"Moral Markets"? Truth or Fiction

I've previously posted about the relationship between a market-driven economy (i.e., capitalism) and the Christian faith. Over five years ago I posted a piece here in which I mused on the question of whether a political economy in which more-or-less free markets are the primary forms of exchange necessarily erodes individual virtue and morality.

On the one hand, "there are as many capitalisms as the are political economies in which there is a market for goods and services. The presence of a market does not determine whether its exchanges corrode or maintain the natural and social bonds in which it is enmeshed."

On the other, "from my limited observations, the corrosive effects of the market seem darn-near inevitable."

And I ended with a plea: "What then? Well, that's the question for which I have no clear answer. If you do, let me know."

At long last Marcel Canoy writing for the Acton Institute has gotten around to answering my question. Go here to read a piece titled "The Market Is (Not) Virtuous." Canoy begins by making a helpful distinction between the intellectual father of market capitalism, Adam Smith, and his evil twin, Bernard Mandeville. Smith strongly believed that a market economy depended on virtue. Not altruism in the sense of selfless disinterest, but the virtues of fidelity and justice in a life inescapably market by self-interest. For Smith, self-interest did not equal selfishness. Mandeville, in anticipation of Ayn Rand and neo-classical economists generally (try here and here), dropped all pretense of virtue and understood the market as the forum for combat among individuals driven only by greed.

But why, asks Canoy, if classical economics and the roots of market theory are consistent with virtue, is someone like Mandeville lumped with Smith as a founder of market theory? And why does contemporary market activity seem bereft of virtue? In other words,

Why do we see so many counterexamples? Greedy capitalists who get away with persistent cheating, income disparities which in some countries take on surreal and even disruptive proportions, and companies that systematically cross the line with child labor, weapons or environmental pollution. We cannot dismiss this as unfortunate incidents or collateral damage. Is it not actually the rightist movement that needs to ponder over its sins?

Canoy's answer: "The market fails in a moral sense, not because supply and demand do not come together, but because underlying public values (such as environmental protection or animal welfare) are not sufficiently guaranteed." In other words, markets fail because some market participants fail to internalize all costs of production including (some) (many) moral costs. The virtue-less market continues to function in a formal sense even though non-participants like children and the environment subsidize production of goods and services. In a material sense, however, such a market dissolves the virtues it could--should--promote.

What's the solution according to Canoy? Here he's a bit weak but at least points us in the right direction:

Markets are only virtuous to the extent that societies make them so. This requires a well-functioning government that protects values that are not naturally priced (such as child rights or sustainability). But it also requires that markets are embedded in [a virtuous] society more broadly.

Markets are not virtuous in isolation from other social forces. A judicial power is required that protects property; A democratic system that controls the government; A competition authority that monitors whether there is sufficient competition; A free press acting as watchdog; Social cohesion that contributes to a collective moral compass. Only then can the market be virtuous and encourage virtuous behavior in its participants.

I wish Canoy had addressed the insights of public-choice theory, which takes a Mandeville-ian approach to the governing process but he's certainly right to point us to the notion of non-market public justice. The market cabined by justice is a good thing. A market unconstrained by powers outside itself produces a comfortable (for some, anyway) path to perdition.


P.S. Another good piece here about the utility and disutility of the "economic way of thinking."