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Visible and Invisible Hands

Visible and Invisible Hands

8 Mins
April 3, 2018

Douglas Den Uyl is vice president of educational programs for Liberty Fund. Douglas Rasmussen is a professor of philosophy at St. John’s University . They co-wrote Norms of Liberty: A Perfectionist Basis for Non-Perfectionist Politics (Pennsylvania State University Press).

It has often been said that markets are led “as if by an invisible hand” to bring about order and cooperation among people. Markets use incentives and mutual interests to achieve this harmonious result. But there is another, “older” mode of organizing people, namely to organize them around what is “good” or “right.” That would seem to be the way of ethics. Ethics, in contrast to markets, seems to organize people around authoritative commands and directives.

This raises a question: how can it be said that self-regulating and spontaneously ordered markets in any way depend on or use ethics? Does it even make sense to encourage ethics in a system that is spontaneously produced and self-regulating? Are not these two opposed, rather than complementary, principles of organization?

In short, what exactly is the connection between the visible hand of ethics and the invisible hand of the market?

Liberal market orders make little reference to moral norms as a basis for solving the problem of coordinating people in society. Most of the time we do not even know the persons with whom we interact well enough to formulate any ethical judgments about them at all. This “impersonality” is certainly a good thing. We can interact with, and benefit from, more people in more ways than if we had to worry about whether their view of right and wrong was the same as ours, or whether they adhered to the same principles as we do. In markets we trade for mutual advantage and then go about our business.

Some have therefore claimed that the market order is at best amoral and possibly immoral. Others still cling to the idea that markets produce “chaos” and want something more like an ethical directive to serve as the basis for social cooperation. That would certainly seem to ensure that ethics somehow gets into the picture, but it may rest on the completely false notion that markets produce chaos. So let’s keep to the idea that markets can coordinate people perfectly well on the basis of mutual interest and consent. Assuming that, why do we need ethics? And more generally, even if we find some use for it, isn’t ethics going to be of minor importance in a market order?

First, we know that in any social order we cannot allow people to do whatever may interest them. We shouldn’t be allowed to set up Murder, Inc. So it seems we need some kind of rules even within a market system. This suggests right off the bat that ethics has a role to play in setting those rules. But then, why not let ethics set up everything? Why, in other words, do we consult ethics for some things and not others? We could say that we stop doing ethics when the market approach of using interests rather than commands starts to work better than the visible hand of ethics. This response, unfortunately, brings us pretty much to a standstill in terms of how to proceed.

On the one hand, for example, there could be those who are less interested in what works and more interested in being sure that people do the right thing. On the other hand, there are those interested in what works, but who might have different opinions about what works better than what. Finally, besides those few who don’t think markets really work at all, there are those who might say that markets are okay in very limited spheres, but that ethics should really be the dominant way in which to organize people. All these qualifications seem to stand in the way of a robust defense of the liberty offered by the market. And if we went the other way and gave in to a largely market system, we would seem to be encouraging a culture of interest rather than one of ethical responsibility, since ethics seems to be so little referred to in the daily workings of the market.

We, however, believe that this apparent “ignoring” of ethical concerns is not only justified but is actually a kind of celebration of ethics. In a certain sort of way, less is more. A lot less concern about adherence to commands and directives at the public level may mean a good deal more respect for ethics generally. We’re not saying that the liberty of the market will make people more ethical. We might believe that’s possible—even generally true—but whether true or not, our point is different. We’re saying that this way of organizing society—giving people some simple rules and allowing them to interact with each other based on their mutual interests, agreements, plans, or projects—is an approach that gives ethics utmost importance in society. By “utmost importance” we don’t mean we’ll necessarily get more ethical behavior or that the society will work better. We mean that the society will in some important way give ethics a critical role to play in its structure.

In this connection there are really only two ways to go. Either society is structured around some ethical principle or set of principles such that the purpose of the society is to live according to them, or society takes some ethical principles to be central to it while leaving others for people to follow on their own. Obviously, the market society, or “liberal” order, is an example of the latter. Of course, that just poses our same question: which principles should be at the center and why?

Perhaps we can get at this question a bit differently. Instead of assuming we’re all clear on what ethics and politics means, let’s ask some basic questions. For example, just what is ethics? We take ethics to be an investigation of how one ought to live. That means specifically what actions one ought to take to live well. Put in these terms, one thing that immediately jumps out is that the answer to this question for one person may not be the same as for another. If this is true, then the market order is certainly one that allows for and indeed encourages a pluralism of ways of living. That’s not our main point here, but it is something important to remember when thinking about ethics and the market. If there can be more than one way to live well, then the market may be the best organizing principle in recognition of that truth.

Of course, one might live badly under freedom and pluralism as well. The market order may allow someone to misuse or abuse his responsibility to live well. It would seem, then, that the market order (in the abstract) is neither a supporter of nor a detractor from the good life. It could go either way in any individual case. But that may not quite settle the issue. For in asking ourselves what ethics is, we might also want to ask what social problem we are trying to solve that brings us to this question about ethics in the first place. We already know part of the answer. We need some rules to live by when we’re in the company of others.

But in light of what we’ve said, those rules have to do two things at once. First they have to apply equally to everyone in the society. We can’t have them applying to some people and not others, because these are the basic rules for society as a whole. By the same token, they have to apply to everyone while at the same time recognizing that there may be different ways of living well. This means that they need to recognize the pluralism we’ve spoken about while still somehow treating everyone the same. We cannot fall back into the trap of making everyone live a certain kind of life. That would violate the variety we’ve already said is necessary for ethical pluralism and which is generously allowed by the market. We also cannot go to a position that gives up on general rules. That would make it unclear how to deal with each other when we don’t know if we share the same ethical principles. We’ve got to be both general and specific at the same time with whatever basic governing principle of society we adopt.

It still seems like we’re at an impasse. What kind of rule or principles could possibly both speak to everyone at the same time, allow for plural forms of living well, and not at the same time bias things in favor of one form of living well over others? What principle could possibly serve such a role?

Different Types of Ethical Principles?

Before answering this question we need to be open to one more possibility. It might just be the case that not all ethical principles are the same type of thing. Maybe some ethical principles are of one type and others of another, and thus only some are really relevant to our problem here. Another way of putting the matter is to suppose that maybe some principles are appropriate for solving the problem of how to live among our fellow human beings and others about how to live well. Yet that cannot be quite right either, for living well involves living among others. Maybe, then, we need principles that speak to the very possibility of living well among others and principles that speak to living well, including among others. If you’re open to that, we think we’re ready now to see the answer to our problem.

What is it, then, that a) can apply to everyone, b) can apply to every ethical situation, c) does not bias society more in the direction of one way of living well over another, and d) is something each of us has an ethical interest in every time we act? Could there possibly be such a principle?

We think there is: the principle of “self-direction.” More specifically, the principle is that the first principle of social order must be to protect the possibility of self-direction. By “self-direction” we don’t mean anything complicated—just the ability to make and exercise choices as an acting agent. One doesn’t have to be autonomous—that is, in full possession of all relevant information and powers of reasoning—nor does one have to be choosing rightly. One simply has to have the ability to make choices within whatever system of constraints one confronts. We have such a simple understanding of self-direction because for any act to count as ethical it has to be something one chooses or is responsible for. If one didn’t actually choose the action or could only be responsible for it when she had full information or god-like understanding of the situation, then there wouldn’t be much ethics around.

The most obvious and common way to impede self-directedness is with the use of physical force. There may be other ways, but physical force is easily recognizable by all and more or less easily prevented. Because our basic principle has to be general and public, we need to have one that is relatively easy to identify and not over-subtle and qualified. The usual list of crimes, such as theft, rape, murder, assault, fraud, and the like, serves this criterion quite well. If we don’t allow these things in society, there is a strong presumption of self-directedness when we see people acting.

In protecting the possibility of self-directedness, it should be clear that we’re not trying to make people good or even increase their effectiveness in being self-directed. What we’re really trying to do by protecting the possibility of self-directed behavior is to give ethics a chance. Indeed, if, as we believe, self-direction is at the base of every act that is to count as ethical, the surprising conclusion is that it is the market system that, in giving liberty pride of place, actually gives ethics the most chance!

We still don’t have a completely ethical society in protecting the possibility of self-directedness. That would depend on whether the people exercised their freedom in ethical ways. Notice though that if you don’t exercise yours in this way, it doesn’t keep me from exercising mine, since what we’re protecting is the possibility for self-direction—not particular forms of self-directed conduct. Notice, too, that if we try to enforce more than the possibility of self-directedness, we’re very likely to begin to bias things in favor of some forms of self-directedness over others. It seems that either we must embrace liberty completely as our social principle or not. But if we do not, the surprising conclusion is that we’re also abandoning a commitment to what is central and necessary for any act to count as ethical. We must, in other words, keep in mind one type of ethical principle in order to protect another—in this case what is fundamental to all other acts in a social context. If we reverse the priorities, we may actually be destroying the foundations of ethics.

Making Ethical Actions Possible

It may seem that market societies are indifferent or ambivalent about ethics, but if so it is because they and only they recognize that there’s a difference between ethical principles that make ethical actions possible in society and ethical principles that guide us in what we need to do to live well or fulfill our obligations to ourselves and others. This is another way of saying that the market order, for good reason, does not want to be understood as an ethical philosophy. It isn’t a philosophy of ethical living. It is rather an answer to the limited question of what is the role of ethics in organizing society. The answer is simply that it should be organized to protect the possibility of ethical behavior, and attempts to do more will actually compromise that basic goal. That may be some distance from a philosophy of living, but it is in accord with the truth that living well can only be accomplished by individuals who are responsible for their own actions.

We can say by way of conclusion about liberal market orders, therefore, that they and only they exhibit a profound recognition of the centrality of self-directedness to morality and thus a recognition of the need to protect it. This recognition would thus naturally manifest itself in a suspicion of any effort to replace self-direction with some form of predetermined moral trajectory, however appealing or compelling such a program of direction might be. The norms protecting self-direction can only be altered in the name of self-direction, otherwise self-direction must be left alone to be exercised. The hidden wisdom of classical liberalism, and indeed the reason for its incredible practical success and power, is the insight that the less ethics is an object of political concern, the more it has a chance to flourish socially. While there is solid evidence to support the contention that liberal orders make people generally better off, what is perhaps less well noticed is that liberal orders allow something deeper and more profound. They allow people to be human—that is, they allow people to employ their peculiarly human capacities of reason, judgment, and social sympathy toward ends and purposes they themselves have chosen. The market order is not, then, a dehumanizing institution, but the most human, and ethical, of them all.

This article was orginally published by FEE.org: https://fee.org/articles/visible-and-invisible-hands/


Douglas B. Rasmussen

Douglas B. Rasmussen is professor of philosophy at St. John's University, where he has taught since 1981. He is a member of the FEE Faculty Network.

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