Virtuous Markets? The Market as School of the Virtues

Ian Maitland, Professor, Carlson School of Management, University of Minnesota & Senior Fellow, Center of the American Experiment

Minneapolis, Minnesota April 1996

Foreword

Free markets, fans are correct in arguing, have no equal when it comes to economic productivity. But what about other measures of success? More specifically, what about capitalism's effects -- not on whole industries and such -- but on "whole" people? More specifically still, does "doing business" make for more virtuous -- or less virtuous -- men and women?

I suspect it's fair to say that while market partisans suffer no ambivalence when it comes to questions of economic dynamism, many of them are not nearly so confident when it comes to how the marketplace shapes (or perhaps distorts) individual character. Might they not find themselves agreeing, at least to a point, with critics who are quick to contend that financial success in a free-market economy (when you get right down to it) is grounded in who's best and brightest in sticking it to somebody else?

Rest easy, my ideological compatriots. Ian Maitland argues in this wonderfully creative paper that the exact opposite is true; that rather than draining goodness out of economic actors, free markets serve as a veritable "school of the virtues." He writes, for example:

Far from rewarding self-sufficiency, the market favors interdependence. Its rewards don't go to those who are most isolated or self-absorbed or cut off from society, but to those who form and sustain mutually advantageous relationships with others. . . . In the market, then, rather than dissolving under the pressure of self-interested economic activity, human ties and commitments become the means for achieving one's economic ends.

Or, returning to the source, he writes:

For Adam Smith, the greatest benefit of commercial society was the incentives it created for people to develop what he called the "imperfect, but attainable virtues" which provided the basis for a decent society.

Dr. Maitland is American Experiment's original Senior Fellow, having come aboard in 1993. He is also an associate professor in the University of Minnesota's Carlson School of Management, where he teaches and writes in the areas of business and government, international business, and business ethics.

A regular columnist for the Minneapolis-based Star Tribune, his previous American Experiment publications include an essay, "Who Won the Industrial Policy Debate? (November 1994), and a conversation with U of M President Nils Hasselmo, "Political Correctness and Academic Freedom at the University of Minnesota" (April 1995). I'm grateful for this newest opportunity to publish my friend and colleague, especially since this brief inquiry does exactly what the Center is most interested in doing in economic matters: It focuses on capitalism's basic building blocks -- on its largest contributions and virtues, if you will.

American Experiment members receive free copies of almost all Center publications, including "Virtuous Markets? The Market as School of the Virtues." Additional copies of this essay are $4 for members and $5 for nonmembers. Bulk discounts are available for schools, civic groups and other organizations. Please note our phone and address on the previous page for membership and other information.

Thanks very much, and as always, I welcome your comments.

Mitchell B. Pearlstein
President
April 1996

I. Introduction

Adam Smith said that in a commercial society "every man becomes in some measure a merchant." If Smith is right, what does that mean for the character of society? Economists are often charged with neglecting the fact that economic arrangements not only produce goods and services, they also produce certain types of people.¹ In this paper I look at the impact of the market on the virtues. Specifically, I address the question of whether the market or market-like arrangements tend to erode character traits or "virtues" like honesty, loyalty, courage, responsibility, and so on.

The past decade has seen a revival of interest in the virtues among scholars and policy wonks. According to virtue theorists, the success of our political institutions depends not simply on how well-designed they are, but also on the presence of civic virtues among the citizenry. Likewise, the effective functioning of the economy is not simply the automatic result of the operation of the hidden hand of the market, but instead depends critically on the moral virtues that economic actors bring to the marketplace. If the success of our political system and our economy depends on the presence of certain virtues among the citizenry, then it becomes vital to inquire into where these virtues come from and how we can foster them. The result has been renewed scholarly attention to family, school, community, religion, and civic associations.

Conspicuous by its absence from this list is one of the major institutions of our society -- the market. The idea that the market might teach the virtues has apparently seemed so improbable that it has gotten no scholarly attention. Most of those who have written about the virtues have been heirs to a long tradition (starting with Aristotle if not earlier) of disdain for the counting houses and dark, satanic mills of commercial and industrial society. In this view of market society (I will call its adherents the "pessimists"), the market is destructive of the virtues. But there is another view, largely eclipsed today. Many Enlightenment moralists saw commercial society as a moralizing force.² (I will call the Enlightenment and its heirs the "optimists.")

Which view is right? Does the market subvert or strengthen the virtues upon which it depends for its own smooth functioning? What sort of character traits does the market reward -- and so, presumably, reinforce and diffuse through society? Do these traits undermine or support the operation of the market and liberal political institutions?

II. The Case Against the Market

"Pessimists" on both the left and the right have always been disdainful of the market because of the acquisitiveness or self-seeking that supposedly reign there. While this acquisitiveness can be a source of great energy and creativity, it is also a turbulent, disruptive, and potentially disintegrative force. Moreover, the market is believed to contain an expansionary dynamic, so that unless contained, it progressively invades other spheres of our social lives. The charges against the market are almost as old as capitalism itself, if not older:³

• It releases self-interest from moral restraints.
• It weakens all social ties other than purely economic ones and/or converts social relationships into instrumental ones ("commodifies" them).
• It promotes a preoccupation with narrow individual advantage at the expense of responsibility to the community or social obligations.
• It substitutes competition for cooperation.
• It favors materialistic or hedonistic values.

According to the market critics (the pessimists), in the past, various social institutions have served to restrain the expression of self-interest, and to direct it into socially constructive channels. But most of these institutions and forces -- the Protestant ethic, religious belief, the bourgeois virtues, a social morality, etc. -- have been weakened by the spread of the market. The upshot is, in philosopher Alasdair MacIntyre's memorable phrase, that, "Modern society is indeed often, at least in surface appearance, nothing but a collection of strangers, each pursuing his or her own interests under minimal constraints."⁴

So according to the pessimists, one function of the virtues is to serve as a counterweight to the disintegrating effects of the market. However, the more completely a society is dominated by market relations, the weaker is its capacity to foster the virtues. Therefore, we need to carve out sanctuaries from the market -- such as family, school, church, community -- where the virtues can be nurtured. A representative statement of this view is Gertrude Himmelfarb's:

In Britain and America, more and more conservatives are returning to an older Burkean tradition, which appreciates the material advantages of a free market economy (Edmund Burke himself was a disciple of Adam Smith) but also recognizes that such an economy does not automatically produce the moral and social goods that they value -- that it may even subvert those goods. For the promotion of moral values, conservatives have always looked to individuals, families, churches, communities, and all the other voluntary associations that Tocqueville saw as the genius of American society.⁵

a. How the market self-destructs

According to the pessimists, not just the moral foundations of the good society are undermined by the market. The market also undermines its own moral foundations. That's the thesis of Fred Hirsch's influential book, Social Limits to Growth.⁶ Hirsch says the market needs a social morality if it is to work, but this social morality -- a legacy of an earlier pre-industrial culture -- is being weakened by "the full permeation of an individualistic calculus."⁷ In short, as it becomes more socially respectable to pursue one's individual self-interest, so it becomes increasingly difficult to get people to exercise restraint for the collective good.

What are the contents of this social morality? Hirsch identifies several "social virtues" which, he says, play a central role in the functioning of an individualistic, contractual economy: They are truth, trust, acceptance, restraint and obligation.

Take the role played by trust. Without a well-founded expectation that others will voluntarily keep their promises, the modern economy would grind to a halt. It rests on a foundation of trust, credit, handshakes, mutual confidence, and implicit commitments. Almost every transaction, even the most basic one, requires a degree of trust in the other party. "To put the matter in its simplest form," says Kenneth Arrow, "in almost every transaction, somebody gives up his valuable asset before he gets the other's; either the goods are given before the money or the money is given before the goods."⁸ Reliance on third-party enforcement (e.g., through the courts) to guarantee that promises are kept would simply be prohibitively expensive. In Arrow's words, "much business is done on the basis of verbal assurance. It would be too elaborate to try to get written commitments on every possible point."

All of this is uncontroversial. But how do we guarantee the necessary level of trust -- and other virtues -- to lubricate the workings of the market? The problem, according to the pessimists, is that while the virtues are good for the system as a whole, the individual who behaves virtuously places himself at a disadvantage. Take R.M. Hare's hypothetical example of the baker who short-weights his bread:

It is to the individual trader's advantage to file a bit off his "pound" weight, provided that he can get away with it; and this will be so whatever the others do. If they remain honest, he will get more money for less bread; but if they do the same as he has, he will still get more money for less bread than if he had not filed down his "pound" weight. If everybody does it, or even just a few people, the market will start operating inefficiently and all will suffer. But all the same the dishonest will suffer less than the honest. How then are we to set about avoiding this decline of the market?

As Arrow says, "an ethical code, however much it may be in the interest of all, is . . . not in the interest of any one firm. The code may be of value to the running of the system as a whole, it may be of value to all firms if all firms maintain it, and yet it will be to the advantage of any one firm to cheat . . . ."⁹ Ethical behavior makes everyone better off than they would be if everyone pursued his narrow self-interest. But each individual stands to benefit most if he is selfish while everyone else is virtuous.

If being virtuous means passing up unethical opportunities for private gain, then a firm (or individual) that is burdened by such scruples is presumably at a competitive disadvantage in the marketplace compared with a rival not laboring under such a burden. The result is that the normal operation of the market offers people powerful inducements to desert the virtues. According to philosopher Alasdair MacIntyre, it is notorious that "the cultivation of truthfulness, justice and courage will often, the world being what it contingently is, bar us from being rich or famous or powerful."

In this way, say the pessimists, the social morality, or the "virtues," that support the operation of the market are progressively being eroded by the operation of the market. The only reason the market still works is because of the legacy of an older, pre-capitalist moral and religious tradition. But the market is remorselessly eroding that tradition, goes the argument. The result is that the market is living on borrowed time -- and on borrowed virtues. Sooner or later, our ethical capital will be depleted, and the moral foundations of the market will have been hollowed out. This view has been the source of repeated predictions of the collapse of capitalism under weight of its own contradictions.

III. The Market According to the Optimists
Nice firms finish first?

But there is also a quite different view out there. According to the "optimistic" view, the market constantly replenishes its stock of virtues. That the virtues are eroded by contact with market society has not always been the dominant view. Enlightenment thinkers expected market society to "generate as a by-product, or external economy, a more 'polished' human type -- more honest, reliable, orderly, and disciplined, as well as more friendly and helpful, ever ready to find solutions to conflicts and a middle ground for opposed opinions."¹⁰ The virtues necessary for the functioning of the market "were confidently expected to be generated, rather than eroded, by the market, its practices and incentives."

How might the market generate or replenish its stock of virtues? One possibility the pessimists appear to have overlooked (or defined away) is that the virtues may not only be socially beneficial, but they may be a source of private economic benefits as well. What I mean is that those who cultivate the virtues may be more successful in the marketplace. That is, the normal operation of the market may reward -- and so reinforce -- the virtues. The pessimists appear to have ruled out this possibility by narrowly defining virtue as the disposition to act in the public interest and, if necessary, against one's own individual interest. Apparently, if one derives some benefit from acting in a "virtuous" manner, then one's action can no longer be called virtuous. The optimists don't set the bar so high. For them, honesty and fairness count as virtues even if they benefit those who practice them.

a. Market virtues?

Can the virtues be a source of private economic benefit? Or must they by their nature be a hindrance to worldly success? In the rest of this paper, I examine the case for optimism. I begin with two of the virtues that Fred Hirsch identified as critical to the functioning of the market: namely, honesty (which I will call trustworthiness) and self-control. Then I add two others to the list -- sympathy and fairness. (I pass over a number of other virtues: industry and inventiveness because there is general agreement that they are fostered by the market; and justice, because even partisans of the market are divided over whether it generates just outcomes.) Are these virtues -- which lubricate the workings of a market economy -- moral "inputs" from extra-capitalist sources? Or are they endogenous to the market?

Trustworthiness: Why do people keep their promises? According to Hirsch, "[t]he point is that conventional, mutual standards of honesty and trust are public goods that are necessary inputs for much of economic output." But, two centuries earlier, Adam Smith located the source of promise keeping squarely in self-interest, and he provided the classic explanation of how it is generated:

This is not at all to be imputed to national character as some pretend. It is far more reducible to self-interest, that general principle that regulates the action of every man, and which leads men to act in a certain manner from views of advantage. . . . Where people seldom deal with one another, we find that they are somewhat disposed to cheat, because they can gain more by a smart trick than they can lose by the injury which it does to their character [i.e., reputation]. . . . Whenever dealings are frequent a man does not expect to gain so much by any one contract as by probity and punctuality in the whole, and a prudent dealer, who is sensible of his real interest, would rather choose to lose what he has a right to than give any ground for suspicion. . . .

On this account, then, we do not need to have recourse to a supposed moral legacy, etc., to explain the prevalence of trustworthiness in market economies. The principal sanction that holds dishonesty in check is not a residue of pre-capitalist morality, nor is it any penalty the courts might exact. Instead, it is the loss of business that would follow the damage to the business person's reputation. A reputation for being trustworthy will create business opportunities; conversely, even a whiff of suspicion of untrustworthiness may cut off such opportunities. People will seek out persons with a reputation for honesty because the alternative -- writing contracts comprehensive enough to protect their rights in all conceivable states of the world, and then monitoring compliance with the terms of the contracts -- is prohibitively expensive.

If the pessimists were right, we would expect to see a secular decline in the general level of trust, as the religious belief in which it is rooted has grown weaker under the relentless pressure of the market. But there is no evidence of any such trend. Trust is pervasive in our business culture, despite occasional well-publicized violations of the norm. Every year brokers trade some $40 trillion worth of securities on the basis of telephone calls, with very little fraud or cheating. Indeed, as Adam Smith noted in another famous passage, trustworthiness is a distinctively bourgeois virtue, rather than a legacy from the pre-market era: "Wherever commerce is introduced in any country probity and punctuality always accompany it. . . . When the greater part of people are merchants they always bring probity and punctuality into fashion, and these are the principal virtues of commercial nations." Far from being inherited from feudal times, care in the timely payment of debts and loyalty to superiors were both "points of striking weakness in the aristocratic code."¹¹

Self-control: Trustworthiness, in its turn, presupposes another virtue that enlightenment thinkers associated with the market -- self-control. What, after all, is promise-keeping if not the ability or disposition to pass up an immediate advantage or pleasure or gratification? That explains why, for Adam Smith, "self-command is not only itself a great virtue, but from it all the other virtues seem to derive their principal lustre."¹² Self-control does not involve a trade-off between self-interest and the public interest. Rather from the individual's point of view, the trade-off is strictly one between short-term self-interest and long-term self-interest. We teach our children self-control knowing that it is critical to their own success, happiness and personal adjustment. Even opportunists tacitly acknowledge the truth of this proposition. As Robert Frank points out, they let their own children be taught moral values. "Why don't they instead teach them to cooperate only when it is in their narrow interests, and to behave opportunistically otherwise?" he wonders.¹³

Sympathy: In a market, the fortunes or livelihoods of economic agents depend on successfully meeting the needs of others. To the extent that which Adam Smith called "sympathy" -- or what we might call empathy -- helps us to anticipate those needs, it contributes to economic success. "It is in a firm's interest to avoid putting features into a product which are not regarded as useful by customers."¹⁴ Firms make huge investments in trying to forecast how other people will react to new product features, stock offerings, pricing or styling changes, etc. Smith knew, as Patricia Werhane notes, that "sympathy is indirectly linked to self-interest because it might be in our self-interest to understand the passions of others." Accordingly, while sympathy may not be reducible to self-interest or selfishness, it is likely that participation in the market develops and reinforces the capacity to share the feelings or emotions of others. Moreover, even where sympathy is lacking, repeated personal contacts are likely to generate some minimal level of courtesy between the parties -- to soften or polish manners: "The market promotes civility because commercial success depends on the courteous treatment of people who have the option of taking their business elsewhere."¹⁵

Fairness: Like the other virtues we have considered, a reputation for fairness is likely to create business opportunities. Since it is next to impossible to regulate a complex, ongoing transaction by means of a written contract, parties will prefer to restrict their business to others on whom they can rely not to take advantage of them if circumstances change drastically. By limiting their business to such people, they can realize considerable savings in transaction costs. They are spared the costs of attorneys, auditors and inspectors, and others. As Stewart Macaulay puts it, based on his observation of actual business practice, disputes between businesses "are frequently settled without reference to the contract or potential or actual legal sanctions. There is a hesitancy to speak of legal rights or to threaten to sue in these negotiations . . . . Or, as one businessman put it, 'You can settle any dispute if you keep the lawyers and the accountants out of it. They just do not understand the give-and-take needed in business.'"¹⁶

On this account, the virtues are not (just) public goods -- that is, unrequited gifts to society -- but are a source of private advantage in the marketplace.

b. The shadow of the future

Plainly, it is crucial to the account I have proposed here of how the market fosters the virtues that the present value of the gains of maintaining an economic relationship or protecting a reputation as a desirable transaction partner (i.e., "goodwill") must exceed the gains available from short-run utility maximization. That requires, in Axelrod's phrase,¹⁷ that the future cast a sufficiently long shadow. If there is no economic advantage to be obtained from repeated transactions with the same partner, and/or if one's reputation as a desirable transaction partner stays hidden under a bushel, then the necessary conditions for the development of the virtues are absent.

In the "ideal" market transaction of economic theory, the identities of the parties to the transaction do not matter. However, in "imperfect" but real markets, the parties' identities often do matter, and the capacity to engage in repeated transactions with the same partners may be a source of significant economic advantage. This is so because an economic exchange can often be executed more efficiently if it is supported by some specialized investment. This investment may take the form of, say, specific training of workers, purchase of capital equipment, or acquisition of a particular site. The crucial point is that the value of the investment depends on the continuation of the relationship between the two parties. Since the investment is specialized, it by definition has no value (other than scrap) outside the relationship, so any disruption of the relationship will prove very costly. For example, where an employee has acquired specialized skills or knowledge, employee and employer have a mutual interest in keeping the employment relation going. The employer cannot replace the worker's skills in the labor market, and the employee's skills are worthless to other employers. And, so long as the relation continues, the specialized skills permit both parties to realize substantial efficiencies (say, in production or selling) and share the resulting super-competitive gains.

c. Where do the virtues come from?

Where specialized investments of the kind I have described make such gains possible, the parties have an economic incentive to develop rules to manage and safeguard the relationship. It becomes irrational for either side to try to squeeze the most advantage out of a particular transaction, or to drive a hard bargain, if the relationship would thereby be jeopardized. Ian Macneil calls such economic relationships "relational contracting." In relational contracts, "the long-run individual economic (material) interests of each party conflict with any short run desires to maximize individual utility respecting the goods in any particular exchange." Indeed, Macneil notes, the more relational is the exchange, the more artificial becomes the idea of maximization. The utility of the exchange is "a pool of wealth which can be shared as well as grabbed, shared not to make a gift, but out of deep economic self-interest."¹⁸

Macneil proposes an account of how the rules or norms that parties develop to manage relational contracts may in due course evolve into full-blown "social solidarity." He points out that such norms have "a sharing, non-calculating, putatively altruistic character." And, over time, "[t]he goals of the individual become primarily those of enhancing solidarity rather than enhancing individual utility respecting the goods in any given exchange." In this fashion, relations with others that are entered into as means to economic ends become transformed into virtual ends in themselves. Human activity becomes oriented toward maintaining these relations, initially because they are the channels along which economic benefits flow, but subsequently because they become intrinsically rewarding as well.

Moreover, since it is impossible to calculate precisely the expected return from any particular relationship, and then ration out one's benevolence accordingly, parties have an incentive to conduct all their relations with at least a minimum of trustworthiness, consideration, and so on, with the result that they develop a general benevolence. Finally, a genuine disposition (whether innate or acquired) to be benevolent is likely to be cheaper, in terms of psychic or emotional resources, than is a simulated benevolence.

d. Reputational networks

This account of the origin of (some of) the virtues also presupposes the existence of efficient networks or grapevines or communications channels that can disseminate reliable information about the character or reputation of potential transaction partners. A reputation for trustworthiness, sympathy, fair-dealing, and so on, may not simply support repeated exchanges between the same two parties. It may also attract other potential transaction partners, and so create valuable business opportunities.

That such reputational networks exist cannot be doubted, though it is difficult to gauge their extent and reliability. In the case of industrial purchasing, Macaulay tells us that sellers who do not satisfy their customers "become the object of discussion in the gossip exchanged by purchasing agents and salesmen, at meetings of purchasing agents' associations and trade associations or even at country clubs or social gatherings . . . ." Employers, too, have access to information about potential employees. According to Mark Granovetter:

Information about employees travels among firms not only because personal relations exist between those in each firm who do business with each other but also, as I have shown in detail . . . because the relatively high levels of interfirm mobility in the United States guarantee that many workers will be reasonably well known to employees of numerous firms that might require and solicit their services.¹⁹

In turn, in their treatment of particular employees, employers must take into account the effects of their actions on all other actual or prospective employees, according to Richard Epstein.²⁰ That is true even where employers are legally free to hire and fire at will. Take a hypothetical dismissal of an employee. Epstein notes that,

If [actual and prospective] workers perceive that the dismissal is not in line with the implicit norms of the workplace, they will reevaluate their own job prospects, even in a world in which dismissals can legally be made at will. To fire capriciously, therefore, is exceedingly costly to the firm because of its effects on the morale of the remaining workers. . . . An employer who treats its informal promises as though they had no social force just because they have no legal force runs the risk of ruining his own business.

In consumer goods markets, devices like brand names inform customers about the likely quality of a product. Again, the sanction that prevents producers from taking advantage of customers (by failing to provide products of the "promised" quality) is the threat that the customer will take his business elsewhere. Chains -- such as hotel chains or restaurant chains -- are similar to brand names.²¹ Department stores are another means of signaling quality to consumers.

There are at least two ways, I have tried to suggest, in which virtues like trustworthiness and fair-dealing may be a source of significant economic benefits to those who possess them. First, such virtues help to support long-term exchange relationships. And such relationships, in turn, make possible specialized investments that can greatly increase the productivity of the collaboration. Second, such virtues -- or, more precisely, the reputation for having them -- may create valuable future business opportunities.

e. Cooperation and community

In the view of the pessimists, competition drives us apart and pits us against one another. For MacIntyre, the logical outcome of the tendencies inherent in the market is a Hobbesian war of all against all. But the empirical reality of the marketplace is very different. The imagery or mythology of the market notwithstanding, the most common human relation in the market is cooperation rather than competition. The central institution of the market -- namely contract -- is an instrument for mediating that cooperation. In Adam Smith's example, the market coordinated the efforts of workers -- whose number "exceeded all computation" -- in providing the artificer with his woolen coat and his home.

In a market economy, it is true, as a formal matter, group affiliation may be optional. But as a practical matter, all the benefits of the market flow from cooperation. Far from rewarding self-sufficiency, the market favors interdependence. Its rewards don't go to those who are most isolated or self-absorbed or cut off from society, but to those who form and sustain mutually advantageous relationships with others. Thus The Wealth of Nations begins with Smith's famous account of how the division of labor is the primary source of huge increases in workers' productivity. But, in turn, the division of labor is only possible through the spread of the market. For obvious reasons, as the division of labor increases, so too does economic interdependence, and therefore the critical importance of developing the social virtues that support cooperative economic relations. In the market, then, rather than dissolving under the pressure of self-interested economic activity, human ties and commitments become the means for achieving one's economic ends.

IV. Two Cheers for Self-Interest?

The key difference between the two views of the relation between the market and the virtues explored here -- that the market undermines or fosters the virtues -- can basically be boiled down to this: In the pessimists' view, the market can work only so long as self-interest is held in check by some external norms -- probably rooted in religious belief or customary practices. Therefore, its viability depends precariously on the availability of a pre- or extra-capitalist stock of moral capital. In the optimists' view, the market does not depend on any outside help because self-interest itself can be relied upon to lead people to restrain their self-interest. People are induced to cultivate the virtues (in part at least) because the market provides incentives for them to do so. So the market generates the virtues it needs for its own operation.

The idea that self-interest and the virtues might be mutually supportive has not always seemed paradoxical. For Adam Smith, the greatest benefit of commercial society was the incentives it created for people to develop what he called the "imperfect, but attainable virtues" which provided the basis for a decent society.²² Indeed, for Smith self-interest (what he called prudence) was itself one of the virtues. More than half a century later, Tocqueville observed how "the Americans combat individualism by the principle of self-interest rightly understood."²³

Durkheim's objection: There remains Durkheim's ²⁴ famous objection that while the market may encourage the formation of ties and commitments, these relationships are purely instrumental and calculating. Accordingly, they are liable to be discarded as soon as one of the parties calculates that the relationship has outlived its usefulness to him. The market, therefore, cannot supply a lasting basis for virtues like trust and loyalty.

However, Durkheim's objection overlooks the point that such a myopic calculus is likely to be self-defeating, because one's opportunities to form mutually advantageous relationships depend on one being seen as a dependable partner. A reputation for cold-bloodedly discarding a relationship -- as soon as the expected value of the relationship turns negative -- will cut off a lot of potentially advantageous opportunities. Durkheim's error rests on the fallacy that the potential gain from fleeting, discrete, instrumental exchanges is greater than that from durable, "moralized" relations infused with sentiment and sympathy. We have seen that given the risks of transacting in the market, the capacity to form lasting relations of mutual trust is economically superior. That capacity in turn depends on cultivating a disposition to share rather than to grab.

On this account of the genesis of the virtues, self-interest and virtue are closely intertwined, but they are not the same thing. Self-interest may provide the initial impetus to the (conscious or unconscious) choice to cultivate a virtue, and it may provide subsequent reinforcement in the form of the economic returns to that investment. But in due course much of the satisfaction from exercising the virtue becomes intrinsic. As James Q. Wilson says, "Virtue is not learned by precept . . . it is learned by the regular repetition of the right actions. We are induced to do the right thing with respect to small matters, and in time we persist in doing the right thing because now we have come to take pleasure in it."²⁵As usual, Tocqueville's account of the process can't be improved upon:

The principle of self-interest rightly understood produces no great acts of self-sacrifice, but it suggests daily small acts of self-denial. By itself it cannot suffice to make a man virtuous; but it disciplines a number of persons in habits of regularity, temperance, foresight, self-command; and if it does not lead men straight to virtue by the will, it gradually draws them in that direction by their habits. If the principle of interest rightly understood were to sway the whole moral world, extraordinary virtues would doubtful be more rare; but I think that gross depravity would then also be less common.²⁶

V. Conclusion

Typically we view institutions like family, church, community, and school itself, as schools of the virtues; we are unaccustomed to thinking of the market that way. If anything, the marketplace is seen as a source of the snares and delusions that tempt people to stray from the straight and narrow path of the virtues.

In contrast, I have suggested that many of the character traits that we commonly call virtues are rewarded by the market. Therefore, participation in the market may inculcate values and dispositions that make us better citizens -- as well as better colleagues, suppliers, employers or employees, and so on. By reinforcing these character traits, the market (as it were by a hidden hand) strengthens its own foundations and reproduces a moral culture that is functional to its own needs. If this argument has any merit, then (to amend MacIntyre's epigram), "The road to success in Philadelphia and the road to heaven may . . . coincide after all."²⁷