As our most vulnerable communities face the impact of the latest economic crisis, Edward Hadas makes a moral and practical case for reordering the economy, arguing that money should serve human beings, not the other way round. Drawing on his extensive knowledge of the financial system, and of Catholic Social Teaching, he argues that a financial system which welcomes greed creates an unstable economy, a crisis-prone system that is a constant menace to the common good.

The Church should speak always prophetically about the economy. The need for outrage is especially urgent now, when unexpectedly high rates of inflation are causing great harm to the poor, whose good is central to any Christian understanding of the common good. But what economic counsels should the Church’s ‘prophetic voices’ provide? A campaign to ‘end poverty’, a change of government? Perhaps. I want to focus on a deeper structural problem, one ignored by governments on both the left and the right across the West: the enthusiastic acceptance of a greed-guided financial system. The damage done by the system and the attitudes which support it is great.

The approach of Catholic Social Teaching helps to make the problem clear.  In this tradition, the analysis is both deep and topical. The poverty of today is not forgotten, but attention is paid to the unjust and often almost inhuman social structures and institutions that can both create the problems and blind us to them. In the case of the financial world, my professional home for almost four decades, the theological and ethical arguments of the CST tradition helped me to see things much more clearly.

What things? I will talk about four of them, from an autobiographical perspective.

1 > My relationship with mainstream economics

The first is my relationship with academic economics. This is a long-term relationship, but the opposite of a love affair. I think of it more as it a hate affair. It certainly started with “hate at first sight”. I am referring to the almost physical repulsion I felt when I was first introduced to what is known as neoclassical economics. That’s the approach taught in almost all introductory economics classes, familiarising students with terms as supply and demand, free markets, perfect competition, marginal this and that, and the all-calculating species known as homo economicus. Despite the name, this grim and dull creature bears almost no relation to actual humans – and the influential neoclassical model that is built on his always calculating self-interest is totally unrealistic. I will go further. I find the model despicable in its portrayal of human nature, and cruel in its appropriation of the word “rational” for its nefarious purposes.

The model has many, many flaws, but two are both egregious and especially relevant to the moral and practical mess of finance: the relentless reliance on the quantification of human things and the naïvely simplistic approach to morality.

Money is not an accurate measure of human value

The standard economic model relies on the quantification of humans-being-human in their labour, that is in wages, and also in their consumption of the fruits of their labour, that is in prices. But these money-numbers simply cannot capture what economists claim they capture: for example, the actual value of things, for example of a car, a wedding, or a train ticket. You might say “that is exactly what money does: it allows us express and compare such values.” But you would be wrong. Human values are not numerical – I do not love one friend 17 percent more than another, and I cannot like one pie 22% more than another. The precision and flexibility of money-numbers is extremely useful, but such numbers cannot express values that are meaningful in human terms. It is effectively inhuman to try. A system based on this premise grooms us to think and behave in inhuman ways.

Once the mistaken assumption of quantification is discarded, the actual nature of the economy, and the role of money, become clearer. When money is given its important but limited economic due, the correct orientation of the economy – and the role of finance in it – look very different. The economy, especially the human labour that is at its centre, needs to be understood as something more than quantitative, as something that, in the words of Pope John Paul II, is not a commodity but is something that is essential to human nature, ‘a fundamental dimension of human existence on earth’ and by acting on nature through work, man finds fulfilment and becomes ‘more of a human being’. (Laborem Exercens, II, 4).

Economists are simplistic about morality

In the standard economists’ approach, the rich and mysterious collection of human motivations is reduced to one thing: self-interest, which is considered natural but neither good nor evil. In effect, this model of reality has no space for either virtue or vice, which makes it a terrible model of the actual economy. Like all human endeavours, economic activity is human, and therefore always and everywhere moral. Conventional economics cannot muster a moral analysis sophisticated enough to evaluate the financial system.

I turn now to the second thing, which is another long-term relationship. This one is happier, but still deeply flawed: my love-hate obsession with the modern economy.

2 > My love-hate obsession with the modern economy

I love what the modern economy does for the human condition: reducing material poverty, lengthening lives, spreading education, and in general providing so many opportunities in so many important dimensions to so many people.

But I hate what the modern economy does to the human condition. As Marx said, approvingly, “All that is solid melts into air, all that is holy is profaned”. I say, the modern economy dissolves and degrades communities, traditions, and even the human body. It uglifies our experiences, and it idolises the emptiest sort of material prosperity. Just look at the left-behind towns of Great Britain, or at the huge temple of commerce in richer areas.

All of that forms the background of how I think about money. In the foreground there are things I love about the modern economy, for example, its resilience and efficiency.

Consider the challenge. Much of what we consume – think of mobile phone calls or train travel – relies on the coordinated labour of many thousands of people in thousands of places. There are innumerable ways in which such a complex system can and sometimes does go wrong, from defective materials and train derailments, to floods, wars, and society-wide lockdowns.

And what happens to the economy when things go wrong? Very little. There is enough resilience and efficiency in human beings’ ingenuity to close gaps and reconstruct quickly what has been destroyed.  After the Second World War, which brought the greatest physical and human destruction in history, European production was back to pre-war levels in five years.

There is an exception to this economic competence. You might be able to guess what it is.

Before I confirm your guesses, I want to introduce the third things, which helped deepen my long term hate-affair with mainstream economics: my decades-long experience as a finance professional, including fifteen years as a financial journalist.

3 > Lessons I learned as a finance professional

This was certainly not a love affair, more like a pragmatic friendship. It taught me many lessons and two of those are important here.

Finance is different from the actual economy

The first lesson is the recognition of how different finance is, in practice and in theory, from the rest of the economy, what is sometimes called ‘the everyday economy’. There are overlaps and similarities, but a very large portion of finance is what I call reality-distant. The design of many financial instruments, the habits of many finance professionals, and the orientation of the overall financial system are all poorly coordinated with the design, habits, and orientation of the other parts of the economy – labour, production, and consumption.

Greed drives the financial economy

The second lesson is that unlike the actual economy, the financial system is characterised by the ubiquity of barely constrained greed. It is found in the hearts and practices of most financial professionals and most amateur financial investors, but also among homeowners and politicians. I was particularly struck by the intellectual effects of this greed. The pursuit of financial profits occupied the thoughts and dreams of some of the most intelligent people I have ever met. Somehow, almost none of them ever worried that their complex models, rigorous analysis, and shrewd insights were directed almost exclusively to amplify, justify, and profit from greed, desires that harm the common good and the souls of everyone involved.

So now I have shared three things – my hate of economics, love-hate of the economy, and a fundamental worry about the ethics of the finance industry. The fourth and final thing is the 2008 financial crisis.

4 > The lesson of the 2008 financial crash

It was the Crash of 2008 that led me to think about how the money and finance system worked and didn’t work in and with the real economy, to find out why financial structures are so brittle. As I wrote back then, the answer is moral finance – which is conceived brilliantly by Benedict XVI, in Caritas in Veritate, his response to the Crash.

Now, though, remember that I mentioned the one great exception to the competence of the modern economy. The crisis exemplified it. Finance, or more specifically, the money-financial system, is the exception. As I explain in my new book, Money, Finance, Reality, Morality, it took almost as long for European production to recover from the 2008 crisis as it did after the Second World War.

The system was unable to recover by itself. It took a massive bailout of public money and support programmes to save the financial system from collapse. The bailout masked the fundamental weakness in the system. The finance professionals were let off the hook.

This was a large crisis, but it was not a one-off. My study of economic history suggests that every single significant downturn in production for the last 200 years in every industrialised economy – Every Single One – was either caused by a financial malfunction or massively amplified by one. In effect, human ingenuity and intelligence can deal better with wars than with the problems in the money-system. I call that the financial exception.

A great deal has been written about what led to the 2008 crisis, and more will be written about the factors that led to the current global bout of inflation. But no collection of merely technical explanations will be satisfactory. The financial exception has lasted too long and is simply too exceptional to be explained by anything less profound than a systemic corpus of cultural, moral, psychological and intellectual confusions.

The cause of instability

I believe I have a sufficiently deep explanation for this confusion: monetary-financial greed leads to a reality-distant system which is susceptible to breaking down.

Academic economists are wrong to assume either that the modern economy relies on the notion of a morally neutral self-interest or that greedy ambition leads to human flourishing. In reality, the actual economy (that is, the everyday economy excluding the financial system) functions primarily on virtues: generosity and trust, co-operation, and controlled rivalries. Contrary to what economists typically claim, to a significant extent the contemporary economy actually works with some respect for the basic principle articulated by Benedict XVI: “The Church’s social doctrine has always maintained that justice must be applied to every phase of economic activity, because this is always concerned with man and his needs. Locating resources, financing, production, consumption and all the other phases in the economic cycle inevitably have moral implications. Thus every economic decision has a moral consequence.” (Caritas in Veritate, 37)

As Christians should expect, good things in the economy come out of good things in human nature. Conversely, bad things in fallen human nature produce bad things in the economy. Since sin always lurks in human hearts, there are always bad things, including greed, mixed in with the good. There is greed in every part of the economy. It could not be otherwise. But there is usually a deep moral constraint at work: in all but one part of the economy greed is widely considered to be bad and dangerous. In all but one part of the economy, people and enterprises are for the most part oriented towards the common good, and so greed is moderated, hidden, or at least combined with some sort of virtue.

No prizes for guessing the one exceptional part of the economy in which the economists’ supposedly non-ethical model is actually encouraged. Yes, it is the financial system. In that system, despite financial regulations, greed – the unchecked desire for monetary gains – is both pervasive and welcomed. It is this greed, along with the greed-encouraged and greed-stained financial instruments, arrangements, and habits, that make the whole financial system brittle.

The chain of cause and effect is easy to follow. The unconscious desire to justify this greed leads to widespread confusion about the nature of money and the purpose of finance. The intellectual distortions that greed causes lead to what I call reality-distance. Estranged from relationships with real people, financial-money systems are disembodied and unencumbered by the kinds of moral constraints that characterise the real economy. Layers of digital complexity obscure most people’s capacity to understand. The whole economy is vulnerable to the disruption that comes when the greed impulse is freed from the moral constraint of real human relationships.

We could do better. If we followed the human anthropology that is so well developed in Catholic Social Teaching, we could extend the shaming of greed into the financial sector. We might be able to revive the non-exploitative finance sector – popular savings banks and small community-owned lenders – that flourished well into the 20th century. The middle class of the United Kingdom (and much of the rest of the world) could look into a moral mirror and learn to stop confusing the basic human good of housing with speculative financial assets. The intellectual confusions that lead to praise of reality-distant financial arrangement could be cleared up. And the creeping financialisation of other parts of the economy – which often amounts to little more than an increasing acceptance of greedy behaviour – could be reversed.

Those are goals worth campaigning for, goals where Christians have a great deal to offer, goals which will still be relevant long after today’s inflation has faded away.

© Edward Hadas

Edward Hadas is author of Counsels of Imperfection: Thinking Through Catholic Social Teaching (The Catholic University of America Press, 2020). He is also a Research Fellow of Blackfriars Hall, Oxford University, a freelance journalist, and a trustee of Together for the Common Good.

This story is based on a talk given at the launch of his latest book, Money, Finance, Reality, Morality: A New Way to Address Old Problems (Ethics Press, 2022) at Blackfriars Hall, Oxford University, 20 January 2023. A discount of 30% is available to our readers using the code “MONEY33”.

This story is featured in the Lent 2023 edition of the T4CG Newsletter.