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December 22, 2008

The Morality of Money

By Spear's

Is there such a thing as spending money in a moral way, wonders William Cash, as the Archbishop of Canterbury starts doling out advice to the Chancellor

Is there such a thing as spending money in a moral way, wonders William Cash, as the Archbishop of Canterbury starts doling out advice to the Chancellor

I’ve just had an email from David Cameron (I am on his vast weekly mailing list) on the subject of how we should be encouraged by the government today to make money in a ‘moral way’. He says that the Government should waste no time in introducing a National Loan Guarantee Scheme that underwrites £50 billion of funds made available to small business in the UK.

The ‘M’ word is used twice in his email, first in the following sentence: ‘We recognise that they [small businesses] make a difference by not just creating wealth, offering employment, and paying taxes to fund public services but by making their money in a moral way, treating their employees right, strengthening communities and playing a positive role in society’.

And then a few sentences later he is writing again that the government should lead by being ‘prudent with the public finances’ and by being ‘moral and responsible’ with the public purse’ as we expect business to be with consumers’ cash.

Cameron seems to be making a similar point here as Rowan Williams, the Archbishop of Canterbury, who lambasted the Prime Minister on The Today programme this week, saying that his reckless, gambler’s attitude towards public spending was like ‘the addict returning to the drug’.

Williams also seemed to encourage people to ignore Brown’s remedy of spending their way out of the recession – as if one had some patriotic duty to max out one’s credit card this Christmas. He added that he thought it might be a good idea if people – instead of splurging out on luxury goods or the latest computer games – spent money this Christmas in a ‘good, human way’ – i.e. a moral way.

But is there such a thing as spending money in a moral way? And is it the job of the Archbishop of Canterbury to be meddling in our shopping habits as well as giving economic advice to the Prime Minister who presided over so many years of economic growth as the Iron Fisted Chancellor who declared boom and bust dead.

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The answer is that in the absence of any sense of moral leadership or responsibility when it comes to spending from the government, Williams is surely right to step forward and remind people of the dangers of the unsustainability of any economic system that is fuelled on debt.

The Archbishop of Canterbury and David Cameron might not seem to have a lot in common but they are both perfectly right to make the point that Britain cannot survive as an economy if it is overdependent – co–dependent to use the addict’s analogy – on property and financial services as the means to growth.

Both sectors are going to face real difficulties in 2009 with repossessions in the UK now rising to 200 a day and prices already down approx 25% from the market peak of August 2007. Williams said that the country was ‘going in the wrong direction’ by relying on ‘financial speculation to generate wealth rather than ‘making things’. This is another point that Cameron has recently made.

This week, figures revealed that public borrowing rocketed to £16 billion in November, a new record – worse than that of the deficit crisis of the mid 1990s. Like a spending addict who has just got their hands on a new credit card with no spending limit, Brown and Darling have lost fiscal control.

It is impossible for the maths to add up – they cannot continue the high levels of public spending, as well as put more money in consumer pockets and hope that the public will go out and recklessly spend again. The opposite is actually true – now is the time when people are starting to feel the effects of their financial hangover and debt splurge.

Debt has certainly been allowed to spiral out of control in the UK. The Bank of England’s latest report, Lending to Individuals, reports that the public now owe £1.457 trillion – £1.219 trillion of that being tied up in our homes, which are plummeting in value.

As Henry Kissinger has baldly stated in the Economist’s The World in 2009, the root of the problem has been a combination of a lack of restraint, coupled with lack of regulation, and a mounting lack of transparency. This fuelled growth but also the dangerous illusion that an economic system can sustain debt indefinitely.

The truth is that such profligate spending can only be sustained – much like returns paid out by Bernard Madoff’s $50 billion fraudulent Ponzi scheme – so long as the rest of the world is conspiratorial in retaining confidence in such economic prescriptions.

Kissinger has stated that this period is now well and truly over – and the hangover has begun. ‘Any economic system in a market economy will have winners and losers. If the gap becomes too great, the losers will reorganise themselves to rescue the existing system’ – surely this will happen now with a reassessment of our values, in particular our addiction to the cult of money and consumerism.

Behind this has been the need for the financial classes and a new growing middle class to buy the toys of success which people thing are the trophies of wealth that they are entitled to in a boom economy. Most hedgies’ wives hate their husbands for enslaving their lives to the pursuit of money – as if money is the only way of keeping score.

This is going to change. No longer will you meet somebody in the morning and greet them saying, ‘The Hang Seng was down’ or ‘the Dow Jones was up last night’. Nobody really understood any of it but the fact they could quote a few numbers made them feel a part of the greatest gold fever bubble in history – mostly fuelled by leverage and debt.

Labour is simply going for a ‘quick fix’ hair of the dog remedy (or a cheap pre–election bribe before the economy really starts to develop into a full blown recession) to the nation’s economic woes, effectively trying to bribe consumers back to the shops in order to find a way to pay for the black hole that is being created in the public finances with the reduction in VAT and the scary figures that have emerged about the scale of public debt.

Whilst countries like Germany restored some fiscal order to their country during the boom years, Britain always stayed in the red even when the economy was doing well. The downturn of 2008 has shattered Labour’s record on tax and spend.

But the real problem is that for the last ten or fifteen years we have lived in a consumer obsessed society that has lost touch with our parents’ sense of what things are worth. At least our parents knew where they stood in the world with their finances. Their homes were not bought to be flipped and sold as a form of financial speculation. They were places to live.

As Clive Aslet has argued in the current issue of Spear’s, the credit crunch might be bruising for those that have overspent money they didn’t have but in the scheme of things it is important to remember this Christmas that the credit crunch hardly compares to fighting through two world wars, seeing our empire being ground into the dust and then taxed to death in the 1970s with a three day week, blackouts and the country on its knees.

I brought up the ‘M’ word at the beginning of this piece as it is key to understanding the root cause of much of the problem with Britain’s financial classes who have profited so much from the decade long golden era of finance in London – making London the new financial capital of the world (a title it is in great danger of now losing).

The recent financial renaissance in the UK – with London being dubbed Switzerland–on–Thames – has been fuelled by the American notion that money is a moral good. That the pursuit of money – in particular financial speculation – is synonymous with the pursuit of happiness. At Spear’s, we have long argued that Europeans have never regarded money as a moral good and that our values are much the better for such scepticism.

I have no problem at all with Archbishop of Canterbury turning into an economist – he’s there to provide moral leadership – or telling people how to spend their cash. At least he is not suggesting that people get even more into debt – or the country for that matter – in order to stimulate an economy that has become both financially and morally bankrupted. Spending to get out of debt is a form of madness that will punish future generations and will further drive a wedge between rich and poor in the UK.

Part of the problem has been the media who – because, like the public, mostly don’t understand complicated financial instruments like hedge funds or credit swaps or short selling – have fuelled the myth that the financial classes, in particular the hedge fund brigade, are secretive Wizards of Oz whose superior brains and intelligence allowed them to strut their egos on the global stage as the new breed of Masters of the Universe, those who raised entitlement to an art form.

The media helped shroud the hedge fund and private equity sectors in a cloak of secrecy. Little did they realise, as shown by the Madoff scandal, that these so called financial experts actually knew next to nothing about what they were doing. When the tide went out, they were exposed naked – as Warren Buffet likes to say.

Far from being the financial rock stars as they are portrayed in Rich Lists and newspapers, they are really just oily salesmen making a mint (typically one to two per cent) from just sending money from point A to point B and charging a hefty commission for doing so. Far from really being any sort of Master of the Universe, Britain’s financial classes are really just the financial waiters of the world – fee receiving servants who have gone off with the family silver from right under their rich clients’ noses.

Of course, Williams is very far from being the first priest or philosopher or politician to point out that what Brown is doing amounts to a moral failing on behalf of the government – namely in spending money that the country doesn’t have, Brown is putting at risk the future well being and prosperity of future generations who will have to pay higher taxes and will inherit a bankrupted country with limited opportunity for growth.

In his seminal 1970s book, A Theory of Justice, Harvard philosopher John Rawls argued that it was not only immoral but it was unjust for governments to spend their country’s inheritance and that a social contract existed between governments and citizens whereby governments had a moral duty not to gamble away a country’s finances or resources as the money wasn’t actually theirs to gamble away – it belonged to the taxpayer. Brown and Darling, take note.

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