The recent collapse of the credit markets has everyone and their mothers denouncing the greed and corruption of Wall Street. The public fury is palatable and often justifiable: public money is being used to bailout firms that willingly took on risk, without adequately considering the consequences of doing so. More radical critics have used the market collapse as an opportunity to denounce the entire free-market system. In light of these events, the question of this online debate sponsored by the John Templeton Foundation becomes even more topical:does the free market corrode moral character? The debate surveys a sprinkling of different academics, politicians and public figures.
The essays provide a cogent and entertaining mix of different analysis- philosophical, economical, historical and ethical frameworks are used to shed light on the debate. The two authors who resonate with me are economist Tyler Cowan and US Senator Rick Santorum.
The results are: No: 5, It depends: 5 Yes: 3
I would tend to put myself in the “no” camp although I suppose it would depend on one’s definition of “moral character”. Although I could never weigh-in as eloquently as any of these participants, I will leave a few notes (I’m going to use my rudimentary knowledge of economics to form some arguments).
1. Markets might value moral characteristics: Utility maximization (i.e. the ideal scenario) in a free-market society occurs when each individual acts in his own self-interest. Some might immediately equate “self-interest” with greed, selfishness and morally corrupt behavior. I would argue that this is not the case- acting in one’s own self-interest should not automatically imply moral corruption. In fact, acting in one’s interest may not preclude acts of generousity or altruism. After all, each individual has a different set of preferences- so, I might get a certain amount of satisfaction from being perceived as “moral” or “generous” forcing me to include these factors in my calculations of how to act. In other words, a free-market system may also place value on “moral” characteristics. In addition, free markets tend to encourage a host of positive human qualities such as innovation and entrepreneurship.
2. Markets without morality cannot exist. Connected to the previous point, there seems to be some evidence that not only do free markets place value on “moral characteristics,” markets will collapse without them (e.g. the current state of the financial system). Free markets cannot survive without the implicit trust that a buyer or seller will fulfill his respective duties. Widespread corruption cannot be sustained in a free market society- as illustrated by the unsuccessful attempts of transitional economies such as China or Russia to create market infrastructure. A corrupt environment leads to high indirect costs, which in turn create a high risk premium, discouraging investment for a particular economy. Also, since we are discussing transitional economies, another question comes to mind: what are the alternatives to the free-market system? Clearly, communism has not produced morally-perfect results.
3. Post hoc, ergo propter hoc: This is not to say that free-market economies are devoid of morally corrupt behaviour. Greed, envy and vanity are just some of the unfortunate consequences caused by a free-market system (not to mention other indirect results such as environmental degradation and income inequality). However, I would argue that these are human flaws- perhaps exacerbated by the economic system but not borne of them. Thus, this morally corrupt behaviour might be concurrent with the free market system, but is not caused by it.
Conclusion: So, I’ll admit free markets might include some corruption of moral character depending on the individual. However, I would argue that the market system does not necessarily corrupt, nor does it corrupt absolutely.
