What possible moral justification could there be for billion dollar bailouts to failing financial institutions? Answering this question means charting the ethical dimensions of money, and this requires some consideration of the extent that this strange abstract representation of wealth has become central to politics.
Much of the usual furore over money goes to how much any individual entity can have, which entities are allowed to have it, and how much will be taken away from them under what circumstances. “They have too much money”, is a complaint oft heard from those who have very little of it. However, the current consensus on money is that wealth should be unlimited – indeed, against this the only ideal seriously offered is to abolish money (despite its obvious convenience for mediating otherwise complicated exchanges of goods and services). Money can be owned by individuals or groups of humans, and each is taxed by the government of their host nations according to schemes that vary somewhat around the world. Taxation, rather than limitation, is the universally implemented response to the accumulation of wealth – to the extent that any attempt to apply solid limits would be interpreted as a particularly draconian tax.
Money, therefore, flows between organisations and individuals, and out into governments (the only organisations permitted not only to tax, but to enforce taxation as mandatory). Small amounts cycle between individuals and the organisations that both employ and supply the necessities and luxuries of life. Large amounts are exchanged between organisations – indeed, the extremes of wealth are only to be found in proximity to the giant corporations – both the organisations and the individuals involved with them deal in scales of finance that are all but unimaginable to the person contriving to make ends meet from day to day. It is the very nature of the numeric value representation that money depends upon that it takes large quantities of money to generate further large quantities.
There is a sense in which there are actually two kinds of money in the world: the day-to-day money we are all familiar with that might be called cash for convenience, and the large sums of money required to create or control organisations capable of generating more money, which is called capital. The same abstraction is at the root of both, but the scales involved change the meaning of that money, much as a bacterial colony and a human are incomparable entities even though they are both at root collections of biologically similar cells. The vast majority of people deal only with cash, and never have any significant quantity of capital – although those who become cash-rich can afford to buy shares in organisations and thus tap into the profits of capital. A small minority of people deal only with capital, and thus never have to think about issues in terms of cash. The struggle of a typical family to feed, clothe and shelter themselves is an alien world to anyone whose feet are firmly planted in the world of capital.
Ethics is concerned with the clash of ideals, and the conflicting moral concepts in the context of money are equality and freedom. On the one hand, the fiscal conservative ethic demands the freedom to make and own as much as is humanly possible. Against this, the egalitarian liberal ethic demands a standard of equality in respect of wealth, a position that suffers from an ill-defined concept of fairness. It is not that no viable definition of what is fair can be derived, but rather that there are so many possible approaches and it is not clear how we can adjudicate such a cacophony of ideals. In respect to these two ideals, it should not be thought that the cash class all ascribe to the ideal of equality since a great many prefer the ideal of freedom, not least because it better defends against unfair taxation: this is the sometimes unnoticed reason so many in the cash-class vote Republican in the United States.
Despite it being primarily a concern for advocates of the equality ideal, the sense that the distribution of wealth is inequitable is widespread, although the intensity of outrage is extremely variable. However, there is no consensus about what should be done about this situation, and even if there were it would be difficult to drive political processes that aimed to affect the rich supply of money that flows from corporations to both governments (as tax) and politicians (as campaign contributions). Raising corporation taxes in any given nation means little when there are so many alternative bases of operations the organisation might relocate to, and no politician is keen to back plans to stab their biggest contributors with a tax knife.
Marx felt intensely the injustice of wealth inequality, and believed (it seems incorrectly) that a strong identification with the ideals of fairness among the poorest workers would drive a revolution leading inevitably to a future fair world. This was misguided. The anger of the poor in the face of the rich certainly drove violent uprisings in many nations, but it led only to a consolidation of capital by the state that allowed for particularly vicious totalitarian regimes. The consequence of spreading all money out equally across the world would be to create very rich citizens of poor nations and very poor citizens of rich nations; it’s not at all clear this leads to a better world. While other ideals of fairness may prove viable in respect of money, the Marxist ideal is largely judged to have failed.
The political philosopher John Rawls had an alternative ideal for equality of money, whereby individual nations would exchange sums of money between their citizens in schemes resembling national taxation, but with all funds exchanged solely between private citizens. In response to this proposal, Robert Nozick developed philosophical arguments that demonstrated the implausibility of maintaining this kind of wealth exchange. Using an example involving the basketball player Wilt Chamberlain, Nozick argued that if we start from a fair distribution of wealth, someone like Chamberlain that many people are willing to pay to watch will immediately acquire large sums of money. To say that this new situation is unjust is problematic: people freely paid money to Chamberlain, are they not allowed to decide how their money is spent? Nozick argues that patterned distributions of wealth are problematic since “liberty upsets patterns” and similarly patterns destroy liberty. The argument between these two philosophers serves to illustrate my key point that the ethics of money concerns a clash between the ideals of equality (Rawls) and the ideals of freedom (Nozick).
Accepting Nozick’s arguments and rejecting Rawls’, we are faced with an inevitable variation in the wealth of individuals, but this does not mean that there are not alternative approaches to the equality problem that might be applied. The extent of the gulf between the world of capital and the world of cash happens because the capital class make money from their holdings and investments while the cash class must labour to earn cash. One long-term solution to this inequity could be having labour earn not only cash but also shares in equity. If the worker employed by a corporation automatically earns (small) shares in the capital its employer embodies, the disparity between the cash and capital classes can be gradually eroded over generations, although admittedly there is still some element of lottery since companies do fail and disappear, in which case everybody with shares loses out whether they are investors or employees.
Under a system such as this, investors must accept a dilution of their returns – proponents of financial freedom will likely object. But the potential narrowing of the wealth disparity could be highly appealing to proponents of financial equality, and might be worth fighting for. The real benefit of this system, however, is that it gives workers influence over the management of the company that employs them, thus disrupting the feudal pattern that modern capitalism still embodies (the randomly noble-born having been replaced with the randomly wealthy-born at the top of the pile). Although the workers might collectively own only a few percent of the company stock, it could be a decisive margin in boardroom voting, and at the very least puts the voice of the employed into a process where it is usually excluded. Expanding this scheme to its logical limits, this would also mean that banks might function like building societies or other mutual financial organisations – the money people have saved in a bank would entitle them to a share of that bank, and a voice in its activities.
The bastion of the capital class, investment companies, would largely escape this kind of process – but there is at least one situation in which the ideal of equality might infiltrate these capital funds: the bailout. When governments step in to rescue ailing financial institutions, it should not be on empty rhetorical grounds such as the company being “too big to fail” but as a purchase of equity. A billion dollar bailout should purchase billion dollar equity, and if the company is not willing to grant this stake it should be allowed to die. As economist Alan Greenspan has charged: “If they’re too big to fail, they’re too big.”
We live at a time when moral outrage towards the capital class is greater than ever. This is not simply envious anger at the rich, since for the most part the superstars of movies, music and sports are not the target of this ire. It is bankers and investment executives who earn vast sums of money even when their companies fail who are the subject of this contemporary righteous rage. The ideals of freedom cannot adequately defend against the ideals of equality in such cases, and indeed may even by aligned in some cases. It is thus more important than ever before that citizens hold their representatives accountable for decisions made in respect of the capital class. This is not easy – especially when all political parties necessarily pander to the ultra-rich. But the state is the only weapon the cash class have against the capital class, and popular opinion can lead political change when it is sufficiently strong. ‘No taxation without representation’, the saying goes. Perhaps we should now add ‘No bailout without equity’ to the chants of the discontented.
For Michael Mouse, who suggested this topic three years ago.
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