Can a Good Person be a Good Trader? An Ethical Defense of Financial Trading

This is the first chapter of Bielskis and Knight’s Virtue and Economy, an edited volume that interrogates the possibility of applying the standards of virtue to current economic scenarios using a MacIntyrean interpretive lens (Bielskis and Knight 2015).

We take this distinction between first-person and third-person ethics from the work of Abbà (1996): first-person ethics considers the perspective of the acting person and answers the question: “what is the best life to live?”; third-person ethics, by contrast, assumes the perspective of an external observer and answers the question: “is it permissible?”, “does it violate established norms?”

Sison et al. (2017) put together the most recent collection of articles on virtue ethics in business and management.

According to a complete literature review on virtue ethics in business and management (from 1980 to 2011), MacIntyre is the second most cited source—after Aristotle—for virtues ethicists in business ethics (Ferrero and Sison 2014). See Beadle (2017) for a literature review on MacIntyre’s influence on business ethics.

Technically, many activities implicated in the financial market are not “trading” as such. The financial market may be exploited through fund management, the design of financial products, the marketing of financial products, the provision of venture capital or ordinary capital, risk management, and so forth. However, many of these activities are structurally similar to trading insofar as they are intimately implicated in the functioning of the financial market and tend to be competitive in precisely the ways MacIntyre views as problematic.

At the end of the investigations, it turned out that the losses came to approximately $ 6.2 billion.

For the purpose of this article, we are not entering into more details about the subsequent investigations and the fines imposed upon JPMorgan Chase by different authorities/regulators, and the class action undertaken by JPMorgan Chase investors.

We would here refer the reader to some of the protagonists of the interviews collected in Swimming with Sharks (Luyendijk 2015), a book that explores the personal and professional situation of people working in London’s financial district.

“Those who were the engineers of this debt and who had already benefited quite disproportionately from the extension of credit have been to an extraordinary degree allowed to exempt themselves from the consequences of their delinquent actions” (MacIntyre 2015, p. 19).

These features, “habits,” that MacIntyre highlights are confirmed by some financial literature, especially in the field of behavioral finance. See, for example, Barber and Odean (1999, 2001) on overconfidence and excessive courage as explanation of the level of trading in financial markets; Brown et al. (2010) show how the habit of being self-interested distinguishes people involved in finance from other people as early as during their college years; on the relationship between finance and short-termism, see Mauboussin and Callahan (2015).

We should clarify that here as elsewhere in the paper, we use the term “practice” in its ordinary everyday sense, to indicate a purposeful, structured, and more or less complex cooperative human activity carried on in a more or less routinized or habitual manner, not in the special sense intended by MacIntyre.

This problem seems to be even greater in emerging financial markets, where, due to poor regulation and governance of market intermediaries, many brokers together could agree on a strategy of price manipulation using the privileged information they have. This kind of behavior affects the functioning of the market and also threatens justice: for example, in a study of an emerging stock market such as Pakistan, Khwaja and Mian (2005) reveal that rates of return for brokers are 50–90% higher than those for a normal “outsider” stock investor.

Nowhere was this more vividly illustrated than in the pivotal role of mortgage-backed securities in the 2008 financial collapse. The problem with such a financial product is not merely that it is complex, but that the number and variety of assets and financial actors implicated in it is too large and dispersed to guarantee realistic accountability and transparency for either the seller or the buyer.

Indeed, as MacIntyre himself admits, the target of his argument is implicitly not only the financial trader, but the financial system as a whole. It is “the financial sector as a whole,” he insists, and not just trading, “that is from the Thomistic Aristotelian point of view a school of bad character” (2015, p. 12).

Defined by MacIntyre as “Any coherent and complex form of socially established cooperative human activity through which goods internal to that form of activity are realized in the course of trying to achieve those standards of excellence which are appropriate to, and partially definitive of, that form of activity, with the result that human powers to achieve excellence, and human conceptions of the ends and goods involved, are systematically extended” (MacIntyre, 2007 [1981]: 187).

We are not denying that finance might count as a MacIntyrean practice, just insisting that (a) this is a claim that requires considerable argument to establish, and (b) it is not a claim we need to make in order to vindicate the ethical value of trading.

This discussion complements the work done by Moore and Beadle (2006) in the parallel field of business ethics. The principal difference is that while we view the problem of ethical integrity primarily from the perspective of the moral agent, their study gives salience to the perspective of the business organization. Building on MacIntyre’s account of a social practice, they explore the way a business organization could be virtuous, which for them means exploring under which conditions a business organization might be favorable to the sustenance and development of a practice in the way MacIntyre understands it. They identify three preconditions for an organization to be virtuous: the presence of virtuous agents, a mode of institutionalization that is “conducive” to sustaining and developing the practice that the institution houses, and a conducive environment. While they aim at describing the conditions for an organization to be virtuous, and their approach bears important structural similarities to ours, our inquiry is driven by the perspective of the agent—whether a good person can be a successful financial trader, and treats institutional and environmental conditions under a single category, namely that of environmental conditions.

This positive definition is entirely consistent with MacIntyre’s more negative definition: “To have integrity,” on MacIntyre’s view, “is to refuse to be, to have educated oneself so that one is no longer able to be, one kind of person in one social context, while quite another in other contexts. It is to have set inflexible limits to one’s adaptability to the roles that one may be called upon to play” (MacIntyre 2006: 192). While Thunder’s definition addresses the positive effort of an agent striving to live a worthy life, MacIntyre focuses his attention on the effort needed in order to avoid becoming a compartmentalized person.

See Herzog (2017) for a helpful discussion of some of these strategies, though oriented to the banking sector rather than to trading specifically.

This is something like what Iris Young (2011) would call a “forward-looking” responsibility to remedy systemic harms irrespective of their precise causes, as distinct, for example, from a responsibility to remedy a past wrong for which one is personally culpable.

The term “cooperation” (with evil or injustice) indicates “an action that facilitates the execution of an evil design that another person has” (Colom and Rodríguez Luño 2014, p. 361). If it is “willed directly or through free initiative, and as such implies an approval of the other’s action” (p. 362), it is defined as “formal cooperation.”