Evolving a New Vocabulary for Talking About Suitability, Longevity and Fairness in Financially Engineering the Right Economy

A corporation is a financing agreement between Management and Money.

When the Money is Mad Money sourced from the Capital Markets, through securitization of the corporation into shares issued for trading between market participants, that agreement becomes a social contract for growth in the scale of assets and activities being managed by Management (and so, also, growth in the number of Managers: who are called legally, within the legal language of the corporation as an institution for Enterprise ownership and control, Executives; and increasingly within the jargon of Management pundits, Leaders).

This growth in scale is required as the primary term of the social agreement between Management and the Markets, so that the Markets can deliver liquidity to market participants - every seller can sell, every buyer can buy - without which people will not participate, and there will be no market.

All the language

• about Enterprise and Finance and Politics and the Economy and Society and our human relationship to the artificial world that we construct for ourselves, as a safe and dignified house for humanity, out of the world of Nature into which we each and all are born, and that supplies to each and all of us with the choices from which we can each choose in forming our our personal and private worlds within that safe house for all, for living our own best lives under the circumstances then prevailing, personally and privately,
• emanates from the core defining need of the capital markets, for liquidity supplied through growth and volatility in market clearing prices for shares held for purchase and sale in the markets for maintaining market clearing prices - and liquidity - on such shares.

This language makes no sense to our common sense. It is a language of experts, whose expertise is in the processes through which Markets agree on prices for shares, and how that agreement - and those prices - change over time, more or less constantly, but always unpredictably.

This is the language of Asset Management.

It is not the language of everyday living.

Which is why it makes no sense to our shared common sense.

But everyday living is about living together, as humanity, in society through enterprise in the economy, using money. Which is what the sociology of social choosing is really all about.

So, it makes no sense that the language of Finance should make no sense to our common sense.

We need an upgrade. To the language of Finance. And to our common sense, our shared social narrative, of being human in the world, together and apart, in society, through economy, using money.

Let's start with Money.

There are few words in the English language that so completely express the roiling tumult of conflict and contentiousness that is our human way of being in the world as this one word,

money.

By design, money is inert.  A simple measure that in itself says nothing about the value of what is being measured. A purely factual recording of a quantity.

But what is being measured, what is being quantified by money, is our human relationships with each other; our worth, as a human, to another human. And that is very dangerous territory, this territory of our worth to others. It is a symphony of rationality and and a cacophony emotion, of thinking and feeling, of thoughtfulness and thoughtlessness, every single note of which is sounded in some way through money.

Money does not exist in Nature.  It is completely made up, a purely human invention. A thing that is no thing. Nothing.

And yet it is the most powerful thing in the whole of human experience. The root of all evil. And the best revenge.

We all use money.

Some of us want it.

Some wish we did not have it.

We all need it.

Few really understand it.

This is in large part because our stories about money are as confused and conflicted as the relationships that we energize through money.

To have money is to have power over others. To be without money is to be without power, forced to become indentured to others, or driven to rely on our wiles in an effort to beguile.

To be sure, there is an empirical residue of human emotion that manifests without money: the care and caring of mother for child, of family and friends; the animosities of rivals and hatred of enemies.

But mostly, people live together using money.

Given the importance of money to our human way of being together in society, it seems we should have a universally accepted and clinically precise language and vocabulary for talking about money, much the way we have a language for talking about language. We know what words are and how they are used. When they are being used correctly, and when they are being corrupted.

But we don’t know so much about money.

Why not?

Maybe because money is an abstraction, a phantasm, a purely human invention.

And we humans are much better at talking sense about objects that we can sense, with our sense; about, things that we find in Nature, and that we make for ousels, through our technologies, by reconfiguring the things that we find in Nature.

These are things that are not abstractions or phantasms. Things that we did not invent.

And they make sense to us. We know how to talk about them, and to become familiar with them. Comfortable in being around them.

Not so money.

Money was once described to me by Michael Mainelli, some years before he became Lord Mayor of the City of London as:

a technology that communities use to trade debts

This is a very elegant, and to my way of thinking, accurate definition of this thing that we call Money. It is a definition that defines a thing in terms of how we, as humans, use that thing. It's function and purpose, as constituted by us.

It is a very human definition, that centers us, in our very human way be being together, transactionally, in community. If we can understand ourselves as being together, in community, transactionally, we an understand money. It will make sense. To our common sense.

There are many, many voices that can be heard speaking out against  this experience of being human in community transactionally. These voices object not to being human in community, but to our being so transactionally. They contend that all our human interactions should be purely emotional. Never transactional. This does not make sense to my own personal sense of how we, as humans, do, and always have, and probably always will, live together, in society, both emotionally and transactionally. I will leave it to you to form your own sense of what makes sense of our transactional way of being human in the world.        

Another useful definition that makes sense to me is that money is a legal instrument for facilitating exchanges between people who are separated by distances of time, place or social connection.

A third definition is that money is the social energy that directs our individual insights and initiatives towards some activities, and away from others.

This transactional nature of money shows us the equally transactional nature of enterprise, as a physical coming-together of people who share knowledge of the same technology, to work together in doing the work of putting that knowledge into action collaboratively co-creating a surplus of artifacts of that technology - as knowledge of the way the world about us works in some specific way, and of how we can take the world about us as we find it, and change it to be more a way we choose to make it - in abundance, for sharing with others in exchange for price paid in money, or other value.

Enterprise needs money to bring people together, and hold people together, in doing its work.

When Enterprise needs money, Finance provides it.

Finance is an institution of social choosing through which society chooses where the money can, should and will be made to flow into enterprise, for its use in doing its work, for a time, at a cost and on terms, to inform the businesses that inform the technologies that inform the choices that inform the economy that informs society and the world in which we live.

When we see it in this way, Finance becomes less of a mystery, and more an everyday part of our everyday lives. Because we ourselves are important contributors to the work of Finance in flowing money into enterprise to inform - to give form to - the social world we share with others, out of which which we form our own personal and private worlds for living our own best lives, under the circumstances then prevailing, personally and privately.

We each use money ourselves, transactionally, to form the personal and private worlds in which we each live personally and privately, spending money to learn the things we need and want to know to earn money by contributing to the work of the world which we then spend on choosing the choices we chose to live the life we choose to live, and save what we do not spend to invest what we save.

The money that the institutions of Finance flow into enterprise to form our economy originates with us. It is money we have that we set aside, for a time, for a purpose, that institutions of Finance aggregate with other money set aside by others, for a time, at a cost, and on terms, and then allocates those aggregations to different enterprises, in different quantities, for their use in doing their work, for a time, at a cost, and on terms, collecting costs charged to enterprise, and sharing those collected costs with us, as savers and investors, according to the terms of our agreement with those financiers.

Looking at Finance from the standpoint of the choices from which we can choose, for where we choose to invest our savings helps us to see that Finance is a whole made up of parts, of which the Capital Markets are one part, but not the whole.

When I look at Finance as choices for where I can put my own money as savings for investment, I see six parts to the whole. These include:

1. Family & Friends, that aggregates money set aside to provide for the family and its friends, and allocates those aggregations to enterprise through patronage for IMPACT, as Private Money;
2. Church & Philanthropy, that aggregates money set aside to provide for others, and allocates those aggregations to enterprise through grants for MISSION, as Civic Money;
3. Taxing & Spending/Government, that aggregates money set aside (albeit by force of law) to provide for public health, public safety and the public welfare, and allocates those aggregations to enterprise through subsidies for POLICY, as Public Money;
4. Banking & Insurance, that aggregates money set aside for safekeeping and future transacting, and allocates those aggregations to enterprise through the monetization of PROPERTY, as Working Money;
5. Exchanges & Funds/the Capital Markets, that aggregates money set aside to make more money, idiosyncratically and opportunistically, and allocates those aggregations to enterprise through securitization for speculation on SCALE, as Mad Money; and
6. Pensions & Endowments, that aggregates money set aside to programmatically provide certainty against certain of life's future financial uncertainties, and allocates those aggregations to enterprise through negotiation for SUFFICIENCY to the longevity of the pension, or endowment, as Fiduciary Money.

When I was a young lawyer first learning about Finance, developing expertise, especially, in the rules of fair dealing between market professionals and individuals as market participants, we used to talk about people not using money they couldn't afford to lose to buy stocks. We sometimes called this money, "Mad Money".

We don't really talk about market participation in this way anymore. 

But maybe we still should.        

Two things I see, when I look at Finance this way, are:

1. the financiers who are expert in the language and logic of the different parts of Finance - what I call the different kinds of Money for Investment in Financing for Enterprise - as the people we actually do business with, when we do business with money; and
2. the takeover of control over Fiduciary Money by capital markets financiers, turning Prudent Stewards of Social Trusts into Asset Owners Allocating Assets to Asset Managers, and corrupting the code of Sufficiency into Growth as a monstrosity of misalignment between purpose and practice, that is financializing both Fiduciary Money and the Capital Markets, and infecting the whole of Finance, Enterprise, the Economy, Society, Politics and Civil Society, reducing the humanity of our transactional way of being in an artificial world that we construct for ourselves, in which to live, out of the world of Nature into which we each and all are born, to numbers, and prices and the risk of getting the pricing wrong.

The solution is to de-financialize Fiduciary Money, returning control to Prudent Stewards. This we can do by going back to the text of the law of the creation of these social trusts, to reassert their fiduciary duties of prudence under the circumstances then prevailing in the exercise of the capacity they derive from their character, in undivided loyalty to their aims, as constituted by the laws of their creation.

"Undivided" is a useful word to focus on here, because Asset Ownership bends the arc of their loyalty, away from their Aims, and towards the Assets that they own. And since, as Asset Owners they own Assets for the purpose of selling them to extract profit from those Assets, their loyalty bends towards that sale, and the selling price and the extraction of profit through that sale, from that price.

Capital markets professionals try to re-unite Aims and Assets by arguing that extraction from workers is the only way delivery dignity to workers.

This is patent nonsense.

We can navigate away from this nonsense by going back to the text of the law, to reset the code of fiduciary practice towards the prudent exercise of the capacity of prudent stewards of social trusts, derived from their character of vast size, programmatic purpose and forever time, to use the technologies of spreadsheet math, desktop publishing and digital communication to negotiate with enterprise of any size, in any business, anywhere on the planet.

They do not have to extract. They can interact.

They can financially engineer equity paybacks to an actuarial/fiduciary cost of money, plus opportunistic upside, from enterprise cash flows prioritized by contract for suitability, longevity and fairness under the circumstances then prevailing.

Suitability is a way of mapping enterprise as a physical coming-together of people who share knowledge of how the world about us works, in some particular way, and how we can take the world about us as we find it, and change it to be more a way we choose to make it, through technology, to put their shared knowledge of that technology into action collaboratively co-creating a surplus of artifacts of their knowledge in abundance, for sharing with others in exchange for a price paid in money, or other value that can be turned into money.

The elements of suitability include:

• knowledge of the technology, its application and its use by people in forming their own personal and private worlds within which we live our personal and private best lives, under the circumstances then prevailing, personally, and privately;
• networks of connections all along the cost-for-value to value-for-price continuum; and
• routines for effectively and efficiently putting knowledge into action collaboratively co-creating surpluses in abundance for sharing with others, in exchange for a price paid in money, or other value that can be transformed into money.

Longevity is a way of mapping the flourish and fade of the social contract between enterprise and popular choice as an enterprise based upon a technology on its journey from innovation to obsolescence, as times change, and humanity evolves prosperous adaptations to life's constant changes, through inquiry for insight and new learning to evolve prosperous adaptations to the changing times, making new choices more popular, as better fit to the changing times, while letting previously popular choices fade into history , as a good choice at an earlier time, as the real engine of humanity's prosperity, and the true story of our human history.

Fairness is a way of mapping the flow of cash through the enterprise along the cost-for-value to value-for-price continuum along six vectors of fairness in how business does business, including:

1. fairness to suppliers (Fair Trade);
2. fairness to communities, of place and of interest (Fair Engagement);
3. fairness to Nature, Society. and our shared Future (Fair Reckoning);
4. fairness to workers, and in the workplace (Fair Working);
5. fairness to customers and competitors (Fair Dealing); and
6. fairness to savers whose savings are the original and ultimate source of the money made to flow into enterprise by its financiers, fiduciary and otherwise.

The point of fairness to savers opens up another path of inquiry for individuals into the architecture of Finance, and the mechanisms for holding the diverse institutions that comprise the parts to the whole of Finance accountable for authenticity and integrity in their institutional exercise of their institutional authority/power true to their institutional agency/purpose/mission.         

Part of freeing our common sense from financialization by the capital markets is teaching ourselves to speak this new language of enterprise as knowledge-networks-routines, the flourish and fade of the social contract with popular choice, and the six vectors of enterprise cash flow along the continuum of cost-for-value and value-for-price.

This is the language of financially engineering the right economy for being human in society through economy, using money, on a planetary scale in the 21st Century, and beyond.