Thursday, December 18, 2014

Markets and Morals

In The Theory of Moral Sentiments, Adam Smith distinguishes two kinds of social order:
"It is thus that man, who can subsist only in society, was fitted by nature to that situation for which he was made.  All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries.  Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy.  All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices."
"But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved.  Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by mercenary exchange of good offices according to agreed valuations." (85-86)
The first kind of social order that is based on love and affection arises among people bound together by personal relationships of kinship and friendship.  This is possible only in small groups of people who are personally known to one another.  The second kind of social order is based on mutually beneficial but impersonal exchange, like trade between merchants.  This can encompass large groups of people, because it does not require the close face-to-face relationships of kinship or friendship.

Through most of human evolutionary history, human beings lived in small nomadic bands of hunter-gatherers who lived largely in the first kind of social order, because impersonal exchange in markets was limited.  With the establishment of more sedentary societies based on farming and herding, there was more specialization in a division of labor with market exchange; and these agrarian societies became much larger.  Then, over the last four or five centuries, some societies became even more dependent on extended networks of market exchange. 

In The Wealth of Nations, Smith explains this history as a growing extension of market relationships rooted in the natural "propensity to truck, barter, and exchange one thing for another."  The final stage of this history is a commercial society.  In such a society, everyone depends on the cooperation and assistance of a great multitude of people that they cannot know personally as relatives or friends, and so they cannot expect the help of others from their benevolence only.  "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.  We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages" (26-27).  "Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society" (37).

Is it good for us to live in such a commercial society, where everyone is a merchant, where social relationships are organized by buying and selling?  Or is it morally degrading to live in a society where everything can become a commodity to be bought and sold?

In the 18th century, Montesquieu argued for "gentle commerce"--that commerce had a civilizing effect in polishing or softening manners--and thus that commercial societies would bring moral improvement.  But Rousseau argued, on the contrary, that commerce would corrupt our morals.  Since then, both Marxist radicals and traditionalist conservatives have taken Rousseau's side in warning that the spread of the capitalist commercial system would destroy all of the traditional values of love, family, religion, and patriotism (Hirschman 1982).  On Montesquieu's side, defenders of the modern commercial society--for example, Steven Pinker in The Better Angels of Our Nature--have insisted that commerce really has improved our morals.

A recent expression of the Rousseauist critique is Michael Sandel's What Money Can't Buy.  Sandel complains that in a commercial society, where almost anything can be bought and sold, markets degrade morals.  Not only are there some things that money can't buy, he argues, there are many things money shouldn't buy.

Sandel notes that a few years ago, there was a Web site where you could buy some good-looking fake "friends" for your Facebook page.  We know this is silly, because a true friendship depends on an emotional bond that cannot be purchased with money.

There are other things that money can buy but shouldn't.  Sandel contends that a human kidney is a possible example of this.  Some people defend the idea that organs for transplantation should be put up for sale in markets.  But others find this morally repugnant.  A transplanted human kidney that has been bought will function as a kidney, and so the buying of the kidney has not ruined it.  And yet, one might still argue that the buying and selling of human organs is morally corrupting, and that there are many goods that ought not to be exchanged in markets.

It is common for economists to argue that turning a good into a commodity that can be bought and sold does not change the character of the good, but it does make the production and distribution of that good more efficient.  That's why economists like to propose creating financial incentives to promote whatever behavior we might want.  After all, the fundamental assumption of modern economics is that in a voluntary market exchange, both parties can be made better off without making anyone else worse off.

Sandel objects to this by suggesting that as markets expand into all areas of life, including those traditionally governed by moral norms, the market commodification of goods destroys our moral motivations and promotes a social life governed by selfishness.  Sandel indicates that one example of how markets crowd out morals is the study of blood donation by Richard Titmuss.  In his book The Gift Relationship, Titmuss compared the British system of blood donation in which all blood for transfusion is given by donors without pay and the American system in which some blood is donated and some bought by commercial blood banks.  Titmuss argued that the British system worked better and that it cultivated an altruistic sense of community, while the American system of commercializing blood created shortages and degraded the community.

In response to Titmuss, economist Kenneth Arrow contended that it was a mistake to rely too much on moral motivations.  He explained:  "Like many economists, I do not want to rely too heavily on substituting ethics for self-interest.  I think it best on the whole that the requirement of ethical behavior be confined to those circumstances where the price system breaks down. . . . We do not wish to use up recklessly the scarce resources of altruistic motivation."  This sounds like Smith's claim that in those many cases where we cannot rely on benevolence to satisfy our needs, we must appeal to people's self-interest through economic exchange.

Sandel objects, however, that this ignores the possibility that benevolence and other moral dispositions are increased through practice, that they are like muscles that are strengthened through exercise.  If this is so, then a commercial society that relies too much on selfishness will weaken our moral character.

If Sandel is right, then we might expect that the most commercial societies would manifest the most moral corruption in comparison with other societies in which markets have been less important.  Some recent cross-cultural studies in experimental economics suggest that this is not true.  I will take this up in my next post.


Albert Hirschman, "Rival Interpretations of Market Society: Civilizing, Destructive, or Feeble?" Journal of Economic Literature 20 (1982): 1463-1484.

Michael Sandel, What Money Can't Buy: The Moral Limits of Markets (New York: Farrar, Strauss and Giroux, 2013).

No comments: