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By Werner H. Erhard and Michael C. Jensen

The seemingly never ending scandals in the world of finance with their damaging effects on value and human welfare argue strongly for an addition to the current paradigm of financial economics. We summarize here our new theory of integrity that reveals integrity as a purely positive phenomenon with no normative aspects whatsoever. Adding integrity as a positive phenomenon to the paradigm of financial economics provides actionable access (rather than mere explanation with no access) to the source of the behavior that has resulted in those damaging effects on value and human welfare, thereby significantly reducing that behavior. More generally we argue that this addition to the paradigm of financial economics will create significant increases in economic efficiency, productivity, and aggregate human welfare.

Because integrity has generally been treated as nothing more than a virtue (a normative phenomenon), the damaging effects of out-of-integrity actions are assigned to causes other than out-of-integrity actions – that is, these damaging effects are assigned to false causes. This makes the actual source of the damaging effects of out-of-integrity actions invisible to us. As a result, in spite of all the attempts to police the false causes of these damaging effects, the out-of-integrity actions that are the actual source of these effects continue to be repeated.

Integrity and Economic Implications

Integrity as we define it (or the lack thereof) on the part of individuals or organizations has enormous economic implications (for value, productivity, quality of life, etc.). Indeed, integrity is a factor of production as important as labor, capital, and technology. Without a clear, concise and actionable definition of integrity, economics is far less powerful than it can be. So too finance and management.

>>> Read more and download the full article about ‘Putting Integrity into Finance: A Purely Positive Approach’ on the Social Science Research Network (SSRN).


Michael C. JensenDr. Michael C. Jensen is the Jesse Isidor Straus Professor of Business Administration, Emeritus at Harvard Business School. He has played an important role in the academic discussion of the capital asset pricing model, stock options policy, and corporate governance.

See Dr. Jensen’s full biography.



Werner Erhard - Course Instructor/AuthorWerner H. Erhard is recognized worldwide as a business, management, and humanitarian leader. He has consulted for numerous corporations and charitable and governmental agencies.

See Werner Erhard’s full biography.