God and Mammon

“What would Jesus do?”. This question, put on one of the banners of the ‘Occupy’ protesters outside London’s St Paul’s Cathedral, is one that the Church of England has been struggling to answer in reaction to the public anger about the flaws in our economic system. What can the Church say and do about the operations of Mammon?

One response has been for church leaders to fall in behind the Robin Hood Tax, as Rowan Williams, the head of the Church of England did last week, following in the steps of the Roman Catholic Church. We have a lot of reservations about this idea. Indeed, Michael debated the merits of the tax at St Paul’s earlier this year. Even leaving aside the merits (or not) of this tax, does the Church have anything more to offer to the debate other than recommendations on tax policy, and (reluctantly) some ground for the protestors to camp out on?

The number two in the Anglican Church, the media savvy Archbishop of York, John Sentamu, choose to take the populist line, blaming greedy bankers. He urged a different kind of state intervention – getting the Queen to withhold honours from avaricious City types. That will have them quaking in their vaults.

In a new contribution to the debate, the St Paul’s Institute (a thinktank associated with the cathedral) today published a survey of ethical attitudes in the City (which was commissioned before the protests put their institution at the centre of the debate). One interesting finding is that City ladies and gents really are more godless than the population as a whole – 38% of those surveyed had no belief in God, compared to 23% for the population as a whole. The report, probably rightly, does not infer much from that statistic, pointing instead to the fact that only 14% knew that the London Stock Exchange’s motto is ‘My word is my bond’ to suggest (rather feebly) that moral standards have declined due to deregulation.

What is most interesting about this survey is that it shows the sense of unease within the City itself about how the financial sector operates, as well as strong support for different ways of working. Two thirds of respondents think bond traders are over-paid and half think the same of bankers. Banker bashers will be surprised to see that there was considerable agreement that the financial sector should be investing more in deprived communities and that bonuses need to reflect long term success, not short term-profit making.

For us, this poll shows the inadequacy of trying to portray what is wrong with the financial sector as a simple morality tale of greedy bankers gone mad. It is also a warning to the Church that merely banging on about ethics may not make much of a difference – respondents rejected the idea that they need to listen to the Church more.

We would not presume to second guess the Church on what Jesus would do. What we do know is that the Church of England alongside other Christian denominations and other faiths represents a large and active constituency that has often been at the forefront of campaigns for global justice.  “There is a strong sense that faith groups are particularly effective in mobilising action, and by engaging them, a campaign can reach out to a more mainstream – less traditionally left of centre – public.” This is one of the findings of a fascinating report ‘Campaigning for International Justice’, written by Brendan Cox, a former aide to Gordon Brown (don’t hold that against him) and now a senior figure at Save the Children. There is an opportunity here for the Church to take the passion of the Occupy movement and build it into a broader coalition for change, if only it can get its message right. But, again, what should that message be?

One of the ironies of the mess that we are in at the moment is that the banks can argue that they were “just obeying orders”. The short-termism that the St Paul’s survey shows is an acknowledged problem that is hard-wired into the City by the demands from the banks’ own shareholders for ever-increasing quarterly profits, irrespective of the long term consequences. Institutional investors, such as pension funds, are increasingly short-term in their investment strategies, preferring to keep swapping their shareholdings to ‘track’ the market rather than thinking about long term success. And those blinkered investors are acting in our name, since it is our savings and pension investments that they are using.

As we argue in our latest book, ‘The Road from Ruin’, transforming this investment culture needs not just regulatory change but active ‘citizen capitalists’ who are willing to ask tough questions about how their money is being used. And citizens can have an impact. The ethical consumer movement, of which faith groups were a key part from the start, is now having a real influence on the way businesses behave environmentally and socially. The ethical investment movement is stunted by comparison. Faith based organisations, many of which are substantial investors in their own right (the Church of England has made some progress in this area), could lead the way in engaging their member to be better stewards of their capital.

Ideas of stewardship and personal responsibility do not just apply to bankers, they apply to all of us. If we want a better capitalism that serves people and planet, we have to be willing to ask for it. This seems a more appropriate message for the Church than looking for a fiscal quick fix or casting the first stone at the sinners of the City.

One reply on “God and Mammon”

I do not believe that it is enough to blame the bankers. That would be to let politicians, and we as citizens, off the hook. We all bear some responsibility. The Robin Hood Tax is a good idea, but is not sufficient. I think there is more the Church could do, and the appointment of an exceptionally financially literate Archbishop is perhaps a good time to make a start.

The greedy, the reckless, and the amoral will always be attracted to ways of making ‘easy money’. The main mission of the modern corporation is to make money for shareholders, and that is the prime legal duty of directors. Corporations have acquired all the rights of human beings. In this context the State has a duty to be vigilant, to identify abuses and to regulate effectively. The record has been patchy, partly because corporations (helped by neoliberal economic dogma, unsupported by evidence) have exerted an undue influence.

How does this apply to banks? Banks have changed in the last few decades. Between 1963 and 2007 the total assets of UK banks increased from one half of GDP to five times GDP. This has been accompanied by a huge increase in debt (not just sovereign debt which is a small fraction of this). This has been the result of the relaxation of controls on bank lending during the 1970s, culminating in Mrs Thatcher’s Big Bang. In order to make these loans banks have created money as credit – 97% of our money in fact.

In a speech to a meeting organised by Occupy Economics, in the Friends Meeting House, Euston Road, on 29th October, Andrew Haldane, Executive Director, Financial Stability, Bank of England, acknowledged that “once bank assets exceed annual GDP in size, they begin to act as a drag on growth.” He also mentioned J.K.Galbraith’s claim that the asset price boom has been a major cause of rising inequality in the US. However he failed to draw the conclusion that bank assets are in aggregate far too large. Banks make their money (in the ‘good’ times) not by charging outrageous rates of interest but by increasing the volume of lending – especially secured lending. Although no orthodox economists foresaw the crash, several heretical economists did, based on the excessive build up of debt.

Before the crash, mortgages were being offered at I think six or seven times annual salary – a near unsupportable burden. You could argue that house buyers don’t have to accept such mortgages. The trouble is that house prices had been increasing much faster than consumer prices, the increase being fuelled by easy mortgage terms. How else could first time buyers get onto the ladder? I believe that lenders have some responsibility to apply restraint. If houses are to be more affordable we need more of them and government needs to address this by discouraging land hoarding.

In this context the Church could do well to think about what in the 21st century constitutes usury. It has in past times referred to any lending at interest; more recently it has applied only to lending at excessive interest rates. Perhaps it should apply to any loan which places too great a burden on the borrower?
Although Haldane is to be commended for engaging with the Occupy movement, I was less impressed with his assurance that all the issues were being addressed. There appeared to be nothing new in the remedies he mentioned. He says,
“In the UK, we are already three steps along this road, with the introduction of a Financial Policy Committee (or FPC) housed at the Bank of England from last year. Its remit is to keep the system safe and sound while supporting lending and growth. Right now, the FPC is playing its part in trying to cushion the effects of the credit squeeze I mentioned, by freeing up banks’ capital and liquidity reserves to enable loans to be made to companies and households.

If these sound like small steps for mankind, then they are giant ones for regulators. This is the first time in the Bank’s 318-year history that it has attempted such “macro-prudential” regulation. Of course, it is impossible for the FPC or anyone else to eliminate mini-booms and mini-busts in credit. But the FPC can legitimately aim to head-off the maxi-booms, such as the pre-crisis one, and the maxi-busts, the like of which we are currently experiencing.

That should be good for medium-term growth, by preventing a build-up of excessive leverage. And because financial booms and busts are inherently inequitable, it ought also to be good for the distribution of this growth across society.”
However there is no reference to what instruments will be used to conduct “macro-prudential” regulation, and the only ones that I am aware of as being contemplated by the Bank, are wholly inadequate. There are well argued solutions that have been put forward by ‘heretics’, but they have been summarily dismissed or totally ignored by the establishment (e.g. by the Independent Commission on Banking). These are:
1. A return to the sort of direct credit controls in force between 1944 and the 1970s – advocated by Richard Werner. These have also been successfully applied more recently in some Asian economies.
2. Full Reserve Banking, currently advocated by the campaign group Positive Money and others. This would hand the monopoly of money creation to the Treasury or to central banks who would then give it to the Treasury. This has not been the use in Western economies since before the Middle ages. However in August this year the IMF released for distribution a Working paper entitled: ‘The Chicago Plan Revisited’. The authors summarise their paper as follows:
“At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher’s claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.”
I am not aware of any central bank or Treasury picking up on this work. Why not?

It is not for the Church to prescribe, but I would have thought it could pose some fairly pointed questions:
If Economics is the social science it claims to be, what business has it excommunicating the heretics? Of course that is not the language used. Heretics are called heterodox, but they are not published in the ‘best’ journals and are ignored whenever possible.
Adair Turner, Chairman of the Financial Services Authority, is happy to acknowledge that in the more developed economies – the US, Europe, and Japan – the period of financial repression between 1945 and the early 1970s was one of significant and relatively stable growth, comparing well with the subsequent 30 years of increased financial activity and financial liberalisation. What then, is the evidence that the bloated and unregulated system we now have, has produced any net benefit to the economy?
Why are the claims of the IMF paper being ignored? Why aren’t Bank of England and Treasury economists crawling all over it?

The first two chapters of the IMF paper are accessible to the layman and possibly worth a read. There is reference to usury.

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