Could the fraudsters be innocent? It is natural to feel that our current crisis must be the result of criminal action. So we want to lock them up, yet we are frustrated in the knowledge that many barriers are in the way of that happening. Many ingredients of the crisis may well be the result of criminal behaviour. But what if our country has been - in the main - brought to its knees innocently? By a kind of fraud that is not a crime - an innocent fraud?
JK Galbraith coined this term in 2004 in his short book 'The Economics of Innocent Fraud'. By 2004 Galbraith had seen a lot. This is a flavour of what he wanted to pass on to us.
From the intro:
For some seventy years my working life has been concerned with economics, along with not infrequent departures to public and political service that had an economic aspect and one tour in journalism. During that time I have learned that to be right and useful, one must accept a continuing divergence between approved belief - what I have called elsewhere conventional wisdom - and the reality. And in the end, not surprisingly, it is the reality that counts. This small book is the result of many years of encountering, valuing and using theis distinction, and it is my conclusion that reality is more obscured by social or habitual preference and personal or group pecuniary advantage in economics and politics than in any other subject. Nothing has more captured my thought and what follows is a considered view of this difference.
A lesser point: central to my argument here is the dominant role in the modern ecomonic society of the corporation and of the passage of power in that entity from its owners, the stockholders, now mopre graciously called investors, to the management. Such is the dynamic of corporate life. Management must prevail.
As I was working on these pages, there came the great breakout in corporate power and theft with the unanticipated support of cooperative and corrupt accounting. Enron I had noticed as an example of my case; there were to be more in the headlines. Perhaps I should have been grateful; there are few times when an author can have such affirmation of what he or she has written. The corporate scandals, as they are now called, dominated the news because of exceptionally competent and detailed reporting.
Dealt with in this essay is how, out of the pecuniary and politicial pressures and fashions of the time, economics and larger economic and political systems cultivate their own version of truth. This last has no necessary relation to reality. No one is especially at fault; what it is convenient to believe is greatly preferred. This is something of which all who have studied economics, all who are now students and all who have some interest in economic and political life shoud be aware. It is what serves, or is not adverse to, influential economic political and social interest.
Most progenitors of what I here intend to identify as innocent fraud are not deliberately in its service. They are unaware of how their views are shaped, how they are had. No clear legal question is involved. Response comes not from violation of law but from personal and social belief. There is no serious sense of guilt; more likely, there is self-approval.
From JK Galbraith's The Economics of Innnocent Fraud, Penguin, 2004, -price all of £1.50 as one of the 70 books in the series to mark Pocket Penguins 70th anniversary.
If his analysis is right, these innocent fraudsters greatly outnumber those whom the criminal law will ever find guilty. They may even be looking at us in the mirror.