All Commentary
Saturday, March 1, 1997

On Trial Again

Michael Milken Should Not Be Thought of as a Hedonist or Criminal

Ms. Kapushion is a freshman at Hillsdale College, Hillsdale, Michigan, where she is majoring in economics with a particular emphasis on the Austrian school of thought.

For the last three years, beginning at age fifteen, I have taught myself philosophy straight from the great works of Western thought, and have formally and informally studied economics. Fortunately, my background shielded me from some highly volatile rhetoric being espoused at the state university where I took a philosophy course last year.

The course, entitled Classics in Ethics, was taught by a professor who made no attempt to disguise his liberal views from the class. Normally, I dismissed his personal opinions as secondary and inconsequential to the course, but one particular claim he repeatedly made prompted me to respond. The professor took it upon himself to add yet another accusation to Michael Milken’s list of indictments. He accused Milken of being, at best, a simple hedonist, greed-driven to seek only short-term, selfish pleasures. I could not let this charge go unquestioned. I resolved to create a moral defense of Milken using the professor’s own tools of the ethical systems of Aristotle, Thomas Hobbes, Immanuel Kant, and John Stuart Mill. I chose these four philosophers because each is unique in his perception of mankind. This diversity of opinion and viewpoint creates the most challenging and complete rubric of testing morality.

Milken revitalized Wall Street by introducing new methods of investment through high-yield (junk) bonds. In his own words, he and colleagues were matching capital to entrepreneurs who could use it effectively. We were creating investments that money managers needed in volatile markets.[1] Milken and his associates at Drexel Burnham Lambert succeeded in raising over ten billion dollars in capital for various companies. Yet for all of Milken’s successes, he is still thought of as an immoral cutthroat. His actions have been subject to much debate and speculation, but one interesting test has yet to be applied.

The Pleas

Michael Milken pled guilty to five counts of equity technicalities and one count of tax fraud, but to many people he was also guilty of insider trading, fraud, and generally cheating people out of money. These allegations, however, do not even begin to correlate with the six crimes for which he pled guilty. The charges, which at best are technicalities, include ugly words like fraud, conspiracy, and aiding and abetting. The first charge is a general conspiracy charge that Milken planned or thought to engage in a series of unlawful security transactions. (It was my understanding that only Big Brother ever prosecuted someone for their thoughts.) The next charge involves tax fraud, but the most obvious thing to note is that the taxes are not Milken’s. The charge relates to Ivan Boesky’s false 13-d statement. The next two charges are also based upon Boesky’s testimony. Milken’s transgressions were to suggest that Boesky buy MCA stock to hide that Golden Nugget was selling and to assure him no loss in a sale to Drexel. Both of these actions are common in business and attention was only called to them long after the fact. These first four charges are all based on the charge that the ownership of stock was not properly documented in a stock-parking agreement. However, none of these charges created any injury to MCA, Boesky, the federal government, or anyone else involved in the transactions. The fifth charge is equally harmless. Milken pled guilty for failing to disclose in written form an agreed-upon adjustment in transaction prices between Drexel and a client. The final crime is that Milken helped a client reduce his income tax liability by selling him two investments and then buying them back at a lower price.[2] Yet even here, the real economic loss that the client incurred was picked up as a gain by Drexel, and all profits were certainly taxed by Uncle Sam, somewhere along the line.

Now that his six crimes have been examined, his everyday actions must be considered. The four philosophers provide an excellent opportunity to evaluate the actions of an entrepreneur and businessman. Aristotle, Thomas Hobbes, Immanuel Kant, and John Stuart Mill take very different approaches to morality. They differ in their perceptions of man, concepts of virtue, and ideas of how to apply ethics. These three characteristics define how each philosopher might well judge and weigh Milken’s actions. From their teachings and perceptions, Milken will receive a new trial.


Aristotle deemed that actions were moral if they promoted actualization, or, to be more specific, the total actualization of potentiality in all being. He defined virtues as either intellectual, maintaining prudence and wisdom; or moral, the control of emotions and desires in obedience to reason.[3] In this way, man could achieve his fullest potential and be considered moral. Did Milken’s actions fulfill the ideal of total actualization, yet still remain virtuous? Milken’s job at Drexel Burnham Lambert was to provide financial advice to clients and to find profitable investment opportunities. His investment strategies bailed out companies in need of capital and provided enormous profits for investors. Ultimately, his work helped to better the economy as a whole, thus fulfilling Aristotle’s need for total actualization. Milken fulfilled Aristotle’s two requirements for virtue, by engaging in intellectually challenging activities and succeeding in opening an entirely new arena of opportunity and investment in his field. The proof of his ability in prudence and wisdom is quite evident in the numbers he generated in profits. Milken’s wealth was the result of a job well done.

Proponents of Aristotle will be quick to point out that Aristotle was very specific concerning wealth and its use only as an intermediate end, useful merely as a means to something else. Though it could be argued, let us assume for argument’s sake that Aristotle was correct in his assessment of money. Then we must look to how Milken has used his money. Milken has always lived relatively modestly, refraining from ostentatious spending and extreme indulgence in luxuries.[4] Milken obviously did not use his wealth for simple hedonistic pleasures, but he did use his wealth to achieve other ends. Milken used his income to establish the Milken Family Foundation, which contributes millions of dollars every year to fund education and charities, to underwrite cancer research, and to invest in promising companies. It appears that any allegations of pure greed are groundless from the evidence of Milken’s lifestyle. Milken has satisfied Aristotle’s criteria and has passed this test.

Thomas Hobbes

Milken’s actions fall nicely into Thomas Hobbes’s conceptions of morality. Hobbes believed the ethical man acted in enlightened self-interest. None would disagree that Milken acted out of self-interest, but some might disagree as to whether his actions were enlightened. This enlightenment demands that Milken’s actions not have been centered in pure selfishness, but also consist of a desire to seek higher goals. Economically, it is simple to prove that Milken’s actions benefited everyone else either directly or indirectly, but to prove his case morally we must look elsewhere.

Milken sees himself as a social scientist, one who looks at what is happening in society, what society needs.[5] Milken’s investments in telecommunications, Latin America, and education certainly demonstrate his ability to anticipate what society needs. Companies such as Time Warner, MCI, and Turner Broadcasting were able to become highly successful businesses thanks to over $5 billion in financing from Milken. He believes that talented and trained people are the key to the future, and the best investment for the future lies in education. Milken fulfills the role of Hobbes’s enlightened, self-interested man perfectly. Milken invested both for himself and for the world in which he lived.

Immanuel Kant

Immanuel Kant developed one of the strictest forms of determining moral actions. Moral maxims or rules, Kant claimed, must fit within the categorical imperative. One should act only on that maxim through which you can at the same time will that it should become universal law.[6] In other words, you should act in a way that you would want everyone else to act. For example, theft would be immoral because you would not want everyone else to steal as well. After the maxim or rule of behavior is determined, it must then be put to the tests of universality and consistency. Only Milken himself truly knows which moral maxims he employed; however, from his actions a maxim can be hypothesized.

This maxim is that one should have a strong work ethic and pursue profit through fair means. None can disagree that Michael Milken had a strong work ethic; it is clearly evidenced in his high profits. And his lack of harm, intentional or otherwise, meets the demand for fairness. It would be logical to apply this maxim universally, because there is nothing inherently wrong with it. Profit is the result of payments exceeding costs in a legal transaction. It is the successful by-product of free trade, and through market transactions makes people better off. One could also consistently will or desire that everyone have a strong work ethic, as the end result would create no internal logical flaws, nor would it create undesirable ends. Ultimately this maxim would only benefit all, by improving efficiency, allocation of resources, and the quality of life, even for those not earning high profits.

J. S. Mill

John Stuart Mill’s theory of utilitarianism is the final challenge that Milken faces. Utilitarianism defines the moral rightness or wrongness of an act in terms of the balance of good or bad consequences. Mill held that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness. Milken’s actions must be evaluated both in terms of consequences and in happiness created, as the results prove to be different.

There is a common myth that wealth is generated only at the expense of others. Wealth actually creates more wealth through voluntary trade. It provides an incentive that encourages new ideas and economic growth. Economic expansion only occurs when entrepreneurs like Milken take chances in order to gain profits. From a purely economic standpoint, Milken’s actions had no net negative results. He managed to forge an entirely new way of thinking about investment. Leveraging helped to free up badly needed capital that allowed companies to expand and improve faster and more efficiently.

If Milken never actually harmed anyone coercively or fraudulently, what made him the object of so many negative emotions from the public? Many claimed he was greedy and undeserving of his wealth. In a literal definition of utility, Milken fails miserably in the eyes of the masses. However, a closer look at Mill’s theories will prove that in this case, the majority truly had no right to be unhappy with Milken.

The public was guilty of misjudging Milken for many reasons. In addition to being ignorant of Milken’s overall contributions to the economy, people were misled by crusaders against the decade of greed. The government assaulted Milken and others in order to displace public anger over the savings and loan failures, and in the case of at least one special prosecutor, to gain political advantage. Likewise, the corporate establishment and old-liners at Wall Street wanted Milken out of the picture in order to seize his profits for their own companies and eliminate the outsider.[7] Media hype only increased the animosity toward Milken, and so out of unjustifiable emotions, Milken inadvertently created unhappiness.

Misplaced emotion can hardly be a justification for Milken to be considered immoral. Mill believed that in some cases majority opinion does not constitute utilitarianism. Society . . . practices a social tyranny more formidable than many kinds of political oppression. There needs protection against the tyranny of the prevailing opinion and feeling; against the tendency of society to impose, by other means than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them.[8] How unfortunate that there was no protection for Michael Milken, because by objective utilitarian standards he certainly provided for the greater good of society.

Michael Milken may have pled guilty to six charges, but those so-called crimes hardly account for the enormous amount of success he has had. Milken could not escape the clutches of politics, but higher judges would have found him innocent. Aristotle, Thomas Hobbes, Immanuel Kant, and John Stuart Mill represent the bastions of Western thought, and their philosophies support Milken’s morality.

It seems that my professor was too quick to judge, and wrong in his assessment. Milken should not be thought of as a hedonist or criminal, but rather regarded as a hero. His ideas and innovations created an entirely new direction for investment to grow. Michael Milken may have made enormous profits during the years he worked for Drexel Burnham Lambert, but those numbers pale in comparison to the amount of wealth he generated for everyone else. The only crime Michael Milken is truly guilty of is doing his job and doing it well.

1. Michael Milken, My Story, Forbes, March 16, 1992, p. 4.

2. Daniel Fischel, Payback (New York: HarperCollins, 1995), pp. 163-164.

3. Aristotle, On Man in the Universe (New York: Random House, 1971), p. 87.

4. Fischel, p. 159.

5. Milken, p. 20.

6. Immanuel Kant, Groundwork of the Metaphysics of Morals, p. 6.

7. Fischel, p. 300.

8. John Stuart Mill, On Liberty, p. 3.