A new Vatican document, issued May 17 by the Congregation for the Doctrine of the Faith (CDF) and the Dicastery for Promoting Integral Human Development, examines the world of finance through the lens of Catholic social teaching.
The world of finance is part of the economy — an essential part — but also is distinct from it. Saving and borrowing, access to capital for new businesses, mortgage provision for housing and retirement savings — all of this is the ordinary workaday world of finance.
In recent decades, though, the world of finance itself has become a vast industry in which the tether has grown ever longer between the creation and trading of financial instruments and the “real economy,” where goods and services are made, traded and consumed.
Throughout the 1990s and 2000s, financial services constituted a significant and increasing part of all economic growth. This was generally celebrated, until the great financial crash of 2008 did grievous damage to the world economy.
The title of the new Vatican document itself suggests that the world of finance (money) is to be looked at distinctly from the traditional economy as a whole. Entitled Oeconomicae et Pecuniariae Quaestiones (Questions About the Economy and Money), it carries the subtitle, “Considerations for an Ethical Discernment on Certain Aspects of the Current Economic-Financial System.”
The document was officially dated on the feast of the Epiphany — Jan. 6, 2018 — perhaps a playful reference to the riches of the Magi and an indication that riches do not exclude piety and can be put to good use.
The joint authorship of the document is important. Financial considerations are not just a matter of practical policy, but rooted in Catholic teaching about the social order of culture, politics and economics. That, in turn, is a branch of theology — moral theology, to be specific — and so there is doctrinal content (hence the authorship of the CDF).
That moral principles in economics and finance must be applied to particular circumstances — there is no specifically Catholic tax policy or monetary policy — does not mean that there are no objective ethics. Greater observation of Thou shalt not steal and Thou shalt not bear false witness would have gone a long way toward preventing the scale of the financial crisis.
Oeconomicae et Pecuniariae Quaestiones (OPQ) begins by a positive assessment of the role of finance, setting aside the more aggressive and dismissive language sometimes heard in religious circles, where banking and finances are treated as almost inherently evil activities.
“It must be noted that the systems that give life to the markets … are in fact founded on relationships that involve the freedom of individual human beings,” OPQ (8) states, treating finance as one part of economic freedom, which in turn is part of a complete human freedom.
And freedom requires responsibility:
“It is evident therefore that the economy, like every other sphere of human action, needs ethics in order to function correctly — not any ethics whatsoever, but an ethics which is people-centered.”
OPQ states the economy “cannot be sustained in the long run where freedom of initiative cannot thrive” (12), but that the financial tail cannot wag the economic dog:
“It is also obvious today that the freedom enjoyed by the economic stakeholders, if it is understood as absolute in itself, and removed from its intrinsic reference to the true and the good, creates centers of power that incline towards forms of oligarchy and in the end undermine the very efficiency of the economic system.”
That could well be applied to the financial crisis of 2008.
OPQ uses the lofty word “vocation” to describe the role of finance, indicating that it can be a noble industry.
“Financial activity exhibits its primary vocation of service to the real economy: It is called to create value with morally licit means and to favor a dispersion of capital for the purpose of producing a principled circulation of wealth,” OPQ states (16).
“For instance, very positive in this regard, and to be encouraged, are arrangements of cooperative credit, microcredit, as well as the public credit, in the service of families, businesses, the local economies, as well as credit to assist developing countries.”
That includes everything from mortgages to small-business loans to credit programs for women entrepreneurs in poor countries.
But freedom means that good things can be put to wicked purposes, as well, and OPQ provides very specific analysis about “morally illegitimate” financial practices. Here, experts and practitioners may dispute the accuracy of the analysis, but the general principle remains clear: Financial activity that is for its own purposes alone — money aimed at increasing itself with negligible or negative impact on the real economy — is morally dubious. And if that activity undermines the real situation of ordinary people and businesses, it is not fulfilling its true vocation. Even worse, if it exposes the poor to unnecessary risks, it becomes a form of exploitation.
OPQ thus considers some financial instruments, especially the derivatives and credit swaps at the heart of the financial crisis, to be immoral uses of finance. It notes with concern that in a global economy the necessary regulation is difficult to provide.
OPQ does not, however, address the fact that financial regulation and government agencies also were key contributors to the financial crisis. Bad regulation can exacerbate the immoral financial practices that OPQ condemns.
The new Vatican finance document was issued just days after American author Tom Wolfe died. Most famous for his portrayal of 1980s New York in The Bonfire of the Vanities, Wolfe painted a vivid picture of “masters of the universe” who accumulated vast wealth in finance, but became unmoored from reality, and the ethical norms it requires.
That culture — examined with Wolfe’s extraordinary eye for reporting — corrupts the world of finance. It is that culture that OPQ finds wanting ethically — and economically, too.