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14 November 2010

The civilizing effects of capitalism

Economic historian Deirdre McCloskey has just published the second volume of her multivolume look at the history of capitalism and its relationship to the “bourgeois virtues.” What she means by the latter are the basic virtues of the middle class, from prudence to love to justice. What makes this approach interesting is that critics of capitalism have long suggested that there were very few virtues associated with the bourgeoisie, mostly because capitalism itself requires and encourages what they saw as the unvirtuous behavior related to greed and self-interest.

In the first volume McCloskey convincingly argues that market relationships civilize us and lead us to treat one another, especially strangers, with openness and kindness, which was previously unknown in history. In the words of economic anthropologist Paul Seabright, markets turn strangers into “honorary kin.”

Markets do this because they encourage us to treat others as equals in that we approach them, especially strangers, most often as traders. They have rights to their property, we have rights to ours, and those rights limit the ways we can interact. But they leave exchange available as a way to get the things we want. The mutuality and reciprocity of exchange both require and encourage us to treat one another humanely, with justice, and as equals. In other words, markets lead us to treat strangers as fully human.

Contrast this with the way the State operates. Think about your interactions with agents of the government. By the very nature of what they do and your relationship to it, that interaction can never be one of equals. All such interactions are based on inequalities in power not reciprocity. The agent of the State ultimately has power over you and can use it to bend your actions to his or her will. This is very different from the reciprocity and humanity of the marketplace. From the IRS to the TSA to the police to the border patrol, the essence of the State’s relationship with you is domination and hegemony — not equality, contract, and exchange.

Compare and Contrast

To see this vividly, consider what happened to a colleague of mine last week. He is not a U.S. citizen but has the legal right to live and work in the country. He had to travel across the Canadian border to drop a relative at the airport. Crossing into Canada and again on his return he was subject to lengthy harassment by border guards of both countries, including verbal intimidation, scattering of his citizenship papers, and various threats to bar him from returning to the United States because they couldn’t figure out his status and his paperwork. He described the interaction as “humiliating.” He could feel the power of the State.

Compare that to the other interesting part of his trip. His car broke down in Canada, requiring it to be towed to a local Volvo dealer in a sparsely populated area. Not only did the Canadian Automobile Association respond quickly and politely to his call, but its agent also gladly towed him to a Volvo dealer, presumably one the agent was familiar with. However, my colleague was concerned about being taken advantage of. After all, information differences are common in such situations, opening the possibility of opportunistic behavior; this was made even worse by the likelihood he’d never be back to that dealer: Reputation wasn’t an issue. But despite this clear opportunity, the dealership treated him honestly, completing the repair in about an hour at a very reasonable price.

More interesting is that my colleague struck up a conversation with the service manager while he waited, comparing stories about their young children and extended families. My colleague said that when he left he felt like he had made a friend. That’s a far cry from what he felt after both stops at the border.

Sure the Volvo dealer wanted the business, but faced with a perfect opportunity to take advantage of a stranger, the staff made him feel welcome and comfortable — they made him feel human. He became, for that short time, honorary kin. It was the bourgeois virtues in action.

The next time someone tries to tell you that markets are dehumanizing and that we need government regulation to prevent people from treating each other like mere objects, you might share my colleague’s story.


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