Finance Logic Can Banish Corruption

The economic power that some in the financial community attain bothers many people deeply. It offends our ideal of a society that aspires to respect, appreciate and support everyone. The pursuit of power that often drives financial capitalism seems contrary to the concept that finance should be about the stewardship of society’s assets.

Yet successful societies develop elites partly because they need leaders with the power to get things done. We have to make it possible for a relatively small number of people to use their personal judgment to direct our major activities. A system of financial capitalism will eventually imbue those in possession of such faculties with wealth and power.

Still, there is a reason that the level of resentment of the wealthy and powerful is so high: A free capitalist system can support an equilibrium in which some kinds of social conspiracy pay off. George Akerlof, in his 1976 article, “The Economics of Caste and of the Rat Race and Other Woeful Tales,” explains the tendency of certain social groups to form a sort of business conspiracy against outsiders. He uses the caste system, most notorious in traditional India, to examine the phenomenon of power elites in business and finance.

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Don’t Resent the Rich; Fix the Tax Code

We have ample reason to believe that financial markets are quite useful. And yet our wonderful financial infrastructure has not yet brought us the harmonious society we might consider ideal. There remains the ugliness of extreme economic inequality, of some who endure hardship while others are pampered.

While some inequality is actually in many ways a good thing, for the motivation and stimulation it provides, arbitrary and extreme inequality poses problems. It is an imperative that people feel society is basically fair to them.

We see this aversion most clearly today in the worldwide protests associated with Occupy Wall Street and its variants. Rising inequality is certainly a valid concern, and one that must be addressed. But financial capitalism does not necessarily produce unjust wealth distribution.

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Finance Isn’t as Amoral as It Seems

Many people assume there is something sleazy about the business of finance, or the people who practice it. This impression is probably behind the commonly voiced opinion that it is a shame so many young people today are going into finance-related occupations, when they could be doing something more high- minded in other fields.

It’s true that many people in business do seem to feel rewarded, for the short run at least, in putting salesmanship ahead of purpose and in cutting legal corners. They seem too focused on money to have moral purpose in their business affairs.

Yet if one lives in the real world, one has to work with, or even for, such people. They are a reality, and it makes sense to try to understand them -- to see if they are as simply sleazy as people think.

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Walt Whitman, The First Artist of Finance

One of the myths surrounding economic inequality in our society is that high incomes are often the result of selfishness and narrow-mindedness, rather than idealism and humanity. We tend to think that those in careers other than our own are fundamentally different kinds of people.

Personality and character differences are, indeed, somewhat associated with occupation. But we tend to attribute the behavior of others to personality differences far more often than is warranted.

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