This summer I read two books that set me thinking. The first is a new book called What Money Can’t Buy: The Moral Limits of Markets by Michael J. Sandel. The second book I read, re-read actually, was The Theory of Moral Sentiments by Adam Smith written roughly two hundred and fifty years ago. Both explore zones beyond economic self-interest and are valuable tools in today’s rudderless world. Sandel, the popular professor of the undergraduate “Justice" course at Harvard University, writes from the perspective of the “limits" to markets. Smith wrote to investigate the greater good “beyond" markets.

Let me begin with a confession. I am a believer in markets. To be precise, a believer in markets that are governed properly and where rules of fair competition are enforced objectively. To me, this is the least imperfect economic and social system that mankind has developed until now. This system is greatly strengthened if individual actors (businesses, individuals, associations, governments) act responsibly and in the interest of the greater good. No formula exists to encourage, leave alone enforce, this morality. It must come from within individuals and encompass a society.

Both books investigate this question in detail. Sandel follows a pithy, contemporary style that is full of anecdotes and everyday examples. He begins by noting some surprising things that money can buy today: surrogate pregnancy in India for $6,250, the right to immigrate to the US for $500,000 and the right to shoot endangered black rhinos in South Africa (perversely as an incentive to raise them). Sandel combines examples of really odd ways to make money (such as renting your forehead for advertising) to show that almost everything can be bought and sold. He believes that in a society where everything is for sale, two problems arise—inequality and corruption. Inequality because life is harder for those with modest means in such a society. And corruption because a priced exchange promotes certain attitudes toward the goods being exchanged. He exemplifies this by saying that getting mercenaries to fight our wars might spare the life of citizens but corrupts the meaning of citizenship. Sandel’s most important point is this: “A market economy is a tool—a valuable and effective tool—for organizing productive activity. A market society is a way of life in which market values seep into every aspect of human endeavour. It’s a place where social relations are made over in the image of the market." Read the book for the many interesting examples it offers, and the questions it raises about the boundaries of what should and shouldn’t be priced. For instance, do you think you should be able to sell your vote?

Smith’s book is profound because it is as relevant today as it was more than two centuries ago. Amartya Sen’s introduction to the Penguin Classics reprint is brilliant in its critical appreciation. Sen says that Smith’s argument of “self-love" is limited to the motivation underlying and exchange of goods. In the rest of Smith’s writing there are extensive discussions of the role of other motivations that influence human action and behaviour. Moral Sentiments begins with this line: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him…". Smith sees political economy as the pursuit of two distinct objectives—first for people to provide plentiful revenues for themselves, and second to give to the state sufficient revenues for public services such as education and basic social insurance. Each chapter in the book is a gem but the one entitled “Of the different accounts which have been given of the nature of virtue" is particularly worth reading. Smith’s book is remarkably relevant to today’s globalized world. His expositions are not only inclusive of economic classes within a society but also point to the fundamental similarity of all mankind.

What is the value of reading books of this type, you might well ask? I think the most important reason is that they invite introspection. Individual introspection holds little value for societal change you might say. If enough of us introspect and use the lessons in our field of influence, it will be for the greater good. Take Smith’s word for it.

P.S: “The coarse clay of which the bulk of mankind are formed, cannot be wrought up to... perfection. There is scarce any man, however, who by discipline, education and example, may not be so impressed with a regard to general rules, as to act upon almost every occasion with tolerable decency, and through the whole of his life to avoid any considerable degree of blame. Without this sacred regard to general rules, there is no man whose conduct can be much depended upon. It is this which constitutes the most essential difference between a man of principle and honour and a worthless fellow." Adam Smith in The Theory of Moral Sentiments.

Narayan Ramachandran is an investor and entrepreneur based in Bangalore. He writes on the interaction between society, government and markets. Comments are welcome at narayan@livemint.com . To read Narayan Ramachandran’s previous columns, go to www.livemint.com/avisiblehand

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