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


Deirdre McCloskey’s Market Path to Virtue

The question, she says, is not whether greed is natural — or even good — but whether it adequately explains capitalist behavior. After all, commerce is as old as human civilization. Yet only in the last few hundred years has commerce, as it has developed in capitalist democracies, created richer societies governed by the rule of law. Those societies are better than the alternatives, argues Professor McCloskey, noting that since 1800, as the amount of goods and services produced and consumed worldwide has risen eightfold, capitalism has emancipated women and slaves and, in most respects, contributed to societal freedom.

In Professor McCloskey’s view, capitalism has made most people in the West better off. Instead of laboring in miserable conditions, most Americans and Europeans enjoy their work. Capitalism, she writes, has fostered “the doctor’s love for healing…the engineer’s for building…the soldier’s for the fatherland…the economic scientist’s for the advance of economic science.”

None of this is new, says Professor McCloskey. Adam Smith was the first to posit that love of fellow humans is, contrary to the thinking of modern economists, not equivalent to self-love. Professor McCloskey recalls a famous passage in Smith’s The Theory of Moral Sentiments, in which he asks why a person might sacrifice a finger to save an entire race of people: “What is it…which prompts the generous upon all occasions, and the mean upon many to sacrifice their own interests to the greater interests of others? It is not…that feeble spark of benevolence…. It is reason, principle, conscience, the inhabitant of the breast…. The natural misrepresentations of self-love can be corrected only by the eye of this impartial spectator.”

Professor McCloskey reminds her readers that Adam Smith was a professor of moral philosophy who believed, as she puts it, in a “balanced set of virtues” and based his assumptions about capitalism on that balanced set of beliefs. But the belief in an ethical framework of Aristotelian and Christian virtues was replaced, in the 19th century, by utilitarianism — the view that the good is what brings the greatest happiness to the greatest number of people. From utilitarianism came the emphasis on material values that underlies laissez-faire economics.

Professor McCloskey calls for a return to the more nuanced Smithian view of capitalism — one that incorporates the S-values (s for sacred and sympathy), which she says account for the less “rational” workings of commerce, such as conversation, negotiation, and trust. These S-values, in combination with the P-values of profit and prudence, help explain how capitalism works at its best. From these values spring the bourgeois virtues of trust, which enabled early financiers from the Medicis to the Rothschilds to flourish (the word credit, notes Professor McCloskey, is rooted in the Latin word for trust), and community-mindedness, which led ship owners to voluntarily pay fees for the support of private lighthouses in pre-19th-century Britain. Other historical examples of bourgeois virtue include tithing, which prompted most middle-class 19th-century Americans to give 10 percent of their incomes to charity. Similarly, in 17th-century Amsterdam, the public purse supported 10 percent of the population.

“Smith got it right and the later economists and calculators have got it wrong,” writes Professor McCloskey. “You can’t run on prudence and profit alone a family or a church or a community or even — and this is the surprising point — a capitalist economy.”

Politically, Professor McCloskey regards herself as an ardent but atypical libertarian. She abhors government, not because she regards it as overbearing but because it has not done a good job of helping to alleviate the plight of the poor. She supports steep inheritance taxes, state-financed early childhood education, and a regular stipend for citizens (like that recently proposed by writer Charles Murray) instead of Social Security. She writes: “I would nonetheless have to note with Robert Nozick that the taxes to pay for…ideas, good or bad, are a kind of slavery. But I would be a more cheerful slave if my masters…were actually the poor.”

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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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