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Apr 15, 2014

Jonathan Wight Presents the Moral Foundations of Capitalism

University of Richmond Professor Jonathan WightOn Monday, April 7, the Madison Economics Club hosted Professor Jonathan Wight of the University of Richmond to deliver a seminar about the moral foundations of capitalism according to Adam Smith’s ethics. 

From scientific thinking to the enlightenment revolution

University of Richmond professor Jonathan Wight began his seminar on the moral foundations of capitalism by explaining the scientific revolution of the 17th century. During this time, Isaac Newton identified the invisible force that exerts power over the universe: gravity.

Economist Adam Smith studied Newton’s work and decided invisible variables other than gravity could explain other huge concepts, such as economics. This began the enlightenment revolution of the 18th century, in which people focused on understanding sociability and human affairs. Such thinking greatly enhanced economic, social, and political life. From the enlightenment revolution, Adam Smith began studying economics in a moral context.

Adam Smith

Wight went on to provide a brief background about Adam Smith, who studied at Oxford University and later taught at the University of Glasgow. Smith wrote the Theory of Moral Sentiments in 1759 and The Wealth of Nations in 1776. 

Smith addressed the human phenomenon of fight or flight, in which people encounter situations and decide if they need to flee or stay where they are. The decision is purely instinctual because the rational minds of humans are not as powerful as their basic survival instincts. At this point Wight brought up the “Fun item #1,” which is that “instincts are the invisible hand directing our activities.” So, to understand human life, one must understand that humans act on instincts to survive and procreate rather than using their rational minds. Further, Smith said the key instinct needed for survival is sociability.

Selfishness and other human instincts are at play

After describing the role of instincts versus the rational mind, Wight explained to the audience the evolution of humans in terms of selfishness and sociability. When first born, humans are completely selfish and use crying to signal a need for survival. But, as Smith describes, there are other, more powerful instincts that are both prosocial and antisocial. In other words, humans care about themselves, about others in a positive way, and about others in a negative way. 

Wight then explained three instincts needed for a flourishing society: selfish passions (narrow prudence), social passions (benevolence) and unsocial passions (justice).

Smith emphasized the importance of all three instincts in the development of a moral conscience. Further, he explained that it is too simplistic to create an economic model that simply says everyone is greedy (known as homoeconomicus) because it leaves out too many other factors that exist in the real world. Through the development of society, humans experienced immediate feelings about right and wrong, which led to the development of social norms. Once accepted, those norms became rules of law. The instincts occur under invisible hand, which decides actions based on the rules of law humans create and can also change at any time.

Human rules of law are always subject to change

Wight further explained that the changes in rules of law come about because people’s moral imaginations change and adapt to accept previously unacceptable issues.

“People’s ideas of right and wrong began to change not from intellectual arguments but because of emotional sympathies,” said Wight.

After explaining the flexibility of human rules of law, Wight spoke about “Fun fact #2,” which is that “the instincts are moderated and operate within humanly devised institutions.” While instincts are natural, they operate within human built institutions, which are the direct result of human perspective. This socialization causes the perspectives needed to build institutions.

Virtue-based ethics leads to good moral character

In addition to the evolution of consciousness, Wight described different forms of ethics, including outcomes-based, duty- or rule-based, and virtue-based. Smith prescribed to the virtue-based set of ethics, which focuses on the character of the individual. 

Smith believed that deregulating the financial system would lead to moral hazard because people would be tempted to act in immoral ways. Instead, he believed there should be price ceilings, which would cause favoritism and safer financial choices. Wight also explained two economic experiments: the Island Game and the Involuntary Trust Game. In both situations, simplistic economic models predicted that individuals would act selfishly and greedily; however, more individuals were inclined to act fairly than selfishly. The fairness exhibited in these games shows that sociality is the most compelling aspect of human nature.

Moral capital cannot be forgotten in financial decisions

Wight concluded the seminar by urging the audience not to forget about moral capital because it leads to trustworthy and safe financial decisions and institutions. His concluding example involved international trade restraints, which Smith believed should not be restricted because the invisible hand causes people to trade with those whom they know and trust. 

Wight also explained the physiological benefits of engaging in trustful trade. When such trade happens, the brain releases the bonding hormone oxytocin. Wight called this the oxytocin virtue cycle, in which oxytocin leads to empathy, leading to morality and trust, then to prosperity, and then back to oxytocin and continues endlessly.

Overall, Wight emphasized that humans are not completely selfish beings. Rather, they experience multiple other instincts that cause them to act compassionately toward others and also to install social norms so that society is a controlled environment. When the other instincts are taken into account, society gains moral capital and can engage in trustworthy financial exchanges, which pushes it further along than if it operated in an entirely greedy state of mind.

By Alix Carlin (Communication studies, ’14)

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