In “The Irrelevance of Ethics,” MacIntyre (2015) defends several distinct claims, two of which we find particularly problematic and worthy of careful scrutiny: (1) educating someone according to the standard of the virtues will seriously jeopardize her chances of succeeding as a financial trader, and (2) the ethics of virtue and the way we think about money have been disconnected in the course of history to the point that ethics is nowadays irrelevant to economic rationality. These two claims, taken together, constitute a formidable challenge to the very intelligibility of the category of the “virtuous trader,” at least under conditions prevailing in the current financial system.
The most significant aspect of MacIntyre’s argument for the ethics of financial trading is the proposition that financial trading, of its very nature, demands the achievement of certain capacities and ends (a) pursued independently from their contribution to a virtuous life and (b) carrying strong tendencies toward the moral corruption of the agent.
To understand why MacIntyre views financial trading and associated activities as inherently corrupting, let us briefly review the four features MacIntyre (2015) identifies as constitutive of moral character and compare them with the dispositions he views as characteristic of successful financial operators. The first feature of moral character he points to is an adequate and realistic self-knowledge and confidence in one’s own worth and abilities. MacIntyre bases the identification of this first feature on Winnicot’s studies about the behavior of mothers and its decisive influence upon children’s character (Winnicot 1964, 1971). One who develops this virtue has a balanced and realistic self-concept. There is little or no room for this virtue in the financial sector, according to MacIntyre, since the mark of the successful financial operator, especially in financial trading, is to be excessively self-confident, that is, to harbor an exaggerated perception of his or her own strengths and potential for achievement.
The second feature of the virtuous person identified by MacIntyre is courage, defined as a happy mean between temerity and cowardice. In the decision-making process, the correct evaluation of the consequences of one’s actions and perseverance in following the good even in adverse situations are what constitute the virtue of courage. According to MacIntyre, the financial operator does not consistently display the virtue of courage because he relies on mathematical formulas rather than sound judgment, rendering him “unable to distinguish adequately between rashness, cowardice and courage” (MacIntyre 2015, p. 11).
The third feature of the virtuous person highlighted by MacIntyre is awareness of other actors and their good, and a commitment to give each their due: the virtue of justice. This seems to be in stark contrast to the habitual attitude of financial operators, in particular traders, who act exclusively or almost exclusively in their own interest, at others’ expense. By way of illustration, we could consider the imposition of unjust debt, for example, debt charged to future generations who had no hand or part to play in incurring that debt (2015, p. 19), a consequence of ruthlessly self-interested and unjust behavior, not only tolerated but encouraged and required by the global financial system as it stands.Footnote 9
Finally, the fourth feature of moral character discussed by MacIntyre is a sense of the historical context of one’s actions, which entails the ability to interpret one’s actions and one’s situation in relation to one’s life and actions and even in relation to their place in the history of a community, nation, or civilization. This broad historical perspective gives one’s projects and judgments a proper sense of perspective and helps one avoid repeating the errors of one’s predecessors. The short-termism typical of the financial sector impedes the development of this important virtue (MacIntyre 2015, pp. 9–12).Footnote 10
MacIntyre’s conclusion from this analysis is that “were we successfully to impose on someone the kind of discipline that issues in the formation of genuine moral character, we would have disqualified that someone from success as a trader and, most probably from employment as a trader” (MacIntyre 2015, p. 12). It inescapably follows from this bold claim that if we want to be good traders—if by “good” we mean successful within the terms of finance and trading—we need to abstain from living up to the standards of virtues and work on the formation of a series of habits that are morally vicious or corrosive of the virtues of a good person. In short, according to MacIntyre those who wish to be good qua traders cannot escape being bad qua human beings.
The figure of the successful trader as an agent immersed in vice is clearly not meant to depict an anomalous situation, but to depict the typical conditions for success in financial trading. But these vitiating conditions, on MacIntyre’s view, are not a necessary correlate of finance and trading as such, but rather, an outgrowth of finance and trading as they have been conceived and implemented in the modern era. To show this, MacIntyre provides a backstory for his argument, a narrative to explain how the financial system (and financial trading which in reality seems to be just a vivid case to illustrate a general moral pathology) came to be antithetical to the exercise of virtue. According to that story, economic thought and practiceFootnote 11 have evolved in the modern era in such a way that the standards of money have come to predominate over the standards of virtue. Money has been transformed from being a tool useful for obtaining particular goods, to a measure of everything, so that the distinction between money as an instrumental good and virtue as an intrinsic good has become practically irrelevant, and it has become impossible to reconcile the standards of money-making with the standards of the virtues.
We could observe, in support of MacIntyre’s position, that the globalized economy has stacked a range of institutional and cultural incentives in favor of vices such as greed and injustice, such as win–lose gaming scenarios and legal protection for reckless risk taking, along with cultures that attach enormous prestige to the accumulation of vast quantities of wealth by individual economic actors. It should come as little surprise, then, that participants in the globalized economy, as MacIntyre rightly observes, have been dominated by an intemperate desire for the acquisition of wealth and resources—what Aristotle would call the vice of pleonexía (see, for example, Aristotle, Nicomachean Ethics, V, 1129b), directly opposed to the virtue of justice. Even if they were not predisposed to such vices, the conditions of financial trading may very well present powerful incentives to develop them.
We could strengthen MacIntyre’s case against the ethical value of financial trading by taking a closer look at the role of the trader in the financial system and highlighting specific aspects of trading activity that are hard to reconcile with a virtuous life or a commitment to the common good. According to MacIntyre, “traders” are “those at work in the financial sector who trade in securities and currency, either on behalf of their firm’s clients or for their firm itself” (2015, p. 10). Hull (2012) offers a more fine-grained account, enumerating three principal types of trader: (a) hedgers, who gain from the price difference of the same product at different times; (b) arbitrageurs, who gain from the price difference of the same product in different markets; and (c) speculators, who take a position in a market, betting on the increase or decrease in a price, gaining from the difference with the real price if their bet is correct. If we focus on the amount of time they hold their positions, we can make a further distinction between scalpers, day traders, and position traders. Scalpers hold their position for a very limited amount of time, even just a few minutes; day traders close their position within the trading day; and finally, position traders hold their position for longer periods, hoping to gain from price movements across a larger time frame.
The activity of financial trading performed by speculators, especially those who hold their positions for a very limited amount of time, could be morally suspect or even illegal if it is aimed, for example, at price manipulation, which could give rise to dangerous price bubbles. This kind of financial attitude, which is supported by those habits of moral character described by MacIntyre as excessive self-confidence, temerity, and scarce attention to others and to the historical context, can be considered as immoral because it has destabilizing effects on the market, especially when it is applied to big—or even huge—quantities of money or assets. While intelligent long-run investment in companies is a perennial and respectable way of participating in the realization of socially valuable projects, buying and selling within a very small time slot does not look at assets or projects in themselves, but rather, seeks to profit from their short-term price movements. This behavior effectively converts financial speculation from a rational and socially beneficial investment activity into a form of reckless gambling.
There are other aspects of financial trading that straddle the borderline between illegality and immorality and seem to lend further corroboration to MacIntyre’s argument against trading. Four are especially worthy of comment: (1) “cornering the market” (Hull 2012), (2) “front running” (Hull 2012), (3) proprietary trading (U.S. Department of Treasury 2013), and (4) two interrelated features of many financial transactions, namely their high level of opacity (Sato 2013) and impersonality (O’Hara 2016). It is worth discussing these problematic aspects of trading so that we get a more vivid and fine-grained picture of the ways in which trading can become an instrument of corruption and injustice.
“Cornering the market” is a way of distorting the original purpose of futures, one of the most used products in the derivative market. The original function of a future is to protect the counterparties of a deal from the risk of the change of a price over time. When they subscribe to a future contract, the parties commit to exchange an established quantity of a product/commodity/financial asset (which is called the “underlying asset”), at a fixed price, at an established future date (maturity of the contract). The one who is committed to buying the underlying asset at the maturity of the contract is said to hold a “long position”; the one who is committed to sell holds a “short position.” From the perspective of the one who holds the long position, “cornering the market” consists in performing the same financial transaction that a “normal” user of a future on a product would do, but for purposes of speculation rather than in order to protect the price of a commodity over time. A speculator, in this context, might “corner the market” by buying a large long position on the future market of a commodity and also acquiring a large share of the commodity to which the future is linked. In this way, when the future contract is approaching its maturity, the one who holds the short position goes to the market in order to buy the amount of the commodity he or she owes from the one who holds the long position. The problem is that the speculator, buying a large quantity of the underlying asset, made its price go up, because he made the commodity scarce. So, in order to keep the commitment he or she has, the one on the short side will be compelled to buy the commodity at the (inflated) market price. This shows how the activity of the owner of both the commodity and the long position on the future contracts engages in intentional price manipulation. Those who were on the short side of the future contract have in this way been “cornered” by the speculator.
“Front running” is an unethical and illegal way of practicing the activity of financial trading performed by an authorized financial intermediary. A paradigmatic situation of front running could be the following: a client goes to a brokerage firm to invest her financial resources, and she is assigned to a broker; the brokerage firm, thanks to information it owns, can give a recommendation to the client about which stocks it is better to buy. If, for example, the brokerage firm gives the client one of the strongest recommendations possible (the so-called strong buy), it means that those particular recommended stocks promise high revenues. “Front running” happens when, in a situation like the one described, the broker, called to execute the trade on behalf of the client, decides first to buy part of those stocks for his own personal account and then to execute a bigger order for the client. In this way, when the price of the stocks goes up because of the large buy order he executed for the client, the broker himself benefits personally from the higher price by re-selling the stocks he acquired before the price went up. Essentially, front running is a way of abusing privileged information while performing the activity of financial trading.Footnote 12
Proprietary trading has found itself in recent years in the crosshairs of financial regulators. Essentially, proprietary trading happens when a financial institution engages in financial trading with its own money and for its own profit, rather than for external clients. The problem arises especially when this financial institution happens to be a bank collecting deposits from normal savers, whose money is managed and invested by the bank itself. In this case, a conflict of interest arises because the bank is trading for itself as well as for its clients: they happen to be both (the bank and the client) on the same market, but for divergent—and potentially conflicting—interests. The Volcker Rule (Sect. 619 of the Dodd–Frank Wall Street Reform and Consumer Protection Act, U.S. Department of Treasury 2013) tried to eliminate this conflict of interest by banning proprietary trading activity for commercial banks, and prohibiting them from trading in derivatives or participating in hedge funds; these activities are considered too risky for a financial institution devoted to protecting and managing clients’ savings. All these restrictions are meant to establish a more robust financial system, based on a reliable commercial banking sector: applying the Volcker Rule means guaranteeing the clients that the bank is acting in their interests, and not exclusively in its own interest, and that the bank is not engaging in financial trading activities that are too risky. The Volcker Rule is more complex and detailed than expressed here, but for present purposes suffice it to say that the need for this rule is arguably another corroboration of the tendencies observed by MacIntyre within the financial sector toward selfish profiteering and recklessness.
Finally, besides cornering the market, front running, and proprietary trading, the growing complexity of financial transactions has rendered the financial market increasingly opaque and impersonal, making the identification of the parties to a transaction and the attribution of personal responsibility for the quality of an asset or product, increasingly difficult (O’Hara 2016). A person who buys or sells a product in large quantities with little knowledge of either the product or the parties implicated is, arguably, acting recklessly.Footnote 13 Thus, the very structure of the financial market can frequently militate against a strong sense of personal integrity, responsibility, and accountability.
The take-home point from MacIntyre’s assessment of the financial system, apparently corroborated by a variety of instances of financial trading activities and strategies catalogued above, is that the financial system is fundamentally immoral, constituted by a culture, institutional context, and standards of conduct which both make it impossible or nigh impossible for virtuous agents to be successful financial operators, and tend to support and reward vicious agents in their efforts to advance their own careers at the cost of societal flourishing or to the obvious detriment of other people, at times even their own clients. This is an exceedingly bleak picture of our financial system, with radical implications for its participants, effectively compelling them to choose between continuing in their professional role and remaining faithful to their commitment to living a worthy life. If this is the only choice they have, then virtuous agents have compelling grounds for surrendering the terrain of finance to their vicious colleagues, making future reforms of the system all the more unlikely.
Before resigning ourselves to such a dismal outcome, let us inquire whether or not MacIntyre’s depiction of the financial sector is in fact fair and accurate. Our analysis below reveals that in spite of the corrupting tendencies that can be widely observed in the financial sector, MacIntyre’s case against the compatibility of financial trading with the human virtues is significantly overstated and thus stands in need of careful qualification. We show this through a critical examination of MacIntyre’s claims in Sect. 4. But to provide an adequate theoretical context for this critical assessment, we begin by considering the broader purpose of finance itself, since financial trading is only intelligible as part of the financial system.Footnote 14