Financial Transparency As An Evil
The do-gooders of the financial world inevitably escalate their calls for "transparency" in the wake of some public incident, crisis, or condition. The word evokes the image of non-governmental organizations exposing corrupt war lords who seize power in third world countries and live in opulence off the wealth they siphon from their people. Who would dare oppose such a seemingly benign principle?
It absolutely should be opposed. Transparency is a euphemism for the government forcing companies to reveal secret strategic details about their assets or operations in the name of investor protection. It is a euphemism wielded like a battle mace and a shield. It is a mace because it is intended to smash through a company's moral and legal defenses and plunder their intellectual property. It is a shield, because its altruistic premise is supposed to make the demands of its proponents invulnerable to questioning or criticism.
And the transparency-mongers have an endless list of demands. These currently include the revelation of private salaries, the emplacement of complex derivatives onto highly regulated exchanges where their prices can be seen by everyone, the disclosure of estimated lawsuit damages, and the disclosure of all assets and their market values in financial statements.
The nominal reason for such measures is that they protect investors because investors need to know such critical information in order to make accurate valuations. In reality, those demanding transparency are unmoved by any harm to investors brought on by their measures. For them, the investor is a Platonic construct whose true interests lie in the attainment of complete knowledge, apart from and against their earthly gains. For them, the Dow spiraling down to 6500 under a mark-to-market regime is preferable to a Dow 14,000 without it.
Investors do not need to know absolutely everything about a company, and they are not entitled to know it. Nor is there a right of a group of investors to vote to reveal such information against the fiduciary interests of the rest of the investor-owners. Because knowledge is valuable, companies have a legitimate need for secrecy. No serious, sane thinker would suggest that Apple be forced to reveal the details of its research and development so that stockholders can accurately value the company. Making such information public would obliterate the earned competitive advantages of Apple as other companies rushed to copy or otherwise take advantage of the information. The same principle applies to financial institutions.
Modern notions of financial transparency evolved from Frank Knight's theory of perfect competition, a bizarre economic theory that views infinitude as the ideal and the standard by which things are frequently measured in economic analysis. This includes the idea that all market participants should have "perfect knowledge," i.e., be omniscient, in order to achieve perfect price discovery. Because this is impossible, leftists then slyly argued that government can close some of the knowledge gap between market participants by ensuring that information is made available ubiquitously.
Such an absurd and dangerous argument would not have survived long were the Chicago School not itself premised upon collectivism. It regards the whole economy as the metaphysical and moral unit of reality, and individuals as identity-less, interchangeable pieces to be manipulated in the pursuit of some ideal collective statistic. Economics veered in the wrong direction with notions such as "allocation" and Pareto optimality, which is the opposite of optimal from the perspective of individuals. It is a complete disaster, a prescription for stagnation, Sisyphean struggling, and economic death.
In the real world, individual organisms serve themselves, not the species. Their "ideal" in the struggle for existence is to escape oppressive competition by adaptively radiating into unfilled niches where there are no competitors. Humans are a special application of this principle, surviving by using their conceptual faculty to create abundant new niches, i.e., producing something that no one else does in a division-of-labor existence. Such production requires knowledge.
Man starts his productive life with no knowledge. To gain it, he must perform mental labor. Mental labor is not an expression. It is a type of work, and it is experienced as work. Its results are not guaranteed or infallible. High quality mental labor is much scarcer than physical labor. For these reasons, knowledge has economic value. When one performs mental labor successfully, one has earned its value.
Such knowledge (which is what transparency advocates really mean by the term "information") is therefore property, and it belongs to individuals or companies, not society. In a proper economic theory, there are only individuals and whether they can maximize their own profits. By the individual-centric standard, the notion of the "efficiency" of allocations across society is both irrelevant and morally noxious.
Thus, the doctrine of transparency lapses into the philosophy of egalitarianism, whether its proponents intend this or not (and many of them do). Egalitarianism holds that since individuals are not equal, the results of their efforts must be force redistributed to make the outcomes of their efforts equal. Observe that those who supposedly seek more competition are more than willing to sacrifice it when it produces unequal results, as in the case of flash trading, in which some parties get "information" faster than others.
If transparency is an intrinsic good, then perfect disclosure is the ultimate good, the Holy Grail for which we must strive even if we can never achieve it, and every last aspect of every endeavor is to be laid bare to the world until all strategic advantages, and thus profits, thus human lives, are eliminated.
Mandatory transparency should be opposed on moral grounds because it is a violation of the rights of individual information owners. It should be opposed on practical grounds because it annihilates the earned competitive advantages of companies, it destroys the incentive to innovate, and it distorts the market in favor of the less productive. Any financial-political movement which holds transparency as its justification is thereby invalidated and should be discarded.
