In finance, “efficiency” is usually celebrated as though it were the Holy Grail—right up there with low fees, hot coffee, and working Wi-Fi on airplanes. But efficiency is slippery. A market can be informationally efficient (prices reflect all available information) while being morally inefficient (managers, investors, and companies ignore God’s standards of righteousness). That distinction is what this article explores.
Informationally Efficient Markets
The Informationally Efficient Market Hypothesis (IEMH) suggests financial markets are “efficient” because prices reflect all available information at any given time. Nobel laureate Paul Samuelson once quipped that if markets are efficient, “the price of a stock will fluctuate randomly, but with such randomness as makes the whole game fair.” Translation: good luck outsmarting the system.
Formally, efficiency means: the costless, available information set contains all relevant data from which participants generate expectations of future performance. Those expectations get squeezed through the invisible sausage-maker of finance into one price tag. The implication of EMH is not that financial markets are always right. Almost by definition, they are always wrong—but wrong in ways we cannot predict in advance.
Markets don’t become efficient in a cultural vacuum. They flourish in liberty-based economies. As Jürgen Habermas observed,
“Universalistic egalitarianism, from which sprang the ideals of freedom and a collective life in solidarity, the autonomous conduct of life and emancipation, the individual morality of conscience, human rights and democracy, is the direct legacy of the Judaic ethic of justice and the Christian ethic of love.”[1]
This cultural inheritance allowed Harry Markowitz in the 1950s to develop portfolio theory, reducing investing to a handful of statistical parameters (and giving us more Greek letters than a college fraternity house). By the 1970s, the rise of computing power, empirical research, and visionaries like John Bogle ushered in an era of index funds and broad diversification—bringing low-cost investing to the masses.
Morally Inefficient Markets
But financial markets are not morally efficient. Enter the Morally Inefficient Market Hypothesis (MIMH). Rooted in the biblical doctrine of human sinful depravity, MIMH recognizes that executives, investors, and corporations often fall short of biblical responsibility. “Morally efficient” would mean companies aim to glorify God and treat all stakeholders as image-bearers.
Let’s be honest: there is a substantive difference between Chick-fil-A and McDonald’s. Only one has a corporate purpose statement that begins, “To glorify God by being a faithful steward of all that is entrusted to us.”
Like EMH, MIMH posits that moral information flows into prices. But here’s the rub: markets never come close to reflecting biblical morality. Yet the opportunity is profound: if companies lean away from naturalism and toward a Christian worldview, their valuations should improve. Sin is destructive; righteousness is fruitful.
John Bogle himself worried that the very index funds he pioneered could concentrate corporate voting power in the hands of a few firms. Warren T. Brookes, writing in 1982, noted the deeper conflict:
“We are dealing, no less, with the basic conflict between two entirely different concepts of man and his universe… one determinedly physical and finite and the other profoundly metaphysical and infinite.”[2]
Thankfully, shareholders still legally own corporations, and managers owe them fiduciary duty. Treating employees, customers, and suppliers with dignity is not “woke capitalism”—it’s basic fiduciary logic, since respect tends to improve profits. On top of that, Biblically Responsible Investing (BRI) firms have built tools—like Inspire Insights—that help identify companies funding causes contrary to Christian values. Investors now can design portfolios aligned with biblical principles without sacrificing efficiency.
Merits of Passive Indexing
Now, let’s talk performance. There are very few empirical finance claims with evidence as lopsided as this: passive index funds trounce actively managed funds over time. The S&P Indices Versus Active (SPIVA) scorecards tell the tale. Over 20 years through June 2022, only about 5% of large-cap funds beat the S&P 500.[3] Just surviving two decades was an achievement in itself.
John Bogle summarized the lessons at The World Money Show with three rules: “First, in investing, realize that you get what you don’t pay for. Second: Don’t do something, just stand there. Third, stay the course.”[4] Sound advice for both investors and those of us stuck in traffic.
As Jordan Peterson has remarked, “The future is incomputably different from the present and the past.” If that’s true, then the BRI community would be wise to harness low-cost passive strategies, while aligning them biblically.
A Virtuous Forerunner
So where does that leave us? The BRI movement has made remarkable progress, but the challenge remains: why must BRI funds often charge higher fees and deliver lower returns? Why not a “Virtuous Forerunner”—a family of biblically responsible funds with the same razor-thin fees and broad diversification that Jack Bogle offered, but aligned with biblical values?
C. S. Lewis wrote,
“In reality, moral rules are directions for running the human machine. Every moral rule is there to prevent a breakdown, or a strain, or a friction, in the running of that machine.”[5]
By that logic, firms oriented toward “Mere Christianity” won’t just survive—they’ll thrive.
Imagine a BRI index fund: annual screening, value-weighted rebalancing, tax efficiency, and fees that make Wall Street blush. Lower costs attract assets, which increase revenues, which build scale—without compromise. One early model is Inspire’s PTL ETF, which shows the potential.
Conclusion
Markets can be informationally efficient while morally inefficient. Christians are called to recognize both realities: the usefulness of market information and the danger of moral drift. BRI is not about baptizing Wall Street. It’s about stewarding capital faithfully in a fallen world, pursuing both efficiency and righteousness. And maybe, just maybe, creating a Virtuous Forerunner along the way.
[1]Jürgen Habermas, The Inclusion of the Other: Studies in Political Theory (MIT Press, 1998), 149.
[2]Warren T. Brookes, The Economy in Mind (Universe Books, 1982), 23.
[3]Karen Langley, “Over the Long Run, Few Funds Beat the S&P 500,” Wall Street Journal, July 2022.
[4]John C. Bogle, “Bogle Sounds a Warning on Index Funds,” Wall Street Journal, November 29, 2018.
[5]C. S. Lewis, Mere Christianity (HarperOne, 2001), 69.
I love this perspective. As Martin Luther said, “The Christian shoemaker does his duty not by putting little crosses on the shoes, but by making good shoes, because God is interested in good craftsmanship.”