The Purpose of Finance

January 22, 2013

What is the purpose of finance?

Here is an answer: the purpose of finance is to help people save, manage, and raise money.

The answer is simple enough, but hardly ever spoken or acknowledged, which is a pity because purpose is the end towards which actions are directed. Purpose guides actions. Aristotle asked about the purpose of everything from medicine to generalship. (In case you are curious, for Aristotle, the end of medicine is health and the end of generalship is victory.) Every action and decision is done for the sake of an end, a purpose. The ancient Greeks, the Stoics, and the Scholastics knew and lived by this idea and even in a postmodern period modern humans still seek purpose. Why else is The Purpose Driven Life by Rick Warren the second most translated book in the world and the best selling hardback non-fiction book in history?

Just as many seek purpose to life, professionals in the broad sense, seek purpose in their work. A profession’s purpose is:

  1. A goal
  2. A reason for the work we do
  3. A guide to decision and action

A noble purpose is probably more likely to engender good acts, although it does not guarantee every act will be good. Most professions have well articulated purposes. For example, as Aristotle will agree, the medical profession’s purpose is to help people be healthy. The legal profession’s purpose is to help people obtain justice. The teaching profession’s purpose is to help people learn. It is therefore, not in the least odd for the finance profession to profess a purpose.

The purpose of finance is to help people save, manage, and raise money.

Finance needs to have its purpose enunciated and accepted. Students in finance should learn it in their business education. Perhaps the purpose should be taught even earlier at the elementary education level. Practitioners should be comfortable with the purpose of finance, knowing it implicitly and speaking it unabashedly. This acceptance and acknowledgement is a first step towards improving the culture of finance.

The improvement comes about through the crucial bit of the statement of purpose that is ethically charged: “To help people”. This phrase instills the notion of the “other” in finance. The idea of the other is where altruism and ethics begins. Secular moral philosophy from theories of justice to utilitarianism, concerns the other. The idea of helping the other also is widespread in religions from the Mosaic to the Eastern traditions. It is a basis of religious ethics. Christians are asked to love their neighbors, Muslims to show mercy to the less fortunate, and Buddhists to have compassion for sentient beings.

Where finance has fallen over the past half century is its gradual abandonment of an acknowledged purpose that entails the notion of helping people. Finance has been quantified for efficiency, made positivistic to escape the perceived quagmire of relativism, but quantification has led to the collective unconscious equating finance almost exclusively with money, neglecting the connecting link, people. So much so, spiritual leaders such as Pope Benedict and the Dalai Lama, feel the need to remind those who are inclined to listen, money (finance) is meant to serve people and people are not meant to serve money (finance).

Articulating the purpose of finance clarifies, for everyone, the role and work of finance professionals.

So instead of having this fuzzy connection in our minds:

Purpose of finance

Which leads to this mistaken belief:

We should have this much less fuzzy and more correct connection in our minds:

The statement and acceptance of a purpose is not the silver bullet that slays all unethical acts in finance. There is no silver bullet. Ethical progress is incremental more resembling an asymptotic curve. The quest of this Institute is to develop a new theory of finance in which ethics plays an integral role. The first step towards this new theory may be to propose a purpose for finance that is true, acceptable, and yes, noble.

Dr. Kara Tan Bhala