Markets, Morals, and Money

Why do business people care about morality?

Source: Wikipedia

Ben Franklin once said, “I’m not moral because it’s the right thing to do, but because it’s the best policy.” A market economy can only be sustained by certain standards, like trust, honesty, and fairness. It’s wrong to deceive people — and it’s also bad business. If I buy a bag of potato chips and find that it’s mostly air, I’m less likely to purchase that brand again. That’s why our government has a bureau of weights and measures.

Friedrich Hayek, a champion of free markets, called this set of shared standards “tradition.” Tradition, he says, encodes the accumulated wisdom of earlier generations in a way that no single generation, however sophisticated, could discover for itself. By learning these traditions and passing them on our children, we avoid costly mistakes. Ironically, societies that have strong moral traditions form the best environment for commercial and technological innovation. Property rights, the rule of law, and sound money are essential to sustain a market economy.

But we’re individually subject to cognitive errors that can take us down the wrong road. We’re self-interested: we tend to find excuses for little errors when they benefit us. And little things add up to big things. There’s denial. We don’t like to look at things that challenge our prior assumptions. It’s the flip side of confirmation bias. And there’s social proof, a type of herd-mentality, where a questionable practice becomes acceptable because it seems to be commonplace. It’s why terrible behavior spreads, and some firms seem like ethical and moral sewers.

Photo: Dietmar Rabich. Source: Wikipedia

People try to do the right thing because they have to look at themselves in the mirror every morning. But it’s also a good business practice to take the high road. It’s far less crowded.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:21:37+00:00 November 16th, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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