Home > Uncategorized > Is Our Economic System Moral?

Is Our Economic System Moral?

I have been thinking for some time about whether or not our economic system is moral or not. It is a matter which I am considering writing more comprehensively about, but thought that this post would be a way to get some thoughts out in the open, and hopefully receive some feedback. It seems to me this issue is an important one given our current economic crisis and the increasing opposition of portions of our population to our government’s economic policies and the policies of our central bank – The Federal Reserve. While I realize that this question also needs to be considered in light of alternative economic systems and forms of government, I won’t be considering those questions in this post due to time and length considerations.

It seems to me that a moral economic system would include the following:

  • Monetary System: Is money a store of value as some believe? Is it better to back a currency with some commodity or other instrument that society agree has value? Is money what government says it is? Is a fiat system like the one we have at present a good and moral system? Should our monetary system encourage, discourage or remain neutral as to whether individuals or institutions accumulate debt or not? Is the issuance of currency strictly a matter left to government as many assert under our Constitution? Should competing “currencies” or “stores of value” to the official currency be allowed?
  • Respect for the rule of law
  • The ability of individuals to accumulate and sell / transfer property with minimal government interference
  • Protection of property from unlawful seizure – including money (which is property) by the government (this would include matter ranging from imminent domain to the type of taxation on regulation regime that our economic system has in effect)
  • Interest rates: 
    • The first and most basic question is, should the charging of interest on loans be allowed?
    • If money is a store of real value, and interest rates reflect both that value and the risk of loss by the lender, should there be an upper or lower limit to the rate of interest charged – whether it be to individuals, businesses, between the FED and other banks, between banks, etc.?
    • How much disclosure and illustration, if any, should be required of companies lending money at interest to individuals?
    • How much responsibility does an individual have when accepting a loan at interest?
    • How much responsibility does the entity that extends a loan at interest have to ensure the loan can be repaid?
    • How easy or difficult should it be for an individual, business, or government at any level to refuse to repay a loan at interest which can never be repaid?
  • Transparency: Although this term is getting somewhat cliched, all players in an economic system need to have access to information in order to make decisions. If the system is opaque, then some individuals or institutions will have more access to information than others. While it is certain that some individuals, through research, education, background, etc. may acquire knowledge that others do not, that is distinct from an individual or institution receiving privileged information (inside information) because they are political patrons, etc.
  • Consumption: Is there such a thing as too much, or too little, consumption? Do we live in a Malthusian world of limited resources or do advances in technology allow us to effectively increase our resources? Some of this likely depends also on your view of religious cosmology.
  • Distribution of resources: This issue has long been one of intense debate and continues to be. Is there any obligation to ensure an “equitable” or “fair” (however defined) distribution of resources between individuals or nation-states? If there is, is this a matter best left to government, individuals, private institutions, quasi-government institutions, or some combination of any or all?
  • Opportunity / Mobility: What are the opportunities for an individual to advance within the economic system? Is there upward and / or downward economic mobility? How much, if any, buffer should be provided to shield individuals from downward mobility – job loss under any circumstance (ranging from changes in industry, individual decisions, natural disasters, etc.) ?
  • Saving: Saving is effected in part by interest rates, protection of property, consumption and other issues. Should savings be influenced by government policies? In our current monetary system savings on deposit with banks can be loaned out multiple times due to fractional reserve banking. Banks make these loans at interest. Should an individual or institution expect a certain return given the rate of interest that banks are able to charge for loans?
  • Taxation: Taxation is another longstanding source of controversy and debate. Taxation policy can effect distribution of resources, consumption, opportunity / mobility, savings – most anything depending on the level. Is there an upper or lower limit to how much should be taxed? Is taxation theft as some argue? Taxation also ties in to the size and role of government in the economy. 
  • Role of Government: What, if any, role should the government play in the economy? Again, this affects all of the points discussed above. Should government merely set up a framework and ensure a level playing field, or is a larger role required that takes into account other factors?
  • Competition vs. Cooperation: Is one of these values of higher order? Is competition necessary to maintain the economic order? Is competition selfish or is their an invisible hand? Is cooperation more important? What role does individual choice play? Can or should we be “made” to cooperate to advance some ends?
I realize there are going to be numerous good points missed in this relatively short discussion of the morality of our economic system. Personally, I lean toward the belief that we need a moral economic system that follows natural law, and comes from God. I respect the fact that a significant number of people may disagree with me. Unrelated to this, but interesting nevertheless, is the potential for examining our economic system as it relates to morality, to forge common ground between individuals of diverse religious, political and economic perspectives. It seems to me that many religious conservatives, fiscal conservatives, progressives, libertarians, independents, and others have similar critiques of our current economic system. While those differing political philosophies may not agree on the ultimate solution to our economic problems, we could make some progress just based on areas where there is agreement that some – for lack of a better word – change needs to be made.

I would be interested in any opinions that you have regarding the morality of our economic system. If there is something I have missed, that you feel is important, etc. please feel free to post your comment.

Categories: Uncategorized
  1. andyinsdca
    December 7, 2010 at 4:22 am

    A fiat money system allows manipulation by the central bank(s), which means that the government can meddle in the economic realm and reward some players and punish others. Therefore, a fiat money system is immoral. Currency is just a way to transfer and store wealth (ie: buy stuff) I’m not sure that competing currencies within a nation are useful, though – if I get paid $1 by my company that has Wells Fargo as the bank, will that $1 be recognized when I deposit at BofA? I suspect it might work OK, but the stability of a single national currency has significant advantages. A loan is a purchase – you are “buying” money from the lender; the price is interest. Because interest is a price, the price should be whatever the market can bear. The disclosures should be as good as the borrower demands. This goes back to a loan being a simple transaction. If the “seller” (lender) doesn’t give you enough information, you can go elsewhere. And, it’s completely up to the lender to ensure that the loan can be paid (the buyer can pay the price). Transparency in this realm is completely unrealistic. Of course, some players will have more information than others. It’s up to the others to ensure that they react properly when the players with more information take an action (like a CEO dumping his company’s stock). A CEO dumping his company’s stock is a significant signal to the market about the viability of the company (or the CEO is just trying to cash out before bailing!)Consumption can be limited through pricing – if oil costs $3000/bbl, then we’ll figure out how to consume less of it. If it’s $30/bbl, we’ll all drive Hummers. But the price of a commodity should be a completely market function. Distribution of resources implies a “someone” doing the distribution; only the marketplace is the most efficient distributor, any interference by a government rewards some and punishes others.Opportunity in an unfettered marketplace is wide open. If a person wants unemployment insurance, for example, it is not a function of government to provide it. I can provide my own car, health and life insurance….why can’t I handle my own unemployment insurance? In terms of natural disasters, that is what homeowners (renter’s) insurance provides. Many natural disasters have the magnitude of destruction magnifed by government malfeasance (Katrina). If someone wants to live in New Orleans, why should I bear the risk? That risk is completely between the resident of NO and their insurance company. Why should I be compelled at the point of a gun to assume that risk?The return on savings (like a bank saving acct) is the price the bank pays me for depositing my money there and they then in turn loan it out. Fractional reserves are another form of fiat money; if I deposit $1 in a bank, why should they be able to loan out $10 that they don’t have? If I have $1, I can only loan $1 – why does a bank get special powers? And, since savings is just a funny way of spelling loan (I’m “loaning” my money to the bank), see my comments on loans.Since the only role of government is to safeguard liberty and property, taxes should reflect the amount of “skin” you have in the game. The only way to do this is via a sales tax, since a purchase is a voluntary transaction. Yes, it could be argued that income (working) is a voluntary transaction, but in a free economy, you have no choice but to go to work to provide for yourself. Since this is the only non-voluntary transaction in a free economy, income taxes should not exist. Whether your income comes from punching a time clock or investing in stock really doesn’t matter. It’s what you do with those earnings (buy a car, etc.) that matters. Now, since clothing, food and housing are also involuntary (you need these things to survive), should they be subject to sales tax? Absolutely not. Should a steak have a tax and hamburger not be taxed? No, because the government is again rewarding one party and punishing another.The role of government is to safeguard liberty and property (and to enforce contracts via the courts – ie I can sue you when you don’t perform)What is cooperation? It’s me and you joining up to compete against someone else. Competition is the default state of a free economy – all sellers compete to sell a car (for example) and all buyers compete to buy a car. Note that a true monopoly (think AT&T before the breakup) is only possible through a government mandate, either by making laws preventing a competitor or making the barrier to entry too high for an upstart. If the government had hands-off in an economy, upstarts could come (and go) as the market dictates. Once the AT&T was ruled to be a monopoly by the courts (because of government mandate, remember), telecommunications in the US took off- and today, a scant 2 decades later, we can effectively call anywhere in the US (heck, the whole world) for just a few pennies; before that, a call to the UK costs several $ per minute.

  2. andyinsdca
    December 7, 2010 at 4:27 am

    I left something out on my Katrina example – nothing in a free market economy prevents me from donating $100 to the Red Cross (or whatever) to help people affected by a disaster. But my money should not be taken from me by the government. Also note that a government is the least efficient way to distribute aid in an emergency. If I think that the Red Cross wastes too much money on overhead, I can find another charity that will give me more “bang for the buck.”

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