02/03/2014 05:29 pm ET | Updated Apr 05, 2014

Shine on You Crazy Dimon!

Some of you may find yourselves scratching your head over the Romanov-like raise JP Morgan Chase's board just gifted to its CEO Jamie Dimon. After all, wasn't this the same Jamie Dimon who spent so much time on Capitol Hill lobbying against any new financial regulations that he missed the London Whale splashing about in his London office? The same Jamie Dimon who just forked over roughly $13 billion in fines for a variety of misbehaviors in the mortgage market? That kind of performance gets you a 74% raise?

Fear not, David Larcker, quoted in the New York Times (Feb. 1) about Dimon's Diamond Package, has helped explain this situation. Larcker, a professor at Stanford University's Graduate School of Business assured us all that we just don't get it. From the board's point of view, "this package seems to be structured in the right way."

And what is the board's point of view? Well, as Professor Larcker helpfully reminded us, "the board's duty was to shareholders, not the public." And measured by shareholder value Jamie Dimon is worth all those millions.

Never mind that we could pause and wonder whether JP Morgan Chase did so well because of the irreplaceable magic of Mr. Dimon or because the entire stock market had a remarkable year in 2013. Maybe JP Morgan Chase's stock would have done just about as well with me as CEO. Who knows? (And for the record, I would have paid off those big fines to the Justice Department for half the money that Dimon got for doing so).

But that isn't the biggest problem with Professor Larcker's explanation. Larcker simply parrots what is now accepted as a truism about American business: that corporations have only one responsibility and that is to their shareholders. That statement isn't some unalterable fact of nature, of course, but is instead an ideological position masquerading as a hard economic truth.

It hasn't always been the case. In the middle decades of the 20th century corporations routinely discussed social and civic responsibilities as part of their core mission. That began to change in the 1970s and '80s, however, with the triumph of Free Market Fundamentalism as our economic theology.

For convenience sake, we can date this change of attitude to an article economist Milton Friedman wrote in the Times Magazine in 1970. In it he complained about all this social responsibility nonsense that business felt obligated to consider and told them instead that their only task was to make money for shareholders. (The essay, titled "The Social Responsibility of Business is to Increase Its Profits," was a quick gloss his own book Capitalism and Freedom).

By the 1980s civic duty had begun to disappear from corporate calculations and maximizing shareholder value became their only objective. It is surely not coincidental that we can date the acceleration of income inequality and the rise of extravagant CEO compensation to this moment.

Certainly this shift from social responsibility to maximizing profits has been great for CEO's and not just for selfish and greedy reasons. Focusing exclusively on profit reduces the number of variables a CEO has to consider when making any decision. If you no longer have to worry about all those complicated "negative externalities" - like polluting the environment, laying off workers, destroying communities, or making people sick - then your job becomes much, much easier. Call it the Myopia of Maximizing Profits and because of it corporate board rooms have increasingly become places where ethical considerations go to die.

The bigger problem here is that the very assumption that corporations have no responsibilities to the public is simply wrong in the first place. Corporations rely on public support in all kinds of ways though they rarely want to acknowledge it. They owe us in return.

The most obvious recent example of this came in 2008 when our captains of finance, driving like drunk teenagers (maximizing profits!), wrecked the car. They certainly expected us to pay for the repairs, and we did. After that fiasco it is a little hard to stomach the mantra that corporations are responsible only to their shareholders.

But public support for the private sector is deeper than the periodic bailouts and rescues corporate America gets from the rest of us (ah! Silverado Savings and Loan where are you now??) Take the very creation of a corporation itself. They exist only in a legal framework established through the political process and ratified by the judicial system, a framework which was made considerably easier in the late 19th century. Legislatures and courts are public entities, not private ones, and the advantages corporations enjoy in this country have thus been granted to them by the public.

Indeed, at a larger level, the entire private sector exists only within a nexus of laws and rules that have been crafted by elected officials and their appointees. In this sense, there is no such thing as a "free market;" there are simply the rules of the game. The real questions are how those rules get set and for whose benefit. Those questions are entirely the public's business.

The public support enjoyed by the private sector goes on and on. Corporations that do business overseas are only able to do so because of the diplomatic relations and trade agreements worked out by the State Department and other government entities. Corporations rely on workers whose education has been subsidized by the public. They trade their stock on markets whose fairness is refereed by public officials. And when they make a hash of things they hide behind the Chapter 11 skirts of the Federal courts. (Did someone say Freedom Industries?!)

A world in which corporate boards really believe that they owe nothing to the public is not just a world which results in obscene payouts to Jamie Dimon and his buds. It is a hermetically sealed bubble in which boards fundamentally don't understand their relationship to the rest of us.

Steven Conn teaches history at Ohio State University. His most recent book is To Promote the General Welfare: The Case for Big Government (Oxford University Press).