Marketplace morality is not about being nice

Getty Images

People walk in front of the New York Stock Exchange on March 15, 2012 in New York City. Following a public resignation of an employee for the global banking firm Goldman Sachs which appeared in The New York Times as an op-ed, renewed scrutiny of both the company and the practices of Wall Street have begun among the public and media.

Article Highlights

  • The beauty of free-market capitalism: To successfully pursue happiness, you must help others do likewise

    Tweet This

  • There is no way Wall Street—or your local plumber—can be successful over the long haul without marketplace morality

    Tweet This

  • Why marketplace morality is not about being nice @JimPethokoukis

    Tweet This

It’s the beauty part of free-market capitalism: To successfully pursue happiness, you must help others do likewise. That simple, universal equation is the root of capitalism’s essential morality and of its wonder-working power to create wealth and opportunity. If you are unable or unwilling to supply a valuable product or service or hour of labor, then you eventually will fail. In that sense, the long-term incentives of every seller are aligned with those of every buyer in a competitive marketplace.

There is no way Goldman Sachs or JP Morgan or Morgan Stanley—or Apple or FedEx or your local plumber—can be successful over the long haul without such marketplace morality. It's not about being nice guys. As Greg Smith’s resignation letter put it, “If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are. … Without clients you will not make money. In fact, you will not exist.”

"Long-term incentives of every seller are aligned with those of every buyer." - James PethokoukisSuch were the harsh lessons of the 2007-2009 global financial crisis. When trust evaporates—particularly trust that a lender will promptly get his money back as promised—so do businesses. And to the extent that some bit of Wall Street now lives in a pocket universe operating according to a different set of financial physics, it is because government has created and maintained an artificial “too big to fail” bubble around its largest players.

Some have suggested that investment banks, at least, went off track when they morphed from partnerships into publicly traded companies, a structural transformation that altered management incentives. Bankers now focus on the next quarter rather than the next 20 quarters, the quick trade rather than relationship building. And perhaps Washington should mandate a reversion. But the biggest benefit would be a change in size rather than structure. No longer too big to fail, the capitalist morality generated by competition and the risk of failure would again be fully operative. And Wall Street would again be firmly focused on its core competency of efficiently allocating capital to American business.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

James
Pethokoukis

What's new on AEI

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 27
    MON
  • 28
    TUE
  • 29
    WED
  • 30
    THU
  • 31
    FRI
Monday, October 27, 2014 | 10:00 a.m. – 11:30 a.m.
State income taxes and the Supreme Court: Maryland Comptroller v. Wynne

Please join AEI for a panel discussion exploring these and other questions about this crucial case.

Tuesday, October 28, 2014 | 9:30 a.m. – 12:15 p.m.
For richer, for poorer: How family structures economic success in America

Join Lerman, Wilcox, and a group of distinguished scholars and commentators for the release of Lerman and Wilcox’s report, which examines the relationships among and policy implications of marriage, family structure, and economic success in America.

Tuesday, October 28, 2014 | 5:30 p.m. – 7:00 p.m.
The 7 deadly virtues: 18 conservative writers on why the virtuous life is funny as hell

Please join AEI for a book forum moderated by Last and featuring five of these leading conservative voices. By the time the forum is over, attendees may be on their way to discovering an entirely different — and better — moral universe.

Thursday, October 30, 2014 | 2:00 p.m. – 3:00 p.m.
A nuclear deal with Iran? Weighing the possibilities

Join us, as experts discuss their predictions for whether the United States will strike a nuclear deal with Iran ahead of the November 24 deadline, and the repercussions of the possible outcomes.

Thursday, October 30, 2014 | 5:00 p.m. – 6:15 p.m.
The forgotten depression — 1921: The crash that cured itself

Please join Author James Grant and AEI senior economists for a discussion about Grant's book, "The Forgotten Depression: 1921: The Crash That Cured Itself" (Simon & Schuster, 2014).

No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.