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Dear Father Angelo,

Inspired by episodes of my real life (albeit lived as a mere telephone “go-between”), I wanted to ask you what the Catechism of the Catholic Church and Moral Theology teach in regard to stock market financial transactions: can they be considered licit, or, if speculation is involved, do they constitute a sin?

Sincerely,
Vittorio.


Dear Vittorio,

1. I can’t find much in the texts on morality, or even in the Church’s documents, in regards  to this matter.

I will summarize the question by analyzing two terms: stock market and speculation. In both cases the analysis is drawn from the Dictionary of moral theology (Studium Ed.). The first is by Pietro Pavan, one of the co-writers of the two social encyclicals Mater et Magistra and Pacem in Terris by John XXIII.

The second is by Serafino Majerotto, doctor in economic sciences.

2. The stock market is the place where all securities and real estate are traded, primarily stocks and bonds, and currencies.

The stock market today accomplishes a task that is both beneficial and essential in the exchange of securities and even goods; however it may facilitate practices that are both illicit and immoral. One of the main such practices is known as agiotage, which is a form of lie whereby fake, exaggerated or biased news about business credit holders are spread around with the intention to upset  the stocks and bonds market and  create panic amongst  stakeholders, or, at the very least, undermine their trust.

Others, because of their attachment to money and the illusion of fast gains, may indulge in practices that can prove to be reckless or disastrous for themselves, their families or businesses.

3. “In a broad sense, speculation is a category defining the economic activity as it unfolds in a historical time characterized by its own specific circumstances, and therefore different from the notion of abstract time used in economic theory.

The economic activity that takes place in a specific time is itself part of a time continuum. Yesterday’s market situation affects today’s market situation, along with the predictions about tomorrow’s market situation.

The predictive element is always present, and its weight is heavier or lighter based on the time required for the completion of the economical transaction. It is lighter when trading goods of immediate consumption; it is heavier for more complex productive operations requiring capital assets to remain tied up over a long period of time.

Such a predictive element is precisely what speculation is all about, and it is often equivalent to an act of faith in the future (basically guesswork: that’s why people talk of business sense).

4. In a stricter sense, speculation is the professional activity of predicting the near future,  (no more than 12 months). This activity consists of so-called term market transactions on stocks, bonds, goods and also currencies (in markets where exchange control is not enforced or where prices of goods are not fixed by authority of a central government). 

5. Professional speculation is credited with helping to smooth out sharp market price oscillations over time. A grain famine that is predicted to occur a year from now, has immediate repercussions on today’s prices, causing a sudden fall in consumption, allowing for a greater accumulation of the grain supply that will help mitigate the coming famine and facilitate the subsequent price recovery.

Such beneficial aspects of speculation are obviously conditioned by the accuracy of the predictions. On the other hand, statistics show that predictions tend to fall wider off the mark the longer is the period they cover. The ranks of professional speculators are also joined by gamblers: errors have a tendency to get amplified and to upset the normal rythm of the economy. Many governments have therefore had to regulate speculation using measures of control stricter than the market’s own. Organized speculation, despite its setbacks, plays a crucial role in today’s economic life, by offering business owners and traders some low cost coverage against risks that are not easy to assess. Take for instance, a business owner buying cotton today to start some production that will be completed in three months; if he is not willing to run the risk of the price of the raw material falling, at the same time that he purchases the product, he can resell it in three months, at the same price, on the futures market”.

6. There you have it in broad terms.

As you can see both activities are judged positively.

Stock market transactions and speculation (even though in everyday language the term has a negative connotation), are not in themselves sinful.

Certainly, as with other human enterprises, there can be risks and abuses, and therefore, sins.

I wish you all good, I recommend you to the Lord and I bless you.

Father Angelo