The Market and non-economic “costs”

The Market and non-economic “costs” January 15, 2008

In a short response piece in a 1999 issue of the Journal of Markets & Morality, my former professor Patricia Donohue-White raises a number of issues that must be taken into consideration while conducting economic analysis of markets. Her intention is not to defend or criticize the practical status of any given market, but simply to note non-economic “costs” that ought to be factored into any discussion of the impact of the free market on culture.

Donohue-White poses two questions that she thinks are often ignored or neglected in contemporary economic analysis:

1. “What effect does market activity have on the general culture?”
2. “Can economic analysis adequately consider non-economic ‘costs,’ particularly those having to do with moral, social, religious, and cultural values?”

Donohue-White submits (with good reason) that every “market economy is shaped by the culture in which it exists, and, in turn, it affects the daily practices and customs of the people that comprise it.” By the rather broad term culture, she means the sum of “customs, traditions, and practices of a people.” In turn, the market exerts an influence on the culture in which it subsists, fostering particular sets of virtues or vices. Market and culture–while certainly conceptually distinct–are inextricably bound up in the concrete, practical affairs of a people. On this view, the market cannot be properly evaluated without recourse to the culture and society that shapes it AND to the impact the market has on this same culture and society. The “economic rationality” exhibited by many contemporary corporations seems to be largely devoid of the consideration of non-economic “costs,” particularly with respect to treatment of workers (wage, outsourcing, lay-offs), wealth accumulation and disregard for local and expansive tradition.

What Donohue-White most cautions against is neglecting to consider what John Paul II has called the “structures of sin” (see Solicitudo Rei Socialis), which are grounded in personal sin and the concrete actions of individuals. These personal sins and unethical actions can be facilely consolidated into fortified economic stuctures within a given culture, making their removal or break-down immensely difficult. These structures of sin, wherever they may exist, tend to employ the “economic rationality,” carrying within themselves very little regard for the human person or other institutions in society. These structures, John Paul II tells us, burgeon and spread, affecting and influencing the behavior of people and society.

So when the question is posed “Does the free market undermine culture?” Donohue-White suggests that the presence of two “-isms” must be discerned. The first of these is individualism, where “blind to the needs of others, radical individuals live life completely for their own sake, failing to develop and maintain lasting social relationships.” Obviously, individualsim in its theoretical form and in its distilled, practical expressions is “contrary to human nature and the common good.” Individuals become isolated, alienated in the competition for desired goods and services, weakening the bonds of community. The exclusion of non-economic values, submits Donohue-White, fosters individualism in both economic analysis and corporate policy/identity.

The second “-ism” that threatens the common good is consumerism. Donohue-White admits that markets are not in themselves responsible for consummerist trends, but through any sort of subservience to moral deficiencies in society (e.g., idolization of wealth) the market aids in fostering a “consumerist mindset, which is the application of the economic way of thinking to non-economic areas.” There is no question that affluence “brought about by markets and human labor” can negatively impact the moral identity of an entire culture. Affluence is not an evil, but the manner in which it is attained and sustained may itself be immoral and dehumanizing. Only the consideration of non-economic “costs” (i.e., culture, tradition, family) will serve to illumine the moral status of its trajectory.

Drawing from the oft misinterpreted and misused enyclical Centesimus Annus by John Paul II, Donohue-White highlights the need for any market to be “circumscribed by a strong juridical framework that does not undermine the ethical and religious spheres of civil society.” This loaded teaching from the former pope certainly places the limits on “free” market, for the market is not a morally positive influence on a culture unless it is surrounded by and restricted by the ethical and religious traditions of the culture in which it subsists and which it helps shape. Contrary to the liberal democratic paradigm of political-economic activity (a la Locke, Smith and Mill), the market must be shaped by virtue, conduct itself with virtue and promote virtue. In this sense, it may be inappropriate to describe the Catholic vision of the market as “free” if one means “unbridled” by such, as Pope Benedict XVI has continually reminded us.

Donahue-White closes her piece by reiterating that she is not claiming that what is commonly called “free market” violates human freedom and dignity. Rather, she seeks for us to realize that “economic analysis by itself is insufficient to arbitrate weighty social, political, and cultural questions.” Economic growth is not moral without genuine human development, which is “human betterment and the increase of the common good. It implies social circumstances in which participation is maximized, opportunities created, unemployment lowere, and poverty eradicated.” Economic analysis cannot simply be the review of profit margins, statistics, job growth, industrial progress and purchase power. Rather, non-economic elements must be included, such as “family life, educational opportunites, social virtue, religious freedom, care of the eldery, and so forth.” Development, Donohue-White argues, is not a collectivist utopia that arbitrates market practice. Rather, human development is “freely planned according to the dignity of the person, legitimate social concerns, and market principles.”

I advocate such a view in theory, and I hope that more Catholic business owners and economists will articulate how to put this all in practice. There is a place for a market economy…but not without championing virtue and development in community. As Donohue-White notes, “Community does not simply denote an aggregate of individuals, but a unity of persons in a common culture.” The market must be for the unity of persons, not for the individual competitor.

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  • jonathanjones02

    “Community does not simply denote an aggregate of individuals, but a unity of persons in a common culture.”

    Yes, quite so!

    And this should not be confused with state organized unity, which in my view has the potential to be a dangerous, mass movement……who, after all, can resist the temptations of power?

  • Your professors piece is great!

    “The Pope’s earlier comments reinforce the importance of virtue for market activity. In his previous statement John Paul offers two descriptions of market activity: one not grounded in a firm moral foundation, and the other operating in relation to moral value and the dignity of the person.”

    And your comment,

    “the market must be shaped by virtue, conduct itself with virtue and promote virtue. ”

    seems exactly right.

  • The author refers to examples of “structures of sin” – “Mafia bosses, drug lords, corrupt labor leaders, and black-market auctioneers, who employ an economic rationality without regard for either the individual human person or the institutions of a civil society.” At least this is something that every reader on Vox Nova can agree. =)

    Donohue-White highlights the need for any market to be “circumscribed by a strong juridical framework that does not undermine the ethical and religious spheres of civil society.” This loaded teaching from the former pope certainly places the limits on “free” market, for the market is not a morally positive influence on a culture unless it is surrounded by and restricted by the ethical and religious traditions of the culture in which it subsists and which it helps shape.

    In a nutshell, what is your issue with the Acton Institute, since they appear to be concerned about the same, judging from their ‘mission statement’

    The Acton Institute organizes seminars aimed at educating religious leaders of all denominations, business executives, entrepreneurs, university professors, and academic researchers in economics principles, and in the connection that can exist between virtue and economic thinking. We exhort religious leaders to embrace the principles of economics as analytic tools in the consideration of economic issues that arise in their ministry, on the one hand, and, on the other, we exhort business executives and entrepreneurs, to integrate their faith more fully into their professional lives, to give of themselves more unselfishly in their communities, and to strive after higher standards of ethical conduct in their work.

    Donahue-White closes her piece by reiterating that she is not claiming that what is commonly called “free market” violates human freedom and dignity. Rather, she seeks for us to realize that “economic analysis by itself is insufficient to arbitrate weighty social, political, and cultural questions.”

    I recommend as well Dr. Samuel Gregg’s Economic Thinking for the Politically Minded, who makes similar points regarding the inherent limitations of economists.

  • SMB

    Rather than say that economics is incomplete without ethics, we should say that economics, properly understood, is a subset of ethics (or politics, in the Aristotelian sense). That appears to be Donuhue-White’s point, but it was stated more succinctly by Henrich Pesch, SJ, in his treatise ‘Ethics and the National Economy’ (1918). Markets don’t govern themselves, but result from the free decisions of morally responsible persons. Ultimately, we choose our own fate. Imagine that.

  • What it really comes down to is that markets cannot govern themselves. The classical liberal trope is that democracy and free markets work for a virtuous people, and so there need not be juridical constraints on the market since those constraints come from within, from that virtuous people. When the market behaves badly (in the moral sense) we get the “change the culture not the law” mantra, not coincidentally a mirror image of the mantra we get from more modern kinds of liberals on the pelvic issues. Classical liberals believe in a juridically unconstrained market for property, and modern liberals believe in a juridically unconstrained market for sex. Both shelter under the formal umbrella of a claim that this is better than the tyranny of having, you know, actual laws governing behavior.

  • This is so simple.
    SOLVE The ECONOMY become the next president.
    I can solve the economy problem and am wondering why no one else sees it as simple as I do.

    If the candidates seized this opportunity they would win hands down but they have to present it in this manner and be careful in the presentation.

    This country needs a new market one that the US is very good at.

    Well, what products do Americans export the most? I am not an expert but I see Coke, Budweiser and Marlboro everywhere around the world.

    We sell chemical mood enhancers around the world at superior product quality and for cheaper cost than anyone else in the world. We need to tap into the new market that marajuana could offer our farmers and this country.

    We need a president that will step outside the box take a stand and recognize this opportunity to bring the US back to a top exporter, create jobs, help farmers and reinvigorate the economy.

    There is a demand for this product. A product that is safer than alcohol and all natural with little need for addities or preservatives. You can grow it again and again fairly quickly like tobacco. It has proven medical properties as well as fuel and fiber. But that isnt even important. Do we look at the benefits of smoking in order to keep it legal? No, it just is legal and thats it.

    We sell caffiene, nicotine and alcohol all which have pluses and minuses, marajuana has them too and we have the best farmland in the world. We could be the top suppliers in the world on a global scale and tax it.

    Imagine the possibilities if the tobacco industry got involved and started this market.This country would be out of the recession and a huge boost to the economy would occur and desperately needed jobs would be instantly created.
    Guaranteed.

    What are the reasons that these politicians deny this market that we could tap into?
    We would have such a boost to the economy we could fund universal healthcare like they have in every other civilized country.

    This country was founded by people with a pioneering spirit. We need a pioneering president to break new ground open new markets and rejuvenate this country and get us to love it and believe in it once again.

    Strengthing the home and heartland especially USA farmers would make this country strong.
    So a presentation of this issue would not be about legalization it is about the heartland of this country and the economy. It is opening up a whole new market to the world economy