The Ethical Dimension

A Catholic perspective on the ongoing financial crisis is provided by Edward Hadas, whose booklet on the Credit Crunch is being published by the CTS as the first in a new series edited by Stratford Caldecott on Catholic Social Teaching. At a talk in Milan recently, Hadas concluded as follows:

"The ongoing financial crisis, which I study carefully as a professional commentator, provides an excellent example of the danger of ignoring the ethical dimension in economic descriptions and policies.

"Finance is not, as often claimed, chiefly concerned with profits. It is primarily a technique for using the monetary system to express social solidarity. The money I deposit in a bank account or invest in a security represents a sharing of my resources with the community – with the firms which borrow from the bank or which issue the security. My financial sharing need not always take the form of a gift, though; in a well run financial system, I am able to reclaim the resources (perhaps after some delay) and receive some sort of income while the sharing lasts.

"The genius of the modern financial system is that it relies on and develops the human desire to work together for the common good but takes the human inability to be perfectly generous into account. For the system to work well, the rewards for sharing must be neither too small to entice or so large that greed is encouraged to grow. Further, unless those who labour within the financial system are carefully supervised, the large sums of money (representing large claims on resources) which pass through their hands will nourish the noxious forces of greed and recklessness.

"This moral portrayal of the financial industry does not lead directly to specific guidelines for bank regulation. It does, however, make clear why there are so many more financial crises than industrial breakdowns. The greed and foolishness of bakers, automakers and airlines are constrained by careful regulation and a well established ethos of quality and service. In finance, such regulation needs to be particularly firm, for all involved but especially for those in the industry, because money has an especially powerful intoxicating effect on men’s moral faculties. In fact though, financial regulations have almost always been inadequate, and “free market” economists deserve much blame for encouraging a loosening of these regulations over the last generation.

"I do not think the current financial crisis will destroy industrial economies. They are built on too firm a foundation of trust for that. The reconstruction of the financial economy can, however, be an opportunity for economists to make more room in their discipline for a pearl of great price – the good. "