Are Market Processes Moral?

Years ago, a religion professor at my college gave a talk to economics seniors on the limitations of economics and the necessity of considering religious principles in determining what we should do. Free-market economics, he said, has difficulty reconciling with the harsh criticism of market activity found in the Bible. There were, of course, other religions he could have considered, but Christianity was most familiar to these students.

One of his key points—that the economic way of thinking is not sufficient to understand the world around us—is valuable. An interdisciplinary approach to learning is indeed vital. However, I believe there are some problems with assertions that free markets and Christianity are incompatible.

The idea of free markets is about minimal intervention of the civil government into the marketplace. It is not about creating morality through markets. Neither is it an argument that people operating in a free market environment do not do bad things. It is true that markets sometimes produce things that should not be produced. For example, pornography, prostitution, and contract murder are provided in markets (and not all of these are universally illegal). And people who produce good things sometimes do so while cheating, lying, and stealing. But no market-oriented economists I know would argue that markets are expected to stamp out all unsavory and destructive behavior. A market structure allows people to accomplish their goals, but is neutral about what those goals should be.

I think it’s common for non-economists to create a bit of a caricature of capitalism—an image of a relentless search for financial gain, whatever the consequences for customers or bystanders. Yet free markets allow for the pursuit of multiple goals, not simply increasing the size of one’s bank account or even the size of corporate profits. Mother Teresa’s inclinations to help the lepers of Calcutta were no less consistent with the free market than a “greed is good” Gordon Gekko. Free markets are just that—free. A person in a free market has broad (not limitless) freedom to pursue their goals, goals which may be laudable or reprehensible. 

Furthermore, it is a non sequitur to argue that all immoral acts must also be illegal acts. It may be wrong for a child to lie to his parents, but few would argue that the local sheriff should have jurisdiction in such matters. There are other social institutions besides the state, which can exercise influence to encourage moral behavior. The family and the church are two of these. I do not know of anyone who would argue that families and churches are incompatible with free markets. The existence of some immoral participants in the market, who produce evil things, does not imply that the state should intervene to deal with every form of immorality.

Neither markets nor governments do what we would like them to do. Neither perform perfectly. Market institutions and coercive institutions (such as government) both are populated by imperfect human beings. One of the important questions, then, is whether markets or governments are least likely to produce the undesirable results we see. Unfortunately, I often see allegations of “market failure” quickly followed by the assertion that government should intervene to correct these, forgetting that government also fails. The “cure” could be worse than the disease, but the caricature of government persists: a knowledgeable entity held to high standards and committed to broad public interests by democratic processes, uncorrupted by the search for profit. 

The 2007-08 housing market crash and subsequent financial crisis has been widely understood as the consequence of insufficient regulation plus corporate greed, to judge from the impressions my students have. The thought that non-market institutions, e.g., government regulation, the Federal Reserve, Fannie Mae, etc. might have contributed to the crisis is not even on the radar, for most people. (See, for example, Peter Schweizer’s Architects of Ruin, Thomas Sowell’s The Housing Boom and Bust, and Tom Woods’ book Meltdown, on how government intervention contributed to the crisis.) Far from being an example of “unfettered markets,” the financial crisis is an example of what regulation and monetary manipulation can do to an economy. While market processes suffer from greed, larceny, and deception, governments do as well. And the tendency is for greed, larceny, and deception to be worse where paired with coercive power. Markets can only entice cooperation, while the distinctive characteristic of government is its power to use force to accomplish its purposes.

Note: An earlier version of this post appeared May 6, 2011 at a blog published by the Center for Public Choice and Market Process at the College of Charleston. The blog is no longer available.