Banking, Justice, and the Common Good

By Samuel Gregg

The art of creating, managing, loaning, and investing money has always been fraught with moral hazards. Unfortunately, the widespread habit of viewing banking in a less-than positive light has contributed to misunderstanding of a human activity that not only contributes to human prosperity, but also creates a sphere of endeaver in which people can genuinely pursue virtue. Through considering commercial banking in light of the demands of justice and the common good, we recognize that the work of banking testifies to the sense of responsibility that each person ought to have for others' well being. Moreover, conscientiousness, honesty, trust, and exactitute are qualities of work implicit to prudent and profitable banking. To participate in these moral goods in a consistent and coherent way is to grow in virtue to transform ourselves from who we are into what we ought to be.

• Language: English
• Publisher: Acton Institute
• Release date: Apr 19, 2012
• ISBN: 9781880595497

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Banking, Justice, and the Common Good

Samuel Gregg

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Copyright © 2012 by Acton Institute

An imprint of the Acton Institute for the Study of Religion & Liberty

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CONTENTS

Preface

I. Introduction

II. Basic Moral Concepts

III. Money, Usury, and Interest

IV. Credit and Trust

V. Banking and Society

VI. Banks and Clients

VII. The Call to Virtue

About the Author

Preface

This is a book about commercial banking, the demands of justice, and the common good. But while it speaks more of morals than of money, it insists that an area traditionally regarded by many as a necessary evil, is a sphere in which people can morally flourish as human beings. The art of creating, managing, loaning, and investing money has always been fraught with a variety of moral hazards. Unfortunately, the widespread less-than-positive view of banking has contributed to a lack of understanding toward a field of human activity that has not only made a profound contribution to human prosperity but has created a sphere of endeavor in which people can genuinely pursue virtue.

The need for a short introductory book on the moral demands of banking became apparent to me during a conference for financial practitioners in, most appropriately, Geneva, Switzerland. Perhaps nothing is more symbolic of the new order of a global market-orientated economy than the spread of the modern international bank and the associated financial industry. Yet along Lake Geneva’s quiet shores, in a city that has been home to such disparate individuals as John Calvin, Saint Francis de Sales, and Jean-Jacques Rousseau, where discreet buildings house banks that manage the financial futures of countless investors, one could only be impressed by the atmosphere of stability that Swiss banks convey in a world rife with risk, creativity, toil, and everyday shifts in market prices.

Attending this conference, I expected to encounter bankers who were morally at ease with managing and expanding the monetary sinews of commercial progress. Instead, I was surprised at the predominance of two attitudes.

The first can be loosely described as apologetic. According to this view, while banking might be necessary for economic prosperity, it is at best morally neutral. The apologists seemed to believe that bankers would be morally better off working in non-government organizations, preferably those accredited to the United Nations complex not far from the Geneva conference site. Underlying this position is the unspoken assumption that life as a banker tends to divert the soul from more fruitful activities. This mindset contains more than a hint of an anti-commercial attitude and a certain lack of ease when dealing with questions of wealth in which the usurer looms large in the popular and historical imagination, especially in the West.

The second attitude at the conference was a strange hybrid of pragmatism and legalism. This attitude regards banking as nothing more than an exercise in acquiring material wealth. To people who hold this position, the fact that banking works is sufficient testimony to its morality. The notion that banking can allow people to flourish in a truly human way or that banking in itself can contribute to the common good is foreign to this audience. As for any deep concerns about the goodness or evilness of particular actions, the pragmatic-legalist tends to believe that if there is no law specifically prohibiting an action, then that action is appropriate.

Curiously enough, the two very different mindsets have much in common. Both profoundly misunderstand the nature of justice and morality. One group associates morality with the promotion of particular causes, perhaps best popularly characterized as politically correct. The other group reduces questions of good and evil to issues of what the law allows and forbids. A more significant commonality is a shared skepticism toward the proposition that if human choices, actions, habits, and institutions are probed in a practical and reasonable way, people can know the difference between good and evil and organize their lives accordingly.

In short, a considerable number of Europeans and North Americans working in the highest levels of the banking industry do not think that the human mind, with all its limitations, is able to discern the difference between justice and injustice or good and evil. This attitude is hardly confined to people working in the financial world; it currently dominates Western culture.

Upon returning to the United States, I decided to examine the contemporary literature on banking and, more specifically, the morality of banking. I soon discovered that while there is no apparent shortage of texts on financial strategies and techniques, very few deal with the moral dimension of banking. Most authors of the literature seemed relatively unaware that something as essential to banking as charging interest had been the subject of highly charged moral debates in the West for centuries. This is still the case in many Islamic nations. Even if one holds, as I do, that the just interest rate on loans is normally determined by the processes of supply and demand for capital in the conditions of a free market underpinned by the institutions of private property and rule of law, most of the available literature does not explain why charging interest on capital loans is just.

Nor does the same material indicate how ongoing debates about issues such as usury and the morality of various activities associated with banking were the primary means through which essential categories for thinking about banking were examined, discussed, and clarified. If awareness of history is the great teacher of life, then many people working in the banking industry are missing the lessons. They do not have a sense for how the tools of the trade have evolved—credit, money, interest, liquidity, deposits, checks, and speculation—not to mention the discussions that determined what constituted reasonable and unreasonable uses of such tools. In various ways this book seeks to place these matters into their original context in order to assist bankers and to help them more fully comprehend the justice or injustice of different actions associated with using these tools.

The journey of researching and drafting this short book has been long and at times, difficult. It involved writing between meetings, speaking engagements, and lectures. As each draft progressed I was careful to seek the comments of philosophers and bankers, sometimes with unexpected results. It was often a banker, for example, who pointed out a flaw in my moral argument. And it was not uncommon for a philosopher to correct my understanding of a technical dimension of banking. Both groups were also careful to warn me when they believed the book was becoming something that it was not intended to be: a book on corporate governance or a study of money.

I am thankful to many people for their insights and assistance in writing this book. I would, however, like to highlight the contribution of those working in the banking industry who took time to answer my questions and who, like me, were concerned that this book not be yet another book on business ethics that invariably concludes by telling the reader that everything is relative or depends on the ethical system one uses. The damage done by such books to young minds and people genuinely interested in living the moral life in the commercial world has been considerable.

Thankfully, more scholars and business leaders are recognizing the problems involved with much contemporary thinking about morality in the commercial world and how deeply this has undermined the possibility of serious reflection upon the nature of the good life in banking. A determination to reverse this situation was certainly true of those bankers from the United States, Europe, Southeast Asia, and Latin America who were good enough to offer me their insights, to open doors, and to discuss with great frankness the complexities of their professions. Bankers, for good reasons, are notoriously discreet. Hence, I was not surprised when, without exception, all the bankers who aided in the production of this book asked to remain anonymous. For that reason, I hope it meets their expectations.

* * * * *

I

Introduction

A pilgrim journeying to the Holy Land during the twelfth century walked long distances