I have always wondered about our willingness to think of business and markets as amoral, leading to predictable and repeated conflicts between those who consider that a good thing and a bad thing. Of course, the practical success of our economic system in generating prosperity for the vast majority of people on the planets is undeniable; but I’ve always felt that the repeated waves of critics, from Malthus to Marx to Greta Thunberg, have their pulse on an undercurrent of anxiety that is legitimate, even if their analysis and solutions are often sorely mistaken.
In particular, with industry’s failure to achieve even basic voluntary coordination to eliminate well-understood negative externalities in industries such as plastic, guns and tobacco (let alone more complex ones like energy, transportation and health, or extreme tail risks like large asteroid strikes), the traditional libertarian answer of “giving businesses more autonomy to sort things out and we’ll come up with a better solution than central control” is bound to be seen as crazy talk. Even though it’s true that many of these problems are made much harder to solve by well-meaning but poorly-designed regulations and governmental interventions, it does not follow that, absent government, an amoral market would automatically and spontaneously sort things out and avoid the series of looming existential risks in our horizon. If there is a solution, there must be something more to it.
Indeed, 17 years before The Wealth of Nations, Adam Smith wrote The Theory of Moral Sentiments as a framework for explaining how man’s moral propensities created a societal foundation of trust and “proper behavior” — with both markets and government going on top of that. Smith’s theory foreshadowed many future developments in behavioral economics and other fields; it was mostly forgotten, but recently resurrected and formalized by Vernon Smith as Humanomics, a great read. And we now have the evolutionary framework to put into analysis how such a system of innate stabilizers can have evolved.
Yet why was The Theory of Moral Sentiments ignored by economists?
Which leads me to the fascinating read from the NYT Magazine, called “In order to understand the brutality of American capitalism, you have to start on the plantation”. Its thesis is that the economics of slavery were at the heart of the American Industrial Revolution, and the assumptions embedded in that system — in particular, about the workforce as physical capital to be exploited, not as human beings and stakeholders with whom business has relationships — continue to be carried on in the US’s business mentality to this day. Of course, this isn’t relevant just to the US, as business practices born here have been exported to the rest of the world to some extent.
Now — this isn’t all praise for the article. I take issue with accounts of national exceptionalism, whether positive or negative. And (coming from Brazil, which had slavery even more embedded in its economy, and where it lasted until 1888) I suggest that the causal chain is more complicated than what they paint: why did this “industrial-slavery complex” not develop in other countries?
Yet, there’s something that resonates in the NYT article’s thesis. Maybe the reason why The Theory of Moral Sentiments was ignored because it prescribed a moral society as a foundation of prosperity, whereas the reality for much of the world economy up until the mid-19th century was that prosperity was founded on immoral violence. Cognitive dissonance on a world scale. It’s more practical to cherry-pick the advice from The Wealth of Nations and pretend that the invisible hand emerges on a vacuum, when in fact its medium is the fabric of trust and moral relationships between equal human beings.
Which leads to the question: is it possible to reintroduce actual moral reasoning into the forefront of business and economic considerations, breaking the endless Manichaeism between the poles of “business is good because it makes prosperity” and “business is evil and our prosperity is corrupt and unsustainable”? Can the emerging “conscious capitalism” movement be that synthesis?
It’s early days, but I believe so. More on this to come.