When Cardinal Ratzinger was elected Pope, his strengths and weaknesses seemed clear. Here was an eminent theologian, philosopher and guardian of Christian truth, but a man unlikely to make the Church’s message relevant to the world today. How simplistic this now looks in the light of his third encyclical, in which Pope Benedict XVI confronts head-on the financial crisis that has rocked the world.

The language may be dense, but the message is sufficiently rewarding. The encyclical analyses modern capitalism from an ethical and spiritual perspective as well as a technical one. As a result it makes the Government’s White Paper on financial reforms published two days later look embarrassingly one-dimensional and colourless.

It is highly critical of today’s global economy but always positive. Its major concern is how to promote human development in the context of justice and the common good. Despite heavy competition from some of the world’s finest minds, it is without doubt the most articulate, comprehensive and thoughtful response to the financial crisis that has yet appeared. It should strike a chord with all who wish to see modern capitalism serving broader human ends.

The Pope makes it clear that the encyclical takes its inspiration from Populorum Progressio, the encyclical published by Paul VI in 1967, at the height of anti-capitalism in Europe. It attacked liberal capitalism, was ambivalent about economic growth, recommended expropriation of landed estates if poorly used and enthused about economic planning.

It was in stark contrast to Centesimus Annus (1991), the most recent encyclical dealing with economic matters, published after the fall of communism by a Polish Pope. John Paul II affirmed the market economy as a way of producing wealth by allowing human creativity and enterprise to flourish.

Pope Benedict is highly critical of modern capitalism. He believes that the international economy is marked by “grave deviations and failures”. Economic growth is weighed down by “malfunctions and dramatic problems”. Businesses that are answerable almost exclusively to their investors have limited social value. The financial system has been abused by speculative financial dealing and has wreaked havoc on the real economy. Globalisation has undermined the rights of workers, downsized social security systems and exploited the environment. As global prosperity has grown, so has “the scandal of glaring inequalities”.

Despite these criticisms, the encyclical has a positive view of profit, providing it is not an exclusive goal. It recognises that more labour mobility resulting from deregulation can increase wealth. It accepts that economic growth has lifted billions out of poverty and enabled some developing countries to become effective players in international politics. Globalisation offers an unprecedented chance of large-scale redistribution of wealth worldwide.

The kind of market economy Pope Benedict defends is much closer to the European social model than the “spontaneous order” of Milton Friedman and Friedrich Hayek. For him, market capitalism can never be conceived of in purely technical terms. Development is not just about freeing up markets, removing tariffs, increasing investment and reforming institutions. It is not even about social policies to accompany economic reforms. At the heart of the market is the human person, possessing dignity, deserving of justice and bearing the divine image. The market needs to be infused with a morality emanating from Christian humanism, which respects truth and encourages charity.

The encyclical suggests six major ways to make global capitalism more human. First, it calls for “the management of globalisation” and a reform of international economic institutions. They are needed “to manage the global economy, to revive economies hit by the crisis, to avoid any deterioration of the present crisis . . . to guarantee the protection of the environment and to regulate migration”. Not surprisingly, for this huge task we need “a true world political authority” through reform of the United Nations.

Next, there needs to be greater diversity among the enterprises that create wealth: mutual societies, credit unions and hybrid forms of commercial organisation. Third, globalisation has weakened the ability of trade unions to represent the interests of workers, something that needs to be reversed. Fourth, the scandal of inequality requires countries to increase the proportion of GDP given as foreign aid.

Fifth, because the environment is the gift of the Creator we have an intergenerational responsibility to tackle climate change.

Finally, everyone involved in the market, traders, producers, bankers — even consumers — must be alert to the moral consequences of their actions. “Development is impossible without upright men and women, without financiers and politicians whose consciences are finely attuned to the common good.”

Pope Benedict’s words are not just platitudes. They affect every person at work every day. In the City they are a challenge to management to create a culture of prudence, responsibility and integrity.

There has to be zero tolerance for misleading clients, fudging conflicts of interest and inflating valuations. However great the revenue they produce, those who deviate must be disciplined. This kind of ethos cannot be imposed by regulation alone.

Lord Griffiths of Fforestfach is a trustee of the Archbishop of Canterbury’s Lambeth Trust and Vice-Chairman of Goldman Sachs International

Times Recommends

• Darling won't pay for Brown give-away
• Believe it or not, Big Brother is your friend
• E-mails were quoted out of context