WARREN SMITH, HOST: I’m Warren Smith, and today you’ll be listening in on my conversation with Dr Kenneth Barnes as we discuss his new book, Redeeming Capitalism.
Recent surveys suggest that capitalism has fallen on hard times in the mind of the American people. Young people blame capitalism for what they consider to be our most vexing economic problems such as income inequality and poverty. Voters of all ages have turned away from free-market solutions to the rising cost of healthcare, for example, and toward government-centric solutions such as the Affordable Care Act. However, Dr. Kenneth Barnes is not ready to give up on capitalism, though he does believe it needs a serious overhaul. Further, he says that overhaul should have as its goal not merely the creation of wealth, but human flourishing at all levels. He further says that efficiency and profit, while important, are not as important as faith, hope, and love for energizing a just economy. These are just a few of the ideas in his new book, Redeeming Capitalism. Dr. Kenneth Barnes holds the Mockler Phillips Chair in Workplace Theology and Business Ethics at Gordon Conwell Theological Seminary. He’s an ordained minister, and he served as a business executive and consultant on six continents.
Kenneth Barnes, welcome to the program. I’ve found your book redeeming capitalism really fascinating and nourishing. And I want to start with the capitalism part of that. You say that capitalism has many flaws, but it is the best system that we have so far come up with to govern our economic affairs. Can you say more about that?
KENNETH BARNES, GUEST: Sure. First of all, thank you for having me. It’s a pleasure. The fact of the matter is no one came up with capitalism. It’s not an artificial construct. No one created it. It has no agency behind it, no mind driving it, which is one of the things that’s unique about it. As I say in the book, capitalism is a subject, not an object. It’s just the word we use to describe this phenomenon of a lightly regulated, highly monetized free markets, which is really the result of countless individual and corporate moral choices because every economic decision is really a moral choice. And in that environment, it’s very good at producing great wealth, as we’ve seen. Now, the negative part of it is it has no moral compass of its own either, so it will reflect the morality and ethics, or lack thereof, of the environments in which it’s operating. So that’s why it has flaws because human beings have flaws.
SMITH: Yeah. You know, it was interesting to me that you started your book with the financial crisis of 2008. And since you brought up the topic of moral flaws and moral decisions that we human beings make, it strikes me that that’s the reason you started with the financial crisis of 2008 because you said that crisis came about because of flawed moral decisions. Is that accurate? Am I getting you more or less right about that?
BARNES: That’s totally accurate. You know, a lot was written about the crash, what had happened in 2008, the demise of Lehman Brothers, etc. And I spent a little bit of time in the book unpacking some of the technical issues, surrounding derivatives and collateralized debt obligations and those sorts of things. But mostly I talk about the moral decision making that took place. The fact that people sat around a board room and made the conscious decision to manipulate some of the accounting practices in order to give a position or a picture of financial health that was greater than reality. Or the fact that they decided to have a public offering six months before they went bankrupt. Or the fact that they really misquoted what the value of their liquidity pool was because almost all of the liquidity pool was actually already pledged as collateral for other debt and on and on.
So, you know, individual people made the decision to do things that were grossly immoral, even if they weren’t illegal. And as I remind people in the book, nobody went to jail. In fact, nobody even was charged with a crime. But what they did was grossly immoral and many, many people suffered. about $13 trillion in wealth was taken off the markets. And we had double-digit inflation and unemployment, etc. And when we know that the effects were suffered for a long time. So that’s why I started with that crisis. not because there was anything even particularly unique about Lehman Brothers, but to demonstrate that the decisions people make have consequences.
SMITH: One of the points that you make near the beginning of the book whenever you’re making this distinction about decisions and their consequences, and virtuous decision, say, and moral decisions on the one hand, and decisions that lack virtue or ignore morality on the other hand, is a recovery of the cardinal virtues, which you trace back to St. Thomas Aquinas, but could even be traced back probably farther than that, maybe even to Aristotle’s Nicomachean Ethics in some ways. But you speak specifically of prudence, justice, courage, and temperance. Can you say a little more about those four virtues and why they have such relevance to this conversation?
BARNES: Sure. And in fact, in the book I do talk about Aristotle and the fact that in a sense it was Aquinas who rediscovered Aristotle for the church. And then as I go on, I mentioned the fact that he also speaks about the theological virtues as being the bedrock from which these cardinal virtues come. So if you think about prudence, we think about prudence in common parlance as, as simply being cautious. But the real essence of prudence, as both Aristotle and Aquinas understood it, was knowing what to want and what not to want. That’s extremely important because it really comes down to a connection between value and virtue. So if you value something as intrinsically of worth, that will affect how you make decisions that are related to that thing of worth. So when it comes to economics, it really means we have to start asking hard questions about what is the purpose of business to begin with? Is it just to make a lot of money? Or isn’t to promote human flourishing? And so I talk about how these virtues, if they were at the forefront of our consciousness in business and economics, we would have a more virtuous economic system.
SMITH: Well, Ken Barnes, your book is called, after all, Redeeming Capitalism. And I do want to come to sort of your prescription for redemption later in our conversation. But if you’ll allow me to table that just for a moment, because one of those prescriptions for redeeming capitalism is this idea of human flourishing, that, that, that, that should be one of the key values that we place. But again, before we get to say too much more about that, let me back up and kinda stay near the front of your book. And let you say some about what you might say have become some of the heroes, or maybe you could even say idols of free market capitalism, as many people think about it today. And one them is Adam Smith.
Adam Smith, of course, famous for the invisible hand. You’ve got a famous quote in your book from Adam Smith that talks about that it is not a because of the virtue of the baker or the brewer or whomever that causes us. Here it is. I found the quote, it is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard for their own interest. I’ve heard that quote many, many times and it has come to be sort of a symbol for many of free market capitalism. Talk more about the importance of Adam Smith and where he got it right, and where he got it wrong.
BARNES: Sure. Well, first of all, people take that quotation completely out of context. When he talks about the invisible hand, all he’s talking about is the phenomenon of self-correcting markets. And what he states simply as an observation is that people at the micro level aren’t always conscious of what their business is doing at the macro level. They are simply trying to survive. They’re trying to get by. They’re trying to eek out a living. And the cumulative effect of people eking out a living and trying to survive is that ultimately the whole culture benefits. But the fact that he talks about self interest, or theologically speaking, self love, doesn’t mean the same thing as selfishness, which is self concern at the expense of the other. So what has happened is people have taken and twisted Adam Smith and taken him out of context to suggest that he was an ethical egoist, like Ayn Rand who’s become very popular nowadays.
The philosophy of ethical egoism is really quite pernicious and quite contrary to Christian theology. People forget that before Adam Smith wrote Wealth of Nations, he wrote a book called Moral Sentiments, in which he praises the virtue of trying to emulate God in love for our neighbor. And he predicates everything in Wealth of Nations based on this Judeo-Christian principle. So he was not an ethical egoist at all. If anything, he was a virtue ethicist because he believed deeply in the notion that individuals and nations should seek the common wheel, the common good. And so Adam Smith is one of my heroes and I quote him throughout the book, including his preference for things like a living wage or what we would call the living wage today because he believed that economic progress should help everyone, including those at the bottom. And if you ensure that those are the bottom are flourishing and not just surviving the whole system benefits. So he is one of my heroes.
SMITH: There’s another person that I want you to say something about, and that is Milton Friedman. If Adam Smith is one of the earliest proponents of free market capitalism, Milton Friedman was perhaps the 20th century’s most famous proponent of free market capitalism. And once again, you have a fairly famous quote from Milton Friedman, fairly early in your book in which he says this, that the primary purpose of the corporate executive is to—quote—”make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” Many people would use that quote, Dr. Barnes, to say that Milton Friedman is sort of tipping his hat to moral and ethical considerations. But you say that even in spite of that, there are some limitations, some flaws in what in what Milton Friedman teaches. Can you say again as you did with Adam Smith, what you like and what are limiting about the teachings of Milton Friedman?
BARNES: Sure. Well, let me just say that I think Milton Friedman and the Chicago school and the Austrian school have much to say about free market capitalism that is very positive. So I’m not throwing Milton Friedman under the bus when I say he’s wrong, however, when it comes to ethics. Because Milton Friedman was an ethical egoist. Milton Friedman did believe that self interest was the only thing necessary. And when we talk about the responsibility of executives, of course he’s, he’s referring to agency theory, meaning that executives act as agents of the shareholders, the true owners, and because they have no right as agents to impose any moral code on their decision making other than maximizing shareholder return, that’s a moral obligation. And that’s just wrong. It’s wrong because there are many stakeholders of which shareholders have a position of primus inter pares, but they aren’t the only ones to be considered.
And secondly, when he talks about making as much money as possible, he doesn’t talk about time. And time is a fundamentally important element. We should maximize shareholder value, but not necessarily over the shortest amount of time. You see, I’ve been in situations myself, as you know, I’m not a career academic. I’m a career corporate executive. I did business all over the world at a very high level. I understand the decisions that have to be made in the corner office. And it’s very possible to make decisions that will make a lot of money for a business in a very short period of time but present an existential threat to the business in the long run or even in the medium term. And that’s exactly what happened with Lehman Brothers Holding. You had people who were looking to make a lot of money in a very short period of time for which they and their shareholders who didn’t hold the stock but who sold it would be well rewarded. But for the people who hold the stock, they created what became an existential threat. So time is not part of his formula, which makes it a critical flaw in his formula.
He also doesn’t accept the notion that both law and custom are no alternative to ethics. Law is a very brute instrument and we defer to law and to regulations when ethics actually fail. And ethical custom and law might be things that are perfectly acceptable but grossly immoral. So as I unpack in the book, I talk about the very business model of Lehman Brothers, which was highly leveraged. At times, they’re, they’re gearing was 40-1. And the fact that it was a custom within their sector to have such a seriously flawed debt-ridden model that when crisis came, it didn’t have sufficient cash reserves to get itself over the hump. So daily they were going to the repo market asking for hundreds of millions of dollars in loans to cover their cash obligations. And finally the market said, wait a minute, we don’t really think your underlying balance sheet is sufficient to give you these loans and the whole thing fell apart. So, so, you know, the, the notion that all an executive has to do is worry about making as much money as possible just doesn’t fly, in terms of ethics in the long term.
SMITH: Well, I mean that point is made, for example, historically with slavery, which was perfectly legal for many, many centuries even, but which no one today would say was moral in any way, shape or form. So I take your point on that, very much, Dr. Kenneth Barnes. If you could allow me to pivot just for a moment though. I want to talk about what I guess you might consider to be the primary competitor to capitalism in the late 19th, 20th and 21st century and that would be socialism or marxism or one of its blood brethren in some ways. Talk about the rise of socialism. Where did that come from and why do young people today, and some countries around the world find socialism such an attractive alternative to capitalism?
BARNES: First of all, we should be clear about our definitions. You know, I have a whole chapter on marxism which is not the same thing as socialism. And then I have another chapter on other utopian solutions, and I would put socialism in that category. So if we could just for a moment talking about marxism, which is not just socialism, it’s totalitarian governments enforcing a socialist model. And that became incredibly popular through huge swathes of the global population. And I often say part of the reason is because the church failed to answer the genuine concerns people had about some of the problems inherent in the unregulated aspects of capitalism. So people looked at this wealth engine and they looked at many of the excesses, especially in Victorian times where you had child labor, you had high concentrations of wealth and abject poverty. You had people working 60 and 70 hours a week for extremely low pay.
You had unhealthy working conditions and slums. All of the things that Marx writes about and says, if capitalism is so great, why do we have these awful conditions? I think if the church had stepped up and said, wait a minute, we don’t want to throw the baby out with the bath water. We want to find a way to redeem this system and ensure that people are being looked after and that it’s being done in an ethical fashion and in a way that is just and fair, then Marxism would have never had any cache. But it did. And here’s why. Marxism and socialism and other utopian alternatives appeal to people because there is a fundamental, basic sense of fairness in all of it. They say, oh, if you have all this wealth, shouldn’t we find a way to distribute it more equitably? Now, there’s nothing wrong with that concept, unless you take it to an extreme. So if you have a progressive tax system, for instance, that ensures that everyone in society is properly taken care of and you have no one who doesn’t have the means of a sufficient life and you do it within a capitalist system, that’s fine.
But the problem with the marxists and the socialist is that they view wealth as something like matter. It can be neither created nor destroyed. It’s a fixed entity and therefore distribution is what counts. That’s a misunderstanding of wealth. That closed-system mentality misunderstands what wealth is. Wealth is nothing more than the delta between the amount of labor and resources necessary for subsistence and everything else. So wealth can be either created or destroyed based on the economic conditions of a society. So those systems always fail ultimately because they don’t really understand how to create wealth much less create it in an equitable way. So it just falls under its own weight. Now the interesting thing about socialism as it’s understood today and how it’s become popular today, is that people have altered the traditional definition of socialism, which is the public ownership of the means of production, distribution and exchange, to say, we want a democratic form of socialism. We want socialism, which distributes wealth created by capitalists.
So it’s a slightly different variation on the theme. But again, the problem is it ultimately comes down to enforcement. And once you try to enforce any utopia, by definition it becomes a dystopia. So in the book I come down very hard on democratic socialism and other forms of closed systems, even if they want to keep capitalism around because they recognized begrudgingly that it creates wealth.
SMITH: Well, Dr. Barnes, let me pivot one more time if I might, and kind of come to the climax of your book and of your argument, which is that capitalism is not the evil, that it is a tool that can be used for good or for evil, and that the sort of the task at hand for ourselves as Christians operating in this culture is to reclaim capitalism, redeem capitalism, as the title of your book says. If we could pivot to that task and what’s necessary there, would like for you to say a little bit about one of your chapters, which is that as you talked about the cardinal virtues at the beginning of your book. Towards the end of your book, you talk more about the theological virtues of faith, hope, and love. Are those three, you say, become necessary for a truly Biblical understanding of the way the economy should work. Again, do I have that right?
BARNES: Yes, you do. So the beauty of the theological virtues is that even though we call them theological, we only call them theological because we ascribe their origin to our creator, to God. But even secular thinking people, even nonbelievers, should understand and recognize that faith is fundamental to economics and fundamental to capitalism. You can not have an economic system that creates wealth unless there is faith. Faith in something bigger than yourself. Again, for believers, it starts with God. But even for non believers, you have to have faith, for instance, in the system. You have to have faith in money. You know, we have a fiat money system. The $10 note in your pocket is only a piece of ink-stained paper. It only is a exchangeable for goods and services because you believe it to be so. And because everyone who participates in that fiat system believes it to be so.
But there have been many times in history where people have lost faith in that monetary system and they do become just pieces of paper. They have absolutely no value. So we need faith in things bigger than ourselves, in institutions, in government, in the system itself, in each other, in our own ability to create wealth and to participate. So faith is fundamental. And people forget about that. And because people have lost faith, they become cynical about capitalism, which is one of the other reasons, by the way, that socialism, all of a sudden has become somewhat popular because they’ve lost faith in the capitalist system. And faith is what breeds hope. Now, just think about why would anyone invest money in anything? They invest money because they have a hope of a return on that investment. So if we lose faith, we automatically lose hope. And that will bring the system to a screeching halt.
So we have to have those two elements in order for economics to work properly. But the most important of all of them is love. And it’s not the mawkish kind of greeting card version of love. It’s the Biblical version of love. And the Biblical version of love is given to us, not in words as much as a symbol. And that’s the cross. And that cross, that symbol says that the great look after the interests of the lesser. And that’s a fundamental message for a flourishing economy, is that we are willing to work with other people so that everyone flourishes. That communal understanding of love, the love that’s found in the godhead, is fundamental to a properly working economic system. And when we lose that, that’s where we get into trouble. That’s when we see excess. That’s when we see fraud. That’s when we see all of the things that make people question our economic system.
SMITH: Well Dr. Barnes, that’s a very powerful symbol, the idea that the cross, which is a symbol of sacrifice… It is a symbol of the ultimate great person, Jesus, giving himself for the ultimate weak person, us, humanity, as being a true symbol for economic order turns the way we think about economics on its head, doesn’t it?
BARNES: Yes it does. And, and you know, I’ve always said that the church needs to be comfortable in those margins. The gospel is a countercultural message. It always has been. And we shouldn’t be afraid of the fact that people are going to hear this for the first time and go, what? Is that possible? But you know, we know from history and we even know from science that when people do selfless things, they reward themselves by doing more selfless things. The body produces oxytocin, we get a wonderful feeling from, from seeing other people flourish. And the result is very positive. And so there’s nothing wrong with people wanting to be successful. Nothing wrong with people wanting to build businesses and create wealth. We just have to make sure that we’re doing it in a way that allows everyone to participate in the system. And we don’t leave people behind when it’s not necessary. Also, the Bible warns us the rich, to whom much is given, much is expected. So if we are successful and we do create wealth, God expects us to do godly things with it.
SMITH: Dr. Barnes, you’ve mentioned the, the phrase, the word flourishing a couple of times a human flourishing, which is a word, a phrase that I’m hearing more and more in recent years as a way to describe the just output of economic systems. That it is not wealth, that is not money, it is not possessions, but it is human flourishing. Can you say more about that? What does human flourishing ultimately look like? Not just for the individual human, but for a society, for a culture?
BARNES: That’s a great question. I think human flourishing is really given to us in the cultural mandate at the very beginning of the Bible. God says, go out, be fruitful and multiply. Take the creation he’s given us and do things with it and make it better than when he gave it to us. Produce something of beauty. Do something that reflects the fact that we are created in the image of God, who’s the ultimate creator. Who is the ultimate worker. Who’s the ultimate artist. Who’s the ultimate physician. Who is the ultimate caregiver. We’re supposed to reflect being created in his image in all of our activities, and that includes economic activity. So what that looks like will be different from culture to culture. But I think we’ve seen it in so much of what capitalism has produced. If you look at the statistics in terms of longevity, healthcare, infant mortality, access to education, art, music, architecture, all of these things, those things have by and large been the product of economic activity. So we know we can do those things and we can allow this system to create wealth in a way that works for everybody.
That’s not socialism. It’s capitalism that’s been redeemed. And what does that mean? Well, you know, the great dutch theologian, Abraham Kuyper famously said, there is not one square inch of all creation over which God is sovereign, that Jesus himself does not decry, mine. It all belongs to Christ. Capitalism has to belong to Christ, and only Christians can start that process.
SMITH: Dr. Barnes are you close your book and I’d like to close our conversation by asking a couple of related questions. You say ultimately that redeeming capitalism has to happen both from the bottom up and from the top down. What do you mean by that?
BARNES: Well, as I say in the book, you know, this book is not a manifesto for a movement. It’s a credo for a community of believers who believe that God can do anything, including bringing economics under his lordship. Now, most people don’t have the opportunity to have a lot of influence from the top down, except as it relates to changing the narrative. We can change the narrative from the ethical egoism of wealth creation for the purpose of personal aggrandizement and conspicuous consumption without consideration for the other or the environment or anyone else, to a belief that we can have a form of capitalism that does create wealth, accepting the fact that there will always be a certain degree of inequality in the system. That’s natural. But ensuring that we will not settle for a system that is over concentrating wealth at the expense of those who have little or nothing.
We can start changing that narrative today. In terms of the bottom up, everyone can participate in that. And in the book I specifically talk about starting with how we view our own work. You know, the Apostle Paul tells us our work should be our worship. I wonder how many people really go to work everyday thinking, my work is my worship. Well, it should be, and, and it doesn’t matter what you do. The outcome’s not what matters. How you do it’s more important than what you do. And we have to start thinking also about how we redeem money and our finances. You know, our government is $21 trillion in debt and individuals and households are another $14 trillion in debt. That’s not sustainable. And we’re in debt because we want things now that we haven’t earned or paid for. So, you know, we have to bring thrift and temperance back into our homes and in our schools and ultimately in our governments. Because we’re promising people that we’re going to cash checks we maybe can’t cash in the future.