Financial History Issue 126 (Summer 2018) | Page 13
EDUCATORS’ PERSPECTIVE
First edition of Bernard Mandeville’s The Fable of the Bees, published in 1714.
respect erroneous,” and called Mandev-
ille’s eloquence “course and rustic” giving
his “doctrines an air of truth and prob-
ability which is very apt to impose upon
the unskillful.”
Smith was not alone in his criticism of
vice as a necessary element in a thriving
economy. French economist Claude Fré-
déric Bastiat (1801–1850) argued against
the idea that destructive forces are benefi-
cial to the economy. He used the example
of a hoodlum breaking a window. Some
would argue that the broken window is
a good thing; otherwise, glaziers would
be out of a job. Bastiat retorts that such a
position ignores the fact that if the owner
of the window has to pay six francs to
repair a broken window, he cannot spend
it on a new pair of shoes or a new book for
his library. In other words, the proponents
of vice as a benefit to the economy, from
Mandeville onward, are guilty of ignoring
the opportunity costs associated with vice.
Virtue, not vice, must be the focus of
economics. Self-interest must not be asso-
ciated with greed, but with the virtue
of prudence. Indeed, economist Deirdre
McCloskey advocates for recognizing and
implementing all the “bourgeois virtues”
in our capitalist society. She identifies these
as four pagan or cardinal virtues: justice,
courage, temperance and prudence; and
three Christian virtues: faith, hope and
love. McCloskey argues that overempha-
sizing any one of the seven virtues at the
expense of the others will lead to vice. For
instance, “Virtuous Prudence unalloyed
[to the other virtues] is sinful Greed…an
excess of love is gluttony or lust.”
Like McCloskey, Catholic philosopher
Michael Novak holds that many virtues
are required to operate a modern business.
These virtues include diligence, industri-
ousness, prudence, reliability, fidelity and
courage. Economist Robert Nelson agrees,
writing, “…the effective working of mar-
kets requires a common commitment to
ethical behavior, something historically
most often instilled by a religion.” With-
out virtuous behavior, he notes, transac-
tion costs quickly balloon because oppor-
tunistic behavior increases and implicit
contracts fail. This leaves markets to oper-
ate in a terribly inefficient environment.
Religion, without regard to specific theo-
logical details, has historically provided the
bedrock that encourages trust, discourages
opportunists and minimizes transaction
costs. However, Novak contends that there
is no single sacred canopy in a truly plural-
istic society. “At [democratic capitalism’s]
spiritual core,” explains Novak, “there is an
empty shrine. That shrine is left empty in
the knowledge that no one word, image or
symbol is worthy of what all seek there. Its
emptiness, therefore, represents the tran-
scendence which is approached by free
consciences from a virtually infinite num-
ber of directions... Believer and unbeliever,
selfless and selfish, frightened and bold,
naive and jaded, all participate in an order
whose center is not socially imposed.”
Novak, Nelson and McCloskey state
that we must appeal to the ethical wis-
dom that has been handed down over the
years by our major religious institutions.
Without this ethical structure, capital-
ism’s well-being is in jeopardy. Despite
religion’s own recent ethical failings, theo-
logian Kenneth J. Barnes argues that it still
has a place in the global economy because
its “traditional values still have currency in
the marketplace of ideas.”
The challenge for today’s capitalists is
to salvage the ethical standards offered by
religion and find a way to effectively instill
them in their organizations.
No one appealed to selfish homo eco-
nomicus to defend Volkswagen when it
was caught cheating on emissions tests,
or when Wells Fargo created fraudulent
accounts for its customers. Both actions
were rightly met with outrage. In a recent
commercial, Wells Fargo addressed its
wrong-doing head on in an effort to
rebuild its tarnished reputation:
We know the value of trust. We were
built on it. Back when the country
went West for gold, we were the ones
who carried it back East. By steam.
By horse. By iron horse. Over the
years, we built on that trust. We always
found the way. Until… we lost it.
The commercial goes on to describe
the various steps Wells Fargo has taken
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