Author: Douglas Knight

Forthcoming at the Saint Augustine Institute

THE FUTURE OF MONEY

May 12th 2011

Edward Hadas Re-Setting Money

Edward Hadas is Associate Editor of the Financial Times Lex column. His Human Goods and Economic Evils: A Moral Approach to the Dismal Science is published by ISI. Here is a snippet from his Economics, Finance and the Good

The genius of the modern financial system is that it relies on and develops the human desire to work together for the common good but takes the human inability to be perfectly generous into account. For the system to work well, the rewards for sharing must be neither too small to entice or so large that greed is encouraged to grow. Further, unless those who labour within the financial system are carefully supervised, the large sums of money (representing large claims on resources) which pass through their hands will nourish the noxious forces of greed and recklessness.

I do not think the current financial crisis will destroy industrial economies. They are built on too firm a foundation of trust for that. The reconstruction of the financial economy can, however, be an opportunity for economists to make more room in their discipline for a pearl of great price ? the good.

June 9th 2011

Paul Mills Time to give Gold a Chance? ? What the Bible really says about money and debt

Paul Mills works as an economist for the IMF and is on the board of the Cambridge Papers, published by Jubilee Centre. His Should Christians support the Euro? is here and you can see him on video here and here

Both at 6.15pm on Thursdays at St Margaret Lothbury (map)

Despite daily streams of data and calculation showing that banks are undercapitalised and overlent, the stock markets are ludicrously overvalued and gold undervalued, nobody in authority has any new ideas at all ? and those out of favour are dismissed and/or smeared ? the choo-choo train of it is alright it is alright it is alright chuffs along on its journey across the detonating bridge…
Which brings me to the final reason: culture. Just about every cultural fault that could get in the way of reform is present at every level of this unholy mess. A banking culture driven by selfish greed and testosterone. An economic culture with so few ideas, it invented the jobless recovery. A consumer culture ready and willing to accept the irresponsible credit sold to it in return for material benefits. A media culture more interested in bread and circuses than issues, and too lazy to look beyond the spin of briefing packs. An energy exploration culture devoid of ethics, and prepared to do any deal with any rogue on behalf of the shareholders. And a political culture in every one of the States involved that long ago stopped listening to the complaints, needs and aspirations of its citizens.
John Ward The Slog

Other financial commentators I am reading are Jesse, Automatic Earth, Zero Hedge, Mish Shedlock, Gonzalo Lira, Charles Hugh Smith, Naked Capitalism, and Alasdair Macleod

Here’s the gist of Saving Time – the Economic Consequences of Hurry

Bad theology comes from the bad conscience of one generation in the West which has determined to separate itself from its own sources in its inherited culture, and to grasp the present so that no unknown or new thing may ever interrupt it. This bad theology generates the agendas which control an increasing proportion of our national economic product. The fear that as individuals we cannot cope with the responsibility for our own public action and economic relationships, and contrive agendas that delegate this responsibility onto the state institutions from which a large proportion of the population receives their identity and income. This secularist theology can load new burdens on the economy, and it can pay for them for a while by asset-stripping that culture, but it cannot support an open public square or healthy economy for its has no resources of its own.
Good, Christian, theology creates a culture in which we are open to other people and to new encounters with what we cannot control or know in advance, in which we concede our own transience, identify ourselves with those who will come after us and we get on with making the investments that will give them the same hope of prosperity we had.
A healthy economy is embedded within and driven by a healthy culture with a healthy public square. A society is healthy when the current generation acknowledges its obligations to its own progenitors and its duty to its successors and so recognises its place in the transmission of life and does not attempt to out-live its welcome.
Christianity creates secularity (wide tolerance) and cultural confidence. Left to itself, secularity tends to become ideological secularism (tolerance narrowing towards conformity and centralisation). Secularity remains secular only when the public square can receive the contribution of Christianity

The full version is at Scribd and there is more at the Saint Augustine Institute

Next Economy Working Group Events

March 10th Edward Hadas Re-Setting Money
May 5th
June 6th Paul Mills Give Gold a Chance? ? What the Bible really says about money and debt

‘Economy’ means management and nothing more; and it is generally applied to the affairs of a house and family, which affairs are an object of the greatest importance, whether as relating to individuals or to a nation. A nation is made powerful and to be honoured in the world not so much by the number of its people as by the ability and characteristics of that people; and the ability and character of a people depend, in great measure, upon the economy of the several families, which, all taken together, make up the nation.
The man who by his own and his family?s labour, can provide a sufficiency of food and raiment, and a comfortable dwelling-place, is not a poor man?.
But it is necessary to the very existence of a people, that nine out of ten should live wholly by the sweat of their brow; and is it not degrading to human nature, that all nine-tenths should be called ‘poor’; and what is worse, call themselves poor and be contented in that degraded state? The laws, the economy or management, of a state may be such as to render it impossible for the labourer, however skilful and industrious, to maintain his family in health and decency; and such has, for many years past, been the management of the affairs of this once truly great and happy land.

William Cobbett Cottage Economy

Let’s start by asking about the causes of our present economic crisis and look at three long-term changes that might have something to do with it.

1. Finance and the real economy
First, is it basically a financial crisis or an economic one? Has the relationship between the financial services and the wider economy got out of balance? If so, why? It is the job of the banks to allocate capital to the rest of the economy. They have to get money to the place in which it can be most productively used. How successful is the banking industry at allocating capital to industries other than itself? The financial sector has been growing as a proportion of the economy, and has grown spectacularly over the last ten years. What is behind that? Surely it has not grown at the expense of other industries? Surely other industries have not receded as a result of the expansion of banking? What is cause and what effect in this relationship between the financial sector and the economy?
Then there is another thing. Debt with compound interest is a threat to individuals, corporations and to the long-term stability of the economy as a whole since demands for interest payments grow faster than the economy can. The curious thing is that this appeared to have been forgotten, and restrictions that every society must place on debt abandoned until very recently.

2. Older and more worried
A large population of 50-70 year olds is looking for places to put its savings, and can’t find enough places. Then individual members of this age-group realise that their savings won’t be enough to keep in them the style they were hoping for right to the end. They start to look for increasingly speculative ways of getting ahead of the crowd, so speculation becomes the norm. The children of the baby-boomers have been loaded with obligations because their own parents have been unwilling to adjust their expectations downwards.
The future is that a large dependent population is cared for by a smaller population, but the more that prospect emerges, the smaller the future population becomes as people find other things to do than have children. Can you even have a growing economy if you have a declining population?

3. Not as fiercely independent as we used to be
We have exporting our industries, and with them has gone some of the culture of work and sense of community that those old industries sustained. Work gives you confidence, perhaps enough of it to do that most public-spirited thing, settle down and start a family with someone, and then stick with them through thick and thin. If you give the children your undivided attention they have a good chance of becoming the dynamic creative economic agents of the future. As it creates more legislation the state inadvertently takes away individual responsibility and takes away the incentive to exercise it. There been a corresponding loss of willingness to start families and for partners to sustain their marriages in order to bring their children up and create that next generation of motivated economic agents. If you delegate too many of those responsibilities to the state, they and you have a good chance of slipping into a dependency culture without an easy way out. Oops.
Now we have been transferring liabilities to the state so fast that some nervous people wonder whether our government can continue to meet them. Can states go bankrupt too?
So there you are – three candidates for underlying cause of the crisis. These do not show that a financial storm blew up out of nowhere because some bankers got careless. They show that the emergence of the distended financial sector is the manifestation of an underlying crisis in inter-generational relationships and the culture that is supposed to encourage one generation to bring the next into existence. This inter-generational economics is the new wave. You heard it here first.

Christian responses
So much for causes of the crisis. The much more interesting part of this discussion is about the responses that Christians can make to it. Here are some hints:
1. Christians look forward to an alternative economy which they call the kingdom of God, though they could equally well call it the economy of God.
2. Modern economics makes it unnecessary for us to judge for ourselves, for we can delegate our responsibility. Ethics is over, for the market can make our decisions and if it can’t the state will take care of them for us.
3. But Christians operate a different account of human being in which no one can be stripped of responsibility. This can make life rather awkward, though also more rewarding.
4. Christians suggest that you can’t get to forgiveness without going through judgment. It looks as though we all have to be a little judgmental after all.
5. Christians pray Forgive us our trespasses. They are talking about their own trespasses, but maybe they are talking about other people’s trespasses as well. They are interceding for others. Maybe they are even bearing the punishment for others too. The secret of Christian economics is the Christian view of human being, and the secret of the Christian view of human being is Jesus Christ. The priestly and sacrificial work of Christ who, by removing our trespasses, paying our debts and taking down all obstacles to it, restores the functioning of the human economy. It is not primarily the free market that is on our side, nor even the modern welfare state. It is God who is on our side, and who, if asked, can give us the forgiveness, the resources and the new start we need.

If you are interested and in London, come along to this Saint Augustine Institute event on Friday 19th November –