Almost a month ago, Tyler asked me about altruism in free market theory. I asked a few folks and did some light looking around, and I want to give a special thanks to my colleague Steve who helped me organize some thoughts.
Defining Altruism
The hardest part of thinking about altruism in markets is defining altruism. From Ludwig von Mises's perspective, every choice is self-interested (see Human Action, chapter 1, especially part 4). So, defining altruism as a selfless action is impossible with that view. Instead, I think it's most beneficial to define altruism as actions taken by a self-interested individual who wants to make a difference for others. In my mind, this means one subjectively values the well-being of others. This definition is not perfect, and I have friends that I could argue with about this definition for days... I just wanted to point out that coming close to a shared understanding around this word is the first step to having a productive conversation.
So what role (if any) does altruism play in free markets? One point that is important, but I find less interesting, is the idea that free markets enable societies to be more productive. The more you have, the more you can give away to others. It's hard to care about others when you're starving. This point aside, I want to get to Tyler's question about theoretical basis, not an empirical debate about how wealth relates to charitable giving.
Altruism as a Civilizing Force
Steve pointed to Hume as the source for markets as civilizing forces, but I know Tocqueville better. Thus, I am going to refer to Tocqueville's Democracy in America, particularly the portion about "Associations in Civil Life." Tocqueville marveled at the American way of gathering together to get things done. He referred to caring for the poor, preventing drunkenness, education, justice, churches, etc, which were all done by private citizens forming "associations" with one another. He remarked that Americans didn't even think to go to the government for these services the way his fellow countrymen did. Tocqueville believed this had something to do with the political power being dispersed in a democracy that allowed self-interested people to come together to do such things.
I would argue that these associations were enabled by the free market conditions, which prevailed in America at that time. Many Austrian economists would refer to this as cooperation. In terms of economics, interacting with other human beings can only happen in two ways: cooperation or force. Mises viewed society itself as, "concerted action, cooperation" (Human Action, Chapter 8, first paragraph). Thus, as free markets encourage cooperation as no other system we know does, so do free markets enable altruism. In short, free markets "civilize" people because cooperation is generally of higher valued than conflict. This civilizing force enables altruism.
Altruism Influencing Markets
But how does altruism influence markets? An altruistic person could crowd out entrepreneurs from innovating. If a non-profit or individuals crowd out markets or distort market signals, entrepreneurs will not know there is an opportunity or not have the incentive to innovate. Peter Drucker wrote, "Wherever public-service activities can be converted into profit-making enterprises, they should be so converted" (Innovation and Entrepreneurship, "Entrepreneurship in the Service Institution").
I don't want you to think that I am suggesting that we do away with altruistic organizations or actions. Steve cautioned me to think of altruism in markets as a "tradeoff properly understood." There are certainly places where activities cannot be turned into a for-profit enterprise. Also, we do not live in a free market world and need to understand that there is much that distorts the markets we operate in everyday. Moreover, many interactions between individuals are often not captured in markets with prices (think about when you go to your neighbor's house for a grill out or do family laundry, both activities that create value, but are not part of formal markets). These informal interactions are enabled by the markets, which foster cooperation, prosperity and the ability to see one-another as something other than competitors for food.
And if you'll allow me to get on my soapbox for a moment, I firmly believe that the government cannot be altruistic. Only individuals can be altruistic because it has to do with a subjective valuation (i.e., someone gets joy from increasing others' well-being!). If anything, there is evidence that governments crowd out charitable giving, which I'm using as a proxy for altruism.
Relying heavily on input from others, this is my best attempt to put my thoughts together about altruism in markets. Do you see it differently? Did I miss point or miss the bus completely? See my thoughts below for how I think this all plays out in the organization.
Thanks to Tyler for submitting the topic!
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