Global Ethics Corner: Markets: The Invisible Hand or Fairness?

In favor of self-interest, Adam Smith argues that the invisible hand of competition indirectly promotes the good of society. Markets need many participants, and competition needs open information. Then, the individual by "pursuing his own interest, frequently promotes that of the society…."

The economic mechanism of selfishness focuses an individual's choices; however, the outcome is greater than the sum of the pieces and through competition society benefits. You help others by helping yourself.

In favor of fairness, research by Joseph Henrich suggests that norms are important. Norms regulate and channel individual choices. "Markets don't work very efficiently if everyone acts selfishly, and believes everyone else will do the same."

This research observes 2000+ people in 15 small communities, from Missouri wage workers to Hadza nomads of the Serengeti.

People's sense of fairness varies by culture, and larger societies were most willing to punish those who violated norms of fair interactions. Thus "market norms" are created promoting conditions that improve exchange.

Their conclusion is that "…if you develop norms to be fair and trusting with people beyond your social sphere, that provides enormous economic advantages and allows society to grow." Helping others benefits you.

What do you think maximizes individual benefits? Is it cut throat competition or altruistic norms of fairness and trust? Can you have both?

By William Vocke

For more information, see:

John Tierney, "Moral Lessons, Down Aisle 9," The New York Times, March 23, 2010, D1+
Constance Holden, "Playing Fair Came Late," Science Now, March 18, 2010
Mark Buchanan, "Charity begins at Homo Sapiens," NewScientist Life, March 12, 2005