Investing and the Separation Thesis: Part 2

Part I of this article started with my own journey of self-discovery through reflection on my financial and philanthropic investments. The article began with a meditation on the role of finance in society and concluded that it often falls short of its high calling. My own investments were offered as a way to diagnose finance’s shortcoming, and I invited readers to engage in a similar personal reflection. The Separation Thesis was identified as one deforming facet of the ideology of finance that appeared in my investments. Here, I continue this exploration and suggest a path forward.

By way of brief review, my financial investments were ordered to balance risk, return, and my own take on the market. My equity and bond holdings were done through low-fee index and mutual funds. My cash holdings were arranged with a view to convenience and interest rate. My philanthropic investments, on the other hand, were animated by concern for the good being done by the varied charitable institutions.

The two logics on display illustrate rather well the heart of the Separation Thesis, The Separation Thesis is also commonly referred to as the “fact-value distinction” or the “distinction between positive and normative statements.” which can now be defined more fully. This thesis sets forth an empirical realm of facts against a subjective realm of morals (or values) and asserts that finance operates exclusively in the empirical, factual realm.It is worth repeating an aside that was noted in the first article to avoid unnecessary confusion. There are, of course, moral considerations codified in law and regulations covering the operations of markets, investments, and the conduct of businesses (fiduciary duties, audit requirements, etc.). Additionally, there are values of transparency, various self-regulatory bodies, and the requirements of the stock exchanges. Generally, in finance, these are the concerns of compliance departments (in some cases, exclusively so). Further, as professionals within these realms can attest, there is ample room for interpretation and exploration within the realm of agency created by these guidelines. This article is concerned with the further ethical considerations arising from behavior within the boundaries of legal and other requirements. Here exists a vast moral landscape in which many assert a freedom from extralegal moral constraints. This distinction posits the idea that there is a business decision without moral content, dealing only with the facts, with hard data. Applied to the ethics of finance, investing is said then to deal only with the facts, primarily those of return on investment and risk—moral concerns do not pertain.Freeman, for example, defines the Separation Thesis as follows: “The discourse of business and the discourse of ethics can be separated so that sentences like, ‘x is a business decision’ have no moral content, and ‘x is a moral decision’ have no business content.” Freeman also writes, “And, as long as business ethics is separate, business theorists are free to make up supposedly morally neutral theories such as agency theory which can be used to justify a great deal of harm.” R. Edward Freeman, “The Politics of Stakeholder Theory: Some Future Directions,” Business Ethics Quarterly 4, no. 4 (1994): 412. See also Brian Fikkert and Michael Rhodes, “Homo Economicus Versus Homo Imago Dei,” Journal of Morality and Markets 20, no. 1 (2017): 107. See Part I, footnote 1 for other “facts” that pertain.Investing here is like a game—once you are on the field of play, winning is the sole goal and anything goes, within the rules.

Let’s first consider an objection. I wrote in Part I that the maintenance and real economic growth of the capital invested is a part of the good calling of finance. The Separation Thesis, as absorbed into finance and investing, subtly presents risk-adjusted return as the sole calling of finance by presenting it not as a mere means, an instrumental aspect of the work of investing, but as the primary purpose or end of finance. As the Yiddish Proverb states, “A half truth is a whole lie.”“Forbes Quotes: Thoughts on the Business of Life,” Forbes, accessed November 23, 2022, https://www.forbes.com /quotes/10399/. In short, risk-adjusted return is a part of the calling of finance, but only a part.

Also, the Separation Thesis, when applied to investments rooted in the everyday world, seems to offend common sense – are there truly any aspects of life which are solely about the facts and involve no moral distinctions? – but there are reasons to hold back a rush to judgment. First, the level of abstraction in modern finance and the significant investment of mental energy and sheer endurance required by the inner workings of finance act to obscure insight into what might seem obvious to outsiders. Finance is a realm unto itself. Second, some regulations and case law that surround the realm of investing are often understood to require that return and risk be considered first and primary. Third, this distinction between facts and values also animates much of modern life and is part of the moral quandaries faced in ethically sourcing energy, clothing, food, etc. (e.g., the supremacy of the fact of low prices with values flowing from other moral concerns). 

The point of this article is simply to draw attention to the Separation Thesis as it pertains to investing and the deformity of finance. As evidence of the Separation Thesis’s influence, we can consider the clear delineation between “facts” and “morals/values” on display in my financial and philanthropic investments (detailed in Part I of this article).                

With my philanthropic investments, I have a detailed understanding of the activities of each organization, and I morally approve and even boast (in a good way, I hope) of their work, which I believe contributes to societal flourishing and justice. If these organizations turned from their core convictions and their commitments to serve, I would cease my investment.

This approach to my philanthropic investments is in stark contrast to how I approach my equity and debt holdings, for which I have no knowledge of the companies I am supporting, much less their activities. Why not? Because to invest in equity indices or bond funds is a passive approach to investing—I cede the ability to direct my investments to specific companies. 

My approach to equity and bond investing is also morally passive in that it entails indifference to the moral quality of the work performed by the companies I support. My investment strategy considers only return, risk, and convenience. Notably, if I leave my funds so invested until I retire, I will have supported the work of these unknown companies for nearly 50 years without truly knowing or engaging with the inherent good or otherwise of their products and services or how they impacted their stakeholders—customers, employees, suppliers, communities, the environment, etc.—reflecting, again, indifference to the flourishing and justice (or their opposite) created and sustained by my investment. 

My cash deposits are easier to morally diagnose with specificity. Synchrony boasts that it is “the largest provider of private label credit cards in the United States” and that it also helps consumers finance clothing, jewelry, motorhomes, hobbies, and furniture. My cash holdings are being used for credit card and general consumer finance.See Synchrony’s press release: https://www.synchrony.com/synchrony-financial-integrates-private-label-credit -cards.html. My personal conviction is that most credit card lending is morally reprehensible and along with nearly all consumer finance, encourages unnecessary consumption (whether this is more than a personal matter of conscience is a discussion for another time). I was ignorant of the work my money at Synchrony was doing when I opened the account. However, given the ease of discovering how my funds were being used, there is an air of moral culpability here.

A simple question arises from this review of my financial investments: What good is being left undone by leaving my money in such investments? As I reflected on this question, I decided changes were in order.I share my investments here “as is” for rhetorical purposes. I have made some changes to my investments, most significantly in moving my cash. However, given the entanglement of my equity and debt holdings with my employer’s 401(k) plan, my options for these monies are rather limited, but a process is underfoot. Apart from the changes I need to make, I also recognize there is work to be done in analyzing the structural barriers that restrict moral allocation of funds and the options for putting cash to work (e.g., fiduciary rules governing 401(k) and other employee sponsored plans that limit investment options and the strictures limiting management teams).

If I hold the logic of my financial investments up to that of my philanthropic ones, one can see the Separation Thesis running right through the middle of my own life. On display is the Separation Thesis’s eschewing of moral concerns and relative indifference to the behaviors of the companies and activities behind the securities. At work is a process of abstraction that reduces the securities and companies to the narrow facts of monetary value, return, and risk and keeps other morally relevant categories out of view. This abstraction is a strength of finance, yet when used as an exclusive moral guide it misdirects finance away from its calling to further societal flourishing. 

Critically, I take my case to be largely illustrative of the mainstream approach to finance and investing, in faith-based communities or otherwise. To use the words of the Apostle Paul, it is the “wisdom of this age.” Finance and investing, by embracing the logic of the Separation Thesis, are structurally designed to ignore certain moral questions by enthroning return and risk as ultimate and sufficient. This produces an unacceptable ethical deformity at the heart of finance.

Lastly, what is to be done? I offer three suggestions: growth in the faith-based asset management industry, reallocation of all savings and investments to moral ends, and further research into the ideology of finance and investing. 

First, Christians should work to grow an asset management industry that is of an exponentially larger size and variety than what is currently in place. One that is fully aligned with the high calling of finance.I am humbled and encouraged by the work being done by faith-based investment funds, but in this call for a larger industry, I work from the fact that the size and diversity in approach in the existing space does not reflect the plurality of approaches in the broader church, and it directs only a minute fraction of the wealth of Christians. 

Second, all Christian savings and investments should be directed to moral ends, even at the cost of potentially lower returns and higher fees. 

In these first two suggestions, I am imagining a world in which the collective wealth of the people claiming Jesus Christ as Lord is fully and consciously directed in line with the ethics of the coming Kingdom of God in a proleptic striving for and witness to the world to come.Heslam writes something very similar to what I’m suggesting here: “If we [the Church] were to decide to invest our wealth differently and shape institutions to achieve this goal, we could help to change the global economy.” Peter Heslam, Globalization: Unraveling the New Capitalism, Grove Ethical Studies, no. 125 (Cambridge: Grove Books Limited, 2002), 27.

Third, Christians must further understand the “wisdom of this age” in finance and investing. This “wisdom” likely animates those within the Church as much as those outside it. True engagement relies on understanding finance and ourselves. The required research should be founded on mutuality, bringing together insights from practitioners, investors, and pastors, arising from theological, biblical, and social science scholarship. The Church is uniquely situated to bring these parties into dialogue because whereas in some circles only their differences appear, in Christ they are one. We can applaud the good work being done in this journal and other forums, even as we encourage further and sustained efforts. 

In closing, I’d like us to ask how Jesus can be a sufficient guide and power for the transformation envisioned.

The moral issues here are deeply embedded in our culture. They appear insurmountable. Reasonable and well-meaning disagreements are many. True contrition will need to precede practical change. 

In all these challenges, we have Jesus beside us. Echoing the early church, we can say “Jesus is Lord.” He reigns over finance. He is present through his body, the Church, and the Spirit. He can reveal the ultimate insignificance of certain financial values we hold dear. Here is a call for prayer. Let us ask for the wisdom of God (James 1:5). 

This wisdom of Christ (power in weakness, might through meekness) can draw forth the living sacrifice required to consume less, save more, and invest expecting, perhaps, less financial wealth in return. But Christ’s wisdom simultaneously directs us to a greater reward in this life, investments of lasting significance, the contours of which can and ought to be imagined. 

There are vast spaces available in Christ for true freedom and wholeness in investing, a full range of moral agency, and life-giving depths of moral imagination.