Feb 28, 2012 | By

Moral Foundations for “Good” Markets – Does God have a Role?

I heard an interesting interview on the podcast “EconTalk” recently.  Russ Robert’s guest was David Rose, author of a new book on The Moral Foundation of Economic Behavior.    Both are self-described skeptics of religion.  Dr. Rose’s key finding is that efficient and effective markets require specific foundational moral principles that promote and reinforce trust, without which markets will fail.  His principles, which he claims to have derived from research and insights on the functioning of markets, sound remarkably similar to the Ten Commandments.

The ability of human beings to engage in exchange and trade may be as fundamental to  human civilization and progress as language.  Indeed, civilization is based on trade – the exchange of goods and ideas which enables specialization and efficiency gains.  Over the millennia, these gains have propelled humans out of the stone age and into the modern technological world.  The increases in wealth and well-being that have been achieved are almost unimaginable.

Economists since Adam Smith have marveled at the ability of markets to bring this about in a dynamic, evolutionary process.  Dr. Rose points out that markets can only succeed if the participants trust that they are being treated fairly in the exchanges in which they participate.  If trust is not present, then trade will be stifled, and the possible gains will be lost.  Trust is clearly a key factor in the success and continuity of families and tribes, and in that context it can be explained from the standpoint of direct human interactions – participants know everybody, and the untrustworthy soon become weeded out.  In the mind-numbing complexities of global market systems, where no one can possibly know all the participants, trust is still essential, but what underpins it is less clear.

From his research, Rose develops an analysis of what principles are necessary to promote and sustain this trust in a sophisticated economic system.  What kind of people do you want to do business with?  In summary, we need a moral foundation that addresses three situations.  First, we need people who have empathy – they do not want to harm other people.  Second, we want people who can resist taking advantage of a situation even if they can never be caught.  This is “principled moral restraint” – the Kantian notion that I’m not going to do this particular action not because of the harm that it does but because I believe it’s wrong in and of itself.  Finally, we want people to resist the allure of “greater good rationalization”, or justifying an action that betrays a “trust” because of the larger benefits it may confer on others.  As Rose puts it, “I have to believe that you are the kind of person who would say: Just because you could cheat me a little and help your nephew a lot, you don’t do that sort of thing.”

Rose also notes that there are two types of moral statements – those that exhort us to take positive moral actions, and those that prohibit negative moral actions, and he argues that the prohibitions are the most important.
“The obedience of moral prohibitions over the obedience of moral exhortations solves the greater good problem…..   That person will never trade a greater good kind of outcome against opportunism. So, you don’t need to worry about being a victim of their opportunism.”

And, as Roberts puts it, “So, this is basically: the ends never justify the means. And the emphasis there is never….  If you steal, even though nobody gets hurt, you are still a thief. So don’t do it. Period….   And then secondly, if somebody says to you that you should do something that you know is wrong but it’s okay to do it because there’s this other good thing over here that you can make happen if you do otherwise, you need to realize that that is the language of a charlatan, that that is inappropriate, that you are being sucked in. We don’t do things like that.”

These are wonderful findings that support what would characterize as a high and commendable moral framework.  But what is really interesting to me is that this moral framework is being espoused by two secular economists on the basis of modern sociological/economic research, and that they have come to virtually the same formulation for moral human behavior as that which was written on Mt. Sinai some four thousand years ago – in the Ten Commandments.

With that background, some questions come to mind.

Presumably, if humans adhere to the moral behaviors in the Ten Commandments, then, according to these new findings in economics, they will prosper.  Is this not, in fact, what happened both in the biblical narrative and in the rise of the “Judeo-Christian” morality and accompanying economic advance in the West?  (There are similarities as well in the stability and prosperity that very similar Confucianist moral principles seemed to yield in the East.)  Does this prove the economic postulate of Dr. Rose?  Or does it prove the validity of God’s covenant?  Or does it confirm both?

Rose and Roberts reach their moral formulation of proper behavior with no reference to God.   Their conclusion is, simply, that these moral principles are conditions for the trust which underlies effective and efficient markets.  But my question is – what compels people to adhere to them?  Why should I follow these principles when I, personally, may have so much to gain from being opportunistic?  Is enlightened self-interest enough, when the open door for opportunism or greater good rationalization provide far greater personal reward that the more abstract benefit of efficient markets?  Do we not need some absolute, some appeal to an almighty (other than the almighty dollar), in order to bootstrap the compulsion to adopt these moral precepts?

Finally, Rose and Roberts point to the apparent decline in trust over the past few decades, citing the work of Robert Putnam.  The question posed is whether this decline is leading to a rise in negative economic behaviors – opportunism and rationalization, for example – which will undermine economic success and prosperity.  There is some evidence that this is the case, if we look at the spate of scandals such as that involving Bernie Madoff or the variety of behaviors which led to the mortgage meltdown and financial collapse.  The question is, what can reverse this trend?  Will Dr. Rose’s economic research lead people to embrace a new, more disciplined morality?  Does enlightened secularism have what it takes?  Alternatively, could we reverse the trend by encouraging people to embrace religious traditions that are committed to the Ten Commandments, with belief in an absolute moral rule-giver at the center?  I wonder what the USA founding fathers would say?

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