Markets Reward Serving Strangers, and That Is a Moral Achievement

Somewhere in your kitchen there is a miracle, and it is sitting next to the toaster. It is a loaf of bread. No single person on earth planned it. A farmer in one state grew the wheat without ever meeting the baker in another, who bought flour from a miller he had never seen, using an oven built by people he will never thank, delivered by a driver who does not know his name, to a shelf stocked by a clerk who has not heard of you. Every one of those people did their part for a stranger, and for a price.

We call this "the economy" and then, a little embarrassed, discuss it as if it were a machine. I want to argue that it is better described as a moral achievement. A market is a way for millions of people who do not know one another to cooperate peacefully, each by serving the needs of the others on terms the others accept. If that is not a moral arrangement, I do not know what the word means.

Let me make the case in numbered premises, bring in a famous essay about a pencil, and then take on the strongest moral criticism of markets, the argument that they crowd out virtue.

What is being claimed, and what is not

Care with the claim matters, because critics often attack a much bigger one.

The claim is not that markets are perfect, that every transaction is wise, or that anything for sale is therefore good to sell. It is not that wealth measures a person's worth. It is not that government has no role: fraud must be punished, contracts enforced, property protected.

The claim is narrower and stronger. A market economy, under a rule of law that bans force and fraud, has a distinctive moral structure. It lets you prosper only by serving others, and only on terms they freely accept. That structure rewards qualities we admire (honesty, diligence, foresight, courtesy to customers) and punishes qualities we do not (cheating, laziness, contempt for the people you serve). It does this without requiring anyone to be a saint, and without requiring anyone to be in charge of the whole.

The argument in five premises

1. A voluntary exchange is an act of mutual consent. When you buy a loaf of bread at a price, the baker and you both agree. Neither forced the other. Each judges that he is better off, or the deal does not happen. A transaction both parties would refuse to repeat unless it benefited them is a small agreement between free persons.
2. To prosper in a market, you must offer something others want. The only way to get money is to give someone something he values more than the money. Your reward measures, imperfectly but genuinely, how much other people value what you provided.
3. This extends cooperation beyond the circle of people we know. Human beings are naturally generous to family and friends. The market makes it possible to benefit strangers, even people on another continent, without needing to love them or even to meet them.
4. Repeated dealing rewards honesty. A merchant who cheats loses customers; a firm known for quality gets more business. Reputation is a form of capital, and it is built by keeping faith.
5. Therefore the market, within a rule of law, is a moral order as well as an efficient one. It aligns individual striving with the service of others, and it teaches habits of reliability and trust.

Adam Smith gave the observation its classic expression in The Wealth of Nations (1776): "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." People sometimes read this as cynicism. It is the opposite. Smith's point is that you do not have to depend on anyone's goodwill; the arrangement works because each person serves others in the course of serving himself. That is a remarkable thing to have discovered, and the same Smith had written, seventeen years earlier, The Theory of Moral Sentiments (1759), a book about sympathy and conscience. He understood that commerce lives inside a moral life, not outside it. See Before The Wealth of Nations, Adam Smith Wrote a Book About Conscience and, for what the famous "invisible hand" phrase actually does and does not say, The Invisible Hand Appears Once in The Wealth of Nations, Here Is Why.

The pencil

The best illustration of the argument is a short essay by Leonard E. Read, titled "I, Pencil," published in The Freeman in December 1958. It is written in the first person, from the point of view of an ordinary wooden pencil, and it makes an early claim that sounds absurd and turns out to be true: not one person on the face of the earth knows how to make a pencil.

Read walks through the pencil's origins. The cedar for the wood is felled in the forests of the Pacific coast, which requires saws, trucks, rope and a thousand tools themselves made by others. The graphite, in Read's telling, comes from Ceylon, which requires ships, ports and the people who mine and haul it. The metal ferrule, the paint, the glue and the eraser each have their own long chains of makers. Everyone in those chains, Read says, is contributing a small piece of knowledge about a small task, and none of them is thinking about pencils. The lumberjack is thinking about his wages; the miner about his family. Yet the pencil is made, and it costs you a few cents.

Read's conclusion is the moral heart of the essay. The pencil, he says, is a miracle that happens because no one is in charge. Coordination arises not by command but through prices and voluntary exchange, which carry information across millions of people. Strip away the choosing and the planning would fail, because the knowledge needed is scattered among all of them. Friedrich Hayek explained the same point in his 1945 essay "The Use of Knowledge in Society": prices are a system for communicating what no one person could know. For more on that line of thought, see Nobody Designed the English Language, and Hayek Called That Spontaneous Order.

Notice the moral implication. Every person in the chain served someone he would never meet, because it was in his interest to do so on terms others accepted. Without anyone preaching, strangers were fed, housed and equipped by strangers. The trust required to make it work, that the wages will be paid, the shipment will arrive and the pencil will write, is a trust that the market builds daily.

The strongest moral criticism, stated fairly

Now the other side. The most thoughtful moral critic of market reasoning in recent years is the Harvard philosopher Michael Sandel, and his book What Money Can't Buy: The Moral Limits of Markets (2012) makes the argument at its best.

Stated in his terms: "You say markets are neutral tools for serving needs. But they are not neutral. When you put a price on a good, you change its meaning. Markets crowd out the norms that give certain goods their value. If a school pays children to read, the children may come to see reading as a job and not a pleasure. If a country sells citizenship, or a place in line, or a kidney, it corrupts the thing sold. And a society where everything is for sale is a society where the rich can buy not just luxuries but dignity, civic standing and moral attention. Market reasoning has spread into every sphere of life and made us worse."

Sandel cites a striking study. In a group of Israeli day-care centers, researchers introduced a small fine for parents who arrived late to collect their children. Lateness went up, not down. The fine turned a moral obligation, consideration for the teacher who was waiting, into a price one could pay. When the fine was removed, the lateness did not return to its earlier level. The point is that a price can drive out a duty.

That is a real finding, and it is the heart of the best criticism of markets. It deserves a real answer.

Why the objection does not overturn the argument

First, Sandel's argument concerns the scope of markets, not their character. His examples are of things that should not be treated as commodities: votes, a verdict, a person's freedom. Conservatives can and do agree that some things belong outside the market, and the law has always said so. We do not allow the sale of votes, public offices, jury verdicts or a person's freedom. The Thirteenth Amendment forbids the sale of persons. The case that a market is a moral achievement is a case about the ordinary exchange of goods and services among consenting adults, the vast domain of bread, shoes, labor, houses and software, where the corruption Sandel fears does not apply.

Second, the day-care story proves less than it appears. The lesson is that incentives interact with norms, which any economist grants. The lesson is not that norms are strongest where there are no prices. Look at the pencil factory: the trust that holds it together is not weakened by pay. It is made possible by it, through contracts, reputation and repeated dealing that give strangers reasons to be reliable.

Third, the alternative to markets is not virtue; it is command. If we do not let people serve one another through voluntary exchange, someone must decide who gets what. That someone is an official or a committee, and the people ordered about are not more virtuous for being ordered. Montesquieu observed in The Spirit of the Laws (1748) that commerce tends to soften manners: wherever manners are gentle, there is commerce, and wherever there is commerce, manners are gentle. Merchants have a reason to make peace and keep their word, because war and cheating are bad for business. The doux commerce thesis is an old claim, and the long record of trade among nations that otherwise might fight gives it support.

Fourth, markets do not make people greedy; they put the greed already there to work. The vice of avarice existed long before the market economy. The question is what a society does with it. A feudal lord enriches himself by conquest. A merchant must enrich himself by persuading others to deal with him. The second arrangement turns a vice toward the service of others. That is no cure for the sin, but it is a vast improvement on the alternatives.

Fifth, a market economy also depends on moral capital that it does not itself create. Here I concede something to Sandel, and to the great conservative tradition of Wilhelm Röpke Defended Markets and Warned They Need Something Beyond Them and Self-Interest Rightly Understood Was Tocqueville's Answer to Selfishness. A market works only where there is a rule of law, honest courts, enforceable contracts, and a people who keep their word. Those come from families, churches, schools and long habit. The market consumes them as much as it produces them. The right answer is not to abolish the market but to care for the institutions that supply its moral fuel.

The Founders' view

The Founders did not see commerce as vulgar. They saw it as a source of independence. Hamilton and Madison both argued that a diversified commercial republic would be more stable and more free than one of landlords and dependents. Federalist No. 10 expected a multiplicity of economic interests to check the dangers of faction. And the Constitution, in Article I, Section 8, gives Congress the power "to regulate Commerce with foreign Nations, and among the several States," which, with the ban on state tariffs, created a large free-trade area among the states. The Commerce Clause was meant to open markets, not close them.

The Declaration's "pursuit of Happiness" includes the pursuit of a livelihood on one's own terms. A man free to choose his work and keep his earnings is a man who is not a servant of the state. That is a moral achievement of the first order.

What to say to the skeptic at dinner

The next time someone says that markets reward greed, ask him who made his shirt. He will not know. Ask him whether he trusts that it will not fall apart on the first wash. He will say yes, because he trusts the system of competing sellers, warranties and reputations. Then point out that millions of strangers have just cooperated peacefully on his behalf. They did it because the arrangement made serving him the best way to serve themselves. A system that harnesses self-interest to the service of strangers has not abolished morality. It has put it to work, and for the person who buys the shirt, the pencil and the bread, that is a very good deal.

For a related look at one thinker who defended that arrangement on moral grounds, see Friedman's 1970 Essay on Business Responsibility Still Answers Its Critics.

The case in brief

1. A voluntary exchange is mutual consent, and in a market you prosper only by offering others something they value more than what they pay.
2. This extends cooperation beyond family and friends to strangers, and repeated dealing rewards honesty and trust.
3. Read's "I, Pencil" (1958) shows that no one knows how to make a pencil, yet strangers cooperate peacefully because prices carry knowledge and each person serves others in serving himself.
4. Sandel's critique that markets crowd out virtue is right about limits, since some things should not be for sale, but it does not touch the ordinary exchanges that feed and clothe us.
5. Markets depend on moral capital supplied by families, churches and the rule of law, so protecting those institutions is part of defending markets.

What you can do: pick one object on your desk, trace its makers as far as you can, and share the list with a child or a friend as a lesson in how many strangers served you today.