The Market and Merit

February 11, 2010

I’m still mad at Robert and Thomas for claiming that any intelligent person already believes whatever it was that I was trying to say in that post last week. My anger is probably unjustified, but can it nevertheless be a good thing? After all, it’s driving me to think about and develop these points in a way that I wouldn’t bother to if I were entirely calm about the whole enterprise.

Perhaps that’s overstating what I’m about to do. Via Bryan Caplan, here’s an article on “The Fable of Market Meritocracy,” which, as Bryan points out, is completely wrong. This is what I, channeling Deirdre McCloskey, am arguing against. It’s not true that in the free market, you’re just as likely to get rich by being a lucky drunk than by working hard and cultivating virtue. And apparently, some libertarians who have read Hayek believe that.

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One Response to “The Market and Merit”

  1. Rrrobert! Says:

    First, to mollify your anger somewhat:

    1. It seemed intuitively obvious to me that people aren’t rational economic actors, and I was of the impression that even your most oblivious economists acknowledged that, even if they didn’t pay any attention to it. Perhaps I was wrong, and people do in fact think of decisionmakers as automatons.

    2. It also seemed intuitively obvious to me that informal, trust-based relationships were at the heart of many economic transactions. After all, trusted relationships add value and provide a comparative advantage over competitors who can’t rely on informal agreements. I thought there was considerable agreement about this in economics, as well, but I could be wrong.

    It seems like your claim extends beyond these two points, but I’m having trouble articulating what it is. I think it’s something in between “the market rewards some behavior that we would generally think of as virtuous” (which I think proceeds uncontroversially from (2)) and “the most likely path to riches is the cultivation of virtue” or “by working hard and cultivating virtue, you are likely to get rich” (both of which are all manner of controversial, and don’t at least in my mind, follow from your posts). Clarification is mad welcome, especially with regard to the below.

    The Dalmia link is illuminating, but I think the Caplan is far wide of the mark. To be clear, I don’t think Dalmia is saying that luck is as likely as hard work to get you rich. He’s saying that the market makes no distinction between the two, and a person’s position in the market can’t tell you anything about their relative merit.

    But, Caplan objects, meritorious people are more likely to be rewarded than non-meritorious ones. On average, therefore, shouldn’t we be able to say that the people who excel are more likely to be meritorious than people who don’t?

    Well, no. First, this is a fairly basic “converting the conditional” fallacy. Just because, ceteris paribus, someone who has merit is more likely to be rewarded than someone who doesn’t, it need not follow that merit be the main source of success in the world. Particularly when you start thinking about what merit is.

    Is merit, as Caplan writes about it, the same as virtue? I don’t think so. For one thing, a lot of what we think of as virtuous doesn’t have any correlation with market success – think of monks, or anonymous charitable donations, or attentive family life, or dedication to a non-remunerative cause. So merit may include some virtues, but it doesn’t encompass all virtue. In the article, he identifies some things that contribute to merit: hard work, more work, higher quality work; cleverer ideas; genius; ability.

    But even if those things are advantages in the market, the market tells us nothing about whether we live in a “meritocracy” because it doesn’t tell us anything about the relative merit of any of its actors; all it tells us is relative value (theoretically), a measure that includes any number of arbitrary, non-merit factors (by the way, I would argue that genius has nothing to do with merit).

    To illustrate: Say the only two factors correlated with wealth were opportunity (aka luck) and merit. And there is a class of people who are very wealthy. Sure, it’s possible that the wealthy people are dramatically more meritorious than their peers; but a scenario where they’re totally devoid of merit but also very lucky also fits those facts. And the market, because it rewards both, can’t tell you anything about which narrative is correct.

    But a system that rewards hard work, genius, etcetera is better than one that doesn’t, right? Well, maybe. It depends what you think the relationship is between those things and virtue. If you value other qualities, you might prefer a system that rewards something else instead. Or one that rewards those things, but also provides for people who don’t have those qualities [cough Rawls cough]. In any case, the market can’t do anything to illuminate what our values should be; it’s up to human beings to have values that can then be operated on by market forces.

    To circle around – people are moral actors, so it shouldn’t be surprising that moral elements are valued in economic capacities – you can think of a double-cross as taking a psychic toll on the crosser, explaining why even anonymous transactions usually proceed smoothly. Further, as an evolutionary matter, it’s not surprising that we’ve developed moral sentiments about economic transactions, since moral feeling can make transactions more efficient and increase our chances of surviving. But I think it’s a mistake to assume that it’s a two-way street; that, since our morals inform our economic transactions, we should therefore be prepared to take moral cues from markets.

    Or at least, I don’t think we get there from the points Caplan raises. Interested to hear your thoughts.


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