Charlie Munger, Warren Buffett’s business partner for decades, doesn’t mince words. Speaking to a group of foundation money managers in 1998, near his conclusion he shared some truths that could set listeners free, if in fact we are willing to listen.
My controversial argument is an additional consideration weighing against the complex, high-cost investment modalities becoming ever more popular at foundations. Even if, contrary to my suspicions, such modalities should turn out to work pretty well, most of the money-making activity would contain profoundly antisocial effects. This would be so because the activity would exacerbate the current, harmful trend in which ever more of the nation’s ethical young brainpower is attracted into lucrative money-management and its attendant modern frictions, as distinguished from work providing much more value to others. Money management does not create the right examples. Early Charlie Munger is a horrible career model for the young, because not enough was delivered to civilization in return for what was wrested from capitalism.
Too many of the “nation’s ethical young brainpower” are being lured by thoughts of an elusive or illusive bigger piece of the pie; too few are paying attention to the size of the pie itself. Ultimately this is self-defeating.
Simply trading around existing value not only fails to grow the pie—it shrinks the pie because of frictional costs (see our 1st Relentless Rule of Economics). When the pie shrinks, all pieces—even the bigger ones—are diminished (see our 2nd Relentless Rule of Economics). Opposite of Partnership Economics, seeking a bigger piece of a shrinking pie results in mutual loss. Partnership Economics is about seeking a bigger pie, so all involved experience gains.
Photo Credit: wharton.upenn.edu
John Bogle adds his strong words to Munger’s. After speaking about the relentless rules of humble arithmetic that make comparative advantage (out-trading other money movers) mathematically possible only for a minority, Bogle points to a far more advantageous kind of advantage.
Yet it is within our power to do exactly that, creating a community advantage that provides value to all investors. Enriching the returns of all investors as a group ought to be a vital goal for society itself . . . So long as money-making activity simply shifts returns from the pedestrian to the brilliant, or from the unlucky to the lucky, or from those who naively trust the system to those who work at its margin, of course it has “profoundly anti-social effects.” Wouldn’t making capitalism work better for all stockowners, increasing their returns while holding risk constant, have, well, “profoundly social effects”?
Indeed it would! We are convinced and hopefully are convincing in these blogs and our book that making capitalism work better for all stakeholders, making the whole of economics more mutually beneficial for all involved (including investors/shareholders), will have even more profound social effects.
As Bogle innovated in both theory and practice from the mutual fund to the mutual company and created immense value for many, we endeavor to innovate in both theory and practice from the mutual company to the mutual economy and unleash an even wider ripple of mutual benefit for all. This is the cultural vision of Partnership Economics. We are inspired by Bogle’s goal and respond with: enriching the economic exchanges of all people as a group ought to be a vital goal for every society.
This is our goal, and we expect you’ll see the expansive value in partnering in it.
Partnership in Practice:
Seek to grow the whole pie—this makes everyone’s piece bigger, including yours.
Incentivize work that creates value more than “work” that merely trades already-created value.
Aim high, be bloody bold and resolute—change the culture of capitalism with a ripple effect of mutually beneficial partnership economic exchanges.
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