The Impact of Finance on Inequality in America

A short article in a major paper I saw a few days ago brought to mind the interrelationship of finance to the rest of capitalism. Is it the tail which wags the dog or just a tail under the dog’s control?

The particular story presented an interconnection between finance and racial inequality of wealth. American stock markets grew in value by some $2 trillion in the third quarter. Now, households composed of those with European ancestry own almost 90% of corporate equities and mutual funds. Their wealth rose to $98.6 trillion or 84.6% of total wealth, the highest percentage in three years. These families comprise 76.4% of the total population.

The portion of overall wealth held by African American families fell to 3.8%, down from 4.4% two years earlier. African Americans are 13.4% of the total population.

Families with Hispanic ancestry held 2.1% of the wealth.

Now, presumably, access to stock market assets is not random. Investing is a choice and the marginal cost of investing varies with disposable income and the amount of accumulated financial assets.

When you focus on differential access to investable liquidity, as Marx did, you rather quickly become less enamored with the outcomes of capitalism. As Marx insisted in his Theses on Feuerbach, “Philosophers have hitherto only interpreted the world in various ways; the point is to change it.”

The starting point for change is common sense discovery of causes creating the status quo.

CRT Principles for Government Implemented in Washington?

Late last week, I sent to our network a copy of our Principles for Government. The fundamental principle recommended is that public office is a public trust.

Since then, the leading news story out of Washington, D.C. has been efforts to impeach Donald Trump as President and remove him from office.

The constitutional framework for this action is the very same concept which grounds the principles – an office is a trust. Therefore, holders of office will be held accountable for breaches of trust.

The statement of this principle in the article of impeachment proposed to be tabled in the U.S. House of Representatives with respect to Donald Trump’s conduct in office reads:

In all of this, President Trump gravely endangered the security of the United States and its institutions of government. He threatened the integrity of the democratic system, interfered with the peaceful transition of power and imperiled a coordinate branch of government. He thereby betrayed his trust as President, to the manifest injury of the people of the United States.

Has a Rubicon Just Been Crossed in America?

Dear Friends and Colleagues:

Given the momentous and historic lawless disruption of the U.S. Congress this past Wednesday, serious and necessary questions are being asked: what is happening in America? I would like to provide some background from my personal perspective on the course of history now unfolding in this country.

Metaphorically, the Rubicon has just been crossed in the American cold civil war. The American republic is on the edge of a death spiral. Civility between the contending parties has been abandoned. Uncivil disobedience, even violent lawlessness, is taking its place. There will be no going back to more halcyon days. Our leaders are crying “havoc” to their followers and are letting slip “the dogs of war.”

The 2020 presidential election started that ripping up of our domestic political compact, a rupture ironically nearly 400 years to the day after the first compact, the 1620 Mayflower Compact, which framed our experiment in self-government.

There is now and never will be closure on the legitimacy of Joe Biden’s victory. Tens of millions of Americans are more than disconcerted by “innovations” introduced into the presidential election process last November.

For example, many commentators have complained that, in the months prior to the election in the key states which tipped the election to Biden, Democratic Party activists arranged for the sending of mail ballots to everyone, unprecedented numbers of Americans voting by mail and not in person, waiving voter ID requirements for those afraid of Covid, making available insecure mobile ballot boxes, election officials “curing” and not discarding faulty ballots and not purging voter registration lists of those not eligible to vote. Then, one billionaire donated $350 million to finance election clerks, judges and vote counters and open more poll locations in Democratic voter strongholds.

Jonathan Turley, Professor at George Washington University Law School and noted commentator, has pointed out that these actions were recommended by David Plouffe, John Podesta, David Axelrod and Stacey Adams, all leading Democratic strategists.

The day after the election, such arrangements immediately raised suspicions among Trump supporters, who were already unforgiving of his political enemies. And due to court rules on civil procedure, there has been no trial on the merits of the accusations. Responsible officials just denied the charges and did not produce any evidence that would substantiate their denials. Doubts as to their integrity were not put to rest. Whether the election was fairly conducted in 6 or 7 key states is and will remain a question of “He said, she said.”

In today’s post-truth culture, tastes vary from individual to individual and cannot be questioned to another’s discomfort. Personal narratives prevail over facts and reasoned argument. “All is vanity,” we read in Ecclesiastes. The text continues: “All things are full of weariness; a man cannot utter it; the eye is not satisfied with seeing, nor the ear filled with hearing.”

Tinder for a bonfire of political vanities is all around us now. Some of it was lit by the November presidential election. More by Wednesday’s lawless ransacking of the Capitol in Washington. Even more tinder will likely be set on fire in the months to come.

The failure of the presidential election to establish its legitimacy is the crossing of a political frontier similar to the crossing of the Rubicon River by Julius Caesar with his personal army on January 10, 49 BCE, when he challenged the legitimacy of the Roman Republic.

Today is the 2,070th anniversary of that dramatic challenge to the constitutional order of the Roman Republic.

Caesar’s jaunty quip that day was alea iacta est – “The die is cast.” Civil war was the result. He won the toss, but later paid for his victory with his life.

Trump is now having to pay personally for his hubris. Like Caesar before him, Trump rose thanks to a dynamic personality, but, also like Caesar, that same personality has twisted him into a loser.

Heraclitus said that ethos anthropos daimon – “Our character drives our destiny.” In this formula for success or failure in life, an unregulated character can lead to hubris. Hubris, then, necessarily brings on nemesis – downfall and destruction. This is true for nations, as well as for individuals.

British military advisor and strategist John Glubb asserted that no empire can survive much more than 10 generations or about 250 years. Our 250th anniversary will be upon us in 5 years.

Several years ago, Professor Francis Fukuyama had already written presciently on political “decay” as something Americans should now worry about. After Donald Trump was elected, I went to see him at Stanford to ask him how he thought we might reverse the rot eating away at our politics. He replied slowly: “I can’t think of anything.”

Now, four years later, a widely questioned presidential election would constitute a pretty significant undermining of our political well-being. That the Democrats “stole” a presidential election has now entered the mythology of American history. Too many people – tens of millions of them – believe that to be the fact and they will never change their minds. Nor will they submit to “re-education” sessions shoved down their throats by their social “betters.”

On the other side, even more Americans have locked themselves into a narrative that nothing went awry in the vote count. They are afraid to admit any failure of due process in the election. To so admit might precipitate an unraveling of their authority. It might even end up with their having to accept personal responsibility for the collapse of our republic.

The worst possible electoral outcome is now a reality – no truth, just bitterly conflicting partisan narratives. Having a clear victor and so also a clear loser would have been an outcome having the force of undeniable truth behind it. Those on the losing side would resentfully and angrily, but nevertheless genuinely, resign themselves to the outcome and get on with their lives.

I can imagine Karl Marx rather joyfully looking on from wherever he is as we Americans validate his thesis of dialectical materialism. Our culture war has now solidified into a class war. Each class has its separate relationship with our system of production. The ideology of each class, just as Marx insisted, so aligns with its economic self-interest that we might say each rival ideology is a rationalization programmed to legitimate a class interest.

Our new system of production is more sophisticated than the capitalism studied by Marx. Now, finance is not the most important form of capital. Over the last 30 years, we have, through public agencies, created massive amounts of liquidity – trillions and trillions of dollars in every major currency. The world is floating on a huge sea of currency and currency equivalents as never before in history. That is one reason why the price of money – interest rates – are so low. Supply is surging and the laws of economics are working just fine.

Our global post-industrial economy now runs on forms of capital which were once marginal, such as human capital, intellectual property, social capital such as celebrity, credentials, brand equity, customer goodwill, corporate culture and the asset implicit in controlling regulatory power. The old form of capital – liquidity – is now most easily appropriated by those who possess the new forms of capital.

Since nearly every sector of the economy is dominated by a few firms, corporations can extract rents over and above competitive market prices. Corporate officers are, more and more, part of the new ruling elite by virtue of their credentials and human capital which gives them preferential access to liquidity. Thus, we now have “woke” capitalism.

In our current form of capitalism, the middle and lower classes don’t have any of the new forms of capital. An old fashion work ethic can’t compete with credentials or social mediatized status. Mere labor, as always, isn’t much of a capital asset. So, those who have been called the “deplorables” have become the new proletariat. They are the social base for the Republican Party. Democrats who are also part of this class have become Republicans. Republicans who belong to the new capitalist class are becoming Democrats, voting for Joe Biden. The Democrats have become the party of the new American ruling class – those who are woke, well-credentialed and blessed with white collar employment in large institutions.

In the time of Julius Caesar, the opposing classes in the Roman Republic were, on top, the patricians, the “fathers” who gave direction (also called the optimates or the “best ones”) and on the bottom, the plebeians.

In a premonition of the mob violence which has unexpectedly broken out this year in America, first with Black Lives Matter and Antifa challenges to the establishment and now with Trump supporters storming the Capitol, the very successful 2019 movie Joker (grossing $335.5 million) told a story of the marginalized rising up in the streets to turn the tables of law and order on their betters. It made one think of the storming of the Bastille in 1789 and the barricades in Les Miserables.

So, America now has in more pestilential form than at any time since the election of 1860 perhaps, an irreconcilable antagonism between two social classes, each with its own culture of virtue and each with its own economic reality.

Bismarck’s famous remark that “God has a special providence for fools, drunkards and the United States of America” is about to be tested for its truth.

Sincerely yours,

Stephen B. Young
Global Executive Director
Caux Round Table for Moral Capitalism

On Recent Events in Washington, D.C.

From our first round table in 1986, the Caux Round Table for Moral Capitalism (CRT) has sought to transcend all parochialism, sectarianism, ethnocentricity and partisanship through dialogue and having what its founders called “honest conversations.” Such conversations demanding of participants hearing others and having empathy are not easy. In a way, they are a search for truth and many times, truth, about ourselves, is not what we want to hear.

In these conversations and perhaps whenever truth is present, there is judgment, the application of some outside standard to our actions and aspirations. Honest conversations are hard on narcissism and selfishness, on unkind ambition and resentments. But without judgment, what is the use of ethics, morality, law or values?

We can, of course, use our ethics, morality, values and the laws we want to enforce for our own ends to puff ourselves up or push others down. But what justifies such self-magnification, useful though it might seem?

In Washington, D.C. this past Wednesday, there was an assault on established institutions doing their duty in accepting the results of an election – a ransacking of the Capitol – unprecedented in the history of the U.S. Angry citizens, some prepared for violence, encouraged by an outgoing president, forced their way into the houses of Congress, climbing up walls, smashing windows and demolishing locked doors.

While the CRT is usually reticent in getting entangled in the internal travails of countries, though members of the network may have strong personal opinions for and against such actions or policies, it seems appropriate to bring to a wider awareness relevant standards with which to assess and judge events of significance for our times. Having a care for the common good carries a responsibility to engage in honest conversations.

The CRT, through our round table process, has proposed certain ethical principles for government and politics. The lawless and vengeful protest in Washington on Wednesday cannot be reconciled with such principles. Any use of force and violence to impose one’s will contradicts principles of right order.

The CRT Principles for Government are set forth below.

I direct your attention to the fundamental principle that public office is a public trust. Fiduciary duties of loyalty to the nation, the people and the laws are first and foremost. Political power is not for personal exploitation; it is not personal property to be used arbitrarily for selfish advantage. Secondly, fiduciary duties of due care as a trustee of power requires serving the best interests of others, even people we don’t like. In such service, we are to act after reasonable consideration of alternatives in a manner which uses the prudence and foresight which others would bring to the decision.

Next, in holding a position of public trust, we are to use discourse, not force, in making decisions as to the use of our powers. If we are upset, angry or feel the boot of injustice, we should respond with honest conversations until others leave us no option but intolerant confrontation on behalf of what is right.

To me, the standard of discourse was well expressed by President Abraham Lincoln when he said on the occasion of his second inauguration:

“With malice toward none with charity for all with firmness in the right as God gives us to see the right let … do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.”

Timely Thoughts on Citizenship

One of our fellows, Michael Hartoonian, sent me some thoughts on citizenship, the personal agency which drives free societies. As we begin 2021, after nearly a year of collective regimentation and personal, self-discipline to minimize the impact of a pernicious, but invisible menace, it might be time to focus once again on action by individuals for the common good through their personal commitments and taking of risk and finding courage.

With the U.K. out of the E.U. and with realignments in the Middle East, but populist nationalism comfortably entrenched in some nations, great and small, esteeming good citizenship seems quite relevant globally.

I hope you find Michael’s recollection of past virtues reassuring that they may not be irredeemably lost.

End of Year Reflection and Request

Of what use is an effort like the Caux Round Table for Moral Capitalism (CRT) during a time of pandemic?

What is the case for financial support of our mission and the many thoughtful contributions of members of our network?

As 2020 comes to an end, in this holiday season for many of us, I have been reflecting on this.

For the past months, key phrases and words pushed upon us by the pandemic have been “follow the science,” “lockdowns” and “what should the government do?,” among others.

But does science have a moral compass?  Does government?  Do politicians and regulators?

The moral compass of science is in the minds of the scientists.  Data, as we know, must be interpreted.  Data can be manipulated to fit narratives.  Who controls making the narratives to which data is subordinated?  Which narratives are sound, reliable?  Which ones should be taken as truth?

Scientists have power and power always needs moral guidance to seek what is good, right and fair.

Ordering lockdowns is another use of power.  All government is the use of power over others. What moral standards set limits on the use of public power?

One lesson taught to us by the pandemic is the foundational importance of work in morals and ethics, in finding principles which can be applied in action to affect the outcomes of our lives.

It’s an old point actually, but technology, tools, instruments and expertise without more is unguided and, therefore, can be shaped by human purposes for good, bad or indifference and irrelevance.  Human purposes, of course, have many sources, venture out on many roads seeking disparate goals and objectives and justify themselves with many rationalizations.  The pandemic has taught us to consider ethics, as well as expertise.

The perspective of moral capitalism would have enterprise respond to a pandemic by quickly developing new technologies for detection of the virus, care of those taken ill and creation of vaccines to protect against infection.  In addition, the well-being of stakeholders, especially customers and employees, must be factored into the search for profit.

Lockdowns also demonstrated the ethical need for businesses to remain profitable under such conditions, to provide needed goods and services and to fund families through employment of workers.

Though they can create liquidity, it seems self-evident that public agencies cannot fund economies indefinitely.  At some point, real wealth must be created to sustain community well-being.

With respect to governments, the CRT application of morality to public office prioritizes the role of trust as a requirement for good government.  Government has an obligation to earn public trust.

Secondly, the moral imperative of earning trust leads to a second standard for good government – the use of discourse, full and free discourse, tolerant and comprehensive, where data and arguments are scrutinized and not taken for granted as a priori truth.

One example of our work, which is both unique and bears within it the seeds of greater harmony between Christians and Muslims, is our study of the moral standards contained in certain covenants made with Christian communities by the Prophet Muhammad.  No one else has undertaken such a study, which grew out of our explorations of ethical teachings across our global communities.

With the start of the pandemic, we made special efforts to reach out to our fellows and others to gather their insights and wisdom about finding meaning and purpose in these unexpected and unnerving times.  We framed this work as reaching out to the moral sense as an active force for good in our world.

If this perspective on the importance of moral reflection makes sense to you, we would be grateful for your assistance, both financially and with ideas, on how best to strengthen the quality of CRT round tables and publications.

Please also consider who you might interest in the work of the CRT and introduce them to us.

You may contribute to us one of three ways:

-by credit card via PayPal

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Thank you again for your past interest in our work and for your continued support.

Trying to Walk the Talk: Putting the CRT Approach to Work in Minnesota in a Time of Moral Crisis

In the years when participants in the Caux Round Table for Moral Capitalism (CRT) have met to contribute insights to the betterment of global capitalism, they drew on experience, as well as on “book” learning.  The tensions in ethics between aspiration and reality, thought and action, hope and commitment, long-term and short-term, profit and community benefits, seem inexorably necessary.  Abstractions, what the philosopher Jurgen Habermas calls “normativity,” have their necessary place in human affairs.  But abstractions without more remain disembodied in the realm of thought and language.  To reify what is merely conscious is to leave normativity behind and enter the realm of facticity.

The CRT has, therefore, sought, with dedication, to be present in both realms – normativity and facticity.  Ideas and ideals guide and inspire and implementation – key performance indicators – changes the world.

Here in Minnesota, after the death of George Floyd at the end of May, demands for defunding police forces in Minneapolis and St. Paul and insistence on more effective steps to reduce traditional inequalities of wealth among African Americans became immediate challenges in our home community.  To meet the challenge, the CRT applied its principles to design very practical responses to policing, building personal assets and re-framing how we, as Americans, should understand and talk with each other about “racism.”

However, all three responses can have global applications in 1) policing; 2) providing an on-ramp for inclusion of poor families in banking and investments; and 3) reducing mistrust and even enmity between ethnicities and religions.

Frankly, we have responded to injustices differently than others here have recommended.  Our analysis of the causes of inequality reflects our learning about how societies, cultures and economies intersect.  At the root of human efforts are values.  Values cannot be separated from the causes of human failures and successes.

Values alone cannot bring about success, nor are they solely responsible for the “slings and arrows of outrageous fortune.”  Circumstances, skills and qualifications, emotions – constructive and destructive – and personal dispositions combine to impact the outcomes we all experience. But skills, competencies, personal efforts and power and money cannot compensate for bad values.

We have applied a values approach to policing as first proposed by Sir Robert Peel in his Nine Principles of Policing of 1829, written to provide a moral compass for the first modern police force, the London Metropolitan Police.  We proposed that police officers should first be hired for character and then trained for competence.

Secondly, on building personal financial assets in African American communities, we have mobilized a team to deploy a FinTech Smartphone App so that youth and families can start their own individual investment accounts with investments as low as $5.00.  The values foundation for this program is the personal habit of savings and planning for the future.

Thirdly, in considering whether America is systemically racist, we prefer to elevate the value of individual, not collective, responsibility.  We believe that individuals of different backgrounds and life experiences can come to learn about others and appreciate how they view life through a process of translation and interpretation across cultures and perspectives.

In these ways, we seek very constructively to use the CRT methodology of applying the moral sense – wisdom and virtue – to decision-making and to shape the course of facticity.  By tapping into core realities of the human person and drawing on those powers in our actions, we believe good can be achieved.