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The Actuary The magazine of the Institute & Faculty of Actuaries

Virtuous economics

Economy and Virtue sets out the moral case for free markets. It is a collection of essays by distinguished authors defending markets using first principles with the main focus on morality rather than productivity. This is not to say that productivity itself has no moral dimension; as David Willetts’s foreword points out, it is an error to regard the free market as a necessary evil. Is capitalism evil to have been, as Arthur Shenfield points out, ‘the greatest uplifting force for the poor that the human race has known in all the millennia of its existence?’ Walter Williams argues that wealth and human rights go hand in hand; economies with free markets tend to be those not only with high per capita incomes but also with higher rankings in Amnesty International’s human rights protection index. Williams also argues that intervention works against the poor and has many victims less visible than the immediately visible beneficiaries, such as the unemployed under minimum wage laws and the sick under the over-cautious drug licensing laws and agencies.

Antony Flew, Israel Kirzner, and Shenfield argue that profit maximisation is ethically neutral; under capitalism it is an instrumental goal for saints and sinners alike. A monetary income is perceived as a certificate of performance awarded to those who satisfy consumers who are free to choose whether to make a purchase or not. Profit-maximising firms would emerge in the saintly society in exactly the same way as in our society, but the profits gained would be applied to different goals.

Saints and profits

David Marsland and Sean Gabb point out that virtue is meaningless without the opportunity for vice; you need freedom to do wrong in order to select what is right. Markets, with participants unprotected by status or privilege, thus generate virtue as well as sociability, with sanctity of contract providing much of society’s glue. No markets, no freedom, no virtue. The market’s antithesis, command, whether via fascism or socialism or any other, destroys the capacity to distinguish between right and wrong. The differences between these two creeds are inconsequential, as George Orwell recognised in the novel 1984; indeed fascism is a form of socialism, which results in abject poverty as well as slavery (or death) for all except the commanders.

Marsland lambasts many interest groups, including shrill environmentalists, as pseudo-moralists and Shenfield points out that private property is the best husbander of scarce resources and a far more efficient allocator. Peter King, discussing individual responsibility and competence, has a law of unintended rewards; any social transfer increases the net value of the condition giving rise to it. Under the redistributionist ethic of British welfare state policy perverse incentives create dependants and erode personal responsibility, whereas the great Victorian philanthropists – who demonstrated for all to see the aforementioned point about saints and profits – combined succour with reform.

Moral time-warps

Chris Badcock discusses taxation as a prisoner’s dilemma in which high tax rates and refusal to pay them represent defections. Indeed every social relationship is a prisoner’s dilemma and mutual cooperation provides a spontaneous moral order, promoting trust and repeat transactions, in which both parties gain. Unlike the alternative of coercion, voluntary exchange is a positive-sum game. Nor is it loaded in favour of sellers since the market would provide private advisers, monitors, and regulators far more efficiently than the state regulation which crowds them out.

The editor, Dennis O’Keeffe, attacks intellectuals who are ‘stuck in socialism’s moral time-warp’. Marxism resulted in material and moral disaster, breaking all headcounts for murder, but sociology lecturers and state welfarists (and too many churchmen trying vainly to couple socialism with Christianity) keep the myth going. As several authors point out, so do the loaded phrases almost universally used in the media such as ‘the profit motive’. (What about ‘wage motive’, ‘compensation motive’, or ‘best-buy motive’?) At the end of the day, says O’Keeffe, making money is innocent and markets promote peace.

Democracy and legitimacy

For Walter Williams, the basic market rule is voluntary exchange, and the argument that participants should be held at gunpoint and directed or taxed by a third party is immoral. Why is government-sponsored murder unjust but government-sponsored theft and coercion just? If the best answer is that democracy gives it an aura of legitimacy, another reason for the breakdown of morality becomes clear; for what is the difference between indirect theft via the government and direct theft by cutting out the middleman?

This publication makes an excellent case that free markets are morally superior to alternative systems and their greater productivity is a bonus.