October 13, 2008
Fear, Greed, & Morality: Walking and Chewing Gum?
Posted by Jeff Lipshaw

It's so nice to have a chance to guest blog over here with many of my friends.  For the next two weeks, I don't have to nudge (or noodge) Gordon and David Zaring when I've posted something resembling corporate or finance at Legal Profession Blog.  Thanks, Gordon!  I thought I'd start off by bringing over here something (slightly edited) that I wrote yesterday morning.

At the end of the week, I am going to participate in the Entrepreneurship in a Global Economy symposium at Western New England College's Law and Business Center for Advancing Entrepreneurship. I will be discussing my somewhat contrarian and deliberately provocative essay Why the Law of Entrepreneurship Barely Matters.  Since the piece was inspired by Gordon's article (with Masako Ueda), Law & Entrepreneurship:  Do Courts Matter?, this seems like a good place and time to explain how my general thesis on lawyers, business, contracts, and entrepreneurship connects up with the present financial crisis.

A while back I wrote a lumbering piece with a point that seems to me more apparent now than it did when I published it in 2005:  the law (I was focusing on contract law) is not a particularly good tool for addressing radical uncertainty.  When it comes time to make difficult predictions about a highly contingent future, the process of judgment is so complex that it overwhelms the law's linguistic model. Imagine writing a contract that depends on the twentieth move of a game of chess that has yet to begin.  In theory, it's possible, but in practice, we still don't know if it's merely impractical or impossible.  And chess is simple compared to life.

I have joked over and over again (I apologize for it) that I like to work at the intersection of Kantian philosophy and venture capital, and Thomas Friedman's column in yesterday's New York Times brought me back to the thesis.  He quotes a friend to the effect that nature is just chemistry, biology, and physics, and you can't spin it, bribe it, or sweet talk it.  In Kantian terms, that is the heteronomous world in which we live, of physical cause-and-effect of which we must necessarily be a part.  Friedman's point is the same one I tried to make in a late footnote to the lumbering piece:  markets are very much the same as nature.  "At their core markets are propelled by fear and greed.  They're just the balance at any given moment of those two impulses." 

I believe that as well.  There's little that is moral about markets, just as there is little that is moral about physics.  Nor do we really, after all is said and done, want to eliminate fear and greed.  It's what sustains our bodies, and Kant was enough of an empiricist, I think, to conclude that if there was a soul, the only way you could know anything about it was because it was housed in a body.  Or to put it in terms of Jewish lore:  we have a "bad" impulse, the yetzer hara, by which we lust and amass, and a good impulse, the yetzer tov, by which we love and contribute, and we can't live (or live well) without either of them.  The Aristotelians looking for a golden mean should like this as well.  In present terms, it leaves me equally repulsed by unrepentant free market apologists and by blame-seeking moralists.  (The need to "blame" somebody for the current crisis is an interesting exercise in teleology as well, but that is for another time.  Suffice it to say that innocent people losing savings in market crashes is as almost as troubling as innocent people dying in airplane crashes, and reconciling either one is a tough philosophical issue.)

What does this have to do with entrepreneurship?  Again, to quote Friedman on the coming global workout of this credit bubble:  "The workout promises to be painful, complicated, and protracted.  Government will have to do its part.  But it must regulate the excesses without smothering the underlying innovative, entrepreneurial and risk-taking attributes of our economy, which are what will ultimately bail us out - as they always have."

So my project as a business person and lawyer of some worldly experience, and as a teacher of lawyers, has been a tad contrarian: suggesting to business lawyers that they ought to approach their task with some amount of modesty about their role in dealing with radical uncertainty.  (It's hard to get a feel for what I mean if all you do is read cases, or even litigate cases.  That is merely structured second-guessing.)  The lawyer's role not trivial, but it's not the be-all that law and economics would suggest by the notion of an "incomplete contract" (think back to my chess example) as though the idea of a complete contract does any helpful intellectual work at all.  And that's just law!  Ethics is another ball of wax.  Unless the proposal is that we go back to pre-Industrial Revolution agrarian society, somebody has to make our iPods and laptops and hybrid cars and get all that stuff to Whole Foods, and industry, even when it's done well and responsibly, is a dirty business that calls on us to make tough choices.

What I really love about the juxtaposition of lawyers and entrepreneurs is this jarring contrast in the approach to uncertainty. At the behest of my son, I've been wading through Gore Vidal's dense historical novel, Burr.  Burr was a practicing lawyer to the end of his life, and, in the novel, the young clerk in his office who narrates the story wants to know if he should take the bar exam.  Burr says he should because he will certainly pass.  The narrator replies, "But I don't want to be a lawyer."  Burr responds, "Well, who does?  I mean what man of spirit?  The law kills the lively mind.  It stifles originality.  But it is a stepping-stone. . . ."  Why does the micro-law of entrepreneurship barely matter?  Because it can barely contain the wide-ranging orientation to change and innovation in the face of uncertainty that is the mark of an entrepreneur.  Effective lawyers to entrepreneurs, like effective lawyers to business people, and like effective ethicists dealing with the workings of amoral markets, have to be able to walk and chew gum.

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