A note from C2C's editorial board chair, Mark Milke:
Canada's Journal of Ideas, C2C Journal, asked two of Canada's leading thinkers to consider the question of whether capitalism needs an outside morality to survive. So we asked Michael Walker, the founder of the Fraser Institute and now head of the Free Market Foundation, and Peter Stockland, director of the Cardus Centre for Cultural Renewal and a longtime journalist, including as editorial page editor of the Calgary Herald and editor of Reader's Digest, to debate this question: "Be it resolved that markets cannot function without a basis in shared religious belief."
Wendell Berry tells the story of a barber friend of his who refused to give a discount to a bald-headed customer. The barber was no capitalist cutthroat, Berry says. He was an artisan.
"His artistry consisted not in the cutting off, but in the knowing when to stop," he writes. "He spoke, I think, as a true artist and a true human."
Anecdote and admonition appear in Berry's essay collection Home Economics, which was first published in 1982. Had both been heeded in the succeeding three decades, we would certainly have limited, perhaps avoided, the global economic debacle of 2008.
Ignoring when to stop was a key behavior behind the crisis that haunts us still. Its manifestation is a market phenomenon identified as "rational irrationality" wherein self-interest is the catalyst for the high-functioningdelusion that it makes sense to run with a trampling mob as long as you remain in front. All that is required is to be deliberately ignorant of the nature of trampling mobs and the reality of exhaustion.
"The lack of such knowledge is extremely dangerous in and to an individual," Berry warns. "But ignorance of when to stop is a modern epidemic; it is the basis of "industrial progress" and "economic growth". The most obviouspractical result of this ignorance is a critical disproportion of scale between the scale of human enterprises and their sources in nature."
The scale of that disproportion is vividly shown by contrasting the madness of global capital markets in the past decade with Adam Smith's delineation in the Wealth of Nations of naturally-occurring "universal opulence that extends itself to the lowest ranks of the people" in a "well-governed society" where the multiplication of productions is a consequence of the division of labour. As Berry affirms, the efficiencies of Smith's illustrative pin and nail makers derives directly from the natural human scale of the enterprises in which they are involved.
Nor is the reference to nature a smuggled appeal to discredited limits of growth ideology. Berry, after all, is a farmer. His entire life is an active engagement in growth. In his relation to his crops, as in a barber's relation to human hair, no growth equals no livelihood.
Indeed, his is a voice intelligently critical of those within the environmental movement, for example, who have confused conservation with petrification. Human nature is entirely natural, he argues, and has its rightful place within given ecosystems. Critical to human nature, however, is the transcendence of pure animal nature through cultural patterns grounded, above all, in restraint.
"Whereas animals are usually restrained by the limits of physical appetites, humans have mental appetites that can be far more gross and capacious than physical ones. Only humans squander and hoard, murder and pillage because of notions," he writes.
Such appetites and notions cannot be rationally left to the vagaries of the mob trampling through the postmodern marketplace. They are far too dangerous to be allowed to rampage until sheer exhaustion quells them. They mustbe checked, Berry argues, by ancient "culture-borne instruction about what humans are and how and on what assumptions they should act."
In other words, they must be subjected to an ineffable code that makes knowing when to stop not merely a tactical consideration but a moral imperative. Ignorance of when to stop has economic consequences such as the cataclysm of 2008. Precisely because of its economic nature, it is also fundamentally a symptom of moral failure.
In his magnificent 2009 encyclical, Caritas in Veritate, Pope Benedict XVI offers a plain-spoken reminder that every economic decision has a moral consequence.
"The Church's social doctrine has always maintained that justice must be applied to every phase of economic activity because this is always concerned with man and his needs," Benedict says.
"The canons of justice must be respected from the outset, as economic progress unfolds, and not just afterward or incidentally."
Echoing his predecessor, John Paul II, Benedict warns strongly against falling into the trap of "technological thinking" which reduces economic conduct such as investment to technical acts, overlooking its essential human and ethical dimension. Indeed, it was the horrendous damage wrought by this trap in 2008 that prompted Benedict to expand the scope of the second encyclical of his pontificate. Originally intended as an homage on the 40th anniversary of Pope Paul VI's Populorum Progressio, it grew into a much broader reflection on the ethical centre vital to economic life.
"Efforts are needed—and it is essential to say this—not only to create "ethical" segments of the economy or the world of finance but to ensure that the whole economy—the whole of finance—is ethical not merely by virtue of an external label but by its respect for requirements intrinsic to its very nature," Benedict writes.
"The Church's social teaching is clear. . .that the economy, in all its branches, constitutes a sector of human activity" (my emphasis).
Benedict's forceful reminder of the human at the centre of the economic leads him to call for something significantly beyond a blindly mechanistic system in which choice is met with due reward or due punishment. As the title of the encyclical makes clear, it is a call for an economics where ample space is accorded to charity that comes from truth. Charity and truth may seem to some embarrassingly anachronistic terms in this era of ravening market-rule mobs. Yet Benedict is eloquent that without the "internal forms of solidarity and mutual trust" that are the natural outflows of both, markets themselves cannot function effectively.
"The conviction that the economy must be autonomous, that it must be shielded from ‘influences' of a moral character, has led man to abuse the economic process in a thoroughly destructive way. In the long term, these convictions have led to economic, social and political systems that trample upon personal and social freedom. . ." writes the Pontiff.
Benedict argues markets that operate purely for the fulfillment of contracts based on equivalence in the exchange of goods are markets that vitiate the very social cohesion required for them to operate at all:
"The great challenge before us, accentuated by the problems of development in this global era and made even more urgent by the economic and financial crisis, is to demonstrate, in thinking and behavior, not only that traditional principles of social ethics like transparency, honesty and responsibility cannot be ignored or attenuated but also that in commercial relationships the principle of gratuitousness and the logic of gift as an expression of fraternity can and must find their place within normal economic activity. This is a human demand…but it is also demanded by economic logic. It is a demand both of charity and truth," he writes.
Those who doubt the wisdom of Benedict's moral imperative have the alternative of repeating the mantra "Bernie Madoff" or "government bailout packages" two trillion times. Both are effects of what His Holiness calls the crisis of displacement of the "expression of fraternity" in the marketplace, or what the French economist Daniel Cohen describes as the rupturing of the bond between the economic question and the social question.
"Mirroring feudal society, the industrial society of the twentieth century linked a mode of production to a mode of protection. It bonded the economic question to the social question. Twenty-first century capitalism is engaged in systematically dismantling that industrial society," Cohen says in his Three Lectures on Post-Industrial Society published in 2009.
He illustrates the linkage of production to protection with the example of a company that manufactures bathing suits but also umbrellas. The availability of opposing forms of goods limited weather-driven market fluctuations, protecting profits and the jobs of workers employed in making both products. Economic logic was entirely compatible with an expression of fraternity and equally consonant with the "assistance and cooperation" that Adam Smith identified as foundational for the abundance provided by market economies.
The so-called "new capitalism" dismantles that linkage, and its necessary structure, by placing workers in increasingly isolated sub-specialties—think outsourcing and off-shoring—and by separating managers from employees through giving the former a direct shareholding stake in the organization.
Making managers shareholders, Cohen argues, has the corollary effect of making shareholders managers. The shareholder qua manager has no interest in protecting even the most productive of workers. He does not share, so to speak, any interest with the workers at all.
"In a Copernican-like reversal of the very foundations of the wage-earning class, workers are. . .exposed to rising uncertainty about their incomes while shareholders are shielding themselves against uncertainty. The solidarity that was at the heart of the industrial firm has disappeared."
Recognizing this "disappearance" as a grave moral concern because of what it says about the meaning we give to the human is one of the urgencies Pope Benedict identifies in Caritas in Veritate. An equally pressing urgency, of course, is the moral imperative to do something about it.
It is not good enough to protest that no one knows where to start on such a project that is the product of centuries old historical forces and technological development moving at an incomprehensible speed over the past three decades. As Daniel Cohen points out, "other outcomes would have been possible—outcomes that reinforced the preceding model instead of destroying it."
Indeed, the artisanship of Wendell Berry's barber holds out a sound prospect of learning how to start again. Twenty-eight years after Home Economics, Berry set a course for that learning by posing a series of questions it is never too late for us to ask.
"Of a new tool or method we will no longer ask: Is it fast? Is it powerful? Is it a labor saver? How many workers will it replace? We will ask instead: Can we (and our children) afford it? Is it fitting to our real needs? Is it becoming to us? Is it unhealthy or ugly?"
To begin asking those questions is to begin returning to the moral foundation of the culture from which our economic life proceeds: that no good thing is destroyed by goodness; good things are destroyed by wickedness. By its nature, wickedness lies at the heart of every trampling mob. It's time to tell the mob of the marketplace it's time they learned when to stop.
It is often asserted by well-meaning people that the institutions of the market system or as it is sometimes called, capitalism, rely in an important way upon a substrate of ethical values derived from a religious source. It is also asserted by equally well-meaning people that the market system is fundamentally iniquitous and incompatible with ethical conduct of the kind that is the centre-piece of most religious belief systems. The vanguard of the latter group were the liberationist theologians who argued—and some continue to argue—that governments seeking to pursue a righteous path have no option but to adopt a Marxist program and stamp out capitalism.
The latter set of questions was the subject of a series of books published by the Fraser Institute; two of which are particularly helpful for sorting out whether the market system is incompatible with religious belief. Entitled respectively Religion Economics and Social Thought and The Morality of the Market, these books provide a framework for examining the question very thoroughly and can be read at www.Fraserinstitute.org. I am not, in this essay, going to address any of that side of the relationship between markets and religion.
It is also important to note that this is not an essay about the value of religion. While I argue here that religion is not a necessary precursor for the existence of markets that does not imply that religion cannot be involved in the functioning of markets. Nor does it imply that religion has no value as a social institution. The issue we want to explore here is whether markets can exist in the absence of a generally shared set of values orreligious traditions that govern the behaviour of the participants.
Looking at this question from the vantage point of January, 2011 it appears not as some sort of philosophical query but rather as a factual matter which can be dealt with in the normal way that we settle factual disputes. Look at the facts. Do we regularly observe the existence of markets in the absence of religion?
It is arguable that the main defining feature of humanoids in comparison with other animals is their propensity to trade outside their family group. Sharing and exchange, which is one way of distinguishing the level of development of animals, is shared by our cousins the chimpanzees as well as humanoids before homo sapiens but as far as we know the humanoids are the only animals which engage in trade with strangers. And we know that trade has been going on for a very long time.
Archaeologists have confirmed long-distance trade in obsidian, amber flint and seashells as early as 100,000 years ago in Africa and 14,000 years ago in the Euphrates Valley. About 6,000 years ago the Iceman Oetzi, whose corpse was mummified in the Niederjoch Glacier on the border of Italy and Austria, sported apparel, tools of flint, bone and metal and foodstuffs which betrayed a rich exposure to trade with others who had specialised in the production of the articles. Three thousand years ago the millions of bushels of grain that fed Greece and perhaps other areas of the Mediterranean came from the Black Sea—the Ukraine side—and was shipped through the Bosporus which determined the highly strategic nature of that waterway.
This exchange with strangers which required overcoming the almost insurmountable obstacle for primitive man of xenophobia—fear of strangers—was driven by mutual interest in the gains from trade. That impulse hasbeen the motive power driving the development of markets down the ages and continues to fuel the explosion of affluence and improved quality of life which is happening everywhere around us in the world today. Adam Smith, inhis attempt to articulate the origins of the Wealth of Nations, noted that,
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.
During the early development of exchange there was no religion of the kind that we would expect to find today. If there was religion it would not have been a shared religion but rather some worship of local gods many of whom were regarded as protectors against the gods worshipped by the strangers. So the earliest markets which arose out of mutual interest in acquiring the gains from trade certainly were not underpinned by religion.
As I have been involved in the study of economic activity and interacting with people who have a high regard for the effect of religion on human conduct, one theme I have encountered is the notion that markets depend on trust and trust must evolve from a system of morality with some sort of religious root. I remember very well, for example, in my discussions with Sir John Templeton, his view that the decay of religious fervour in the population wasrunning down a capital asset in the form of ethical conduct which would eventually destroy the operation of markets. Sir John is not alone in believing that is the case and some have pointed at this notion in the context of current financial market difficulties.
The historical analysis of the development of markets suggests a somewhat different interpretation. The impulse to trade did not require any sort of religious background and from the beginning the variegation of the belief systems and cultures held by the people who were engaging in the trade required a system of trust construction that did not rely on shared beliefs and customs. The system of enforcement of contract, then as now, most frequently depends on retribution of a commercial kind against those who do not perform as they should. The traders and merchants chronicled by Herodotus and Homer could not depend on their customers being culturally compatible; they only knew that their customers had a need that their goods would satisfy. Ports that proved unfriendly to traders were bypassed and the customers there simply were denied the wine, oil, fruits and, even from the earliest days, the manufactured goods which they had to sell.
So great was the impulse to engage in mutually beneficial exchange that the participants developed their own system of laws and establish their own courts to deal with the issues that might arise from trade. The ius nonscripta or unwritten laws which predate any of the edifice of Roman law, together with the property law developed by the Romans followed through to the Lex Mercatoria from the fifth century A.D. as a practical and effective enforcement mechanism for desirable standards of commercial conduct. While governments soon realised that control over the laws that regulated business would confer an advantage to them and their supporters it is important to remember that what drove the development of the commercial common or people's law was a mutual interest in trade.
So it would be very hard on the basis of the historical record to maintain the notion that markets as an expression of the ubiquitous interest that humans have in trading is in some way based on religion. That, however, does not mean that religion may not from time to time and from place to place have had an influence on the evolution of markets and proficiency with which particular groups have been able to use them. The route by which religion may have played a positive role in markets is through the transactions costs involved in market activities.
While the Law Merchant developed as a code of conduct and as an indicator of the consequences which would be felt by individuals who broke their contracts, provided shoddy goods or some other way violated normal commercial practice, the cost of enforcement might still be high and sanctions might not be successful.
For example, a trader not bound by lines of fealty or family to a particular locality having transgressed against a trading partner and having been shunned as a consequence could simply go elsewhere. However, members of a trading group bound together by some strong religious belief, by family connection or in some other strong bond would tend to be less likely to violate commercial agreements because of the effect it would have in the rest of their lives. While of course religion is one of the kinds of bond that can exist between a group of people that would influence them not to cheat or in other ways commercially maltreat other members of the group, it is by no means the only bond that would have this effect. The proverb, "there is honour amongst thieves," often repeated in various forms down the ages, reminds us that it is ultimately the calculus of private benefit and private cost that determines behavior and attachment to a group provides its own possibly non-financial incentives toward particular kinds of private conduct.
So we do find that religious groups such as the Hassidim in New York and London, who have conducted the diamond trade for a century and who reside in Orthodox Jewish communities of faith, are able to conduct the diamond trade with little in the way of written contracts because they have a bond which transcends commercial relationships. Their bond happens to be religion. But in many parts of Europe it is extended families who conduct business and who enjoy a similarly lower costs of transaction because they don't have to "lawyer up" before proceeding with business deals.
Well, this was supposed to be a brief discussion of the subject and I have already written too much. Let me close with a reference back to Adam Smith. In Smith's first book, The Theory of Moral Sentiments, he reminds us that markets themselves, as the manifestation of the pursuit of individual self interest, produce socially beneficial outcomes of the kind that religions often have in their wish list not by intention but as the result of their very operation.
"By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."
In sum, markets do not require some religious base for their operation but actually create the conditions and incentives for a more moral outcome than would exist in their absence.
Gideon Strauss is a senior fellow with Cardus (where he previously served as editor of the journal Comment) and the executive director of the Max De Pree Center for Leadership...