What are we to make of the phrase finance and the good society?
To some, this may seem an incongruous coupling of concepts. In fact, at first glance, finance, at least as commonly understood, seems to be working against the achievement of the good society.
But it’s not so simple. Finance has become ever more associated with capitalism. And after democracy, few ideas have been as pervasive in defining the good society as capitalism.
Yet, the recent financial crisis has led to angry rejections of the value of financial capitalism, prompting many to wonder: What is the role of finance in the good society?
There exists a growing number of us who believe that finance, despite its flaws and excesses, is a force that potentially can help us create a better, more prosperous and more equitable society. I count myself among that group, and I put John Taft, CEO of RBC Wealth Management-U.S. who published a book entitled A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism to which I contributed a chapter, in that same camp.
But in order for finance to get to that place, our task, both in the financial services sector and in civil society, is to help people find meaning and a larger social purpose in the economic system.
This is no small feat.
I suggest that we begin by re-defining financial capitalism. Doing so will enable us to set a norm for how finance works and what leaders within business, the public sector and civil society must do to harness emerging developments within the field of finance to support the goals of a robust and prosperous economy, to curb its excesses, to smooth its volatility and to consider how finance can be brought to bear to address the needs of advanced and developing economies alike.
It is an often overlooked fact that the word finance actually derives from a classical Latin term for goal.
Indeed, at its broadest level, finance is the science of goal architecture – of the structuring of the economic arrangements necessary to achieve a set of goals and of the stewardship of the assets needed for that achievement. These goals may be those of households, small businesses, corporations, civic institutions, governments or society itself.
But it’s crucial to keep in mind that finance in and of itself does not embody a goal. Finance is a “functional” science that exists to support other goals – those of society. And the better aligned a society’s financial institutions are with its goals and ideals, the stronger and more successful the society will be.
To create that kind of alignment, we must begin to think about finance differently. Finance should not be viewed as inherently or exclusively elitist or an engine of economic injustice. Instead, finance should be viewed as a vehicle that can be used to help broaden prosperity across an increasingly wide range of social classes.
The connections between financial institutions and individual people are fundamental for society. Clarifying the terms of these connections and establishing a proper context for implementing and enhancing them is a critical subject.
These ideas were outlined in an essay Robert Shiller contributed to the book A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism, edited by John Taft (Palgrave Macmillan).
Robert J. Shiller is Sterling Professor of Economics, Department of Economics and Cowles Foundation for Research in Economics, Yale University, and professor of finance and fellow at the International Center for Finance, Yale School of Management.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.