Dependency on Moral Character

For millennia, people thought the monarchy was the way to be. A top down government with one central ruler (be it a king or emperor) would provide for the people and issue justice. The system would be perfect were it not for a few bad kings that gave the system a bad rap.

In hindsight, one finds that the top-down centralized monarchy was a bad system. The rare good king gave a bad system a good rap.

One of the interesting aspects of the human condition is that people with strong moral character can make bad ideas work.

I am a fan of the strong moral character, and believe that that a society is wise to invest to promote moral character in education.

However, when discussing the organization of society, one should avoid building systems dependent on moral character.

For example, the mortgage system uses margin plays against the value of property to finance home purchases. This system depended on the integrity of both banks and borrowers. The system grew corrupt, which resulted in a bubble which made homes unaffordable and a bust that left a crippled economy.

Our progressive financial system was designed to the desires of central banks and corporate moguls. Center pieces of this system include fractional reserve lending and short selling. These financial tools allow corporate moguls to take hugely leveraged positions to dominate the market and drive out small business.

This ability to take out hugely leveraged positions allows business leaders of strong character to do amazing things. Glenn Beck fawns over Jon Huntsman. Many more idolize Warren Buffet. For that matter, there are folks in the elite media in bed with George Soros.

It is exciting to talk about the exploits of the warlords of finance, yet for each successful business warlord, there's a hundred others that simply wrought financial destruction with their leveraged margin plays. (Ken Lay, Bernie Madoff, Bernie Ebbers, etc.).

Although we all have business heroes that we admire, I wonder if this progressive system of finance designed to the desires of business warlords seeking market domination is better than one built to the needs of individuals seeking to build and preserve equity?

A progressive financial system built to the desires of financial warlords is called "Capitalism." This system was described by a man named Karl Marx and first outlined in a book called "Das Kapital." It stands in contrast to the free market envisioned by Adam Smith and supported by the US Founders.

Just as the monarchy was dependent on the character of the king, this system of market domination by business warlords is dependent on the character of the business war lords.

The free market of Smith, filled with billions of individuals optimizing their personal resources through the preservation and creation of capital, benefits from strong moral character, but is not dependent on it.