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Book Review: Can the free market encourage morality?

Book Review: Can the free market encourage morality?

Traders on the floor of the New York Stock Exchange after the collapse of Lehman Brothers in 2008

In “Do Markets Corrupt Our Morals?”, VH Storr and GS Choi argue that the free market can make us better people. Stephen Williams weighs up their claims 

What links Aristotle, Thomas Aquinas, Jean-Jacques Rousseau, Adam Smith and Karl Marx? All of them have tackled the central question that this book poses – do markets corrupt? Following in the footsteps of those great minds, the authors investigate the most convincing theories about how markets work today and have worked throughout history to draw their own conclusions about the often uneasy relationship between markets and morality.

Concerns about the potentially negative moral effects of engaging in market activity have a long history. Aristotle argued that there were two types of wealth acquisition: “One is a part of household management, the other is retail trade: the former necessary and honourable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another.”

His thinking was later echoed by Thomas Aquinas, who believed that a “just price” should not be determined by the buyer’s willingness to pay, but by the costs the seller incurred in producing the good.

Even Adam Smith, who famously celebrated the potential of markets to deliver material wealth, believed that there were moral costs associated with life in market societies. In The Wealth of Nations, Smith argued that the typical labourer in market societies spends his life performing a “few very simple operations” and, as a result, has “no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur”.

Markets promote egoism

Concerns with the market economy were famously developed by Karl Marx, who believed that under it workers became estranged from themselves, their labour, the product of their labour and one another. In short, he believed that the greater the scope of market exchange relations, “the more egoistic and asocial man becomes”. Arguably, such arguments have gone mainstream in the wake of the global financial crisis, which provoked a fresh bout of soul-searching around global market activity.

When Lehman Brothers, one of the most venerable banks in the US, crashed in 2008, a culture of “sub-prime” lending was revealed that exploited low-income and financially unsophisticated families, tempting them to borrow what they would be unlikely to be able to repay.

Sub-prime lending may not have been illegal, but there is a strong argument that it was deeply immoral. And a corrupt ethos took hold of the financial sector as sub-prime loans were incorporated with other loans, then sliced, diced and resold.

The greed inherent at Lehman Brothers and other financial institutions this century has given weight to the historical arguments of Aristotle and Marx. In the 2012 book What Money Can’t Buy: The Moral Limits of Markets, Michael Sandel argued that an increase in greed has accompanied “market triumphalism”, leading to “the expansion of markets, and of market values, into spheres of life where they don’t belong” – a world “where everything is up for sale”.

Markets ‘encourage social bonds’

It takes a bold pair to tackle such critiques, but Storr and Choi argue that markets encourage social bonds rather than destroy them and reinforce moral behaviour rather than make us selfish.

The academics attempt to demonstrate that people in market societies are wealthier, healthier, happier and better connected than those in societies where markets are more restricted. They write: “Markets do make us wealthier. The US, Western Europe, and parts of Asia, Africa, Latin America, and Eurasia, where markets thrive (i.e. where property rights are secure and contracts are enforced) are richer than the parts of the world where markets are constrained.”

However, they recognise that the contribution of markets to our wellbeing does not by itself overcome the criticism that “engaging in the market comes at a tremendous moral cost”. At the same time, they dismiss defences of the market that claim it is merely a neutral tool for the delivery of goods, or that it transforms private vice into public virtue. If the market really is morally corrupting, they argue, neither argument “constitutes a convincing defense against that charge”.

Most provocatively, they argue that markets serve as moral spaces that both rely on and reward participants for being virtuous while boosting social bonds. Their conclusion is that the market is an arena where individuals are encouraged to be their best moral selves – rather than corrupting us, they make us better people.

“We find that markets are not morally corrupting. In fact, we argue that there are compelling reasons to believe that the reverse is true, that is, that markets are moral training grounds that support moral improvement.”

Moral limits of the market

The arguments set out in this book, as fascinating as they are, do not of themselves make it easy to either defend the market economy nor argue for any alternative. For the fact is that market economies have often run out of control, but regrettably there is an absence of any viable alternative.

The authors are particularly scathing of socialism, which they argue has “repeatedly failed to deliver prosperity” and encouraged repressive political systems. But they concede that the gap between the rich and the poor in some market economies is particularly wide.

Much has been written on how efficient regulatory authority would go a long way to mitigating the negative impacts of the market economy. Free market economies need to be aware of and recognise the moral limits of their activities. The authors appear to recognise some of the limits.

Even as they celebrate the positive impacts of the market, they also argue that the system works better when the behaviour of its participants is governed by morality: “The evidence suggests that, rather than making us selfish and corrupt, markets both work better when peopled by virtuous people and when they encourage virtuous behavior.”

 

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Written by Stephen Williams

Stephen Williams is a freelance journalist, based in London. A specialist on Africa, his remit also includes the Middle East and North Africa. Williams currently works for a number of London-based print publications including New African magazine.

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