The Battle for the Soul of Capitalism – Bogle

JOHN C. BOGLE is the founder and former CEO of Vanguard mutual funds. In 2004, Time magazine named him one of the most influential people in the world. In 1999, Fortune magazine named him one of the four investment giants of the twentieth century. He has written a book called The Battle for the Soul of Capitalism. Yale University Press has reviews of the book.

His introduction gives an idea of the contents of the book

As the twentieth century of the Christian Era ended, the United States of America comprehended the most powerful position on the earth and the wealthiest portion of mankind. The frontiers of the nation were guarded by two great oceans, and her values and ideals at once incurred the respect, the envy, and the ill-will of much of the rest of mankind. The gentle but powerful influence of her laws, her property rights, her manners, and her business institutions and financial institutions alike had combined to produce her power. Her peaceful inhabitants enjoyed and abused the advantages of wealth and luxury. Her free constitution had gradually cemented the union of the states and was preserved with decent reverence.

As some readers will recognize, that paragraph, aptly describing our nation as the twenty-first century began on January 1, 2001, is a play on the words of the famous opening paragraph of Edward Gibbon’s 1838 epic, The Decline and Fall of the Roman Empire. And yet, Gibbon continued, “the Roman Empire would decline and fall, a revolution which will be ever remembered and is still felt by the nations of the earth.” By the end of his epic, the Roman Empire was no more. Constantinople had fallen, the fruitful provinces overwhelmed by Vandals; Britain was lost; Gaul was overrun; and the brutal Goths had conquered Rome itself, as in 410 A.D. the Imperial City was delivered to the licentious tribes of Germany and Sythia.

Why did the Roman Empire fall? One answer seems to lie in its citizens’ unshaken demand for material goods (“bread”) and the self-indulgence of its civic order (“circuses”); the acceptance of money as the measure of their worth, their wants, and the value of their property; their need for honor and recognition, even as their vision of freedom, liberty, and greatness was fading. As Saint Augustine suggested, it was self-love that led to the fall of the Roman Empire. Gibbon’s conclusion is expressed in this profound warning: “O man! Place not thy confidence in this present world.”

Gibbon’s history reminds us that no nation can take its greatness for granted. There are no exceptions. So I am concerned about the threats we face, not only the external threats to America’s greatness in this present world, but the internal threats we face at home. This book is my attempt to address one of those major threats: the remarkable erosion that has taken place over the past two decades in the conduct and values of our business leaders, our investment bankers, and our money managers.

My vantage point is that of an American businessman (and a lifelong Republican) who has spent his entire half-century-plus career in the financial field—writing an idealistic thesis on the mutual fund industry during 1949 – 51; then spending a near-quarter century working at and finally heading fund pioneer Wellington Management Company; founding the Vanguard Group of Investment Companies in 1974 and serving as its CEO through early 1996; and subsequently, to this day, researching, writing, and lecturing on investment issues. For better or worse, my youthful idealism—the belief that any truly sound business endeavor must be built on a strong moral foundation—still remains today, at least as strong as it was all those years ago.

By the latter years of the twentieth century, our business values had eroded to a remarkable extent. Yes, we are a nation of prodigious energy, marvelous entrepreneurship, brilliant technology, creativity beyond imagination, and, at least in some corners of the business world, the idealism to make our nation and our world a better place. But I also see far too much greed, egoism, materialism, and waste to please my critical eye. I see an economy overly focused on the “haves” and not focused enough on the “have-nots,” failing to allocate our nation’s resources where they are most needed—to solve the problems of poverty and to provide quality education for all. I see our shocking misuse of the world’s natural resources, as if they were ours to waste rather than ours to preserve as a sacred trust for future generations, and I see a political system corrupted by the staggering infusion of money that is, to be blunt about it, rarely given by disinterested citizens who expect no return on their investment.

Bogle is critical of the shift in capitalism from what he calls “owner’s capitalism” where the owner of the capital received the lion’s share of the reward for risking the capital to “manager’s capitalism” where the lion’s share of the reward goes to those whom we have entrusted to manage our enterprises.

Today’s capitalism, however, has departed, not just in degree but in kind, from its proud traditional roots. Over the past century, a gradual move from owners’ capitalism—providing the lion’s share of the rewards of investment to those who put up the money and risk their own capital—has culminated in an extreme version of managers’ capitalism—providing vastly disproportionate rewards to those whom we have trusted to manage our enterprises in the interest of their owners. Managers’ capitalism is a betrayal of owners’ capitalism, a system that worked, albeit imperfectly, with remarkable effectiveness for the better part of the past two centuries, beginning with the Industrial Revolution as the eighteenth century turned to the nineteenth.

The human soul, as Thomas Aquinas defined it, is the “form of the body, the vital power animating, pervading, and shaping an individual from the moment of conception, drawing all the energies of life into a unity.” In our temporal world, the soul of capitalism is the vital power that has animated, pervaded, and shaped our economic system, drawing its energies into a unity. In this sense, it is no overstatement to describe the effort we must make to return the system to its proud roots with these words: the battle to restore the soul of capitalism.

Bogle has important things to say about our financial world. The book is worth reading.

2 thoughts on “The Battle for the Soul of Capitalism – Bogle

  1. Gary,Thanks for posting excerpts from Bogle’s new book. I heard him this morning on NPR, and combined with what you posted here, he seems to be a Republican I could respect and admire. I may even buy his book.Howard


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