by Jerry O’Driscoll
Over at the Austrian Economists, Steve Horowitz has posted a challenging statement and asked for reactions: “The great virtue of the free market is that it requires so little virtue to work effectively.” The thrust of the responses is that defenders of free markets have had little to say about virtue (at least since Adam Smith).
In a brilliant paper for APEE a few years ago, Liberty Fund’s Doug den Uyl asked whether we need ethics if we have free markets. That is a broader question, but on point. Do markets discipline transactors to act virtuously and ethically? Many would be tempted to answer affirmatively, but that would be facile. (Doug is not facile.)
Freedom has certainly not existed throughout human history, much less economic freedom. What are the pre-conditions?
Many would respond with property rights. In Property and Freedom, Richard Pipes provides an historical account of how property rights evolved in some societies and not others (especially comparing England and Russia). In England, property owners controlled Parliament. In stark contrast to Russia, the Crown had no large property holdings of its own. It was forced to turn to a Parliament controlled by landowners for funds. Parliamentarians desired to keep taxes low to protect their interests. That led them to oppose standing armies and royal extravagance. Property, liberty and free markets were the outcome.
Thomas Sowell provides an account that focuses on how culture and the transmission of ideas — including virtues — have played a role across time and place. Some cultures begat warriors, some bureaucrats and some capitalists. Capitalist virtues are transmitted by imitation. Migration bears a heavy burden in his account. And the ability to adapt.
Culture and religion have been inextricably intertwined in history. In The Victory of Reason, Rodney Stark credits Christianity with bringing freedom, capitalism and the rise of the West. “The Virtues of Work and Frugality” are important, but covered in 2 pages. “Christian commitment to reason and progress” is the source of everything else.
Capitalism without virtue is impossible. We have just witnessed a decade of trying to operate financial markets without honesty, and know the outcome.
Does capitalism actualize virtue and punish latent vice? That is the currently fashionable diagnosis, and has a long lineage at least back to Voltaire. Is capitalism the outcome of the cultural transmission of virtues and other ideas? That accords with Sowell. Are both capitalist virtues and capitalism itself the product of yet a third historical factor? That is Stark’s response, and Christianity is his surprising answer.
The issue is less about providing an ethics of capitalism, or enumerating capitalist virtues, as explaining how capitalism and its needed virtues evolved. As Greg Ransom observed, not even Hayek provided that answer.