Even before the Crash cast its shadow over the status of markets (at least of the unconstrained financial variety) as an organizing principle, a growing number of economists had been pondering why it is that markets sometimes work well and sometimes not. I've recently read two books, both published last year and therefore written at least during the previous year, with similar titles. One is Moral Markets: The Critical Role of Values in the Economy edited by Paul Zak. The other is Morals and Markets: An Evolutionary Account of the Modern World by Daniel Friedman. Both cover similar ground to some earlier books too – I'd highlight the marvellous Company of Strangers by Paul Seabright, published in 2004. All of these are related to the wider interest amongst economists in recent times in institutions, social capital, networks and so on.
A cynic might ask what the words 'morals' and 'markets' are doing in the same sentence. What all of these books have in common is an argument that the two are inescapably entwined, and markets embed morals. What we need are markets that embed the morals which matter to the societies in which they're operating. All three of these titles take an evolutionary and sociological perspective on that fundamental institution of modern economies, the market. For one of the great merits of this inter-disciplinary lens is that it does highlight the fact that markets are social institutions, one of an array whereby we organize social relations and the collective allocation of resources in any society which expands in size much beyond the hunter-gatherer group. Anybody who considers specific markets in detail – that is, any applied microeconomist – will understand already that relationships matter in markets, that the idea of a 'free' market is a ludicrously silly abstraction, that markets are themselves institutions shaped by their social and politicl context. Yet having this spelled out in a broader argument is incredibly worthwhile if it helps move the sterility of the 'markets versus state' debate.
The two new titles also appeal to the richer economics tradition in emphasizing values, taking us back to our roots in Adam Smith (not his caricature but the real thing) and David Hume. Both placed great emphasis on the importance of our human concern for others, our social nature. For them there was no clash between self-interest and moral behaviour, as concern for others and for their approval is so instinctive as to shape what we consider our self-interest. This understanding of our natural moral sentiments is supported by evolutionary theory, according to both Friedman and the Zak volume. This points naturally to the conclusion, as Friedman puts it, that a well-functioning market works with the moral system. I think we can conclude that 21st century financial markets had strayed too far from our moral instincts, and hence the generalized revulsion now against inequality, greed, and excess. Our instinctive sense of fairness has been offended.
The authors represented in both volumes – like Paul Seabright in his earlier book – are not critics of markets or of economics. On the contrary, the division of labour and transmission of information permitted by markets is fundamental to the social and cultural evolution of human societies. What these books emphasize is that the beneficial effects depend on markets (like any other institution) working in concord with our evolutionary nature including the moral emotions it has shaped.
Of the two, the Friedman book is an interesting read with many illuminating examples. I'm still a huge fan of the earlier Seabright book, but this is a good addition to the bookshelf too: the examples are different, and there are interesting links to the economics of networks, which seems to me the most fruitful way to think about social capital. The Zak volume, as an edited collection, is harder going to read but has a correspondingly wider range of ideas and examples – authors include Elinor Ostrom, Frans de Waal, Vernon Smith, Charles Handy, amongst others. I found many new-to-me ideas in it – including a very interesting explanation of why 'anti-capitalism' critics get such traction in the public debate, in terms of Aristotelean rhetorical rules. I'll start applying the art of rhetoric in my own work in future.
Of course, what we can now see as a sub-genre of economics books which cover the border of economics, evolutionary theory and social anthropology fit within a wider philosophical debate about the just society and the nature of the social contract. Events – the Crash, globalisation, the emergence of the BRICs – have re-opened this debate, and we should all start dusting off our old copies of Hobbes, Locke and Hume.
