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Moral Markets

Moral Markets: The Critical Role of Values in the Economy

Edited by Paul J. Zak
With a foreword by Michael C. Jensen
Copyright Date: 2008
Pages: 386
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  • Book Info
    Moral Markets
    Book Description:

    Like nature itself, modern economic life is driven by relentless competition and unbridled selfishness. Or is it? Drawing on converging evidence from neuroscience, social science, biology, law, and philosophy,Moral Marketsmakes the case that modern market exchange works only because most people, most of the time, act virtuously. Competition and greed are certainly part of economics, butMoral Marketsshows how the rules of market exchange have evolved to promote moral behavior and how exchange itself may make us more virtuous. Examining the biological basis of economic morality, tracing the connections between morality and markets, and exploring the profound implications of both,Moral Marketsprovides a surprising and fundamentally new view of economics--one that also reconnects the field to Adam Smith's position that morality has a biological basis.Moral Markets, the result of an extensive collaboration between leading social and natural scientists, includes contributions by neuroeconomist Paul Zak; economists Robert H. Frank, Herbert Gintis, Vernon Smith (winner of the 2002 Nobel Prize in economics), and Bart Wilson; law professors Oliver Goodenough, Erin O'Hara, and Lynn Stout; philosophers William Casebeer and Robert Solomon; primatologists Sarah Brosnan and Frans de Waal; biologists Carl Bergstrom, Ben Kerr, and Peter Richerson; anthropologists Robert Boyd and Michael Lachmann; political scientists Elinor Ostrom and David Schwab; management professor Rakesh Khurana; computational science and informatics doctoral candidate Erik Kimbrough; and business writer Charles Handy.

    eISBN: 978-1-4008-3736-6
    Subjects: Economics, Philosophy, Ecology & Evolutionary Biology

Table of Contents

  1. Front Matter
    (pp. i-v)
  2. [Illustration]
    (pp. vi-vi)
  3. Table of Contents
    (pp. vii-viii)
  4. Foreword
    (pp. ix-x)
    Michael C. Jensen

    My congratulations and admiration to the Gruter Institute for Law and Behavioral Research and the scholars who have evidenced the courage to tackle a subject as difficult and opaque as the Gruter Institute Project on Values and Free Enterprise. With the support of the John Templeton Foundation, the UCLA-Sloan Research Program on Business Organizations, and the Ann and Gordon Getty Foundation, the volume they have produced,Moral Markets: The Critical Role of Values in the Economy, promises to be a landmark effort in bringing scientific inquiry and analysis to the normative world of values. Economics, having traditionally focused on the...

  5. Introduction
    (pp. xi-xxii)
    Paul J. Zak

    Just as nature is “red in tooth and claw,” so is market exchange. All market participants—from business owners and managers to their employees to the grandmother shopping at her local grocery story—must eke out every possible efficiency or be crushed by the capitalist machine . . . or perhaps not. This book hopes to convince readers that both Alfred Tennyson’s characterization of competition in nature, quoted above, and an uncritical reading about selfish competition in markets in Adam Smith’sAn Inquiry into the Nature and Causes of the Wealth of Nationsare not so much wrong as incomplete...

  6. Preface: Is Free Enterprise Values in Action?
    (pp. xxiii-xxx)
    Oliver Goodenough and Monika Gruter Cheney
  7. Acknowledgments
    (pp. xxxi-xxxii)
  8. List of Contributors
    (pp. xxxiii-xlii)

    • One The Stories Markets Tell: Affordances for Ethical Behavior in Free Exchange
      (pp. 3-15)
      William D. Casebeer

      Opinions about free exchange have fallen on hard times. Major news magazines such as theAtlantic Monthly¹ and theNew York Timeshave devoted column-inches to the anti-market zeitgeist, and self-organized protests plague World Trade Organization meetings with regularity.² Given the palpable benefits of markets for all involved in them, why is the termfree marketas likely to call to mind images of selfish and insensitive robber barons as it is to evoke scrupulous and other-oriented small business owners and neighbors? This is partly because cartoon versions of the nature and outcome of free exchange, for multiple reasons, have...

    • Two Free Enterprise, Sympathy, and Virtue
      (pp. 16-41)
      Robert C. Solomon

      It was common wisdom in the nineteenth century that business had become the great civilizing influence in Europe. Some writers may have rightly feared for a loss of culture, but in place of sectarian massacres in the name of religion and hundred-year feuds in the pursuit of a throne or some parcel of land, the new world of business offered compromise, mutual gain, innovation, and widespread wealth on a scale never before imagined. Napoleon was replaced by thousands of entrepreneurs, merchants and bankers. A decade of war (1805–1815) morphed quietly into a century of peace and prosperity. Thus, the...

    • Three The Status of Moral Emotions in Consequentialist Moral Reasoning
      (pp. 42-60)
      Robert H. Frank

      The philosopher Bernard Williams describes a situation in which a botanist wanders into a village in the jungle where ten innocent people are about to be shot. He is told that nine of them will be spared if he himself will shoot the tenth. What should the botanist do? Although most people would prefer to see only one innocent person die rather than ten, Williams argues that it would be wrong as a matter of principle for the botanist to shoot the innocent villager.¹ Most people seem to agree.

      The force of the example is its appeal to a widely...


    • Four How Selfish an Animal? The Case of Primate Cooperation
      (pp. 63-76)
      Frans B. M. de Waal

      Biologists tend to classify behavior by its effects. If the actor benefits from a particular behavior, the behavior is called “selfish” regardless of motivation or intention. Thus, biologists will say that spiders build webs for “selfish” reasons even though spiders probably lack the ability to foresee what good a web will do. Similarly, “altruism” is defined as behavior that benefits a recipient at a cost to the actor itself regardless of whether the actor realizes this. A bee stinging an intruder is an “altruist” as she gives her life to protect the hive, even though her motivation is more likely...

    • Five Fairness and Other-Regarding Preferences in Nonhuman Primates
      (pp. 77-104)
      Sarah F. Brosnan

      Perhaps studying nonhuman primates to learn something about our reactions to free enterprise and market economies seems like a most illogical place to begin. Arguably, however, it is precisely where we should look. Studying these mirrors of ourselves and our evolutionary past can tell us a great deal about what to expect from ourselves in various situations (Boehm, 1999; de Waal, 1996; Wrangham & Peterson, 1996). My work centers on studying inequity in nonhuman primates, with an eye toward the evolution of this response. This is of prime concern to many; one of the basic assumptions in the west is that...


    • Six The Evolution of Free Enterprise Values
      (pp. 107-141)
      Peter J. Richerson and Robert Boyd

      The free enterprise system that dominates the world economy today has deep evolutionary roots even though it has a shallow history. As Darwin (1874) argued cogently in theDescent of Man, long before geneticists showed that humans have unusually little genetic diversity, all human populations have essentially the same “mental and moral faculties.”

      Although the existing races differ in many respects, as in color, hair, shape of the skull, proportions of the body, etc., yet, if their whole structure be taken into consideration, they are found to resemble each other closely on a multitude of points. Many of these are...

    • Seven Building Trust by Wasting Time
      (pp. 142-154)
      Carl Bergstrom, Ben Kerr and Michael Lachmann

      Much of neoclassical economics is founded upon models in which wholly self-interested agents interact—but an overwhelming preponderance of empirical evidence suggests that human individuals are not purely self-interested. Rather, they express other-regarding preferences such as fairness, trustworthiness, or generosity that we collectively labelvalues. Although these values surely facilitate social and economic exchange and, with them, the concomitant gains to communication and trade (see chapters 12 and 13, in this volume), we should not leap too hastily from this observation to the conclusion that these values are part of our genetic nature—and that, without them, modern commerce would...


    • Eight Taking Conscience Seriously
      (pp. 157-172)
      Lynn A. Stout

      Imagine you are enjoying your morning coffee at a local café on a lovely spring day. Looking out the window, you see a dirty, unshaven man lying unconscious on the sidewalk. Beside the man rests a cardboard sign reading, “Homeless, Please Help.” Next to the sign is a cup that holds some dollar bills and loose change. As your coffee cools, you watch dozens of people walk by the unconscious man. No one puts any money in the cup. What thoughts run through your mind?

      You may speculate that the homeless man is an alcoholic or mentally ill. You may...

    • Nine Trustworthiness and Contract
      (pp. 173-203)
      Erin Ann OʹHara

      Open any business textbook these days and you are likely to find claims about the link between markets and efficiency. According to the currently predominant view, successful markets function efficiently, and efficiency is enhanced when market actors are motivated solely to increase profits.¹ In recent years, however, a growing number of prominent scholars are beginning to question these claims by focusing on the importance of interpersonal trust for the success of markets. For example, Francis Fukuyama studied the economic success of large-scale corporations and the necessity of nonkin trust to the creation and maintenance of these entities.² Others have focused...

    • Ten The Vital Role of Norms and Rules in Maintaining Open Public and Private Economies
      (pp. 204-227)
      David Schwab and Elinor Ostrom

      After the fall of the Berlin Wall, the presumption of many policy analysts was that rapid development in the former Soviet Union would result from the creation of effective market institutions and the privatization of land and productive enterprises. Achieving the long-term goals of economic growth and prosperity for citizens has proved to be far more difficult than many policy analysts initially presumed (Kikeri and Nellis, 2004; Shivakumar, 2005). Building systems of law and order is more complex and takes substantially more time and effort than simple textbook examples illustrate, or analysts thought, when confronting post-colonial and post-Soviet political-economic systems...

    • Eleven Values, Mechanism Design, and Fairness
      (pp. 228-256)
      Oliver R. Goodenough

      Economic theorists have generally underestimated values as critical elements in human choice and behavior. Until recently, economists have found values hard to define, hard to measure, and seemingly at odds with the calculating rationality that was the starting point for traditional economic modeling (see chapter 8, this volume). These traditional economists have viewed values with a kind of puzzled detachment; they are not ready to fully dismiss them, but they tend to look at them merely as nice add-ons that probably contribute to efficiency in some vague way. In his widely recognized text,Economic Analysis of Law, Richard Posner allocated...


    • Twelve Values and Value: Moral Economics
      (pp. 259-279)
      Paul J. Zak

      J. Clifford Baxter graduated from New York University and then served in the Air Force, obtaining the rank of Captain in 1985. After leaving the military, he completed an MBA at Columbia University and began a business career. In 1991, he joined a small oil and gas pipeline company in Houston, Texas, called Enron. Cliff Baxter steadily climbed the corporate ladder, becoming the vice chairman of Enron in October 2000. During Cliff Baxter’s tenure, Enron began trading energy contracts and grew to become the nation’s seventh largest corporation. Toward the end of the 1990s, Baxter began complaining to Enron’s CEO...

    • Thirteen Building a Market: From Personal to Impersonal Exchange
      (pp. 280-299)
      Erik O. Kimbrough, Vernon L. Smith and Bart J. Wilson

      Adam Smith identified two key components of wealth creation in human societies: exchange and specialization. Voluntary exchange between individuals is a positive-sum activity in and of itself, simply because individuals would never engage in a transaction voluntarily if they did not believe that there was something to be gained from doing so. However, when exchange occurs between individuals who have specialized in those activities in which they have a particular comparative advantage, immense wealth can be created. Despite the long years of acceptance enjoyed by this truism, relatively little is understood about the underlying process by which people build exchange...

    • Fourteen Corporate Honesty and Business Education: A Behavioral Model
      (pp. 300-327)
      Herbert Gintis and Rakesh Khurana

      Ever since the mid-1970s neoclassical economic theory has dominated business school thinking and teaching regarding the nature of human motivation. Although the theory has been valuable in understanding competitive product and financial markets, it employs an incorrect,Homo economicusmodel of human behavior that treats managers as selfish maximizers of personal wealth and power. TheHomo economicusmodel implies that a firm’s board of directors can best further stockholders’ interests by selecting managerial personnel who focus almost exclusively on personal financial gain, and by inducing managers to act as agents of the stockholders by devising incentives that minimize differences between...

    • Fifteen What’s a Business For?
      (pp. 328-338)
      Charles Handy

      Could capitalists bring down capitalism, wondered theNew York Timesin the wake of the series of corporate scandals in both America and Europe in recent years? They concluded that a few rotten apples would not contaminate the whole orchard, that the markets would eventually sort out the good from the bad and that, in due time, the world would go on much as before.

      Not everyone was so complacent. Markets rely on rules and laws, but those rules and laws in their turn depend upon truth and trust. Conceal the truth or erode that trust and the game becomes...

  14. Index
    (pp. 339-344)