All Commentary
Monday, April 1, 1974

Markets and Morals

Mr. Donway, a recent graduate of Brown University, continues to deal as a free lance student and writer with the social implications of certain philosophical issues.

Mr. Irving Kristol, speaking to the Mont Pelerin Society, raised the question whether a market society can survive, if it not only permits anti-market views, but actually fosters them insofar as they provide business opportunities. And on the assumption that it cannot, he asks whether there is in the market philosophy any reason for an entrepreneur not to invest in, say, the publication of anti-market literature. We know, as a matter of fact, that the Right has generally protested actions such as Simon and Schuster’s publication of Jerry Rubin, but could the Right do so consistently, if such a publication were profitable?

Mr. Garry Wills has carried the argument even further in Nixon Agonistes. The philosophy of the market, he says, assumes that if it is profitable to supply some good, then that good will be supplied; which means, will be supplied by someone. But that assumption is possible only if we also assume that the marketeer’s sole standard for production is: whatever is profitable. And this means that the marketeer cannot regulate his actions by any other standard, for instance, by any moral code. Thus, where Kristol says that the market society cannot maintain the ethics on which it is based, as a generally prevailing social norm, Wills says that the marketeer himself cannot maintain any ethical views.

Now it cannot be denied that such critics have been given grounds for their arguments. Professor Jeffrey Hart, in his book The American Dissent, wrote the following, approving description of Wilhelm Roepke’s thought: “To the extent that an economy is free, he points out, production goes forward at the command of the consumers, whose desires, reflected in the market, are then reflected in the decisions of the producers.” Hart contrasts this with a collectivist economy in which production goes forward at the command of bureaucrats. It would seem, then, that under any system producers can have no standards of their own, and the only question is: by whom shall they be commanded?

Similarly, in Human Action, Ludwig von Mises wrote:

In his capacity as a businessman a man is a servant of the consumers, bound to comply with their wishes… His customers’ whims and fancies are for him ultimate law, provided these customers are ready to pay for them. He is under the necessity of adjusting his conduct to the demand of the consumers. If the consumers, without a taste for the beautiful, prefer things ugly and vulgar, he must, contrary to his own conviction, supply them with such things.

I suppose one can understand why, as a matter of history, the defenders of capitalism adopted this line of argument. When the New Deal was culminating the long attack on businessmen as rapacious and exploitative, the image of a servant, or even a slave, may have looked like a good way to stylize the truth that businessmen make profits only by satisfying demand. It was an intelligible if unfortunate move. (And it should be pointed out that the most powerful, pro-capitalist rejection of this image, Ayn Rand’s novel, The Fountainhead, was written in the very teeth of the New Deal.)

Consent vs. Coercion

The inherent problem with the attempted accommodation was summed up in another chapter of Human Action. In a section entitled “The Metaphorical Employment of the Terminology of Political Rule,” Mises pointed out the vogue of describing entrepreneurs as “autocrats,” or “kings”; and he also pointed out the fallacy of doing so, by making the necessary contrast between economic action, which is based on consent, and government action, which is based on coercion. The irony is that this section occurs as part of a larger one entitled “The Sovereignty of the Consumer.” The new critics of capitalism have shown us why it is as necessary to forego political metaphors about the consumer as it is to deny them about the entrepreneur.

The questions raised by these attacks can be conveniently divided into those concerning the trader, and those concerning the entrepreneur. And in each case, I believe, the correct answer can be seen to lie in a return to the basic principles of capitalism.

In the case of the trader, this is fairly easy to see. In order for an exchange to take place, we need a buyer seeking a type of good, and offering certain prices for certain quantities of it. And we need a seller offering the type of good sought by the buyer, and offering it in at least one quantity for the price which the buyer is willing to pay. We are often reminded in economics that it may happen no mutually acceptable terms can be reached, and that then no trade will take place. We are less often reminded, though it is equally true, that a person may have no supply schedule at all for the good sought, even if he is capable of supplying it. Indeed, if he believes it is immoral to produce the good, he may well have no supply schedule for it, and there is no reason in capitalist theory to expect that he will.

Nor is there any reason to say that a person is “not acting as a businessman,” if he refuses to supply a good when he believes it is immoral to do so. We know that trade results in mutual advantage; that is, each party values the situation following the trade more highly than he valued the situation preceding the trade. This gain, which Mises calls “psychic profit,” is what the trader acts to achieve. But obviously there are preconditions for experiencing such a gain, and obviously too it is part of the businessman’s job to ensure that those preconditions exist for him after the trade. There is thus no point in a trade whose very terms destroy those preconditions. And for that reason, a trader cannot set any price on his own death; and for that same reason, he cannot set any price on the suicide of his soul.

Anticipating Demand

In the case of the entrepreneur, of course, one can and should make the same point. But an entrepreneur is also set at the opposite pole from amoral pandering by another characteristic, which relates to the essence of his economic role. The arguments against the entrepreneur assume that his activity is called forth by demand. But it is not. As Mises says, “The only source from which an entrepreneur’s profits stem is his ability to anticipate better than other people the future demand of consumers.”

We must remember that the entrepreneur acts in the present to meet future demand, and we must remember that the time distinction is crucial. For then we can see how absurd is the critic’s image of the entrepreneur as one who makes his profit by cynically catering to the consumers’ irrational desires. Under this image, we would have to imagine him telling his bankers: first, that he intended to produce a good which it was widely thought people would not buy (since profits arise from unanticipated demand); second, that it was a good which people did not really need; and third, that it was a good which people could not reasonably desire. In effect, he would be asking them to bet against general opinion, against people’s needs, and against people’s intelligence. And that is, when one thinks of it, a most unlikely scenario.

A more plausible picture would be to note that because the entrepreneur must always stand against general opinion, he therefore needs, all the more urgently, to enlist the other two factors on the side of his product, and not against it. But how can he predict what people will truly need, or could reasonably desire, except by knowing for himself what is truly valuable? And why, knowing that, would he risk offering anything else?

Thus, when Garry Wills portrays the marketeer as “the late mover, the tester of responses,” we may reply that, on the contrary, it is only through a personal estimate of his product, and a confidence in the correctness of his values, that the entrepreneur can have confidence in the correctness of his necessarily maverick judgment about the appeal his goods will have for others.

And when Irving Kristol says that the market offers no reasons against immoral trades, we may say that, first, the market insists a trade shall take place only when the terms are amenable to both parties, and in accordance with any standards they care to set; and second, that an immoral trade would by its nature be a bad trade, because it would destroy the preconditions of gain. The same point has also been phrased: what shall it profit a man if he shall gain the whole world and lose his own soul?

  • Roger Donway is a freelance writer and editor whose work focuses on philosophy, economics, and history. In addition to heading up the Business Rights Center, Donway is assisting author Robert Bradley, Jr. with his forthcoming book Edison to Enron: Energy Markets and Political Strategies, the second volume in Bradley's trilogy, Political Capitalism (M&M Scrivener Press). Donway performed editing and research for Bradley's first book in the trilogy, Capitalism at Work: Business, Government, and Energy.