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The Moral Dimension
Throughout this book, I apply the concepts of finance to issues that
sometimes provoke moral outrage, such as economic inequality, and to
issues of fairness, such as how well society should treat its elderly. The
reader may find this application of finance rather odd. Finance is widely
viewed as an amoral field, even as an occupation for the selfish and
grasping. Indeed, financial deals often seem to highlight the most self-
ish aspect of humanity, simply because they are so explicit about who
gets what. These deals respect property rights through time, and they
provide incentives for great work and risky ventures whose rewards
come much later. Afterward, when the work is finished and risk suc-
cessfully navigated, people who did the work and who now demand
their contracted recompense may appear selfish and grasping to others
who are not aware of the risk and efforts.
But financial theory does relate directly to the problem of achieving
distributive justice without creating economic inefficiency or bad in-
centives. Moral judgments cannot be made without reference to our
underlying economic theory.
Philosopher John Rawls, in his influential 1971 book A Theory of Jus-
tice, developed a theory of distributive justice by reinterpreting con-
cepts of justice advanced by philosophers through the ages.
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In partic-
ular, Rawls reinterpreted Immanuel Kant’s Categorical Imperative.
And as I reinterpret Rawls, along lines originally advanced by econo-
mist John Harsanyi, his philosophical theory ought to help bring the
field of finance to the fore as we make moral decisions about our eco-
nomic institutions.
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Rawls’s theory requires that we consider questions of distributive
justice from a viewpoint that he calls the “original position,” that is, the
point at which our economic status is unknown and hence subject to
risks. In other words, society should make ultimate distributive justice
judgments as if we were setting up rules and principles before we were
born, before we knew which person we would be. Then our judgments
will be essentially fair, even if they do not require absolute equality for
everyone. Use of Rawls’s theory can make justice a principle of risk
management by centering on the risk of being born into, and living
out, bad circumstances.
Rawls is a philosopher, not a financial theorist, so it is not surprising
that he rounded out his theory in a way that would be considered
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rather primitive from the standpoint of finance. He proposed that our
moral judgments should follow the “difference principle,” which as-
serts that our economic institutions should be designed to maximize,
considering all issues of economic incentives and possible inefficiency,
the minimum possible economic position of people, that is, to make
the most disadvantaged class of people as well off as possible, all things
considered. The difference principle asserts that we accept rules that al-
low inequality only insofar as these rules help improve the situation of
the least advantaged class. This “maximin” (maximize the minimum
human condition) solution is hardly the most natural way to define our
goal of risk management. After all, we care about all individuals, not
just the most disadvantaged.
I intend to adopt a principle of justice from a “picture window view”
of Rawls’s original position. I ask what kind of world, in the broad pic-
ture, we would like to live in if we could choose before we were born, as-
suming we had an equal probability of being born as anyone. We are thus
concerned about all people’s lives, not just those of the poorest. In ask-
ing this question, we will use our broad sense of tastes for equality and
opportunity and the emotional significance of life’s experiences, looking
at the whole picture of such a world. Then income inequality, rather than
being automatically a bad thing in moderation, becomes an aspect of the
picture window view. We will tolerate substantial income inequality. What
we surely do not want is gratuitous, random, and painful inequality. 
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Rawls’s theory of justice is important to my argument because it
shows that the intuitive sense that many philosophers have had about
achieving justice is in fact amenable to an application of financial
theory. We will broaden the scope of this financial theory to relate it
more deeply to society at large.
Outline of This Book
Part 1 of this book describes the basic parameters of the problem that
financial technology is designed to address—the risk of sharp declines
in economic status for many individuals. These risks are very real even
if we confidently expect dramatic world economic progress overall. We
will see that economic risks are much more substantial than many of us
seem to realize—technological innovation is itself an important source
of individual economic risks, and many other sources of risk threaten
individual prosperity as well.
the promise of economic security
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Part  2 discusses how technological progress promises to alter risk
management in the future. Modern information technology offers op-
portunities to improve risk management that we can only begin to
grasp today. Part of this technological progress lies in the science of
psychology, which is changing our understanding of how people can
interact with risk management devices.
Part 3, the heart of the book, presents the six ideas for a new finan-
cial order, one per chapter.
Part  4 discusses other devices to deploy the new financial order:
global risk information databases, new units of measurement, and elec-
tronic money. Moreover, it describes the kinds of research and advo-
cacy that are needed to implement the ideas for a new financial order.
Part 5 provides an analysis of the history of financial markets and of
social insurance, revealing a slow, ongoing process of changes analo-
gous in some ways to those I am proposing. Innovators who achieved
similar changes over the last two centuries were cognizant at least at an
intuitive level of basic principles of finance and of basic human psy-
chology and made effective use of the new information technology of
their day. It is natural to expect that we can carry on such fundamental
progress in the future.
The epilogue rounds out a model of radical financial innovation, a
view of how our lives can be fundamentally improved by financial in-
stitutions that are sharply different from the ones we have today.
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