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Moral Reflection and the Market Social System
ASREC Conference: April 3, 2009
Presented by
James Halteman
Wheaton College, IL
How should a society organize itself to achieve its goals? What constitutes the social glue
that binds together individuals into a collective order? Throughout all of history these
questions have occupied many of the best minds from one age to the next. Over time the
answers to these questions have changed as circumstances and beliefs change, but the
categories of analysis seem to have stayed fairly constant. One category is resource
provisioning and another category is moral reflection. This paper picks up the story of
social organization in the 18th century when the Enlightenment ideas were laying the
groundwork for a new kind of social order in the Western world. The movement from
medieval society to a mercantilist economy and then to a market economy will not be
reviewed here. What will be examined is the way in which the moral life is integrated
with economic thinking that views the market as the primary social organizing institution.
Three viewpoints are apparent in the literature on economics and the moral life. The first
builds on the significant work of Adam Smith who did more to integrate social analysis
than most other thinkers. In this view Smith argues that markets are viable if the passions
of human nature are sufficiently transformed into virtues by a moral process not of
human making. In other words, the moral life is a prerequisite for effective market
coordination. The second view follows from post Smithian classical and neoclassical
economists who find in the market itself the incentives that condition unsocial passions
without significant moral reflection. Religion and the moral life become private optional
concerns because systemic incentives to follow the rules of the economic game will be
sufficient social glue. A third view claims that a social order does need moral reflection
and the virtues are essential to any social glue. However, interaction in the market itself
generates these virtues as people engage in production and exchange activities. Deirdre
McCloskey’s book on Bourgeois Virtues takes this position.
In this paper these three cases will be analyzed in relationship to five issues that help
determine one’s position on economics and moral reflection. The five issues which vary
in importance in each case are as follows: a) Human nature: The more depraved or selfish
human nature is, the more moral content is required to have the social system succeed. b)
The demands of the moral life: If the moral life requires little more than the pursuit of
private interest, then the need for moral reflection is minimized. c) The nature of a social
system. The more organic and evolutionary a social system is perceived to be, the greater
will be the need for moral reflection compared with a system that is thought to be
mechanistic and predetermined by nature. d) The source of human motivation: If
behavior is primarily driven by the senses and emotions rather than by rational scientific
processing, then moral reflection becomes increasingly important. e) The validating
criteria: If the moral desirability of a system is determined by its outcomes, then moral
reflection becomes less helpful. When ends justify the means moral reflection has lower
standing than it would have if moral means were important for their own sake.
It is instructive to begin with Adam Smith’s view of how the moral life relates to the
social order. First, human passions are divided into three categories and then the passions
are filtered through the screens of sympathy and the impartial spectator. When filtered
effectively the result leads to the development of the virtues, which brings happiness and
tranquility to people in this life and harmony to the social order. The chart below
illustrates this process of the moral life.
Human Passions and Adam Smith's View of Virtue
Social Passions
Generosity
Compassion
Esteem
Unsocial Passions
Hate
Envy
Revenge
Selfish passions
Grief
Joy
Pain/pleasure choice
Self preservation
Desire for Approval
All of the
passions are
subject to
filters or
screens that
condition behavior. The
first screen is
sympathy,
which allows
a person to
identify with
another or to
develop a
fellow feeling
toward them.
The second
screen is the
impartial
spectator in
which one
enters into
their own
situation
from behind
a veil of
ignorance in
order to
make
impartial
moral
judgments.
The All Seeing Judge of the Universe
(For a more complete discussion of the chart of Smith’s moral theory refer to James
Halteman, “The Market System, The Poor, And Economic Theory” in Toward a Just and
Caring Society edited by David P. Gushee, Baker Books, 1999. pp. 77-80. Also see James
Halteman, “Is Adam Smith’s Moral Philosophy an Adequate Foundation for the Market
Economy” in Markets and Morality, Vol 6, Number 2, Fall 2003.)
From the social
passions come the
virtues of benevolence
and self-control. The
highest virtues
possible.
The unsocial
passions are
unacceptable and are
kept hidden if one
seeks social approval.
Selfish passions,
when filtered, lead to
the virtues of
prudence and justice.
These lead to the “rules
of the game.”
In this chart the dominant passions of humanity are in the lower left box. They are the
ones that form the glue for a social order because the passions in the top box are too rare
and the passions in the middle box are rejected as unacceptable and so they cannot be a
positive force in society. It is significant that this is a natural process given to humanity
by the creator. Sympathy puts us into another’s shoes and helps us imagine what they
would see as appropriate for our situation. Our behavior is influenced by how we think
they view us and also by what we would expect of them if they were in our place. From
this perspective we can make judgments about their behavior as well as our own.
The impartial spectator helps us step away from our biases and review our own behavior
thereby gaining a perspective that is removed from self-interest. However, there are times
when these interpersonal and detached screens fail to promote acceptable behavior. In
those cases the all-seeing judge of the universe compels us to override the failed social
screens that usually lead to appropriate moral behavior. When viewed together these
three checks given to us by the creator keep the selfish passions from going awry and
provide the necessary social glue for a successful society. What is good and just and right
can be achieved, but the reference point for this system is the creator. There is a telos or
purpose of human activity that exists outside of human preference.
Seventeen years later after repeatedly working on versions of this moral theory and
struggling to see how it might be related to the economic, political, legal and religious
spheres of life, Smith published The Wealth of Nations, the political economy component
of the entire social package. When one has absorbed Smith’s moral theory recognizing
the moral restraint that exists upon the passions of humanity, the treatise on political
economy takes on a different tone than if the moral theory is missing. Self-interest is now
coupled with the desire for social approval and the approval of the IS as well as the allseeing judge of the universe. In Smith’s words: “If he would act so as that the impartial
spectator may enter into the principles of his conduct, which is what of all things he has
the greatest desire to do, he must, upon this, as upon all other occasions, humble the
arrogance of his self-love, and bring it down to something which other men can go along
with.” (Smith, 83)
From this brief look at Smith’s moral theory we get clues to his position on the five
issues listed for evaluation. Smith has a rather low view of basic human nature. It is
dominated by passions that need to be conditioned. The moral life is imagined and
sympathy and the impartial spectator hold out high standards that can only be achieved
through a mastery of self-control. Though the system is designed by the creator there is a
high level of human choice and progress is possible if the right institutions are in place
and the moral life is cultivated. Behavior is driven more by the passions and emotions
than by a rational process that infuses moral behavior by logic. From this it is clear that a
viable social system will depend on free exchange within a morally conditioned
environment. A good outcome is the result of moral behavior and the means must be
moral if the outcome can be justifiable.
After Smith, the moral dialogue was slowly replaced by a move toward economics as a
science. Ricardo led the way in conceptualizing the economy as a mechanical system. His
clarification of the quantity of money theory, his insights into the diminishing returns in
production and its impact on rent, and his illumination of the theory of comparative
advantage in trade relations all solidified the notion that economic forces were connected
in a system that would have its way best without intervention from policy makers or
moralists.
Of particular importance at this time was the concern of income distribution and the
rising poverty and disparity of income that accompanied the industrial revolution. The
working class lived near subsistence in 1750 and over the next 80 years their real income
did not appreciably improve while the wealth of the upper classes grew. (Hunt, 65) In
contrast to what many of his contemporaries believed, Ricardo saw poverty as inevitable
because of natural human reproductive tendencies.
It is when the market price of labour exceeds its natural price that the condition
of the labourer is flourishing and happy, that he has it in his power to command
a greater proportion of the necessaries and enjoyments of life, and therefore to
rear a healthy and numerous family. When however, by the encouragement
which high wages give to the increase of population, the number of labourers is
increased, wages again fall to their natural price, and indeed from a reaction
sometimes fall below it. (Ricardo, 45-46)
In this view Ricardo was following Malthus whose focus on population trends led him to
be skeptical of intentional efforts to solve the poverty problem. Thomas Malthus begins
his essay with the stated purpose “To investigate the causes that have hitherto impeded
the progress of mankind towards happiness.” (Malthus, 1) His assumption from the
beginning about poverty and hardship was that there was “one great cause intimately
united with the very nature of man; which, though it has been constantly and powerfully
operating since the commencement of society, has been little noticed by the writers who
have treated this subject.” (Malthus, 1963, 1) In Malthus’ first edition of The Principle of
Population he focused on the inevitability of the positive checks of pestilence and
famine, which kept population in balance with food supply as if nature was the cause and
solution to excessive population and therefore poverty.
For both Ricardo and Malthus the words “natural price” and “nature of man” tended to
soften any moral obligation to help the poor, because the system of supply and demand
coupled with the “law of population growth” would mean poverty was here to stay.
Nature rather than moral reflection determined labor’s position in life. Consequently,
coming from a position of commutative justice, neither Ricardo nor Malthus was a
supporter of public redistribution of wealth except in cases of clear necessity.
Mill, who recognized the possibility of Malthus’ dismal population predictions, felt that it
might be possible for education and rational moral reflection to overcome the iron law of
subsistence wages. Rudi Verburg makes a case for Mill as one later classical economist
not willing to divorce moral reflection from economics. By examining Mill’s political,
economic and moral ideas as a package, Verburg concludes that Mill saw the possibility
of moral progress as people became better educated to the issues involved. In fact, for
Mill, moral reflection, enlightened self-interest, and interest in the common good, can all
evolve from within the system as freedom and progress work together for the happiness
of the individual and the betterment of society.
In the process of discovering the nature of his happiness, the individual learns
that his own happiness is intimately connected with the happiness of others
and to act accordingly. In this respect cultivation of individuality by
exercising the human faculties in experimenting, judging and choosing among
alternative modes of life to promote welfare on the basis of one’s own
judgments and inclinations is essential to the development of moral character.
Hence the value Mill places on liberty as a precondition to this process of
cultivating character. (Rudy Verburg, 233-234.)
Mill was an eclectic and it is easy to find passages in his work that support a variety of
agendas. He believed in the natural principles of production and the possibility for a
social distribution of income according to human judgments. Competition was necessary
and better than the alternatives in his mind and he considered himself an advocate for
Classical economics. But he was much more than an economist and the philosopher in
him searched for a way in which Classical economics could join with social and moral
development to generate more happiness for all. In this quest his utilitarian and optimistic
approach to the social order led to a more voluntary collective type approach to social
policy than Ricardo or Malthus envisioned..
The moral philosophy of Mill is not as clear as the moral philosophy of Adam Smith
because it assumes that education and reason together will guide people to socially
responsible behavior. The sense of telos in Smith is not as apparent in Mill because Mill
sees sufficient moral resources within the person that, if awakened by education, can lead
to social harmony. “The peculiar characteristic, in short, of civilized beings, is the
capacity of co-operation; and this, like other faculties, tends to improve by practice and
becomes capable of assuming a constantly wider sphere of action. (Mill and Winch, 59)
In the final analysis moral development was a normal good for Mill and he believed
economic and moral progress would lead to a better cooperative future. Mill’s journey is
described briefly here to illustrate that the movement from a Smithian type social system
to the mechanistic order of later classical economists did not come easily for many.
While Ricardo, Malthus, and Mill focused their economic analysis primarily on the
production side of economic life to show how nature’s production principles influenced
resource allocation, Jeremy Bentham was observing that the demand side of the market
was also structured by nature and therefore not in need of moral reflection as a dialogical
process. For Bentham the foundation of ethical norms was not derived from a source
outside of creation. Instead, pain and pleasure became the metric for morality.
Nature has placed mankind under the governance of two sovereign masters,
pain and pleasure. It is for them alone to point out what we ought to do, as
well as to determine what we shall do. On the one hand the standard of right
and wrong, on the other the chain of causes and effects, are fastened to their
throne. They govern us in all we do, in all we say, in all we think: every effort
we can make to throw off our subjection, will serve but to demonstrate and
confirm it. (Newman,166)
Moral reflection, in this view, is nothing more than calibrating personal feelings and
optimizing net pleasure. The feelings are determined by nature rather than rational
contemplation. We are governed by and subject to nature rather than moral agents
responsible for discerning what is right and good.
Building on this framework, William Stanley Jevons in 1860 applied this thinking to shift
the source of value in economic analysis from objective cost measured by labor effort to
subjective utility measured by individual preferences expressed as demand for goods and
services. The 1860’s were a watershed period in economic thought as several writers
independently argued that the value of a good or service depended on the pleasure gained
from the last unit consumed on the market demand curve. Some frivolous trinket that
took little time and resources to produce could sell for a high price as long as it caught the
fancy of consumers. While cost of production still conditioned how many items would be
produced in the long run, the exchange value was still determined by the marginal utility
realized in a competitive market. To Jevons, labor value was determined by a product’s
price rather than price being determined by the cost of labor expended in production. In
his words, “I hold labour to be essentially variable, so that its value must be determined
by the value of the produce, not the value of the produce by that of the labour.”
(Newman, 410)
When coupled together with the Ricardian production side of the market, this utilitarian
view of the demand side of the market puts the entire market outside the bounds of moral
reflection and practical ethics.
Reflecting on the outcomes of classical economic thinking, John Maynard Keynes found
the dominance of the Ricardian system a curious and mysterious happening. He
attributed it to the fact that it met a need of the times, that its counter-intuitive findings
added intellectual attraction, that its broad scope gave it beauty, and that it promoted
freedom for capitalists to pursue their wishes. Regarding the way it provided an escape
from moral accountability, Keynes declared, “That it could explain much social injustice
and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt
to change such things as likely on the whole to do more harm than good, commended it
authority.” (Keynes, 33)
By quantifying production functions and utility functions the process of optimizing the
system into a general equilibrium framework was undertaken by what we now call the
Neo Classical economists. This is how the world worked economically and moral
considerations were eliminated from the process. The metamorphosis of political
economy to economics was now nearing completion. Economics could generate
predictions and it fit more closely with mathematics and the physical sciences. One
mathematician who qualified this trend was Alfred Marshall. (1842-1924) While his
name is most closely associated with neo classical economics and his Principles of
Economics book of 1890 became the standard text of the discipline for at least 40 years,
Marshall was uneasy about the divorce between economics and moral reflection. While
he did much to solidify Neo Classical market theory, he did not promote economics as a
value free enterprise. Marshall repeatedly raises reservations about the system he helped
to foster describing the homo economicus person as being faulty and inadequate for
analysis. In a lecture in 1885 Marshall describes “The chief fault in English economists
at the beginning of the century was not that they ignored history and statistics, but that
they regarded man as so to speak a constant quantity, and gave themselves little trouble to
study his variations. They therefore attributed to the forces of supply and demand a much
more mechanical and regular action than they actually have. Their most vital fault was
that they did not see how liable to change are the habits and institutions of industry.”
(Marshall Inaugural lecture, 1885) Marshall’s confessions illustrate that classical and neo
classical economists view human motivation as coming primarily from nature which has
done the heavy lifting with respect to moral matters.
Referring back to the five indicators of moral sensitivity Ricardo, Malthus, and Bentham
treat human nature as neutral in that they are rational processors of information and
preferences, but nature more than moral reflection conditions behavior. Mill sees people
as needing moral conditioning, but he sees this as happening through experience and
education in a progressive process leading to socially desirable outcomes. While
education can include moral reflection there is much less attention to a moral process
because, for Mill, it applies only to certain areas of life such as income distribution.
Production is governed by natural forces. Marshall sees behavior as being influenced by
social institutions more than a specific educational process, but he does not emphasize a
negative bend in behavior similar to Smith’s unsocial passions.
To summarize, in the post Smithian classical and neo classical writing there is scant
evidence that the moral life demands more of a person than to submit without effort to the
natural forces at work in a person’s life. There is no discussion of the self-control evident
in Smith’s work and even the preventive population checks of Malthus are viewed as
almost irrelevant due to the force of nature’s drive to procreate. Only Mill and Marshall
emphasize moral development as value added to natural forces, but the process of
educating toward a higher moral standard is rather ambiguous and certainly less
developed than Smith’s moral theory.
Nearly all of the classical writers see economic activity as mechanistic rather than
organic and evolutionary. Again only Mill is willing to put one area, the distribution of
resources, in the domain of human discretion. Ricardo reduced economic thinking to
systemic regularities with the tools of deduction and mathematics. Jevons, using the
principle of diminishing marginal utility, put the consumer optimization process in
mathematical terms declaring that exchange value was determined solely by this natural
principle. Gradually the interdisciplinary richness of Smith’s work became a scientific
process of discovering natural principles to which people would do well to submit. Moral
reflection got lost in the process. Alfred Marshall, looking back on the later classical and
early neoclassical efforts, captured the concern over what was happening. “But ethical
forces are among those of which the economist has to take account. Attempts have indeed
been made to construct an abstract science with regard to the actions of an ‘economic
man’ who is under no ethical influences and who pursues pecuniary gain warily and
energetically, but mechanically and selfishly. But they have not been successful, nor even
thoroughly carried out.” (Marshall, vi)
Regarding the decision process the classical writers have all but jettisoned the role of
emotions and sentiments, relying on the rational faculties of individuals. Interdependence
collective action, and any semblance of Smith’s sympathy are rarely seen in economic
thinking by the beginning of the 20th century. The final criteria of means and ends is
irrelevant for the classical and neoclassical economists because the means are not chosen
by some process which involves moral reflection and the ends of the natural process are
the material betterment of the human condition.
To summarize, classical economists after Smith saw economic activity being driven by
forces of nature with the market giving people the signals regarding wise economic
choices. The natural forces of competition, specialization and exchange, the free
movement of resources, and utility maximization calls forth behavior that leads to
abundance and therefore the good life. These outcomes result because market
mechanisms and rational processing naturally work toward that end without the
cultivation of morality and virtues beyond that of prudence. For Smith there is telos, a
purposeful creator and a role for the senses and the imagination. After Smith, with the
exception of Mill at points, there is the loss of telos and rationality supersedes the senses
and imagination.
A third view of markets and the moral life argues the reverse case from Smith. Instead of
the view that virtues must be cultivated as a prerequisite in order to have a viable market
system Deirdre McCloskey in The Bourgeois Virtues (2006) sees the market as a
cultivator of virtue and that it needs to be restored to its place as a positive force for
ethical development in society. “The claim here is that modern capitalism does not need
to be offset to be good. Capitalism can on the contrary be virtuous. In a fallen world the
bourgeois life is not perfect. But it is better than any available alternative.” (McCloskey,
1)This view is popularized in some circles where political, religious and economic
freedoms are wrapped together into a package of mutually reinforcing forces generating
the virtuous flourishing life.
McCloskey’s book is an extensive look at the history and content of the seven classic
virtues: prudence, temperance, courage, justice, love, faith, and hope. Her case is depends
on the argument that capitalism has worked and, despite its faults, contributes to the
development of the ethical life and therefore the social glue of society.
There is much that is intriguing in this argument and the manner in which the virtues are
classified expands greatly the dialogue about markets and their moral foundation. Rather
than a prudence only underpinning to markets McCloskey formulates the virtues in a
manner that accounts for three important tensions in human activity. First, the need for
autonomy and freedom is sometimes in tension with connection and solidarity. Second,
the profane and the ordinary contrasts with the sacred. Third, the virtues are classified
with regard to how they contribute to our understanding of the self in relation to others
and the transcendent. McCloskey does not search for some elusive utopia where all the
virtues are practiced to perfection. She claims that such a world is an impossible dream.
Tradeoffs must be made but in the process some balance for a desirable life can be found.
Essentially the free market system fosters a better balance of the seven virtues than any
other alternative.
McCloskey does not sugar coat human nature. In her view it falls far short of what would
be needed to promote an examined virtuous life. For people to realize their potential the
moral life needs to be cultivated. Assuming that markets are limited to the virtue of
prudence is a big mistake because market activity requires practices that become fertile
ground for the development of all the classical virtues. Markets are far from mechanistic
in McCloskey’s view. They are a social institution that is complex and conditioned by
social norms and values. Both rational and emotive factors are needed to analyze
behavior and there is no expectation that the practice of the virtues will lead to much
more in this world than a workable system. Because markets seem to be the best
economic system available McCloskey is supportive of them and the level of virtue they
generate for the social order. In some sense, the ends justify the means in this case
because if markets did not produce more goods and services than an alternative system
the virtues they foster might be better generated by other means.
Given these three approaches to markets and the moral life, in my opinion, the Smith and
McCloskey cases have the most appeal. Although they have opposite explanations for
how markets and the moral life relate they both recognize the wide-ranging role that
markets play in a social order. The moral life as prerequisite for a successful market
system seems more accurate than the moral life as a by-product of the market system, but
in each case the mechanistic rational choice framework of the classical economists is
expanded into a fuller social story. The following table illustrates the point more clearly.
In the table the cells list a variety of motivations for behavior. Typically, economists
focus on only the rational choice motivation but its limitations are becoming more
apparent.
Rational choice
Psychological
Social Norms
Emotions
Interdependent
predispositions
behavior
Culture and
Genetic
Significant
Values, beliefs & Other
heritage
predispositions traumatic events moral reflection
While progress is being made toward integrating the areas shown in the upper row of
the table, the category of values, beliefs and moral reflection is still a questionable area
for economists to explore in their professional role. While the economics of religion is a
growing area of research, most of those efforts involve work from within the rational
choice framework and such efforts have frequently found a more receptive audience in
sociology than in economics.
While it may seem from the table above that this is a call to broaden economics into some
broad interdisciplinary venture, it is merely a challenge to do in the area of moral
reflection what others are doing in the areas of emotions, social institutions, and
psychological predispositions. It is time for economists to bring meaning as well as
prediction into the discussion again.
Sources Quoted
1. Hunt, E. K. (2003). Property and prophets : the evolution of economic institutions and
ideologies (Updated 7th ed.) Armonk, N.Y: M.E. Sharpe.
2. Keynes, J. M. (1991). The general theory of employment, interest, and money (1st
Harvest/HBJ ed ed.) San Diego: Harcourt, Brace, Jovanovich.
3. Malthus, T. R. (1963). An essay on the principle of population; or, a view of its past
and present effects on human happiness, with an inquiry into our prospects respecting the
future removal or mitigation of the evils which it occasions. Homewood, Ill: R.D. Irwin.
4. Marshall, A. (1898). Principles of economics (vol. I, 4th ed.) London New York:
Macmillan and co., limited The Macmillan company.
5. McCloskey, D. N. (2006). The bourgeois virtues : ethics for an age of commerce.
Chicago: University of Chicago Press.
6. Mill, J. S., & Winch, D. (1970). Principles of political economy, with some of their
applications to social philosophy. Books IV & V. Harmondsworth: Penguin.
7. Newman, P. C. (1954). Source readings in economic thought (1st ed.) New York:
Norton.
8. Ricardo, D. (1963). The principles of political economy and taxation. Homewood, Ill:
R. D. Irwin.
9. Smith, A. (1976). The Glasgow edition of the works and correspondence of Adam
Smith. Oxford New York: Clarendon Press Oxford University Press.
10. Verburg, R. (2006). John Stuart Mill's Political Economy. Review of Social
Economy, LXIV, no. 2, 233-234.