How To Recover Our Respect For The Finance Industry
Excerpt adapted from “In Pursuit of Wealth: The Moral Case for Finance” (ARI Press, 2017).
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When Bernie Sanders challenged Hillary Clinton for the Democratic presidential nomination, his core message was that America’s greatest challenge was rising economic inequality—and the main villain in this narrative was “Wall Street”: the bankers, traders, and other financiers who make up America’s financial industry. “The business model of Wall Street,” he said, “is fraud.” It was one of the least controversial statements he made.
Throughout history, finance has always been viewed with skepticism if not outright hostility, whether it was the ancient Greeks and early Christians who condemned (and often punished) “usurers,” Franklin D. Roosevelt who insisted that the Great Depression was the product of greedy speculators, or Occupy Wall Street, which vilified “the 1 percent.”
And, to be sure, we have seen real problems concentrated in the financial industry, whether it be massive crises like the Great Depression, the Savings and Loan debacle, and the Great Recession, or scandals like Bernie Madoff’s Ponzi scheme, the outcry over high frequency trading that occurred with the release of Michael Lewis’s 2014 book Flash Boys, or the recent Wells Fargo phony account controversy.
But the fact is that our economic well-being depends on a vibrant and innovative financial industry—and that we would all be far worse off but for the productive achievements of this maligned and vilified group of individuals. Even if one is outraged by the behavior of some bankers, to call every member of the industry a participant in fraud is a profound injustice.
Why then does no one speak up to defend finance? Why do statements like Sanders’ evoke a yawn rather than a protest? Because what Sanders said was only a crass variant of a belief shared by almost everyone in some form: that finance is immoral. Maybe not totally. Maybe it has some redeeming features. Maybe it is a necessary evil. But it is an evil nonetheless.
This belief in the immorality of finance can’t be explained merely by the specific wrongs committed by specific financiers. Soldiers have committed atrocities without tarring the reputation of the military itself. The special ire directed at finance comes from the recognition that financiers are motivated by the selfish desire for profit—and the belief that the profit motive leads financiers to take short-range, irrational, predatory actions to line their pockets at others’ expense.
In this regard, finance is not unique. This same view of the profit motive taints our evaluation of all businessmen. The reason finance gets singled out for special rebuke is, in large measure, because financiers are the most naked in their pursuit of profit. Although all businesses aim to profit through their productive actions, their primary concern is (or at least should be) making great products and providing great services. But finance’s product is profit. A financier’s job isn’t to make money by making cars or computers—it’s simply to make money. (How do financiers make money? In large part by making it easier for others to make products like cars and computers.)