Markets and Morals
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In 1978, Friedrich Hayek, whose work and influence
we commemorate tonight, proposed a great debate. He was by then almost
eighty years old, but the passion with which he sought to defend the market
order against what he saw as the heresy of collectivism was undiminished.
So, as if hoping to settle the issue once and for all, he suggested nothing
less than an international disputation that would discuss the question,
‘Was socialism a mistake?’ The event did not take place, but Hayek none
the less produced a large manuscript setting out his beliefs, which was
published in an abridged form under the title, The Fatal Conceit. What
interests me in particular about this work is the title of the book’s last
chapter, namely, ‘Religion and the Guardians of Tradition’. What led Hayek,
who had devoted a lifetime to the study of economics and politics, to
set the seal on this work with a reflection on religion and tradition?
The Fatal Conceit is a difficult book, but
if I have understood it correctly, its argument is this. For the free market
and its ‘extended order’ to emerge, so too did a certain kind of morality.
For many thousands of years, human beings had lived in small bands of hunter-gatherers,
and it was during that long pre-history of homo sapiens that our instincts
were formed. Those instincts – of solidarity and altruism – allowed our
ancestors to live together in close face-to-face groups and without them
no isolated individual could have survived for very long.
However, a significant change had to take place
in the way people related to one another for mankind to be able to make
the transition from the small group or tribe to the larger and more open
associations needed for complex societies and economies. Instincts were
no longer sufficient. Instead their place had to be taken by rules such
as those relating to private property, honesty, contract, exchange and
so on. For Hayek, the question of how these rules first appeared is irrelevant.
What matters is that they emerged and spread, not because people were able
to decide in advance what their consequences would be, but simply because
the groups who adhered to them found themselves able to grow and spread
more successfully than others.
Often they involved people acting against their
instincts, so they had to be taught through habit rather than by appeal
to inclination. Moral education became a matter of imitation, learning
by doing, the handing on of tradition by habituation. Morality itself consisted
largely of ‘Thou shalt not’s’, prohibitions that served as boundaries within
which free human action could be directed and contained, much as the banks
of a river contain and direct the flow of water. It was this kind of morality
that, for Hayek, made possible the fateful transition of humanity from
tribal society to a market economy in which ever larger associations of
individuals and groups could develop their specialisations and yet meet
their needs through the peaceful process of trade and exchange.
So it was in the past. But Hayek, having lived
through some of the great dislocations of the twentieth century, could
never take the market order or its associated phenomenon, the free society,
for granted. It was, he believed, vulnerable on two counts. On the one
hand there was the perennial danger of a retreat into the primitive instinct
of group solidarity with its attendant hatred of the outsider. On the other
there was the seductive voice of reason, the ‘fatal conceit’ that by conscious
intent and deliberate planning we can improve on the morality of the past,
and as it were re-design our basic human institutions. This, he felt, was
the error of socialism, but not only socialism. It was also the mistake
of liberals such as John Stuart Mill who regarded traditional moral constraints
as, for the most part, eminently dispensable, the unwanted baggage of a
more superstitious age. Morality – as Hayek never tires of reminding us
in the course of the book – occupies a place between instinct and reason
and cannot be reduced to either.
This line of thought brought Hayek to reflect
on the role of religion – in particular the great monotheistic faiths –
in preserving moral traditions. In part this was a matter of history. We
owe it to religions, he said, “that beneficial traditions have been preserved
and transmitted at least long enough to enable those groups following them
to grow, and to have the opportunity to spread by natural or cultural selection”.
But it was not only a matter of history; it
was a matter of the present as well. To understand why, we have to remind
ourselves again of Hayek’s understanding of the ‘extended order’ of complex
societies. They come about, he argues, because of repeated applications
of simple rules. They develop in ways which none of us can predict in advance.
Each one of us plays a minute but significant part in that process. We
participate, in his powerful phrase, in “those spontaneous social forces
through which the individual creates things greater than he knows”. Only
with hindsight and historical perspective can we see what, through an almost
infinite number of individual acts, we have achieved. None of us, not the
wisest of sages or the most informed of central agencies, could have planned
it in advance.
The striking feature of religion, for Hayek,
is its attitude of humility, even reverence, towards the great moral institutions
without which our ‘extended order’ could not have developed. It guards
against what he calls “the rationalist delusion that man, by exercising
his intelligence, invented morals that gave him the power to achieve more
than he could ever foresee”. Of course it does so by insisting that our
morals were given by God. For Hayek, they were arrived at by the evolutionary
forces of history. What these two views held in common, though, was a strong
and principled opposition to the idea that individually or collectively
we can devise a better system rationally constructed to maximise happiness
or some other good.
It is a fascinating argument, and it places
Hayek in a line of thinkers – such as Edmund Burke, Max Weber, and most
recently Francis Fukuyama – who have reflected not only on the internal
morality of markets (what we call nowadays ‘business ethics’) but on the
wider question of what kind of society gives rise to and is able to sustain
a market economy. The answer which each of them gave – an answer that has
been given new salience by the rise of the economies of South East Asia
– is that they tend to be societies with a strong respect for certain kinds
of tradition.
Like Burke, Hayek combines liberalism in economics
and politics with a marked conservatism in morality. Free institutions,
they seem to say, are best preserved by a certain piety towards the past.
Traditions encode the accumulated discoveries of earlier generations in
a way that no single generation, however sophisticated, could discover
for itself; and it is through learning those traditions and passing them
on to our children that we avoid extremely costly mistakes. Paradoxically,
it may be just those societies that have strong religious and moral habits,
which form the best environment for economic development and technological
innovation. It may be that those who are most secure in their past are
the most confident and energetic in shaping the future.
Thus far Hayek; and it is an argument that
is worth revisiting, for the very opposite reason than the one he contemplated.
The Fatal Conceit was written in 1978 and published in 1988. Twenty years
ago, he could still see socialism as the dragon to be slain. Within a year,
though, of the book’s publication, the Berlin Wall came down. In rapid
succession, the Cold War ended, East European communism was abandoned,
and the Soviet Union was disbanded. It was one of the most decisive victories
in the history of ideologies, all the more striking for having taken place
without a shot being fired. Hayek’s great debate never took place, but
it is fair to say, as of now, that he won the argument after all. As Raymond
Plant put it, “Central economic planning is now not on the political agenda
of any country seeking to be part of the global economy.”
It is therefore all the more important for
us to bear in mind the caveat Hayek himself insisted on, namely that the
market economy can only be sustained by certain habits of behaviour and
restraint which he called traditions. He believed that the threat to these
traditions was socialism. Doubtless, in his day it was. But what he paid
far less attention to was the possibility that they might be undermined
not by anti-market ideologies but by the very power of the market itself.
For the market is not only an institution of exchange. It is also a highly
anti-traditional force, at least in advanced consumer societies. The stimulation
of demand, for example, depends on a culture, even a cult, of the new,
the product that improves on the past and renders it obsolete in an increasingly
short space of time. It encourages a view of human life itself as a series
of consumer choices rather than as a set of inherited ways of doing things.
One of the most fateful developments is the
displacement of human identity as something given by the history into which
I am born. Instead it becomes something like a suit of clothes which I
can choose, wear for a while, and then discard in favour of the new season’s
fashion – the move graphically illustrated by our change of terminology
from ‘life’ to ‘life-style’, with its suggestion that there is nothing
of substance that defines who I am; there is merely the supermarket of
ideas from which I can choose what I happen to be into for the time being,
from Buddhism to therapy to aerobics to the environment to organic vegetables
to the Internet to ‘The Little Book of Calm’. In the process, religion
itself is transformed from salvation to a branch of the leisure industry,
and we are transformed, as one writer put it, ‘from pilgrim to tourist’.
That is why it is sometimes useful to do what
Hayek advised us to do in The Fatal Conceit, namely, to reflect on the
role of religion in sustaining a particular kind of moral order. That is
what I want to do, taking the experience of Jews and Judaism as an example.
It was of course Max Weber, in his famous work on The Protestant Ethic
and the Spirit of Capitalism, who made us familiar with the idea that religion
– in particular Calvinism – was one of the great shaping forces of the
modern economy. More recently Michael Novak has written powerfully about
the same subject from a Catholic perspective. But few writers have doubted
the contribution Jews made to the development of finance, business and
industry, a contribution that can be traced far back into the Middle Ages
and beyond.
I vividly recall a talk given by the master
of my college, the late Joseph Needham, describing the role Jews had played
in bringing the inventions of China to the West. Christopher Columbus in
his great journey of 1492, the year in which Jews were expelled from Spain,
made use of tables drawn up by one Jew, Abraham Zacuto, instruments made
by another, Joseph Vecinho, and took a third, Luis de Torres, as his interpreter.
At about the same time, one of the great rabbis and bible commentators
of the Middle Ages, Don Yitzhak Abrabanel, served as financial advisor
to King Alfonso V of Portugal and Ferdinand and Isabella of Castile, and
later made important contributions to the economic life of Naples and Venice.
Wherever they were able to, Jews played a significant role in the development
of trade and finance. Indeed in 1844, in a notoriously anti-semitic tract,
Karl Marx argued that Jews were the very embodiment of the capitalist system.
It would be quite wrong to identify a great
religious tradition with any particular set of economic institutions. It
was, after all, the biblical Joseph who instituted the first known example
of centralised economic planning, using the seven years of plenty to prepare
for the seven years of famine, and whose ability to forecast trade cycles
is probably still the envy of economists. Jewish history contains some
of the great experiments in socialist utopias, from the property-sharing
communities of the Essenes in the Second Temple period to the modern Israeli
kibbutz. But there is no doubt that for the most part, Jews and Judaism
itself found free competition and trade the system most congruent with
What was it about Judaism that led to this
elective affinity between it and the market economy. In his stimulating
recent book, The Wealth and Poverty of Nations, David Landes identifies
a number of factors. First there was the biblical respect for property
rights. This he sees as nothing less than a revolution against the ancient
world and the power it gave rulers to regard the property of the tribe
or the people as their own. By contrast, when Moses finds his leadership
challenged by the Israelites during the Korach rebellion, he says about
his relation to the people,
Beyond this, Landes identifies in the Judeao-Christian
tradition, an openness to invention and innovation. In part this has to
do with the biblical respect for labour. G-d tells Noah, for example, that
he will be saved from the flood, but it is Noah who has to build the ark.
The high value Judaism sets on work can be traced throughout the biblical
and rabbinic literature. If not itself a religious act, it comes close
to being a condition of the religious life.
The Jewish liturgy for Saturday night – the
point at which the day of rest ends – culminates in a hymn to the values
of work:
No less important than the value placed on
work is Judaism’s positive attitude to the creation of wealth. The world
is God’s creation; therefore it is good, and prosperity is a sign of God’s
blessing. Asceticism and self-denial have little place in Jewish spirituality.
What is more, God has handed the world over to human stewardship. The story
of man’s creation begins with the command, “Be fruitful and multiply, fill
the earth and subdue it.” God, taught Rabbi Akiva in the second century,
deliberately left the world unfinished so that it could be completed by
the work of man. Industry is more than mere labour. It is the arena in
which we transform the world and thus become, in the striking rabbinic
phrase, “partners with God in the work of creation”.
It was Max Weber who observed that one of the
revolutions of biblical thought was to demythologise, or disenchant, nature.
For the first time human beings could see the condition of the world not
as something given, sacrosanct and wrapped in mystery, but as something
that could be rationally understood and improved upon. This perspective,
central to Judaism, even today makes rabbinical authorities surprisingly
open to new medical technologies such as genetic engineering and cloning,
and tends to make religious Jews among the most dedicated users of the
Internet and multi-media for purposes of education.
Above all, from a Jewish perspective, economic
growth has religious significance because it allows us to alleviate poverty.
Judaism’s early sages had the sanest view of poverty I know, and they did
so because most of them were poor men. They refused theologically to anaesthetise
its pain. They would utterly have rejected Marx’s description of religion
as the opium of the people. Poverty is not, in Judaism as in some faiths,
a blessed condition. It is, the rabbis said, “a kind of death” and “worse
than fifty plagues”. They said,
Not the least significant of Judaic contributions
to the development of Western civilisation was its emphasis on, perhaps
even invention of, linear time. Ancient cultures tended to think of time
as cyclical, seasonal, a matter of eternal recurrences to an original and
unchanging nature of things. The Hebrew prophets were the first to see
time in a quite different way – as a journey towards a destination, a narrative
with a beginning and middle, even if the end (the messianic society) is
always beyond the horizon. It is ultimately to this revolution that we
owe the very notion of progress as a historical category, the idea that
things are not predestined always to remain what they were. Hope, even
more than necessity, is the mother of invention.
And to this we must add one further idea. The
great philosophical advocates of the market, Bernard Mandeville, David
Hume, and Adam Smith, were struck by a phenomenon that many considered
to be scandalous and amoral. This was their discovery that the market produced
benefits to all through a series of actions and transactions that were
essentially selfish in their motivation. As Adam Smith put it bluntly,
“It is not from the benevolence of the butcher, the brewer, or the baker,
that we expect our dinner, but from their regard to their own interest.”
Within the system of free trade, as Smith put it most famously, the individual
“intends only his own gain, and he is, in this, as in many other cases,
led by an invisible hand to promote an end which was no part of his intention”.
This fact, that markets and their associated institutions tend to work
on the basis not of altruism but of somewhat earthier motives, has always
led to a high-minded disdain for everything suggested by the word ‘commercial’.
Not so within Judaism. Long before Mandeville
and Adam Smith, Judaism had accepted the proposition that the greatest
advances are often brought about through quite unspiritual drives.
In general, then, the rabbis favoured markets
and competition because they generated wealth, lowered prices, increased
choice, reduced absolute levels of poverty, and in the course of time extended
humanity’s control over the environment, narrowing the extent to which
we are the passive victims of circumstance and fate.
Competition releases energy and creativity
and serves the general good. Admittedly, Jewish law permitted protectionist
policies in some cases to safeguard the local economy, especially when
the outside trader did not pay taxes. There were also times when rabbinic
authorities intervened to lower prices of essential commodities. But in
general they favoured the free market, nowhere more so than in their own
professional sphere of Jewish education. An established teacher could not
object to a rival setting up in competition. The reason they gave for this
ruling illustrates their general approach. They said simply, “Jealousy
among scholars increases wisdom.”
Needless to say, in a faith as strongly moral
as Judaism, alongside the respect for markets went a sharp insistence on
the ethics of business. At one of the critical points of the Jewish calendar,
on the Sabbath before the Ninth of Av when we recall the destruction of
the two Temples, we read in the synagogue the great first chapter of Isaiah
with its insistence that without political and economic integrity, religious
piety is in vain:
Perhaps the best summary of the way Judaism
differed from Christianity, at least in its pre-Reformation guise, was
given by Michael Novak, himself a Catholic:
In both its prophetic and rabbinic traditions
Jewish thought has always felt comfortable with a certain well-ordered
worldliness, whereas the Christian has always felt a pull toward otherworldliness.
Jewish thought has had a candid orientation toward private property, commercial
activity, markets, and profits, whereas Catholic thought - articulated
from an early period chiefly among priests and monks – has persistently
tried to direct the attention of its adherents beyond the activities and
interests of this world to the next.
So much, then, by way of an overview of Jewish
economic ethics, much of which bears a strong kinship with views Hayek
tirelessly espoused. But it is just here that I want to enter into the
spirit of The Fatal Conceit, in which Hayek warned us to look, not just
at markets, but also at the moral environment in which they are sustained.
I want to draw attention briefly to five features of Judaism, essential
to its way of life, which on the face of it stand utterly opposed to the
market ethic.
The first, of course, is the Sabbath and its
related institutions, the sabbatical year and the jubilee. The Sabbath
is the boundary Judaism draws around economic activity.
The Sabbath is one of those phenomena – incomprehensible
from the outside - which you have to live in order to understand. For countless
generations of Jews it was the still point in the turning world, the moment
at which we renew our attachment to family and community, during which
we live the truth that the world is not wholly ours to bend to our will
but something given to us in trust to conserve for future generations,
and in which the inequalities of a market economy are counterbalanced by
a world in which money does not count, in which we are all equal citizens.
The Jewish writer Achad Ha-am was surely correct when he said that more
than the Jews have kept the Sabbath, the Sabbath has kept the Jews. It
was and is the one day in seven in which we live out all those values which
are in danger of being obscured in the daily rush of events; the day in
which we stop making a living and learn instead simply how to live.
Or secondly, consider marriage and the family.
Judaism is one of the great familial traditions, and this despite the fact
that in strict legal terms a Jewish marriage has the form of a contract;
that Judaism has never prohibited divorce by mutual consent; and that it
is quite relaxed about that modern development, the pre-nuptial agreement,
and indeed sees it as a useful device in alleviating the stress of separation.
The reason Judaism has often succeeded in sustaining strong marriages and
families has little to do with the structure of Jewish marriage law, and
a great deal to do with its ritual life, the way in which many of the supreme
religious moments take place in the home as a dialogue between husband
and wife, or between parents and children. Ultimately, Judaism saw marriage
not as a contract but as the supreme example of a covenant, namely a commitment
based not on mutual benefit but on mutual belonging, whose key value is
fidelity, holding fast to one another especially during difficult times
because you are part of who I am. The Jewish family survived because, in
the graphic phrase of the sages, it was surrounded by “a hedge of roses”,
an elaborate network of rituals that bound individuals together in a matrix
of mutual giving that was utterly at odds with a market ethic.
Or thirdly, consider education. I have already
mentioned that Jewish law favours competition in the provision of teaching.
What it did not do, however, was to leave access to education to the market
and to the ability to pay. Even in the days of Moses, Jews were instructed
to set the highest religious value on education – as one of our most famous
prayers, taken from the book of Deuteronomuy, puts it, “You shall teach
these things diligently to your children, speaking of them when you sit
at home or travel on the way, when you lie down and when you rise up”.
And by the first century, Jews had constructed the world’s first system
of universal compulsory education, funded by collective taxation. Education,
the life of the mind, an ability to follow a train of thought and see the
alternative possibilities that give rise to argument, are essential features
of Jewish spirituality, and ones to which everyone, however poor, must
be given access.
Or fourthly, the concept of property. I mentioned
earlier that Judaism has a high regard for private property as an institution
governing the relations between human beings. At the same time, though,
governing the relationship between humanity and God, there has been an
equal insistence that what we have, we do not unconditionally own. Ultimately
everything belongs to God. What we have, we hold in trust. And there are
conditions to that trust – or as the great Victorian Jew Sir Moses Montefiore
put it, “We are worth what we are willing to share with others”.
The effect of this idea on Jewish society has
been profound. I was recently at a ceremony to mark the opening of a new
Jewish school in one of our provincial communities. The project had been
made possible by the great generosity of one of the local members. Over
dinner I leaned over to him to express my thanks for his gift. He said,
without a moment’s reflection, “What else could I do? The money wasn’t
mine. God lent it to me, and I invested it as wisely as I could in the
next generation.” That kind of unreflective response lies at the foundation
of the long tradition of Jewish philanthropy and explains much of how Judaism
has been able to encourage the creation of wealth without giving rise to
class resentments.
And finally, there is the Jewish tradition
of law itself. It was a non-Jew, William Rees-Mogg, who first drew my attention
to the connection between Jewish law and the control of inflation, a link
that I confess I never thought of making. His argument is contained in
a book he wrote during an era of high inflation (in 1974), entitled The
Reigning Error. It was simply this. “Inflation is a disease of inordinacy”.
It comes about through a failure to understand that energy, to be channelled,
needs restraints. It was the constant discipline of law, he says, that
provided the boundaries within which Jewish creativity could flow. The
law, to quote his words, “has acted as a bottle inside which this spiritual
and intellectual energy could be held; only because it could be held has
it been possible to make use of it. It has not merely exploded or been
dispersed; it has been harnessed as a continuous power.” Jews, for him,
were a model of acquired self-restraint, and it was the failure of societies
to practice self-restraint that led to runaway inflation.
And with this I come back to Hayek and The
Fatal Conceit. It was Hayek’s view that moral systems produced their results,
not directly or by conscious intention, but rather in the long run and
often in ways that could not have been foreseen. Certainly Jews believed
that their way of life would lead to the blessings of prosperity. That,
after all, is the substance of many of Moses’ prophecies. But there was
no direct connection between institutions like the Sabbath and economic
growth. How could there be? The Sabbath, the family, the educational system,
the concept of ownership as trusteeship, and the disciplines of the law,
were not constructed on the basis of economic calculation. To the contrary,
they were ways in which Judaism in effect said to the market: thus far
and no further. There are realms in which you may not intrude.
The concept of the holy is precisely the domain
in which the worth of things is not judged by their market price or economic
value. And this fundamental insight of Judaism is all the more striking
given its respect for the market within the market-place. The Fatal Conceit
for Judaism, as for Hayek, is to believe that the market governs the totality
of our lives, when it fact it governs only a limited part of it, that which
concerns goods which think of as being subject to production and exchange.
There are things fundamental to being human that we do not produce; instead
we receive from those who came before us and from God Himself. And there
are things which we may not exchange, however high the price.
What then might be the lesson of The Fatal
Conceit for our time? That socialism is not the only enemy of the market
economy. Another enemy, all the more powerful for its recent global triumph,
is the market economy itself. When everything that matters can be bought
and sold, when commitments can be broken because they are no longer to
our advantage, when shopping becomes salvation and advertising slogans
become our litany, when our worth is measured by how much we earn and spend,
then the market is destroying the very virtues on which in the long run
it depends. That, not the return of socialism, is the danger that advanced
economies now face. And at such times as now, when markets seem to held
out the promise of uninterrupted growth in our satisfaction of desires,
the voice of our great religious traditions needs to be heard, warning
us of the gods that devour their own children, and of the temples that
stand today as relics of civilisations that once seemed invincible.
The market, in my view, has already gone too
far: not indeed as an economic system, but as a cast of thought governing
relationships and the image we have of ourselves. A great rabbi once taught
this lesson to a successful but unhappy businessman. He took him to the
window and asked him, What do you see? The man replied, I see the world.
He then took him to a mirror and asked, What do you see? He replied, I
see myself. That, said the rabbi, is what happens when silver covers glass.
Instead of seeing the world you see only yourself. The idea that human
happiness can be exhaustively accounted for in terms of things we can buy,
exchange and replace, is one of the great corrosive acids which eats away
the girders on which societies rest; and by the time we have discovered
this, it is already too late.
Hayek’s final contribution to the great debate
about economic systems was to remind us that the market does not survive
by market forces alone. It depends on respect for institutions, which are
themselves expressions of our reverence for the human individual as the
image and likeness of God.
Bibliography
F.A.Hayek
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