 In Defense of Financial Markets, Lecture 7 Okay, this is our last class, so let's summarize where we are in terms of the material. We started out discussing the attack on financial markets of financial institutions and financiers. We talked about the productive role of financial markets, the economic role that they play. We saw how important they are, and then we discussed some of the causes for the attack. The last few classes, we've been talking about the stock market, corporate restructuring, takeovers, LBOs. And we've seen the beneficial effects of these transactions on the one hand, on the other hand, the extent to which the people that participated in these events were persecuted, were villainized. Some of them actually went to jail. None of the people involved had a good defense for what they did. What I'd like to do in this class today is to end this course by discussing how financial institutions, financial markets, the financiers themselves, should defend themselves, should be defended. Okay, now I'd like to start by discussing how non-objectivists tend to defend these markets. So what are the common defenses used? And I will discuss two common defenders or people who present themselves as defenders. We will talk about the conservatives and the libertarians, and then we'll get to what is a proper defense. Let's talk about the conservatives. How do conservatives defend their support of financial markets and institutions? And more generally, how do they defend their support of capitalism? What do they use? What's the common good? Basically they say financial markets are good, capitalism is good. For utilitarian reasons, they maximize social well-being. So they defend financial markets, they defend capitalism from the perspective of altruism. They say it is good because it maximizes the benefit to other people. And this idea goes back to Adam Smith. The father of modern economics. His idea was that, yeah, businessmen are selfish. And even though selfishness is bad, even though it's despicable, the consequences of that selfishness are good. Because through this mechanism of the invisible hand, everybody benefits from the fact that the businessman is selfish. So even though the motive of the businessman is bad, is immoral, the consequences are good. And this is the standard party line among conservatives. Selfishness and greed are evil, but we want their effect. They want their effect without really wanting the cause. So for example, conservatives will say, you know, we need to pay CEOs a lot of money. Because it motivates them to do, to work hard. Motivates them to work hard, they produce more, which benefits society. But then they have a problem. Somebody like Michael Milken comes around and earns $500 million a year. Or Michael Eisner, who made $200 million a year. At some point, the incentive is not a feature. I mean, what's the difference from their point of view between $1 million and $100 million? In both cases, you're very, very rich. So they say, well, we support high salaries to CEO, but up to a limit. Beyond that limit, it isn't altruistic anymore. It doesn't provide that additional incentive anymore. So high salaries are good up to some level. Beyond that, we should regulate them. We should curb them. Or greed is good up to a certain point. You can be greedy as long as you're accumulating wealth, and that wealth is within a reasonable amount, that's okay. But if you become too extravagant, if there's too much of it, that's bad. What is the standard by which businessmen are judged by? Is it by their ability to produce? Under for the conservatives. Who's a good businessman and who's a bad businessman? Well, the good businessman is the businessman that makes a lot of money and then does what with the money? Gives it away. Gives it away to charity. And this is, by the way, Michael Milken's defense in his trial, was that, yes, he made a lot of money, but look at all the good things he's done, he's given to this society and that society and this charity and that charity. That was pretty much the extent of his attempt to defend himself. Now, here's a quote from Harry Malkowitz, who won a Nobel Prize in Economics in 1990. And this is from an article he wrote called, Markets and Morality. And I think this is a great quote in illustrating exactly this point. What do they perceive as good and what is bad? He's talking about the 1980s. He says, the blanket condemnation of the greedies of the 1980s blurs other important distinctions. He says, don't lump all these people together in one group. It lumps together people who are remarkably stingy with those who are remarkably generous, either with public donations to good causes or with quiet, private help to others in need. It lumps together those who's sole interest in life was winning of the finance game as measured by their accumulated wealth and those who played the game well accumulated fortunes but found time for other interests. So, if you went finance because you loved it and really wanted to do this well and that was the focus of your life and you accumulated lots of money, that's bad. If you really cared about it, but you had other interests you made to the opera and you did other things in life at the same time and you helped the needy, if you were more had other interests, then it was okay. If you gave your money to charity, it was good. If you didn't, then you get lumped together. You're lumping the good guys and bad guys. Good guys are the ones who give the charity. The bad guys are the ones who don't. This is the standard that conservatives use. And why? It's because they're altruists. You cannot fit together the ethics of sacrifice, the idea that our goal in life is to sacrifice to other people with the free market, with running a business. Think about it, you know, one day you should sacrifice your employees and then to your suppliers and then maybe to your shareholders and it's endless, it's meaningless. It provides no guidance in business. Business to be run well has to be run selfishly. You're maximizing shareholders' wealth. You're maximizing your own wealth. You're doing it because you love it. Any element of altruism that enters in there is destructive. Now, some conservatives recognize this contradiction that you're trying to live in. That is, greed, a little bit of greed is good. And they say, no, greed is bad, period. Selfishness is bad, period. To quote Michael Novak, a... Somebody who writes a lot in newspapers, a newspaper columnist and op-ed writer, talks about envy and greed. He writes, neither of these two vices, notice that he puts them together, neither of these two vices is attractive. The republic depends on the defeat of both. Envy embitters the soul and unravels community. Greed explodes the self like a cow eats too much. Or to reduce all the motives of businessmen and capitalists to greed is to set them up for sheer contempt. So the consistent conservatives realize that you can't live in a split world. You can't advocate altruism and at the same time advocate greed. Greed by its nature is selfish. And you're greedy for your values, not somebody else's values. Which brings them to say, well, okay, markets are kind of good, we need to regulate them, we need to enforce some kind of standards because since selfishness is bad and selfishness isn't work in the market process, we can't let it go rampant. We have to put some constraints on it. And the conservatives, you know, they want to regulate less than the liberals, but they're not for separation of the economy from the state, like we would before. They just want to set different limits and less limits maybe than the liberals do. Now in addition, conservatives ground their support for capitalism in ethics, in ethics and altruism and in epistemology they ground it with, what they ground it with? Faith, that's right. To quote from an article written by Peter Schwartz in Intellectual Activists, he quotes in that article George Gilder, they're saying, capitalism thrives on religious faith and decays without it. Now what does he mean by this? And this next quote I'm going to read directly applies to finance. Think of long-term investing. You're investing in a new venture, or you're making an investment in a stock, you have plans for the long term, it's risky, every investment in the stock market has risk. This is how he bases the reason for making these long-term investments. We have learned that you calculate, you estimate what the cash flows are going to be into the future, what the profits are going to be, the risk involved and you make some kind of calculation and come out with, it's worth it, it's not worth it. I should do it or not given your preference for risk. How does Gilder describe this? Capitalists' progress is based on the acceptance of risks that cannot be demonstrated to pay off in any one lifetime. Thus it relies on faith in the future and in providence. That is you make an investment and you pray and if it works out then God's on your side that day and if it doesn't, too bad. Now what does this make of a stock market? It could say it makes it a stock market what the leftist would like us to believe it's a stock market. It brings the stock market down to the level of whim, of emotion. I believe I'm going to be successful today. I have faith today, tomorrow I won't have faith. Or I have faith in stock A, I don't have faith in stock B. Epistemologically it is completely corrupt and therefore it completely corrupts all financial markets and the whole world of financial transactions. Now one of the things conservatives try to do and they've developed many think tanks and they have lots of college professors who try to present the facts about markets. They say, look, markets work, markets create more wealth. Yeah, we believe this is good for altruistic and religious reasons but look, here are the economic facts. So the defense of capitalism beyond the defense in the ethics and epistemology which we know are ridiculous the defense is here are the economic facts. It increases, it raises our standard of living and some people might say, well, isn't that enough? Isn't it enough to show that the fact on our side that the standard of living does rise with capitalism? I told that and we'll get back to that later. That's the conservatives, they depend on altruism and faith. Let's look at the libertarians and I promise not to spend a lot of time on this. Libertarians have no defense, that's why they're easy. There is no philosophy, there is no ethics to base the defense on. Where did the libertarians start from? What's their axiom from which everything else is derived? Liberty, freedom. So they can say something like this, freedom is good, financial markets are consistent with freedom therefore financial markets are good. That's it. What is freedom? We don't know. The non-initiation of force, maybe. Why is freedom good? We can't justify that. Or at least if they can, you've got a hundred different justifications depending on which libertarian you happen to speak to. So there are no ethical arguments, there are no ethical or epistemological justifications for capitalism. It's just good because it's consistent with some floating notion of freedom, of liberty. Now, if you go to the Austrian economists, many of which are libertarians, many of whom are libertarians, they have an excellent understanding of economics. They know the importance of the role of financial markets. What undermines the Austrians is the same thing that undermines the libertarians. What undermines them is philosophy. The Austrians come from all different philosophies, all very corrupt from von Mises' Kantianism to Hayek's subjectivism and distrust, complete distrust of reason and rationality. These philosophies undermine them. Say again, they're left saying, and this is all they can say, they're left saying, listen, free markets increase our standard of living, free markets are good for everybody because everybody benefits from them. They can't say more than that. In addition, one of the real weaknesses of Austrian economics, and for this I'll refer you to Dr. Beekner's course on objective value, Austrians are subjectivists when it comes to valuation. They believe that prices reflect the whims of the people buying and trading, not their objective estimates of what the product is worth, but their emotions, what they feel that they are worth. So if you remember, we talked about socially objective value. Well, prices can't be objective according to the Austrians because under social objective value, prices are determined by the best rational estimates of the parties negotiating based on their values and based on reality. Well, according to the Austrians, it's not based on that, it's based totally on emotions. Now, should give them credit, and this is where you find one of the many contradictions in Austrian economics, but also in general in the world around us, in people's ideas. You have to give the Austrian credits on the one hand for identifying the fact that prices provide us with important information. They're the ones who introduced this idea into economics. That price is important because they incorporate into them information, buying and selling incorporates into the prices important information. Now, how they can say that on the one hand, then say prices are subjective, I have no idea, but clearly this contradiction undermines even their economic argument, never mind their philosophical argument. That coaster is here and now open at Pixar Pier at Disney California Adventure Park. Bring your super family and your friends and come celebrate Friendship and Beyond at Pixar Fest before it ends September 3rd, only at Disneyland Resort. Attractions and entertainment subjects are changed without notice. Okay, so ultimately what both libertarians and conservatives land up with is we have these great economic arguments for why financial markets and institutions should be free. The economic argument is based on what? On the standard of living. People's standard of living will rise. Clearly, capitalism creates more wealth than socialism. We've got lots of evidence of that. You can point to lots of facts and this is what they do. Lots and lots of concrete facts, theory, the economics are solid here. We can show you that this will produce more wealth than that. Why is this not enough? Well, for one, the liberals don't really care. They don't really care about the facts and their goal is not to maximize wealth or to maximize the standard of living. Intellectuals in opposition to capitalism don't care about economics or about the facts. Now, let me illustrate this. Let me read you a quote from a House of Representatives report written for Dick Gephardt, the House Minority Leader, on the issue of downsizing. Now, it's a big, thick report. I'm just going to read you some of the paragraphs from the final few pages from the last chapter. So this is a quote. Even if it were true that absolutely unregulated markets used goods and services with the greatest efficiency and that ultimately they generate more wealth than markets subject to some level of public regulation, there are many among us who want more from society than simply wealth. You can't say it more explicitly than that. They go on to say, we have decided that even if efficient markets dictate the children can be profitably put to work at an early age, we will not allow it. We should also consider whether markets that dictate that workers should not have health benefits are serving society. And we should consider whether an economy that leaves such a tremendous shape of the nation's young people at home without adequate adult guidance and supervision is really serving the needs of society even if it is generating more cash. And government unions, environmental groups and other organizations which at times attempt to restrain market forces are far from perfect. But it must be clearly understood that much of the torrent of criticism directed against them is not really about creating a better society but simply about money and power. Government unions and those who advocate for causes such as the environment must work with corporations to find common ground. But they must also stand up to corporate excesses, negligence, irresponsibility and selfishness wherever they find it. No stable society can continue to exist if all wealth and power is concentrated in corporate programs. These guys don't care about generating wealth. They don't care about increasing the standard of living. What they want, they have a certain social program that they would like to instill. And of course the examples they give are once they are given in order to have as much emotion as possible. Nobody wants to see children work unless the option is for them to die which was the option in the 19th century and is the option in many countries in South America. So it's die or work. But they of course will never admit that such an option exists. Nobody wants to see people go without healthcare, without medical care. Is that really the issue? But they're trying to evoke these emotions. Or the issue of the children alone at home while two parents are going to work. We're supposed to feel sorry that that is happening. What? So the children aren't there? Yeah, the children are happy that's right. What they're trying to do is say economics doesn't matter and they know why they're saying it. Because they know that capitalism does produce more wealth. I mean Marx himself admitted this. But that is not the goal. That is not the purpose. The goal is not an increased standard of living. Later I'll read you a quote about the trading off of he calls it GNP versus social tranquility. After other things, not economic growth, not a higher standard of living. The left, more so than the liberals, more so than the conservatives and definitely more so than the libertarians, focus on ideas. They are altruists, proud of it, and much more consistent than conservatives can ever be. So in a battle between the liberals and conservatives over altruism, who is going to win? The liberals are more consistent. And the fact is that they are winning. With the Republican House, with the Republican Senate, with the Republican President, the fact is that we're moving slowly but steadily towards the agenda set by the left. I mean today we're arguing not about whether social security should or should not exist, but by what level it should be. We're not arguing about Medicare whether it should or should not exist, by what level it should be. So the Republicans have accepted the liberals' agenda, they just want to tinker with it a little bit. Not whether they should or should not be taxes, but whether they should be a consumption tax, a flat tax, or a progressive tax. So the liberals are winning because they are more consistent. They don't care about the facts. They expect reality to adapt to their vision. They also, and we'll get back to this point because that's an epistemological point that we'll address, they also recognize the wealth that is created under capitalism, they recognize the wealth that is created among financial institutions, and they view it as a fantastic opportunity to loot. I mean even the conservatives do this. Think about the idea that Jack Kemp, for example, holds, that we decrease taxes, tax rate in order to get more revenue. So we're deregulating a little bit so more wealth will be created so we can loot more of it. So the idea is, yes, we realize that maybe a little bit more freedom is good for you, we'll do it if we can get, because that could give us more money to redistribute to other people, more money to inflict our programs on you. They accept the Austrian view that values are subjective, and they take it to its ultimate consequence. That is, markets are subjective in general, prices reflect no information, they're completely random, markets are just a form of anarchy, therefore what do we need? We need regulation in order to enhance the functioning of the markets. You hear this excuse all the time, right? In order to make the markets work better, we need to regulate them. And this is direct consequence of the subjectivist view of market, some kind of random process, and a process that some people are going to exploit at the expense of other people. Therefore we need some rules to set in in order to dictate, in order to put order in the anarchy and in order to make markets really reflect economic value. The only way to do that is for the government to intervene. In a sense what they're saying, and the old-time liberals and leftists would say this, they're saying we want to bring some rationality to the market by regulating it, because all of you are subjectivists and we need some kind of rational guidance for the markets. Leftists wouldn't say that because they don't believe in reason. But the old-line leftists would. Now as tools of their campaign to destroy these markets, they use envy of success. And you see this all the time, those greedy rich, taking the money from the poor, look at Michael Milken, how well he did, look at Bill Gates, how much money he has. And they seek out altruistic businessmen who put them up on a pedestal. You know the guy who, the businessman whose factory burned down and for two or three months he kept paying his employees to stay on. Now that could have been a very wise business decision. These are valuable employees. You don't want to lose them. You keep them on the payroll so they stay with you and they stay loyal. But there was never the justification given for this. Not by that specific businessman and not by the media. They were sacrificing his wealth for the workers versus the greedy CEO of AT&T who dared to lay off 40,000 workers and they would have these debates. There was a debate on PBS where they got this guy up and they used him. It was interesting how they phrased the question and how he answered because they got him to actually say to denounce all the CEOs, all the companies that were laying off people. There's no difference why. They are bad for laying off people. People come first. You have to be loyal to your employees. That is a primary. So by raising people like that they make everybody else look like greedy scum. Which is their intent. So we can't defend it is futile to defend capitalism from an economic perspective. It's futile to defend financial markets and institutions purely economic perspective. We have to go broader. We have to go deeper. So how should we defend financial markets and institutions? Well first of all what is obvious is that in order to defend financial markets and institutions we have to defend capitalism. Capitalism is the only social system under which financiers and the markets and institutions that you work for can function efficiently. Thus allowing them to provide savers with real return and at the same time supplying capital where it is most efficiently put to use. Only under system where force is not an issue where property rights are protected where financiers are free of the distortions created by regulations and taxes can financiers do their job and help businessman maximize production increase the productivity of labor and increase wealth and increase economic growth in everybody's standard of living. So the only way to defend anyone's segment within the economy is to defend a free social system and the only free social system that exists is capitalism. Now of course that is only the first step. To defend capitalism you have to defend a whole philosophy from politics to ethics to epistemology to metaphysics. Now at this point when I was writing my lecture I said okay my first instinct was now I'm gonna go up to metaphysics and then I'll say some stuff on metaphysics then I'll go to epistemology and say some stuff then into ethics and I'll basically do a half hour summary of OPOP and then I remembered Unity and then I remembered that I was speaking to a group that probably knows all this stuff and it would be a waste of my time to do that. Plus it would be impossible. It would be meaningless to attempt to do that. So you have to realize that any of the points I'm giving now are within the context of a knowledge of a complete philosophy. So don't say how can you make this point without justifying it and of course in the context of today's lecture Dr. Peacock's lecture about induction that should be obvious. Now I'm gonna try and make three points. One in ethics and two in epistemology. You cannot defend capitalism without defending egoism. Profit maximization sharehold the wealth maximizations of egoistic selfish goals and they need to be defended unapologetically. You can't hide behind some altruistic motive. Now to the extent that our economy survives the extent that there's productivity the extent that people are making money. They are being selfish. Whether they are willing to admit it or not. They are working for their values. It is only this selfishness that keeps us going. It only it is people's greed it is people's values and their willingness to pursue those values that keeps our economy growing. That keeps production alive. Instead of then apologizing saying oops I'm sorry I made so much money here I'm gonna hand it out or I'm gonna feel guilty for the rest of my life like many businessmen do they have to be able to defend selfishness and their egoistic goals. And they have to do so unapologetically. Not as the best outcome for society but as my right to the earnings of my labor none of them do this. Even the best among them even the ones who give the best defense of the system have this kind of level of defense this is the level of defense of the founding fathers. They would have stood up and said I earned this this is mine. They were two individualists and they were two egoists even though again they wouldn't explicitly say that because of the philosophy of the time the ideas of the time. So you cannot defend financial markets and institutions with altruism. And I've seen objectivists do this. I've seen objectivists say you know if only I can convince these altruists. If only I can convince them that capitalism would benefit everybody then they'll agree with me that capitalism is good and then I can deal with other issues. As Lenin Pekov says in Opa one cannot combine the ethics of sacrifice with the politics of individualism. They just do not go together. And it's a mistake a tragic mistake to try. The only way to consistently defend the right of the producer the businessman, the capitalist to their profits which is what needs to be done is by a defense of egoism. The only way to validate individual rights and particularly property rights which are of particular importance to when dealing in economics is through the ethics of egoism. And again any other attempt is futile. So the key here is don't give in to that impulse saying well you all benefit as well. Stick to your guns. Yes. I know it's been rough going ever since people found out about your acapella group mad harmony but you will bounce back. I mean you're the guy always helping people find coverage options with the name your price tool it should be you giving me the pep talk. Now get out there, hit that high note and take mad harmony all the way to nationals this year. Sorry, this is pitchy. Progressive casualty insurance company and affiliates price and coverage match limited by state law. We're going to tie in to this morning's lecture. Don't you think it's necessary to do both in the following way that many people have this false idea that if some benefit others get hurt and so they'll oppose capitalism by saying yes but you or others are going to get wealthy and you know average guy's going to get poor or stuff like that. So don't you really need to defend it at both levels that it's people have a right to be selfish and it also is a system that by its nature makes everyone more wealthy. Well I think you have to defend it both on the economic level and on the ethical level. You can't say just the ethics and it's exactly the point Dr. Peacock made today. You have to bring in the concretes and you have to say look what happened in 19th century industrialists were given freedom to do what they wanted. Look at the industrial revolution. Look at what's happening today in Silicon Valley where look at industries that are not regulated versus industries that are regulated you have to provide the concretes but you can't provide the concretes and leave it there and what's worse is to provide the concretes and then say what unites all of these is that everybody is ultimately better off. What you need to say is all these people are pursuing their selfish interest and that is good that is what we want them to do and yes by the way this brings up everybody's standard of living and everybody benefits from it. But that is the order in which it needs to be presented not everybody benefits from it and somehow from that I can derive my right to keep my own profit you can't do that you have to start with your right to keep your own profit with your right to make your own money with your right to make your own decisions to write your right to your own life and from there you go to the to the secondary point which yes this greedy pursuit of profits also leads to everybody else's benefit and to some extent that's not even true I mean there might be some people who lose out but you say tough. Any other questions? What is the correct use of the word greedy you just said that the greedy pursuit of profits if you're pursuing your own interest how can you be greedy? Okay I should have I actually don't have a definition a good definition of greed but I don't have it here greedy can be used in two contexts one wrong and one right I believe the wrong way to perceive it you look at the greedy it will say something like an excessive pursuit of wealth an excessive pursuit of material goods and you look at the excessive and see what it says in the dictionary but who defines what excessive is what is excessive by whose standard by whose criteria so I think that definition is ridiculous what's the definition there strong desire for more food wealth etc especially for more than is right or reasonable that's hungry right more than is right or reasonable so if you took out by whose standard right or reasonable by what standard by egalitarian standard then everybody's greedy right so I would throw out that definition I think that is the wrong use of the word greedy I think that greedy means to be passionate about the pursuit of something you want so you should be greedy in love and greedy in food and greedy in pursuit of money and greedy in pursuit of your Korean greedy in everything because we want to be passionate value we want to really can we want to really work out you know work as hard as we can or to pursue the goals that we have yes that was included in the first question since the word selfish though seems to just rub people so you get such a strong reaction when you use that word is there any other I guess I'm looking for another word that I can first approach people with and then use selfish or is it just I use with my students I use my students I use rational self-interest so with the rational so they don't just blank out because that's what they do when you say selfish or egoist rational self-interest or rational egoism I present objectivism as the theory of rational egoism and then I distinguish that from other forms of supposed egoism you know like Nietzsche and all subjectivists, hedonists and I say here are the two types we're going to when I say egoism from now on I mean rational egoism and that they're willing to accept because now there's the rational in front of me it's thought out it's not whatever you feel like doing it's not stepping on anybody who's in your way and then you can start introducing so I think having that rational find it's helpful in introducing the concepts to a new audience for my own use and discussing this with people I make a careful point to them that the only way I will use the word greedy is as a desire for the unearthed well yes but I hate to give the concept to them because I think it's a very useful one because I think there's some people who are maybe selfish but not greedy that is the kind of laid back and they don't really pursue their values with thought and they are ones that are greedy and I like the ones that are greedy more than I like the ones that are not so I think it's a useful term to have I do the what I do with my students is the first class I ask them how many of you want to do well in your careers I mean really well and you know 90% of the class race and I say how many of you want to make a lot you know 80% of the class race and then I say you all greedy something's wrong here right what's the deal and then we get into a whole discussion of greed and what it means and I actually open my class on finance and ethics that is the first class I teach and we start talking about greed and what is its significance and why is it being attacked and I have them look it up in the dictionary and come up with a different definitions and I ask them excessive by whose standard and so on so it turns out to be a fun class and it really gets them hooked because they start thinking well am I being excessively you know that I want too much money how do I measure it by whose standard I come up with a normal subjectivist answer you know society standard or some average or something like that but it's a great lead and so I think A it has some good shock value as a motivator listen but be it's a concept I would hate to give up now the next point I'd like to make is epistemological now it is no accident that in opal Dr. Pieckhoff under the chapter of capitalism in the three sections yes three sections on capitalism two of them epistemological the sections in opal capitalism is the moral social system which is the one from ethics then capitalism is the system of objectivity where he talks about socially objective value and philosophically objective value which we touched on in this course and his final section is opposition to capitalism as dependent on bad epistemology and that's what I'd like to focus on I think it's important to understand that the people we are fighting against the people who oppose capitalism are opposed to it based on a bad epistemology they oppose it based on an anti-reason mentality and this is the core of the reason why facts and economic theory is not enough and to quote again from opal page 406 truth does not force itself on man's minds intrinsicism is false if men are to grasp truth they must perform a definite cognitive process end quote so in order for people to be able to recognize the fact recognize the truth doesn't just print itself on their brain it's not like on the perceptual level you see something that's it they actually have to think about it they actually have to figure it out to integrate it and to do that you need reason the anti-capitalist mentality depends on a denial of reason depends on the denial of our ability to abstract from concrete to abstraction to abstract from all these facts to a theory that unites them and you see this a lot with liberals that say oh yeah it worked in this case but how do you know it'll work over there or it worked in 3 million cases before but how do we know it's going to work over here and what are the social consequences they deny their ability to know reality with certainty it is something to be molded by their wishes they deny their ability to be objective they deny the fact that there are real truths that there are real that there is real certainty that there is objective reality as a consequence they accept contradictions and you find discussing issues like this with some people and they explicitly say something contradicts itself and they say so especially ones with PHDs you don't find that too much with people which is common people non-intellectuals and they also accept or at least present emotions as tools of cognition that is emotions are valid way of presenting an argument it is valid to appeal to emotions in order to persuade somebody and this is one of their dominant ways of persuasion as we'll see I have some some really good quotes modern intellectuals are deaf to facts they really don't care they have their theories they have their ideas of what they want now let's take, let's do an example try and concretize this let's take the question of corporate restructuring that we talked about the last two classes corporate restructuring and takeovers now we know that Robert Reich objects to them we saw lots of quotes he says they use too much debt they cause bankruptcies they bring about layoffs they reduce competitiveness they enrich the rich and powerful at the expense of the poor while they increase, they might increase wealth society as a whole does not benefit this is Robert Reich's claim now what if we showed him study after study that says that restructurings actually increase wealth and efficiency but it has gone up not down like he claims that bankruptcies he predicted never happened that the U.S. is more competitive because of them not less that the bad occurrences that did happen like the SNL crisis can almost always be shown to originate in government policies will it change his mind no what is he going to do he's going to dismiss the facts a family that broke up because of layoffs he'll focus on concrete denying the theory he'll call us to a higher purpose a higher social purpose he'll switch topics and all of this time he'll claim to be a strong supporter of free markets and the contradiction will never bother him in other words he'll appeal to emotions putting them above facts he'll attempt to confuse the issue deny the theory is relevant the spouse contradictions empty concepts from their content refuse to define the concepts that he uses and deny the existence of facts and objectivity now if you don't believe me some quotes here for you now there are very few good guys out there in terms of people who defend financial markets and CEOs and so on there's a guy named Al chainsaw Dunlop anybody with a name like chainsaw has to be a good guy he was the CEO of Scott paper and he turned that company from a complete failing approaching bankruptcy very diversified conglomerate into a highly efficient focused profitable company he has left and he made a lot of money doing this a lot of money while he was the CEO but at the same time he I think more than doubled the stock price of the stock shareholders did very very well I sold the company Al Dunlop says this is a discussion of various experts, supposed experts on downsides Al Dunlop says what's happened is that people in this country are starting to come to grips with the fact that the point of business is to make a profit profit gentleman is not a dirty word and this is Robert Reich's response but free markets do not exist in a state of nature and neither do corporations they reflect laws social judgments about how we're going to organize ourselves those judgment reflect choices made implicitly or explicitly about the kind of society we want and we can't avoid those choices we may pretend that they don't exist but we are making them now notice that he brings it right down to the level of ideas he doesn't argue with them on the level of profits he's arguing on the level of ethics as homeschoolers our family loves using time for learning because it provides us with so much flexibility with when and how we teach with 24-7 access to the award winning online curriculum you can't go wrong we can start lessons after breakfast in the evening or even while traveling I love focusing on the concepts I want to teach my kids that week rather than having to follow a preset path with time for learning the possibilities are endless visit timeforlearning.com slash dream big today what is a good society Al? profitable companies may contribute to a good society now he's asked the question what is a good society? which he never answers he never answers this question all he does is say things like profitable companies may contribute to a good society but ultimately the end is not profit we want to have a society in which most people have a chance at a higher standard of living we want a society that has a moral character what moral character? he never says in which there is a degree of trust and in the end a deepening sense of what it means to be a human being a profound statement which is never defined now why is it never defined? why do you think they say stuff like we want a moral society we want to have a profound deep sense of what it means to be a human being and so on why are they using these kind of words? I want to thank your money and give it to somebody else if he came out and said we want egalitarianism we, A, want to be in control and all of you guys distribute we want to distribute everybody else's wealth among you then nobody would vote for him nobody would like him nobody would listen to him but he knows that if he says the right words each one of the people listening will fill in their own blanks some moral society oh, okay so for me, morality is this and this yeah, I agree with the right this is what I want we want a society that benefits society how he never says, but yeah I want a society that's good for everybody I want a deepening sense of what it means to be a human being all these things are so floating that the common man that they are aimed at can fill in the blanks rice purposely never defines what it is that he means by this that's leaving us all to interpret it now just some other examples of this is an amazing another participant in this is George Gilder now, Rice has just finished saying how AT&T is terrible for laying off 40,000 people and Gilder says to him so you're assuming that AT&T is an example of a very profitable company that has irrationally chosen Rice says, no, not irrationally or offensively no, not offensively or culpably or questionably George, George listen to me I didn't question the morality of AT&T which is exactly what he had done in fact I am very much against villainizing any of these people and if you know anybody about Robert Rice, that's all he's been doing for the last 15 years and with regard to whether they did it wisely the share price went up I mean he's even seeding the fact that share prices reflect something by some measures AT&T did precisely what it ought to have done but the fundamental question is, where the society is better off so he said all these good things and then he undercuts it all society is better off now what does it mean for society to be better off Rice doesn't answer this but listen to this other guy he is a fellow at the Center for Strategic and International Studies in DC my personal conclusion is that when a country is as rich as in GNP and as poor in social tranquility as is the United States it makes no sense to purchase more GNP now think of this idea first of all, we are rich in GNP GNP is a gross national product and we can purchase GNP so wealth is something to be purchased now how do we purchase GNP listen to this through deregulation and increased efficiency at the expense of tranquility it's like a man with 24 ties and no shoes buying himself another tie so what? the money is units of tranquility yes somehow we can measure tranquility and of course economic success is opposite of tranquility economic growth is the opposite of tranquility and these are two things that we are trading one against the other just two other short examples of how they put in emotions into this how they use emotional arguments instead of dealing with the facts goes on in a whole segment about how good the 1980s are and how people are misusing statistics and how they really were a great era and productivity went up and so on and he ends by saying about this assumption that they were a bad period he says there is just no evidence for it except in just one lonely statistics that you people lovingly cultivate which is wages and this is Blackwell response I spend more time standing on people's back porches and in union halls than I spend lovingly caressing the wage debt but I can tell you there is a lot of pain in America today there is a lot of fear out there and then Robert Reich at the same point people tell me they are worried they are wondering about their jobs they are worried about keeping their jobs these are the kitchen table conversations that Americans all across the land are having so it is this there is no tranquility there is anxiety, there is fear everybody is worried about their job and of course why are they worried I would say I propose that they are worried maybe because these guys keep telling them they should be worried when you have these headlines about millions of casualties on the battlefields of business going on TV on a radio continuously saying that these layoffs are going to destroy America everybody should be worried they directly appeal to emotions to this fear to this anxiety that people have and they use these stories about sitting with working class people and how worried working class people are ok now what do you need in order to overcome all this garbage in order to get a perspective of what is real and what isn't what do you need in order to integrate all the massive amount of data the massive amount of information the complex economic ideas to integrate those economic ideas then with ethical ideas there is only one way to do that the only tool available to us is reason reason is the only tool we can use to integrate this vast and complex amount of theory and information and to deny reason like these guys do is to deny the ability to do that and then you can say whatever the hell you want because it doesn't matter you don't have to prove anything you don't have to define anything you can just float abstractions out there and let other people fill them with content Dr. Binswanger in the Objectivist Forum in August 1981 writes in the philosophical battle for free society the one crucial connection to be upheld is that between capitalism and reason the religious conservatives are seeking to tie capitalism to mysticism the libertarians are tying capitalism to whim worshipping subjectivism and anarchy to cooperate with either group is to betray capitalism, reason and one's own future so I think it's important to understand that if we in order to defend against these attacks in order to counter attack we have to identify the fatal flaw and that is the denial of reason and I think most Americans I don't think most Americans can recognize that that's what's going on but I think that when that is identified even on a common sense level when you ask them what does excessive means when talking about the definition of greedy what do these words mean what do these concepts mean it gets them to think it gets them thinking about these kinds of ideas I think you have to attack this on the level of epistemology okay the last point I'd like to make and it kind of summarizes a lot of things that we've been talking about and that is the question that I think I posed at some point why is it that in every newspaper article that we've seen and all these quotes in Wall Street the movie finances depicted as war why is it that this is a violent is predicted with such violence you remember the Wall Street warriors entrenched warfare what is it about finance that makes or what is it about the epistemology of the people attacking finance that make this connection that causes them to make this connection anybody got war is a non-productive or at least materially non-productive activity war is destructive now these people think of finances not only as not being productive but as being destructive now how is it destructive you remember the crumbs that fall off the cake and that's where financiers make their money off the cake that's given they just collect the crumbs well if you believe that we live in a zero sum game that is there is a certain amount of wealth out there you can't increase it just give it and all that finance does is divvy it up you get a small piece you get a large piece and in the meantime we take little crumbs taking those little crumbs is destructive taking those little crumbs is somebody else's expense those little crumbs are an act of can be perceived as an act of violence you're taking something that you have not earned that you do not deserve so they view the world as a zero sum game now the whole idea of a zero sum game is absurd and all you have to do is open your eyes and look at the world see how we lived 500 years ago look how we live today and hey it's not a zero sum game some wealth has been created between then and now just a little yeah yet there are many people who believe this if I make money it's at somebody's expense human beings do not create anything human beings do not create anything now I think the interesting epistemological point and it took I didn't get this at first and I read an article by Harry Benzweig entitled The Dollar and the Gun that was published in Objectives Form in June 1983 and it make this whole issue very clear what they are doing is they are equivocating between economic power and political power between economic power and the use of force physical force you know those discussions that you have I've had at least with people who say but corporations big business really has force right they can fire people they can let them go that is an act of violence a force against those people being laid off libertarians use this a lot because a lot of libertarians are against big business equate big business with government big business has force now if you think about a zero sum game world in which the businessman is not creating anything but just dividing it up dividing what is created among his employees and they have a right to their share of the pie then you're right you're denying them the share of the pie you are exerting force on them so it is the idea of equating economic power with physical force and the only thing that makes this equivocation possible is this view of a zero sum game which makes economic power seem like political power now what do we mean by political power what I mean by political power is the fact that the government has a monopoly over the use of force private citizens does not use force what they are doing is they are saying the government doesn't have the monopoly look these businesses are using force as well to quote Dr. Ben Swingam it blackens this equivocation blackens the legitimate peaceful self-interested activities of traders on a free market by equating these activities with a predatory actions of criminals and tyrannical governments and of course once you do that it's not difficult to prosecute them and send them to jail we've talked about this about how you villainize them, you portray them as villains everywhere, you show that they're not productive it's a small step to put them in jail from there which is exactly what happened in the 1980s it also opens up the door for what look if you financiers carrying weapons and dangerous people then it is what is the government's role well the government's role is to protect us against physical force so it is the legitimate therefore the government to step in and regulate these businesses because all they are doing is they're preventing the use of physical force against citizens so this falls under the legitimate role of government what it does to quote Dr. Ben Swingam is it whitewashers the interventionist actions of government by equating them with benevolent productive actions of businesses and private individuals it's helping out the process it's getting rid of the violence it's getting rid of the of the use of force within these markets okay how do we fight this particular disease you have to identify the fact that the individual that individuals are the source of wealth that man is an and in himself and that wealth is unlimited literally unlimited it's only by making these identifications by proving this that you can separate out economic power and political power it's only by making sure that people understand where wealth comes from and that wealth is unlimited it is only limited by the ability of human beings to innovate which is unlimited okay so in summary only objectivism only objectivism provides us with a philosophical system that integrates everything we've talked about in this course and of course a lot more and therefore only objectivism can defend capitalism and consequently financial markets and institutions so then in this course I've attempted to illustrate the importance to be efficiently functioning financial markets their importance to capitalism and to the continued survival of the market economy that we live in today free financial markets are essential to the preservation and hopefully growth of our standard of living financial markets and institutions are the hearts veins and arteries of a free enterprise system yet as we have seen these markets and institutions have always been under attack by an army of viruses that threaten to destroy them these viruses continue to block inhibit and frustrate the functioning of the system these viruses are made possible by the countless evil philosophies that have reigned the earth they are made possible by mysticism by irrationality by altruism by ingenuity of countless financiers that have allowed financial markets the circulatory system of economy to continue functioning to defend and defeat these viruses a consistent pro-reason pro-individual pro-capitalism philosophy is needed thanks to Ayn Rand we have one to preserve our lives to preserve the remnants of the economic system that gives us life like the life provided by our hearts we must fight for the only philosophy that can save this world objectivism all material in this program is protected by copyright and may not be reproduced in any form or manner nor played before a live audience without the express written permission of the producer the Ayn Rand Institute for further information about the products please visit estor.ainrand.org or call 1-800-729-6149 un-4-9 un-4-9 un-4-9 un-4-9 un-4-9 un-4-9 un-4-9 un-4-9 un-4-9