PROJECT PRESENTATION

In 2008, the American housing bubble unexpectedly burst sending property values plummeting. Thousands of American families had ceased refinancing their household loans causing a wave of foreclosures across the country. An estimated 9 million households lost their homes because the subprime loans they had subscribed to were subject to speculation on the stock market and to predatory lending, making them incredibly toxic. This crisis was the result of human action, one of the worst self-inflicted economic disasters. Criticisms pointed to the lack of moral norms.

This stands in contrast with the past. In early modern Europe, the allocation and deployment of financial funds was mainly assured by private lenders via peer-to-peer loans. There was no bank, no credit score and no algorithm to determine who was eligible to a loan. Moral norms prevailed in peer-to-peer lending within tight-knit societies before the advent of commercial banks. Loans were flexible and could be renegotiated. Norms of cooperation, solidarity and fairness orchestrated the exchanges. And predatory lending remained rare. This is what historians called the moral economy.

RESEARCH QUESTIONS

RQ1- How and why did the moral economy norms change, persist, adapt in modern market societies in particular in financial markets?

RQ2- What is the significance and impact of moral norms in early modern and modern financial markets?

RQ3 -Can and should technological innovations adapt, modify, preserve, and scale up the norms of the moral economy?

RESEARCH ASSIGNMENT AND PURPOSE

This project investigates what happened to these moral norms in modern societies with particular emphasis on financial transactions.

It investigates the causes, dynamics, and impacts of the changes pertaining to the moral economy in modern societies (1700-2020). By moral economy I mean that social values are embedded in economic exchanges. For example, a loan is not just an economic transaction, it is also a social transaction.

Often portrayed as a phenomenon at the heart of traditional and disadvantaged communities operating in informal markets, it is my hypothesis that the moral economy’s set of norms and values have evolved, adapted, and persisted in modern market societies operating with formal institutions. I test the hypothesis that moral economy norms and values have not disappeared, but that they have changed and evolved. This project studies how.

Overview: to answer the research question and verify the hypothesis, this project is concerned with the process of transformation of the moral economy and embeddedness. In the first part (1), I examine, define, and dissect the concept of moral economy via peer-to-peer lending. What is moral economy and how does it work? Since it is understood to take place in pre-market societies, the peer-to-peer lending system of pre-industrial Europe is an excellent example. In the second part (2), I turn to the transition from this peer-to-peer lending to modern banking practices. With the turn to modernity, moral economy is thought to have receded and disappeared. I am interested in the mechanisms behind this transition. How did moral economy faded and disappeared? What were the mechanisms behind such transition? In the third part (3), I examine how moral economy norms did survive and persist in a modern context. I consider the example of informal credit in contemporary South Africa. While banking services are available, a lot of households continued to practice informal lending. What make the persistence of moral economy norms possible? Finally, in the last part (4), I study the role of technology in the disappearance and persistence of moral economy norms. The book is a contribution to the on-going discussion on the sustainability of finance.

This project is funded by the Jan Wallanders och Tom Hedelius stiftelse samt Tore Browaldhs stiftelse