EDITORIAL PAGE Justifying stockmarkets’ existence

It’s tough enough ensuring adequate liquidity, compliance and visibility. Now, it seems, stock markets have to justify their existence in terms of whether they are on the side of Good or Evil. All stock exchanges and securities commissions, not just those in Toronto or British Columbia, seem to be constantly embroiled in one “scandal” or another. So it is understandable that they come under such examination. However, the constant controversies involving securities regulations indicate just how closely participants in these institutions are scrutinized.

It may be appropriate for institutions that govern the trading of securities to look at those larger questions from time to time. It’s just that there seems to be so many more pressing matters.

Moral justification for stock exchanges cannot simply be answered by looking at who benefits from their activity. It is not enough to find someone who benefits, thereby demonstrating they are good. Nor is it enough merely to ask what the alternative is. An unregulated market? Capital flow by government decree?

Unregulated markets of the late 19th and early 20th centuries gave rise to the excesses of the “robber barons” that resulted in great human suffering. Hardships now being faced by the populations of eastern Europe and the Soviet Union are ample proof that governments simply cannot deploy capital resources effectively.

The question of moral justification for stock markets only arises because the obvious is overlooked. Stock markets are one part of a system that makes our existing society work. Stock markets can be morally justified only to the extent that our way of life can be.

In fact, the question only arises from an unrealistic view of the world, the same kind of view that has constructed the elaborate theory of “art for art’s sake.” Such a theory can prompt some to contemplate the painting of a large red stripe on a blue background, put a price of $1.4 million on it, house it in a huge room with five or six other such objects, and justify it as art.

Such an artificial view can also leads to questions about the moral foundation of institutions that govern the flow of capital. Are these institutions squandering the money or investing it to worthwhile ends?

In the real world, however, stock markets serve a very real purpose. The flow of capital can improve our standard of living. There are abuses, however. There are examples of the rich getting richer and examples of the naive losing their savings. But the ultimate judgment of stock exchanges must rest on the fact that they work for the betterment of society as a whole, and that is the moral justification of their existence.