Objectivism was described by Ayn Rand as “the concept of man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute.”
Per this philosophy, the proper moral purpose of an individual’s life should be the pursuit of one’s own happiness or rational self-interest.
So how would objectivists view the new financial reform bill, passed amidst calls to bring accountability, transparency and accountability to Wall Street and to protect consumers from Wall Street? Not favorably.
“The new financial bill is based on the premise that finance is a fundamentally dangerous field, and therefore that we need the government to protect us against financial crises,” says Dr. Yaron Brook, President of the Ayn Rand Institute, an objectivist institution headquartered in Irvine, California.
In fact, says Brook, finance is a fundamentally productive field–it is the government that causes financial crises through interest-rate manipulation, money-printing, guaranteeing mortgages, and other infringements on free-market competition.
Brook believes that the regulations on derivatives, which he says are deeply misunderstood by regulators, will drive the derivatives markets overseas to Europe and Asia, and will raise the cost of obtaining credit and managing risk.
Moreover, Brook believes that one of the biggest failures of the financial reforms, which it shares with many government policies on finance in general, is its basic misunderstanding of the positive role that banks have in society, spurring creativity and providing the capital that keeps our economy rolling.
“When the government is restricted to prosecuting force and fraud, when everything from interest rates to currency are determined on the free market, financiers make money solely by wealth creation: by putting wealth to its most productive use. This is true for everything from a direct loan to a farmer to the most sophisticated derivative,” Brook says.
Brook also finds it ironic that one of the agencies most responsible for years of poor policy decisions, the Federal Reserve, is being given vast new regulatory authority over the financial markets.
“The Federal Reserve is one of the root causes of the financial crisis,” Brook says. “The idea that it needs more power, when it both inflated the housing bubble and then denied there was a bubble, makes as much sense as electing the neighborhood arsonist to be chief of the Fire Department.”
Brook also cautions that the Dodd-Frank Act may lead to more of the problems it was meant to eliminate: He says the bill will have strong negative effects on the banking industry, with particular damage being done to derivatives markets and regional banks – perversely, leading to the creation of new mega-banks that would be deemed too big to fail.
Brook says that it is crucial, above all, to defend finance as a fundamentally moral profession that should be left free of government manipulation.
“Banks are an easy target for regulation since they make a lot of money and are seen by many as merely shifting money and paper around, not creating wealth,” he says. “But to the extent there are no government handouts and bailouts, financiers create incredible amounts of wealth by putting capital into the right hands, and starving companies that need to fail. When you use an iPhone, Google, or a PC, remember that financiers seeking profit were instrumental to the companies that created them.
“While we should criticize government policies that enable some phony financiers to get rich at others’ expense, we also need to recognize that the core of the profession deserves our admiration and gratitude.”