The Moral Case for Free Markets

A couple of months ago, I wrote an impassioned defense of free markets, arguing that openness to markets is a key determinant of why some countries are rich and others are poor. This claim is well-backed by decades and decades of empirical evidence.

What if, however, markets make us better off materially, but corrupt our souls in the process? That is to say, the pragmatic defense of markets doesn’t help us answer the question of whether or not markets promote moral behaviors. If economists are really concerned about understanding tradeoffs, it seems imperative to discuss whether there is some tradeoff involved in the promotion of markets and other things we care about as human beings. 

The criticisms of free markets primarily fall into the following three categories: 

1. Economic concerns – concerns that markets themselves promote greater inequality, or other sorts of unfair advantages/disadvantages; 

2. Cultural concerns – the expansion of global markets into areas that were previously unexposed to markets might destroy the existing culture in those places; and

3. Moral concerns – while markets might make us better off materially, they also may  promote other sorts of unvirtuous behaviors.

I’ll tackle the first two criticisms in subsequent posts. Today, I’m primarily concerned with the third critique. 

I’m an economist, not a moral philosopher, but it seems to me that we need to untangle exactly what we mean by moral in the moral critique. In a 2011 Cato Journal article, economists J.R. Clark and Dwight Lee usefully distinguish between what they call magnanimous morality and mundane morality. Magnanimous morality is what we think of when we usually think of acting righteously. According to Clark and Lee, it “can best be defined in terms of helping others in ways that satisfy three characteristics — helping intentionally, doing so at a personal sacrifice, and providing the help to identifiable beneficiaries”. Mundane morality, in contrast, “can be described broadly as obeying the generally accepted rules or norms of conduct such as telling the truth, honoring your promises and contractual obligations, respecting the property rights of others, and refraining from intentionally harming others.”

Markets, it is true, do not have a great comparative advantage in supporting the former type of moral behavior. But, that is not the only type of morality we care about. Markets, instead, can be viewed as arenas for promoting a subtler, but no less important form of moral behavior. Markets create incentives for individuals to act civilly toward one another, since individuals in the market who are deemed poor trading partners won’t stick around. 

The mundane morality of the marketplace has, over time, led to increasing worldwide wealth over the past few centuries. Even the poorest nations today are better off today than they were 200 years ago.  Thanks, in-part, to the spread of global markets. There’s a famous chart called the “hockey stick of human prosperity”, which shows how much life has improved in nearly all nations since the dawn of the Industrial Revolution. For most of human history, nearly everyone was poor. This was true for all nations. Yet since the late 1700s, prosperity has exploded exponentially across the globe. 

Swedish professor of international health Hans Rosling wrote an excellent book in 2018 analyzing all of the amazing ways in which the world is becoming a better place – in terms of health, wealth, and living conditions. He titled the book Factfulness, because his aim was to overcome the overwhelming  tendency to think the world is getting worse on a variety of metrics. What he found was that progress on things like poverty, girls attending school, and income growth were improving even among the world’s poorest people. 

What is making people better off? A large part of the story is openness to markets. 

I’m not claiming here that markets are perfect. Unsavory dealings happen in markets. Yet it’s not markets that are to blame. Individuals have intentions; systems do not. To condemn the market – or to condemn particular markets – is odd. Markets are just the outcome of human action and interaction. They have no morality in and of themselves. Sure, some things that people do in markets might be immoral, but that’s not the fault of the market. In fact, markets often promote cooperation and coordination where it might not otherwise exist. 

If markets are facilitating better living standards for millions of people across the globe, this in itself is a type of morality, mundane though it may be. In this effort, markets deserve the highest praise.