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 / Summer 2006 / Issue 43(originally published by Booz & Company)


Deirdre McCloskey’s Market Path to Virtue

An idiosyncratic economist preaches the innate morality of business.

Economists are famously abstract: They seem to prefer to examine the world through the lens of elegant mathematical models. But Deirdre McCloskey, a professor of economics, English, and history at the University of Illinois at Chicago, has become one of the most prominent and unorthodox voices in her field by attacking that tendency head-on. She routinely questions the discipline’s most fundamental assumptions.

Photo by Julian Anderson

Now she is raising the stakes with a wholesale challenge to her profession, one that questions long-held interpretations of laissez-faire economics. Her new book, The Bourgeois Virtues: Ethics for an Age of Commerce (University of Chicago Press, 2006), is the first in a planned four-volume apologia of capitalism. Rather than laying out the standard defense of free markets, Professor McCloskey’s work, an ambitious survey of the history of capitalism from Plato to social critic Barbara Ehrenreich, argues that it is a far more ethical system than either its advocates or its disparagers recognize. The hoary contention that capitalism is based solely on utilitarian self-interest is wrong and misses a critical ingredient for economic success. Markets grow in what Professor McCloskey calls “ethical soil.” Many economists now accept that virtues support the market; she upends that notion to declare, “The market supports the virtues.” In other words, capitalism not only thrives in an atmosphere of prudence, temperance, and justice, but also can foster those qualities and other moral virtues, including love.

The “bourgeois” alluded to in the book’s title is the citizen or businessperson in a capitalist society. The seven virtues she identifies are drawn from the classical and the Christian traditions; they meld the philosophical, the religious, and the commercial.

In an era when executives are trying to figure out how to succeed as they face constraints on all sides — from regulations such as Sarbanes-Oxley, on the one hand, and a relentlessly competitive global market, on the other — Deirdre McCloskey points to a seemingly counterintuitive solution. She agrees with the contention, put forth by the corporate social responsibility movement, that doing right by the customer and the community is the surest path to doing well. She acknowledges that many companies embrace this approach during good times, and quickly abandon it as an unaffordable luxury during bad times.

But Professor McCloskey’s reasoning, based on an analysis of economic history, is novel: Companies do well in the long run only by doing good. Nobility of character is a core requirement for business success. If executives were more conscious of that — if they operated with integrity, focused on the customer, and were more sensitive to the needs of all stakeholders — their companies could be more profitable and have greater impact. At their best, she says, businesspeople often promote virtues in ways they may not even realize. Their actions and transactions can actually model virtue; the right kind of acquisition can exemplify Professor McCloskey’s ideals of prudence, justice, courage, and hope. As she writes in the foreword to The Bourgeois Virtues, “we sometimes become good by doing well.”

Equal-Opportunity Iconoclast
Deirdre McCloskey, age 63, has long embraced contradiction. She is both a prominent economist and a leading critic of her profession. She has traveled the political spectrum: first a Marxist student at Harvard, then a Keynesian, and, eventually, a libertarian who landed in the economics department at the University of Chicago. She produces work of epic sweep, even as she burrows deep into the arcana of her discipline. With The Bourgeois Virtues making its debut, she is seeking a publisher for Size Matters, a polemic against the widespread use of statistical significance testing in economic analysis. But perhaps the most dramatic example of Professor McCloskey’s fearlessness is that she started life as a he. Having made a successful career as Donald McCloskey, the economist underwent sexual reassignment in the 1990s and emerged as a woman. Along the way, Deirdre has challenged many of the economic, philosophical, and religious axioms that Donald held dear — all without losing a step professionally.

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  1. John C. Bogle, The Battle for the Soul of Capitalism (Yale University Press, 2005): Vanguard Fund founder’s acerbic and non-McCloskeyan view of managerial immortality.
  2. Ann Graham, “Lynn Sharpe Paine: The Thought Leader Interview,” s+b, Summer 2003: Research on ethical ambiguity anticipates some of Professor McCloskey’s ideas. Click here.
  3. Arjo Klamer and David Colander, The Making of an Economist (Westview Press, 1990): Provides hard evidence, based on a survey of graduate students, that economists have veered too far into mathematical models and away from real-world problems.
  4. Art Kleiner, “Daniel Yankelovich: The Thought Leader Interview,” s+b, Fall 2005: A different kind of management morality optimist. Click here.
  5. Deirdre N. McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (University of Chicago Press, 2006): Tour-de-force defense of capitalism as ethical source.
  6. Deirdre N. McCloskey, If You’re So Smart: The Narrative of Economic Expertise (University of Chicago Press, 1990): Argues that the power of economists rests more on their abilities to persuade than their abilities to predict the future.
  7. Deirdre N. McCloskey, The Rhetoric of Economics (1985; University of Wisconsin Press, 2nd ed., 1998): How economic formalists have taken their reliance on econometrics and mathematical models “absurdly too far.”
  8. Rob Norton, “Derivative Wisdom,” s+b, Spring 2006: Survey of sources of financial wizards who influenced Professor McCloskey. Click here.
  9. Michael Schrage, “Daniel Kahneman: The Thought Leader Interview,” s+b, Winter 2003: The Nobel Prize–winning economist parses the roles of emotion, cognition, and perception in the understanding of business risk. Click here.
  10. Adam Smith, The Theory of Moral Sentiments (1759; Prometheus Books, 2000): Deirdre McCloskey credits the father of modern economics with much of her thinking on the virtues of capitalism.
  11. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
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