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Edited by Paul J. Zak With a foreword by Michael C. Jensen

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"Most people are fundamentally honest, trustworthy, and fair. Why? Because they have a capacity for empathy and trust that is just as innate as their capacity for selfishness. It evolved in order to enable people to capture social benefits through exchange. Markets not only need that instinct; they also nurture it. This simple and beautiful idea has been disinterred by the authors of this book from beneath the cynical sophistries of the twentieth century."--Matt Ridley, author of The Origins of Virtue

"Before he became famous as the father of free-market capitalism through The Wealth of Nations, Adam Smith wrote The Theory of Moral Sentiments, a long-forgotten and still little-known treatise about the role of values and virtues in economic and social life. At last, science has caught up with Smith, and now Paul Zak has gathered leading scholars and scientists in a definitive volume on why markets are moral. This paradigm-shifting book is required reading not only for economists, but for all behavioral scientists."--Michael Shermer, publisher of Skeptic, columnist for Scientific American, and author of The Mind of the Market

"Understanding how values are reflected in markets, and how markets either reduce or increase their positive or negative effects on human welfare, is obviously important. The work of the scholars represented in this volume contributes significantly to these issues and adds substantially to the foundations of analysis that will eventually lead to a richer and more complete understanding of these issues.
I look forward to seeing the creation of an entirely new field of inquiry in economics, and in its sister social sciences, focused deeply on the positive analysis of the role of values in elevating the possible outcomes of human interaction. . . . The role of values is a purely positive question for economics and the other social sciences, and this volume begins that journey toward creating such a science."--from the foreword by Michael C. Jensen, professor emeritus, Harvard Business School

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Moral Markets

Princeton University Press

Chapter One

Affordances for Ethical Behavior in Free Exchange

William D. Casebeer

Opinions about free exchange have fallen on hard times. Major news magazines such as the Atlantic Monthly and the New York Times have devoted column-inches to the anti-market zeitgeist, and self-organized protests plague World Trade Organization meetings with regularity. Given the palpable benefits of markets for all involved in them, why is the term free market as likely to call to mind images of selfish and insensitive robber barons as it is to evoke scrupulous and other-oriented small business owners and neighbors? This is partly because cartoon versions of the nature and outcome of free exchange, for multiple reasons, have carried the day in the court of public opinion. These cartoons are typified by images of selfish capitalists exploiting labor with glee for the good of no one but themselves. These cartoons, when true, are only partially true, and present but one facet of the costs and benefits of free exchange. They do make for colorful stories, however. Sinclair Lewis, for example, would not have made his name writing about the friendly aspects of garden-variety market operations.

These cartoons, however, leave off the considerable moral presuppositions and ethical benefits that free exchange assumes and enables. Stories widely held to be true are not necessarily informed by the results of our best sciences, nor is colorful nature in storytelling tied to the likelihood of resembling reality in any law-like way. Cartoons that declaim free exchange as "selfish" or "exploitative" or "harmful" do have a point in some contexts. A fourth story, however, less cartoon-like and more consilient with what we know about the cognitive mechanisms that allow exchange to take place and which are affected by it, is a better story, more true, with more fealty to the phenomenon it professes to be about.

The Freytag triangle is a theory of story that will pave the way for a quick analysis of three cartoons illustrating that "exchange is bad": the Gordon Gekko greed-is-good, the Karl Marx all-trade-exploits, and the Joseph Stiglitz exchange-is-bad-all-round neo-Luddite narratives. When these stories score points in the popular imagination, it is often because they leverage some aspect of the ethos (credibility), logos (logic), and pathos (emotional) domains, which the venerable Greek philosopher Aristotle discusses in his Rhetoric. A counter-narrative that points out the relationship between free exchange and the development and exercise of moral virtue might best allow us to add nuance to the cartoons and revivify the Adam Smith of The Moral Sentiments in the public mind. Market mechanisms can often act as "moral affordances" as well as moral hazards, and this is something we should keep in mind as we explore the costs and benefits of free exchange.

What's in a Story?

Discussion of stories and narratives is hampered by the fact that there is no widely accepted definition regarding just what a story is. Indeed, an entire school of thought in literary criticism (postmodernism) is predicated on the idea that there are no necessary and sufficient conditions which a piece of text must meet in order to be a story, whether that text is verbal, written, or merely exists in the thoughts of a target audience. We can agree with the postmodernists that defining a "story" is difficult without thinking, however, that the concept plays no useful purpose. In that sense, the concept "story" is like the concept "game"-a game also does not require necessary and sufficient conditions for it to be a game, but that does not mean the concept is bankrupt nor that there cannot be "family resemblances" between games that would be useful to consider.

A good first hack, then, at a theory of stories comes from the nineteenth-century German writer Gustav Freytag; this is an admittedly Western notion of the structure of stories, and, though it cannot claim to be comprehensive, it is nonetheless an excellent place to begin. Freytag believed that narratives followed a general pattern: the story begins, a problem arises that leads to a climax, and the problem is resolved in the end. A coherent and unified story could thus be as short as three sentences providing the setup, climax, and resolution, for example: "John was hungry. He went to the store and bought a sandwich. It was delicious." Of course, this particular story is neither interesting nor compelling, but still it is a coherent narrative. This "Freytag Triangle," depicted in figure 1.1, captures the general structure of a story.

The contemporary literary theorist Patrick Hogan amplifies the basic Freytag structure, pointing out that most plots involve an agent (normally, a hero or protagonist) striving to achieve some goal (usually despite the machinations of an antagonist, or villain)-there is a person (or group of persons) and a series of events driven by their attempts to achieve some objective. This familiar analysis is supported by the study of mythology (recall Joseph Campbell's analysis of the structure of most famous legends from antiquity), and by consideration of many forms of storytelling, whether they are Oral, traditional, or contemporary.

Why Stories Are So Important

This working "theory of story" will enable us to gain insight into why stories are so important for structuring human thought. First, note that stories often are rich in metaphors and analogies; metaphors, in turn, affect our most basic attitudes toward the world. Suppose, for example, that I think of Islamic fundamentalism as a disease; a simple narrative about fundamentalist Islam might then be the following: "We want world communities to respect human rights. Fundamentalist Muslims disrespect some of those rights. We can prevent them from doing more harm by taking action now." This implies a series of actions I ought to do in reaction to fundamentalism: combat its spread; focus on this "public health problem" by inoculating people against it; consider those who try to spread it as evil agents up to no good-or, at the very least, modern day "Typhoid Marys"; and so on.

A research program by Mark Johnson, George Lakoff, Giles Fauconnier, and Mark Turner have explored reasoning by metaphor and analogy in a rich research program; they and others conclude that our most complex mental tasks are usually carried out not by the "classical mechanics" of rational actor theory (where stories really have no place in the details) but rather by a set of abilities that enables us to make analogies and map metaphors, which forms the core of human cognition. Exploration into the "storytelling mind" is a research program that combines metaphor and analogy into an examination of the powerful grip narrative has on human cognition; narratives can restructure our mental spaces in ways that profoundly affect our reasoning ability and, ultimately, what we make of the world. Think of the grip that the "Jihad versus McWorld" narrative has on the terrorist organization Al Qaeda and how this affects the way the group thinks about the future; or consider conspiracy theorists, springloaded to see the world of markets entirely in terms of "us" (downtrodden consumers) versus "them" (corporate robber barons). As Mark Turner noted, "Story is a basic principle of mind....