Catholic outlook on market mechanisms

History – Teaching – Loans – Investing – Trading – Conclusion

1. Historical context

The Old Testament bans lending at interest to fellow Israelites. “Thou shall not lend upon interest to your brother, interest on money, interest on victuals, interest on anything that is lent for interest” (Deut 23:19).

However, in the Parable of the Talents (Mt 25:14–30) Jesus Christ commends those who multiplied wealth, and rebukes the slothful servant: «You ought to have invested my money with the bankers, and at my coming I should have received what was my own with interest».

This sounds like direct investment advice. Yet the parable is above all about spiritual gifts, not about financial profit. In general, the Lord neither condemned nor praised earthly riches, but rather treated with disregard and often warned that they may become an obstacle to God. In the Middle Ages the Church prohibited usury under pain of excommunication. St. Thomas argues: «It is just to charge fee for the use of something that wears out by use. But money, by its nature, is not consumed in the act of using it. Hence usury, that is, charging a fee for the mere use of money, is unjust».

2. Current stance

The logic of Aquinas cannot be applied today, since in the modern economy money does depreciate. As financial systems grew more complex, the Church came to distinguish usurious exploitation and legitimate lending (a just title). Interest may be justified when it compensates for inflation, risk and opportunity cost.

The magisterial teaching is found in Catechism of the Catholic Church 2401-2499, under the 7th Commandment (“Thou shalt not steal”). See also the encyclicals Caritas in Veritate (Benedict XVI, 2009) and Centesimus Annus (John Paul II, 1991). For the broader Catholic social teaching cf. Rerum Novarum (Leo XIII, 1891).

The core principle is that the economy must be ethical. The financial system must serve social justice (CCC 2425). Private property is inviolable, but wealth should contribute to common good instead of plundering it.

The Catechism condemns “speculation in which one contrives to manipulate the price of goods artificially in order to gain an advantage to the detriment of others”.

Usury as the exploitation of the poor is a sin against justice.

Let us now turn to the concrete applications.

3. Lending

Granting loans is permissible, if their terms and interest are just.

Loans may become morally good if they promote the development of society.

Loans are sinful if used as an instrument of enslavement, especially if they target the poorest and most vulnerable. Forcing someone into such a loan may constitute a mortal sin.

Taking loans is acceptable if there is a reasonable need.

If a loan is taken for a frivolous purpose, for example, buying a new smartphone model only to boast – it becomes a sin through imprudence, though rather a venial than a mortal one.

Loans with unjust terms should be avoided unless they are the last resort in an emergency (for example, one desperately needs to feed the family). In such a case the borrower commits a regrettable but not sinful act, while the lender does sin. The greater moral responsibility overall falls upon the creditor.

4. Investing

Savings are a product of the cardinal virtue of prudence and, as such, are inherently good. The desire to multiply them by investing in stocks, bonds, gold, cryptocurrencies etc. is permissible provided target companies do not support evil (e.g. wars, abortions, pornography).

One should avoid investing in companies whose activities contradict Christian teaching.

Investing in ethically sound companies is morally good: it creates jobs, fosters development, promotes good values.

If a person buys an ETF that contains dubious firms, this typically constitutes accidental participation in sin (cooperatio materialis), which differs from a conscious and willing one (cooperatio formalis). This implies remote responsibility as long as reasonable efforts have been made to avoid it, or if no alternatives exist.

Charity yields no profit but is a good deed per se. It is beneficial for human soul because it reminds that wealth is a means, not an end.

5. Exchanges and trading

The Church approves markets as investment mechanisms which assist businesses and contribute to common good.

However, market actions can be sinful, if they (CCC 2409):

– speculatively manipulate prices,

– deliberately harm other participants, especially the poorest,

– reduce trading to gambling, severed from the real value of labor and production.

The Church does not address particular trading practices or situations in detail. But knowing these general principles, we can definitely outline and evaluate accordingly that:

– pump-and-dump, rug pulls and similar schemes are fraudulent and therefore sinful. Enticing others in them is a sin.

– exchanges that exploit unfair advantage (e.g., delisting assets without notice; stop-loss hunting algorithms etc.), commit a sin.

– market makers or whales who deliberately distort the price of an asset for selfish profit, to the detriment of other participants, commit a sin.

– those who treat market as a casino (exaggerated example: flip a coin and open a long- or short- position with 100х leverage from current price),are engaging in gambling and thus commit a sin.

– short-term trading without real contribution to the economy is questionable (such as scalping. or trading in purely speculative assets without real value, like memecoins), but the degree of its sinfulness depends on circumstances.

It is not sinful if a trader

• Follows a defined strategy,
• Avoids market manipulation or gambling,
• Does not engage in fraudulent schemes,
• Does not risk essential funds for his or his family’s well-being,
• But rather utilizes natural price volatility.

For example, a trader may apply technical analysis to draw a price channel, then simply buy near its lower bound and sell near the upper.

In such case his activity does not differ much from ordinary commerce, where any merchant seeks to buy low and sell high.

His work is not sinful, yet is not directly virtuous either, as it neither produces goods nor delivers them to end customer, but merely redistributes them for personal gain.

From an economic standpoint his work may be considered indirectly beneficial, because it provides liquidity and contributes to efficient price discovery. Trading on the secondary market is often a zero-sum game, i.e. one’s gain comes from another’s loss.  But as long as all participants enter the deal voluntarily and accept the risk of loss, this process is morally neutral.

6. Conclusion

To save and increase one’s wealth is prudent and in accordance with human nature. Yet it is crucial to remember that all our earthly enterprises will ultimately go bankrupt: there are no pockets in a shroud. So, a well-diversified portfolio should include investing in God.

 “Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also”.

This is the best trading strategy. May the Almighty God grant us to save and multiply His grace, so that in due time we may reap life everlasting. Amen.