Moving Toward Value-Based Financial Systems

(Originally written: 11.13.2018)

I’ve been thinking cross-culturally about finance institutions and how we can reinvent the modern systems in a value-based investing approach.

The growth of finance made civilizations possible, as the role of finance and institutions – money, bonds, banks, corporations, helped urban centers to expand and cultures to flourish.

Finance was at key moments of history as different apparatus, as products were developed and reinvented in the course of history. Finance innovations emerged to solve economic problems of time and geography. An example – a religious institution like Templar that became a legal system in Europe to adjudicate disputes and rights became a theoretical foundation for Europe’s unique financial architecture. While its extensive geographical network provided for an easier transfer of money through space, Templar dissolved. Its distribution of wealth made it a political target, a loss of its original mission.

Chinese financial system was different from the Greco-Roman to be more nimble – the political context determined its solution. For Europe, its reliance on capital market lies in the fragmentation and weakness of medieval states.

Finance markets and political context today coexist and complement, but the past gives us lessons on how we can risk share and adapt variations of the tools to different kinds of societies. Discoveries of financial solutions led to its civilizations most important achievements – writing, mathematics, how we save and invest, and how to harmonize global economy. It also created problems like slavery, imperialism, and other crises.

Financial thinking in a modern economy is difficult – as crashes and bubbles always take people by surprise – and I think it is because we rely too much on specialized tools from legal arguments to modern portfolio theory. As we move toward a collective global civilization with a greater proportion of the population in complex societies, finance needs to keep up.

The market is driven by spontaneous, mutual hope, often irrationality or optimistic dream. Businesses play a game of skill and chance, where it relies on average results of many investments through ebbs of hope and cold calculation. A large portion of it depended on spontaneous optimism than mathematical expectation.

Gambling investors based on hopes of new technologies enabled technological progress. Companies that harness the spirit – enable the markets to overcome the financial inertia – a force in the economy. The market sentiment that often holds the economy back because of irrational fears, managed correctly with public expectations, could become a force for good.

The risk in individual investing is often inside us – how well can we ride out plunges and the market – how much experience do I have or confidence do I have and go against the current? Could I make a lot of money? Can I rely on my willpower to endure the probabilities and consequences?

Progress is based on optimism. Good innovation can be celebrated where modern economies reward activities that create value than extract them. The shared values – where creating of value can be more collective – based on a dynamic division of labor focused on problems that 21st century are facing – can be more sustainable and preliminary to an economy where we create value than extract them.

It’s an essential thesis that optimism has and continues to drive financial markets and fund economic growth, and that optimism can be tied to higher motives and collective goals.