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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. Continue reading →