Capitalism’s Cure for Economic Sins

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Reprinted from Law & Liberty

Philosopher and business ethics expert James Otteson of the University of Notre Dame wants to save you from the error of your ways, and by doing so improve your life. His latest book, Seven Deadly Economic Sins, debunks a perennial list of economic fallacies about capital, government intervention, and prosperity, delivering a strong argument in favor of a market economy and the classical liberal political institutions that support it. As the book’s title (and the author’s professional background) would suggest, however, Otteson’s argument ultimately rests more on a set of moral assumptions rather than any equilibrium model or regression analysis.

Being a philosopher who is nevertheless known best for his writing about economics, Otteson walks very much along the path of the man he has spent much of his own life researching and writing about, Adam Smith. While Smith is a legend in the history of economic ideas for writing 1776’s The Wealth of Nations, Otteson reminds us about the importance of Smith’s status as a professor of moral philosophy and his previous masterwork, 1759’s The Theory of Moral Sentiments. While many economic commenters over the years have suggested that the content of Smith’s two great works represents a conflict or some kind of intellectual “problem,” Otteson demonstrates that many of the most basic economic concepts that we take for granted are, in fact, based on fundamental moral assumptions rather than mathematical constructs.

When it comes to the biggest debate of economic policy—whether governments should exercise more or less control over economic life—Otteson’s major assumption is simple: as human beings, we all have an equal worth and an equal moral agency. Thus, interventions into the market economy, whether they be large or small, are presumptively illegitimate because they supersede the judgment of peacefully contracting parties. This is true even when the goal is economic equality itself. Market participants have different talents, training, and goals, so implementing government policy that would force them into an identical status would mean disrespecting their freely chosen life paths.

The seven sins are based on principles that will be familiar to most people who exist somewhere in the overlapping worlds of libertarian, conservative, free-market, Austrian, and Chicago School economic thinking. Wealth creation is positive sum, progress is not inevitable, and there is no “great mind” with enough knowledge to plan an entire economy. Market interactions are based as much on cooperation as competition. People who complain about others putting “profits over people” are likely just angry that the people exchanging value without their permission didn’t decide to prioritize the complainer’s goals instead. Economic freedom doesn’t always lead to perfect outcomes, but it leads to the least bad outcomes more often than any other system of economic organization.

Otteson has a talent for introducing a relatable human element into textbook examples of economic phenomena. Students of antitrust law might read about how certain firms have engaged in “anti-competitive” pricing and unfairly impacted the profits of their competitors. Promoters of tariffs might also complain that domestic firms have been victimized by low-cost producers overseas. Should the choices of producers and customers have been constrained in order to not disadvantage competing firms? That might seem reasonable…until you meet Jack, Jill, and Joe.

We are asked to imagine two individuals, Jack and Jill, who are in love and have decided to get married. But there is a problem: Joe is also in love with Jill, and would also very much like to marry her. By depriving Joe of his most fervent wish and important life goal, Jack and Jill have certainly kept Joe from his achieving self-fulfillment. But do either of them owe Joe some sort of compensation for this negative impact? Otteson’s answer is no, because this state of affairs is the result of the freely made choices of each party. Joe might be unhappy at not being chosen as Jill’s new husband, but being denied a benefit is not the same as being actively harmed. Jack and Jill’s goals and desires are just as important as Joe’s—and as such, they owe him no debt and need accept no limitations on their mutual agreement.  

The implications of this modest example are wide-ranging. Much interventionist economic policy, whether progressive tax rates, occupational licensing, or zoning rules, overrides the preferences of market actors in the service of some (often assumed or hypothetical) third party. But it is rarely clear that those third parties have a moral claim on state intervention that should negate the desires of the primary parties. I want to be able to buy tacos from a taco truck, and there’s a taco truck owner who wants to sell them to me. But in many cities, owners of brick-and-mortar restaurants have lobbied the local government to forbid such transactions in most areas. This is like giving Joe a veto over Jack and Jill’s wedding day. It’s wrong, and more importantly, it’s a restraint most advocates of the policy itself would never accept the legitimacy of, if an equivalent intrusion were applied to their own lives.

Otteson is definitely not the first economic or political expert to attempt to broadly debunk economic ideas he sees as flawed. Australian economist Steve Keen wrote a widely-referenced book on modern economic theory in 2001 (with a second edition in 2011) titled Debunking Economics: The Naked Emperor of the Social Sciences. Unlike Seven Deadly Economic Sins, Keen’s critique was highly mathematical rather than philosophical and was more concerned with reconciling neoclassical economic theory with observed market conditions. Whether his criticisms might have spared the world some of the impacts of the Great Recession (as some reviewers later suggested) is, however, certainly relevant to the real-world policy implications that Otteson considers.

While coming from a very different ideological perspective, Paul Krugman’s Arguing with Zombies: Economics, Politics, and the Fight for a Better Future (2020) might be a closer parallel to what Otteson is attempting. Krugman, like Otteson, claims to be fighting stubborn myths and disinformation and insists that while there are legitimate topics of debate in the world of economics, he focuses his writing on the ones that are already generally agreed upon: “The truth is that the vast majority of real-world economics disputes are about easy questions, questions for which there is a clearly right answer.” Krugman even invokes his personal philosophical inspiration, writing that he and other “people on the left” look to John Rawls for formulating their views on social justice.

Contra Krugman, Otteson’s citations run more to Deirdre McCloskey, Frédéric Bastiat, Aristotle, and Friedrich Hayek (though at one point he argues that free-market capitalism actually does fulfill Rawls’ requirements for economic fairness in society). On this, as with much else, we can assume that Krugman fans and Otteson devotees will disagree. Left-leaning critics, however, will have a lot to think about and chew over if they give the latter’s work a fair shake, especially given that Otteson endorses many of the same moral assumptions as progressives. He bases his arguments on fundamental equality and respect for human dignity yet comes to very different policy conclusions. His explanation of a rational, rights-based economic system is also clear, methodical, and respectful, happily omitting the heated rhetoric and ad hominem characterizations all too common in debates over economic policy in the 21st century, whether on the bestseller lists or in social media posts.

Fans of market economics will also receive a welcome and even inspiring refresher course in the ideas they may have been first introduced to as students. The Cambridge University Press edition does an excellent job of providing references and resources for additional study without being cluttered, pedantic, or repetitive. Anyone who takes economic ideas and their moral implications seriously would do well to clear space on their bookshelf for Seven Deadly Economic Sins. 

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