The Chapter on the Fall of the Rupee You May Omit...
Uncertain Principles: Talk Like a Physicist Economist

An Economic Theory of the Moral Sentiments

Robert Waldmann enters the lists against Robert Skidelsky, "The Moral Vulnerability of Markets."

Robert (Waldmann, that is):

Robert's Stochastic Thoughts: I would like to object to a particular assertion made by Skidelsky:

On the other hand, [the market] crowds out virtues that have no economic utility, like ... honor.

I think that, so long as an apparent sense of honor can't be simulated by the dishonorable, a sense of honor is highly rewarded by the market system. Clearly if we can tell who is honorable, honorable people will enter into mutually beneficial agreements even if they are not effectively enforceable in courts. Thus they would succeed compared to dishonorable people.... [I]t is possible for someone with no sense of honor to simulate one until the gains from behaving dishonorable outweigh the reputational cost. Such an agent would do better than the genuinely honorable and the openly dishonorable.... [Here] I invoke Adam Smith... [who] would have argued in "The Theory of the Moral Sentiments" that, in the long run, rewarding both true honor and effectively simulated honor will promote true honor as a habit of mind....

[The] vast majority of dishonorable people are not capable of effectively simulating honor (nor are honorable people able to hide that sometimes inconvenient characteristic).... True honorability is favored in a market system full of people with that ability. A deeper problem is that... the requirements of a sense of honor change.... If Skidelsky objects to the market because it promotes behavior which he has promised himself he won't do, he objects because it does not favor his ideal of honor, not because it does not favor honor in general.