trading. In any case, the point is that Austrian theory, which still seems to be having trouble distinguishing real enterprise from day-trading (e.g., Lewin’s “entrepreneurs’ expectations of profitably making new capital combinations, only some of which would, in the event, prove to be profitable”), is not in a very good position to be lecturing Keynes on the topic. The Austrian entrepreneurs still seem to be tapping their barometers after breakfast.

This theme is developed at greater length in my blog:
Is Wall-Street Capitalism really “the model”