Spread from a Scientific American article by Paul Zak. (June 2008)
Credit: Image courtesy of Scientific American

“Exchange is inherently other-regarding. Both you and I must benefit if exchange is to occur. In this sense exchange in markets is virtuous; one must consider not only one’s own needs, but also the needs of another.”—Paul Zak

arkets wouldn’t function very well if everybody behaved as they did in Enron,” observes Monika Gruter Cheney, president of the Gruter Institute for Law and Behavioral Research. She is pointing out the practical consideration that underpins the operation of moral values in the marketplace. At the same time, she is convinced—and has the research data to make her case—that good behavior is very often motivated by internal values intuitive to humanity.
Cheney is reflecting upon the program, “Free Enterprise: Values in Action,” conducted by the Gruter Institute for Law and Behavioral Research. The program ended with the publication by Princeton University Press of the book, Moral Markets: The Critical Role of Values in Free Enterprise. This book “promises to be a landmark effort in bringing scientific inquiry and analysis to the normative world of values,” according to Michael C. Jensen of Harvard Business School.
“The book has everything,” agrees Cheney, “from a primatologist like Sarah Brosnan, to an economist like Herb Gintis, to law professors such as Oliver Goodenough an Lynn Stout—they come at this problem of moral markets from different angles, but it’s interesting how they weave it all together.”
Edited by Paul Zak, a central theme of the book is that morality is inbred, not learned by rational deduction as Kant claimed, a claim generally unsupported by neuroscientific research. The book sets out to refute the caricature of markets and those who work in them as behaving with unbridled selfishness and dishonesty. “Just as most human beings have an intact and active moral compass,” claims Zak, “so, too, does economic exchange.” He adds, “Exchange is inherently other-regarding. Both you and I must benefit if exchange is to occur. In this sense, exchange in markets is virtuous; one must consider not only one’s own needs, but also the needs of another.”
Zak and his fellow contributors fully concede that people in market economies sometimes lie, cheat, and steal, but they deny that this is typical behavior. They also agree that self-interest is a critical ingredient in the working of markets, but insist that “pure, unbridled self-interest does not a market make.”
Has the project helped to change the image of free enterprise? “I think the tide has turned a little,” says Monika Gruter Cheney. “My goal, through this book and the popularization of our findings in The Mind of the Market by Michael Shermer, and with conferences to discuss this topic, was that people would begin to open their eyes to the fact that, of course, there are Gordon Gekkos in the world, but they are the exception.” The papers produced at two introductory conferences and four working conferences eventually provided chapters for Moral Markets.
Cheney believes the project has made a very strong case for the innate morality of free enterprise. “Even when we do a deal, so to speak, without a policeman on the corner, most of the time we are essentially behaving well, we are co-operative. Experimental economists have a lot of interesting data.” There is a danger that, in the post-Enron rush to police the market, over-regulation may ensue and prove counter-productive. “If you try to regulate too heavily, the findings in Moral Markets show that you can crowd out good behavior.”
The final phase of the program included a public conference and two debates. Its conclusions are optimistic. The vast majority of people behave well in free markets and this conduct is due not only to regulation, but also to personal impulse, “We have internal values, internal guidance.”
The biggest question still to be addressed in this context, Cheney believes, is, “How does one encourage the type of values that make markets work successfully, and how can one facilitate that? How can we make U.S. laws best calculated to foster our internal values rather than crowding them out?” The program’s overall conclusion is that external regulation is necessary. But it must be established in such a way that it does not stifle our innate instinct to behave morally. “You think you’re going to help the world by regulating for moral behavior, but the conundrum becomes: does that erase one’s own motivation to behave well?”