Do Markets Corrupt Our Morals?

In today’s rapidly advancing world, the proliferation of markets—especially free markets—has increased economic growth and prosperity. Yet, a haunting question lingers: in our pursuit of wealth, do we risk our very souls? Conventional wisdom in public debates says yes. However, there is a wealth of empirical evidence pointing to the contrary.

In 2019, economists Virgil Storr and Ginny Choi published Do Markets Corrupt Our Morals? In this book, they argue and provide evidence that markets both require and produce participants who exhibit virtues.

To empirically test the relationship between markets and morality, it is necessary to have good data to measure both “markets” and “morality,” along with the other confounders and correlates that can influence their relationship.

Measuring Market Freedom

Several indices of economic freedom now measure markets and the degree to which markets are free. The most cited measures come from the Fraser Institute, which produces the Economic Freedom of the World Index (EFW) and the Economic Freedom of North America Index (EFNA). Each index is based on objective data measuring economic freedom along five dimensions: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation. The EFW provides scores and rankings for 165 countries across the globe, while the EFNA covers the U.S. and Mexican states, Canadian provinces, and Puerto Rico. Reason Foundation has supported the development of an economic freedom index for U.S. metropolitan areas produced by the same author and using the same methodology as the EFNA.

These economic freedom indices give researchers access to an objective quantitative metric that expresses the degree to which an economy is free. An equally difficult requirement to answer our question is finding objective quantitative metrics for virtue and/or morality. My research on this topic has focused on social capital, pro-social behavior, and subjective wellbeing.

Measuring Morality

Social capital is an inherently tricky concept to define. Social capital refers to the interconnectedness of citizens, both within and outside of one’s “group,” and engagement in civic or political aspects of the community. Economist Emily Chamlee-Wright puts it this way:

“Social capital is a complex structure made up of community norms, social networks, favors given and received, potluck suppers, book groups, church bazaars, and neighborhood play groups.”

While social capital is multifaceted, one of its key dimensions is social trust. Social trust refers to the degree to which an individual trusts a random person they may encounter in their day-to-day life. Social trust is measured by large scale surveys that ask a question similar to this: Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?

Social capital and social trust are vital components contributing to economic growth. They are also among the most enduring causes of subjective wellbeing (SWB), a metric representing a person’s self-reported flourishing. For example, an increase in one’s income will cause an increase in SWB measures. However, it doesn’t take long for a person to adapt to the higher income and return to their previous levels of SWB. Increases in social capital, on the other hand, lead to increases in flourishing that are unaffected by such adaptation. Because of these important relationships, increasing social capital is often seen as a worthy social goal. Likewise, anything that erodes social capital is perceived as a social ill.

For various reasons, the relationship between social capital and economic freedom is hard to predict. Some explanations point to a positive relationship, while others indicate it could be negative. (For more information about the relationship between economic freedom and social capital, see my academic work published here and here.) The main narrative in popular culture, however, is that capitalism (measured by economic freedom) undermines community associations and the ties that bind us. Of course, exploring this question requires us to measure social capital.

Armed with the EFW dataset and international data on social trust from the World Values Study, economists Niclas Berggren and Henrik Jordahl conducted an empirical investigation that uncovered a positive causal relationship between economic freedom and social capital. I and my coauthors conducted a similar analysis for the U.S. using the EFNA as a measure of economic freedom and social capital based on civic and political activity in the states. We found no causal relationship, negative nor positive, between economic freedom and social capital in the U.S. Both studies refute the well-accepted narrative through rigorous empirical methods.

Enhancing SWB has been touted by many as an alternative to policy targeting economic growth. Subjective wellbeing is considered a summative assessment of overall life satisfaction and quality of life and has long been studied by psychologists and, more recently, by economists. When people live virtuous lives of meaning and purpose, the result is higher self-reports of flourishing. There are strong connections between prosocial behavior, social connectedness, and SWB.

Free Markets and Flourishing

How might economic freedom affect flourishing? Again, the popular narrative would have us believe that economic freedom leads to a decay in virtue, increased hedonistic individualism, and civic erosion that all reduce SWB. Yet, the economic viewpoint makes some counterpoints.

First, the positive relationship between economic freedom and prosperity is well-established, and we also know that prosperity and SWB have a positive association. Likewise, when people are faced with fewer limitations on their options, in economic terms, their constraints are relaxed, and they can better achieve their personal goals. Self-determination theory in psychology also supports the notion that SWB is enhanced when people can exercise their personal agency and live autonomous lives. As economic freedom increases prosperity and autonomy, it would also be expected to increase SWB. The positive relationship between economic freedom and SWB has been widely established in the literature using the EFW and SWB data from the World Values Survey and General Social Survey. My research has established that this positive association also exists when comparing U.S. states and metropolitan areas.

While social capital and SWB measurements are meaningful and provide evidence that markets do not corrupt our morals, neither social capital nor SWB are behavioral indicators of morality or virtue. A more convincing case can be made by directly examining economic freedom’s effect on virtuous prosocial behavior. Scott Beaulier and I do that in our recently published paper on economic freedom and philanthropy.

Prosocial behavior refers to voluntary activities that benefit others. Some examples include volunteering, donating money to charity, acts of kindness, and more. Through philanthropy, virtuous and moral individuals sacrifice their treasure to advance causes that help others. The philanthropic act of donating one’s money to a charitable organization reveals the virtues of love and altruism.

How might economic freedom and philanthropy be connected? Again, the popular narrative suggests that capitalism and free markets lead to selfish individualism and antisocial egoism, both of which would seemingly lead to a decrease in philanthropic gifts. Conversely, we suggest that economic freedom increases charitable giving through the market process, which both “expands the circle of sympathy” and “increases opportunities for giving.”

To examine this relationship, we gathered data from the National Center for Charitable Statistics and the IRS Data Book, which allowed us to compile a data set of state-by-state average charitable contributions per filed tax return for 1995-2019. We combined this data and others with the EFNA to examine the relationship between the economic freedom of U.S. states and charitable giving. Our analysis revealed a positive relationship between economic freedom and charitable giving, demonstrating that a 10 percent increase in economic freedom predicts an increase in giving of about 3 to 4 percent. In other research, my coauthors and I argue that increases in economic freedom may also advance many of the goals of the social justice movement.

Although capitalism is often blamed for society’s moral and social decay, a careful examination of data suggests otherwise. Extensive evidence shows that free markets and economic freedom lead to increased virtue, morality, and mutual appreciation of our shared humanity.

Jeremy Jackson
Jeremy Jackson
Jeremy Jackson is director of the Center for the Study of Public Choice and Private Enterprise, scholar at the Challey Institute for Global Innovation and Growth, and professor of economics in the Department of Agribusiness and Applied Economics at North Dakota State University. He teaches undergraduate and graduate courses on microeconomics, public economics, and game theory and strategy. His research covers diverse topics, including public choice and political economy; the social consequences of economic freedom; happiness and well-being; and philanthropy and nonprofits. His research has been published in Public Choice, European Journal of Political Economy, Contemporary Economic Policy, Journal of Economic Behavior and Organization, Journal of Happiness Studies, and other academic journals. He is an associate editor for the journal Public Finance Review. He is the creator of the North Dakota Forecast Model and author of the North Dakota Economic Outlook quarterly report.
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