The Jedi view of money and the dark side

“Capitalism might be the root of our racial problem in this country,” said the lady on the phone a couple of weeks ago. She was leading a diversity training program for a group of us listening. The proof she offered up in her assessment was that capitalism strives to maximize profits at the expense of individuals. Her alternative suggestion was something along the lines of socialism or communism if I understood her correctly.

I won’t elaborate on what I said in my evaluation of the training, other than to suggest I thought her radical Marxist view of people was not a solution to the race problem and her ignorance of economics had no place in a diversity program. Other than that, I thought it was a great program!

But since ideas like the ones this lady promoted are gaining traction around the country, I thought the topic to be very timely for a newsletter about money. The ways money can create incredible human flourishing are well documented, as are instances of greed causing tremendous personal and societal pain and suffering. Let’s look at the power of money through the eyes of a Jedi with the potential to do great good or evil.

As a community banker for most of my life, I saw the power of the goodness of money at work almost everyday of my career. Recently I have been so impressed by the dedication of bankers around the country who worked seven days a week, into the wee hours, getting PPP loans out the door to keep untold millions of small businesses from folding. Additionally, I sit on a board that oversees tens of millions of dollars in grants for affordable housing. Heartwarming stories abound on the committee I serve on showing the incredible power of creating a stronger community by finding a way to help others have a home to live in. George Bailey would be proud.

But in a broader sense, the attack on capitalism by those who purport to care for the poor seems so misguided. As we now know, four-fifths of starvation level world poverty has been eliminated since 1970 primarily through adoption of various elements of capitalism that addresses poverty. This success came not by throwing government money at it, but by allowing individuals access to capital and the opportunity to benefit from their hard work and innovation.

But in spite of all the examples of the goodness of money, my instructor might ask, “What about the dark side of money?” She would be right to ask the question.  In addition to being good, money is also dangerous and capable of being used to exploit others by the Darth Vader lurking inside us. Outside of a strong moral framework, capitalism will slip into what my instructor was alluding to.

On a cultural level, capitalism produces its best results when there are strong religious institutions present to provide the right moral framework to treat all individuals with dignity and fairness in a free market. And, the government needs to do its job of providing legal protections for everyone. When either of those safeguards are missing, we see the true power of the dark side of money arise in any type of economic system.

Drilling down to the individual challenges we all face when it comes to money, things get much more personal. For example, the seductiveness of incentives in our jobs can blind the otherwise morally sensitive individuals.

I like this quote from Upton Sinclair, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” Perhaps this explains some of the unethical behavior in some financial institutions in recent years where corrupt sales practices existed for years among otherwise upstanding community members.

And what about outright greed? Bernie Madoff is an interesting case study in that before his infamous Ponzi scheme was revealed, he was at one time a wildly successful legitimate businessman. He was a market maker matching buyers and sellers of stocks. This business was legal and made him very wealthy. What is it in the human psyche that would cause someone worth hundreds of millions of dollars to risk it all to get more?

I think it is a failure when we don’t have any sense of how much is “enough.” John D. Rockefeller famously replied when asked how much is enough, “Just a little more.” When we consciously or unconsciously adopt this attitude, it opens us up to incredibly bad decisions even if they don’t rise to the level of a Bernie Madoff.

And then there is also the moral failure that can come with social comparison. By most measures, an NFL rookie making the minimum wage of $475,000 would be considered doing very well. However, when compare to 24-year-old Patrick Mahomes ten-year salary valued at $503,000,000, the rookie might feel underpaid. But then Patrick may feel like a pauper compared to the top five hedge fund managers who brought in almost $770,000,000 each a couple of years ago. And we could go on and on with the Big Tech company CEO’s increase in wealth in the tens of billions each year. Playing this game is a guaranteed way to lose the joy of life and, at worst, lead into envy and unethical behavior of those unable to deal with others being compensated more than they receive.

There are some principles of money management that change over time. Value investing was once popular and made sense, but now low-cost index investing is the rage. However, we need to remember that there are certain unchanging universal truths about human nature that we need to understand to have a successful relationship with money. Among them are the topics discussed including a deep understanding that money is a powerful tool for good in the world, and that money can be, and is, corrupted by greed, improper incentives, failure to understand the concept of “enough,” and dwelling on comparisons of those with more than we have.

If you have found other universal principles of money truth that I didn’t hit on today, I’d love to hear your thoughts!

Joe Kesler, Founder Smart Money with Purpose