The Financial Seminary
Is Capitalism Still Moral, According To Judeo-Christianity?
"Money in the modern era is a purely secular force, reflecting the lower nature of man. Cut off from any relation to spiritual aspiration, it has become the most obvious example of a fire raging out of control...Very little, if anything, is left of the absolute demand from Above that is the essence of absolute ethics."
Money and The Meaning of Life
Since burning out on Wall Street and thinking of seminary in 1986, I've thought extensively about a question that many Americans have increasingly asked since Enron and the credit crisis of 2008: Is capitalism still moral according to the Judeo-Christian ethic. I realize it is moral if you accept the new morality of selfishness preached by Ayn Rand, called Objectivism, and believe the only purpose of an economy is to produce material wealth. But even some of our finest financial minds are no longer sure whether it is moral according to the Calvinist ethic that built our country's prosperity, the ethic that said there's a higher purpose to our activities here on earth. In a way, those economic minds, little known that they are to the average American, are the financial equivalent of theologians and sociologists who expect America has become a post-Christian nation.
Like Noah, I'm always scanning the horizon to glimpse signs of hope above the seeming flood of financial immorality on Wall Street, in Washington, in corporate America and even in our churches. I recently glimpsed one such sign at Princeton University. My good friend David Miller who heads Princeton's Faith & Work Initiative interviewed John Bogle. The subject of their discussion was the Protestant foundations of our economy. Jack, as Bogle is usually called, graduated from Princeton in 1951 so the Calvinist ethic is in his DNA. Before the interview began, I told Jack about my telling Money magazine it could better understand Sir John Templeton's thinking if it remembered John was a Calvinist and it's often said Calvinists can make money as long as they don't enjoy it. Jack expressed the same amusement that John did when Money printed my quip over a full page picture of John. As he talked, it was apparent that Jack also found far more joy in giving money than spending money.
Still, as perhaps suggested by the names they went by during their careers, Jack and Sir John are different. Despite his humble origins, Sir John was comfortable with royalty and intellectuals. Jack meanwhile has the common touch. Interestingly, those orientations probably shaped their approaches to investing. Sir John essentially invested in the inefficient developing markets of the world by use of superior human reason and discipline. Jack invested in efficient developed markets through technology and humility. Having aspired to be a preacher at one point, Sir John could eloquently articulate his faith. Jack on the other hand, reminded me that St. Francis supposedly said to preach the gospel at all times and to use words when necessary. Scholars doubt Francis really said that but he should have as Jack personifies the notion. My point is that despite their differing approaches to our business and our faith, I expect John Calvin would have been quite proud of both Sir John and Jack, as I told Jack after the session. There's an enriching lesson for the Church and all its warring factions in Jack and Sir John being different but equally faithful.
As Jack spoke, it became quite apparent that the amazing success his company has experienced over the decades is a direct product of Jack's passion for putting the interests of investors before his own. Yet that also seemed a major reason Jack seemed rather despondent about the moral condition of America and Wall Street today. While he never mentioned Objectivism, Jack also laments the shift from what he calls "stewardship to salesmanship" on the Street. And he was probably as critical of CEO compensation as anyone I've heard since Peter Drucker told Forbes that CEO compensation reminded him of pigs at the trough.
Jack had earlier given a speech to the business students at Columbia University. You can find it by Googling the words "John Bogle." The interview at Princeton will soon be on Dave's website: http://www.princeton.edu/faithand work/media/ethics-in-the-executive-suite/bogle/. Both are well worth your time. If Wall Street has a Jonathan Edwards today, it might be Jack Bogle. Edwards was the president of Princeton and ignited the First Great Awakening with sermons such as "Sinners in the Hands of An Angry God." Jack didn't rise to quite that level during the discussion but I left with the impression he was capable of reaching those moral heights. I sensed it was only Jack's eighty plus years of experiencing grace that made his message palatable for the rest of us. I found that quite refreshing in our age when most pastors sound more like Dale Carnegie making friends than Jesus Christ making disciples, particularly when addressing the affluent and powerful.
Perhaps more interestingly, I happened to sit just behind Jack's wife Eva. It was clear from Jack's comments that she and Jack are true soul-mates. I even learned that she and Jack live across the street from John Templeton Jr., who we also call Jack due to his common touch despite his being a doctor, and his wife Pina, who is a model of compassion. When I told Eva that Wall Street will truly miss the examples of John and Jack, she sadly said she couldn't advise any young person to go to work on Wall Street these days. That troubled me as my son Garrett had gone with me as he's entering our business. Of course, I hope she wasn't talking about being an independent advisor specializing in ethical and spiritual investing. She was hopefully referring to Wall Street's sub-prime mortgage originators, proprietary traders, ruthless hedge funds and so on. Yet each of us in financial services should think long and hard about Jack and Eva's comments. It is quite possible we are complicit in killing the goose that has laid the golden eggs for America by not insisting our largely self-regulated industry adhere to the highest possible standards of traditional morality. The fact a recent study said nearly 60% of Americans have sworn off stocks two years after the credit crisis might affirm that perspective.
Jack's skepticism about the current moral order did not completely surprise me for two reasons: First, he recently began his book Enough with this quote: "The people who created this country built a moral structure around money. The Puritan legacy inhibited luxury and self-indulgence. For centuries, it remained industrious, ambitious and frugal. Over the past thirty years, much of that has been shredded...The country's moral guardians are forever looking out for decadence out of Hollywood and reality TV. But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money."
Second, Jack had earlier contributed to a conversation among thought leaders sponsored by Jack Templeton at the John Templeton Foundation. That subject matter was: "Does the free market corrode moral character?" Of course, answers ranged from conservative Senator Rick Santorum's "no" to progressive former Labor Secretary Robert Reich's "we'd rather not know." And of course, responses depended greatly on how one read the question. The foundation's question was actually different than the question in my headline. From my perspective as a political science graduate, a "free market" is simply one that operates relatively independently of government regulation. Freedom is a word long cherished by the Abrahamic faiths. But it's morally neutral. We can use our freedoms for good or ill, which is why a recent survey by the University of Southern California found young Internet users thought big business was closer to being "big brother" than big government was. As Janis Joplin told us during the anarchic sixties, freedom can simply be "another word for nothing left to lose." A free market existed in Uganda when I taught there twenty ears ago. The government of Idi Amin no longer existed but people were still trading fruits and vegetables in road side huts and so on.
When I say "capitalism," I mean a mature market in which the substantial savings of many have been combined in a bank, mutual fund and so on so relatively more sophisticated businesspeople and governments have large sums to utilize for ideas of their own. Crucially, those ideas may or may not reflect the moral character of those who provided the savings. Historically, elites have usually operated according to a different moral code than the rest of us. Hence so much frustration among the populace on Main Street with how the elites on Wall Street and Pennsylvania Avenue use our money these days. That is precisely the reason an increasing number of ethical and spiritual investors are looking for companies whose character more accurately reflects what we aspire to be. Jack put our way of looking at things this way:
"The wellspring of the current financial crisis has less to do with the fundamental character of markets, or of people, than with relatively recent structural changes in the character of our financial and capital institutions. A little more than half-century ago, we lived in what could be described fairly as an ownership society, one in which corporate shares were largely by individual investors. In this society, the 'invisible hand' described by Adam Smith in the 18th century remained an important factor. The system was dominated by individual investors, who, pursuing their own self-interest, not only advanced the interests of society but exhibited such positive character traits as prudence, initiative, and self-reliance. But in recent decades we have become an agency society, one in which corporate managers hold control over our giant publicly-held business enterprises without holding significant ownership stakes. Call it managers' capitalism. Similarly, the financial intermediaries that now hold voting control of corporate America are agents for the vast majority of individual investors. In the early 1950s, individuals held 92 percent of all U.S. stocks, and institutions held just 8 percent. Today, individuals hold only 25 percent directly while institutions hold 75 percent. But these new agents haven't behaved as agents should. Too frequently, corporations, pension managers, and mutual fund managers have put their own financial interests ahead of the interests of the principals who they are duty-bound to represent, those 100 million families who are the owners of our mutual funds and the beneficiaries of our pension funds. This failure is hardly a surprise. As Adam Smith wisely put it, "managers of other people's money (rarely) watch over it with the same anxious vigilance with which...they watch over their own...They very easily give themselves a dispensation. Negligence and profusion must always prevail."
I prefer the term "stakeholder capitalism" to signify our employees, customers, the environment and future generations should also be consciously considered by those deciding where to invest our money. But Jack is correct that even shareholder capitalism was so much more enriching to our nation, America,and increasingly the world, might go back to that future. If you think government debt has soared since Reagan took office, consider the nearby chart from The Economist. It shows global mutual fund assets have risen by thirty fold since the end of Reagan's first term. Both are indications of the "securitization" of our world's assets.
Sounding admirably like John Calvin and Jonathan Edwards, Jack went on to say: "As for moral character, it is an absolute. One either has it or one does not...Not all that many decades ago, the rule seemed to be, 'there are some things that one simply doesn't do.' Let's call that moral absolutism. Today, the common rule is, "If everyone else is doing it, I can do it too.' There can be no other name for this view than moral relativism. This change helps to explain some of the recent aberrations in the free market...Our society has a huge stake in demanding higher moral values in a less fettered market system."
Jack's solution? He largely encourages those professionals watching over our financial resources to return from what he calls "salesmanship to stewardship." That would be wonderful; but I expect a bit like expecting Washington to mend its own ways. My guess is that--as with politics where we're learning we'd better elect representatives who share our moral as well as economic concerns--setting Wall Street straight will require those of us on Main Street assuring those elites we entrust with the Creator's money share our moral concerns.
That's all I've really meant over the years when I've used the word "stewardism" to distinguish it from "capitalism." Rather than being radical or revolutionary, as some conservative friends have suggested, stewardism is most conservative as it simply suggests there's something to be learned from the old ways. Despite what ever-creative capitalism tells us, the words new and improved do not always go together. That's particularly true when it comes to the historic concept of stewardship that guided Jack and Sir John and the new Objectivist morality that has guided junk-bond king Michael Milken, Alan Greenspan, Rush Limbaugh, Clarence Thomas, Glenn Beck, the former head of BB&T bank and so on.
Gary Moore is a Sarasota-based investment counselor who has authored many publications and articles on the morality of political-economy and personal finance. He is a representative of, and securities offered through, National Planning Corp (NPC), member FINRA/SIPC, but opinions expressed here are his alone. The Financial Seminary and NPC are separate and unrelated. His comments are included in the More Good $ense newsletter in an effort to expand stewardship leaders’ understanding of broader economic issues.