Good Money: Transcript of Lord Skidelsky's speech on 7th May 2013
by St Pauls Institute
Posted: 8 May 2013
A full recording of this event, including responses from panel members and audience questions, is available to view here.]
Good Money - St Paul's Cathedral
7 May 2013
Although I am not preaching a sermon, years of compulsory chapel at school bred in me the belief that an address in a church always has to start with a text.
I want to take as my text for this evening a passage from Keynes's Economic Possibilities for our Grandchildren, in which he distinguished between 'the love of money as a possession' and 'the love of money as a means to the enjoyments and realities of life'.
This is an important and valid distinction. It is not money itself, but 'love of money' which, according to the Bible, is the root of all evil. Money is simply a servant of our wants. It is the wants themselves which need scrutiny.
And yet...Philosophers and religious leaders have always been troubled by money which is the most trivial and yet the most potent of things. Money itself is almost completely useless. You can't eat it, or wear it, or make love to it.
But it has always exercised a strange power and fascination. Aristotle, the earliest of our philosophers of money, set out to arm us against it. Money, he said, was sterile. Unlike animals, plants, and humans it could not 'breed'. Therefore it was unnatural to try to breed money from money.
That is why Aristotle condemned usury, or charging interest for the loan of money. The Koran and the Vedic texts of India agreed. The Koran said that to make money from money was as unnatural as sleeping with one's mother. Usury - charging for the use of money - was made legal in England only in 1545. Shakespeare's The Merchant of Venice was all about the morality of charging interest on loans.
Modern banking has carried usury to new heights. Not only do banks make money by charging for the use of money. They charge for the use of money they themselves create. This is money breeding money with a vengeance.
Today there is a widespread feeling that the servant has become the Master, and a Frankenstein's Monster as well. We serve money rather than money serving us; our interests and our passions are shaped by money.
Why is this? In the book, How Much is Enough? The Love of Money and the Case for the Good Life, my son and co-author Edward and I trace the ascent of money back to human insatiability. We want more stuff, not because we need it, but because others have it, or it makes us feel superior to others. And in order to get more and more stuff, we need more and more money.
The idea of money as the servant of our wants survives in the modern notion of financial services. But of course the fact is that money not only serves our wants it breeds them. As Gibbon shrewdly noted, without the 'incitement' given by money to the 'powers and passions of human nature', societies could scarcely have emerged 'from the grossest barbarism'. Gibbon is surely not just talking about the development of credit facilities. He is talking about a greed for money as such.
In fact you could argue that the demand for money is primary, the demand for consumption goods secondary. The basic desire is to have money: you can't show others you have money unless you can display your riches.
The hunger for money was so extreme in the case of King Midas that he asked the god Dionysus to grant him the power to turn everything he touched into gold. The conquistadores searched Amazonia for three centuries for El Dorado, the city of gold. And we are all familiar with the constipated character of Shylock counting his hoards of ducats.
These stories raise the interesting question of why gold become money? The economist has his explanations: it was the scarcity, divisibility, durability of gold that made it an ideal money. It was also the most useless of the metals, too soft for industrial purposes.
Others point to the symbolic power of gold. The accursed hunger for gold - auri sacra fames - has been the subject of deep Freudian analysis which it would be indelicate to repeat in church: suffice to say that Keynes looked forward to a time when the 'love of money' as such would be recognised 'as a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological diseases which one hands over with a shudder to the specialists in mental disease'.
Our civilisation has rather gone in the opposite direction. Money has become the measure of almost everything. For example, leisure time is seen as costly because every extra hour enjoyed chatting to one's friends is an hour less for earning money. We increasingly think of activities not devoted to money making as carrying an 'opportunity cost' in terms of money foregone.
This monetisation of economic life blurs the distinction between money as a means and money as an end. To paraphrase Marx, we increasingly think of goods in terms of their money value rather than their use value. Houses are no longer places to shelter, but an investment for the future. Art is no longer to be enjoyed, but something to sell on.
Keynes hits the nail on the head when he writes:
"The...test of money measurement constantly tends to widen the area where we weigh concrete goods against abstract money. Our imaginations are too weak for the choice, abstract money outweighs them."
His conclusion: "We want to diminish, rather than increase, the area of monetary comparisons."
Schopenhauer had the same thought when he wrote that money is 'human happiness in the abstract'. The abstract passion for money replaces the concrete desire for things. Money may be what makes wealth grow, but it perverts the object of creating wealth which is to increase the enjoyment of life. The means come to be valued above the end.
This has at least one perverse consequence: we know from survey data that growth of GDP - the money value of all the goods and services an economy produces in a year - does not - above a low level - increase the sum of human happiness. So should we still be fixated on it?
What I have just been saying about money gives one a handle for thinking about the role of the City in our economy.
Let me give you just one statistic. In the years leading up to the crisis bank loans to the real economy increased by 50% while they grew by 260% to the financial sector. In other words, banks were increasingly lending to themselves, a good example of money breeding money.
Again the economist gives his usual neutral account of the function of the banking system in an economy. The banks provide a payments system, they allocate capital, they manage personal finances, and they manage risk. In return for providing these services, they get paid -in salaries, interest, commissions, bonuses, and so on
There are two main charges brought against the bankers. The first is that they get paid too much for the services they provide. This is what Adair Turner, former chairman of the FSA, said in an interview in Prospect on 27 August 2009:
"[The] public [are] concern[ed] about the overall level of pay in a financial sector which...has swollen beyond its socially useful size and seems to make excessively large profits."
When faced with the possibility that a factor of production gets paid more than it would be in a perfectly competitive market, the economist naturally seeks his explanation in elements of market failure: for example, absence of competition, asymmetry of information between the seller and buyer, perverse incentives, and so on. Much of the current drive to regulate banking practices aims at reducing these sources of market failure.
Some reformers advocate caps on bonuses.
A second charge is that banks are actually inefficient at allocating capital. They lend too much money to each other rather than for investment. That's why we have these periodic financial collapses. What is called 'macro-prudential regulation' by the Bank of England is aimed at mitigating this inefficiency, by ensuring adequate capital to lending ratios.
These reforms are all aimed at improving the efficiency of the financial services in meeting human wants. But they do not address the question of the moral quality of the wants. In particular they do nothing to stop the increasing monetisation of the economy.
By good money I take it we mean not just honest or efficient money but money directed to the achievement of the good life.
In our book, Edward and I list seven essential elements of the good life: health, security, personality, respect, friendship, harmony with nature, and leisure.
We think of these as being objective conditions of human flourishing. Money cannot be good unless it is directed towards good ends. We may all agree that a financial system which is completely honest and efficient in satisfying the demand for pornography is producing bad money, but we are unable to agree what good money is, and prefer to leave it to advertisers to shape human preferences.
To go back to my starting text: the worship of money as a possession rather than as a means to the 'enjoyments and realities of life' is bad.
The challenge is, as it was in Keynes's day, to create a social system which is efficient economically and morally.
Canon Peter Dominy - Posted: 8 May 2013
The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.