Does the Free Market Corrode Moral Character? Posner's Comment
The essays commissioned by the John Templeton Foundation and available at www.templeton.org/market/ offer a variety of answers to the question whether free markets corrode moral character. Becker's posting offers an interestingly different answer, and I shall offer a different answer as well.
Different cultures and, within cultures, different occupations both select for different character traits and shape character traits. Let me start with culture. One can distinguish between a culture built on notions of honor, military prowess, and status within a hierarchy often based on birth, on the one hand, and a commercial culture on the other. English history is a case study of the transition from the first to the second, the second having been realized in the United States earlier and more fully than in the mother country. The two types of culture select for and inculcate quite different character traits--reckless physical courage, a fierce concern with personal honor, identification with a group (family, dynasty, or nation), and hierarchic control in the former; cooperativeness, empathy, tact, politeness, intelligence, individualism, self-interest, prudence, and deferral of satisfactions (i.e., a low discount rate) in the latter. Aggressiveness and a willingness to deceive are constants, although deception is more skillfully deployed in a commercial society.
Politicians possess and cultivate the traits associated with whatever culture they operate in. Honor-based societies attract charismatic leaders, often warriors; democratic societies model their politics on the economic market. As Schumpeter explained in his unfortunately rather neglected economic theory of democracy (sometimes called "competitive democracy"), democratic politicians, constituting the members of a governing class much like the business community in the economic domain, compete for the support of "consumers" (= voters) who "pay" (vote) for the competitor whose product (a package of policies, values, and leadership traits) they prefer.
People in a commercial society are probably more self-interested than people in an honor-based society, because the latter are more likely to identify with leaders or causes than to behave as separate individuals with individual tastes and goals. Although commercial society selects for and encourages traits that we are apt to think "good," such as cooperativeness, intelligence, and empathy, in fact these qualities are morally neutral. Intelligent and cooperative businessmen, whose empathetic qualities enable them to manipulate consumers' emotions and intellectual limits, will be prone to collude with their competitors and defraud their consumers, as well as to ignore pollution and other externalities that economic activity produces. That is why even libertarians, with the exception of anarcho-capitalist extremists, believe that antitrust and antifraud laws are necessary controls over commercial activity.
Even without such laws, it is true, not all markets would be riven by collusion and fraud. Collusion invites free riding, since a seller can increase its profits by slightly undercutting the cartel price; and the reputation concerns stressed by Becker will often deter fraud. But without any regulation, cartel agreements would be legally enforceable, which would discourage free riding, though they would be eroded by new entry--but often the new entrants, attracted by supracompetitive prices, would be less efficient than the incumbent firms. Reputation concerns will not deter deceptive advertising concerning traits shared by all products in the market in question. A cigarette advertiser who advertises that his cigarettes are "safer" than competitors' cigarettes is reminding consumers that smoking is in fact unsafe. The cigarette companies (also the automobile manufacturers) tried for decades to conceal the dangers inherent in their products, since trumpeting those dangers would have reduced demand.
Businessmen also have an incentive to manipulate the regulatory process, seek tax loopholes, and the like. Although we tend to blame politicians and bureaucrats for bad policies, often they are merely brokering interest-group deals. In a democratic society, it is legitimate (in fact inevitable) for policy to yield to the demands of interest groups. We should not blame politicians who are honest agents of politically powerful forces. Politicians who do not yield to those forces are ineffectual.
Of course politicians lie a great deal, but so does anyone who depends on the goodwill of others. Max Weber in a famous essay on politics as a vocation distinguished between private and public morality. Anyone in a public position--and this includes business and academic leaders as well as politicians--cannot indulge a taste for candor or altruism and expect to be successful at his job. It is the same reason why good business leaders drive hard bargains with their suppliers, play off subordinates against one another, lay off workers by the thousands, receive huge compensation packages, and often relocate plants overseas when foreign wages and taxes are lower.
The difference between public and private morality shows that even honesty is a morally neutral quality. Often the regulations imposed on business are mindless and crippling and to survive a businessman must violate them; in doing so he promotes both his own welfare and that of society as a whole.
History teaches that a commercial society is bound to be more prosperous and peaceful than an honor-based traditional society. The commercial culture creates incentives and constraints that, provided that economic activity is effectively regulated, (an important qualification) maximizes the values that are important to most people. This doesn't mean that people in a commercial society are "better" than people in other types of society. The human race is genetically uniform, and our "moral" genes are not much different from the corresponding genes in chimpanzees. The success of commercial societies just illustrates that different institutional structures produce different human behavior.