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If a society’s sole objective is to maximize general prosperity, and it can choose its own moral beliefs, what kind of moral beliefs would it choose?
It is this thought experiment that forms the basis for David Rose’s The Moral Foundation of Economic Behavior. By framing the book in this way, Rose excuses himself from discussing which moral beliefs or systems are best, and is instead able to focus on how moral beliefs affect the interaction of individuals and firms in economic transactions.
Central to the exploration is the concept that trust between individuals is necessary to reduce the cost of transactions. In small groups, which is how humans had been organized for most of history, trust is easier to come by, likely because it is hard-wired and has evolved that way. However, general prosperity has only arisen once we are able to specialize and function in large groups. How then can trust be established when you are dealing with people and firms you don’t know, or don’t know well? Rose explores why the small-group intuitions and behaviors don't necessarily comport with the behaviors necessary for successful large-group interactions.
We humans want to flourish, and we do not like seeing other humans suffer, so we want to live in societies that enjoy a condition of general prosperity. Maximizing general prosperity requires cooperating efficiently in large groups. But we are, at our core, a small group species. We are, therefore, maladapted to achieve what we really want. - p. 219
Much of the book discusses the idea of moral restraint, what is it that makes us not take advantage of others, opportunistically. Rose arrives at the conclusion that moral restraint based on moral tastes, and where not violating those moral beliefs is primary, is the type of moral foundation necessary for unconditional trustworthiness and resulting economic prosperity. These beliefs must precede the moment when people make a moral decision, or else the decision just becomes a calculation of benefits and costs. These beliefs must also take precedence over the idea of doing good, or else we are subject to rationalizing away the violation of the beliefs, because we feel the resulting benefit justifies it.
Large group interactions present a particular problem, in that the size of the group bearing the costs of one's opportunistic behavior results in the perceived harm being small. For example, if I file a false insurance claim that results in my getting an undeserved $5000, I might justify that by saying that the cost is spread out over so many people that they don't actually suffer or notice a harm. However, it is clear that if everyone made similar decisions, the harm would be large.
But while the erosion of trust may be imperceptible for any given negative moral act, the combined effect of everyone behaving in this way is to destroy trust. - p.150
Most interesting, are the final six pages, where Rose offers some speculative remarks about what may be the case if his theory is correct.
The book is not an easy read, but is definitely worth the effort required. Whether the moral foundation arrived at through the thought experiment is extant in existing societies or if it is possible to achieve, working through the thought experiment, thinking about how moral choices are made, and their impact on economic behavior makes it a highly worthwhile exercise.
Reviewed by Stephen
Profile page at UMSL
Book-related and General Links:
Econtalk podcast - Interview with David C. Rose