Virtue in the Marketplace

The concept of virtue was first introduced by Aristotle in

his Ethica Niomachea. (c. 350 BC) For Aristotle, goodness in any

facet of life can be understood in relation to the telos, or end

towards which a thing is moving.1 For example, the telos of

medicine would be health. Aristotle believed that for humans, the

telos of life is happiness or well being, and that a human being

is happy if he acts in a way that is virtuous. The virtues are

acquired character traits that are intrinsically good.2 An

attitude must be genuine to be virtuous, and the satisfaction one

gains from acting in a virtuous way is also intrinsic.

Not all of the virtues that Aristotle lists in his pivotal

work on the subject are relevant to modern economics or

commerce. For the purpose of modernizing and generalizing the

concept of virtues in relation to the free market’s effect on

character, and so to not limit the discussion to the Aristotelian

conception of morality, the definition of virtues that will be

used is more similar to the definition used by Ian Maitland in

his 1997 paper titled “The Market as School of the Virtues.” He

defines a virtue as “the qualities of character or disposition or

1 Graafland, 2.2 Bruni & Sugden, 143.

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intellect that enable a person to lead a virtuous life or to act

in an ethically appropriate manner.”3 It is still helpful to keep

the Aristotelian definition in mind when discussing any form of

virtue, as it is the foundation of the concept and a useful

reference point and there are similarities between the more

modernized concept and the historic one. Virtues in both are

developed habitually over the course of one’s life, in a cyclical

manner. Acting virtuously makes it easier to perform good acts,

which in turn makes one more virtuous. Every action offers the

opportunity to act in a virtuous manner, in every aspect of life.

However, in modern times, there has been a debate surrounding the

effect capitalism, consumer society, and the free market have on

character and morality.

There are two prominent theses that summarize the major

divide in the debate surrounding the effect of the free market on

morality and character in society. The doux commerce thesis

postulates that the free market and capitalism polish our

manners, and the wealth that is generated through the market will

in fact make people less greedy, as it will increase the general

3 Maitland, 17.

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quality of life.4 Alternatively, the self-destruction thesis

claims that the moral foundation for the market is based on a

pre-capitalist and pre-industrial past, and that the values which

the market promotes erodes its own foundation.5 In his book Social

Limits to Growth, Fred Hirsch identifies five social virtues that he

believes are necessary for a functional and efficient free market

economy; truth, trust, acceptance, restraint, and obligation.6

While Hirsch himself endorses the self-destruction thesis, there

are others who theorize that the market does not only need the

framework of moral virtues such as the ones listed above, but

also generates them.

The virtue of trust for example, exemplifies how the market

can foster virtues, and also highlights why it can be seen as a

problematic method for doing such. For the market to efficiently

and genuinely cultivate the virtue of trustworthiness, it is

necessary for there to be a benefit to having long-term

relationships, for companies to be transparent in their

operations, and for there to be a self-enforcing reputational

4 Ibid.5 Graafland, 1.6 Bruni & Sugden, 156.

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network. If all of these factors are present in a market

dominion, then the market should positively foster the virtue of

trust. However, and unfortunately, these requirements are usually

not met. Given the right circumstances and the appropriate

positive leadership and guidance, the market can promote honest

behavior, however it is not sufficient in fostering

trustworthiness as a virtue. Market relationships should not

extend to encompass all, or even most, forms of relationships,

because it is necessary to have other examples of virtuous

behavior outside of relationships based on economic gain. This is

due to the problems associated with the method by which virtues,

like trust, are fostered within the market.

The ideal free market is grounded in the ideals of freedom

and of mutual benefit and reciprocity.7 Focusing on these ideals,

it is clear to see how trust, as a virtue, can be habitually

cultivated through market interactions and relationships.

Trustworthiness is certainly a valuable quality when doing

business, for a number of reasons. Practically speaking, it can

be costly and time consuming to have a third party enforce

7 Bruni & Sugden, 143.

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contracts or transactions.8 An equal amount of trustworthy

behavior as well as trust in those you are dealing with is

necessary to promote efficient market exchanges. As well, due to

the global and expanding nature of the market, it is necessary to

trust those you are doing business with, as there is often a

large degree of geographical separation between parties involved

in transactions. Since the development of virtues necessitates

habitual action, the repetitive nature of market interaction

facilitates this development.

Another way in which the market can foster the virtue of

trust is through the development of long-term relationships with

repeated market interactions. The idea of forming long-term

relationships is one that is crucial to the function of a free

market that promotes virtues. It makes sense logically as to why

repeat interactions in business benefit all involved; it is less

risky to deal with somebody who you have dealt with

satisfactorily before, and can lead to possible partnerships,

specialized investments, and mutually beneficial agreements in

the future. These sorts of relationships foster the value of

8 Maitland, 19.

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trust, and even though they start out as a means to an extrinsic

financial end, over time they become intrinsically valuable.

The third way in which markets promote the development of

the virtue of trust is by virtue of the reputation one gains by

being trustful. For the conception of the free market as virtue-

generating to be plausible, it is necessary for there to be a

transparent and valued reputational network.9 Adam Smith, in his

seminal work The Wealth of Nations, famously identifies

trustworthiness with self interest, for the sake of one’s

reputation. It is not likely that a business that has the

reputation for being dishonest will gain new business.

Comparatively, a business with a good reputation for being honest

and trustworthy will be more likely to obtain new clients and

achieve longevity.

However, this reputation mechanism is only effective if

three conditions are met. Information about past behavior must be

available; the company must have a long-term vision to justify

passing up opportunities to cheat and make fast money, and there

must be collective punishment and reward for having a bad or a

9 Maitland, 23.

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good reputation, respectively.10 A 2004 study by Graafland and

Smid concluded that while the reputational mechanism does

stimulate virtuous behavior, it does not function in a self-

enforcing manner.11 Furthermore, a lack of transparency in

companies has a serious negative influence on the efficiency and

functioning of the reputation mechanism.

There is an additional problem with a critical aspect of the

free market’s ability to cultivate the virtue of trust; the

incentive of short-term versus long-term gain. Factors such as

information asymmetries and increased focus on quarterly earnings

due to pressure from the stock market can cause companies to

focus on the short-term.12 Long-term gain is a necessary

condition of a virtue-generating free market. Without incentive

to form long-term, mutually beneficial relationships, the

advantage to acting trustworthy or virtuous in any sense other

than an intrinsic one virtually disappears. If others are

dishonest, which they are much more likely to be if the

interactions are one time or short-term, then the individual is

10 Graafland, 10.11 Ibid.12 Graafland, 12.

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at a disadvantage, and is also forced to act dishonestly.13

Without the incentive to form long-term relationships, it becomes

much easier and lucrative to take advantage of people and act in

a dishonest manner.

Another factor that can be detrimental to the development of

virtues stemming from market participation is the grand economic

incentives for corruption that the market provides. The recent

real estate crisis and bank crashes that have led to a financial

recession sweeping the globe only serve to illustrate this point.

The following empirical case study also demonstrates this

unfortunate phenomenon. In a paper discussing the problems with

Professor Maitland’s case for the markets generating virtues,

Bill Shaw provides an example of a study from The Journal of

Business Ethics that was reported in The Wall Street Journal.

“After getting nearly 400 people (more than 85% of

them men)

over the past seven years to play the role of a

fictional exec…

13 Maitland, 19.

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47% of the top executives, 41% of the controllers,

and 76% of

the graduate level business students…were willing

to commit

fraud by understating write-offs that cut into

their companies’

profits.”14

This example comes from the Treadway Commission, headed by

James Treadway who is the former commissioner of the US Security

and Exchange Commission. He goes on to state that these findings

are consistent with the kind of fraud that is commonly

investigated by the SEC. One of the researchers involved in the

case study even suggested that the findings were most likely

conservative, given that the participants were not really

impacted by their decisions in the study.15 This study confirms

many of the claims that are made in opposition to the idea of the

market as a mechanism for generating virtues; namely that the

values demonstrated in market interactions are merely a means to

14 Shaw, 44.15 Ibid.

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an end, and that their motivation is extrinsic and based on

financial gain rather than intrinsic and based on moral values.

Many of the factors that have been discussed so far that

could contribute to the market fostering virtues are idealized

and mostly based on hypotheticals. This is partly because of the

difficulties in obtaining empirical evidence on virtue due to the

abstract and objective nature of the concept of ‘virtue’ itself.

Any empirical observations concerning the virtues would be of

behavior rather than the existence of the intrinsic virtue

itself. Behavioral changes do not necessarily indicate changes in

character traits, which is what we are concerned with when

discussing virtues.16 It would take years of empirical data to

conclusively prove that virtue has been developed. This, combined

with the unrealistic necessary requirements for a morally

conscious and virtuous free market, paints a much grimmer picture

of the nature of capitalism and consumer society than the hopeful

one Professor Maitland postulated. Markets are inherently

expansionary, and the danger lies in the potential

commodification of aspects of life that should not necessarily be

16 Graafland, 3.

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bought and sold such as the concept of friendship or a more

practical application like healthcare or education. Another

concern is that markets will grow to commodify the internal goals

of practices, making everything a means to an economic end.17

Viewed through this lens, the market does not seem to foster

virtues; rather it promotes behavior based on economic self-

interest. While it is true that the habitual repetition of this

behavior could lead to the development of virtues in some cases,

the preconditions that would be necessary to facilitate this kind

of development are unrealistic. There are clearly rules that

should be adhered to if the market is meant to function

efficiently and well, however much evidence tends towards people

taking advantage of the opportunities and economic incentives

that lead to corruption. In the case of trustworthiness, while

the market could promote it because of the necessity to uphold

reputation, form relationships, and for the sake of efficiency,

it seems as if these are extrinsic factors, and ultimately the

means to an end motivated by self-interest. For a person to be

truly virtuous, one must not only perform good acts, but

17 Bruni & Sugden, 147.

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genuinely have that character traits that are in line with

virtuous behavior. In the instance of the market, any initial

motivation is economic and therefore not necessarily virtuous in

nature.

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Bruni, Luigino. Sugden, Robert. “Reclaiming Virtue Ethics for

Economics”. The Journal of Economic Perspectives. Vol. 27 No. 4 (Fall

2013) 141-163

Graafland, J. J. “Do Markets Crowd out Virtues? An Aristotelian

Framework”. Journal of Business Ethics. Vol. 91 No. 1 (Jan., 2010) 1-19

Maitland, Ian. “The Market as School of the Virtues”. Business

Ethics Quarterly. Vol. 7 No. 1 (Jan., 1997.) 17-31.

Shaw, Bill. “Sources of Virtue: The Market and the Community”.

Business Ethics Quarterly. Vol. 7 No. 1 (Jan., 1997) 33-50

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