The Morality of Markets?

Following the forced resignation of Travis Kalanick as  CEO of Uber last month amidst allegations of rampant sexism, harassment, and misogyny in the workplace, the morality (or lack thereof) of the fat cats that sit atop the economic pyramid that is global capitalism is well and truly back in the spotlight. Perhaps it is a welcome change from Jeremy Corbyn hogging centre stage (not just at Glastonbury) with his “For the many, not the few” strap line, appropriated from Tony Blair’s successful 1997 campaign. But even during the Cameron interregnum, the moral argument against capitalism, or more specifically bankers, Tories and policies of austerity has never really been out of the spotlight. Why is this so?

In his essay on Moderating the Dark Side of Emotional Morality with the Bright Side of Market Morality (The Independent Review, 2012), Dwight R. Lee, Professor of Economics opens with the proposition that “Making a convincing moral case for markets is difficult.” Of course, many would argue that is because such is simply not possible, at least not without engaging in sophistry or casuistry. But, undeterred, Prof. Lee sets out to try and put the record straight and show that a plausible argument can indeed be made; further that the difficulty is not so much to do with the lack of ammunition to support such an argument, as from the hard-wiring in human psychology: the “socialist” gene embedded in us all, if you will.

In making his argument Lee goes back naturally enough to the original sources of Adam Smith, pointing out how his seminal economics text “The Wealth of Nations” (1776) was in fact preceded by and premised on his “Theory of Moral Sentiments” in which, as is evident from its title, he approached his subject matter much more unambiguously from a moral perspective. He (Smith) recognised that to satisfy the basic requirements of justice does not particularly require us to do anything, whereas a more magnanimous concept of morality requires us to make effort and sacrifice on behalf of others. Nonetheless, as Lee points out:

Although Smith understood that concern and sympathy for others is critical in prompting harmonious social interaction in relatively small groups, he was also interested in examining how social cooperation can be achieved by the pursuit of self-interest in large and diverse groups in which people have little knowledge of or concern for most of those on whom they depend for their material well-being.

This leads him to consideration of the importance of market mechanisms in allowing the individual to secure from the members of those large and diverse groups with whom he or she does not have any strong social interaction those goods which are needed to secure their material well-being (and vice versa).  As Smith famously observed in his Wealth of Nations in expounding his “hidden hand” concept:

By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

And likewise, the wider society through the hidden hand mechanism is able to satisfy his needs in many ways which those in his immediate society are unable to do.

The problem we tend to have in embracing this “market morality” over and against what Lee calls “magnanimous morality” is that the latter requires us explicitly to will and to act in the bringing  about of the well-being of others and the former does not. And as human beings we are strongly wedded to an intentional mode of moral reasoning (pace Kant and his categorical imperative) and resistive to the idea of acknowledging virtue on the basis of any beneficial consequences of an individual’s actions not explicitly intended from the outset.

Lee cites the arguments set out by evolutionary psychologists and cultural anthropologists to the effect that the cherishing and manifesting of such altruism developed in early hunter-gatherer societies as a necessary condition for the coherence and survival of the group. Thus emerged the concept of the “moral community.” Consequently, we find ourselves biologically “hard-wired” to judge others on the basis of perceived magnanimity or altruism. The result of this is an in-built bias against recognising the great service that is done to us indirectly by those with whom we engage in the market to buy and sell goods and services to mutual benefit; we are more likely to notice, say, the kindness of a stranger who holds a door open for us with a smile.

In this way we are all readily tempted to conform to expectations by engaging in virtue signalling and find ourselves warming to the arguments set forth by virtue signallers, thus establishing cosy circles of self-congratulation. But, Lee goes on to claim there is logically also a “dark side” associated with such behaviour:

Indeed, the dark side of magnanimous morality is that the stronger it pulls people together in a community with which they identify, the more likely it is to motivate them to commit violence against other communities to which they do not belong.

Indeed such competition (and not infrequent violence) between neighbouring communities has tended to be an ever-present feature of human social organisation, giving rise arguably to tribes, then to the nation state as larger co-operative groups which act as mitigants. More recently we have seen the rise of the European Union and other blocs of nations and supranational institutions seeking to extend this co-operation to a yet higher level (although the success of such projects is more equivocal). But undoubtedly what has done more to foster co-operation between diverse groups across the globe with mutually incompatible worldviews and interests is the global marketplace: the economic harm that we as a people might suffer if relations break down with our trading partners over some political or territorial dispute invariably brings us back to the negotiating table.

This is the essence of the moral argument for markets: by tying our interests and our prosperity in with strangers across the wider society and indeed the world we are led to a beneficial mutual co-operation and dependence which can go beyond the zero sum interactions which tended to take place between rival tribes and nations in earlier times.

Lee goes on in the latter part of his paper to cite extensive evidence from other sources of the moral benefits which markets bring. The interested reader would do well to follow them up. When something mundane such as markets is so easily taken for granted and doesn’t require our explicit attention for its continuing autonomous operation, we can easily underestimate its importance. But we do so at our peril. Free trade and open markets have many vocal opponents and, as we have seen, they are able to marshal powerful moral arguments in their cause to which we are intrinsically susceptible. Protecting and maintaining markets requires the constant reiteration of both their practical and their moral benefits for us all.

By Colin Turfus

Colin Turfus is a quantitative risk manager with 16 years experience in investment banking. He has a PhD in applied mathematics from Cambridge University and has published research in fluid dynamics, astronomy and quantitative finance.

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