Online Course Unit 10

The Financial Sector in Catholic Social Teaching



 The love of money is the root of all evils, and there are some who, pursuing it, have wandered away from the faith, and so given their souls any number of fatal wounds.

1 Timothy 6:10

Catholicism has always stressed the potential pitfalls associated with disordered attitudes towards wealth. It has been equally clear that greed, rather than money per se, is the primary stumbling block. Nevertheless many Catholics have been critical—often with good reason—of particular uses of money and capital by individuals, companies and the state.

During the Great Depression, for example, Pope Pius XI in the encyclical Quadragesimo Anno referred to an “accursed internationalism of finance”. He claimed that a “dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money” (QA 109, 106). Today one does not have to look far to find similar remarks in the statements of prominent clergy and lay Catholic thinkers since the 1930s about specific financial practices.

What is curious about this situation is that the treatment of finance and banking, and money more generally, by medieval and early modern Catholic theologians was considerably more nuanced. Many such thinkers wrote at length and sympathetically, for instance, about the capital-intensive economies that first emerged in mediaeval Catholic Europe. Their thought played a major role in sparking the financial revolution which helped launch Europe on the path to economic prosperity.

This chapter illustrates how discussion and analysis of the issue of usury by mediaeval and early modern Catholic theologians opened the way to a better understanding of the nature of capital and financial systems and their role in the economy. It then outlines a framework for how Catholics might think about the finance sector’s role in the economy. This is followed by an analysis of the most recent commentary about the financial sector issued by two bodies of the Roman Curia. The chapter then concludes by outlining where there is room for future development.

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Money-as­-money versus money-as-capital

Finance and banking are institutions heavily associated in most people’s minds with modernity and the development of modern economies. While there is a certain truth to that, in the sense that the scale and reach of such institutions accelerated in the nineteenth century, it disguises the fact that most of the tools, methods and institutions associated with modern finance attained their mature form in the Catholic world of mediaeval Europe. In her 2002 book Medieval Economic Thought, the historian Diana Wood illustrated that the intellectual explorations of the nature and use of money by mediaeval theologians “sanctioned many of the monetary considerations that underlie modern economies” (Wood, 2002, page 207).

Much of this was a result of debates about the issue of usury that pre-occupied many Catholic theologians and canonists throughout the mediaeval and early modern periods. The intensity of that analysis, however, owed something to the fact that Western Europe underwent, during the same period, what the mediaeval historian Robert Lopez has called the “commercial revolution”. As Lopez describes it: “Catholic Europe moved from stagnation at the lowest level to a social and economic mobility full of dangers but open to hope” towards the end of the tenth century (Lopez, 1976, page 31). The vicious circle of low production and consumption together with population decline that had followed the Roman Empire’s slow-motion implosion was broken by what Wood describes as a “spectacular transformation” in Western economic life (Wood, 2002, page 5). Population growth and technological innovations led to more intensive farming, which produced more products, industry, trade, and, most importantly, surplus capital: capital that could be mobilised for investment and which could help move society beyond subsistence economies.

During this period, everyone believed that usury qua usury was sinful. In 1179, the Third Lateran Council condemned what it called “notorious usurers”, ordering them to make restitution (Lateran III 1179: Canon 25). The question, however, that Christians found themselves asking was: “What is usury?”. Saint Bernardine of Sienna argued, for instance, that “all usury is profit, but not all profit is usury” (see Noonan, 1957 page 182). Reflecting upon the definition of usury was an invitation to make intellectual distinctions which addressed some of the issues noted above, but in ways that maintained Christianity’s condemnation of usury. St. Bernardine, for example, stated: “Money has not only the character of money, but it has beyond this a productive character which we commonly call capital” (see Pachant, 1963, page 743). Bernardine’s underscoring of the difference between money-as-money and money-as-capital opened up the possibility of distinguishing between loans of money for the purposes of consumption and loans of capital in the context of societies that invested in capital and experienced economic growth.

It was, however, the greatest mediaeval theologian, Thomas Aquinas, who made some of the most decisive contributions to developing Christian teaching on finance. Aquinas invested considerable effort in examining how one determined the justice of a given commercial transaction, how one measured the value of a good, and what constituted a just price. Inevitably Aquinas came face to face with the question of what, if anything, can legitimately be charged for the use of my money. Aquinas identified two titles external to the loan itself that justified a return to the lender that exceeded the principal. John Finnis summarises Aquinas’s titles in the following way:

(1) Share of profits in joint enterprises. If I “lend” my money to a merchant or craftsman on the basis that we are in partnership [societas]…so that I am to share in any overall losses or profits, my entitlement to my dividend of the profits (as well as to the return of my capital if its value has not been lost by the joint enterprise) is just and appropriate. (2) Recompense or indemnity [interesse] for losses. In making any loan I can levy a charge on the borrower in order to compensate me for whatever expenses I have outlaid or losses I have incurred by making the loan. And the terms of a loan can include a fee or charge which is payable if you fail to repay the principal on time, and is sufficient to compensate me for the losses I am liable to incur if the principal is not repaid on time (Finnis, 1998, page 205).

The most striking feature of Aquinas’s two titles for justly recovering something beyond the principal is its compatibility with the development of a market in loans of money at a market rate of interest. How is this so? Finnis explains this in the following way:

With the development of a genuine investment market, in which stocks and shares (i.e., association in the risks of productive and other commercial enterprise) are traded alongside bonds (transferable money loans), it become possible to identify a rate of interest on bonds and other loans which compensates lenders for what they are reasonably presumed to have lost by making the loan rather than investing their money, for profit, in shares. Indeed, an efficient market will tend to identify this indemnifying rate of interest automatically (Finnis, 1998, page 205).

Many scholastic theologians quickly saw that a foregone gain could be an actual loss when people are living in an economy in which opportunities for gain are part of everyday life. The economist and historian of economic thought, Joseph Schumpeter, pointed out that this meant two things:

First, merchants themselves who hold money for business purposes, evaluating this money with reference to expected gain, were considered justified in charging interest both on outright loans and in cases of deferred payment for commodities. Second, if the opportunity for gain contingent on the possession of money is quite general or, in other words, if there is a money market, then everyone, even if not in business himself, may accept the interest determined by the market mechanism (Schumpeter, 1954, page 103-4).

In light of these insights, Catholic theologians and canonists identified four legitimate grounds for charging interest:

  • First, there was the payment of a penalty if money was not repaid in time. This was known as a poena conventionalis: the difference between what had been due and what was paid. Such a fine was the “interest”. Once this was accepted, it became accepted practice to place penalty clauses against such delays into contracts.
  • It was possible that a lender could suffer real damages because of the borrower’s failure to return the capital on the schedule determined by the contract. Hence the lender could claim what was called a damnum emergens (actual monetary loss incurred). Significantly this title was accepted as legitimate by figures preceding Aquinas such as his master St. Albertus Magnus (Divine, 1959, page 54).
  • A lender could claim for the loss of a possible profit (lucrum cessans) if he missed the opportunity of making a profit as a result of lending it to others. Over time, this would become virtually synonymous with interesse (Divine, 1959, page 55).
  • There was a legitimate payment that the lender could charge for the risk of losing his capital (periculum sortis) (Gilchrist, 1969, page 69). Some mediaeval thinkers emphasised just how damaging a borrower’s failure to repay the lender’s loan could be to the latter. In his Summa Confessorum, for instance, Thomas de Chobham presented a sympathetic portrait of a creditor who lost everything because someone to whom he lent money had defaulted (Chobham, 1968: 7, 6, q. 11, ch. 7).

In all these cases, it remained wrong to charge interest on a loan by virtue of the act making of the loan. This, however, was compatible with maintaining that moneylenders could fairly charge for other factors. These included risk of non-payment, probable inflation, taxes, the costs incurred in making and administering the loan, and the forgoing of other legitimate uses to which the money could have been put. Hence it was with little difficulty that the last ecumenical council in the West before the Reformation, the Fifth Lateran Council (1512–1517), could define usury as “nothing else than gain or profit drawn from the use of a thing that is by its nature sterile, a profit acquired without labor, costs, or risk” (see Gilchrist, 1969, page 115). Not only did these words imply that money was not always sterile; they also underscored the insight that risk, labour and costs provided a basis for receiving back more than the principal.

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A Catholic framework for finance

It was on this basis that Catholicism distinguished between the difference between usury (which remains a sin) and the legitimate charging of interest. It is also necessary to address, however, the question of what is a specifically Catholic approach to the proper orientation and ends of finance.

Any such approach must take as its basis that the ultimate horizon for Christians lies in the hope of oneness with Christ at the end of time and on the day of judgement. Living out that hope in this world and thereby contributing to building up the kingdom of God that is already mysteriously present in the here and now, requires Catholics to reflect seriously upon how finance and our financial systems promote the all-round flourishing of each person and every community instead of its opposite: disintegration as persons, the dissolution of community and, ultimately, despair.

To flourish in the way that human persons are meant to flourish involves recognition that we require what are called “instrumental goods”. These are goods that have their own value and which can be used to facilitate the pursuance of fundamental goods, but which are not in themselves fulfilling. The most obvious of such goods is the created world, of which human beings are part, but over which human beings have been charged with a type of authority.

Much of the first three chapters of the Book of Genesis detail how humans exercise a genuine “lordship” over all other created things, albeit one that is not absolute. Humans are not above God’s law. In this sense, their dominion over the world is expressed through stewardship: a stewardship that gives direction to what we can choose and for which each of us will have to render an account to God at the end of our lives.

Money is a prominent example of such an instrumental good. It is not a fundamental good in the sense that goods such as life, truth and friendship are intrinsic to human persons and communities. Rather money is a good that derives its intelligibility to humans as a means of helping us to participate in fundamental goods. Through money, a husband and wife are able to obtain any number of other goods and services that help them to live out their marriage and provide for their children. Likewise, money in the form of capital enables entrepreneurs to build businesses that grow and employ people, thereby enabling others to participate in the good of work.

Problems invariably begin whenever people start to view money (or any other instrumental good) as an ultimate good, or when fundamental goods are subordinated to the pursuit of money (or any other instrumental good). While each instrumental good produced through human minds and work has its own value, it does not last. Such goods eventually corrode, malfunction, or find themselves being consumed, replaced, superseded or rendered obsolete. Eventually they disappear from our lives when we die.

These limitations should not, however, distract us from the fact that money and other instrumental goods are crucial elements for the promotion of human flourishing. How then do we ensure that our use of instrumental goods, such as money, accords with the demands of human flourishing? Part of the traditional Christian answer to that question is to be found in what is called “the universal destination of material goods”.

The origins of this idea lie in the principle that God has given the earth and all it contains to be used by and on behalf of all people (Grisez, 1993, page 790). In the beginning and now, God provides material goods for the use of all. The question then becomes one of how this common use is to be realised. The Christian response has been that it is usually realised (though not only or always) through private ownership. Private possession of property is usually necessary for realising this goal. The commandment against theft can be understood at least partly pointing in this direction.

In his Summa Theologiae, Aquinas outlined three basic reasons in favour of the private ownership of economic goods. Firstly, he notes, people tend to take better care of what is theirs than of what is common to everyone, since individuals tend to shirk responsibilities that belong to nobody in particular. Secondly, if everyone were responsible for everything, the result would be confusion. Thirdly, dividing up things generally produces a more peaceful state of affairs; by contrast, sharing things in common often results in tension. Individual ownership, then—understood as the power to manage and dispose of things—is legitimate (Aquinas 1963: II-II, q. 66, a.2).

Yet Catholic social teaching does not regard private ownership of material goods as absolute. It is a means of ensuring common use and that material goods serve man, not the other way around. A second condition that Catholicism has attached to private property is that the private nature of our property does not mean we are justified in using it exclusively for ourselves, especially in the face of others’ authentic needs. Private property is not an end in itself. It is for something. Christianity therefore not only insists that we should use our “surplus goods” (what each person has left over once they have used their property to meet their own and their families’ needs) to assist others, but that we should be ready to use our essential wealth to serve others.

A number of qualifications need to be made here. Firstly, the precise distinction between essential and surplus property is not exactly the same for every person. Much depends, for instance, upon a person’s vocation in life. The owner of a large company may have much wealth at his disposal, but very little of it may actually be surplus wealth after he has met his obligations to his family, his employees and his customers.

In his 2008 book What Your Money Means (Hanna, 2008), Frank Hanna outlines helpful criteria that enable anyone—whatever their profession—to distinguish between essential and surplus wealth. He suggests that essential wealth consists of what is needed to pay for (1) our own bare necessities, (2) our own genuine needs, (3) our own profession-based needs, (4) the bare necessities of those who depend on me, (5) the genuine needs of those who depend on us, and (6) what he calls beneficial goods for ourselves and for those who depend upon us.

Beneficial goods, Hanna argues, are those that “improve the life and character of the person who benefits from them; they leave us better equipped to do the good things we’re called to do” (Hanna, 2008: 23-47). In short, it is a question of vocation. An example would be a business executive who pays for a year of foreign language training at a foreign language school in order to improve his ability to operate in business at the international level. Certainly, beneficial goods are on the borderline between essential and surplus wealth. We may, Hanna writes, still have enough wealth if we cannot pay for beneficial goods, Still, he says, it is better if we possess the resources to pay for such goods in so far as they facilitate the flourishing of ourselves and our dependants.

What then is surplus wealth? It is, Hanna states, “money that’s not demanded in any way by the obligations inherent in our circumstances and state in life” (Hanna, 2008: 49). This is the wealth that all of us have the immediate responsibility to direct towards the common good. That doesn’t mean that we are somehow required to hand it all over to the government or simply give it away willy-nilly. The responsibility to use our surplus wealth remains, for the most part, ours. But it does mean that any Christian should be deploying this segment of his wealth to aid the flourishing of the less fortunate. What matters is that we put our wealth to work so that the conditions that promote the flourishing of every person and each community are enhanced.

From a Catholic standpoint, the genius of private property is the manner in which it gives individuals and communities the capacity to mobilise their wealth in ways that promote the common good and the principle of common use. Some of this wealth consists of natural and manufactured products. At the same time, wealth can also be actualised in the form of capital in certain economic conditions. Some of this should certainly be used by Christians for charitable purposes—almsgiving being a constant exhortation for Christians. But another way of deploying such wealth is through investment.

Herein lies the fundamental legitimacy for modern finance systems. In so far as they help to facilitate the allocation of resources among individuals, households, entrepreneurs, businesses and governments, financial systems can help us to realise the principle of common use in ways that respect private ownership on a national and international scale. Through private finance, anyone can invest his surplus capital in investment firms that place capital in businesses whose work helps to spur economic development in numerous parts of the world at the very same time. That same person can also invest essential and surplus capital in a retirement fund that is designed to help pay for the family’s retirement.

Likewise, the financial system allows government institutions to issue bonds that attract capital and use the capital raised through bond-issues to invest in projects that enable government to make contributions to the common good that are beyond the capacity of private actors, such as certain kinds of public works and national defence.

On a broader scale, financial systems also create efficiencies in the investment and deployment of capital by individuals, businesses and governments that, while certainly designed to produce profit, also potentially promote a better stewardship of available capital resources, which might otherwise be wasted. Another important function is the way that modern finance enables (again, at least potentially) a better management of risk in ways that increase potential gains. They may do this in ways that distribute risks to wider segments of the population and reduce potential losses.

The financial sector also introduces more flexibility and freedom into how people match the actual and potential capital at their disposal with what they need and value at different points of time. In terms of formal economics, this is referred to as “intertemporal choice”. This involves assessing the relative value that people assign to two or more potential payoffs at varying points in time in light of the known and unknown trade-offs of given choices. For our purposes, the point is that the enhanced potential that finance provides to borrow, lend and invest over time allows different people to exercise more control over, for instance, when they choose to buy a house, acquire higher education, retire, or begin and expand a business. To that extent, the scope for a person’s flourishing can be widened.

It is also worth noting that, by nature, the fundamental functions of the financial sector are, potentially, very “pro-poor”. Without insurance, setting up a business might be impossible for all but the very rich. And, without the ability to buy securitised investments in a savings scheme, it is highly unlikely that anybody but the most well off in society would be able to retire and perhaps then devote more of their lives to volunteering or other wholesome pursuits. Similar arguments can be made when it comes to buying houses, the protection of widows and orphans and so on. Without modern financial systems, it is very difficult to imagine anybody but the very richest being able move away from a mundane day-to-day existence.

The word “potential” features significantly in the preceding paragraphs. Financial systems throughout the world are not uniform. And none are perfect. On one level, this reflects the fact that financial systems ultimately consist of fallible sinful human beings and reflect millions of daily choices by those very same fallible sinful human beings. Some of these choices—whether by individuals acting on their own behalf or in the form of a financial firm’s decisions—will be based on imprudent and often reckless assessments of risk. Other financial actors will choose to commit wrongs such as fraud. And even if an action involves no choice or even an intention to do wrong, there will always be side-effects: some beneficial, some not-so beneficial, some foreseeable, and some unforeseeable.

It is also the case that all financial systems embody, at different levels and to varying degrees, various dysfunctionalities, none of which may have been intended but which have nevertheless assumed concrete form. An example of such dysfunctionality might be distorted incentives that encourage people to borrow what they are unlikely to be able to pay back.

Then there are the limitations of financial systems that reflect our innate limits as human beings. This is manifested, for instance, in the fact that even advanced economic forecasting, upon which central banks often make interest-rate decisions, often turns out to be wrong. Our inability to forecast precisely what’s going to happen in the financial sector over the short, medium and long term reflects the inability of any one person or group—however wise and experienced, and no matter how much theoretical and statistical information may be at their disposal—to predict the economy’s future.

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Oeconomicae pecuniariae et quaestiones

Since Vatican II, various Vatican offices have produced several documents addressing the vexed topic of finance and banking. But, while these texts often set out useful principles for approaching this topic, they have tended to reflect a selective and, at times, questionable grasp of the subject-matter. This pattern was exemplified by a 2018 official statement about the financial sector issued by the Congregation for the Doctrine of the Faith (CDF) and the Dicastery for Promoting Integral Human Development.

Entitled “Oeconomicae et pecuniariae quaestiones [Economic and Monetary Questions]: Considerations for an ethical discernment on certain aspects of the current economic-financial system,” this text is divided into four parts. The first, second, and fourth sections contain what I think is a sound set of criteria for analysing the morality of finance and financial markets. In the third section, however, the document offers what it calls “Some Clarifications in Today’s Context”.

But clarity is not the strong point of this section. It muddles some helpful observations with questionable claims about the present state of financial markets, incomplete analyses of particular questions, and truncated discussions of some of the financial sector’s biggest problems.

The first substantive point to note about Oeconomicae pecuniariae et quaestiones is that there is no demonisation of capital. Indeed, the document states that money “is a good instrument…a means to order one’s freedom and to expand one’s possibilities” (OP 15). The financial sector likewise is presented as “something positive” insofar as it engages in circulating capital (OP 15). More could have been said about the ways in which financial markets realise this goal by managing risk, engaging in the formation of prices, putting capital to work in efficient ways, correcting misallocations of resources within and between economies and, above all, establishing links between the economic present and economic futures of individuals and communities. Absent these capacities, all of us would be living materially poorer—and considerably shorter—lives.

This positive approach provides a basis for Oeconomicae pecuniariae et quaestiones to articulate a number of reference-points useful for anyone in finance who wants to live a morally good life. These go beyond stating that money is an instrument and not an end in itself (OP 15). They include recognising that good relationships, including financial relationships, are built upon people’s good use of their freedom (OP 8) and that while economic logic has its place, it cannot capture the full meaning of human choice and action. Put another way, without the right understanding of the human person (OP 9), you cannot establish a sound ethics, including for finance.

For many Catholics and others, this is a given. But in a world in which many people have never had this connection explained to them, it is a point which bears repeating. The document’s positive emphasis also leads it to affirm that finance has a “primary vocation” inasmuch as “it is called to create value with morally licit means, and to favour a dispersion of capital for the purpose of producing a principled circulation of wealth” (OP 16). The use of the word “vocation” is especially important. It indicates that working in finance can be a calling instead of being dismissed as a necessary but disreputable occupation.

Equally noteworthy is Oeconomicae pecuniariae et quaestiones’ statement that “all the endowments and means that the markets employ in order to strengthen their distributive capacity are morally permissible, provided they do not turn against the dignity of the person and are not indifferent to the common good” (OP 13). That is a warning against being instinctively suspicious of financial markets. Provided that a financial instrument does not in itself involve some fundamental violation of the moral law (e.g., do not steal, do not lie etc.), it should be judged on its capacity to help financial markets grow wealth and spread capital.

These and other points contained in Oeconomicae pecuniariae et quaestiones’ first, second, and fourth sections are helpful in identifying core principles which should be central to any sound reflection upon morality and finance. The third section, however, is a different story.

Here we find a mishmash of common-sense observations (“the market needs anthropological and ethical prerequisites that it is neither capable of giving for itself, nor producing on its own”), extensive use of arguably outmoded business school jargon (“virtuous circularity”), smatterings of different theories of the firm and some very debatable historical claims. The overall impression is one of an author or authors wandering between offering all-encompassing macro-explanations for the way things are, while intermittingly descending into some of the micro-details of very specific questions.

The third section is not without its merits. It discusses, for instance, the problems associated with large public debt (OP 32), though what those have to do with offshore tax-havens is not clear. That is one example of how the third section proceeds in fits and starts through a bewildering range of subjects in which the connections are not always clear. As a result, some very serious problems facing the financial sector are not given anywhere near as much attention as they need.

At one point, for instance, Oeconomicae pecuniariae et quaestiones mentions that “there are often economic losses created by private persons and unloaded on the shoulders of the public system” (OP 32). That could have led to a through-going discussion of one of the biggest challenges facing the financial sector: the situation of people being insulated from the possible negative effects of their choices, which incentivises them to take risks that they otherwise would not take. This is known as “moral hazard”.

Moral hazard played a major role in the 2008 financial crisis. Some large financial institutions over-leveraged themselves on the premise that, if a big investment went south, governments would have no choice but to bail them out. Indeed, implicit and explicit government or central bank support for financial institutions and financial instruments has been a consistent feature of the US economy for some decades. Instead, of underscoring the wrongness of financial institutions expecting others to pay for their mistakes or pointing out that allowing banks to fail would radically diminish this problem, Oeconomicae pecuniariae et quaestiones proceeds to enter into a discussion of the morality of everyday shopping choices.

But what is particularly missing in the document’s third section is any consideration of the way that excessive regulation distorts the workings of the financial sector. In multiple places, Oeconomicae et pecuniariae quaestiones insists that the financial sector requires more regulations and regulators.

The difficulty is that the financial sector, especially in developed economies, is already heavily regulated. Even before 2008, US’s financial sector was subject to manifold levels of regulation. Thousands more pages of regulations were added to the statute-books following the 2008 financial crisis. The 2,223 page Dodd-Frank Act signed into law in 2010 is one of many examples.

Under-regulation is not the primary problem facing today’s financial markets. In the United States, for example, there are no fewer than eleven federal agencies with financial regulatory responsibilities. These range from the Federal Reserve to the Commodity Futures Trading Commission. All these agencies administer and interpret thousands of regulations. Their jurisdictions also overlap in ways that truly merit the word “Byzantine”. That does not even count the hundreds of regulatory bodies which function at the level of individual states. The situation in the sophisticated financial sectors of Western Europe is no different.

The negative effects of this regulation are several. Firstly, excessive regulation can encourage people to think that, as long as they comply with the endless legal requirements, they are fulfilling their moral obligations. That facilitates a legalistic approach to morality.

Secondly, excessive regulation diminishes access to capital by less-well-off segments of society and makes it harder for smaller institutions to compete. The costs associated with meeting the demands of regulatory compliance can be absorbed with greater ease by, for example, Goldman Sachs than by a small credit union.

Excessive financial regulation also works against start-up businesses. Unlike large companies, first-time entrepreneurs usually do not have the resources to hire armies of accountants and lawyers to help them navigate convoluted regulatory environments as they seek to acquire capital. If a start-up cannot obtain capital, the enterprise is unlikely to begin in the first place. The wealth and employment which could have been created thus never sees the light of day.

Thirdly, over-regulation can actually contribute to further separating the financial sector from the real economy. The bigger and more extensive the regulatory environment, the greater the incentives for banks to hire very smart people to work out how to game the regulations to their advantage. Banks subsequently become distracted from their primary purpose of creating and efficiently directing capital to the economy’s productive sectors. Regulators typically react by closing loopholes. But the same very intelligent people will then work out how to game the new arrangements. None of this is an argument against regulation per se. Nor does it excuse banks from losing sight of their primary function. But Oeconomicae et pecuniariae quaestiones seems unware of excessive regulation’s many counterproductive effects upon the financial sector.

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A way forward

Finance is unquestionably a sphere of life in which people are subject to specific temptations. Oeconomicae pecuniariae et quaestiones goes some way towards helping people make good choices in an industry upon which every single one of us is in some way reliant for our economic well-being.

But perhaps the most striking feature of Oeconomicae pecuniariae et quaestiones is that it makes no reference to the vast repository of knowledge on the topics of money, finance and banking developed by mediaeval and early modern Catholic moral theologians and canonists. This treasure of resources could have been drawn upon to produce a tightly-integrated analysis of the great good produced through finance as well as its real and potential challenges and weaknesses.

In that sense, Oeconomicae pecuniariae et quaestiones reminds us that the Church has much work to do if it wants to make constructive contributions to the reform of a segment of modern economies that faces a number of critical challenges. Though modern Catholic social teaching says relatively little about the financial sector, or related questions such as the role of the monetary system and monetary policy, Catholics in the Middle Ages and early modern period thought and wrote about issues of money, capital and banking in detail.

Noonan goes so far as to describe the scholastic investigation of usury and money-lending as amounting to the development of “an embryonic theory of economics” (Noonan 1957, page 2).. A noteworthy feature of their work is that scholastic theologians did not simply speculate about these matters. “They did”, Schumpeter remarks, “all the fact-finding that it was possible for them to do in an age without statistical services. Their generalizations invariably grew out of the discussion of factual patterns and were copiously illustrated by practical examples” (Schumpeter 1957: 99).

The challenge for Catholic social teaching is to recognise that, given the financial sector’s prominent role in modern economies and the way in which it can fuel growth or be a cause of considerable instability, there is a need to recover this body of knowledge and build upon it. We live in a very different world from that of mediaeval and early modern Europe. The financial sector of our time is more sophisticated in certain respects than the banking systems which existed in those centuries. But, in addition to their insights, they also provide us with a model of how to proceed: the careful study of how banking and finance works and then the careful analysis of what is being freely chosen in order to give guidance about, firstly, how to avoid evil and then, secondly, the doing of good. Without this type of engagement, Catholic social teaching’s commentary upon and analysis of the financial sector will continue to languish on the margins of reflection on these matters.

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Aquinas, T. (1963), Summa Theologiae, London: Blackfriars.

de Chobham, T. (1968), Summa Confessorum, in Broomfield F. (ed.), Analecta Mediaevalia Namurcensia 25, Louvain: Éditions Nauwelaerts.

Divine, T. (1959), Interest: An Historical and Analytical Study in Economics and Modern Ethics, Milwaukee: Marquette University Press.

Finnis, J. (1998), Aquinas: Moral, Political, and Legal Theory, Oxford: OUP.

Gilchrist, J. (1969), The Church and Economic Activity in the Middle Ages, New York: Macmillan.

Grisez, G. (1993), The Way of the Lord Jesus, vol. 2, Living a Christian Life, Quincy, IL: Franciscan Press.

Hanna, F. J. (2008), What Your Money Means, New York: Crossroad Publishing Company.

Lopez, R. S. (1976), The Commercial Revolution of the Middle Ages 950-1350, Cambridge: CUP.

Noonan, J. T. (1957), The Scholastic Analysis of Usury, Harvard: Harvard University Press.

Pachant, M. (1963), “St Bernardin de Sienne et l’usure,” Le Moyen Age, 69, pp.743-753.

Schumpeter, J. (1954), History of Economic Analysis, New York: Oxford University Press.

Wood, D, (2002), Medieval Economic Thought, Cambridge: CUP.

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Papal encyclicals and other Church documents referred to in this section

Congregation for the Doctrine of the Faith and the Dicastery for Promoting Integral Human Development, (2018), Oeconomicae et pecuniariae quaestiones’: Considerations for an ethical discernment regarding some aspects of the present economic-financial system,

Pius XI, (1931), Quadragesimo Anno,

Third Lateran Council (1179),

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Questions for discussion

How did the development of our understanding of capital for investment change how we viewed usury and the sharing of gains from investment?

What are the four justifications for charging interest?

In what sense is money an instrumental good?

How can the finance system help the surplus goods of some people facilitate the creation of essential goods for others?

What were the main themes and controversies in Oeconomicae pecuniariae et quaestiones?

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About the author

Dr. Samuel Gregg is research director at the Acton Institute. He has written and spoken extensively on questions of political economy, economic history, ethics in finance, and natural law theory. He has an MA from the University of Melbourne, and a Doctor of Philosophy degree in moral philosophy and political economy from the University of Oxford. He is the author of thirteen books, including Economic Thinking for the Theologically Minded (2001); On Ordered Liberty (2003); his prize-winning The Commercial Society (2007); and Reason, Faith, and the Struggle for Western Civilization (2019). He publishes in journals such as the Harvard Journal of Law and Public Policy; Journal of Markets & Morality; and Economic Affairs. He is a regular writer of opinion-pieces which appear in publications such as the Wall Street Journal Europe and Investors Business Daily. Samuel is a Fellow of the Royal Historical Society and served as President of the Philadelphia Society from 2019-2020.

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