Good Conduct in a Great Society: Adam Smith and the Role of Reputation

D.B Klein, REPUTATION: STUDIES IN THE VOLUNTARY ELICITATION OF GOOD CONDUCT, pp. 29-45, University of Michigan Press, 1997

14 Pages Posted: 7 Feb 2004

See all articles by Jeremy Shearmur

Jeremy Shearmur

Australian National University (ANU) - School of Philosophy

Daniel B. Klein

George Mason University - Department of Economics; George Mason University - Mercatus Center

Abstract

Writers as diverse as Schumpeter (1943), Habermas (1976), Daniel Bell (1976) and Fred Hirsch (1977) have suggested that the ideal of a market-based and voluntaristic society, while perhaps attractive, is fundamentally flawed (see Hirschman 1982). Such a society, they admit, can generate material well-being and allow all of its members a kind of formal freedom and personal independence, in marked contrast to what is available in local communities of less commercially developed societies. Yet individual freedom and personal independence carry with them the seeds of the destruction of the society that makes them possible.

If a market-based society is to function, it is argued, its members must behave decently towards one another. They must be able to rely upon one another to respect property rights and to keep their promises, even in dealings with people with whom they do not have face-to-face or frequent relations. Critics of market-based societies have suggested that, although in the early stages of market societies, good behavior may indeed be found, it is an inheritance from earlier forms of social organization. Market-based societies are living upon moral capital - capital that they cannot themselves replenish. This moral capital is eroded by some of the very factors that seem to make such societies so attractive. Formal freedoms and growing wealth allow people to flee the oppressive constraints of family, local community, or figures of petty authority, for the anonymity - and anomie? - of life in large metropolitan areas.

Schumpeter and the other critics would have to admit that, in recent years, some interesting work has explored whether good behavior can in fact survive based solely on self-interest. We mean in particular the growing literature on repeated and evolutionary games (Axelrod 1984; Kandori 1992). The critics could note, however, that such simulations of prudence typically seem to be limited in scope - limited to reciprocal relations within relatively small groups, to interactions that are iterated, and to interactions with partners who can be recognized (see Shearmur 1992). This seems a far cry from a great society, in the Smith-Lippmann-Hayek sense,(1) where many people meet but do not have established relations.

Adam Smith was an early commentator upon both the advantages and disadvantages of what he called commercial society (or the great society of mankind). Smith identified problems similar to those identified by modern theorists, and we can say that he was of two minds on the issue of good conduct in a great society (see Shearmur 1991). Within the setting of commerce he identified the essential logic of repeated-game thinking, and claimed that commercial society promotes probity and punctuality, at least in commercial relationships. Yet elsewhere Smith argues that, more broadly speaking, the extended society will carry moral maladies so severe that they call for coercive state intervention.

Coercive state intervention is not, to say the least, a pleasing outcome for those who favor voluntaristic society. It so happens that Max Weber, when reporting upon an experience that he had in connection with a religious sect, perceived aspects of it which not only suggest a voluntaristic resolution of Smith's doubts about good behavior, but also a way in which Smith's own ideas about commercial reputation might be extended beyond the area of repeated commercial interaction. We aim to argue for the viability of good conduct in a voluntaristic great society by arguing that Smith's optimism about good conduct in the extended economic order can be carried over to the extended social order; that which fosters trustworthy behavior in the economic realm also fosters it in the social realm.

Keywords: Assurance, seal of approval, reputation, knower, trust

Suggested Citation

Shearmur, Jeremy and Klein, Daniel B., Good Conduct in a Great Society: Adam Smith and the Role of Reputation. D.B Klein, REPUTATION: STUDIES IN THE VOLUNTARY ELICITATION OF GOOD CONDUCT, pp. 29-45, University of Michigan Press, 1997, Available at SSRN: https://ssrn.com/abstract=464023

Jeremy Shearmur

Australian National University (ANU) - School of Philosophy ( email )

Canberra, Australian Capital Territory 0200
Australia

Daniel B. Klein (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://economics.gmu.edu/people/dklein

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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