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Editor’s NoteDo you have to be good to do well? Therelationship between virtue and worldlysuccess is one that is often discussed atour Acton events. Parents and teacherstry to inculcate good habits in their childrenand students, not only as an end initself, but also in the hope that doinggood in the spheres of character andmorality will lead to doing well in theworlds of work, entrepreneurship, andcommerce.In this issue of Religion & Liberty, we takelook at that question from various pointsof view. Our biblical feature examinesEditorial BoardPublisher: Rev. Robert A. SiricoExecutive Editor: John CouretasEditor: Rev. Raymond J. de SouzaManaging Editor: David Michael PhelpsTypesetting and Layout: Leslie YarhouseThe Acton Institute for the Study of Religion and Liberty promotes a free societycharacterized by individual liberty and sustained by religious principles.Letters and requests should be directed to: Religion & Liberty; Acton Institute;161 Ottawa Ave., NW, Suite 301; Grand Rapids, MI 49503. For archived issuesor to subscribe, please visit www.acton.org/publicat/randl.The views of the authors expressed in Religion & Liberty are not necessarilythose of the Acton Institute.the teaching about weights and measuresin the Gospel. Being honest inmeasurement is the right thing to do initself, but it also makes possible easytrade and free exchange; imagine theimpossibility of having to verify thatevery package contains the indicatedweight of flour, or sugar, or salt. Our“Double-Edged Sword” this issue comesfrom Rolf Geyling’s submission to theActon homiletics contest.ContentsFrom the perspective of economics, notScripture, we address some of thesesame questions with Professor KennethArrow in our interview. For me, as a onetime graduate economics student whoread Professor Arrow’s work, it was athrill to interview him—and an honorfor R&L to have a Nobel laureate in ourpages. Professor Arrow shows how theexistence of markets at all, let alone theirefficient functioning, depends upon afundamental honesty and trust amongstbuyers and sellers. The market needsmorality. And does the market encourageor discourage the morality it dependsupon? I’ll let you read ProfessorArrow’s answer for yourself.Our own Michael Miller, Acton’s directorof programs, takes up the same questionby revisiting an important bookby Francis Fukuyama on the role of “socialcapital” in economic development.Fukuyama’s book is not new, but his argumentremains novel and important:Without trust, markets don’t work well.And finally, I might draw your attentionto our review of John C. Maxwell’s bookThere’s No Such Thing as “Business” Ethics.Maxwell is one of the more popular authorsin the field of business ethicswhich, judging by the number of new titlesin the bookstores, is a booming market.He makes the argument that ethicsin business is not terribly different fromordinary ethics in everyday life. Doinggood is just plain good—for our souls,and for the economy.The Economy of Trust: Kenneth Arrow..................................3Trust and Entrepreneurship: Raymond J. Keating.............4Second-Career Clergy and Parish Business: An Interviewwith Jonathan Englert.......................................................................6Acton FAQ ...............................................................................7The Dividends of Social Capital: Michael Miller...................8Double-Edged Sword ...........................................................9Defending the Weak and the Idol of Equality: JenniferRoback Morse.......................................................................10In the Liberal Tradition: Anders Chydenius.......................14Column: Rev. Robert A. Sirico................................................15Book Review.........................................................................16© 2006 Acton Institute for the Study of Religion and Liberty.2 Religion&Liberty
The Economy of TrustAn Interview with Kenneth ArrowKenneth ArrowKenneth Arrow of Stanford won the NobelMemorial Prize for Economics in 1972,and has served as president of both theAmerican Economic Association and theInternational Economic Association. In2004, he was awarded the National Medalfor Science, the United States’ highestaward for scientific achievement. A pioneerin the fields of social choice and welfareeconomics, Professor Arrow has alsowritten in the fields of philosophy andethics. He was invited to participate in thepreliminary consultations during the draftingof Centesimus Annus, and later the PontificalAcademy of Social Sciences. He recentlyspoke with our editor, Father deSouza, in Rome._____________________________________What can the world of religion and ethics contributeto economics?The market has deficiencies of a kind forwhich ethics is a remedy. For example, theworld is really filled with private information.There is inside information on productsand in contracts. In these situations,there is a very strong possibility of one personusing this information to take advantageof the other. If this happens frequently,a market may not exist at all becausethe buyers know that they don’t knowcertain things, and that the sellers can exploitthem. Therefore, it’s not so much thatthere are potential unfair gains, but thatsuch uncertainties about private informationcan make the market inefficient. Infact, if the problem is pronounced, themarket may not exist at all. This is a situationthat is studied particularly in insurancecontracts; when the person insuredmay have private information about dangersunknown to the insurer, there is saidto be “moral hazard” or “adverse selection,”phrases in the last forty years thathave been imported into economic analysisfrom insurance literature.There are various ways of handling thesecases. One of them is the existence ofmorality. It turns out that to a considerableextent, people spontaneously do avoidtaking excessive advantage of their insideinformation, their private information.Part of it is an understanding that eventhough I would gain by cheating, it wouldbring down the market if everybody did it.Of course, there can be a problem if oneperson says, “Well, if I did it, nobody willnotice.” But then, if each person feels thesame way the whole thing breaks down.Part of this behavior, though, is morality—the person doesn’t cheat because he thinksit’s the wrong thing to do. To get marketsthat work, you have to keep the other personfrom trying to cheat you at every moment.So morality is closely related to theworkings of the market.The other point, of course, is that peopledo have aims in life, and not just the grandachievement of material gains. They’reconcerned about others. This concern isthe result of moral codes, which are developedand adopted through religion orthrough inculcation by other ethicalsources. Certainly family relationships aremarked by sacrifice. People are engaged inthese relationships, and therefore, they devotetheir energies to acquire goods, notfor the purpose of using them themselves,but for others.So there are two aspects to this relationship.One relates to deep concern for others,and therefore touches upon the endsof economic activity. The other relates tothe means of economic activity—the market.Morality plays a functional role in theoperation of the economic system.“To get markets thatwork, you have tokeep the other personfrom trying to cheatyou at every moment.So morality is closelyrelated to the workingsof the market.”Could it be argued that a certain amount ofvirtue of a basic kind—being honest, honoringcontracts, providing accurate information—isrequired for a market to work? Is it a dangerthat prosperity can sometimes weaken thosevirtues? To become prosperous you need to bevirtuous, but then does prosperity erode thefoundations of virtue?I don’t know if it’s so much prosperity asthe prospect of prosperity that’s dangerous.When you see a large potential personalgain, you may tend to feel that yourvirtue stands in the way. Now there is alwaysthe question of whether you can getaway with something or can cut corners.You may find the pursuit of the materialgoods becomes an end in itself. But ifyou’re a chess nut, you can also be a facontinuedon pg 12Summer 2006 2005 | Volume 16 15 | Number 313
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Page 5 and 6: Trust and EntrepreneurshipU.S. tort
Page 7 and 8: “Being a good businessperson is n
Page 9 and 10: Ten years ago Fukuyama warned that
Page 11 and 12: Defending the Weak and the Idol of
Page 13 and 14: “Religion calls for a senseof res
Page 15 and 16: Rev. Robert A. SiricoFairness in th

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