Adam Smith was a moral philosopher, and economics clearly began as a discipline concerned with both normative and positive considerations. Over time, however, as economics became more "scientific," positive analysis of the consequences of economic activity increasingly crowded out normative analysis of the morality of that activity. It is now common for economists to boast that economics is "value free." (1)
The problem is not with positive economics. Without the ability of economic analysis to make reasonable predictions about the consequences of policies and to provide coherent explanations of observed economic phenomena, there would be no value to economics regardless of the value system applied. But without recognizing that moral values are embodied in economic analysis, economists severely limit their ability to understand economic phenomena and to communicate effectively what they do understand. Furthermore, when economists dismiss the moral dimensions of their discipline, they leave the field to others who have an endless supply of pronouncements on the morality of economics in general, and the market order in particular, that are as logically appalling as they are publicly appealing. Only by coupling positive economics with a willingness to engage in moral discourse can economists use their understanding to effectively defend market arrangements, and the general benefits they provide, against moral sophistries used by politicians and their special-interest clients to justify policies to protect politically favored groups against the discipline of market competition.
Unfortunately, making a moral case for markets faces a serious problem. Arguments supporting the morality of markets confront a widespread view of morality that predisposes most people to see markets as fundamentally immoral. This is not a problem that can be overcome by advances in positive economics. (2) It is our view that the most effective way to make a moral case for markets requires accepting the dominant view of moral behavior as a legitimate one, while recognizing that the superiority of markets is the result of their ability to generate desirable outcomes without relying on what is widely seen as moral behavior. This leads us to argue that markets are essential for decent and humane social order because they can be substituted for the morality of caring that is necessary for decent and humane relationships.
Our discussion of morality focuses primarily on what is commonly referred to as duty-based morality (behaving the right way out of a sense of duty) as opposed to outcome-based morality (behaving in a way that achieves the best outcomes). This does not mean we ignore economic outcomes. Obviously when assessing the desirability of behavior, the desirability of the outcomes resulting from that behavior cannot be ignored. But, as we shall argue, much of the criticism of markets results from widespread disapproval of the morality of the behavior that drives the market process, quite independently of the outcomes that are generated. Given the prevailing view of duty-based morality, even those who accept the superiority of markets at generating material comforts commonly see that superiority as so morally tainted that they are sympathetic to political action to restrict normal market practices at the cost of considerable market efficiency. (3) As Joseph Schumpeter ( 1950: 137) observed, "The stock exchange is a poor substitute for the Holy Grail."
In the next section, we consider characteristics most people see as satisfying the conditions of duty-based morality--which we call magnanimous morality--and compare it with the morality that underpins the market process which we call mundane morality--and note the emotional basis for the public appeal of the former over the latter. In our third section, we consider examples of moral hostility toward markets obscuring the benefits of the market, and relate that hostility to the persistent desire for an economic system based on magnanimous morality. …