Delivered at a lovely reception at Blackfriars Hall, Oxford University, on 20 January 2023
Welcome! I am very happy to see such a warm and large crowd. I know that many of you are
here primarily in friendship – I cannot say how much that means to me. I came to Oxford, to
Blackfriars, to the academic life, only six years ago. When I arrived, I knew fewer than a
handful of people even vaguely connected to the university. One of them was the lovely
Father Richard Finn, who kindly arranged for me to get a visiting fellowship and then a
research fellowship at Blackfriars. From that small entrée, so many fine things have
happened. To see so many friends and friendly faces now is just a wonder and a delight.
For this afternoon’s presentation, though, the most welcome diversity of the audience is
something of a challenge. I hope that the book itself would be interesting to many, indeed
most, of you. In writing it, I thought carefully about how best to appeal to as wide an
audience as possible. I tried to make it friendly as well as clear, and to avoid as much as
possible the specialised polemics, special pleading, and technical discussions that come so
naturally to anyone who has thought for far too many years about a fairly narrow topic. I also
wanted to make the book’s arguments as broad as possible – providing intellectual bait that
might lure students, philosophers, theologians, economists, financial types, policymakers, and
indeed the general public. But I had 400 pages in which to try to do that. Now – how do I
summarise so much in a brief talk?
My best answer to that hard question is to give you a little intellectual autobiography. I will
talk briefly about sources: four things which came together to help me write this book – four
first things, as it were.
The first of these things is my relationship with academic economics. This is certainly a longterm
relationship, but it is 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
some 45 years ago, when I was first introduced to what is known as neoclassical economics.
That’s the approach taught in almost all introductory economics classes, making students
familiar with such terms as supply and demand, free markets, perfect competition, marginal
this and that. All the inhabitants of Neoclassical World are essentially identical members of
the all-calculating species homo economicus. This grim and dull creature, I am happy to say,
bears almost no relation to actual humans.
I have softened up on academic economics over the decades. I now recognise that many real
economists, including John here, do much good work. But I still see the still influential
neoclassical model as totally unrealistic. I will go further. I find it despicable in its portrayal of human nature, and cruel in its appropriation of the word “rational”, which it uses to refer only to the most grasping and narrow sort of calculation.
I could go on, but only two of this approach’s many problems are especially relevant to this book.
The first of these is the relentless reliance on the quantification of human things, of things that cannot be meaningfully quantified. Let me explain. Anyone can feel the absurdity of saying, “You are an 18% more valuable friend to me than Jane is”. The problem is that no number can describe how we think about people. Numbers simply cannot not provide fitting descriptions of “humans-being-human”.
But the standard economic model assumes the validity of exactly that unfitting effort. The 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. These money-numbers simply cannot capture what economists claim they capture: for example, prices absolutely do not and cannot express the genuine value – either to me or to the world – of a car, a term of study at Oxford, or a coach trip to the airport.
You might object, “But that is exactly what money does. It allows us express and compare such values.” This book explains why you would be wrong to say that. Money-numbers are extremely useful, but they do not, they cannot, express values that are more than very roughly meaningful in human terms. It is effectively inhuman to try.
Once the assumption of meaningful monetary quantification is discarded, the actual nature of the economy, and the limited role of money in it, become much clearer. Read the book to find out more. For now, I will only say that when money is given its important but strictly limited economic due, the correct role of finance in the economy and society looks very different from how it looks when money is considered a basically accurate and basically consistent measure of some sort of human value.
So, bad ideas about money are one relevant part of my hate-affair with standard economics. The other bad idea is the economists’ naïve approach to morality. In the standard economists’ approach, the rich and mysterious collection of human motivations is reduced into 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. That painfully limited ethical field makes it a terrible model of the actual economy. Like all human endeavours, economic activity is always and everywhere moral. I hope it will become clear in a few minutes that it is impossible to evaluate the financial system in a harshly practical way without recourse a much more sophisticated moral analysis than conventional economics can muster.
I said at the beginning of this little talk that I would describe four first things of this book. I have just given you the first of these: my hate-affair with mainstream economics. The second one is another long-term relationship. This one is happier, but still deeply flawed: 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. 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, disapprovingly, the modern economy dissolves or degrades communities, traditions, and even the human body. It uglifies our experiences, and it idolises the emptiest sort of material prosperity.
All of that is in the background of this book. What is in the foreground is just one of the things I love about the modern economy: its resilience and efficiency.
Consider the challenge. Much of what we consume – think of mobile phone calls or coach trips to the airport – 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 to close gaps quickly, and to reconstruct quickly what has been destroyed. For giant floods and fires, global supply chains usually to get back to normal in a few weeks. 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 only one exception to this economic competence. You might be able to guess what it is.
Before I confirm your guesses, I want to introduce this book’s third contributing thing: my decades-long experience as a finance professional, including fifteen years as a financial journalist. This interesting time was certainly not a love affair, more like a pragmatic friendship. The experience certainly taught me many lessons. Two of those are important for this book.
The first lesson is the recognition of how different finance is, in practice and in theory, from the rest of the 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 every other part of the economy of labour, production, and consumption.
The second lesson is that barely constrained greed is ubiquitous in the financial system. 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 search for 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 being used almost exclusively to amplify, justify, and profit from greedy desires, desires that harmed the common good and the souls of everyone involved.
I am now up to three sources of this book: hate of economics, love-hate of the economy, and practical and moral qualms about the finance industry. The fourth and final first thing is the 2008 financial crisis. It was this crisis that led me to think about how the money and finance system worked and didn’t work in and with the real economy. More precisely, it was the pestering of my editor at Reuters Breakingviews, Hugo Dixon, that led me to develop a coherent understanding of why financial structures were so brittle.
The discussion of this brittleness takes up much of the first chapter of this book. As you might have guessed, it is finance, and more generally the money-financial system, that is the great exception to the resilience of the economy. For example, it took almost as long for European production to recover from the 2008 crisis as from the Second World War. More generally, every single downturn in production for the last 200 years in every industrialised economy – Every Single One – was either caused by a financial breakdown 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. And this book aims to explain where it comes from.
A great deal has been written about the systems that went wrong in the 2008 crisis, and another great deal will be writing about the systems that went wrong in the current global bout of unwanted inflation. But I submit that no collection of merely technical explanations can be satisfactory. The financial exception has lasted too long and is simply too exceptional to be explained by anything less profound than some collection of cultural, moral, psychological, and intellectual confusions or errors.
And I hope you will be intrigued to hear that I believe I have a sufficiently deep explanation. Spoiler alert! The culprit of this mystery is monetary-financial greed. That greed leads to a reality-distant system which is susceptible to breaking down.
For the full account, read the book. Here is a very quick summary. I argue that the academic economists are completely wrong to think that the modern economy relies on people’s morally neutral self-interest and thrives on their greedy ambitions. In reality, the actual economy (excluding finance and money) is built primarily on virtues: generosity and trust, co-operation, and controlled rivalries. At 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 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 usually expected to moderate and hide their greed, or at least to combine it 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 encouraged. Yes, it is the financial system. In that system, greed – the unchecked desire for subjectively, objectively. or socially unjust monetary gains – is both pervasive and welcomed. It is this greed, along with the greed-encouraged and greed-stained arrangements and habits, that make the whole financial system brittle.
More specifically, the intellectual distortions caused by this greed lead to the reality-distance of so much of finance. Also, it is the perhaps unconscious desire to justify this greed that leads to the many widespread intellectual confusions about the nature of money and the purposes, advantages, and disadvantages of finance.
I hope you can now understand my title: Money, Finance, Reality, Morality. I will close by saying something about my approach to writing it. I rarely argue directly with anyone, I am extremely sparing with footnotes, and I present my own models of the economy, money, and finance with the sort of bland confidence that one associates with irritating textbooks and mendacious public intellectuals. In short, it is a book of stunning arrogance.
I have, I hope, a good excuse for such immodest practices. They make the book much easier to read. And more than anything else, I want an audience, especially of people who have not given the economy and economics much thought. If I had enough energy and time to write a more thorough book, it would be too long for most such readers.
More positively, this is a work of persuasion as well as explanation. I want people to look at the economy in a new way: centred on humans working together generously rather than on selfishly exchanging things for money. As they say in some circles, I am trying to introduce a new paradigm. I believe that this intellectual construction is most persuasive if it presented in its unity and depth. I can only hope that readers will share some of my enthusiasm for this more human way of thinking about economics, money, finance and ultimately our responsibilities to the common good.
To finish, just a technical note: I have printed out some flyers for the book. They come with a 30% discount coupon – the economics of academic publishing are a dangerous mystery, but you can all take advantage of them here (unless you are ordering for a library, in which case the industry treats you as a cash cow). If we run out of flyers, just send me an email and I’ll get you one.
Now, over to John Thannassoulis, who is a real economist as well as a fellow attendee at the Blackfriars 9.30 Sunday mass. I think he was a little reluctant to get involved in this project, but he was too kind to say no. When we last spoke, he had started reading and was puzzled about why I was using so many words to say so little – I await, with some trepidation, his more mature judgement.