Markets and Morals
It is quite clear that my column on Pope Benedict XVI and Warren Buffet has generated a lot of heated traffic. There are few if any Ricochet readers who wish to stand up in defense of Mr. Buffett. But there are many who are prepared to defend the Pope for his remarks. I think that these responses to my position are off the mark, and hope to explain why that is the case, using some individual comments as the basis of my critique.
Here is one short critique of my position from Katievs:
Of course the economy cannot be measured only by maximum profit. Of course it has an ethical dimension, of course it has to be seen and judged in the light of the common good.
As for putting people before profits, don't we all believe this? If not, why do we oppose slave labor and child labor and sweat shops?
The difficulties with this quotation start with its opening sentence. To be sure, maximum profit for the firm is not the sole test of whether it has behaved well. As I mentioned in the paper, the objective here is to make those changes that lead to win/win situations. A more technical version of the same point is that we hope for all market transactions to generate Pareto improvements, by which we mean that at least one person is better off after it is completed, and no one is worse off. In a competitive market we can achieve that objective if the rules of the game are fully observed. The transaction between two (or more) immediate parties will generate gains for both that exceed their combined transaction costs, so long as the usual rules for voluntary transactions are observed, with the strict prohibitions against force and fraud for inducing agreements. These could be regarded as moral side constraints, but they flow directly from these definitions. Put coercion and mistake on the table, and the ability to get mutual gains is over. It is for that reason that every defender of laissez-faire has stressed these side constraints.
The question of gains for the parties does not end the discussion because a true Pareto improvement means that no third person can be made worse off by these results. Hence contracts to main third parties are out of the question as is slave labor. It is, however, a serious mistake to put child labor and sweat shops in the same bracket because the economic and moral dimensions are so much more difficult. Child labor is commonplace on farms, and has many deleterious effects. It also in many cases produces the needed income for the food and shelter that allows a family to survive. Ban child labor in industrial settings, and begging and prostitution are often the alternatives. So long as the parents have the best interests of the children at heart many child labor laws are counterproductive. I cannot go into the history here, but suffice it to say that the only antidote to child labor that works is general prosperity, which allows for the gradual withdrawal of child labor from the market. Just that happened during the period between 1900 and 1935, at the time that the moral objections to child labor reached their peak.
Sweat shops have the same explosive connotations but again the arguments historically cut again in the opposite direction. So long as people have the right to quit they are better off working in sweatshops than having no jobs at all. The history of regulation may raise the wages, but they can also shut down the shops leaving people with an impoverished set of alternatives. Recently I had the opportunity to review a manuscript by Benjamin Powell, with the title No Sweat, which demonstrated the point with a level of detail that regulation of voluntary markets always hurts the people one wants to help. There is only one cure from sweat shops. Free entry by other employers, coupled with improved skills by workers to wage their wages. In short, there is a real moral dimension to this issue. Those who intervene to protect those who are helpless have hurt the individuals whom they wish to help the most. There is no potential long-term good in that approach. It is of course permissible to give direct assistance of one’s own funds to those in need, but that is consistent with the libertarian view that disdains coercion and relies on voluntary activities. Katievs’s last sentence is chock-full of mistakes.
Next, let me comment on a remark from BThompson, which I think also misses the point.
There are all sorts of unethical ways to maximize profit which are counter to the common good. Manufacturers can use substandard materials that are much cheaper but which hurt consumers, for example. This type of thing has happened innumerable times. Corporations also do unethical things to crowd out competition and reduce consumer choice. Believing that capitalists never screw the consumer or its own workers and get away with it is simply blind. I believe this is what the Pope is referring to, in part anyway.
The quotation makes the same mistake that was done above. It assumes that those people who object to the phrase that we should place people above profits are utterly oblivious to the side constraints on business that are consistent with, and required by, the libertarian condition. The reference to the use of substandard materials that are cheaper but which hurt consumers, gets at the point, but it lacks the precision to advance the case, let alone clinch the argument. The key variable in all product cases is whether the substandard materials are hidden or open. If the former, there is a misrepresentation and the creation of a trap, so that the transaction in question does not meet the standard of mutual gains between the parties, and indeed poses serious threats to other individuals who may come in contact with the products after they are sold. But once these conditions are fully disclosed and known to the consumer, the presumption is that people would rather take some risk with an inferior product than do without altogether.
Here the point with products parallels that with services. If the “standard” goods are priced beyond the reach of consumers, the alternative may be some makeshift contraption that is more dangerous than the low price product. So full information is what is required in these cases. And manufacturers that sell products that are substandard while proclaiming that they will do just fine are guilty of fraud and are punished within a laissez-faire system.
The same kind of imprecision is found in the claim that capitalists (which could include even small employers) “screw” workers is not sufficiently precise to permit an accurate judgment. If this means paying lower wages than the Pope or anyone else thinks appropriate, the right answer is to hold your fire and let others judge for themselves. But if it means not paying wages for work done, it is a breach of contract for which the capitalist legal system has long afforded a remedy. Again the claim for profits is this: let a firm follow all the rules that are required of a business in a competitive setting, then when it sets prices and quantities to maximize its profits, its incentives are aligned with overall social welfare. B Thompson does not address the only case where I took my strong stand against the positions of the Pope and Mr. Buffett.
Finally, let me respond to the remarks of Samwise Gamgee, who writes in part:
The Pope's concern is with human dignity, and it is indeed true that human dignity can be and is compromised by certain strict free markets situations. The compromise is not necessary or inherent in the system, but it can be a consequence. Fortunately, many business owners are indeed concerned with employees' well being, even if only as a means to a profit.
The first point is that the Pope is not the only person who is concerned with human dignity. People who think that contracts better the position of all parties to them could easily be read to say that their improved welfare advances human dignity, not for one at the expense of others, but one in harmony with the gains to others. If there are strict free market situations that violate that principle, I would want to know what they are. Perhaps one is thinking of contracts to sell one’s self into slavery, which is not on anyone’s agenda. There are no such voluntary transactions in anything other than totally corrupt societies, where all other opportunities are blocked off by oppressive government action or inexcusably corrupt private behavior. And of course many business owners care about their workers. Gamgee is right to equivocate on this point because it is both good business, and decent behavior to care about other people. But in a healthy workplace, the reciprocal low level adjustments are a sign of why businesses work so well. They can respond to personal needs with precise information that no government can hope to match. So letting markets run will result in employees leaving those firms that have terrible workplace environments for those with better ones, even for lower wages. It happens all the time.
The key point about all three of these remarks is that none of them talk about what troubles the Pope. The social justice movement is not like the corrective justice movement, which concentrates on using state power to annul advantages obtained by force (including the threat of force) or breach of promise. It looks at the outcome of voluntary market transactions and pronounces as unjust the inequalities of wealth that emerge in their own terms, no matter how fair the transactions that led to that distributional state. It is the notion that inequality of wealth is inherently coercive, or that states should equalize wealth across persons even if those transactions are not coercive, which is the root of the long term decline of any prosperious economic system. The Pope differs from socialists on all sorts of issues, most notably in his commendable view that it is just wrong to think that it is all right to kill lots of people in the short run to get the equality of wealth in the long run. Eric Hobsbawm is the classic illustration of a socialist who has that hardened heart to short-term suffering.
Yet the question here is not about where the Pope differs from the socialists, but the points of their overlap. In this regard, his views on Spain are I think accurately captured by the quotations that he gave. It is by those quotations that his views are projected to the world. Both by what he says and what he thinks, it is not likely that he would turn to the massive programs of government intervention and say that here lies the difficulty, and ask what can be do to stop it. Rather, his view is that we have to control the excesses of markets, far beyond the standard concerns with fraud or duress, or even monopoly. Unfortunately, my fear is that he does not understand the implicit side constraints that are part and parcel of every system of profit maximization. It is in my view far more important to study how market systems relate to overall social welfare before attacking their operations. The three comments that I have commented on, and too many others like that, leap to the wrong conclusion about market operations, and for the wrong reasons. Let anyone find a statement in any of my books on political theory—Simple Rules for a Complex World (1995), Principles for a Free Society: Individual Liberty and the Common Good (1998), or Skepticism and Freedom: A Modern Case for Classical Liberalism (2003)—that portrays such perverse sentiments, and I will be stunned. But I will also promptly confess error.
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Sep '10
Re: Markets and Morals
I'm not a religious person, so perhaps this is easy for me to say, though I have thought and thought and thought about this: there is no such thing as the common good. At least not in objective terms. Too many viewpoints. Too much baggage. Too little self-awareness. I believe the individual is the proper starting point for all ethical and moral action and that broad pronouncements on what constitutes the morality of other peoples' actions are inherently subjective, solipsistic, and philosophically suspect. Also, not being Roman Catholic, I'm put off by a pope who goes around pontificating on the immorality of capitalism's bottom line when the American church is closing parishes and making it difficult for parishioners to celebrate the Eucharist, his only real obligation to the church. As for Buffett, he reminds me of someone whose child has been murdered and who has forgiven the murderer and who goes around telling the parents of other such children that we are obligated to forgive. I say, good for you, dude, but keep it to yourself.
Jun '10
Re: Markets and Morals
I'm not sure where the Pope called capitalism immoral, but a direct quote might be useful in talking about this issue. I think the Pope is referring to immoral choices by individuals working within a system, which is different than the system itself being immoral.
But, your point is also ironic in that perhaps the benefits of capitalism in terms of material wealth may have compromised our spiritual wealth? I can think of a lot of people who sit on expensive couches watching 47'' plasma TV's on Sunday morning football instead of going to Mass... Just like our poor people are obese, our spiritually poor are incredibly wealthy.... maybe that's why we were told we are blessed when we are poor in spirit, poor down to our depths?... just a thought.
Jun '10
Re: Markets and Morals
Thanks for your response Richard.
The fist point I'd like to make is that I believe you, and many other conservatives... Glenn Beck for one off of the top of my head... believe the distortions of what "social Justice" means; trusting those who interpret the term in light of the heretical thinkers of the 60's and 70's rather than within the context of 2000 years of church teaching on social issues. The term has been hijacked and many Church clergy and members misuse it for other purposes, but Pope Benedict is not one of the hijackers.
I also think it's drastically unfair to use one quotation from one speech of the Pope to compare him to socialists, a system that has been consistently condemned by both he and his predecessor, Pope John Paul II. To make the case that Pope Benedict is more akin to a socialist than a pure free market capitalist will take a lot more than one quote, and to my mind, is an impossible task. Suffice to say Church teaching does not fall with either camp.
Sep '10
Re: Markets and Morals
Here you go, Sam: MADRID (Reuters) - Pope Benedict denounced economic structures that put profits ahead of people on Thursday at the start of a trip to recession-hit Spain where the costs of the pontiff's visit have sparked violent protests. (I.e., to me, "economic structures that put profits ahead of people" = "pontificating about the immorality of capitalism's bottom line.")
Samwise Gamgee
I'm not sure where the Pope called capitalism immoral, but a direct quote might be useful in talking about this issue.
Jun '10
Re: Markets and Morals
Thanks Leslie, but I was referring to a quote from the Pope himself, perhaps in an encyclical of some sort, rather than an interpretation from Reuters of one speech... or a few lines from a single speech like the one Richard chose that sparked his post...
Mar '11
Re: Markets and Morals
I missed the quotation you're citing.
Leslie Watkins: Here you go, Sam: MADRID (Reuters) - Pope Benedict denounced economic structures that put profits ahead of people on Thursday at the start of a trip to recession-hit Spain where the costs of the pontiff's visit have sparked violent protests. (I.e., to me, "economic structures that put profits ahead of people" = "pontificating about the immorality of capitalism's bottom line.")
Samwise Gamgee
I'm not sure where the Pope called capitalism immoral, but a direct quote might be useful in talking about this issue.
Aug 24 at 9:28am
Jun '10
Re: Markets and Morals
If there are strict free market situations that violate that principle, I would want to know what they are.
While I'm not a lawyer and can't comment on contracts per say, I'm not entirely sure how much protection of human dignity a contractual agreement between employer and employee will ensure when embedded in the contract is the ability of the employer to terminate the contract for any reason.
For example, I recently applied for a night shift job with UPS and in the application and paperwork were the statements that employers can terminate an employee at any time and for any reason. It's true that I'd "agree" to this contract if I desired employment, so it's a freely chosen employ and not enslavement. But if I did my job well and approached a raise, the company could freely fire me and hire someone else to work for 1/2 the pay with only citing that single clause. Thus, an example of the compromise of human dignity for profitable reasons while not technically violating a contract...
But is it really your point that human dignity can never truly be violated under pure free markets?
Sep '10
Re: Markets and Morals
From Caritas in Veritate (Charity in Truth), the third encyclical of his papacy, released in 2009: "Profit is useful if it serves as a means toward an end. Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty." Read more: http://www.time.com/time/world/article/0,8599,1909020,00.html#ixzz1VxwSHDDt
Now, did you need the pope to tell you that? Also, that he feels at ease criticizing the secular realm only shows how much the church has failed in its charitable scope.
Samwise Gamgee
Thanks Leslie, but I was referring to a quote from the Pope himself, perhaps in an encyclical of some sort, rather than an interpretation from Reuters of one speech... or a few lines from a single speech like the one Richard chose that sparked his post... · Aug 24 at 9:38am
Jun '10
Re: Markets and Morals
The largest charitable organization in the world is the Catholic church... so I'm not sure what you mean...
But that quote hardly represents the Pope calling Capitalism immoral. He is speaking of profits... but from your perceived tone, perhaps you have another bone to pick, that is unlikely to be resolved here...
Sep '10
Re: Markets and Morals
I don't know what capitalism is if not profits. I do have a bone to pick with the pope. The secular world is not his realm, at least it's not supposed to be in the New World. As for charity, what good is it if the Eucharist is hard to get?
Samwise Gamgee
The largest charitable organization in the world is the Catholic church... so I'm not sure what you mean...
But that quote hardly represents the Pope calling Capitalism immoral. He is speaking of profits... but from your perceived tone, perhaps you have another bone to pick, that is unlikely to be resolved here... · Aug 24 at 9:56am
Feb '11
Re: Markets and Morals
"The social justice movement is not like the corrective justice movement, which concentrates on using state power to annul advantages obtained by force (including the threat of force) or breach of promise. It looks at the outcome of voluntary market transactions and pronounces as unjust the inequalities of wealth that emerge in their own terms, no matter how fair the transactions that led to that distributional state." Brilliantly written Prof. Epstein, I think this is one of the best articles I have read discussing this issue. I can't tell you how many times I have heard people chaffe at the suceess of individuals with the "they should give most of their wealth to charity" meme. In general the inequality of results seems to bring out what would appear to be feelings of resentment and/or envy.
Jun '10
Re: Markets and Morals
I've only read Richard Epstein's incredibly sharp analysis once, but if I am not mistaken the point that is being missed in the comments above is this: Is a free market, one that favours win/win contractual arrangements, a beneficial mechanism.
Given my reading of Professor Epstein's argument the answer is resoundingly yes. No where does he suggest that this mechanism is perfect, or as in the UPS example cited, that there are not "short run" inequalities. What he does say, if I might be so bold, is that actors within the a free market will over the long run assert their own dignity through their freedom of action.
No contract can survive inequality. The disadvantaged party may be forced to live with the arrangement for the term of the contract, but eventually the contract expires and the disadvantaged are given an opportunity to equalize their positions.Failing equality, the disadvantaged are free to seek other opportunities.
Jan '11
Re: Markets and Morals
I think we understand the argument and are pointing out that the pope's remarks don't necessarily contradict that point. Instead what is being argued is that while we all recognize that in an ideal world that is exactly how the free market works, we all know this isn't the ideal world and that there are certainly people operating in the free market that don't seek win/win arrangements nor honor contracts. It's in fact perfectly reasonable to read the pope as calling for people to make more of an effort to respect the ideal you cite.
Edited on Aug 24, 2011 at 1:41pmPersonally I feel like Mr. Epstein is begging the question in his argument. He assumes the pope is hostile to the free market and automatically interprets the quote as an attack. He then goes about knocking down arguments hostile to the free market that the pope has not made to show just how wrong the pope is in his view.
Defenders of the pope are merely asking Mr. Epstein use more than one ambiguous quote filtered by the MSM to establish the popes hostility to free markets.
May '10
Re: Markets and Morals
Samwise Gamgee:
... I'm not entirely sure how much protection of human dignity a contractual agreement between employer and employee will ensure when embedded in the contract is the ability of the employer to terminate the contract for any reason.
For example, I recently applied for a night shift job with UPS and in the application and paperwork were the statements that employers can terminate an employee at any time and for any reason.
Samwise, that's merely a restatement of the principle of employment at will. The unspoken other half of the doctrine is that, just as the employer may terminate your employment without reason or notice, you have the same ability vis-a-vis your employer. Each party retains an equal right to continue or end the relationship as he or she sees fit. Now, parties can (and do) bargain for an adjustment to the at will employment arrangement. For a night shift worker at UPS, that would likely come as part of a collective bargaining arrangement in which a labor union represents you and your colleagues. And don't get me started on whether labor unions and human dignity are frequent bedfellows....
Jun '10
Re: Markets and Morals
So.. that would be a no on the capitalism quote then I suppose...
Would that mean anyone of any faith or philosophy of any kind has no place in the "secular world?" At least no head of a religious community, certainly, and we'd probably have to include certain professions too since the "secular realm" is no place for someone with such radical thoughts... Actually, that sounds exactly like the Brave New World you speak of. Only certain points of view are acceptable in a certain "realm." I do like crossing the boarder in the "secular realm" every once in a while, great coffee over there in the secular realm.
May '11
Re: Markets and Morals
Mr. Epstein makes an excellent case as to why the free market is consistent with the common good, and why market interference with the intention of helping people often accomplishes just the opposite.
The common good, though, is a matter of prudence (as are almost all political matters). So it is conceivable that a community might decide that in some circumstances, the common good is best served by limiting productivity. Undoubtedly, communities make this judgment far too often, and the productivity enabled by the free market serves the common good far more often than not. Nevertheless, there are circumstances. For example, we do not have a free market in weapons of mass destruction, despite the fact that there are any number of persons in this country could reap a profit by selling this technology to places like Iran and North Korea.
Jun '10
Re: Markets and Morals
Matthew Gilley
Each party retains an equal right to continue or end the relationship as he or she sees fit.
Certainly so. Though, if one is performing one's work adequately and still is let go for any reason the employer sees fit... for profits only say, even though the termination be totally contractual, wouldn't that be a very hypothetical example of "putting profits above people" or whatever you want to call it? My only point is that contracts do not ensure human dignity.
Sep '10
Re: Markets and Morals
I have a response to Richard, but I'm not sure the combox is really the place for it and think it might be better off in a basketball free Member Feed post.
Does anyone agree?
May '11
Re: Markets and Morals
A further question: Mr. Epstein's argument about child labor is convincing. What about child prostitution, though? I have read of cases in India and Thailand of parents selling daughters to brothels because they are short on cash. Undoubtedly, the free market would reduce the incentive for this; however, isn't this situation a little different from having Susie work in a garment factory to help support mom and dad? In the latter case, the parents might have her best interests in mind because her earnings at the factory might help put food on the table. No civilized society permits the former case.
Sep '10
Re: Markets and Morals
The secular world is not his realm, at least it's not supposed to be in the New World.
He does not have juridical authority over it, that is true, and I doubt that he would disagree with you, but are you asserting that he is not entitled to an opinion on the matter? The Pope's military muscle of Beefeater/Swiss Guards in the Vatican aren't going to send markets into a tailspin fearing a Dominionist takeover of Joe Biden's tooth whitener.