Moral Foundations of Classical Economics

By Jeff Hamilton,2014-05-09 21:08
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Moral Foundations of Classical Economics

    The Role of Moral Reflection in the Economics of Adam Smith and

    Other Classical Economists

    By James Halteman

    Hendrickson Professor of Business/Economics

    Wheaton College, Wheaton, IL 60187

    Prepared for the Free Market Forum, “The Role of Markets and Governments in Pursuing the Common Good,” Panel Topic: The Moral Foundations of Classical Economics, at Hillsdale College, September 29, 2007


    The Role of Moral Reflection in the Economics of Adam Smith and other Classical Economists

    It is hard to draw boundaries around a topic of this magnitude and the modern mind is not inclined to see and analyze the lengthy process along which values and beliefs evolve. It is clear that the economies of ancient and medieval times integrated values and beliefs into practice in ways that are foreign to a modern scientific understanding.

    The mindset of the ancient and medieval world did not envision life in this world as becoming less onerous over time. What could be hoped for was favorable weather, peace with one’s neighbors and a harvest sufficient to survive without misery from one year to the next. For the Greeks, the good life here depended on an ordered society with open discussion and the cultivation of virtue as understood by the philosophers. For the Christians, this life was a staging ground for the next life which promised everything good that could be imagined. In such a steady state world where human passions often led to strife and misery, equality and the practice of virtue became the social glue and therefore the moral teaching. The search for a better life was viewed as socially destructive. Jerry Muller observes that “There was no room – or little room- for

    commerce and the pursuit of gain in the portrait of the good society conveyed by the traditions of classical Greece and of Christianity, traditions that continued to influence 1intellectual life through the eighteenth century and beyond.”

    However, from the twelfth century onward the Greek and Christian traditions had an increasingly difficult time maintaining the social glue in the face of some new inventions and practices that led to output above the customary levels. Primitive market activity spread to larger transport of goods and exchanges that raised new questions of distribution norms and the dangers of wealth creation. Dogmatism and religious wars could not effectively settle the search for a common social vision though both were extensively tried. The church, now a political, social, and religious power struggled to interpret older teachings in light of the new pressures. Thomas Aquinas’ teaching attempted to integrate the ideas of the ancient philosophers with the teachings of the church and the increased commercial activity and in the process prohibitions against property ownership, usury and trade began to be softened, but no new social vision emerged from the church over the centuries.

    When the authority of the Catholic Church was undermined by the Reformation and the individual believer gained in stature relative to the institutional church, another fault line appeared in the social order. One unintended consequence of the Reformation was a shift in how the individual was viewed with respect to the collective group. The notion that the primary building block of a social order is the individual rather than the group was not the intention of the early reformers, but the groundwork was laid for such a possibility.

    Finally, into the void created by the deteriorating social glue of the late middle ages, came the nation state. Security issues always lead to a stronger state and because security

     1 Jerry Muller, The Mind and the Market (New York: Alfred A. Knopf, 2002), 4.


    and economic concerns are always intertwined a strong nation state eventually led to a more centralized economic system that was called mercantilism. Lacking a coherent economic theory, Mercantilism was a loose collection of policies that were designed to strengthen the nation by accumulating bullion which could be used for security enhancing ventures. An economy highly managed and extensively taxed became the legacy of a philosophy that lasted for nearly 300 years. The colonial expansion efforts during this time helped to disguise the flaws in the economics of the system, but the longevity of Mercantilism can be explained in part by the lack of an alternative vision of social organization that people could trust as new social glue.

    An alternative vision can not appear overnight. It requires a coherent explanation of how the world works and how people fit into the picture. There must be a standard of verification so claims can be deemed credible and there must be a source from which moral judgments can be made so there can be meaning to what is good and evil and trustworthy. In the ancient world there was a God or gods who ordered things and God gave people directives through the prophets, the church or the philosophers. The virtuous life stemmed from obedience to God and the telos of human existence was centered in a God. When that worldview faded there was no immediate replacement. What follows is the story of how classical liberalism filled in the void and how that worldview dealt with the moral component of the new social glue.

    The seventeenth century was a critical time in the development of an alternative vision for social organization. Political and religious wars occurred in much of the Western world. Significant developments took place in medicine, mathematics, astronomy, philosophy, physics and the arts. “All in all it was an era that greatly distanced itself from

    the Middle Ages and the Renaissance by its institutional changes, its challenges to authority, its preparation for the Enlightenment, and its cultivation of markets. Old ideas 2broke down at an accelerated pace and new ideas quickly filled the void.” In this

    environment the increased market activity soon led toward a theory of markets that became Classical economics. Significant shifts in thinking about social relationships in retrospect may appear rapid, but centuries are usually required for ideas to percolate and institutions to evolve and so the ideas of classical economics progressed for many years against the mercantilist practices before they became the accepted economic thinking of the Enlightenment era. The concern here is to explore the moral base upon which this new thinking was built.

    It is important at this juncture to define the categories that are relevant in the exploration of moral content. As various classical writers are examined three elements of moral behavior will be evaluated. The first issue concerns the nature of the person and the human passions that drive behavior. Second, the mechanism that provides a check on unsocial passions will be explored. Finally, the source of moral resources is important. Do moral precepts originate from a purpose (telos) outside of the individual or are moral principles derived from within the individual. All three of these join to give a picture of

     2 Robert B. Ekeland Jr. and Robert E. Hebert, A History of Economic Theory and Method (Long Grove, IL: Waveland Press Inc., 2007), 68.


    the moral content of any given worldview, but people will differ on what they believe is required to provide sufficient moral direction for social survival.

    For example, Alasdair MacIntyre sees the Enlightenment project as stripping telos from moral discernment. In After Virtue, MacIntyre argues that the scientific quest has 3minimized the subjective side of life that deals with meaning and values. When the

    search for what kind of people we ought to be is lost as we try to structure a system that deals with the kind of people we are, then moral reflection becomes meaningless. If there is no purpose outside of ourselves, no telos toward which we can point, then there is no objective standard for moral precepts and ethical norms. MacIntyre claims the enlightenment has left us with an emotive approach to moral reflection with the economic caricature of homoeconomicus as the accepted social building block. In MacIntyre’s view,

    those disciplines that take their cues from the enlightenment on these issues are in need of significant reform. In other words, modern economics from Adam Smith's time foreword is doomed unless it rediscovers some meaningful moral framework that retains teleological moorings.

    If MacIntyre is right about the importance of telos in moral life, then our task is to see if the classical economists consider telos important in their theorizing. However, it is possible that Macintyre sets too high a standard for moral discernment and that classical economists have a moral foundation without an external reference point that is sufficient to provide social cohesion. It is clear that organized religion is not the place to look for the moral moorings of the seventeenth and eighteenth century thinkers. The perpetual wars fostered by states aligned with a particular religious group and the intolerance and persecution endured by dissenters convinced those exposed to enlightenment ideas of science and reason that religion was a detriment to progress. Telos, if it is to be found at all, will focus on a Creator who has built into creation certain principles that, if followed, will provide a better life for everyone.

What follows is an argument that Adam Smith in both his Theory of Moral Sentiments

    and The Wealth of Nations (1759) is operating from a moral framework that meets the

    standard MacIntyre sets for a successful social vision. The first component of the argument is that Smith’s view of human nature sees the selfish passions of grief, joy, self preservation and pleasure/pain choices as more common than the social passions of generosity and compassion. Therefore, people are bent toward behavior that is not socially constructive. The second point in the argument is that the creator has endowed humanity with some screens or filters which will check unsocial behavior if given the proper social setting. Finally, the telos of human existence is the cultivation of virtue. This will fulfill the wishes of the creator and lead to social harmony. This moral foundation is a prerequisite for the enlightenment vision that a free society can prosper and endure. Smith was careful to avoid ecclesiastical language and he was hesitant to speak of a life beyond this one because of his view that theology had become corrupted and had lost its relevance to the present world.

    But when moral, as well as natural philosophy, came to be taught only as

    subservient to theology, the duties of human life were treated of as chiefly

     3 Alasdair MacIntyre, After Virtue (Notre Dame: University of Notre Dame Press, 1984) p.---


    subservient to the happiness of a life to come. In the antient philosophy the

    perfection of virtue was represented as necessarily productive to the person

    who possessed it, of the most perfect happiness in this life. In the modern

    philosophy it was frequently represented as generally, or rather as almost

    always inconsistent with any degree of happiness in this life; and heaven was

    to be earned only by penance and mortification, by the austerities and

    abasement of a monk; not by the liberal, generous, and spirited conduct of a 4man.

    Clearly for Smith, any theology, philosophy, or moral system that was not relevant to this world or that had become corrupted by power or political entanglements was to be avoided.

    Before proceeding it will be helpful to do a brief summary of the building blocks of Smith’s moral philosophy. First, human passions are divided into three categories and then the passions are filtered through the screens of sympathy and the impartial spectator. When filtered effectively the result leads to the development of the virtues which brings happiness and tranquility to people in this life and harmony to the social order. The chart 5below illustrates this process of the moral life

    Human Passions and Adam Smith's View of Virtue

    From the social The second All of the Social Passions

    screen is the passions come the passions are Generosity

    virtues of benevolence impartial subject to Compassion

    spectator in and self-control. The filters or Esteem

    which one highest virtues screens that

    Unsocial Passions enters into condition be- possible.

    Hate their own havior. The

    Envy situation first screen is The unsocial passions Revenge from behind sympathy, are unacceptable and a veil of which allows are kept hidden if one Selfish passions ignorance in a person to seeks social approval. Grief order to identify with Joy make another or to Pain/pleasure choice impartial