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Econ 411
Moral Foundations of Capitalism
Fall 2019
B&E - 441
Instructor: Professor Roger D. Congleton T/W/Th: 2:00 - 3:30
Office: B&E - 428
.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 lecture course that explores how some types of ethical dispositions  allow markets to become larger and more effective. They do so  by reducing unproductive conflict, simplifying contract enforcement,  internalizing externalities, and reducing principal agent problems. The course also demonstrates that norms that favor voluntary over coercive relationships and that include a place for material comfort in a good life often help to promote market processes, networks, and outcomes. Three  types of normative theories are examined: (i) personal ethics, (ii) civil ethics, and social ethics. All three types have played roles the establishment of the "commercial society.".
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 ethics from Aristotle through JS Mill. This intellectual history introduces students to several theories of ethics and shows how major figures from philosophy and economics have used their theories to evaluate the merits of market-oriented careers and markets. The overview also provides evidence that ethical theories in the West gradually became more supportive of commerce. (2) The second part of the course uses game theory and economic theory to show how a subset of ethical dispositions can increase gains to trade. As such ethical dispositions become commonplace, trading networks become more extensive, larger economic organizations become feasible, and rates of innovation tend to increase. In short, a commercial society tends to emerge. (3) The third part of the course explores  how normative theories affect market relevant public policies. It begins with a short review of the history of welfare economics, and examines how particular norms tend to promote (or discourage) the emergence of commercial societies and rates of innovation.

The main goals of the course are to induce  students (1) to become familiar with an intellectual history and core ethical arguments concerning the proper role of markets in a good life, and (2) to increase their understanding of the many ways in which normative theories affect the extent of commerce. Some societies are richer than others because their culture--their ethical dispositions--accord a broader role for commerce in a good life and good society, and also support the ethical dispositions that make markets work more efficiently.

  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

January 8
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
January 8
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:

January 15
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
January 22
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
January 31
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
February 7

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

February 12 (postponed until after the midterm because of the snow day)
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
Feb 19
Review for Midterm Exam
Study Guide I
Feb 21
Midterm Exam
Feb 26
Review of Midterm Exam Paper Topics
February 28
7. Commerce and Market Supporting Ethics: A Game Theoretic Approach [Continued]

March 7
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. 
Franklin on Ethics in the Work Place
(Link to lectures from intermediate micro economics on marginal benefit and marginal cost curves)

Spring Break March 9-17

March 19
8. Neoclassical Economics with Ethics (B) Equilibrium investments in and distributions of Virtue. Ethics and the extent of Commerce are codetermined.
Franklin on Ethics in the Work Place

III. Commerce, Ethics, Law, and the Good Society
March 26
9. Ethics and the Law. Moral foundations of law in a commonwealth. Internalized ethics and the enforcement of Law.

European Public Choice Society April 1-4 / Videos as RDC is out of town

Optional Material, Not likely to be covered in Lecture
9d. Twentieth Century Innovations in "Welfare Economics," the Moral Theories Used by Economists.

10. Neoclassical Welfare Economics and the Performance of Markets.   Contractarian alternatives from Buchanan and Rawls. Externaliteis and the utilitarian case for regulation.

11. Ethics, Government Failure, and System Choice. The possibility of government failure. Majority rule and economic regulation, favoritism and rent seeking.
Quotes from:
April 9
12. The Ethics of Progress: Innovation, Uncertainty, Entrepreneurship, 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

April 16

April 18

April 23
 Review for Final

Second Midterm Exam

Exams Returned and Reviewed
Study Guide II

April 25
Last Day of Class, Overview Lecture and Paper Workshop
Paper Topics

May 1
Papers Due by Midnight (to be e-mailed to
. (Remember to format the file title as EC411_lastname_final_paper)

“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)