Despite the fact that most of us work in offices, at best rearranging electronic bits of data and occasionally generating piles of paper, we are constantly pushed to speak in terms of making a product. Lawyers more and more talk about “work product,” i.e., the briefs they write or the presentations they make. Even in the financial industry, banks no longer make loans or enter into contracts: they sell “financial products.”
This way of speaking is really, deep down, very odd, but it also has some very pernicious consequences. A while back, Mountain Buddha suggested that society tends to think of and value “work” as being purely physical or concerned with producing goods, and asked us to expand our notion of work to include the work that intellectuals do. As Mountain Buddha wrote, we tend to think of work activities as producing something tangible. If something free-standing is not produced, well, we must not have been productive. This way of thinking causes us to engage in busy work—we create things like memos, presentations and other documents in order to show that we have been doing something. This habit is reinforced in many businesses by audit and compliance functions. From an auditor’s perspective, if there is no document, the process doesn’t exist. The same impulse causes us to devalue activities, such as teaching, that don’t have the same kind of productivity.
Most of us aspire to a vocation—something that we are called to do—rather than a mere occupation—something that takes up our time. We don’t just want money, we want success. We want people to value our work, so that, in turn, we will ourselves feel valued. Even the starving artist dreams of an appreciative audience. It’s the tension between meaning and money that the word product highlights, because in speaking of our work as principally about production, we emphasize exchange value (money) over meaning and relationships (moral value).
We tend to think of only certain products as being ‘expressive’ of who we are. Visual artists’ paintings and sculptures; Musicians’ songs; Dancers’ choreography; etc. For most other products, cars, chairs, and even cakes, we largely believe that they are merely things. We do our jobs to make a living, but they’re not ‘who we are’. We make commodities, things solely for the purpose of exchange. After they’re sold, that’s the end of it.
However, many things we have started to call products are, in fact, promises. Almost all of what we think of as wealth—stocks, bonds, complex financial products—are promises. The wealthiest people on earth, Jeff Bezos, Bill Gates, Warren Buffet, et al. don’t have piles of gold, vast plantations, or armies of serfs but rather stacks of paper promises.
Products and promises are both ‘made’, so to speak, but not in the same way. A product is some external object; a promise is immaterial. As J.L. Austin wrote, in How to Do Things with Words, with certain acts, speech acts, saying makes it so. Our words express intentions to another person, and the mutual understanding between people creates an obligation. When we treat people as producers rather than as agents, we stop thinking in terms of persons, actions, and character. For the most part, we tend to view products apart from the moral quality of their makers (although that may be changing). A bad man can make a great car or write a sweet song, and a good man may make an execrable cake or be an awful poet. Manufacturing, song writing or poetry all involve some technical expertise, in addition to diligence and inspiration. But when someone makes a dishonest or reckless promise, it reflects on his character, on his moral judgment, and a different response from the case of the merely defective product is required from those to whom the promise is made and those in the larger community.
To illustrate this, let’s unpack the phrase ‘financial product’—what are financial products? Well, in the first place, financial products are things like loans, securities (stocks and bonds), and derivatives. We all know what a loan is—a promise to lend given in return for a promise to pay with interest. All contracts are reciprocal promises. But what about other financial products, that is: What are securities (e.g., corporate stock) or derivatives?
A security (a stock or a bond, or even, sometimes, a share in an orange grove), as the Supreme Court has defined it, is a contract “whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts” of another (Securities and Exchange Commission v. W. J. Howey Co., 328 U.S. 293 (1946)). We tend to think of stocks, bonds, and other securities almost as objects, like staplers or gold coins. This is reinforced by how we use stocks. They can be freely traded and exchanged, they’re fungible (interchangeable), and for many different types of transactions, they’re used as money like cash. But each security is a contract, an agreement, and, as such, a bundle of promises. Each stock certificate is a promise by the issuer that the value generated by its efforts will repay the investment of the stockholder. The price of an equity security is generally held to embody the discounted future income of the issuer—that is, the probability that the promise of the issuer to make money in the future will be fulfilled.
Something similar goes for derivatives. Most people are intimidated simply by the word “derivatives.” They seem exotic, almost magical, if not fake. But derivatives are easy to understand in principle, since they are also kinds of promises.
A derivative is nothing more than a bet. In fact, in at least one country, regulators have to explicitly say that sports betting is not covered by derivatives regulations. Instead of a bet on horses or baseball games, a derivative is a bet on the future price of something. And just like in sports betting where bettors can make complex bets based on a combination of outcomes or involving a point spread, derivatives can involve the behavior of multiple underlying assets adjusted using mathematical formulas the same way bookmakers use odds. Derivatives can come in many forms—futures, forwards, options, etc.—but even though many derivatives transactions, such as futures, ostensibly involve the future delivery of some commodity (or a security in the case of certain forwards or options), most often they are cash settled based on the value of the underlying asset as a reference. In this respect certain derivatives are called ‘contracts for difference’, which is to say, one person is paying the difference between the wagered and actual price at maturity, when the contract unwinds, based on a certain notional amount of the underlying assets. In the end, derivatives, like bets, are just promises to pay if some predicted event does or does not occur.
So what? What makes promises so special? As we observed, when we make promises, we establish a relationship with another person, and we take responsibility, we become accountable, for our actions and for outcomes. Promises are not predictions. When you promise to do something, you are not predicting that some event (your future action) will happen—you are taking responsibility for ensuring that it does, or at least that you take a promised action. Only certain types of failures are excused when we make promises. Promises also endure—both because they often obligate us for an extended period of time and because even after we’ve fulfilled them or failed to fulfill them, they stick with us. Our promises, kept and broken, become part of the fabric of our character and make us the people we are, good or bad.
The contrast I am drawing between promises and products is not absolute. With many products we have implied and explicit promises (legally, warranties) about uses, quality, side effects, etc. Manufacturers try to establish relationships with their customers by use of legal warranties, and also less formal promise-like relationships—free returns, complimentary service, free tchotchkes, and just being nice (“good customer service”).
However, when we mislabel promises as products we implicitly—and perhaps unwittingly–decrease the social and ethical connections and relationships these promises create. The objectification of promises decreases the costs of keeping the promise, at least for one of the parties. When we speak in terms of products rather than promises we insulate certain individuals from blame and responsibility for unethical actions.
While the 2008 Financial Crisis may provide the starkest embodiment of the dilution of moral accountability within the new way of thinking about our jobs, the more recent developments in the technology industry show that how much further we are willing to go. The term ‘disintermediation’, often summed up simply as ‘cutting out the middleman’, is the new order of the new economy. Disintermediation, as practiced by Amazon, Uber, and others, is a way to eliminate interdependence between people and to pocket the difference made by eliminating the friction of multiple commercial relationships. We no longer need to have interlocking and overlapping relationships with people in our community, mom and pop stores, for instance. Instead, there is only each individual and her Amazon wish list. We no longer need shared entertainment because we have our individually curated media accounts on Netflix or Hulu.
There is another word for disintermediation: disintegration. They mean the same thing, but have much different senses. A mediator stands between two parties. From an economic point of view, mediation often increases costs, in time and money. Disintermediation in many cases decreases the time we have to wait for satisfaction and the costs of that enjoyment. However, from another point of view, a mediator may also function to relate two parties, to bring them together, to introduce or to reconcile them. Bringing parties together can create economic value, but it can also create harder to quantify social value. Our social relationships are mediated, and in being mediated, we are integrated into a community. When we no longer depend on each other, when we no longer relate to each other, and society disintegrates.
In everyday life, most people aren’t concocting exotic derivatives, but to a surprising extent, we are using language taken from business school and finance to describe ourselves and our actions. Inadvertently, but more and more, we are beginning to reduce our actions and ourselves to things, bought and sold.
The Peripatetic is a regulatory attorney who, in another life, studied philosophy.