Markets and Morality

Markets and Morality

Debating the Role of Self-Interest

By Father John Flynn

ROME, JAN. 8, 2006 (Zenit.org).- Economic issues figured prominently among the end-of-year summaries offered by the media and commentators. The Christmas frenzy always brings with it concerns over excessive consumerism, added to which were reflections about inequality and the need for greater opportunities for developing nations.

Among the many analyses of these issues a couple of recent books are of interest. The first is "The Moral Ecology of Markets: Assessing Claims about Markets and Justice," by economist and theologian Daniel Finn.

The market economy is criticized for many shortcomings, but amid this debate most economists prefer to concentrate on empirical analysis, leaving aside questions of moral judgments. Nevertheless, Finn observes, morality forms an ineluctable part of our daily lives.

One problem when it comes to debating the morality of economic issues is the great variety of positions. The starting points and assumptions vary widely, according to what part of the political spectrum people occupy. Finn hopes to achieve in his book a common framework in which to examine key issues related to the market economy.

He starts by arguing that an adequate analysis of markets, whether it be from a supportive or critical perspective, must include a consideration of the moral underpinnings. The most obvious starting point for this is to look at the concept of self-interest.

Defenders of markets, Finn explained, follow in the footsteps of Adam Smith, and claim that good results can arise from complex systems of human interaction even when the individuals are not intending to generate those good outcomes. Egoism and greed no doubt exist, but through the mediation of markets, self-interest can work for the good.

Saints or sinners?

The concept of self-interest is not without its critics, continues Finn. For example, a theory that makes no distinction between a Mother Teresa and a thief -- positing that both are acting to further their respective self-interests -- is deficient. A description of the world that cannot distinguish between vice and virtue, saint or sinner, martyr or murderer, is seriously lacking in the ability to describe life's realities.

Other critics of self-interest point to problems such as large inequalities in wealth, and insufficient protection for the weak as evidence of the limitations of a system based on the pursuit of self-interest. Critics respond, Finn observes, by arguing that it is wrong to blame the market for all the evils in our society, which can stem from a variety of causes and cultural factors.

But defenders of the market face greater difficulties in responding to the accusation that a system based on self-interest foments greed. Defenders of the market point to its role in promoting virtues such as hard work, initiative and creativity, but critics point out that the utilitarian habit of basing actions on self-interest tends to spread into all areas of life, eventually undermining the moral standards on which the market itself depends.

When it comes to economic tasks such as the allocation and distribution of resources the free market does indeed have many advantages, concludes Finn. But economic production is just part of our lives and the application of behavior based on self-interest in other areas can create problems.

Even within the economic realm, acting solely on self-interest can sometimes not be enough. Finn cites the case of a consumer faced with the option of choosing between two products, one cheaper than the other because it is produced in a sweatshop. Self-interest would lead the consumer to opt for the cheaper product, but if the producer has success in selling these goods, it could reinforce the existence of exploitative work conditions.

This leads Finn to conclude that it is wrong to automatically suppose that it is either always morally wrong or right to act out of self-interest. The moral evaluation of any action in the market depends on a series of factors related to the context and the results.

Similarly, when it comes to a judgment of the market itself, Finn points out that it is not a simple choice between a free market or a centralized planning system. In practice, markets exist within a complex system of boundaries, or "fences" as he terms them, regarding their operation. The decision as to where these fences should be placed varies widely from situation to situation. In addition, markets exist within a social, political and cultural context that cannot be ignored.

Economic theology

Another recently published book on the subject of markets is "Adam's Fallacy: A Guide to Economic Theology," by Duncan Foley, economics professor at the New School for Social Research.

Like Finn, this author examines in detail the concept of self-interest in relation to markets, albeit in a more historical and less rigorously analytical way. The Adam referred to by Foley is Adam Smith, author of the classic economic text, "The Wealth of Nations."

The fallacy, according to Foley, "lies in the idea that it is possible to separate an economic sphere of life, in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome, from the rest of social life, in which the pursuit of self-interest is morally problematic and has to be weighed against other ends."

In his analysis of how markets work, Foley admits that the concept of pursuing self-interest proposed by Smith has a lot of sense and realism, but to describe it as a positive good is another question, he argues. The bulk of the book is then devoted to a synthesis of economic ideas put forward by a number of economic thinkers in the last couple of centuries.

In concluding, Foley comments that Smith himself realized better than many subsequent economic thinkers the limits of self-interest and the market. In addition to defending the advantages of a market system, Smith also recognized the need for political institutions to channel and control the operations of capital.

Contemporary capitalism is a successful system for the creation of wealth, but, Foley maintains, it is not some sort of automatic process inherent in human nature. Economic institutions are fragile and contingent and need to be shaped and guided. In addition, understanding how an economy works does not mean we should subsume our moral judgment to the logic of the market. Economic development brings with it many changes for society and culture, but the mistake would be to accept all these changes as something inevitable.

Charity

In the spirit of looking to complement and shape the operation of a market system, the Catholic Church proposes the virtue of charity. Benedict XVI, in his encyclical "Deus Caritas Est," explained that: "Building a just social and civil order, wherein each person receives what is his or her due, is an essential task which every generation must take up anew" (No. 28).

This is essentially a political task, in which the Church does not play a direct role, the Pope said. Yet the Church can contribute to this effort. "She has to play her part through rational argument and she has to reawaken the spiritual energy without which justice, which always demands sacrifice, cannot prevail and prosper."

One of arguments put forward by the Church concerns the role of love. "There is no ordering of the state so just that it can eliminate the need for a service of love," stated the Pontiff. "Whoever wants to eliminate love is preparing to eliminate man as such." This is worth keeping in mind when looking at how markets work.