Letters: Markets or Morals (Sept 2000)
Markets or MoralsThis Web page is a part of the Letters column, wherein readers of TOC's monthly newsletter, Navigator, can correspond with the authors of its articles.
The following letter is in response to the "Markets vs. Morals" debate article from the July/August 2000 issue of Navigator.
The first entry was added on September 26, 2000.
Posted on 9/26/2000
From Tom Stone
Saturday, September 16, 2000
To the Editor:
In responding to the ideas of Charles Hinkle, you raise two questions: (1)Should a businessman place his personal morality above his role as an economic actor? And (2) If he should, does the market's efficiency then depend on the existence of moral error and even of evil?
I don't find your answers or motivations for these two questions to be very strong.
The first question can be solved by getting more details of the cases. If the businessman doesn't have any responsibilities qua businessman to other parties, as in the case of an individual producer such as Howard Roark, then yes, he can and should place his "personal morality above his role as an economic actor." But if he is a manager or CEO for a corporation, and hence has responsibilities to other parties (stockholders, etc.), then no, he shouldn't place his "personal morality above his role as an economic actor."
This leads to the interesting conclusion that certain people, such as Howard Roark, with some foresight, would likely never take such a job — one where they are constrained by responsibilities to other parties. This also explains why occassionally you'll see a CEO step down from his position when his personal values are in conflict with what his job requires of him. In the example you provided, assuming the decision-maker has responsibilities to stockholders or others to maximize profits, and assuming the company doesn't have any constraints on its actions (like a policy forbidding material of a certain kind), then he should go for the profit and get the sexually explicit show for his network. His responsibilities to make profits trump his personal distaste.
Regarding the second question, I will first make a technical distinction. The market's efficiency doesn't depend in a strong sense on the "existence of moral error and even of evil", if by that you mean moral error is a necessary condition for any market to exist and be efficient. Clearly, in a Utopia where everyone had rational values within a certain range, then you could certainly still have an efficient market. It does, however, allow for the "existence of moral error and even of evil". And more than that, it works with such consumers to provide for them (to the extent that it is efficient) what they demand.
Next, I have to note that "market efficiency" is not some sort of god that has to be appeased in order for Objectivists to morally support capitalism. It is a fact that capitalism will produce the most efficient system (more so than socialism, a mixed economy, et al.). But if the planet doesn't produce 100% market efficiency all the time (where all demands are met), that is not a knock on the moral status of capitalism.
Finally, why is it a knock on market efficiency that some participants in the market have immoral values? The example you give doesn't begin to convince me that there is a problem here: the demand for "despicable gross-out movies as well as admirable ones like Sense and Sensibility". So what? The existence of the consumers with the demand is prior to an evaluation of the relevant market's efficiency (or lack thereof), and has nothing to do with the importance (moral and otherwise) of striving for market efficiency. The only problem would come in here if 100% market efficiency is a requirement for the evaluation of capitalism as the only moral system, and if in order to reach that goal force had to be used to turn some people into unwilling producers of goods they find "despicable." Since market efficiency doesn't have that importance, there is no moral problem here.
Perhaps you can come up with better examples that will convince me that there are problems still to be reconciled. But they would have to be different in kind from the ones you offered in your article.
Best,
Tom Stone
Posted on 9/26/2000
From Tom McMahon
Wednesday, August 23, 2000
To the Editor:
Your analysis of Roark vs. the free market is filled with artificial contradictions to the point of silliness. The free market exists exactly as Reisman describes it in his book, Capitalism. The fact that a free market exists doesn't mean that we all have to participate in it. For instance, if someone wrote novels to their own specifications & no publishers would touch it, that situation wouldn't entail the "destruction" of the writer as you imply in your article. The writer can acquire money in other ways (his "day job", investments, whatever) while still writing novels & hoping for an intelligent publisher to come along. The fact that Hollywood might offer a million bucks if he produced screenplays to their specifications, & the writer refused, doesn't alter the marketplace he refuses to enter. Hollywood is the customer, plenty of writers would "sell their souls" to get noticed by them & do precisely that. The fact that this particular writer chose not to enter that marketplace doesn't contradict the fact of the marketplace & the relationship of customers to producers within it. (Nor is this common phenomena limited to artists, or engendered by some unique form of "artistic integrity". There are many minimum wage working girls who pass up the much more lucrative profession of topless dancing because they find it distasteful.) For Roark (& many primary artists) the customer is simply the means of continuing what he wants to do. He chooses not to enter the current marketplace, but rather create his own marketplace (it's called "innovation"). If others choose not to follow, he has to acquire his living expenses from other sources while continuing to perfect his craft. This doesn't contradict the existing marketplace, & the people who refuse to enter Roark's marketplace aren't guilty of a lack of integrity or anything like that; they simply can't see his vision the way he does. Roark doesn't become a communist because of it, he just holds onto his own truth & waits for the intelligent consumer to come along. If none come, he can live with that, too – after all, he still has the design that no one else has conceived of. For Roark, that's enough.... (&, no, for people who have a healthy level of self esteem, being a prostitute for "just one night" – or one Tudor home – wouldn't be tempting.).... In short, Roark has accepted the fact that all our choices in life entail risk & consequences. It's called being an adult....
Tom Mahon
PS. re. The example of "segregation", the first ones to respond to blacks all the way back in the 1940's & 50's were the owners of football & basketball teams. Like any good capitalist, they wanted to enhance the market value of their team by winning. Precisely the mentality & motives Reisman describes.
Posted on 9/26/2000
From Karen Minto
To the Editor
I loved your article "Markets or Morals?" in the Vol.3 No.7 issue of the Navigator. There was a lot to think about, and while the issue of the market was made clear, the issue of morals and values was a bit fuzzy. I think this fuzziness occurred because the terms values and morals need clarifying. Rand defines values as that which one acts to gain and or keep. While the definition is fine for understanding values in general, the term "values" needs further delimitation. There are material values such as a house, a toy, and a car. There are spiritual values such as the love one has for a spouse, the obligations one has to one's children, and to contractual arrangements (one's word). Then there are values of principle, such as refusing to initiate force on innocent people or refusing to lie to gain unearned values. (There can also be a category that occurred to me while reading your article and that is a merging of the material and the spiritual which can take for form of, say, a one and only work of art that had personal, spiritual value to the owner/viewer.)
Of these categories of values there is a hierarchy of their importance.
Material values are the lowest and are traded among themselves (having various levels of importance). They can be traded up to a higher category (giving back ill gotten goods to recover your integrity and good name).
Spiritual values are never traded down to the material values. You do not sell out your principles for material gain. You do not let another man sleep with your wife for a million dollars no matter what financial straits you are in. Even though you love your parents, and know that they will be hurt by knowing that you wrecked your bike through negligence, you must tell them and accept responsibility. (Matters of principle are higher than the spiritual value of love).
So with these distinctions in mind let me get back to the issues in the article. Is it a moral conflict for Howard Roark to build an English Tudor house for $500 million dollars? Does every man have his price? Well in the material realm of values: Yes. There would be nothing wrong with that because there is no real spiritual value to degrade. Yes he would be bored building such a house but it wouldn't be morally wrong as long as he told the client he was just doing it for money and that he really didn't like that type of house. What would be wrong is if a client wanted to pay him $500 million dollars to sleep with his wife and he accepted. What would be morally wrong is if Touhy paid him $500 million dollars to write an article praising the virtues of Tudor Homes and how much Roark admired them. In these last two examples he would be trading spiritual values (love for his wife and lying about what he thought to the public) for material gain.
Throughout history the men who sold out their principles were always reviled by both sides, the betrayer and the betrayed. (Benedict Arnold found no friends in England!). On the other hand, those who put their principles above material gain and in many cases, life itself, were admired by everyone of character whether friend or foe. (When the WWI German Ace The Red Baron was shot down the English flyers who had fought him in valiant battles flew over his grave during his burial and dropped a wreath...while they were still at war!)
If we look at the market in this light, we can see that, while Hinkle was right in saying "It is a false distinction to argue the relative sovereignty of consumers versus producers in a capitalistic system..." There can be a conflict between "free markets and a moral system based on a rational, self-defined value structure". The conflict rises when spiritual/principled values are exchanged for material values. When that happens trust breaks down, obligations are no longer honored, violence takes the place of justice, and chaos rules.
Karen Minto, editor Full Context
Posted on 9/26/2000
From E. Leon Weaver
8/28/2000
To the Editor:
Let me begin by explicitly defining the given economic system, capitalism, as I understand it, that engenders this debate. Absent agreement at this level, a debate of concrete issues will prove fruitless.
Capitalism is the economic system that is logically derived from the Objectivist concept of man: he lives in a material world, he requires material resources for survival, he is self-owned, he is rationally self-interested, he is self-directed, intelligence is his basic means of survival, he is the essential source and repository of knowledge and his own happiness is the purpose of his life.
Capitalism (AKA the 'free market') in practice is an economic system characterized by the right of individuals (or voluntary associations) to acquire, produce, control, use, consume, transfer and/or exchange property by voluntary means. Property in this context are, physical and intangible assets including real estate, goods, services, intellectual property, and contractual rights. Voluntary means action unmotivated by private, political or cultural coercion, fraud, force or threat of retaliation.
Capitalism qualifies to be denominated a moral economic system because it is based on the nature of man, is congruent with human attributes and addresses human needs.
Capitalism's paramount virtue is that it is the economic system that most empowers each individual to make moral and economic choices according to his personal knowledge, talents and values, to live his life as he so chooses and to personally reap the spiritual and material rewards of his choices. (Hereinafter this will be referred to as the paramount virtue of self-determination.)
Capitalism, as a social science, is concerned with how economic incentives influence the behavior of individuals in their economic roles as consumers and producers. The goal is to discover universal rules of economic behavior that hold regardless of individual morality. Given the historical shifts of what are proclaimed (by society, consumer advocates, religions, ethnic groups or pandering politicians) to be moral or immoral, if we value long term economic predictability, then this systemic impartiality is another virtue of capitalism.
Capitalism has been proven, both theoretically and historically, to yield in the aggregate, the most efficient allocation of resources and thus higher average living standards than all other economic systems. This attribute of superior efficiency is certainly a virtue, but one which is inferior to the paramount virtue of self-determination that is endowed each member of a societies which (to whatever extent) embraces capitalism.
Given that capitalism tends to materially reward men according to their productivity, if production is a moral activity, then there are economic incentives are for moral behavior. This can be enumerated as another of virtue of capitalism.
The foregoing abstract of capitalism is my perspective for making the following comments on issues raised in the Markets of Morals article.
The title 'Markets or Morals' implies a dichotomy, which would require a choice between economic liberty or moral integrity. The actual choice is to live with integrity (or not) within the given economic system. So this discussion might better be titled 'Capitalism and Morals'.
The selections quoted from Human Action by Ludwig von Mises, Capitalism by George Reisman and Entrepreneurial Discovery and the Law of Supply and Demand by Israel Kirzner discourse on the relative power or influence of producers and consumers in a free market society and the resulting allocation of resources. They concentrate on the economic roles of men as distinguished from their other roles. But these quotations are isolated fragments of an extensive and integrated tapestry of economic literature, which defines, justifies and advocates the economic system known as capitalism. In context they primarily debate that consumers are not victims of 'capitalist' producers, but are themselves 'capitalist' consumers who wield equal or greater economic clout.
"For Objectivists, these have to be troubling analyses." in reference to Roark, Mrs. Wilmot and the English Tudor house. Capitalism provides the economic framework which empowers both Roark and Mrs. Wilmot to seek their individual values, she the house and he his creative integrity. Mrs. Wilmot, as a consumer, is free to pursue her house but there is no guarantee that she will get a house from either one specific architect or any other at a price she deems fair. Roark, as a producer, is free to pursue his sense of creative integrity with no guarantees that he will succeed economically or creatively as an architect. Capitalism makes no judgment as to who owns or seeks the higher value. It has no higher agenda of maximizing "market efficiency".
Libertarian Authors are free to practice their craft under capitalism but are not guaranteed any level of economic success or even to be published which requires economic transactions. Such guarantees would violate capitalism's principle that transactions must be made voluntarily by all parties involved. Only in a mixed economy or planned economy would such guarantees be even contemplated. All authors are free to base their reasons for decisions on economics or any other criteria they choose. Capitalism makes no claim that economics are the only, primary or even a necessary criteria for choosing to practice a craft, trade, profession, business occupation or other undertaking.
Racial (or ethnic, or sexual, or religious) segregation or even widespread discrimination under capitalism is possible only if and to the extent that all or most members of one group or another voluntarily agree (explicitly or implicitly) to practice it. But they would practice it only at their economic peril. Economic incentives work against segregation and discrimination because it reduces the size of the market for all economic actors and thus the opportunity for profitable transactions. In this regard it is appropriate to point out that economic actors in their various roles (as buyers, sellers, producers, consumers, etc.) have and are in the market for (goods, services, knowledge, ideas, talent, ability, etc.) that come packaged (in all sizes, shapes and colors) with distinct qualities at various price points. Segregation and discrimination, as long practiced in the South, can long exist regardless of economic incentives only when sustained by political and/or cultural intimidation, coercion and force (which are contrary to the principle of voluntary transactions espoused by capitalism).
While on this subject, it should be noted that individuals (and voluntary associations) are empowered to voluntarily segregate themselves from the capitalist economic system. This is not prohibited by tenets of capitalism, but neither is it without economic consequence, whether motivated by 'higher' values or out of ignorance. It is especially hypocritical of [popular] critics of capitalism to blame the 'system' for the economic results of self-segregation.
"So which virtue shall we claim for capitalism? That its producers are free to stick by their values, despite the demands of consumers? Or that producers will overlook all rational and irrational distinctions among people and products in their pursuit of Money? and if we claim the former, but not the latter, what becomes of [our] claim that capitalism provides an ever-shifting, always efficient flow of production and capital?"
First we claim the paramount virtue of self-determination. Then we claim that given the same rationality and morality of economic actors (over whom capitalism exercises no control), capitalism will yield more economic efficiency and thus wealth than any alternative economic system (which attempts to control economic actors by coercion, intimidation and/or force). The validity of this second claim has been proven, both theoretically and historically.
The quotation(s) from Kirzner enumerate attributes (visionary, creative, imaginative, opportunistic) which differentiate entrepreneurs from businessmen who follow more traditional formulas for business success. This does not imply that he believes that entrepreneurs do not respond to anything but expectations about consumer demand. There is a continuum of business practices from the conservative, risk-adverse style to the bet-the-farm, winner-take-all style. Entrepreneurs who eschew all market research and ignore consumers preferences are prime candidates to be subjects of MBA case studies of business failures. A first-rate composer who is "faithful to the core traditions of the Classical era without being imitative of that era" may very well be financially successful but he would not, by the criteria enumerated, be considered entrepreneurial in either an artistic or business sense.
Charles E. Hinkles, in his letter, makes several observations that are worth repeating. "It is a false distinction to argue the relative sovereignty of consumers versus producers in a capitalist system. Both are free to choose..."
"A defining characteristic of a capitalist system is the freedom of choice of both consumers and producers...." "While the producer must provide something worth trading for from a consumer's perspective, the producer also has to act in accordance with his personal value structure." "The individual's choice of a particular value structure may limit the size of the market available...."
"Another context that producers operate within is the social environment that influences [their] customers's attitudes and behavior."
But there are a couple of nit-picking problems with his statement "An individual [who] generates nothing of value to anyone else is not a producer."
The hermit produces something of value to himself (as proven by the fact that he is alive) but not to anyone else (because he is isolated) may not be an economic producer, but he is still a producer of that which is required to sustain his life (if only a service in the case he is only a hunter/gatherer). An absolute non-producer could be only a beggar or dead. Individuals who by talent and effort transform or create something that did not previously exist are producers whether it is of value to anyone else or not. The statement seems to need the modifier economic for the noun producer to be correct.
"But can we also defend the Austrian economists [capitalists] in their view that businessmen and entrepreneurs relentlessly strive to meet consumer demand, thus assuring a constant tendency to economic efficiency[?]" Yes, but that is only a secondary virtue, an unplanned result of the spontaneous economic order that evolves under capitalism. We still first claim the paramount virtue of self-determination. There is no need to call on the macro-economic benefits to society or some moral dimension beyond the realm of economic calculation to defend capitalism or the Austrian economists' views.
"(1) Should a business man place his personal morality above his role as an economic actor? And (2) If he should, does the market's efficiency then depend on the existence of moral error and even of evil?"
Objectivist philosophy and psychology are unequivocal in advocating that man should live with integrity and equally unequivocal that he should consciously and rationally choose his values. In sum every man should rationally integrate moral, economic and all other values and live with as much integrity as possible given that he is neither omniscient nor totally in control of the context in which he finds himself.
The first question addresses personal integrity, the consistency and constancy with which one lives according to personal values including morality. A man necessarily plays many roles in his life, some simultaneously and none exclusively. Besides man's dual economic roles (as both producer and consumer), man also plays political, social, romantic, parental, intellectual, spiritual, creative and other roles. Attempts to divorce issues of personal morality from any of these roles or to compartmentalize the roles themselves undermines personal integrity, is psychologically damaging and eventually prove counter-productive of personal happiness.
No, the market's efficiency does not depend on 'moral error or even evil', but achieves its level of efficiency given the moral qualities of individual actors. Moral and esthetic dimensions are beyond the realm of economic calculation so the market will have to work with men as they exist and depend upon other disciplines to address these issues. Given economic actors as they exist, the market's efficiency is primarily a function of the extent to which voluntary transactions and property rights are unburdened by political and cultural prohibitions, regulations and mandates.
"Specifically, when approached for charitable contributions, a number of [staunchly pro-capitalist] businessmen have replied that their job, as businessmen, is to just make money. That it is their obligation to the people who lend them capital, and it is their obligation to their employees." If businessmen are corporate executives this response is proper because they work for and have a fiduciary responsibility to the stockholders (who in effect lend them capital by buying stock) not to expend corporate resources for their personal benefit (in this case to champion their favorite cause). Businessmen are still free to expend their personal resources any way they please. If businessmen are sole owners the response is disingenuous because they are free to do as they wish; although they may have perfectly valid reasons for not contributing, such as other personal values that have priority claims to their limited resources. Their obligations to employees depend on the specifics of the employment contracts.
The choice to produce or not "despicable" products (movies being the example given) is one that the individual will have to make based on personal values. Capitalism offers no ready-made solution to this quandary. As previously noted, moral and esthetic dimensions are outside the domain of economic estimation. Other disciplines need to be invoked for guidance. Regardless of the choice(s) made, the market will continue to function and yield predictable results to the extent it is free of political and cultural manipulation.
"Every man has his price" is simply a case of raising the stakes (from penny-ante to table-stakes, to house-limit, to no limit?) but does nothing to alter the essential issue. Integrity still remains an issue of personal choice which, under the tenets of capitalism, only the individual is empowered to make
Capitalism is simply an economic system and does not deserve denigration for providing only the framework and economic incentives for both the moral and the immoral to live together in peace, harmony and prosperity. Nor does it deserve to be considered lacking in virtue if it fails to create, by itself, an utopian society populated by morally upright, heroically driven, creatively inspired, noble producers with immaculate integrity. This is too much to ask of the 'dismal science'. We must expand the search for moral stimulus and guidance to other fields of philosophy.
Respectfully submitted for consideration and commentary,
E. Leon Weaver
08-28-00
Leon.weaver@att.net