Morals and the Free Society: 10. Aristotelianism, Part 2—Economic Analysis Can Reveal Natural, Social Human Functions

Here is the tenth chunk of the argument. To return to the ninth chunk, click here. To advance to the eleventh and final chunk, click here. The complete essay is posted here.


When it comes to the social arena—an important one for ethics, obviously—I suggest that insights from economics can provide guidance concerning human functioning. I have in mind especially North’s (1990) analysis, mentioned earlier, of economic functioning in terms of institutions and their effects on transactions costs. That analysis showed that economic growth and prosperity depend on social institutions that reduce so-called transactions costs; i.e., costs associated with trade. In general, any established practice that makes human interactions more predictable and transparent will tend to reduce transactions costs. Simple examples are the convention of driving on the right side of the road and a uniform system of weights and measures. In the latter case, think of the difficulty of putting together a trade of, say, a certain quantity of cloth in return for a certain quantity of corn, without a mutually understood, reliable means of assessing the quantity and quality of these goods. The trade might still be made, of course, but the gains to the parties will be reduced by the additional time and effort required to assess the goods.

More interestingly from the point of view of ethics, transactions costs are reduced when property rights are scrupulously observed, and more, when economic agents are candid about the characteristics of their goods and services and are forthcoming with economic information generally, when their honesty can be trusted implicitly, when they are forbearing of others’ faults and of perceived injuries, when they are not litigious, when they are faithful to long term agreements, when they are reliable. Observance of such principles, where it is widespread, is a sort of institution or set of institutions, the social mores. It seems that we can learn from economic analysis which social mores are most important for producing a prosperous society in which desire satisfaction is optimized for everyone through voluntary arrangements. This is an instance of the strategy I mentioned at the outset, and which we noticed in Hayek, of taking the superiority of the free society for granted and asking what moral principles are required to sustain it. The strategy is powerful, inasmuch as history demonstrates pretty clearly that free social arrangements promote human social functioning at its best. Where free social arrangements have prevailed, there wealth has grown—for all, but perhaps for the poorest most of all—personal dignity has been respected, and humanity has flourished. Moreover, arguably any alternative social arrangement must depend on the principle of coercion, which—theoretical reasons and historical evidence seem to show—is incapable of producing a prosperous society of flourishing individuals. To the degree that all this is true, we have good reason to think that effective social functioning depends on the social mores that create and promote a free society. And this would seem to be an application of the Aristotelian functional approach to discerning proper ethical principles for the social realm.

Notice that the social excellences derived by this method directly benefit the group, not the individual. That this is so is implied by the argument we have seen repeatedly now—in looking at Gauthier, Frank, and Rand—that it is sometimes not in the interest of an egoistic individual to respect the rights of others. There are times, particularly when the expected damage to the social fabric and risk of detection are both nugatory, when one can benefit oneself substantially by committing fraud, theft, murder, and other crimes. The same can be said of the other principles just enumerated: candor, probity, patience, nonlitigiousness, loyalty, and reliability. These are all principles that substantially improve economic efficiency in any society in which they become widely established—“institutions” in the jargon of new institutionalism in economics—but which invite free riding on the part of individuals.

Of course, individuals do benefit from acting in accordance with these institutions, in a variety of ways. They avoid the opprobrium and censure of others that result when noncompliance is detected. If they have been socialized to believe in the relevant institutions, then compliance enables individuals to avoid having a bad conscience. Even if they haven’t been so socialized, it enables them to avoid having to worry about getting caught and having to expend energy to avoid detection. Also, it may well be that people are psychologically disposed, culturally or genetically, to certain principles such as honesty, in which case deception will impose corresponding psychological difficulties. There may also be, in certain cases, the sort of long term benefit to individuals that Frank talks about. However, whether these considerations are necessarily always, or for all people, enough to tip the balance in favor of compliance seems doubtful. Of course, there is also an indirect benefit of compliance, namely the benefit of living in an efficient economy. But this benefit is indirect, and inevitably it is occasionally surpassable by noncompliance. There thus seems to be no escape from the conclusion that respect for the rights of others, along with other transactions cost–reducing principles—candor, probity, and the others—are fundamentally pro-group principles, not pro-individual.

Frank’s example of zeal for punishment illustrates these points. As described earlier, in certain conditions it can be more economically costly than beneficial to pursue punishment of a person who has committed a crime against one. Therefore, if everyone in a society is perfectly economically rational—both the criminals and their victims—crimes will occur whenever the requisite conditions obtain. Potential victims will therefore have to expend resources to guard against these conditions, and so transactions costs will increase. It seems clear that economic rationality on this issue damages the economy as a whole and the interests of potential victims in particular. The problem can be prevented if the members of the society are committed to punishing offenders for the sake of punishment, even when it does not pay to do so in economic terms. As Frank emphasizes, however, pursuit of punishment in such circumstances remains economically irrational in the sense that it is damaging to one’s material well-being. It thus invites free riders who will let other society members pursue punishment in adverse circumstances but who will not do so themselves.

This implies that zeal for punishment is, at least to some extent, a pro-group function, not pro-individual. That is, to some extent its function is to benefit society as opposed to the individual. For, in certain circumstances the individual’s interests are sacrificed for the well-being of society as a whole. The sacrifices are not frequent and not typically large, and everyone benefits substantially from the freedom and general prosperity that results. Still, there is no getting around the fact that, materially, an individual can always do better as a parasite (i.e., as one who avoids pro-group responsibilities such as pursuing punishment whenever they are burdensome and safely avoidable) in such a society than as a solid pro-group citizen.

I have taken care to say that pro-group functions like zeal for punishment are materially or economically irrational. That is because the argument is grounded in considerations of material interest. This leaves open the question of whether individuals might have nonmaterial interests as a result of which “pro-group” functions might be individually rational after all. The individual rationality of pro-group functions might seem especially plausible if such functions evolved genetically. Presumably pro-group functions are the result of some evolutionary process. I have left open, and shall continue to leave open, the question whether this evolution has been genetic or cultural or some combination. (But see the new Addendum to my discussion of Hayek.) As noted earlier, Hayek maintains that the pro-group functions that support a free society are culturally evolved; whereas genetically evolved pro-group functions are mostly appropriate only for life in nuclear families and very small groups. And this is why, he thinks, we find living in accordance with the pro-group principles that support a free society psychologically difficult and even painful. By the same token, however, where—if anywhere—such principles are genetically evolved, we ought to find them psychologically easy and even pleasing to follow. In the case of zeal for punishment, to continue that example, there is evidence that this is so (Boyd et al. 2003; Fehr and Gächter 2002; Gintis et al. 2005; de Quervain et al. 2004). Human beings do have zeal for punishment, in the sense that they derive intrinsic satisfaction from punishing rule violators. The neuroscientific evidence is consistent with the intrinsic satisfaction of punishment being genetically determined, although the studies do not address this question directly. These studies also show, using both computer models and experiments with human participants, a large boost to cooperative behavior due to the introduction of “altruistic punishment” of defectors by cooperators, potentially sufficient to explain the evolution of large-scale, impersonal cooperative behavior by a process of group selection (whether cultural or genetic).

If it is true that punishing rule breakers is psychologically satisfying, then we might be able to say that although zeal for punishment is not always materially rational, it is always (or nearly always) rational overall, when all sources of satisfaction, emotional as well as material, are taken into account. And this might be true of other behavior required by pro-group functions as well—although, looking at the above list, they mostly involve a sort of self-discipline that doesn’t seem particularly natural. But where pro-group behavior can be shown to be a part of our deep psychological constitution, it might be plausible to say that it is individually rational after all, inasmuch as it promotes overall individual happiness. If letting wrongdoers get away with their evil deeds feels bad, and punishing them feels good, then individual happiness is promoted by punishment, even where punishment is not cost-effective in material terms.

Unfortunately for the prospects of a purely individualistic ethics, however, all this argument really seems to show is that our psychological impulses can be misaligned with our individual interests. If we have pro-group functions, it is only to be expected that we should have psychological impulses which motivate us to manifest them. The honeybee that stings an invader to protect the hive, thereby killing itself, must be motivated to do so somehow by innate honeybee psychology. The bee must have a deep desire to sting the invader. This does not convert what is manifestly a pro-hive, self-sacrificial behavior into a behavior that is somehow “really” selfish. The same must be true of human beings. Our being genetically or culturally programmed—if we are—to desire to perform pro-group actions such as punishing wrongdoers, when we would be better off letting them be someone else’s problem, does not somehow convert this into rationally egoistic behavior. Rather, from an egoistic perspective it only means we are saddled with psychological impulses we have reason to regret and to seek to overcome.

This is why, despite presenting this view as Aristotelian, I have not described the result of living a good human life as flourishing, thriving, well-being, or eudaimonia. These have an egoistic flavor that I regard as misleading in light of the evidence that pro-group functions are important in human life. They imply that for one to function well and be a good human being is also good for one. But, because of pro-group functions, this is not always true. Sometimes functioning well and being a good human being are good for one’s community at the expense of oneself. I don’t wish to exaggerate the role of pro-group functions in human life. I think their role is relatively small. Moreover, the benefits of life in a free society, which pro-group functions support, accrue generally to every individual. But the fact remains that, if there are pro-group functions, then functioning well is not always egoistically justifiable. So, if functioning well is the aim of life, then egoism is false. And if eudaimonism is a species of egoism, however enlightened, as it is often thought to be, then the ethical system presented here is not eudaimonistic. (For more on this, see my earlier post, “Aristotelian Egoism and the Ergon Argument.”)

Works Cited

  • Boyd, Robert, Herbert Gintis, Samuel Bowles, and Peter J. Richerson. 2003. “The Evolution of Altruistic Punishment.” Proceedings of the National Academy of Sciences, 100 (6): 3531–3535.
  • Fehr, Ernst, and Simon Gächter. 2002. “Altruistic Punishment in Humans.” Nature, 415 (January 10): 137–140.
  • Gintis, Herbert, Samuel Bowles, Robert Boyd, and Ernst Fehr. 2005. Moral Sentiments and Material Interests: The Foundations of Cooperation in Economic Life. MIT Press.
  • North, Douglas C. 1990. Institutions, Institutional Change, and Economic Performance. Cambridge University Press.
  • Quervain, Dominique J.-F. de, Urs Fischbacher, Valerie Treyer, Melanie Schellhammer, Ulrich Schnyder, Alfred Buck, and Ernst Fehr. 2004. “The Neural Basis of Altruistic Punishment.” Science, 305: 1254–1258.

One thought on “Morals and the Free Society: 10. Aristotelianism, Part 2—Economic Analysis Can Reveal Natural, Social Human Functions

  1. Pingback: Morals and the Free Society: 11. Aristotelianism, Part 3—Conclusion | Policy of Truth

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