John Haldane has written a remarkable and timely warning about the perils that people who care deeply about fundamental moral values face when they engage too much with a particular political party. Americans pondering the outcome of November’s election, the dismal confusion and intellectual incoherence of the Republican campaign, and the remarkably skilled and consensual approach President-elect Obama has taken to the economic and financial crisis, will do well to take Obama’s message seriously.

Across the pond, British developments after the Labour Party landslide of 1997 offer useful lessons for the United States, perhaps even an anticipation of what might be in store for us. At the same time, it is important to look beyond the transition phase, and think about how and where to begin the task of moral reconstruction and economic recovery.

In both Britain and the United States, a financial crisis destroyed the fragile coalitions of the political right. British Conservatives never recovered after the debacle of “Black Wednesday” in 1992, when Prime Minister John Major and his Chancellor of the Exchequer looked at computer screens which showed their exchange rate policy disintegrating within minutes. Before the intensification of the financial crisis of 2008 in mid-September, the outcome of the U.S. Presidential election looked quite uncertain, but after the market jitters the outcome was unmistakably clear. We should ask why conservative coalitions tend to be blown up in this way by the political fallout from money.

Generally speaking, financial crises destroy a tenuous and fragile association of market liberals, who may tend to libertarianism and universal permissiveness, and social conservatives, who often worry that the anarchy of the market is undermining traditional norms. Haldane’s commentary illuminates a further division, and one that emerges more powerfully in the aftermath of crises, between those who think that their preferred solutions are universally generalizable, and should either appeal to or be imposed on the rest of the world, and those who prefer to confine themselves to the boundaries of their own country. The tensions between economic and social conservatives emanate from differing understandings of public policy. They raise in a direct way the question of how the links between morality and public policy should be drawn. The economic conservatives tend to give a minimalist answer to what the bounds of policy should be, while social conservatives like to push for a maximalist answer.

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In fact, though, a specifically and rationally grounded moral approach to public policy issues does not and should not start with public policy as conventionally conceived. This is because public policy runs on quite different lines and requires an entirely different ethic of responsibility than individual decisions do. Social reality is very complex, so that a simple and well-intended policy prescription often produces exactly the opposite effect of what is intended. The most striking example of such a development is the one that generally brings economic and social conservatives together in their assessment of the outcome of a major stream of twentieth century development. That is the story of how, over a sustained period of time, policies in many countries were designed to free people from the humiliations of poverty and dependency on the arbitrary whim of employers by establishing social insurance schemes. The original impulse for the welfare state was a noble aspiration, but it ended by creating new forms of dependency on state welfare payments, demoralizing and de-motivating the recipients, and tearing them out of any supportive social framework that they might have previously had.

There may be an alternative to the top-down formulation of new overall strategies. This alternative would work in a more decentralized and spontaneous way, corresponding to the tradition of subsidiarity, and look for answers at the lowest possible level of institutional existence. Likewise, the major faith traditions can exert a powerful force, not as a policy option, but as what modern media strategists would call a “viral message.” Faith produces personal transformation, not in a solipsistic way but rather by means of a transformation of the person’s immediate environment. If many people start to transform their immediate environment in a more respectful way, the result may be as dramatic and powerful as the response to a conventional policy initiative. It also, incidentally, may be a more efficient answer too.

The alternative formulation of responses as spontaneous also emphasizes the extent to which they do not depend on overall plans. An insistence on the immediacy of responses of mercy in misericordia or splannizesthai derives etymologically from the heart or the guts, not from the operation of the rational center of the brain. We act spontaneously because of some flash of vision, which may be described as the recognition of intrinsic humanity, the sense of sharing or of solidarity, or indeed the operation of grace. There are theological explanations of the effect, but also the entirely secular and highly influential account of “sympathy” given in Adam Smith’s Theory of the Moral Sentiments. The sympathetic response offers a new type of answer to the question of the morality of the market economy.

At the moment, capitalism has an undoubtedly bad reputation. Financially-driven globalization, the fruit of policy deregulation, seems to have gone very badly wrong. But the strongest temptation for current policy is to swing back too radically in the opposite direction, and to try to control capitalism too much. That can lead to policies with effects that are poorly understood, and thus extremely likely to lead to a slew of unpleasant unintended consequences. Haldane takes a phrase from an essay by Elizabeth Anscombe: “the capitalistic system necessarily leads to things like a housing shortage: that is the epitome of its consequences.” That essay was produced in the aftermath of the experience of the 1930s, when capitalism also seemed to have been completely discredited. The logic of warning against “systems” and their consequences was powerful, but Anscombe directed her attack at the wrong target in this case. The response which she typifies often came from Christians: it is the response of Savonarola’s bonfires of the vanities, or of Martin Luther’s condemnation of long-range luxury trades.

The meltdown of capitalism produced a big blame game both in the 1930s, when industrial capitalism broke down, and today, when it is financially driven capitalism that has gone wrong. Today the collapse is widely thought to be the responsibility of poor regulators and monetary policy makers, or unscrupulous mortgage originators, or greedy banks. Popular commentators like to go back to stereotypes from earlier eras, such as the figure of Gordon Gekko in Oliver Stone’s movie Wall Street who memorably proclaimed that “Greed is good.” The genius of a market order is that it restrains greed. In its normal operation, it contains possible operations by placing precisely defined financial limits on them. By contrast, greed under communism or central planning is limitless and can be translated into a potentially infinite bureaucratic power-grab.

Revulsion against the market economy often takes the form of a specific condemnation of debt and debt instruments. The Old Testament famously recommended a cancellation of debt every forty-nine years in a “jubilee.” The medieval church attacked usury. Today debt is even more prominent, and debt instruments now account for over eleven times the total output of the world economy. Consumers in advanced industrial countries (in particular, the United States) rely on debt in order to buy. Treasury Secretary Henry Paulson recently complained that the credit crunch was “making it more expensive for families to finance everyday purchases.” We borrow from one another on an increasingly grand scale because of the conviction that our utility schedule is more important than someone else’s.

We also borrow because there are more and more sophisticated ways of carrying out lending. The recent boom of securitization meant that it was easy for claims on property to be repackaged and resold in the form of financial instruments that made it hard to see any relationship between the asset and the fundamental object underpinning its value.

Looking back at moments when Christianity’s viral message was most effective, we see times of social coherence and a considerable capacity for innovation. Those times depended on a modesty or a self-restraint about the nature of indebtedness, and an awareness of precisely what was being pledged in return for a financial advance. The early phases of capitalism depended on markets for debts, but for specifically understood debts that were built on knowledge and hence on responsibility. Renaissance Florence, or the pious Calvinists of the Netherlands and New England who gave rise to Max Weber’s famous thesis on the Protestant Ethic and the Spirit of Calvinism, were high moments of civic-mindedness and the other-directedness of human energy and imagination. Responsible investment and profound innovation created employment and new possibilities. Even as a minority faith, in rather alien circumstances (such as the contemporary U.K.), Christianity could have a dramatically transformative effect. But what it cannot do is translate itself into a simple policy plan.

One of the most striking characteristics of modern commercial society has been the elevation of the principle of “choice” to the status of an absolute dogma. Milton and Rose Friedman’s Free to Choose was a much more radical, and much more unbalanced, tract than anything that Adam Smith wrote. There is a danger that such choices will be made in the absence of a notion of responsibility or duty, in particular of an awareness of how the nature of the choice may affect others, may restrict the choices of others, and may also influence and restrict one’s own later choices.

It is the concern with responsibility in choice that should dictate what particular concern we should have for broader policy issues. Our policy needs to be of the type that will allow a multiplicity of human interactions. Thus to return Elizabeth Anscombe’s example: can capitalism provide houses? Of course it can. And there are plenty of examples of socialism producing remarkable scarcities of housing. The American problem lies in the fact that it (or rather market distortions) seems to have produced too many houses. We need to worry about the sort of houses and the quality of life that they offer. We do not need more dehumanized vast housing projects that make inhabitants feel anonymous. But we probably don’t need a proliferation of individualized but yet remote “McMansions” either. If we choose the wrong kind of house (and we need to remember that in the absence of compelling policy we are free to choose), we will live with the consequences in the form of social isolation.

We need policies that make for a higher awareness (and a sense of limits) while making choices, and which in consequence promote respect and responsibility. One way to promote this is through truthfulness and transparency. The problem with complex financial derivatives was not that they were market-based, but that they obscured through a series of transformations the link between the underlying asset (a mortgage on a house) and the assets that were repackaged, sometimes several times, and sold in the repackaged form to new buyers who could not assess the underlying values involved.

Most fundamentally, we need to think of ways in which individuals do not think of themselves as detached solitary players, but are committed to a network of relationships around them. Historically, the most important and most enduring of the institutions that bring individuals into society is the family. Functioning families relate to other families and to a wider world; and they do not think of themselves in simply competitive terms. Conversely, there is a clear link between family breakdown and a wider social disintegration (as was recognized by Barack Obama in his moving Father’s Day address).

We should not think of the market as something disembodied from the rest of society, but rather something that arises out of an ethic of responsibility. When it fails, that is a general failure of responsibility, and the failure can only to a very partial extent be repaired by policy initiatives from the top. The solution requires innovations from below—from what Edmund Burke called the “little platoons.” We need to think of ways in which those little platoons can be inspired and mobilized.