During the financial crisis of 2008, a cartoon appeared in a British newspaper showing two bankers earnestly puzzling over something. “I know what a ‘hazard’ is,” one says to the other, “but what does ‘moral’ mean?” The idea that capital markets are amoral — indeed, that they are immoral — is a standard critique. In a recent paper for a meeting of the American Academy of Religion, Seth Payne argues that capital markets are, in fact, a force for good that Christians and other people of faith should use “to amplify their moral, ecclesiastical, humanitarian, and pastoral duties.” The abstract follows. — MLM (Hat tip: ProfessorBainbridge.com).
The financial turmoil of the past several years has caused many to question the integrity, stability, and very purpose of financial systems which, in today’s world, represent a unique blend of primarily capitalism but also aspects of socialism and collectivism as well. A key factor contributing to this sustained period of economic upheaval has been the uncertainty surrounding capital markets – the fuel that powers all modern economies. Capital markets have, in the minds of many, come to represent the embodiment of greed, unrestrained egoism, and exploitation of the vulnerable – conceptions at complete odds with the central values of social justice as set forth in both Christian and Jewish primary sources: caring for the poor, protecting the weak, and the promotion of justice.
In this paper I argue that capital markets, rather than being a means for the powerful to exploit the weak, have in fact become a force for social good in the aggregate. Indeed capital markets are, in fact, a social contract and as such must be governed by a set of normative ethical principles – both self imposed, and imposed by government regulation. I explore the ethical difficulties that have led to the systemic problems and market failures that lead to not only this current financial crisis, but literally all financial crises over the past eight hundred years. Capital markets, left to their own devices and without both self and governmental oversight, quickly become hotbeds of manipulation and exploitation. In order for markets to function properly, principles of basic fairness must become normative. It is when capital markets become unfair and unjust, that they fail. Thus, these markets must be structured in such a way as to 1) promote Rawl’s “Justice as Fairness” principle and 2) align the interests of market participants to produce universally beneficial market efficiency and stability.
Finally, I propose concrete ways in which the power of capital markets may be harnessed to promote the central moral values of Christian tradition and be used by people of faith to promote the ideals of social justice.