Investment and the Common Good

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It is now twenty years since the publication of Centesimus Annus, yet only halting steps have been made towards an adequate reception of it. In his concluding remarks to that great encyclical, the Holy Father warned that the Church’s social teaching was no mere theory, “but above all else a basis and a motivation for action.” For two decades, however, discussions about the encyclical have remained largely theoretical. Did Blessed John Paul II baptize the free market in Centesimus? Should the encyclical be seen as evidence of his economic liberalism? Questions such as these are interesting, and per- haps even pressing, but they do not cut the document at the joints. When speaking to the West, the Holy Father admonished us to change our habits of consumerism and to seek the authentic human good through concrete actions. He even told us that this “may mean making important changes in established life-styles”.

How ought we to change the way we live? Here John Paul II was his own best commentator, refining and extending his message in documents such as Evangelium Vitae,   Dies Domini, and Ecclesia in America. Yet there is still more need for inquiry, discussion, and action. In particular, one area of the Holy Father’s concern that has received scant attention is the uncomfortable issue of investment. When it comes to our stock portfolios, we are all too ready to join the chorus of Mater si, Magistra no.

The financial world of the twenty-first century is daunting in its complexity. Since abandoning the gold standard in the last century, wealth, or rather money, has taken seemingly limitless forms. Amidst such confusion, how are we to evaluate the moral integrity of our investments? While the application may be difficult, the relevant principles are clear enough. The object of this essay is to explore these truths. In the end, they reduce to the two premises of a syllogism. “Nothing stands firm”, St. Thomas teaches us, “with regard to the practical reason, unless it be directed to the last end which is the common good.”  “The decision to invest in one place rather than another,” adds the Holy Father, “is always a moral and cultural choice”.  From these two premises it follows that if we wish our investments to “stand firm”, that is, to be morally defensible, they must be directed to the common good. Let us take up the two premises in order before exploring the consequences of the conclusion.

The phrase “common good” is often used, but little understood. Moreover, it points to a subject of great theological depth,

for in the last analysis the common good is God. Still, for our present concern, the Catholic tradition is sufficiently plain. We should first notice that the common good spoken of by St. Thomas as the foundation of our moral life extends beyond the material or economic plain. Indeed, any adequate understanding of the common good assigns wealth a minor role within the goods shared and sought by men as their end. Above and beyond wealth are health, the moral virtues,  friendship,  the  speculative  and  theological virtues, and finally, God. The more truly human is the good, the more important a part of the common good it is. Consider John Paul II: “It is not wrong to want to live better; what is wrong is a style of life which is presumed to be better when it is directed towards ‘having’ rather than ‘being,’ and which wants to have more, not in order to be more but in order to spend life in enjoyment as an end in itself.” This distinction between having and being mirrors the distinction, as old as Socrates, between goods external to man and goods proper to or within man. The latter, the goods of being, are better than the former, the goods of having. They can also be more perfectly shared, which is what makes them more important parts of the common good. Houses and cars, shoes and wine can only be shared imperfectly, but, as Leo XIII affirmed, “virtue is the common inheritance of man, attainable equally by the humblest and by the mightiest, by the rich and the poor.”

St. Thomas speaks of the common good as the “common happiness” and “the common good of justice and peace”.  Yet happiness is an activity of the soul in accordance with virtue, so the common good must be the virtuous activity of the community. Justice involves giving men what they are owed, that is, the respect for their dignity as rational creatures, and peace is the tranquility of order, so the common good must involve a kind of order in which society attempts to put first what is owed to man in his dignity as a ration- al creature. Thus John Paul II says of human rights that “the source and synthesis of these rights is religious freedom, understood as the right to live in the truth of one’s faith and in conformity with one’s transcendent dignity as a person.”

How then are we to take St. Thomas’s teaching that “nothing stands firm with regard to the practical reason, unless it be directed to the last end which is the common good”? In general, the answer is that each one of our choices must be able to be referred to the common good, rightly understood, as its last end. We must be able to intend the material, physical, moral, and spiritual well- being of our neighbor in each of our concrete decisions. How is such a doctrine to be applied to investment?

To answer this question, we must first determine the nature of investment and ask whether it is a good thing at all. Investment is the provision of capital, that is, the resources required by human labor in order more effectively to provide for our material needs. When we invest, we transform our excess wealth into capital. This kind of productive savings is in itself a necessary part of human material progress. In the twelfth century, a period of tremendous material advancement, investment took the form of using extra resources to clear new land for the plow or to build a larger barn or walled garden.  In our day, investment generally involves sending our extra wealth to a joint-stock corporation, which recognizes our ownership of its capital in the form of shares of stock. In so far as our investments provide more capital, they are a good thing, as Leo XIII indicated in Rerum Novarum: “Each needs the other complete- ly: neither capital can do without labor, nor labor without capital.”

John Paul II seems to have been even more confident that this kind of investment is good, speaking repeatedly of the importance of providing the means, the capital, that will allow people to “take their place in an effective and humanly dignified way within a productive system in which work is truly central.” He even spoke of the role of “initiative and entrepreneurial ability” in our present economy as a development that “should be viewed carefully and favourably.”

With these principles in mind and Centesimus Annus before us, a positive doctrine of investment may be affirmed. When we decide to  invest our extra wealth in productive capital rather than consuming it for our own enjoyment, we provide opportunities for our fellow men to develop their talents and virtues through their work. The stock market, therefore, is the means by which individuals may easily and effectively transform their extra wealth into productive capital. The profit that follows from such investments is a legitimate effect of our initial decision to dedicate our wealth to the advancement of society. Let us go still further in our praise of investment. Americans are notoriously guilty of spending their money on fleeting pleasures and vain amusements that contribute little or nothing to the long-term advancement of our society. Were we to consume less and invest more, we would arguably be improving our moral lives by acting more with an eye to the common good and less to our private pleasures. We would, of course, improve our moral lives still more by giving alms to the poor or exercising the virtue of liberality by giving the gift of hospitality to our family and friends. Yet it remains true that investment has a more positive character than mere personal consumption.

It remains for us to consider the obvious abuses that damage and even cripple our investment decisions, and which, in the long run, prevent our investments from contributing to what Benedict XVI has called “integral human development” (Caritas et Veritate). These abuses fall into two broad categories: the improper use of the stock market and the poor choice of investments.

As to the first, the Holy Father has set out the principle on the basis of which it may be understood: “Ownership of the means of production, whether in industry or agriculture, is just and legitimate if it serves useful work. It becomes illegitimate, however, when it is not utilized or when it serves to impede the work of others, in an effort to gain a profit which is not the result of the overall expansion of work and the wealth of society, but rather is the result of curbing them or of illicit exploitation, speculation or the breaking of the solidarity among working people.”12 Since to own shares of a joint-stock corporation is  to  own  the  means  of  production,  it should not be doubted that this paragraph is meant to lead us to an examination of conscience. The passage clearly points to the abuse of seeking profits through means other than those which promote human development. Our most common failing in this regard, it seems, is to treat the stock market as a glorified casino. When we use the stock market to gain profits primarily through the clever manipulation of money we are committing the abuse of speculation. Since the purpose of the stock market is to allow private individuals to contribute to the accumulation of capital and through that to the development of society, speculation is an abuse. The various financial scandals and crises of the past decades surely suggest that many investors habitually abuse the stock market. What is badly needed at this point is serious moral reflection upon the common business practices used in the financial services industry in order to determine whether certain forms of investment are deserving of the name.

The second abuse concerns our discrete choices to invest in this corporation or that one. Let us recall the Holy Father’s principle: “The decision to invest in one place rather than another is always a moral and cultural choice.” What he has in mind here is the “necessity to create life-styles in which the quest for truth, beauty, goodness and communion with others for the sake of common growth are the factors which determine consumer choices, savings and investments.”14   In other words, our decision to invest here rather than there should be made with an eye to the common good, rightly understood. We should pick our investments not simply with a view to profit, but also with respect to the concerns laid out by John Paul II: the good of the employees of the firms in which our investments make us part-owners, the problem of “consumer attitudes and life-styles . . . which are objectively improper”, the “ecological question”, and the “moral conditions for an authentic ‘human ecology’”.  In Evangelium Vitae, Blessed John Paul II repeated these same points, with still more insistence: “In a word, we can say that the cultural change  which  we  are  calling  for  demands  from  everyone  the courage to adopt a new  life-style, consisting in making practical choices—at the personal, family, social and international level—on the basis of a correct scale of values: the primacy of being over having, of the person over things.” Can it be doubted that this change in our practical choices is to include our investment decisions?

It remains to examine a few practical consequences of Blessed John Paul II’s teaching. With respect to our way of investing, we should first change our view of the stock market. It should not be seen as a slot machine or an impersonal and mechanical source of profits. Rather, we should consider the market’s authentic purpose, which is to allow individuals to serve the legitimate need of society for productive capital. If we see our investments as a service to society by putting our extra resources in the hands of those best suited to make them most productive, then, it seems, we would be more likely to think of investment as a long-term partnership with particular corporations instead of short-term gambling. Moreover, we might begin to look with skepticism at the majority of mutual funds. The purpose of these funds is to take investment decisions out of our hands and put them in the hands of professionals. Yet if we thus abdicate our duty to pursue the common good, we have failed gravely in our fundamental responsibilities. If we are to use mutual funds, we should choose those managed in conformity with the proper understanding of investment.

Finally, with respect to the choice of our particular investments, it is certain that we need to exercise more study and care than before. The Holy Father insists that these decisions are moral and cultural choices. He also calls us to work to rebuild the culture of life, which is to say to rebuild the common good of our society. It seems evident that we ought not choose to become an owner of a business whose activities destroy the culture of life. Many Catholic investors, therefore, already scrupulously avoid investing in corporations that produce pornography and abortifacient birth-control devices. Still more restraint and discernment is called for. It is possible to invest in corporations that make an adequate profit by fulfilling authentic human needs while treating their employees well and acting as good stewards of Creation. It is an honorable task to discover these companies and, by investing in them, to join them in their work.

 

The article was originally published in the September/October 2011 edition of StAR (The St. Austin Review)

 

Christopher O. Blum

By

Christopher O. Blum is Professor of History & Philosophy and Academic Dean of the Augustine Institute. He is the editor and translator of St. Francis de Sales' The Sign of the Cross: The Fifteen Most Powerful Words in the English Language (Sophia Press).

  • Vishal Mehra

    A very good and welcome article. But the stock-market divorces ownership and responsibility. And as a point of ownership is responsibility, it turns out that the economy dominated by giant corporations that are effectively owner less is not what should be  meant by Private Property. It is rather Anonymous Property that we as stock owners have.

    Thus how much the virtues of Private Property are retained in the modern capitalist system needs to be examined.

    • MarkRutledge

      I disagree with your assertion that the stock market divorces ownership from responsibility.  We all have free will, and owning stock does not change that.

      • Cord_Hamrick

         Mark:

        I think he means that because one’s liability for the actions of a corporation is limited to the amount of your investment, you could knowingly invest in a corporation which hopes to make money through an immoral scheme which, if done by a sole proprietor, would expose the owner to damages and penalties through civil litigation but which cannot likewise imperil the investor, since his liability is limited. One is an owner without having responsibility for the running of the company and its behavior.

        • Vishal Mehra

          Thanks Cord but I mean even more.
          Suppose a corporation with  ten shareholders. Their liabilities are limited but they would FEEL responsible.They would feel like owners. And the public too knows them and they know each other.

          But if I am just an investor along with millions other anonymous others, where is the sense of ownership?.

          A transient, anonymous stock-ownership is VERY different from what ownership is–a stable, public relation between a Property and its owners.

          I would claim that a stock-ownership, especially when mediated through agents such as mutual and pension funds does not necessarily deserve
          full privileges that Natural Law gives to Private Property.

    • Smeidlin

      Although the so called “large corportations” are a very easy target for Progressives to label as somehow being immoral, they do employ vast numbers of our employed who in turn get health insurance and many other benefits such as personal retirement plans.    

  • Vishal Mehra

    Also we need to make it explicit that the the corporation is not responsible to the stock owners only.
    And the final end of a business is not Profit.

    That is, a business must intend at common good. The common good may licitly be pursued by attending to the profits but the profit can not be the sole criterion of the good that the business does.

    If businesses pursue profits above all, the material standards might well increase but at the cost of civility and social cohersiveness of the City and that may not be profitable overall. 

    • MarkRuteledge

      I think you focus too much on the corporate entity and too little on the people.  A corporation will not exist long if it does not make a profit, and profitability itself is morally neutral.  Beyond that,  Mr. Blum addressed the considerations quite well.

      • Vishal Mehra

        The capitalist ideology presents Profit as the sole end of a business.

        Thus the social bonds, civility, and suchlike concerns are always supposed to be trumped by Profit.

        Pagans had a better understanding of the true end of human endeavor than the Capitalists.

        • JP

          But, without profits why invest in a business. One would be better off just giving the business the money as a form of chairity. But, you do hit upon a problem first addressed by Rousseau. Hatred of the Bourgeosie is nothing new. But, I should warn that it was the conservative critique of “liberal economics” that outlasted Marx’s critique. Finding defeciencies with capitalism from a cultural and religious perspective holds up longer than the Marxist or socialist critique. But, you will find few people willing to re-introduce the natural aristocrcy into civil society.

          • Michael Paterson-Seymour

            Montesquieu declared “Although equality of wealth is the very essence of the democratic state, it is, nevertheless, so
            difficult to establish that it is not always expedient to aim at extreme exactitude in this regard.  It suffices to reduce and fix the differences within certain limits, after which it will be
            the function of particular laws to equalize, so to speak, the remaining inequalities by the taxes that they impose on the rich and the relief they grant to the poor” [De l'esprit des lois,
            V.5]

            Did you know that Montesquieu was  was the most frequently quoted authority on government and politics in colonial pre-revolutionary British America, cited more by the American founders than any source except for the Bible [The Relative
            Influence of European Writers on Late Eighteenth-Century American Political Thought," Donald Lutz, American Political Science Review 78,1(March, 1984), 189-197.]

          • Vishal Mehra

             I suspect a lot of entrepreneurs are driven by a love of creation and not by money as such.

            • JP

              True. The orginal duo at Apple (Wozniak and Jobs) were good examples of that. However, thier operations were kept together more by sweat equity until they were able to go public in 1980.

              One of the problems when looking at a portfolio is subjectivity. Investors demand that a business and or market behave rationally. It is one thing to judge a firm by its P/E, market cap, corporate debt, or market share; it’s quite another to look at whether it is looking to reduce its carbon foot print, its diversity program, or whether it “gives back”. The ultimate question is whether you wish to invest in a profitable company. And there are many questionable firms out there that know how to play the game. GE didn’t pay a nickle on its $14 billion profits in 2011.  But GE prides itself on being a “Green Company”, its diverse workforce, and its urban outreach.

              • Vishal Mehra

                We need to define Goodness for an entrepreneur.

                The entrepreneur is a Patriot. Loving his country, he is possessed by a vision of greater perfection of the country. So the entrepreneur is naturally oriented to the country and not to the individuals primarily .

    • JP

      The CEO answers to 2 entities: the shareholders (it is thier money that is being risked, after-all), and the Law. Everything else is just nonsense. Perhaps the “common good” would be willing to cover potentials losses. Until then, the point is moot.

      • Vishal Mehra

        By Law, do you mean Positive Law or Natural (Moral) Law?

        I work from the axiom that an action within a City is good if it is intended for the Good of the City. This axiom shows that axioms other than those of Economics are available to us.

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  • JP

    This article underlies what is wrong with applied Catholic social teaching. Applied economics in the Enlightenment sense was intended to primairily driven by two things – 1)Reason and 2)Enlightened Self Interest. The Church traditionally had obvious problems with this, as Enlightenment Thinkers tried to square to circle; thier attempt to make personal vice (greed or self regard) into a public virtue presented all kinds of problems to Church theology. Secondly, modern (or as it was known,Liberal) economics was a truly secular endeavor. It diverted Man’s gaze from the Heavens (God) to the lowly pursuit of self improvement. Reason and Enlightented Self Interest (in the Modernist sense) are anethema to traditional Catholic teachings.

    JPII attempted to make peace with Enlightenment because he witnessed first hand the alternatives. The success of the United States and Great Britain in applying Enlightenment principals in the fields of economics was stunning. It appeared to those in Eastern Europe that perhaps Locke and Adam Smith were correct. The growth of Third World economies from 1980-2007 was simply unprecedented. JPII tried to meet Enlightenment philosophy half way. But, what does this all mean? Speculation and short trading are still boogeymen. One shouldn’t invest (like the old Day Traders) in order to pick up the Golden Crumbs (to use Tom Wolfe’s phrase) off the trading floors. Yet, if you ask any economist, short sellers serve a purpose; it was short sellers that brought to light the fraud of Enron, and the catastrophe of the Mortgage Derivative markets. And in 2003, it would appear investing in mortgage securities served Catholic goals – the funds provided capital to the deserving poor, the capital went right back into the “communities; and since mortgage securities were a worldwide financial instrument, they spread risk. A decade ago, mortgage securities (as they were advertised by portfolio managers) seemed like awin-win. In reality, mortgage securities were a giant ponzi scheme – the biggest in human history.

    Few people invest thier money directly into companies anymore. Most people haven’t a clue how to “play the game”. They rely upon highly credentialed funds managers to do this. IRAs, mutual funds, 401ks are the usual vehicle. And the stock market is a gambling pit. It is a very sophisticated form of gambling. And despite the sophisticated models and econometric processes applied to the trading programs that run much of the floor activity, there are 2 emotions that still form the foundatins of investments: fear and greed. Even the boring bond market isn’t quite so boring when you’re talking about trillions of dollars in international debt.

    I don’t know how this will all pan out. But, if we consider the vast amount of debt run up by the EU, the United States, and yes, China and India, I think we will all soon get a crash course in applied moral theology and moral economics.

  • Michael Paterson-Seymour

    St Thomas, following Aristotle, observes (ST II-II, q. 77, a.4) that “Trading, considered in itself has a certain baseness (turpitudinem), in that it does not imply, in its nature, an honourable or necessary end.”  However, unlike Aristotle, he qualifies this by insisting that “Nevertheless, it does not, by its nature, imply anything vicious or contrary to virtue; herefore, nothing prevents gain from being directed to some necessary or even honourable end and, thus, becoming lawful.”

    He thoroughly endorses Aristotle’s observation that “the desire for gain tends to infinity.”

    A salutary caution.

    • Vishal Mehra

      Ruskin too held that Trading is not honored since the trader does not risk his life, unlike a soldier or a doctor.

      But Traders serve very vital purpose. Without private grain trade, half of the world will starve in short order. They do risk their wealth.

      Was the ancient attitude towards Traders mere snobbery?

      • Michael Paterson-Seymour

        I do not think it is only a question of risking one’s life.  The end or purpose of soldiering is defence of the commonwealth, the aim or object of medicine is healing; in other words, they “imply, in their nature, an honourable or useful end.”  So, for that matter, does farming.  Now, trading does not; it may be directed to a good end, but there is nothing in the nature of buying and selling that implies that it will be.

        It was not only the ancients who were suspicious of commerce; during the French Revolution, Saint-Just declared, “Trade ill becomes the true citizen. T he hand of man was made only to till the soil and to bear arms” and it was to prevent anyone from debasing himself by practicing a trade that he wanted to distribute land to everyone.

  • Alecto

    This is very thought-provoking and addresses a needed topic.  However, both JPII and the author fail to understand the nature of speculation.  It is not an “abuse”, but rather a practice which provides liquidity in markets, a highly desirable thing, by assigning rational pricing to assets.  It is, in and of itself, neither good nor bad.  However, I guarantee those who seek to control every decision, every asset, every market and industry often castigate speculators incorrectly equating them with manipulators and portray them as criminals in order to usurp the orderly functioning of markets.  

  • http://twitter.com/joey89924 joey

    Let us go still further in our praise of investment.
    2SC1969

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