Markets and Morals – The 1998 Hayek Lecture

In 1978, Friedrich Hayek, whose work and influence we commemorate tonight, proposed a great debate. He was by then almost eighty years old, but the passion with which he sought to defend the market order against what he saw as the heresy of collectivism was undiminished. So, as if hoping to settle the issue once and for all, he suggested nothing less than an international disputation that would discuss the question, ‘Was socialism a mistake?’ The event did not take place, but Hayek none the less produced a large manuscript setting out his beliefs, which was published in an abridged form under the title, The Fatal Conceit. What interests me in particular about this work is the title of the book’s last chapter, namely, ‘Religion and the Guardians of Tradition’. What led Hayek, who had devoted a lifetime to the study of economics and politics, to  set the seal on this work with a reflection on religion and tradition?

The Fatal Conceit is a difficult book, but if I have understood it correctly, its argument is this. For the free market and its ‘extended order’ to emerge, so too did a certain kind of morality. For many thousands of years, human beings had lived in small bands of hunter-gatherers, and it was during that long pre-history of homo sapiens that our instincts were formed. Those instincts – of solidarity and altruism – allowed our ancestors to live together in close face-to-face groups and without them no isolated individual could have survived for very long.

However, a significant change had to take place in the way people related to one another for mankind to be able to make the transition from the small group or tribe to the larger and more open associations needed for complex societies and economies. Instincts were no longer sufficient. Instead their place had to be taken by rules such as those relating to private property, honesty, contract, exchange and so on. For Hayek, the question of how these rules first appeared is irrelevant. What matters is that they emerged and spread, not because people were able to decide in advance what their consequences would be, but simply because the groups who adhered to them found themselves able to grow and spread more successfully than others.

Often they involved people acting against their instincts, so they had to be taught through habit rather than by appeal to inclination. Moral education became a matter of imitation, learning by doing, the handing on of tradition by habituation. Morality itself consisted largely of ‘Thou shalt not’s’, prohibitions that served as boundaries within which free human action could be directed and contained, much as the banks of a river contain and direct the flow of water. It was this kind of morality that, for Hayek, made possible the fateful transition of humanity from tribal society to a market economy in which ever larger associations of individuals and groups could develop their specialisations and yet meet their needs through the peaceful process of trade and exchange.

So it was in the past. But Hayek, having lived through some of the great dislocations of the twentieth century, could never take the market order or its associated phenomenon, the free society, for granted. It was, he believed, vulnerable on two counts. On the one hand there was the perennial danger of a retreat into the primitive instinct of group solidarity with its attendant hatred of the outsider. On the other there was the seductive voice of reason, the ‘fatal conceit’ that by conscious intent and deliberate planning we can improve on the morality of the past, and as it were re-design our basic human institutions. This, he felt, was the error of socialism, but not only socialism. It was also the mistake of liberals such as John Stuart Mill who regarded traditional moral constraints as, for the most part, eminently dispensable, the unwanted baggage of a more superstitious age. Morality – as Hayek never tires of reminding us in the course of the book – occupies a place between instinct and reason and cannot be reduced to either.

This line of thought brought Hayek to reflect on the role of religion – in particular the great monotheistic faiths – in preserving moral traditions. In part this was a matter of history. We owe it to religions, he said, “that beneficial traditions have been preserved and transmitted at least long enough to enable those groups following them to grow, and to have the opportunity to spread by natural or cultural selection”.

But it was not only a matter of history; it was a matter of the present as well. To understand why, we have to remind ourselves again of Hayek’s understanding of the ‘extended order’ of complex societies. They come about, he argues, because of repeated applications of simple rules. They develop in ways which none of us can predict in advance. Each one of us plays a minute but significant part in that process. We participate, in his powerful phrase, in “those spontaneous social forces through which the individual creates things greater than he knows”. Only with hindsight and historical perspective can we see what, through an almost infinite number of individual acts, we have achieved. None of us, not the wisest of Sages or the most informed of central agencies, could have planned it in advance.

The striking feature of religion, for Hayek, is its attitude of humility, even reverence, towards the great moral institutions without which our ‘extended order’ could not have developed. It guards against what he calls “the rationalist delusion that man, by exercising his intelligence, invented morals that gave him the power to achieve more than he could ever foresee”. Of course it does so by insisting that our morals were given by God. For Hayek, they were arrived at by the evolutionary forces of history. What these two views held in common, though, was a strong and principled opposition to the idea that individually or collectively we can devise a better system rationally constructed to maximise happiness or some other good.

It is a fascinating argument, and it places Hayek in a line of thinkers – such as Edmund Burke, Max Weber, and most recently Francis Fukuyama – who have reflected not only on the internal morality of markets (what we call nowadays ‘business ethics’) but on the wider question of what kind of society gives rise to and is able to sustain a market economy. The answer which each of them gave – an answer that has been given new salience by the rise of the economies of South East Asia – is that they tend to be societies with a strong respect for certain kinds of tradition.

Like Burke, Hayek combines liberalism in economics and politics with a marked conservatism in morality. Free institutions, they seem to say, are best preserved by a certain piety towards the past. Traditions encode the accumulated discoveries of earlier generations in a way that no single generation, however sophisticated, could discover for itself; and it is through learning those traditions and passing them on to our children that we avoid extremely costly mistakes. Paradoxically, it may be just those societies that have strong religious and moral habits, which form the best environment for economic development and technological innovation. It may be that those who are most secure in their past are the most confident and energetic in shaping the future.

Thus far Hayek; and it is an argument that is worth revisiting, for the very opposite reason than the one he contemplated. The Fatal Conceit was written in 1978 and published in 1988. Twenty years ago, he could still see socialism as the dragon to be slain. Within a year, though, of the book’s publication, the Berlin Wall came down. In rapid succession, the Cold War ended, East European communism was abandoned, and the Soviet Union was disbanded. It was one of the most decisive victories in the history of ideologies, all the more striking for having taken place without a shot being fired. Hayek’s great debate never took place, but it is fair to say, as of now, that he won the argument after all. As Raymond Plant put it, “Central economic planning is now not on the political agenda of any country seeking to be part of the global economy.”

It is therefore all the more important for us to bear in mind the caveat Hayek himself insisted on, namely that the market economy can only be sustained by certain habits of behaviour and restraint which he called traditions. He believed that the threat to these traditions was socialism. Doubtless, in his day it was. But what he paid far less attention to was the possibility that they might be undermined not by anti-market ideologies but by the very power of the market itself. For the market is not only an institution of exchange. It is also a highly anti-traditional force, at least in advanced consumer societies. The stimulation of demand, for example, depends on a culture, even a cult, of the new, the product that improves on the past and renders it obsolete in an increasingly short space of time. It encourages a view of human life itself as a series of consumer choices rather than as a set of inherited ways of doing things.

One of the most fateful developments is the displacement of human identity as something given by the history into which I am born. Instead it becomes something like a suit of clothes which I can choose, wear for a while, and then discard in favour of the new season’s fashion – the move graphically illustrated by our change of terminology from ‘life’ to ‘life-style’, with its suggestion that there is nothing of substance that defines who I am; there is merely the supermarket of ideas from which I can choose what I happen to be into for the time being, from Buddhism to therapy to aerobics to the environment to organic vegetables to the Internet to ‘The Little Book of Calm’. In the process, religion itself is transformed from salvation to a branch of the leisure industry, and we are transformed, as one writer put it, ‘from pilgrim to tourist’.

That is why it is sometimes useful to do what Hayek advised us to do in The Fatal Conceit, namely, to reflect on the role of religion in sustaining a particular kind of moral order. That is what I want to do, taking the experience of Jews and Judaism as an example. It was of course Max Weber, in his famous work on The Protestant Ethic and the Spirit of Capitalism, who made us familiar with the idea that religion – in particular Calvinism – was one of the great shaping forces of the modern economy. More recently Michael Novak has written powerfully about the same subject from a Catholic perspective. But few writers have doubted the contribution Jews made to the development of finance, business and industry, a contribution that can be traced far back into the Middle Ages and beyond.

I vividly recall a talk given by the master of my college, the late Joseph Needham, describing the role Jews had played in bringing the inventions of China to the West. Christopher Columbus in his great journey of 1492, the year in which Jews were expelled from Spain, made use of tables drawn up by one Jew, Abraham Zacuto, instruments made by another, Joseph Vecinho, and took a third, Luis de Torres, as his interpreter. At about the same time, one of the great Rabbis and Bible commentators of the Middle Ages, Don Yitzhak Abarbanel, served as financial advisor to King Alfonso V of Portugal and Ferdinand and Isabella of Castile, and later made important contributions to the economic life of Naples and Venice. Wherever they were able to, Jews played a significant role in the development of trade and finance. Indeed in 1844, in a notoriously anti-semitic tract, Karl Marx argued that Jews were the very embodiment of the capitalist system.

It would be quite wrong to identify a great religious tradition with any particular set of economic institutions. It was, after all, the biblical Joseph who instituted the first known example of centralised economic planning, using the seven years of plenty to prepare for the seven years of famine, and whose ability to forecast trade cycles is probably still the envy of economists. Jewish history contains some of the great experiments in socialist utopias, from the property-sharing communities of the Essenes in the Second Temple period to the modern Israeli kibbutz. But there is no doubt that for the most part, Jews and Judaism itself found free competition and trade the system most congruent with their values.

What was it about Judaism that led to this elective affinity between it and the market economy. In his stimulating recent book, The Wealth and Poverty of Nations, David Landes identifies a number of factors. First there was the biblical respect for property rights. This he sees as nothing less than a revolution against the ancient world and the power it gave rulers to regard the property of the tribe or the people as their own. By contrast, when Moses finds his leadership challenged by the Israelites during the Korach rebellion, he says about his relation to the people, “I have not taken one ass from them nor have I wronged any one of them.”

For a ruler to abuse property rights is, for the Hebrew Bible, one of the great corruptions of power. Judaism is the religion of a people born in slavery and longing for redemption; and the great assault of slavery against human dignity is that it deprives me of the ownership of the wealth I create. At the heart of the Hebrew Bible is the God who seeks the free worship of free human beings, and two of the most powerful defences of freedom are private property and economic independence. The ideal society envisaged by the Prophets is one in which each person is able to sit “underneath his own vine and fig tree”. The Prophet Samuel in his famous speech on the dangers of monarchy – which might almost be subtitled The Road to Serfdom – warns against the constant temptation of kings to expropriate persons and property for the public good. Government, he seems to argue, may be necessary, but the less of it there is, the better.

Beyond this, Landes identifies in the Judeo-Christian tradition, an openness to invention and innovation. In part this has to do with the biblical respect for labour. God tells Noah, for example, that he will be saved from the flood, but it is Noah who has to build the ark. The high value Judaism sets on work can be traced throughout the biblical and rabbinic literature. If not itself a religious act, it comes close to being a condition of the religious life. “Six days shall you labour and do all your work, but the seventh day is a Sabbath to the Lord your God” – meaning that we serve God through work as well as rest. By our labour we become, in the striking rabbinic phrase, “partners with God in the work of creation”.

The Jewish liturgy for Saturday night – the point at which the day of rest ends – culminates in a hymn to the values of work: “When you eat of the labour of your hands, you are happy and it shall be well with you.” On this, the Rabbis commented, “You are happy” refers to this life; “It shall be well with you” refers to life in the world to come. Work, in other words, has spiritual value, because earning our food is part of the essential dignity of the human condition. Animals find sustenance; only mankind creates it. As the thirteenth century commentator Rabbenu Bachya put it, “The active participation of man in the creation of his own wealth is a sign of his spiritual greatness”.

As a result, Judaism never developed either an aristocratic or a cloistered ethic that was dismissive of the productive economy. The great Rabbis were themselves labourers or businessmen or professionals. They knew that the Jewish community needed an economic as well as a spiritual base. Accordingly, the Talmud lists as one of the duties of a parent, to teach one’s child a craft or trade through which he can earn a living. Maimonides rules that one who is wise “first establishes himself in an occupation which supports him, afterwards he buys a home, and after that he marries”. More powerful still is his ruling that to provide someone with a job is higher than any other form of welfare benefit:

The highest degree of charity, exceeded by none, is that of a person who assists a poor Jew by providing him with a gift or a loan or by accepting him into a business partnership or by helping him to find employment – in a word, by putting him where he can dispense with other people’s aid. With reference to such help it is said, “You shall strengthen him, be he a stranger or a settler, he shall live with you” (Leviticus 25:35), which means to strengthen him in such a manner that his falling into want is prevented.

All other forms of charity leave the recipient dependent on charity. Work alone restores his self-respect and independence. “Flay carcasses in the market-place,” said the third century teacher Rav, “and do not say: I am a Priest and a great man and it is beneath my dignity”.

No less important than the value placed on work is Judaism’s positive attitude to the creation of wealth. The world is God’s creation; therefore it is good, and prosperity is a sign of God’s blessing. Asceticism and self-denial have little place in Jewish spirituality. What is more, God has handed the world over to human stewardship. The story of man’s creation begins with the command, “Be fruitful and multiply, fill the earth and subdue it.” God, taught Rabbi Akiva in the second century, deliberately left the world unfinished so that it could be completed by the work of man. Industry is more than mere labour. It is the arena in which we transform the world and thus become, in the striking rabbinic phrase, “partners with God in the work of creation”.

It was Max Weber who observed that one of the revolutions of biblical thought was to demythologise, or disenchant, nature. For the first time human beings could see the condition of the world not as something given, sacrosanct and wrapped in mystery, but as something that could be rationally understood and improved upon. This perspective, central to Judaism, even today makes rabbinical authorities surprisingly open to new medical technologies such as genetic engineering and cloning, and tends to make religious Jews among the most dedicated users of the Internet and multi-media for purposes of education.

Above all, from a Jewish perspective, economic growth has religious significance because it allows us to alleviate poverty. Judaism’s early Sages had the sanest view of poverty I know, and they did so because most of them were poor men. They refused theologically to anaesthetise its pain. They would utterly have rejected Marx’s description of religion as the opium of the people. Poverty is not, in Judaism as in some faiths, a blessed condition. It is, the Rabbis said, “a kind of death” and “worse than fifty plagues”. They said, “Nothing is harder to bear than poverty, because he who is crushed by poverty is like one to whom all the troubles of the world cling and upon whom all the curses of Deuteronomy have descended. If all other troubles were placed one side and poverty on the other, poverty would outweigh them all.”

What concerned the Sages was not so much the elimination of poverty through redistributive taxation. Instead what they sought to create was a society in which the poor had access to help when they needed it, through charity to be sure, but also and especially through job creation. Hence with wealth came responsibility. Richesse oblige. Successful businessmen (and women) were expected to set an example of philanthropy and to take on positions of communal leadership. Conspicuous consumption was frowned upon, and periodically banned through local “sumptuary laws”. Wealth was a Divine blessing, and therefore it carried with it an obligation to use it for the benefit of the community as a whole.

Not the least significant of Judaic contributions to the development of Western civilisation was its emphasis on, perhaps even invention of, linear time. Ancient cultures tended to think of time as cyclical, seasonal, a matter of eternal recurrences to an original and unchanging nature of things. The Hebrew Prophets were the first to see time in a quite different way – as a journey towards a destination, a narrative with a beginning and middle, even if the end (the messianic society) is always beyond the horizon. It is ultimately to this revolution that we owe the very notion of progress as a historical category, the idea that things are not predestined always to remain what they were. Hope, even more than necessity, is the mother of invention.

And to this we must add one further idea. The great philosophical advocates of the market, Bernard Mandeville, David Hume, and Adam Smith, were struck by a phenomenon that many considered to be scandalous and amoral. This was their discovery that the market produced benefits to all through a series of actions and transactions that were essentially selfish in their motivation. As Adam Smith put it bluntly, “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.” Within the system of free trade, as Smith put it most famously, the individual “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”. This fact, that markets and their associated institutions tend to work on the basis not of altruism but of somewhat earthier motives, has always led to a high-minded disdain for everything suggested by the word ‘commercial’.

Not so within Judaism. Long before Mandeville and Adam Smith, Judaism had accepted the proposition that the greatest advances are often brought about through quite unspiritual drives. “I saw,” says the author of Ecclesiastes, “that all labour and all achievement spring from man’s envy of his neighbour”. Or as the talmudic Sages put it, “Were it not for the evil inclination, no one would build a house, marry a wife, have children, or engage in business.” Purity of heart was essential to the relationship between man and God. But in relations between man and man, what mattered was the result not the sentiment with which it was brought about. Jews would find it easy to agree with the remark of Sir James Frazer that “it is better for the world that men should be right from wrong motives than that they would do wrong with the best intentions”.

In general, then, the Rabbis favoured markets and competition because they generated wealth, lowered prices, increased choice, reduced absolute levels of poverty, and in the course of time extended humanity’s control over the environment, narrowing the extent to which we are the passive victims of circumstance and fate. Competition releases energy and creativity and serves the general good. Admittedly, Jewish law permitted protectionist policies in some cases to safeguard the local economy, especially when the outside trader did not pay taxes. There were also times when rabbinic authorities intervened to lower prices of essential commodities. But in general they favoured the free market, nowhere more so than in their own professional sphere of Jewish education. An established teacher could not object to a rival setting up in competition. The reason they gave for this ruling illustrates their general approach. They said simply, “Jealousy among scholars increases wisdom.”

Needless to say, in a faith as strongly moral as Judaism, alongside the respect for markets went a sharp insistence on the ethics of business. At one of the critical points of the Jewish calendar, on the Sabbath before the Ninth of Av when we recall the destruction of the two Temples, we read in the synagogue the great first chapter of Isaiah with its insistence that without political and economic integrity, religious piety is in vain:

Seek justice, encourage the oppressed,
Defend the cause of the fatherless,
Plead the case of the widow . . .
Your silver has become dross,
Your choice wine is diluted with water,
Your rulers are rebels, companions of thieves,
They all love bribes and chase after gifts.

The same message is carried through into the teachings of the Rabbis. According to Rava, when a person comes to the next world for judgement, the first question he is asked is, Did you deal honestly in business? In the school of Rabbi Ishmael it was taught that whoever conducts himself honestly in business is as if he fulfilled the whole of Jewish law. The perennial temptations of the market – to pursue gain at someone else’s expense, to take advantage of ignorance, to treat employees with indifference – needed to be fought against. Canons of fair trading had to be established and policed, and much of Jewish law is taken up with these concerns. The Rabbis recognised that a perfect market would not emerge of its own accord. Not everyone had access to full information, and this gave scope for unscrupulous practices and unfair profits, against which they took a strong stand.

Perhaps the best summary of the way Judaism differed from Christianity, at least in its pre-Reformation guise, was given by Michael Novak, himself a Catholic:

In both its prophetic and rabbinic traditions Jewish thought has always felt comfortable with a certain well-ordered worldliness, whereas the Christian has always felt a pull toward otherworldliness. Jewish thought has had a candid orientation toward private property, commercial activity, markets, and profits, whereas Catholic thought – articulated from an early period chiefly among Priests and Monks – has persistently tried to direct the attention of its adherents beyond the activities and interests of this world to the next.

So much, then, by way of an overview of Jewish economic ethics, much of which bears a strong kinship with views Hayek tirelessly espoused. But it is just here that I want to enter into the spirit of The Fatal Conceit, in which Hayek warned us to look, not just at markets, but also at the moral environment in which they are sustained. I want to draw attention briefly to five features of Judaism, essential to its way of life, which on the face of it stand utterly opposed to the market ethic.

The first, of course, is the Sabbath and its related institutions, the sabbatical year and the jubilee. The Sabbath is the boundary Judaism draws around economic activity. “Six days shall you labour and do all your work, but the seventh day is a Sabbath to the Lord your God”. What marked the Sabbath off from all other religious celebrations in the ancient world was its concept of a day of rest. So unintelligible was this to the writers of ancient Greece that they accused Jews of observing it merely out of laziness. But of course what was at the heart of the Sabbath was and is the idea that there are important truths about the human condition that cannot be accounted for in terms of work or economics. That Sabbath is the day on which we neither work nor employ others to do our work, on which we neither buy nor sell, in which all manipulation of nature for creative ends is forbidden, in which all hierarchies of power or wealth are suspended.

The Sabbath is one of those phenomena – incomprehensible from the outside – which you have to live in order to understand. For countless generations of Jews it was the still point in the turning world, the moment at which we renew our attachment to family and community, during which we live the truth that the world is not wholly ours to bend to our will but something given to us in trust to conserve for future generations, and in which the inequalities of a market economy are counterbalanced by a world in which money does not count, in which we are all equal citizens. The Jewish writer Achad Ha-am was surely correct when he said that more than the Jews have kept the Sabbath, the Sabbath has kept the Jews. It was and is the one day in seven in which we live out all those values which are in danger of being obscured in the daily rush of events; the day in which we stop making a living and learn instead simply how to live.

Or secondly, consider marriage and the family. Judaism is one of the great familial traditions, and this despite the fact that in strict legal terms a Jewish marriage has the form of a contract; that Judaism has never prohibited divorce by mutual consent; and that it is quite relaxed about that modern development, the pre-nuptial agreement, and indeed sees it as a useful device in alleviating the stress of separation. The reason Judaism has often succeeded in sustaining strong marriages and families has little to do with the structure of Jewish marriage law, and a great deal to do with its ritual life, the way in which many of the supreme religious moments take place in the home as a dialogue between husband and wife, or between parents and children. Ultimately, Judaism saw marriage not as a contract but as the supreme example of a covenant, namely a commitment based not on mutual benefit but on mutual belonging, whose key value is fidelity, holding fast to one another especially during difficult times because you are part of who I am. The Jewish family survived because, in the graphic phrase of the Sages, it was surrounded by “a hedge of roses”, an elaborate network of rituals that bound individuals together in a matrix of mutual giving that was utterly at odds with a market ethic.

Or thirdly, consider education. I have already mentioned that Jewish law favours competition in the provision of teaching. What it did not do, however, was to leave access to education to the market and to the ability to pay. Even in the days of Moses, Jews were instructed to set the highest religious value on education – as one of our most famous prayers, taken from the book of Deuteronomy, puts it, “You shall teach these things diligently to your children, speaking of them when you sit at home or travel on the way, when you lie down and when you rise up”. And by the first century, Jews had constructed the world’s first system of universal compulsory education, funded by collective taxation. Education, the life of the mind, an ability to follow a train of thought and see the alternative possibilities that give rise to argument, are essential features of Jewish spirituality, and ones to which everyone, however poor, must be given access.

Or fourthly, the concept of property. I mentioned earlier that Judaism has a high regard for private property as an institution governing the relations between human beings. At the same time, though, governing the relationship between humanity and God, there has been an equal insistence that what we have, we do not unconditionally own. Ultimately everything belongs to God. What we have, we hold in trust. And there are conditions to that trust – or as the great Victorian Jew Sir Moses Montefiore put it, “We are worth what we are willing to share with others”.

The effect of this idea on Jewish society has been profound. I was recently at a ceremony to mark the opening of a new Jewish school in one of our provincial communities. The project had been made possible by the great generosity of one of the local members. Over dinner I leaned over to him to express my thanks for his gift. He said, without a moment’s reflection, “What else could I do? The money wasn’t mine. God lent it to me, and I invested it as wisely as I could in the next generation.” That kind of unreflective response lies at the foundation of the long tradition of Jewish philanthropy and explains much of how Judaism has been able to encourage the creation of wealth without giving rise to class resentments.

And finally, there is the Jewish tradition of law itself. It was a non-Jew, William Rees-Mogg, who first drew my attention to the connection between Jewish law and the control of inflation, a link that I confess I never thought of making. His argument is contained in a book he wrote during an era of high inflation (in 1974), entitled The Reigning Error. It was simply this. “Inflation is a disease of inordinacy”. It comes about through a failure to understand that energy, to be channelled, needs restraints. It was the constant discipline of law, he says, that provided the boundaries within which Jewish creativity could flow. The law, to quote his words, “has acted as a bottle inside which this spiritual and intellectual energy could be held; only because it could be held has it been possible to make use of it. It has not merely exploded or been dispersed; it has been harnessed as a continuous power.” Jews, for him, were a model of acquired self-restraint, and it was the failure of societies to practice self-restraint that led to runaway inflation.

And with this I come back to Hayek and The Fatal Conceit. It was Hayek’s view that moral systems produced their results, not directly or by conscious intention, but rather in the long run and often in ways that could not have been foreseen. Certainly Jews believed that their way of life would lead to the blessings of prosperity. That, after all, is the substance of many of Moses’ prophecies. But there was no direct connection between institutions like the Sabbath and economic growth. How could there be? The Sabbath, the family, the educational system, the concept of ownership as trusteeship, and the disciplines of the law, were not constructed on the basis of economic calculation. To the contrary, they were ways in which Judaism in effect said to the market: thus far and no further. There are realms in which you may not intrude.

The concept of the holy is precisely the domain in which the worth of things is not judged by their market price or economic value. And this fundamental insight of Judaism is all the more striking given its respect for the market within the market-place. The Fatal Conceit for Judaism, as for Hayek, is to believe that the market governs the totality of our lives, when it fact it governs only a limited part of it, that which concerns goods which think of as being subject to production and exchange. There are things fundamental to being human that we do not produce; instead we receive from those who came before us and from God Himself. And there are things which we may not exchange, however high the price.

What then might be the lesson of The Fatal Conceit for our time? That socialism is not the only enemy of the market economy. Another enemy, all the more powerful for its recent global triumph, is the market economy itself. When everything that matters can be bought and sold, when commitments can be broken because they are no longer to our advantage, when shopping becomes salvation and advertising slogans become our litany, when our worth is measured by how much we earn and spend, then the market is destroying the very virtues on which in the long run it depends. That, not the return of socialism, is the danger that advanced economies now face. And at such times as now, when markets seem to held out the promise of uninterrupted growth in our satisfaction of desires, the voice of our great religious traditions needs to be heard, warning us of the gods that devour their own children, and of the temples that stand today as relics of civilisations that once seemed invincible.

The market, in my view, has already gone too far: not indeed as an economic system, but as a cast of thought governing relationships and the image we have of ourselves. A great Rabbi once taught this lesson to a successful but unhappy businessman. He took him to the window and asked him, What do you see? The man replied, I see the world. He then took him to a mirror and asked, What do you see? He replied, I see myself. That, said the Rabbi, is what happens when silver covers glass. Instead of seeing the world you see only yourself. The idea that human happiness can be exhaustively accounted for in terms of things we can buy, exchange and replace, is one of the great corrosive acids which eats away the girders on which societies rest; and by the time we have discovered this, it is already too late.

Hayek’s final contribution to the great debate about economic systems was to remind us that the market does not survive by market forces alone. It depends on respect for moral institutions, which are themselves expressions of our reverence for the human individual as the image and likeness of God.

Afterword – published in Morals and Markets Occasional Paper 108 by the IEA in 1999 

I am deeply grateful to Michael Novak, Robert Davidson and Norman Barry for extending and enriching the argument I set out in my Hayek lecture. Michael Novak has re-articulated the Judaic vision with the grace and lucidity that makes him one of the towering moral commentators of our time. Norman Barry and Norman Davidson have each added lively caveats from perspectives slightly different from mine, the former arguing that the market is its own best moral guarantor, the latter reminding us of the variety and vitality of religious traditions and of their need constantly to be tested against reality. I particularly value Davidson’s plea for our faith traditions to offer, in life as well as preaching, a compelling vision of hope.

All this is a way of thanking the Institute of Economic Affairs for its generosity in inviting a religious leader to engage in conversation with a distinguished gathering of economic thinkers. We need more conversations of this kind. Religious leaders have no privileged expertise on economics; nor do economists on matters theological. But our concerns overlap, and our perspectives differ, and it is the virtue of such encounters that they lead us beyond naïve economics on the one hand, simplistic theology on the other to a point where we can genuinely share our concerns for a more gracious social order.

Economists and theologians do have significant things to say to one another. Judaism, Christianity and Islam have each in their different ways wrestled with questions of wealth creation and distribution, relations between employers and employees, the tension between conserving and enhancing the environment, our duty to future generations and its implications for investment strategies, and so on. The great faith traditions invite us to think about such questions from the broadest of perspectives – the nature of human existence in a world only partially of our making – and they bring to the conversation large historical experience. At the same time they need constantly to be challenged and tested; never more so than now when the sheer pace of technological change heralds so many possibilities as well as threats to cherished certainties. If civilisation is conversation, or what the Rabbis called “argument for the sake of Heaven”, then much depends on the quality of our listening and the diversity of voices that enter the debate. That is why I felt it was worthwhile to add a Judaic contribution without for a moment suggesting that it contains the final truth. In economics, there is no final truth.

Let me, then, re-state my case as simply as I can. Economists from Adam Smith onward have drawn our attention to the “law of unintended consequences”. Not everything that happens in the social arena happens because the participants intended it. Results emerge that are different from than anyone’s conscious objective. That, as Albert O. Hirschman has so elegantly shown in his classic study, The Passions and the Interests, was one of the great early arguments for the capitalist system. The market, by harnessing self-interest, would produce results far transcending self-interest. Individual gain would lead to collective gain. Selfish motives would produce better results than selflessness.

The great gift of this startling paradox is that it came true. The market economy has indeed led to an astonishing revolution in living standards, educational opportunities, technological advance, health care, and all the other benefits that today make nostalgia for a golden past just that – nostalgia. Anyone who dreams of returning to the ordered grace of the sixteenth or eighteenth century might contemplate what it would be like to have a toothache then and now. We are collectively better off in a world in which the market harnesses our efforts to be individually better off.

It was Hayek’s virtue to apply the law of unintended consequences not only to markets but also to political and social structures. It is precisely our inability accurately to foresee the results of particular policies that makes large scale social engineering so disastrous. That is the “fatal conceit”. Central planners get it wrong because nothing works out in the long run as we thought it would. Better the open texture of self-correcting mechanisms like the market. Hence Hayek, like Sir Karl Popper and Sir Isaiah Berlin, arrived at his rejection of central planning and the hyperactive state, and his vigorous defence of individual freedom. So far, so good.

But the market itself has unintended consequences, and these take time to appear. One of them is its sheer power, not only as a way of structuring transactions but as a way of dealing with other issues as well. The market becomes a metaphor, a paradigm, for much of human life. If products can be bought and sold, why not health or education or art or confidential information or reputations or relationships? Why not see marriage as a commercial contract for mutual advantage? Why not see children as commodities to be designed by genetic engineers and produced or terminated at will? Why not see all values as reducible to profit? Oscar Wilde defined the cynic as a person who knows the price of everything and the value of nothing. Is not the end product of the market the reign of universal cynicism?

Now this is standard anti-market rhetoric, and it is not my case to oppose the market. As I argued, the Judaic tradition holds the market and its attendant virtues in high regard. My case is different. It can be stated thus. Ideas and institutions that have great benefit in their own domain have disastrous consequences when they are applied to another domain.[1] Religion has great virtues in ordering communities. It has dire results when employed to govern states. Scientific method is supreme in explaining natural phenomena. It is catastrophic when used to prescribe human behaviour. Markets are the best way we know of structuring exchanges – goods to be bought and sold. They are far from the best way of ordering relationships or preserving goods whose value is not identical with their price.

This sounds self-evident. But self-evidence is no defence against error. The reason is this. Systems of thought are self-contained. They define a universe, but rarely do they signal the limits of that universe. There is no religious theory of the limits of religion. There is no scientific theory of the limits of science. To be sure, two major discoveries of the twentieth century give us reason for humility. Godel’s theorem establishes the limits of logic. Heisenberg’s Uncertainty Principle suggests the limits of scientific observation. Both are ways within the system of postulating phenomena that lie beyond the system. But such humility is rare, and the opposite is more common.

The success of religion in the Middle Ages led it to expand beyond its proper borders and acquire not just influence but power. The success of science in the seventeenth and eighteenth centuries led thinkers to believe it contained answers to questions not just of natural causation but also of human purposes. Today the glittering paradigm is economics. Given the success of the market as against rival ways of matching supply and demand, why not reduce all relationships to transactions, all motives to self-interest, and all values to consumer choices? The short answer is – here as elsewhere – that what is valid in one domain is not necessarily true of another. From within the Judaic perspective (and surely within Christianity and Islam also) it is possible to see what a balanced social ecology might look like. Judaism values the free market. But it also values institutions that cannot be translated into market terms – the family, the Sabbath, a sense of possession as trusteeship and so on. These do not compromise the integrity of the market, but they help shape the way its participants function as persons with serious moral commitments to values not reducible to the market. I think they make a difference.

I think they make a difference to how employers treat employees. I think they make a difference to how businesspeople see their responsibilities to society, to local communities, to schools, to the impact of their decisions on individual lives. I think membership in certain groups – a religious community, for example – makes a difference to the salience of concepts like honour, trustworthiness, integrity and reputation. I think the presence or absence of strong family structures makes a difference to the time perspectives we bring to bear on decisions. I think that our religious traditions are one of the most powerful resources we have for teaching us that not everything we have an interest in doing should we do; for tempering desire with self-restraint; and for taking seriously the reality of other interests than our own. Unlike Norman Barry, I do not think that these virtues arise naturally from the market. They are essential to the health of the market, but they come from elsewhere.

I made these observations on the basis of my own limited experience. I was therefore surprised to find them confirmed by a thinker whose expertise is quite different from my own. George Soros published The Crisis of Global Capitalism after I had delivered the lecture. I am in no position to evaluate his other contentions, but a central theme of the book precisely echoes the case I was making, in somewhat stronger language. He speaks of “market fundamentalism” and of the “transactional society” that emerges when “the scope and influence of economic theory” expands “beyond the confines that the postulates of an axiomatic system ought to impose”. The following paragraph gives a flavour of his approach:

A transactional society undermines social values and loosens moral constraints. Social values express a concern for others. They imply that the individual belongs to a community, be it a family, a tribe, a nation, or humankind, whose interests must take precedence over the individual’s self-interests. But a transactional market economy is anything but a community. Everybody must look out for his or her own interests and moral scruples can become an encumbrance in a dog-eat-dog world. In a purely transactional society, people who are not weighed down by any consideration for others can move around more easily and are likely to come out ahead . . . A purely transactional society could never exist, yet we are closer to it than at any time in history.[2]

And perhaps in this context it is worth quoting another book, also published subsequently to the lecture, from a writer whose perspective is different from both Soros’ and my own, Roger Scruton, who in his critique of modern culture writes:

Faith exalts the human heart, by removing it from the market-place, making it sacred and unexchangeable. Under the jurisdiction of religion our deeper feelings are sacralised, so as to become raw material for the ethical life: the life lived in judgement. When faith declines, however, the sacred is unprotected from marauders; the heart can be captured and put on sale.[3]

Is faith in decline? All I can say is that one of the institutions I am proudest of having had a share in creating is the Jewish Association of Business Ethics,[4] which regularly brings together leading business people and rabbinic experts in Jewish law to discuss practical dilemmas. It has proved hugely popular, and more than that. In extending its work to schools, it has shown sixth formers that business can and should be an ethical enterprise, and that an ancient tradition has compelling things to say in today’s market-place.

Religion and economics are contrary voices, and we can only gain by dialogue between them. Religion will always urge us to look heavenward. Economists will remind us that we are creatures set on earth. Religion reminds us of our wider commitments. Economists insist that noble motives do not always yield the best results. There is no reason why both cannot accept the integrity of the other while checking its trespasses into domains not its own. That mutual testing of beliefs, candid, open, judged by the attentiveness of our listening as well as the cogency of our speech, is our best hope of not losing our way in the pace of our pursuits – and a fitting tribute to the memory of Friedrich Hayek who wrote, “Paradoxical as it may appear, it is probably true that a successful free society will always in large measure be a tradition-bound society.”[5]

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[1] Hayek himself devoted a whole book to this proposition. In The Counter-Revolution of Science, Liberty Press, 1979, he distinguishes between science (the proper application of science to natural phenomena) and scientism (the improper application of science to human action).
[2] George Soros, The Crisis of Global Capitalism, Little, Brown and Company, 1998, p.75.
[3] Roger Scruton, An Intelligent Person’s Guide to Modern Culture, Duckworth, 1998, p.84.
[4] Information on its work can be obtained from Lorraine Spector, Executive Director, The Jewish Association of Business Ethics, PO Box 3840, The Hyde, Colindale, London NW9 6LG.
[5] Friedrich Hayek, The Constitution of Liberty, Routledge, 1960, p.61.