In Dutch newspaper Trouw a reader, Stevo Akkerman, on May 1st fiercely criticized the morality of the market. His letter was a response to recent vicissitudes surrounding Henry Keizer, chairman of the Dutch liberal party.

“The market only causes immoral behavior if one makes a caricature of the market”

Akkerman discussed the deeply nebulous fiddling of Keizer with his company that organizes funerals and cremations. The authors conclusion was that a non-profit cremation association was turned into a cash machine by entering the market. The author ends dramatically with “The morality of the free market, even in the treatment of our dead, pushes every other morality away.”

We understand Akkerman’s indignation, he however draws the wrong conclusion. The market only causes immoral behavior if one makes a caricature of the market. Keizer gets away unscathed with Akkerman, because not he but the “free market” is responsible. As if the market does not need morality to function and even presupposes it.

In her book Bourgeois Virtue Deirdre McCloskey explains that the market, in order to function well, calls for all sorts of virtues: honesty, imagination, even love. Where these virtues are practiced, the market can flourish. Markets are characterized by freedom (you can choose what you buy) and ‘prudentia’ (you can only spend your money once). Over centuries these qualities have led to innovation, the need to co-operate and to enormous welfare increases for the world’s population.

Malicious behavior

Due to freedom and innovation, markets are also characterized by risks. Entrepreneurs have to take risks and if things go well, something beautiful arises. Sometimes things go badly, and companies go bankrupt.

There is a risk that this healthy mechanism is disturbed by malicious behavior. Consumers may be misled by false representations and as a result be buying the proverbial pig in the poke. Moreover companies that do not function properly may survive due to tricks, which may advantage certain people disproportionately. Sooner rather than later this usually comes to the surface. In dramatic cases this may even lead to a financial crisis, as we have recently experienced.

“In the long term the market functions not only as an economic but also as a moral filter, because greedy people are eventually exposed.”

The misunderstanding that it is the market itself that causes questionable behavior comes from the implicit picture that many people have of markets. It would only be about money, profit and greed. This caricature of the market does not do justice to reality.

Markets are fundamentally based on collaboration. In a market an entrepreneur only adds value if he attempts to deeply understand the customer and collaborates with suppliers and all kinds of other parties that can help realizing added value.

Long-term successful companies make sure that their own interests and social interests are in balance. In the long term the market functions not only as an economic but also as a moral filter, because greedy people are eventually exposed.

Quick gains

The downside is that this moral filter does not always work in the short-term, because some people want to make a quick gain. The Facultatieve (Keizers company) is not the first and will not be the last example of a company that looks for or even exceeds the limits of what is decent. This is however not sustainable. That is why Keizer is in trouble now. And rightly so.

It is up to entrepreneurs themselves to act morally and not just to look at what is legally still permissible. In addition, the media, politics and the judiciary ought to work on detecting malpractices.

To draw the conclusion from the recent turbulence that the market as an institution only knows vices is not in accordance with centuries of economic empirical observations. To reject as immoral an institution in which the vast majority of our society is active on a daily basis, from their job to supermarket purchases, is, quite frankly, ridiculous. We’d better think carefully about how we can continuously stimulate the morality of the market instead.

Govert Buijs is Goldschmeding Professor of Market and Civil Society at the Vrije Universiteit Amsterdam. Marcel Canoy is distinguished lecturer at the Erasmus School of Accounting and Assurance. Both are involved in the research project “What Good Markets Are Good For.”