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Wednesday, April 5, 2023

Are Markets Immoral?

Ask an Economist #12

Image Credit: iStock

This week for Ask an Economist, I have a question from AJ who asks (edited for clarity),

“This isn’t entirely about economics but rather the morality of capitalism. How do you reconcile the fact that the free market sometimes creates products that hurt the users and the people around them? For starters there is social media which sows division and there are news reporters who do the same thing. I am not saying that the government would do it better, just that you claim capitalism in of itself is moral.”

AJ is up front about the fact that this is not strictly an economics question. It’s a question about morality. Nonetheless, a good understanding of economics can at least aid in exploring this sort of question. But, to be clear, in answering a question about morality I’m stepping out of my role as merely an economist and drawing on my worldview.

So how can I reconcile an appreciation for free markets with the immorality that exists in human exchange? To begin, let’s sort out exactly what we mean when we talk about “free markets.”

The Market as a Process

It’s tempting and sometimes useful to think of free markets as a result. Some quantities of goods are available right now at the store. This is a result. It’s tempting to think of this result as equivalent to the free market. But that’s not exactly right.

The free market is a process. It occurs over time. Simply put, when individuals are free to own and exchange property and enforce contracts without someone hurting them or taking their property, they are engaging in the market process. This relates closely to FEE founder Leonard Read’s support for “anything that’s peaceful.”

The reason it’s important to distinguish the process from the results is that we can easily think of good processes that lead to bad results. Think of medical processes. We could imagine a scenario where an unidentified patient is brought to a hospital unconscious and bleeding. Imagine that, in order to stop the bleeding, doctors use some sort of clotting medicine.

Let’s say 99 out of 100 times, this clotting medicine saves the patient from dying. But in 1 out of 100 cases, the unidentified patient is allergic to the clotting medicine and dies.

Is this process immoral? If there is no alternative that saves all 100 patients, the answer seems to be certainly no. We dislike the result of one death, but that is not, by itself, a condemnation of the process.

Likewise, the morality of the market process is not necessarily contingent on perfect results.

But what results exactly does the market process select for?

The Customer Is Always Right?

If you’ve been employed in the US at all, you’ve probably heard a collection of tropes about the importance of customers such as, “the customer is always right” or “the customer is king.”

These sayings communicate the fact that in order to beat competitors and earn a profit, businesses must offer the best value to customers. Economists call this idea consumer sovereignty.

Will consumer sovereignty always lead to good or moral results? I certainly don’t think so. So long as consumers have preferences that are immoral, this will mean some of the goods and services produced by the market will be used in immoral ways. For example, I think it’s immoral for people to drink themselves to death. As a Christian, I believe we’re called to be good stewards of our lives and gifts.

So is it bad when people choose to put their health at risk to maintain an endless drunken stupor? Absolutely.

But the question is, is this result the fault of the free market? Absolutely not. Consider this related analysis by economist Ludwig von Mises:

“It is not the fault of the entrepreneurs that the consumers, the people, the common man, prefer liquor to Bibles and detective stories to serious books, and that governments prefer guns to butter. The entrepreneur does not make greater profits in selling bad things than in selling good things. His profits are the greater the better he succeeds in providing the consumers with those things they ask for most intensely.”

There is nothing inherent in markets that require consumers to demand an excess of alcohol. The desire, and associated immorality, exists in the person rather than the process.

In this way, the market acts as a sort of “mirror” for morality. A mirror doesn’t make someone ugly or beautiful. It reflects what is there. Likewise, in this sense markets do not make us good or evil, they merely reflect what is there.

In fact, some economists even argue markets are better than a mirror and that they improve our morality on several margins.

I still believe that evil is a problem. In fact, I believe human nature is corrupted by evil and nothing earthly will ever change that completely.

That doesn’t mean I’m hopeless, either. There are some systems which curb the negative impact of evil better than others.

But, in general, I think the rush to blame social institutions for a perceived lack of morality often is, consciously or unconsciously, an attempt to avoid having a conversation about personal responsibility.

So I do not blame capitalism for the immoral results that sometimes occur in the market process.

There is no perfect system out there where all results are good and beautiful—at least not on this side of heaven. Using an imagined perfect world like this as the benchmark for capitalism (or any system) will lead us to condemn capitalism by definition. But the perfect world does not exist. This sort of thinking is an example of the Nirvana fallacy.


  • Peter Jacobsen is a Writing Fellow at the Foundation for Economic Education.