Downsides of Markets

Center for Citizenship & Constitutional Government

Available on-demand

Grasp the profound intersection of liberty and human flourishing by navigating the tension between economic prosperity and moral character. Envision a society where justice protects every person, property, and promise. James Otteson, John T. Ryan Jr. Professor of Business Ethics at the Mendoza College of Business at Notre Dame, synthesizes the wisdom of 1776 to transform your understanding of dignity, securing a vision for meaningful progress in our world.

To read along with the class, enjoy the following:

Karl Marx, “Estranged Labor” (from 1844 Economic and Philosophic Manuscripts)
Adam Smith, Wealth of Nations, bk. 5, part 3, article 2, paras. 47–61 (pp. 266–273)
Class slides can be found here.

In what sense are “all men . . . created equal”? What is human liberty? What is prosperity, and how is wealth created? In 1776 these questions were addressed and acted upon in ways that have created the modern world. Commemorating the 250th anniversary, explore 1776 and the ideas that made the modern world, focusing on the Declaration of Independence and Adam Smith’s Wealth of Nations.

1776 and the Ideas That Made the Modern World, taught by Vincent Phillip Muñoz, Tocqueville Professor of Political Science and Concurrent Professor of Law at the University of Notre Dame and the Founding Director of ND’s Center for Citizenship & Constitutional Government, and James Otteson, John T. Ryan Jr. Professor of Business Ethics in the Mendoza College of Business is sponsored by the Center for Citizenship and Constitutional Government at the University of Notre Dame. To find out more, please visit their website.

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The Great Enrichment and Its Discontents

James Otteson navigates the complex intellectual terrain where the optimism of the Enlightenment meets the grueling realities of the Industrial Revolution. To understand modern society, we must reconcile Adam Smith’s “Simple System of Natural Liberty” with the critiques of Karl Marx—a synthesis that remains a moral imperative for understanding human dignity in a commercial age.

The Smithian Foundation

Otteson begins by anchoring Smith’s thought in a specific conception of justice defined by the “Three Ps”: Person, Property, and Promise. He emphasizes that these rights must be protected in strict lexical order: the safety of the physical person first, then the security of property, and finally the sanctity of voluntary promises. Only when a government fulfills these duties can individuals safely improve their conditions in a “positive-sum” game. Otteson elucidates that Smith even foresaw the rise of the American experiment, noting that the colonies were not “yet” as rich as England. This single word “yet” signaled a controversial prediction: that a system founded on these liberties would eventually eclipse the wealth of the old world.

The Marxist Critique

However, the “Great Enrichment” following 1776 brought social upheaval that Marx viewed through a far darker lens. Otteson evokes the grim atmosphere of mid-19th-century London to explain Marx’s dissent. It was a city of “overarching stench,” plagued by open waste and a density of 150,000 people per square mile—twice that of modern Manhattan. In this “war of the avaricious,” Marx identified four dimensions of alienation. He contended that workers are severed from their Product and the Process of labor. Most profoundly, Marx argued that capitalism atomizes our “Species-being”—our communal essence—forcing us to view ourselves as isolated units rather than a unified species, and our peers as competitors in a zero-sum struggle.

The “Moral Mutilation” Paradox

The most startling revelation in Otteson’s analysis is that Smith anticipated these critiques. In Book V of The Wealth of Nations, he warns of “moral mutilation.” Otteson navigates the biting irony that the very “dexterity” gained in the pin factory—the source of productivity—threatens to render the worker “as stupid and ignorant as it’s possible for a human creature to become.” This paradox suggests that the mechanism of wealth can, if left unaddressed, deform the human soul.

The Triage of Needs

To resolve this tension, Otteson posits a “Triage” model of human needs. He argues that Smith prioritizes the relief of extreme material poverty—food, clothing, and shelter—as a prerequisite for any higher-order spiritual or educational fulfillment. In this “Pyramid of Needs,” the misery of starvation is an immediate existential threat that must be addressed before a society can effectively worry about the “mutilation” of character or social inequality. This sequential progress—justice, then material security, then fulfillment—forms the backbone of the Smithian project. By moving beyond economic charts, Otteson invites us to hear the raw wisdom of these thinkers as they grapple with the complexities of the human condition.

The “Simple System of Natural Liberty” as a Moral Framework: Evaluate justice not by financial output, but by the protection of the “Three Ps” (Person, Property, Promise) in their lexical order. This system establishes the normative boundaries within which human agency can flourish without the degradation of coercion.
The Triage Model for Social Progress: Prioritize the eradication of extreme material poverty as the essential first step toward addressing higher-order social concerns. Using a “Pyramid of Needs” logic, this model suggests that material security is the necessary foundation before education and spiritual development can become viable pursuits.
Commercial Exchange as an Expression of Equal Moral Agency: Reconceptualize market transactions as acts of mutual respect. By making an offer rather than a demand, individuals acknowledge their peers as moral equals whose autonomy must be respected, fostering a culture of cooperative interdependence and solidarity.
The Unified Project of 1776: Identify the normative alignment between the Declaration of Independence’s assertion of inalienable rights and the Wealth of Nations’ blueprint for prosperity. Together, they function as a single project aimed at upholding human dignity through the practical relief of material suffering.
The Rejection of Utopia for Steady Improvement: Acknowledge that in a “fallen world” managed by imperfect beings, no system will be flawless. Shift the goal from achieving a perfect society to achieving “steady improvement,” ensuring that the pursuit of the perfect does not become the enemy of the good for the least of our brethren.

Regarding the inherent moral equality required for trade, Otteson reinterprets Smith’s view of self-interest as a form of social recognition: “What I think Smith thought he was advocating was not selfishness and greed but rather mutual respect. It’s recognizing that people you interact with, exchange with, or trade with are themselves moral agents, equal in dignity and deserving of respect.” — James Otteson
Synthesizing the foundational texts of 1776, Otteson posits that the combination of political rights and market mechanisms constitutes a peerless engine for human welfare: “If you take the Declaration of Independence and the Wealth of Nations and combine them, you might get a moral assertion of universal human dignity on the one hand, plus what appears to be the greatest poverty relief program.” — James Otteson
The professor elucidates the hidden sociality within markets, where individual pursuits create a tapestry of mutual reliance: “What happens in a commercial society is we have a vast and ramified network of cooperation where we come to depend on an innumerable number of people we don’t know, and in turn, they are dependent on us. We become mutually the servants of one another.” — James Otteson
Regarding the prioritization of human needs, Otteson explains why material security must precede the pursuit of intellectual and social virtues: “We triage our priorities. Education, personal fulfillment, and worrying about inequality are real concerns, but they come secondary to food, clothing, and shelter; if people don’t know whether they can eat today, none of the rest of it is going to matter.” — James Otteson
Acknowledging the limitations of human nature, Otteson argues for a pragmatic approach to progress over the allure of totalizing ideologies: “On Smith’s worldview, perfection is not on offer because we live in a fallen world with imperfect creatures. We shouldn’t strive for utopia, but for steady improvement with a preferential concern for the least of our brethren.” — James Otteson

Downsides of Markets

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