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Part 3 in a series on How Markets Work

Are economists basically immoral?

This question is the title of a collection of essays written by the late economist and ordained minister Paul Heyne. While it is safe to conclude that economists, as humans, are no more flawed, sinful, and immoral than anyone else, some have asserted that one must be immoral to be successful in a market economy because such a system encourages greed and other vices.

This assertion ignores the fact that a market order is built on certain virtues, and, more surprisingly, produces certain virtues that most of us find agreeable and essential to a well-functioning society. Among these virtues are trust, service, and stewardship.

Trust

Trust and its fellow traveler, honesty, are the foundational virtues of a market order. From the simplest transaction to the most complicated Wall Street deal, trust is needed.

Economist Deirdre McCloskey has written a series of books on the virtues of the market economy. She argues,

Virtues underlie a market economy. And economic historians have long understood so…Yet what the social sciences have not recognized is that a market economy can actually produce virtues, and some of the best: prudence and courage and hope called “enterprise,” for example. We are stuck viewing virtues only as those of soldiers and saints. We need a re-orientation to suit a world in which we are all now bourgeois.

We engage in all sorts of transactions because we trust our trading partners even if we never meet them. Online purchasing and remote buying both require that we trust the provider of the goods or services. They must trust us as well. We pay with checks and swipe pieces of plastic to pay for all sorts of things. In some cases we just provide a number over the phone. All of this works because we trust each other.

Trust is foundational to relationships, including those that take place within the market economy. This is one reason God commands honesty. He prohibits theft, commands the use of fair weights and measures, and condemns those that are dishonest.

Service

The market also produces a number of virtues as well, in the sense that it takes people as they are, turning them with their private vices into producers of public virtue. The market order provides powerful incentives for people to think of others, to serve others, to find out what others need, and try to meet that need in order to be successful.

We see this demonstrated in odd ways we often don’t think about. Consider the odd politeness observed in many transactions where both the buyer and seller say “thank you” and seldom does anyone say “you’re welcome.” This double “thank you” is because both parties served each other, and in turn were also served.

When we produce something people value, it is our act of service to them. What we buy is someone else’s act of service for us. Every market participant is motivated to find out what people want and what we can provide, given our skills and abilities.

The market economy is the only arrangement that strongly encourages the working out of the Golden Rule in a commercial setting. Every other arrangement encourages vices like greed and selfishness. If we want anything in a market economy we have to serve others. Any other arrangement encourages theft, cronyism, and lobbying, and these largely operate on connections and favoritism – not performance and superior service.

Stewardship

In addition to serving others, the market economy produces stewardship. Service is one side of the equation, and if we do it well, we earn revenues in the form of wages or sales. But to do this, we must serve efficiently by properly practicing stewardship, if we are to flourish. Stewardship is about using our resources, talents, and skills to their fullest ability. Profits or high wages may be one indicator of good stewardship. There is also what economists call psychological compensation as well. For a Christian, this is the satisfaction of knowing that you are using your talents and skills as God desires. The market order creates a wide variety of possibilities for service and the practice of stewardship.

The market economy more than provides an opportunity to demonstrate virtues; it requires they be demonstrated. To be successful in a market system, one must look for ways to serve others while practicing proper stewardship and being trustworthy. It is another miracle of the market that this system can cause people of all beliefs and attitudes to serve others and be good stewards.

Do markets promote virtue? Leave your comments here.

This post is part of a series on How Markets Work
Dr. Brian Baugus

About Dr. Brian Baugus

Brian Baugus is an assistant professor of economics at Regent University in Virginia Beach, Virginia. Dr. Baugus is also a visiting professor of the African Bible University in Kampala, Uganda. He holds a doctorate and masters in economics from George Mason University, and MBA in finance from Vanderbilt University and a BA in economics from McDaniel College. He has worked in banking, consulting and government.

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  • http://flamingfundamentalist.blogspot.com/ Curt Day

    Just playing off the title, the question that comes to me is can economists look at the system in which they have been immersed for so long from the outside? Education today teaches people how to work the system; it doesn’t teach people how to think critically about the system in which they work.

    BTW, I totally agree with the line that says economists are as flawed as everybody else.

    • Brian Baugus

      Curt

      Thanks for reading and taking the time to comment. I
      believe economists spend way too much time talking to each other, often
      in cryptic mathematics and models and not nearly enough time having
      conversations with real people doing real things. This is one reason I
      blog.

      I have two thoughts on your comment. It can be tricky
      to critique and evaluate from within the system, no doubt about it.
      People bring their own views and beliefs to any work they do and
      economists are no different. They also have incentives to try to look
      smart and be important and valuable and from that perception get
      published, get on TV and earn high incomes. Fortunately, as a Christian economist I do have a higher objective source to which I refer and use to guide my thinking.

      That said, there is a second point. I see the Bible as rigorously free-market book. Also, I personally have never lived in a rigorously free market system. The United States is oriented toward the free market, but not nearly as free market as it once was or could be or several other countries are. Therefore, I personally do not feel I am working from the inside on a number of issues.