‘Credit and Faith: On Economics and Theology’
- Prof. Philip Goodchild
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Philip Goodchild, Department of Theology and Religious Studies, University of Nottingham, UK
Economics and theology are disciplines in crisis, albeit crises largely unacknowledged by practitioners: economics aspires to scientific status basing its models on evidence, but is largely unable to predict major economic events, and so inspire stability and confidence; theology aspires to provide a universal and comprehensive vision of life, yet finds it impossible to unite believers from the same tradition in a single vision, let alone the wider world. Theology too often leaves unsatisfied a desire for spirituality, meaning, pertinence and profundity in everyday human life – while it sanctifies key events such as religious festivals, and inherently meaningful events such as birth, love, and death, it does little to uncover the profound and significant dimensions of everyday life. Economics too often leaves unsatisfied a desire for knowledge and confidence – while it may succeed in constructing models of the economy, it fails to offer a reliable guide for economic conduct. Where economics fails to attract credit, theology fails to inspire faith.
I would like to propose the original thesis that problems of credit and faith meet, and are indeed two sides of the same human experience. This is to challenge the sharp distinction between the secular and the religious that has developed in the modern world. The production and distribution of goods and services is a matter of human subjectivity in the form of preferences, commitments, and credit, and so is regulated in practice by a comprehensive vision of life, including a vision of justice. Human interiority, in turn, is manifested accurately not in statements of belief but in key decisions about the allocation of time, commitments and resources, including whom we trust, with whom we enter contractual relations, what we make and what we do. Economics and theology become misguided without each other, and need to be conceived in and through each other. Theology gives grounds for trust, for values, for commitments, for justice, and for allocation, and so informs economic decisions in practice, whether one is aware of one’s implicit theology or not. Economics gives a theory of how the world works, of consequences, of the responses of others, and so informs actual judgements of trust and value, whether one recognizes this role or not. Theology needs the dose of reality provided by economics to gain inherently pertinent meaning and value and prevent thought and desire from becoming lost in the short-circuit of fantasy, while economics needs the orientation provided by theology to prevent the short-circuiting of the deeper meaning of life by superficial correlations.
Here a dose of reality may help, encapsulated by two thought-provoking problems raised by the recent financial crisis:
1) If the excess borrowing of financial institutions, governments, and consumers has already been spent, then that money should be sitting in someone’s bank account somewhere, and the banks who take these deposits should have no shortage of deposits to underwrite their loans – why then was there ever a problem of a credit crunch?
2) If all governments, financial institutions, businesses and consumers seek to restore confidence and stability by reducing their levels of debt, then where is the money to come from to settle these debts? This is a simple accounting or balance of payments problem which applies between sectors as much as it applies between nations: if debts and credits ought to balance, how can economic agents reduce their debts without appropriating the wealth of others?
To answer these it is necessary to dispense with the unreal models of economic orthodoxy as well as the visions of justice they underwrite. In brief,
1) Markets fail to give just prices. Since banks generate profit commensurate with their overall loans, then it is always in their interests to make loans against collateral. Since debtors can make profits from a rise in asset prices, then it is always in their interests to borrow as much as possible. Since the market price of assets rises in line with demand, then there is no equilibrium price for either assets or the rate of interest: there is simply a rising spiral of asset price inflation and increasing leverage. Hence the free market fails to price assets with any degree of justice – for example, the actual collateral value of assets is what they would realise when they have to be sold, which is when an excess of assets are dumped onto the market and prices have fallen.
2) Debts may exceed available assets. This is evident when anyone makes a promise they do not have the current means to fulfil. If a worker takes on a mortgage against anticipated future earning, or if a business or government makes contractual promises to pay interest on bonds, or future employments benefits, or pensions, when it has not already earned the income to do so, then debts exceed assets. Yet through securitization, such liabilities are then used by financial institutions as collateral against further loans, multiplying the claims on liabilities, just as is done with fractional reserve banking.
3) Economic decisions are largely a matter of allocation in the context of rationing, rather than a matter of personal preference in a market that clears. For far from the real economy consisting of real relations of production and exchange involving workers, investors, retailers and consumers, the real limit on economic activity in capitalism is given by the availability of effective demand as money or credit. It is always money that is rationed, not productive capacity. Production takes place primarily for the sake of profit. Moreover, if speculative investment in asset price inflation is more profitable than productive investment, then economic growth will be held back by the misallocation of credit.
4) Money determines the choices of people, rather than people choosing what to do with their money. For far from money being an enduring substance that is a unit of account, a store of value, and a measure of exchange, like a coin composed of precious metal which can be regarded as a wheel of circulation that merely facilitates exchange, most of what counts as money in credit capitalism actually consists in debts that not only require repayment with interest, but are also due to expire after a short period. Even our money involves elements of trust, risk, and urgent obligation. These debts must be repaid with money, and so with the liabilities of others, in an ever-increasing spiral of collective obligation, where short-circuits of profit without production and consumption without health and happiness become mandated.
Such a change of perspective leads to some radical conclusions:
• Economic growth in developed countries is being held back by the misallocation of capital and by the drain that the financial sector exerts upon the economy (which can be approximated by the debt: GDP ratio) – an intelligent investment of capital could lead to further explosions of economic growth, as in post-WW2 reconstruction and the Asian ‘miracle’ economies, easily solving debt problems.
• This immense potential productive capacity raises the theological question of what kind of world and society one wants to produce. For just as investment in speculative assets short-circuits production, producing for consumer entertainment short-circuits deep satisfaction.
• Justice may be conceived not merely economically as the appropriate or efficient allocation of resources but theologically as a redemptive correction to the misallocation of resources. Justice is the role of the state. For if most of the global population are excluded from the benefits of development by a short-circuit in the flows of capital, then a redistribution of resources to the excluded, to welfare recipients, would ensure the prioritisation of spending, production, and investment on addressing some of the most urgent needs. Other corrective reallocations demanded by justice might include preventative projects and sustainability, where expenditure now saves expenditure later; infrastructure, where collective interests are present that may not be met by existing frameworks for collaboration in mutual interest; and provision of an infrastructure for civil society, whereby small investments can leverage productive interaction and quality of life.
• The technical problem of the creation of a money and credit system that serves the aspirations of humanity rather than subordinating them remains to be solved as the key problem of an economic theology. Here it is a matter of redeeming ‘credit’ as trust from its subordination, through accounting, to debt. Even as late as seventeenth-century England, David Graeber reports that money was rarely used for transactions in between local villagers:
Most money literally was trust, since most credit arrangements were handshake deals. When people used the word “credit,” they referred above all to a reputation for honesty and integrity; and a man or woman’s honor, virtue, and respectability, but also, reputation for generosity, decency, and good-natured sociability, were at least as important considerations when deciding whether to make a loan as net income.
A person with good credit may easily mobilise favours from others to fulfil obligations: here, credit is not a matter of having done the most favours for others, but a matter of having the highest degree of reputation, integrity, and sociability. While it was possible to have an annual day of reckoning in a village to record all transactions and cancel out mutual debts, societies that work on the basis of trust work most effectively when favours are not reciprocal, when debts do not exactly cancel each other out, for then each member of the community remains obliged to all others to offer further favours. We owe almost everything we are to others, but it is difficult to imagine what it might mean to pay back our parents or become square with humanity.
The key point in this new paradigm is that the supply of credit is rationed, and credit determines economic activity. The distribution of credit is a matter of planned allocation, and thus a matter of justice. Faith in a vision of justice that guides human decisions, preferences, and allocations of resources is actually a theology. If our conceptions of justice depend on money, and money depends on credit, credit itself depends on theology, a vision of justice, a faith in something beyond material self-interest. Unfortunately, actually existing theology has little to say on how we should distribute credit to each other in the present. The fundamental question of justice is one of credit: to whom should credit be issued, and by whom? For if all the wealth that passes through our hands has largely been created by the contributions of others, whether living or dead, if we owe all that we are to what others have made possible for us, and if we are our sum of relations with others, then there is no justice in thinking of our resources in terms of private property or individual contract or monetary value. Justice is a matter of giving credit where credit is due, and credit may be invested most fruitfully where it enhances the conditions for confidence: stability, resilience, utilisation of potential, inclusion, integrity, flexibility and public perceptions of fairness.