The Ethics of Debt? A Statement from the Convention of Independent Financial Advisors

An implication of the ethics of sustainability and concern for stakeholders is to question the reasonableness of having too much debt or fiat currency in the marketplace. The old wisdom of Benjamin Franklin was that “A penny saved is a penny earned.” The ethics of saving and building personal equity – the way to wealth, Franklin said – were once unquestioned in my family and many others.

But when negative interests place the value of money at below zero, who can benefit from saving? Furthermore, cheap money is a market incentive to borrow and incur debt, reducing the safety net provided by equity for companies, families and individuals. Very cheap money expands the scope of moral hazard, does it not?

Please also note this chart, also of some years ago:

There was a story in yesterday’s Wall Street Journal that major American retail companies are struggling to survive under current circumstances due to heavy debt obligations. Boeing was chastised for eating into its cash reserves and leaving itself very vulnerable when losses from the 737 Max 8 debacle arrived.

Equity provides a buffer against fate to protect what has long-term value. Debt is not such a helpful asset; it is accounted for as a liability.

Is very cheap money really in the best interests of all? Over the past 12 years, the provision of liquidity and quantitative easing have gone hand and hand with rising nominal prices for financial instruments. Qui bono? This increase in liquidity and rising market prices have also gone hand in hand with the increasing share of wealth held by the top 1% and 10% of all of us.

If the purpose of capitalism is to provide for the well-being of humanity, might we ask what is the well-being calculus which so favors debt over equity and savings?

The concept of equity in financial accounts derives, I believe, from the commitment to equity in the old courts of England. Equity was added to the law by courts to recognize the moral claim of a person to fairness under the law. In protecting a person’s equitable interests, the courts were protecting not only his or her moral dignity, but also his or her material empowerment.

Fairness in economic arrangements should not overly favor debt and so undermine the advantages provided by equity.

Our affiliate, the Convention of Independent Financial Advisors, has just released this statement calling into question public policies which seem risky and hostile to sound ethical principles.

I recommend it to your consideration.