« Recent Research: Highlights from September 2010 | Main | Equity Research, Management Consultancy, and FIG: Where You Could Possibly Get Hired Before the End of the Year »


Commentary: Toward a Finance Ethic

Click to Print This Page

“An ethic, ecologically, is a limitation on freedom of action in the struggle for existence. An ethic, philosophically, is a differentiation of social from anti-social conduct. These are two definitions of one thing. The thing has its origin in the tendency of interdependent individuals or groups to evolve modes of co-operation.

“The ecologist calls these symbioses. Politics and economics are advanced symbioses in which the original free-for-all competition has been replaced, in part, by co-operative mechanisms with an ethical content.

“The complexity of cooperative mechanisms has increased with population density, and with the efficiency of tools…

“The first ethics dealt with the relation between individuals… Later accretions dealt with the relation between the individual and society. The Golden Rule tries to integrate the individual to society; democracy to integrate social organization to the individual…

“There is still no ethic dealing with man’s relation to land and to the animals and plants which grow upon it. Land, like Odysseus’ slave-girls, is still property. The land-relation is still strictly economic, entailing privileges but not obligations.”

–Aldo Leopold, A Sand County Almanac,1949

Reading this passage got me to thinking, “What then is a finance ethic?” I cannot yet attempt to provide a suitable answer, but drawing on Leopold’s call for a land ethic is certain to be instructive. Here’s a start:

  • It must involve a limitation on freedom of action in the struggle for short-term financial profit.
  • It must differentiate social from antisocial conduct.
  • The interdependent global financial system must evolve sophisticated modes of cooperation, what ecologists call symbioses, in which the original free-for-all of competitive markets is replaced, in part, by cooperative mechanisms with an ethical content.
  • The complexity of such cooperative mechanisms must increase significantly given the increased concentration of power and footprint of today’s financial Goliaths and the “efficiency” of the technology and tools of finance.
  • Today there is no accepted “finance ethic” dealing with the relation of capital to people and nature. Finance exists as if it is an independent sphere, in which pursuit of short-term monetary value can exist separate from all other values. This is false. With the rise of global competitiveness in finance and the globalization of capital markets, abstraction in finance has accelerated, and we have lost whatever “finance ethic” existed as recently as 20 years ago.

Our challenge is to “increase the complexity” of the cooperative mechanisms of finance relative to the technology and tools of finance. This can be accomplished by increasing the complexity of the cooperative mechanisms or by simplifying the technology and tools of finance, or both. Rather than our current reactive and reductionist approach (then corrupted by the political process), we need a systemic approach that begins with a clear and shared understanding of the purpose of finance, and its critical connection to society and nature. It requires an understanding of the structure of complex adaptive systems (hint: highly diverse, decentralized, coherent, with excess buffers protecting against uncertainty). Studying natural systems as model and metaphor is a good place to start.

–John Fullerton is the founder and president of the Capital Institute. He is also the principal of Level 3 Capital Advisors, LLC, an investment firm focused on high impact sustainable private investments. This article originally appeared on his blog, the Future of Finance.

As an impartial, nonprofit forum for the finance and banking industries NYSSA encourages discussion and debate among its member and other professionals. Commentaries, however, should be taken as the sole opinion of the author(s) and not of NYSSA. If you would like to submit a commentary to the Finance Professional's Post, send your article to the editor.

Related Posts Plugin for WordPress, Blogger...


The comments to this entry are closed.


NYSSA Job Center Search Results

To sign up for the jobs feed, click here.


NYSSA Market Forecast™: Investing In Turbulent Times
January 7, 2016

Join NYSSA to enjoy free member events and other benefits. You don't need to be a CFA charterholder to join!


CFA® Level I 4-Day Boot Camp

Thursday November 12, 2015
Instructor: O. Nathan Ronen, CFA

CFA® Level II Weekly Review - Session A Monday

Monday January 11, 2016
Instructor: O. Nathan Ronen, CFA

CFA® Level III Weekly Review - Session A Wednesday

Wednesday January 13, 2016
Instructor: O. Nathan Ronen, CFA

CFA® Level III Weekly Review - Session B Thursday
Thursday January 21, 2016
Instructor: O. Nathan Ronen, CFA

CFA® Level II Weekly Review - Session B Tuesday
Thursday January 26, 2016
Instructor: O. Nathan Ronen, CFA