“Be it resolved that markets cannot function without a basis in shared religious belief.” – Michael Walker

By: on January 18, 2011 | Economy, Philosophy, Religion

“Be it resolved that markets cannot function without a basis in shared religious belief.”

Answering in the negative: Michael Walker

Markets pre-date religion

It is often asserted by well-meaning people that the institutions of the market system or as it is sometimes called, capitalism, rely in an important way upon a substrate of ethical values derived from a religious source. It is also asserted by equally well-meaning people that the market system is fundamentally iniquitous and incompatible with ethical conduct of the kind that is the centre-piece of most religious belief systems. The vanguard of the latter group were the liberationist theologians who argued—and some continue to argue—that governments seeking to pursue a righteous path have no option but to adopt a Marxist program and stamp out capitalism.

The latter set of questions was the subject of a series of books published by the Fraser Institute; two of which are particularly helpful for sorting out whether the market system is incompatible with religious belief. Entitled respectively Religion Economics and Social Thought and The Morality of the Market, these books provide a framework for examining the question very thoroughly and can be read at www.Fraserinstitute.org. I am not, in this essay, going to address any of that side of the relationship between markets and religion.

It is also important to note that this is not an essay about the value of religion. While I argue here that religion is not a necessary precursor for the existence of markets that does not imply that religion cannot be involved in the functioning of markets. Nor does it imply that religion has no value as a social institution. The issue we want to explore here is whether markets can exist in the absence of a generally shared set of values or religious traditions that govern the behaviour of the participants.

Looking at this question from the vantage point of January, 2011 it appears not as some sort of philosophical query but rather as a factual matter which can be dealt with in the normal way that we settle factual disputes. Look at the facts. Do we regularly observe the existence of markets in the absence of religion?

It is arguable that the main defining feature of humanoids in comparison with other animals is their propensity to trade outside their family group. Sharing and exchange, which is one way of distinguishing the level of development of animals, is shared by our cousins the chimpanzees as well as humanoids before homo sapiens but as far as we know the humanoids are the only animals which engage in trade with strangers. And we know that trade has been going on for a very long time.

Archaeologists have confirmed long-distance trade in obsidian, amber flint and seashells as early as 100,000 years ago in Africa and 14,000 years ago in the Euphrates Valley. About 6,000 years ago the Iceman Oetzi, whose corpse was mummified in the Niederjoch Glacier on the border of Italy and Austria, sported apparel, tools of flint, bone and metal and foodstuffs which betrayed a rich exposure to trade with others who had specialised in the production of the articles. Three thousand years ago the millions of bushels of grain that fed Greece and perhaps other areas of the Mediterranean came from the Black Sea—the Ukraine side—and was shipped through the Bosporus which determined the highly strategic nature of that waterway.

This exchange with strangers which required overcoming the almost insurmountable obstacle for primitive man of xenophobia—fear of strangers—was driven by mutual interest in the gains from trade. That impulse has been the motive power driving the development of markets down the ages and continues to fuel the explosion of affluence and improved quality of life which is happening everywhere around us in the world today. Adam Smith, in his attempt to articulate the origins of the Wealth of Nations, noted that, “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 self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

During the early development of exchange there was no religion of the kind that we would expect to find today. If there was religion it would not have been a shared religion but rather some worship of local gods many of whom were regarded as protectors against the gods worshipped by the strangers. So the earliest markets which arose out of mutual interest in acquiring the gains from trade certainly were not underpinned by religion.

As I have been involved in the study of economic activity and interacting with people who have a high regard for the effect of religion on human conduct, one theme I have encountered is the notion that markets depend on trust and trust must evolve from a system of morality with some sort of religious root. I remember very well, for example, in my discussions with Sir John Templeton, his view that the decay of religious fervour in the population was running down a capital asset in the form of ethical conduct which would eventually destroy the operation of markets. Sir John is not alone in believing that is the case and some have pointed at this notion in the context of current financial market difficulties.

The historical analysis of the development of markets suggests a somewhat different interpretation. The impulse to trade did not require any sort of religious background and from the beginning the variegation of the belief systems and cultures held by the people who were engaging in the trade required a system of trust construction that did not rely on shared beliefs and customs. The system of enforcement of contract, then as now, most frequently depends on retribution of a commercial kind against those who do not perform as they should. The traders and merchants chronicled by Herodotus and Homer could not depend on their customers being culturally compatible; they only knew that their customers had a need that their goods would satisfy. Ports that proved unfriendly to traders were bypassed and the customers there simply were denied the wine, oil, fruits and, even from the earliest days, the manufactured goods which they had to sell.

So great was the impulse to engage in mutually beneficial exchange that the participants developed their own system of laws and establish their own courts to deal with the issues that might arise from trade. The ius non scripta or unwritten laws which predate any of the edifice of Roman law, together with the property law developed by the Romans followed through to the Lex Mercatoria from the fifth century A.D. as a practical and effective enforcement mechanism for desirable standards of commercial conduct. While governments soon realised that control over the laws that regulated business would confer an advantage to them and their supporters it is important to remember that what drove the development of the commercial common or people's law was a mutual interest in trade.

So it would be very hard on the basis of the historical record to maintain the notion that markets as an expression of the ubiquitous interest that humans have in trading is in some way based on religion. That, however, does not mean that religion may not from time to time and from place to place have had an influence on the evolution of markets and proficiency with which particular groups have been able to use them. The route by which religion may have played a positive role in markets is through the transactions costs involved in market activities.

While the Law Merchant developed as a code of conduct and as an indicator of the consequences which would be felt by individuals who broke their contracts, provided shoddy goods or some other way violated normal commercial practice, the cost of enforcement might still be high and sanctions might not be successful.

For example, a trader not bound by lines of fealty or family to a particular locality having transgressed against a trading partner and having been shunned as a consequence could simply go elsewhere. However, members of a trading group bound together by some strong religious belief, by family connection or in some other strong bond would tend to be less likely to violate commercial agreements because of the effect it would have in the rest of their lives. While of course religion is one of the kinds of bond that can exist between a group of people that would influence them not to cheat or in other ways commercially maltreat other members of the group, it is by no means the only bond that would have this effect. The proverb, “there is honour amongst thieves”, often repeated in various forms down the ages, reminds us that it is ultimately the calculus of private benefit and private cost that determines behavior and attachment to a group provides its own possibly non-financial incentives toward particular kinds of private conduct.

So we do find that religious groups such as the Hassidim in New York and London, who have conducted the diamond trade for a century and who reside in Orthodox Jewish communities of faith, are able to conduct the diamond trade with little in the way of written contracts because they have a bond which transcends commercial relationships. Their bond happens to be religion. But in many parts of Europe it is extended families who conduct business and who enjoy a similarly lower costs of transaction because they don’t have to “lawyer up” before proceeding with business deals.

Well, this was supposed to be a brief discussion of the subject and I have already written too much. Let me close with a reference back to Adam Smith. In Smith’s first book, The Theory of Moral Sentiments, he reminds us that markets themselves, as the manifestation of the pursuit of individual self interest, produce socially beneficial outcomes of the kind that religions often have in their wish list not by intention but as the result of their very operation.

“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.”

In sum, markets do not require some religious base for their operation but actually create the conditions and incentives for a more moral outcome than would exist in their absence.

Peter Stockland’s column, published previously, is here: http://www.c2cjournal.ca/blog-articles/view/be-it-resolved-that-markets-cannot-function-without-a-basis-in-shared-religious-belief


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About Michael Walker

Michael Walker is the founder of the Fraser Institute.