Moral and Financial Relativism

The late Allan Bloom, professor of philosophy at Cornell, Yale, and the University of Chicago, wrote some twenty years ago in The Closing of the American Mind, “There is one thing a professor can be absolutely certain of: almost every student entering the university believes, or says he believes, that truth is relative.” If all truth is relative, all morality becomes relative as well, for the elimination of absolute truth claims absolute morality as its first victim.

This moral relativism has coincided, perhaps unremarkably, with the secularization of our culture. The secular concept that there are no absolute truths has gradually yet effectively eroded our collective value system in such a way as to alter and distort even the basis of our global financial system.

A common interpretation of moral relativism, regardless of the source, is the view that “ethical standards, morality, and positions of right or wrong are culturally based and therefore subject to a person's individual choice. We can all decide what is right for ourselves. You decide what's right for you, and I'll decide what's right for me. Moral relativism says, ‘It's true for me, if I believe it.’” Essentially, nobody is objectively right or wrong. Fixed standards of value don’t exist aside from the changing whims of society and government.

William McGuffey, who authored the McGuffey's Readers, which were the mainstay of America's public school system for nearly a century, wrote: "Erase all thought and fear of God from a community, and selfishness and sensuality would absorb the whole man." We observe today with certitude, the veracity of his statement.

Moral relativism weakens our collective cultural conscience. It weakens our ability to identify evil and the resolve to confront it as such. It leads to the perfidious exoneration of individual responsibility and culpability for perpetrators of evil, and seeks blame for such actions in social, parental, and educational failures. It allows continued erosion of our traditional values and social mores. It prevents us from recognizing the evil in our midst that threatens our families, our neighborhoods, our culture, and our nation.

The displacement of absolute standards and values affects other aspects of our lives, as well, perhaps most notably in the world of finance. The financial world today—a world to which we are all connected whether we like it or not—is plagued by a similar erosion of value. Consider money, for example—a symbol of a nation’s willingness to maintain and uphold value through honest weights and measures. Even the word credit, which forms the basis of our modern global financial system, is based on the latin word credere, meaning “to believe.” That is, to believe in the other party to honor their contract and use honest scales.

In what is referred to as the Bretton Woods agreement, the dollar was originally chosen as the world reserve currency for international finance due to America’s reputation and economic integrity. This was done by giving the dollar a fixed and objective value (in terms of gold) upon which all other currencies were priced. In essence, this was the establishment of a monetary “golden rule”: Do unto others as you have them do unto you—a fair and equitable exchange through a common standard of value. With dollars held abroad redeemable for a fixed amount of gold, the exchange of goods internationally was anchored in the certainty of an objective monetary value.

However, over time the U.S. began to print too much money to pay off its growing deficits (hence many other nations redeeming more gold) and thus, faced with a rapid decline in its gold reserves, broke free from the fixed limitations of the gold standard to allow the unrestricted debasement of monetary value here and abroad.

Regarding that fateful day in 1971, referred to as the “Nixon Shock,” Bloomberg BusinessWeek wrote last year, “Milton Friedman’s prediction that, left to the market, currencies would regulate themselves with only gradual adjustments proved wildly incorrect. The dollar plunged by a third during the ’70s, and currency volatility has threatened several national economies since; in 1997, Asian and Latin American countries were wrecked by currency runs. To this day, [former FED Chief Paul] Volcker regrets that Bretton Woods was abandoned. ‘Nobody’s in charge,’ he says. ‘The Europeans couldn’t live with the uncertainty and made their own currency and now that’s in trouble.’ The effect on America’s domestic economy was even worse.”

All is now relative, at least among currencies. What this means is that various nations can now set, change, or alter their standard of measurement and value—by inflating the money supply—with much greater flexibility. Steve Forbes was recently asked in an interview: “Don’t we need a flexible money supply?” to which he replied, “That’s like saying that changing the number of minutes in an hour would be a great tool to increase productivity in the economy. Manipulating weights and measures, whether it’s the number of ounces in a pound or minutes in an hour, is a false way to think that you can achieve prosperity. All gold does is serve as a yardstick to measure the value of your currency.”

With the yardstick removed—or constantly changing in size—there is no fundamental basis for value in the financial system today. This highly unstable system is continually managed, however, as governments attempt to control interest rates or the fluctuation of their currencies by intervening in the foreign exchange market through buying or selling currencies of other nations. In lieu of this new reality, BusinessWeek stated, “Floating currencies unleashed a new world of risk and instability. For the first time, investors could bet on the direction of interest rates or the Swiss franc. New financial instruments, new speculative tools, proliferated. The world gravitated from the certainties of Bretton Woods to the dizzying market cycles we’ve lived with since.”

As mentioned, the financial system has adapted by developing increasingly complex financial instruments—options, swaps, derivatives—to either eliminate or capture the massive volatility coursing through the markets. Rather than promote long-term stability and investment, large amounts of capital are increasingly directed towards either hedging or speculation.

For example, the VIX is an index that measures the level of volatility in the market. Through exchange traded funds, you can go long, short, double long or double short volatility. That is, one can invest or speculate on volatility for volatility’s sake! Reminds me of a saying: “Sow the wind and reap the whirlwind.” (Oh, by the way, there’s an option for that too. It’s called a “weather derivative.”)

Entire financial industries, asset-classes, and hedge funds have now sprung up offering services based not on providing economic value to society, but on one thing alone: volatility. Options, derivatives, futures contracts and high frequency trading of rapid fluctuations in price of various commodities, stocks, or currencies now comprise a massive share of trading volume.

What is the result of all this, you may ask? Chaos. Plain and simple. The global financial system is being tossed to and fro by massive amounts of cheap, electronically created, monopoly money that is constantly in search of the best yield, the most bang for its buck, and a quick fix. By removing the “limitation” of a fixed standard for the unrestricted manipulation of monetary value, governments and central banks are playing God over the financial system with, ironically, trillions of dollars they’ve created speculating on whether they will succeed or fail.

Consequently, relativism dominates not only as a reflection of declining absolute values today, affecting the morality of our culture, but as a chaotic financial sea from which many have seen the value of their savings wrecked under the crashing waves of speculation and currency debasement. There are ways for the individual investor to partially circumnavigate these troubled relativistic waters, but they are diminishing. Could a return to moral absolutism reverse the financial relativism in the investment world? It’s unlikely, for that ship has long since left the harbor. The only way to turn that ship around would be a return to a monetary “golden rule” like the one abandoned 41 years ago.