Abstract
This chapter argues that markets function better when participants are virtuous, although markets could function without especially virtuous actors. Additionally, we show that market participants tend to be virtuous. Deirdre McCloskey has forcefully and convincingly made the same point that markets are compatible with and depend on virtuous behavior. The bourgeois virtues are both bourgeois (i.e. born of markets) and virtuous (i.e. exhibiting the very virtues we have long admired). Beyond exhibiting the seven virtues that McCloskey highlighted (love, faith, hope, courage, temperance, prudence, and justice), we show that people in market societies tend to be more altruistic, are less likely to be materialistic and corrupt, and are more likely to be cosmopolitan as well as trusting and trustworthy.
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Notes
- 1.
A ducat contains 3.5 grams of gold and would have been worth about $161 in December 2010. As such, 3000 ducats would approximately be worth over $480, 000 today.
- 2.
Shakespeare’s account of Shylock, for instance, is obviously full of negative ethnic stereotypes. Shakespeare offensively depicted Shylock as the greedy Jew who values his wealth more than his own daughter. Shylock is despised and insulted by his Christian enemies, who repeatedly refer to him as “a kind of devil” (II.ii. 23), “the very devil” (II.ii. 26–27), “the devil ... in the likeness of a Jew” (III.i. 19–20), a “cruel devil” (IV.i. 224), a “damn’d, in execrable dog” (IV.i. 130), and an “inhuman wretch” (IV.i. 4). Throughout the play, Shylock is rarely referred to by name; he is simply the Jew. As literary critic Harold Bloom (1998) wrote, “[o]ne would have to be blind, deaf, and dumb not to recognise that Shakespeare’s grand, equivocal comedy The Merchant of Venice is nevertheless a profoundly anti-Semitic work.” The extent of the anti-Semitism in this play is perhaps best described by the fact that Nazi Germany popularly used The Merchant of Venice as propaganda (Gross 1993).
Shakespeare’s anti-Semitism was nothing unique in his time. Moneylending was one of the few occupations available to Jews in the European Middle Ages and onward, as Christians were forbidden from practicing usury (Ferguson 2008). Jews were also excluded from other fields of work. Christian kings, for instance, banned Jews from owning farm land. And craft guilds tended to refuse to admit Jews as artisans (Gross 1975).
- 3.
In many ways, the play is a cautionary tale. “This play helps us understand,” Page et al. (2017: 39) wrote, “the ramifications of making business decisions based on self-interest, passion, jealousy, revenge, and greed, and how assessments of risk and return can become distorted.” A key question is whether or not this kind of distorted decision-making is typical. It is perhaps telling that a 2016 YouGov poll found that The Merchant of Venice was the fifth most popular Shakespeare play (Dahlgreen 2016). That the Merchant of Venice has remained popular for centuries and that the play continues to resonate with audiences and readers may indicate that the play captures something that people believe is true about market activity.
- 4.
Freedman (2009: 181) explained that,
[Shylock’s] worship of money is the natural result of his social stigmatization. Shylock is far from unfeeling. The moral revealed to Portia’s suitor—‘all that glitters is not gold’—does not elude him. However, as he clings to money in order to define his sense of self, mercenary damage usurps emotional loss: ‘my ducats, my daughter’, he wails, more concerned that Jessica has disappeared with his riches than that she has disappeared. Shylock’s usury is idolatrous because he can’t distinguish money-lending (the sign of his identity) from everything he holds dear (his true identity). He worships his profession with the devotion due to his God and the emotion due to his daughter.
- 5.
For instance, in recent years, think of the unsavory behavior of various characters in The Social Network, The Wolf of Wall Street, and Iron Man in their pursuit of (greater) wealth. Similarly, the protagonist of The Greatest Showman, P.T. Barnum, could be viewed as a variant of Adam Smith’s ([1759] 1982) story of the poor man’s son.
- 6.
Boyle and Kelly (2012) argued that the representations of business people have changed with the advent of reality television shows that feature businesses and business people.
- 7.
Aristotle (NE VI.12) distinguished between the prudence as a virtue (phronesis) which is a virtue of practical reason and mere prudence or cleverness (deinotes). Market participants clearly rely on deinotes. Admittedly, it is more controversial to claim that markets rely on and reward phronesis. See Yuengert (2012) for a helpful discussion of how an Aristotelian conception of practical wisdom compares with the ways that economics tend to account for prudence.
- 8.
- 9.
- 10.
On the other hand, Smith ([1759] 1982: 216) explained, “When combined with other vices, however, [imprudence] aggravates in the highest degree the infamy and disgrace which would otherwise attend them.” “As prudence combined with other virtues, constitutes the noblest; so imprudence combined with other vices, constitutes the vilest of all characters” (Ibid.: 217).
- 11.
Smith ([1759] 1982: 213) described that “[f]or reputation in his profession he is naturally disposed to rely a good deal upon the solidity of his knowledge and abilities; and he does not always think of cultivating the favour of those little clubs and cabals.”
- 12.
Note that the argument here is not that people in market societies are more reliant on prudence (defined as deinotes or phronesis) than people in nonmarket societies. Instead, the argument here is simply that prudence is not incompatible with, and in fact is critical to, life in market societies.
- 13.
Arguably, even those studies that downplay the role of rationality in bringing about market efficiency do so by assuming and enforcing at least a “basic” level of rationality. Becker (1962: 8), for instance, argued that “households may be irrational and yet markets quite rational.” Deploying a market experiment where human participants were replaced by zero-intelligence programs subject to a budget constraint, Gode and Sunder (1993) similarly found that markets can function well even when the individual participants are not rational. Stated another way, zero-intelligence traders submitting random bids and offers in a double auction would converge toward the predicted prices and quantities. Markets, it seems, might survive and even achieve allocative efficiency without prudent market participants. But it is important to note that Gode and Sunder imposed a budget constraint (i.e. buyers could not spend more than their budgets and sellers could not accept offers below their costs). As such, these traders could not be completely imprudent. Additionally, while markets can survive imprudent market participants, it is unlikely that imprudent market participants could survive (let alone thrive) in the market. Moreover, while we might achieve allocative efficiency with only minimally prudent market participants, we suspect that the market is unlikely to achieve dynamic efficiency or even productive efficiency if all of the market participants were completely imprudent.
- 14.
- 15.
As Martin and Storr (2012: 787–788) wrote, “contrary to much of the literature on the relationship between discourse and social change which tends to focus on discourse as an artifact rather than a driver of change, we argue … that a change in talk not only tends to accompany but often precedes dramatic social transformation.”
- 16.
Similarly, Joseph Schumpeter explained that the successful entrepreneur is likely to be intuitive and a leader. According to Schumpeter ([1911] 1983: 85),
Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it. … [I]n economic life action must be taken without working out all the details of what is to be done. Here the success of everything depends upon intuition, the capacity of seeing things in a way which afterwards proves to be true, even though it cannot be established at the moment, and of grasping the essential fact, discarding the unessential, even though one can give no account of the principles by which this is done.
Success also depends on the entrepreneur leading “the means of production into new channels” (Ibid.: 89). “Economic leadership,” Schumpeter (Ibid.: 88) explained, “must hence be distinguished from ‘invention.’ As long as they are not carried into practice, inventions are economically irrelevant.”
- 17.
Additionally, the bourgeois virtues are not always balanced in all people at all times in commercial society. For instance, greed is a vice that develops when prudence alone is not checked by or balanced with other virtues. Selfish individuals may succeed on some margins in the market, but will suffer from missed profit opportunities and lead unfulfilling lives. An interesting example of missed profit opportunities is discussed by Ingram and Roberts (2000) who showed that hotel managers could incur losses by not being friends with their competitors. Love alone could lead to the vice of lust, but alloyed with prudence evokes trust and reciprocity. Hope unrestrained by other virtues transforms a principled business person into a common street thug. A man with courage, without restraint of other virtues, is too easily swayed by pride, envy, and greed. Justice, alone, can morph into anger but produces the bourgeois virtue of honesty when combined with faith and courage.
- 18.
Again, we are not claiming here that undesirable behavior and vices never occur in a market setting. There are countless instances where promises of higher quality goods and services are unfulfilled and where cheating and fraud happen. But, it is important to remember that the market, just like the community, is a space where people interact with one another (Storr 2008). As such, as spaces of social interactions, people can and do behave and treat each other poorly in both the market and the community; morally corrupt behavior and principles are not uniquely linked to the market.
- 19.
Interestingly, the U.S. Trust (2016) study proposed that the wealthy might also be a mechanism through which our culture could be preserved because the wealthy view fine art as a profitable investment strategy. Twenty-two percent of the respondents collect fine art, over half of whom believe that fine art is an asset that will maintain (if not increase) its value over time.
- 20.
The Nike advertisement with Colin Kaepernick and Proctor & Gamble’s Gillette advertisement were not without controversy (e.g. Abad-Santos 2018; Hsu 2019; Murphy 2019; Scott 2018; Tiffany 2019; Wang and Siegel 2018). We should clarify that we do not mention these advertisements here to add to the debates and conversations fueled by the advertisements. Instead, we mention these advertisements here to merely communicate that companies do sometimes publicly take stances on social issues, occasionally with some risk.
- 21.
Interestingly, CAF 2017 World Giving Index also reveals that citizens of market and nonmarket societies help strangers at roughly the same frequency; on average, 51.2% of the respondents in market societies self-reported having helped a stranger in the past month while 49% of the respondents in nonmarket societies self-reported doing so. In short, people in market and nonmarket societies apparently help strangers equally, but people in market societies appear to donate more money and more frequently than people in nonmarket societies. One possible reason for this phenomenon is that those living in market societies have more disposable income than those in nonmarket societies and can afford to donate more.
- 22.
We want to note that, fortunately, the majority of the residents in both market and nonmarket societies view avoiding fares on public transport, stealing, cheating on taxes, and bribery as unjustifiable actions.
- 23.
See Arrow (1972) for a modification and extension of Becker’s model. See also Marshall (1974) for a survey of the literature on the economics of racial discrimination and a critique of Becker’s model of discrimination. Ikeda (2018) offered a useful extension to Becker’s model noting that markets not only mean that individuals pay a price for discrimination, but also empowers entrepreneurs to discover past errors that they and others have made, including errors in assessing the productivity of different racial groups.
- 24.
Despite his clear predications about the connection between discrimination and wages, Becker’s (1957) model remained empirically untested for decades (to the best of our knowledge). Charles and Guryan (2008) speculated that Arrow (1972) may have contributed to this occurrence. Arrow (Ibid.: 192) criticized that Becker’s model of discrimination “predicts the absence of the phenomenon it was designed to explain” because it states that prejudiced employers would ultimately be driven out of the market for sacrificing profits in exchange for indulging their prejudiced preferences. Charles and Guryan (2007, 2008) do attempt to empirically examine Becker’s model. Charles and Guryan (2007) demonstrated that racial discrimination and its resultant wage gap could survive perfect competition scenarios; in other words, even if the market drove out racist employers, the prejudiced tastes and the resultant wage gap can persist so long as racist employers can transfer their tastes into their new market role as employees. Charles and Guryan (2008), however, tested and confirmed Becker’s key predictions about the relationship between prejudice and wages.
- 25.
While statistically no different, on average, less people in market societies also mentioned that they would not want to have foreign workers as neighbors (20.26%) than those in nonmarket societies (24.55%).
- 26.
This is interestingly contrasted by views on the importance of equal gender rights for a democracy. Seventy-three percent of the respondents from market societies and 72.8% of those from nonmarket societies agreed that women having equal rights as men is an essential characteristic of a democracy (see Appendix for the definition of the variable and how we calculated our statistics). While equal gender political rights are just as important for those living in nonmarket societies as it is for those living in market societies, it appears as if people living in nonmarket societies do not believe women deserve the same access to economic opportunities, nor economic success, as men.
- 27.
More specifically, Sweden scored the maximum score in Personal Freedom Index categories of Women’s Security and Safety—Equal Inheritance Rights, Women’s Freedom of Movement, and Women’s Parental Rights.
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Storr, V.H., Choi, G.S. (2019). Markets Are Moral Spaces. In: Do Markets Corrupt Our Morals?. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-18416-2_5
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