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Econ 411
Moral Foundations of Capitalism
Fall 2016
B&E - 441
Instructor: Professor Roger D. Congleton .T/Th: 1:00 - 2:15
Office: B&E - 405
.Office Phone  3-7866 (e-mail is the most reliable way to reach me)

Office Hours: 2:00-3:30 Wednesday and Thursdays, and most other times by appointment
Required Texts: class notes
Main Texts (Optional): Source Material for the Course*
. Aristotle (350 bc) Nicomachean Ethics (Available as an E-book from Google, Liberty Fund, Amazon, etc.)

Buchanan, J. M. (1997) Ethics and Economic Progress. Norman OK: University of Oklahoma Press.

Mill, J. S. (1863) On Liberty. Boston: Ticnor and Fields. (Available as an E-book from Google and Liberty Fund).

Rand, A.(2005) Atlas Shrugged. New York: Penguin. (Available as an E-book from Google and Amazon).

Smith, A. (1776) An Inquiry Into the Nature and Causes of the Wealth of Nations. (Available as an e-book from Google and Liberty Fund).

Spencer, H. (1896) Principles of Ethics. Appleton and Company, New York. (Available as an e-book at liberty fund and the Von Mises Institute)

Weber, Max (1930) The Protestant Ethic and the Spirit of Capitalism. (Available as an e-book from Google and Amazon.)

Course Description: Tentative Syllabus
. Moral Foundations of Capitalism is a course in normative economic and political economy theory and history. It analyzes how some types of morals at the individual level allow markets to become larger and more effective by reducing principle agent problems, simplifying contract enforcement, and internalizing externalities. It also discusses social norms that can be used to assess market processes, networks, and outcomes. Two general types of normative theories are examined: (i) personal ethics and (ii) civil ethics. Both types of ethics have played roles in arguments for and defenses of relatively open (free) markets.
Whether then we suppose that the End impresses each man's mind with certain notions not merely by nature, but that there is somewhat also dependent on himself; or that the End is given by nature, and yet Virtue is voluntary because the good man does all the rest voluntarily, Vice must be equally so;
Aristotle (2012-05-17). Ethics (p. 82).  . Kindle Edition.
For not only is a developed sense of responsibility absolutely indispensable, but in general also an attitude which, at least during working hours, is freed from continual calculations of how the customary wage may be earned with a maximum of comfort and a minimum of exertion. Labor must, on the contrary, be performed as if it were an absolute end in itself, a calling. But such an attitude is by no means a product of nature.

Weber, Max (2012-10-21). The Protestant Ethic and the Spirit of Capitalism (Kindle Locations 311-314). Vook, Inc.. Kindle Edition.
The course is divided in to three parts. (1) The first part reviews theories of personal ethics from Aristotle through Mill. It shows how private and social ethics changed in the West during the same period in which capitalism emerged. It is a relatively philosophical section and introduces students to several theories of personal ethics, with particular emphasis on ones that support commerce. (2) The second part uses game theory and economic tools to show how a subset of ethical norms tend to make markets more extensive: more gains to trade emerge, larger organizations become possible,longer trading networks become feasible, and rates of innovation tend to increase. (3) The third part reviews theories for evaluating public policy and market outcomes. In what ways can a market be said to become "more efficient?" A short review of the history of welfare economics is undertaken. Examples of social norms include: Pareto efficiency, social welfare (utilitarian),  contractarian (voluntaristic) norms, human development based norms (Sen), and pragmatic ones (gnp, longevity, etc).

The two goals of the course are to (1) provide students with an intellectual history and core ethical arguments in support of voluntary exchange, innovation, markets, and market networks; and (2) increase their understanding of why those normative theories had economic and political effects that helped induce the emergence of modern capitalism.

The course is lecture oriented. Grades are determined by two examinations and a final paper.
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. 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. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens.

Smith, Adam (2010-03-23). Wealth of Nations,1776 Edition (pp. 7-8).  . Kindle Edition.
. Tentative Course Outline .
Dates Topic
Supplemental Readings
. I. Commerce and the Good Life

1. Introduction to Moral Foundations of Capitalism

.August 18
Norms as personal motivations and self restraint. Two approaches to norms: positive--the study of the effects of norms, and normative--the application of normative theories to assess private behavior, societies, and market outcomes. Norms that help and hurt economic growth. Capitalism as a name for contemporary market-based networks and lifestyles.
Why MBA's Read Plato (WSJ)
Vonnegut: Harrion Bergeron
August 18
2. Aristotle's Ethics and Political Theory as Private Ethics Ethics as the pursuit of lifetime happiness, rather than short term pleasure. Aristotle's principle of moderation in all things.Wealth as a means to an end. Aristotlian virtues. Aristotle as the foundation of contemporary secular ethics.
Quotes from:

August 25
3. Market Supporting Ethics and the Early Enlightenment.  Three major disruptions of the medieval order. Nature law and the moral sense. Markets as a dissipating or supporting system for ethical development. Rising importance of life on earth. Baxter and Barklay on duties on earth. Locke and the division between theological and civil ethics.
Quotes from:
Erasmus, More,
Grotius, La Court,
Baxter, Barklay
September 6
4. Classical Liberalism, Ethics, and the Market. Montesquieu and the importance of political virtue. Franklin and the "spirit" of capitalism. Smith: moral sentiments and the impartial spectator as the source of ethics and virtue. Kantian duties and the moral imperative. Bastiat on market support for ethics. 
Montesquieu, Franklin
Kant, Bastiat
September 15
5. Utilitarian Foundations for Private and Social Ethics. Another secular core principle for the development of ethics. Bentham and the utilitarian revolution, Mill's extensions. Spencer's evolutionary approach. Do ethics improve survival prospects? Emergence of social ethics along with democratic politics. Ideology as social ethics.

Mill, Spencer

II. Ethics and the Extent of Commerce
September 22

6. Civil Ethics and Civil Society: A Game Theoretic Analysis
(1) Introduction to Game Theory: Strategy Choice and Nash Equilibrium with Applications to Ethics and Civil Society, (2) Escaping the Hobbesian jungle, ethics and law as substitutes. (3) Solving  coordination games, (4) Internalizing Externalities 

WP-Contemporary Hobbesian Dilemma
WSJ-Importance of Civic Virtue

October 4
7. Commerce and Market Supporting Ethics: A Game Theoretic Approach
(1) Economics of gains to trade and trading networks, (2) Problems of Team Production, how the work ethic improves team production and promotes specialization. How selecting ethical persons can improve profits and encourage some types of ethical behavior. (3) Transaction and Enforcement costs as a limit on the extent of trading networks and specialization. How ethics reduces contract complexity and enforcement costs and expand markets. Evidence of the importance of Trustworthiness,
Weber on the Work Ethic
Congleton on the Work Ethic
Buchanan and Yoon on the Work Ethic
Taylor on Scientific Management
October 11
8. Neoclassical Economics with Ethics (A). Bringing ethics into the Marginal Benefit Marginal Cost Framework, Marginal Revenue Product as a consequence of team production and private ethics.  [Not on Midterm]
Franklin on Ethics in the Work Place
October 13
Review for Midterm Exam
Study Guide I
October 18
Midterm Exam
October 25
Review of Midterm Exam Paper Topics
October 27
8. Neoclassical Economics with Ethics (B) Equilibrium investments and  distributions of Virtue. Ethics and Commerce are codetermined.
Franklin on Ethics in the Work Place

III. Commerce, Ethics, and the Good Society
Nov 1
9. Ethics for Evaluating the Market Systems. using private ethics to evaluate policy makers and policies. Social ethics and the evaluation of policy and institutions. Welfare Economics. Contractarianism. The veils of ignorance and uncertainty.
Quotes from:
La Court, Hobbes
Bentham, Pigou
Mises, Buchanan
Nov 8
10. Neoclassical Welfare Economics and the Performance of Markets.  Neoclassical assessments of markets using utilitarian approaches (benefit cost analysis, income, social welfare functions, the First Theorem of Welfare Economics). Contractarian alternatives from Buchanan and Rawls. Externaliteis and the utilitarian case for regulation. (Link to lectures from intermediate micro economics on marginal benefit and marginal cost curves)
Quotes from:
Nov 15
11. Government Failure and System Choice. The possibility of government failure. Majority rule and economic regulation, favoritism and rent seeking. Importance of Ethics in Governance. Evaluating the  institutions for choosing  public policies. Role of ethical theories in both day to day politics and institutional choice. Laissez faire as a second best policy. The relative importance of ethics in markets and politics. 
Quotes from:
Olson, Tullock
Mises, Rawls
November 19-27
Thanksgiving Break

Nov 29

Dec 1

Dec 6
 Review for Final

Second Midterm Exam

Exams Returned and Reviewed
Study Guide II
.Dec 6
12. The Ethics of Progress: Innovation, Uncertainty, and Markets  Dynamic models of commercial societies. Is economic development moral? The role of ethics and norms in the evolution and evaluation of spontaneous orders.  Ethical defenses of creative destruction.
Schumpeter, Knight, Kirzner, Rand on Entrepreneurship
Spencer and Hayek on the Evolution of Ethics and Spontaneous Orders
Congleton and Vanberg on Evolution of Ethics
Dec 6
Last Day of Class, Final Lecture and Paper Workshop
Paper Topics

Dec 14
Papers Due by Midnight (to be e-mailed to

“Look around you,” he said. “A city is the frozen shape of human courage—the courage of those men who thought for the first time of every bolt, rivet and power generator that went to make it. The courage to say, not ‘It seems to me,’ but ‘It is’—and to stake one’s life on one’s judgment. You’re not alone. Those men exist. They have always existed.

Rand, Ayn (2005-04-21). Atlas Shrugged (pp. 473-474). Penguin Group. Kindle Edition.
Midterm Exam 35.00%
Endterm Exam 35.00%
Term Paper
Marginal extra credit for extraordinary class participation (up to 5% bonus)