The social excellences that I have suggested can be derived by considering the effective functioning of a free society make a conventionally appealing set: respect for others’ rights, candor, probity, patience, nonlitigiousness, loyalty, and reliability. But it should not be thought that every widespread intuition—“prevailing ethical belief”—about social ethics is thereby confirmed, or even most of them. A couple of examples of prevailing ethical beliefs that are contradicted by the argument from the needs of a well-functioning free society will help make clear the sort of social ethics that is implied by this line of thought. Continue reading
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
The basic tenets of a broadly Aristotelian approach to ethics are, I think, familiar. Therefore, I shall just provide a basic sketch of the sort of view I have in mind without dwelling overmuch on the details. The aim is to show how an Aristotelian ethics might resolve the difficulties that have been identified for any moral view that hopes to provide a moral vision for a free society. Those difficulties, to repeat, are: first, to provide a reason why agents operating within a free market should care about observing (a) the rules that create the free market (basically, individual rights to one’s own person and property) and ideally also (b) additional principles that reduce transactions costs, such as candor, loyalty, reliability, zeal for just punishment, and fair-mindedness; and second, to reconcile this reason to care about maintaining the free market with the sort of motives and behavior that are appropriate within the free market.
I take the fundamental claim of an Aristotelian ethics to be that the highest value for any organism is to be a good organism of its kind. Continue reading
Ayn Rand claimed that her system of ethics “is the moral base needed by…Capitalism” (1961, 33, all citation emphases original). Her moral defense of a free society can be stated very briefly as follows. Human beings must live by reason. Other animals may be able to get by on instinct, but the human animal cannot. This point is made particularly clear by considering economic activity since the industrial revolution. The exponential growth in quality of life by essentially every indicator—from life expectancy to population to nutrition to health to education to comfort and leisure opportunities to you-name-it—since the industrial revolution has been made possible not only by the application of scientific and technological knowledge but by innovation and entrepreneurship. These are the achievements of a rational animal and only a rational animal. But the achievements of advanced economies are only the most dramatic demonstration. In every aspect of life, at any level of civilization, we can and must employ reason to determine our interests, goals, and actions, if we want to be successful in the game of life.
Now, reason is a faculty of individuals. Continue reading
Apropos of Hayek’s claim that the mores needed to sustain the extended order (namely, several property and personal responsibility) evolved by a process of cultural group selection, I want to add a note about the origin of the prosocial attitudes (or values, behaviors, etc) needed to support the operation of the free market. To return to part 6 (on Hayek), click here. To advance to the next chunk of the main argument, click here. The complete essay is posted here.
Bowles and Gintis, in A Cooperative Species: Human Reciprocity and Its Evolution (2011), provide a helpful chart of the different theories of how prosocial behavior might have evolved (page 53). The main division is between some form of genetic evolution and cultural evolution. Genetic evolutionary theories basically depend either on some sort of kin selection mechanism (organisms are benevolent toward family members because they share their genes) or on group selection (prosocial traits like honesty spread because groups of honest individuals out-compete groups of dishonest individuals). Cultural evolutionary theories generally depend on some sort of mechanism of reciprocity, either direct (tit-for-tat) or indirect (benefits of having a good reputation).
None of these provides a good explanation of how the sort of virtuous behavior that brings the free market into existence could have evolved, especially in large scale societies. Continue reading
Robert Frank (1988) could hardly be accused of attempting to provide a moral vision for a free society, but he makes a case for one way of resolving the moral contradiction of the free society. He attempts to show how a seemingly selfless adherence to the moral principles that support the efficient operation of the free market might ultimately be justified in egoistic terms after all. The basic strategy is to reap the long term benefits of playing by free market rules by foregoing the short term gains that can be made by breaking them. Of course, this depends on finding other agents who also obey the free market rules—and enabling them to find you. Otherwise, as Frank shows, the strategy will be undercut and ultimately defeated by rule breakers.
How this strategy works can be illustrated by the case of honesty. Honest behavior is economically selfless on those occasions when one could gain by dishonesty (for example, perhaps by not paying the bill of a supplier who is about to go bankrupt or the bill of a small contractor who can’t afford to sue). Now, suppose you committed yourself to a policy of strict honesty. If others knew this, they would have reason to prefer doing business with you over others, to give you easier credit, etc. For, they could be confident that you would not rip them off; i.e., impose costs on them through dishonesty. In North’s terms, doing business with you would lower their transactions costs. Thus, by foregoing the occasional rip off, you reap the rewards of doing more business on better terms. And notice, by the way, that even if other people adopt the same honesty strategy, thereby undercutting your “market edge,” your terms of doing business will still be better. Transactions costs are still lowered, even if everybody becomes completely honest (indeed, they are lowered even more).
Of course, this works only if people know you are completely honest. Continue reading
Here is the sixth chunk of the argument. To return to the fifth chunk, click here. To advance to the seventh chunk, click here. The complete essay is posted here. An Addendum to the present chunk, on cultural group selection theory, is posted here.
Nozick’s is a split view. There is the morality of the side constraints, and there is the egoistic morality of the market, and they have essentially nothing to do with each other. From the perspective of either, there is no intrinsic reason to care about the other. A similar critique ultimately applies to Hayek’s otherwise very interesting take on a moral vision for a free society in The Fatal Conceit (1988).
Hayek believes human behavior is structured in three tiers. The lowest tier is instinctual and includes genetically supported behavioral patterns and impulses that evolved over the thousands of years of our hunter-gatherer prehistory. The second tier is that of culture. Cultural customs, traditions, mores, and practices are transmitted through social learning. They evolved through a blind, quasi-Darwinian process of relatively random variation and selection through the success or failure of those who adopt them. They are not the product of reason. Reason itself, which is the third tier, is a late product of this process of cultural evolution. It enables us to consciously and critically evaluate evidence, hypotheses, and proposals. It is the only self-aware capacity of the three, but it is a very weak instrument. It is almost entirely incapable of grasping the reasons or justification or purposes of our actions or of predicting their effects. Hayek believes reason across the board is highly overrated. It serves mostly as a source of post hoc rationalizations of our behavior. One should not trust reason, whether theoretical or practical, very far at all. (The hostility to reason betrayed in this book is stunning. But further discussion of this point is a topic for another time.)
The different tiers are the source of different and sometimes conflicting behavioral imperatives, particularly “moral” imperatives. Continue reading
Resolving the Contradiction
A satisfactory moral vision for a free society cannot be a schizophrenic opposition of moral directives. Yet that’s where we’ve been led by our investigation of the moral implications of the economic theory of the free market. How can these conflicting directives—to constrain our pursuit of our own utility for the sake of the free market as a whole, but also to pursue our own utility egoistically—be reconciled into a consistent moral picture?
To investigate this problem, it will be useful to survey some attempts to provide some sort of morals for the free society.
Nozick (1974) speaks of the moral rules that bring the free market into existence as “side constraints.” The idea is that one maximally pursues one’s own goals in a state of unconcern for the goals others, while at the same time observing a set of extraneous, more or less absolute restrictions on one’s range of action. You pursue your own goals however possible, except that you aren’t allowed to kill or maim anyone, rob people, defraud them, etc. The constraints are called “rights,” and they are conceived as prohibitions on allowed action that stand completely outside the order of ends or utilities. According to Nozick, the source of rights is that “individuals are inviolable” (1974, 31). “Why?” asks the market egoist. “Why should I care about other individuals?” Nozick: “Because Kant.”
So there are rights, which appear as a set of rules separate from the rest of life, and there’s the rest of life, which can supply no intrinsic motivation to respect rights.
This is obviously no solution. It is just a reaffirmation of the very schizophrenia we want to escape. It sets rights and market behavior in opposition, the selfless versus the selfish, with the irony that the selfless observance of rights exists to create the selfish market. It invites people to think of the market as something that does not reward and even punishes rights-respecting behavior, and to think of rights-respecting behavior as something it’s better to get others to do while avoiding for themselves. In addition, it treats rights as the only source of moral constraint on the pursuit of one’s own goals. Now, perhaps the bare observance of rights is enough to secure “liberty.” But we have seen that a perfectly efficient market, which optimizes the outcomes of all, requires the elimination of all transactions costs and therefore requires adherence to mores of behavior, such as candor and fair-mindedness and forgivingness, that go well beyond the bare observance of rights.
- Nozick, Robert. 1974. <em>Anarchy, State, and Utopia</em>. Basic Books.
We have arrived at a peculiar situation. For the free market to exist at all requires that people adhere to certain moral principles that constrain their pursuit of their own utility, such as respect for property rights and the principle of noncoercion. And these minimal principles aren’t sufficient for a perfectly efficient free market (one that satisfies the conditions for perfect competition), only for a modestly efficient free market. Of course, no market will exhibit perfect efficiency, but efficiency will improve the more open, honest, probative, loyal, forthcoming, fair-minded, and so forth that people are, again at the expense of their pursuit of their own utility. And this generates the apparent paradox that people must be community-spirited in order to set the stage for them to be selfish!
So, what is the message here? Are people supposed to be egoists or not? In the purely competitive market, people are supposed to follow only one principle: egoistic utility maximization. But for such a market to exist, even approximately, people have to follow certain “moral” principles—principles of good behavior distinct from egoistic utility maximization and that often conflicts with egoistic utility maximization.
To be clear: The problem is not that the free society seems to require two different sorts of moral principles. It’s that the different sorts of moral principles conflict, and no rationale is provided for resolving the conflict. We have seen that the egoistic utility maximizer has no reason to forego his own utility to promote an efficient free market (or any free market) where this can be avoided. On the flip side, it’s at least ironic to insist on “moral” rules to create an egoistic free-for-all. Why should people care about nonegoistic constraints on the pursuit of their own utility if their observance is only in the service of egoism?
That a social order should require devotion to principles that sometimes require individuals to restrain their pursuit of their own utility is hardly very surprising or problematic. It’s the mixed message that is the problem. It’s that we demand that people care about the rights of others and simultaneously embrace as their moral vision egoistic utility maximization. On the one hand, we’re supposed to care about community-spirited values; on the other hand, we’re supposed to care only about our own benefit. The problem is to reconcile these two directives.
Of course, this moral vision of pure egoistic utility maximization applies only within a perfectly free market. This means the free society’s members must abide by the rules whose observance brings the free market into being in the first place. The free market depends on the observance of clearly defined property rights, for example, as well as on the observance of rules against direct coercion. But observing these rules is not always utility maximizing. Notwithstanding the many cogent reasons that have been advanced to show why coercive and rights-violating behavior is often not in the agent’s utility-maximizing self-interest, it seems clear that there are still many situations in which such behavior is utility maximizing. Thus, if the free market is to exist, agents must abide by its rules at the expense of their own utility maximization. And these rules—against fraud, theft, and murder, for example—are clearly moral rules. So the free market requires obedience to a certain set of moral rules—namely, the moral rules that establish the free market—that are distinct and apparently not derivable from the morality of egoistic utility maximization.