Is Lack of Morality an Explanation for the Economic and Financial Crisis? A Catholic Point of View

Klára Katona

doi:10.1007/s11294-020-09809-w

Abstract

Before 2008, several studies provided empirical evidence of a positive correlation between the functions of financial intermediation and economic growth. In 2008, the financial crisis shook trust in this correlation. Several studies found that comprehensive and fundamental changes were needed in the entire financial market. Attention focused on the role of morality as an essential and integral element of the economy, arguing that without a moral attitude at the individual and institutional levels, the whole system necessarily runs into crisis. Among the moral interpretations of the economy, which are concurrently based on philosophical tradition and religious doctrine, the Catholic Church has presented some of the most consistent and unified teachings related to such questions over time, but the effect on economic thinking is less than what relevance and other merits justify. Catholic social teaching suggests morality and the economy are inseparable and highlights the moral interpretation of economic discrepancies. By analyzing theoretical and empirical evidence, this paper assesses the economic validity and legitimacy of Catholic thought about the immanent role of ethics in the economy and the financial crisis.

Highlights

Before the 2008 financial crisis, relevant background literature supported a strong connection between the functions of financial intermediation and economic growth
This study is novel in its ability to reveal that Catholic social teaching (CST) is part of the moral philosophy and suggests valid explanations and solutions for dysfunctions in and reasons for the financial crisis. The paper highlights those principles of CST which argue for the role of morality in economics, and tries to demonstrate the economic validity and legitimacy of Catholic thought by analyzing theoretical and empirical evidence of economic discourse on the driving force of the economy and possible reasons for the crisis
The 2008 financial crisis shook the trust in the correlation between the financial system and economic growth fundamentally

Summary

Introduction

Before the 2008 financial crisis, relevant background literature supported a strong connection between the functions of financial intermediation and economic growth. Contrary to the morally neutral interpretation of the economy in mainstream literature, this study supports an opposing economic viewpoint and tries to theoretically and empirically explain the ethical concerns of economics from the special perspective of the Catholic Church. This study is novel in its ability to reveal that CST is part of the moral philosophy and suggests valid explanations and solutions for dysfunctions in and reasons for the financial crisis The paper highlights those principles of CST which argue for the role of morality in economics, and tries to demonstrate the economic validity and legitimacy of Catholic thought by analyzing theoretical and empirical evidence of economic discourse on the driving force of the economy and possible reasons for the crisis

Role of Homo Oeconomicus and the Invisible Hand in CST

Financial Crisis Therapies Using CST Principles

Findings

Conclusions