An Entertaining Defense of the Morality of Finance
Review of In Pursuit of Wealth: The Moral Case for Finance, by Yaron Brook and Don Watkins (Ayn Rand Institute, 2017), 250 pages, ISBN-13 978-0996010115, $14.93 on Amazon.com.
People often refer to economics as the “dismal science,” and most books about the discipline are as uninspiring as the term suggests.
Yaron Brook and Don Watkins’ In Pursuit of Wealth: The Moral Case for Finance is not one of those books. Instead of boring readers with dry theory, Brook and Watkins enlighten readers by clarifying and illustrating the underlying truths of economics.
Making the Obscure Clear
The language of finance may seem arcane, but Brook and Watkins demystify the jargon, defining and explaining “hedge funds,” “investment banks,” “private equity,” and other otherwise puzzling concepts and entities.
Few people may be able to define what usury is, for example, but many are sure it’s bad. Contrary to popular belief, usury is not a misdeed. Instead, the authors explain, usury is simply another word for lending money and collecting interest, a process which spreads wealth.
“Usury is a financial transaction in which person A lends person B a sum of money for a fixed period of time with the agreement that it will be returned with interest,” they write. “The practice enables people without money and people with money to mutually benefit from the wealth of the latter. The borrower is able to use money that he would otherwise not be able to use, in exchange for paying the lender an agreed-upon premium in addition to the principal amount of the loan.
“Not only do both interested parties benefit from such an exchange; countless people who are not involved in the trade often benefit too—by means of access to the goods and services made possible by the exchange,” Brook and Watkins write.
Likewise, “finance” is not a dirty word, a point the authors adeptly make throughout the book.
Telling the History of Finance
Brook and Watkins provide a detailed history of finance, starting with Aristotle and Plato in ancient Greece, weaving the story through the rise of the Catholic Church, and ending with today’s Wall Street.
In explaining what finance is by outlining its history, the authors seek to dispel the bad reputation classically personified by Shylock, the cold financier of Shakespeare’s The Merchant of Venice, and infamously amplified by the Occupy Wall Street collectivists’ sit-ins.
Throughout human history, the authors write, politicians have demonized financing to increase their own power.
“These sorts of negative attitudes toward the industry are encouraged by activists, intellectuals, and political leaders who actively work to vilify the industry,” Brook and Watkins write. “Throughout history, they have demonized financiers as greedy, dangerous, and unproductive—as leeches who make money by exploiting the rest of us. Luther declared that ‘there is on earth no greater enemy of man, after the Devil, than a gripe-money usurer.’”
Finance as a Moral Good
In contrast to the popular negative opinion of the industry, Brook and Watkins demonstrate finance is a boon to society as a whole, explaining how our happiness and well-being depend on free exchange of money between creditors and debtors.
“We have a negative view of the financial industry because of wrong ideas: about the productivity of the industry, about the morality of the industry, and about the power of the industry,” they write. “That is unjust toward the men and women in finance, and it is destructive for the country as a whole—because our standard of living and the future of economic progress depend on a free and vibrant financial industry.”
Entering Madoff’s Mind
Although tangential to the book’s message, a particularly interesting diversion is the tale of financial boogeyman Bernie Madoff, a con man who embodied people’s worst fears about the financial world.
Madoff did not scam thousands of individuals for literally billions of dollars for business reasons, the authors write, but out of a desire for social acceptance from higher-class people.
“Madoff didn’t seek money as a reward for his competence—he sought money to prove to others that he was competent,” Brook and Watkins write. “He aimed, not to build a great business, but to manufacture a reputation as a great businessman. He didn’t want to use his intelligence to create wealth, but to steal wealth in order to dupe others into thinking he was intelligent. Madoff, you might say, wasn’t greedy, but needy: he needed to feel like a big shot because, in reality, he felt like a nobody.”
Identifying the Real Villain
Government favoritism is the real cause of the inequities in our financial system, the authors write. This favoritism manifests as cronyism, burdensome occupational licensing laws, minimum-wage laws, the welfare state, and other government actions to tip the scales in seeking votes from beneficiaries.
“When a bank or auto company that made irrational decisions gets bailed out at public expense, that is an outrage,” they write. “But the root of the problem isn’t their executives’ ability to influence Washington—it’s Washington’s power to dispense bailouts. When an inner-city child is stuck in a school that doesn’t educate him, that is a tragedy. But the problem isn’t that other children get a better education—it’s that the government has created an educational system that often doesn’t educate, and that makes it virtually impossible for anyone but the affluent to seek out alternatives.”
For those who delight in learning about how the world around us really works, as I do, Brook and Watkins’ book will entertain and engage as few other economic books have done.