Despite the growing problems created by the global financial crisis, whether there is a crisis of capitalism is not easy to determine. There is an apocryphal story that Zhou En-Lai, when asked by Kissinger about the impact of the French Revolution, commented 'it is too early to tell'. Although this extremely long-term view does not help us right now, it is of concern that many commentators are taking firm positions, forgetting that many of us mistakenly assumed previous financial crises would be turning points. During the Asian financial crisis and collapse of Long-Term Capital Management (LTCM) in 1997-98, similar debates revolved around whether financial dominance would be reduced (at least) or whether business as usual would revive. Governments talked sternly about a 'new financial architecture'. Analysing the current situation when it changes weekly is hardly easy. Credit-money has collapsed, but what context and methodology should we use to understand this predicament? Suddenly 'the state' is again a major actor, and theories of money are again important, but in a situation where organisational inter-dependence and competition remain high in the financial industry.
Both nation-states and capitalism have changed sufficiently that the status quo ante of 30 years ago is not retrievable (nor desirable). As Anglo-American governments ceased to be cast as national-economic coordinators, at worst there was a loss of the democratic bonus that governments could be thrown out at election time if they made mistakes. Instead, unelected economic policymakers assumed that markets were the best possible coordinators in an imperfect world, and greed became the fall-back explanation for mistakes, scandals and crises. Governments were still blamed, but the democratic process was weakened by the massaging of public opinion to accept state imposition on whole populations of competition, financial choice among private services and risk-taking. The financial sector apparently enjoyed this development from 'organised to disorganised capitalism' (Wagner 2008) although many senior financiers, let alone academics, expressed concern that states were ceding democratically-instituted control to 'the market'. Asian and European policy-makers forged different compromises, but this only reinforces the point that world configurations and social integration have changed since the 1970s.
Inside the financial industry, there is now a need for a new professionalism that accepts and addresses uncertainty. The past twenty or so years have seen a diminution in professionalism, despite a greater than ever use of techniques with which to assess the future. Where cautionary discretionary judgment had traditionally been the principal modus operandi of the banking industry, intuition and the emotions of trust and distrust have for two decades been the basis for decision making. This over-reliance on the elusive ties of 'trust', rarely admitted or stressed in public, was a response to the increasingly impersonal nature of financial relationships. It was masked by positivist hopes that the future could be predicted and seemed to reduce the former necessity of taking a cautionary approach to the future. So, as with long-term weather forecasts, if one trusts them, one does not take the precautionary umbrella.
Over the past twenty years, practitioners have coped with a spiral of 'impersonal trust' relations by deploying armies of assessors of trustworthiness, while economists have ignored or despised these decision-making practices. So, the main question addressed in this article is whether orthodox economic theorists and policy-makers share the same world view as professional bankers and central bankers. Certainly since the current 'credit freeze', more people admit something approximating the thesis of this article, that bankers' reliance on emotions (such as their collective trust in impersonal assessments of a firm's future prospects) has given a sense of stability to fraught decisions which are invariably leaps into the darkness of an unknown future. …