A Moral Economy

A little more than eight years ago today, the world was on the brink of utter collapse. While many of us were adjusting to a new school year, our parents, teachers, neighbors, and everyone else were overwhelmed with anxiety as they saw markets tumble. Despite the government’s attempts to remedy anxiety arising from the crash, the U.S. economy has had a sluggish recovery and its people and businesses are in enormous debt. In short, the 2008 financial crash radically changed our economic system; it looms over us as a foreboding warning of dangers of our economy.

The 2008 crash came as a surprise; mainstream economists believed that the current system was stable and could provide unseen prosperity. In fact, they not only failed to predict the crash but have also been unable to create models to explain it. This inability shows that our economic system is fundamentally flawed. Specifically, our system focuses not on providing for the welfare of the people but on generating wealth through primarily financial ways. By analyzing the flaws that caused the 2008 crash, we can construct an economic system that does not exist solely to create wealth but rather to uplift others and help everyone live meaningful lives.

First, our economy is based on the idea that humans, institutions, and corporations are self-interested entities concerned with the maximization of their pleasure and the value of their shareholders. Therefore, economic transactions are thought of as joint meetings of two entirely separate individual interests.

Due to this self-interested view of human nature, our economic system reduces goods to their material significance to ensure the vast creation of wealth. I have lived in a house for the past four years. Over that time, I have formed countless memories with my neighbors and family. I am unable to separate material shelter and emotional significance when I think about my home. However, this separation is exactly what our economic system does. In the case of a house or land, it severs symbolic significance and only considers certain material aspects in valuing the property, commodifying goods into fungible assets.

This reduction allows bankers to construct a speculative and interconnected financial system. Consider a market for coffee beans with a going price of $10 per pound. Suppose I want to be able to buy 100 pounds of coffee for $11 two months from now. I would draw up a contract, called a derivative, with a farmer for the right to buy those coffee beans, and the contract would cost me an upfront premium. If in two months the price goes up to $15, I can sell the contract for a profit. In this process, no goods and services were moved and I didn’t care about the actual coffee beans, but capital was still generated. This example with coffee beans, which can be loosely applied to housing, shows how modern capitalism creates wealth not by trade or increasing production, but from other wealth. As a result, the wealth generated is disconnected from real world value.

Moreover, this system privileges financial institutions and banks over the people they serve. In regards to housing, banks exploit the need of the socio-economically disempowered for security by offering them loans at high interest rates. Consider Chicago resident Ida Mae Whitley, whose story is told in The Washington Post. At 62, she wanted to buy a nice house to retire in and so she was seduced by banks to take a high interest loan. Ultimately, she was put at risk to lose her home and lower her credit score because she couldn’t meet her monthly payments, hindering her ability to get more loans. Therefore, the financial system does not trickle down wealth but rather accumulates it at the top. The poor go further into debt and spend their spare money to pay down already lucrative borrowers, who use it to generate more wealth through capital gains.

No wonder the bottom 80 percent of Americans have only seven percent of the United States’s wealth. Despite this problem, proponents of capitalism suggest that the current system, which seeks wealth first, is the best possible way to lift people out of poverty and provide for their basic needs. At worst, the socially and economically disempowered, left behind by our economic system, are given welfare in the hope that the pocket change they receive can make up for the emotional damage that comes with being out of work and being unable to reintegrate into the workforce.

If we are to change our economic system, we must base it on a fundamentally different view of human nature. In line with the moral framework I proposed in “The Good Life,” I forward that the economy is not an end in itself but rather a means to an end, which is to help humans live virtuous lives. Therefore, economic transactions should be a reciprocal agreement about a shared goal of uplifting others between the parties.

Under this model, corporations have a social responsibility to their community and employees. This responsibility would take the form of a legal requirement that each company have a mission statement of long-term economic and social benefit to its community. A contemporary example of this is the British grocery retailer Tesco. The company cut the sugar content of all of its U.K. soft drinks by 20 percent from 2011 to 2016. The company is also a founder member of the World Cocoa Foundation and World Banana Forum, which exist to raise labor standards. With companies like Tesco, investors should be long-term holders who are committed to the company’s mission, instead of short-term shareholders who solely invest for profit.

Moreover, this model ties the lending of money to material investment: for instance, by viewing debt in more relational terms in which profit and risk are shared by the lender and borrower. That is, borrowers would be stakeholders in the enterprises they invest in. One way of accomplishing this is to convert debt, which raises money by borrowing it and then repaying it, into equity, which raises money by selling portions of an asset. For example, if a family wants to buy a house, they take out a loan with a certain amount of interest from the bank, requiring them to pay back a portion every month. An equity-based model would have the family take out a mortgage in which the banks become part-owners. Every month the family would pay the bank a small rental fee to live in the property and then periodically buy part of the house owned by the bank. The bank now has a stake in the family’s well-being and the well-being of the community because its success is tied directly the community’s success. Moreover, the family has a lower risk of personal bankruptcy and repossession, which is economically costly and socially traumatic. Similar programs can be extended into consumer loans and commercial real estate.

We should also encourage the use of credit unions, which are banks in which the depositors are members and owners. First, since the members are owners, the bank is tied to the community, giving it a higher chance of investing in beneficial entreprises. Second, credit unions provide competitive interest rates and a broad range or loans and savings programs. Providing tax breaks and privileged access to credit to these banks would further encourage a system which prioritizes saving over debt-financing and fosters civil enterprises for the good of the community.

Furthermore, we need to prevent growing wealth inequality by encouraging a better distribution of capital between firms and employees. This includes encouraging employee stock ownership plans, which provide a layer of security and strengthen the bond between employee and employer. Second, this model means instituting a living wage at the national level and creating a system to negotiate family wages in varying locations. Workers would be less likely to go into debt to finance expenditures, which increases consumer spending and in turn tax revenues. These revenues can be used to lower income taxes across the board and provide tax benefits for small businesses.

Finally, higher wages and the wider distribution of capital should be complemented with a holistic education system that professionalizes the labor force. This can be accomplished through creating pathways of learning that fuse class-learning with vocational training for professions. Moreover, providing apprenticeships for various fields can create high-skilled and adaptable workers. Germany has a system similar to this model, in which apprenticeships are split between class instruction and training. For example, salesmen learn retail trade and management, construction workers learn civil engineering, and truck drivers learn logistics. In this way, workers have professionalized skills which are also adaptable to a wide range of careers.

The idea is that the goal of the economy is to serve society by strengthening social bonds, generating trust, and provide meaningful work. This is not to completely disavow the market system; rather, a moral society needs a moral economy that teaches us not to make money at the expense of others but rather teaches us to love, trust, care, and respect each other.