Review of Moral Markets

Economists gravitate toward explanation by incentives; but, values also constitute motivations for action. The premise of this book was to investigate the values-based explanations and demonstrate the “Critical Role of Values in the Economy”. Sadly, if that was the aim of this book it was a disappointment. While the diversity of disciplines provides alternative perspective on values (their transmission, acceptance, evolutionary basis) the feel of the whole book is disjointed. There were, however, a few bright spots amidst several misguided articles. The particulars of the basis for my critique are below, but, overall I would still recommend the book as a first cut at a discussion about morality and markets.

Paul Zak’s introduction and chapter “Values and Value” as well as Schwab and Ostrom’s article “The Vital Role of Norms and Rules in Maintaining Open Public and Private Economies” come the closest to integrating values. Particularly, Schwab and Ostrom explain the need for values when they discuss the infinite regress problem, “Thus, at some point, we must cease to rely upon institutional corrections and place our faith in a citizenry well educated in virtue. Ultimately we must guard the guardians. It is our hope that, by keeping our rules for institutional design in mind, we can guard them well.

That is, good institutions help; however, when there is always an incentive to defect for personal gain (from each guardian), at least one guardian must say, “I will not defect because of that’s not part of my value system.” That there is a necessary critical mass of pre-existing values is important. Now, how those values come about is another story.

Zak’s discussion of the importance of empathy is a phenomenal starting point to consider where those other values (fairness, trustworthiness, honesty, etc) emerge. As Solomon tells us in the book empathy is the basis of Adam Smith’s Theory of Moral Sentiments (since empathy was not yet invented as a word Smith used “sympathy”). Our ability to feel for another person is central to personal exchange and speaks towards the kinds of policies we desire to impose on impersonal exchange.

Other excellent articles included Casebeer’s “The Stories Markets Tell”, Kimbrough et al “Building a Market”, and Erin O’Hara’s “Trustworthiness and Contract”. In particular Casebeer offers an interesting take on how markets fail to win people’s hearts and how fallacies about the market persist. The middle of the book contained a variety of stories about monkies (which did not really tell us very much that we didn’t already know from experimental economics) and macro-cultural evolution which attempts to tackle a very large problem rather than focusing on devices that coordinate large-scale identity.

There are two short critiques followed by two longer critiques:

1. This book on “the critical role of values” pursues only evolutionary explanations of values and disregards the role of religion in values formation. Sometimes this disregard is not merely from absence but is rather flippant. For example, Goodenough writes, “Where does the capacity for such internal commitments come from? Some look to religion, and indeed a divine, designing power would have good reason as a matter of mechanism design to put such a capacity into humans, a gift as essential to their eventual well-being as sight and locomotion. But such a divine gift is not the province of science; we rely on that wonderful mechanism for bootstrapping adaptive design: evolution.” Not a peep about religion and the formation of values. What makes this more interesting is that this project was funded by the Templeton Foundation!

2. There should have been a concluding chapter. With all of the disjointedness of content there should have been a chapter that sought to tie the disparate units together for the reader.

3. There is a sense that some of the authors begrudgingly admit that markets are overall a “good thing”. This is captured well in Charles Handy’s final chapter “. . . the urgent question now is how best to retain the energy produced by the old model without its flaws.”

The authors are willing to admit that capitalism provides a dynamic environment in which innovation is allowed with greater incentive, but, they seem reluctant to embrace the outcomes of capitalism. One might think that the authors would say, “Yes, indeed we are reluctant to embrace capitalism ---look at all the cowboys out there screwing everything up!” (this book was being written in the midst of all the financial scandals). But, what is the alternative? More regulation?

The reliance of government would present plenty of public choice problems. Then, we must point to the importance of values in the political process! The critique is meant to elucidate the fact that human beings are flawed people and since humans comprise government, business, and other organizational structures those same problems will persist in all contexts unless values are strong.

4. Many of the other articles are based either on straw men, or, they are a commentary about how non-cooperative game theory has overtaken the economics profession. Let me explain. A number of the articles begin by discussing Homo Economicus –“the cartoon character”- and proceed to bash the model of rational calculation and self-interested agents as though it were a piñata. Their mistake however is that the Homo Economicus they portray is not part of the neoclassical vernacular, but, rather an invention of non-cooperative game theorists.

While it is true that the “economic man” (a term given to JS Mill’s theoretical abstraction) was part of neoclassical economic history “economic man” was always embedded in an environment of property rights and other social institutions. This can even be clearly seen at the dawn of game theory with Morgenstern and von Neuman, “Theory of Games and Economic Behavior” where they assume norm adherence as important for a cooperative solution.

Why is this important? This questions the ability of many of the authors to use this model as a platform for stating the obvious, “humans care about things other than monetary payment.” But, ever since the marginalists, neoclassical theory has used utility space which can include a variety of arguments outside of financial payment (see Blaug). I know the authors know this because they cite people like Bolton and Ockenfels and Fehr and Schmidt. But, their insistence leads me to believe that they are just raging against the perception that economists only care about self-interest.

In the end, this book has a dual identity. I believe the book was supposed to be about the “critical role of values in the economy”, but, some of the authors merely saw it as an opportunity to bludgeon a wrongly labeled neoclassical model of self-interest. For example, authors in this volume, Boyd and Richerson state, “Challenging the emphasis of selfish rationality in conventional economic theory is the main theme of this book.”