Why Markets Create Tolerance and Generosity

Capitalism has long been attacked with the argument that it leads to individualism, which is a social evil. It wasn’t a very clear or cogent argument, but it was popular.

I should note that conflating markets with “capitalism” is erroneous. Free markets are not just about capital. But attacking capital has helped cement opposition. Capital is but one component of markets. The actual market is about the free exchange of all kinds.

I don’t dispute that markets encourage individualism. They do so by creating economic prosperity, and prosperity creates individualism. American psychologist Abraham Maslow has explained that humans have a hierarchy of needs. They first fill the basic needs of food and shelter before they get to what he called “self-actualization.”

Primary human needs are shared by all and similar in nature. Everyone with shelter benefits, and food is necessary for human life; there are no exceptions. But these self-actualization needs are highly individualistic and differ from person to person.

Simple Psychology explains: “One individual may have a strong desire to become an ideal parent. In another, the desire may be expressed economically, academically, or athletically. For others, it may be expressed creatively, in paintings, pictures, or inventions.”

This stage comes only when primary needs are filled which is precisely what economic prosperity does.

But many critics of markets claim this creates individualism and individualism means people are greedy, nasty, and willing to harm others in order to secure what they want.

To justify this claim they offer anecdotes, but anecdotes are not evidence. What is needed is the accumulation of evidence, not just random stories.

Noble Laureate Milton Friedman argued that the history of individualism didn’t support this criticism. He said the poor weren’t ground underfoot; their economic prosperity actually increased dramatically.

Something else increased dramatically as well: charity. This period, he said, was one of “the greatest private eleemosynary activity in the history of the United States. Not only did charity expand dramatically with economic prosperity but important social values improved. Both charitable compassion and social tolerance increased as individualism did.”

Abigail Marsh, a Professor of Psychology at Georgetown University, studied the issue and found individualism increasing across the globe “due mostly to increasing socio-economic development, including higher incomes, more education, urbanization, and a shift toward white-collar jobs.” The few countries where individualism did not increase included “some with the lowest socio-economic development.”

Contrary to the imaginations of market critics she said, “the world’s wealthiest and most individualistic countries” are also the most charitable. Charitable compassion didn’t decline as individualism increased; they rose together.

The World Giving Index looks at various forms of compassion and finds a very significant difference between individualistic cultures and collectivistic ones and that is “generosity for strangers.”

Individualist cultures show much greater compassion for strangers, a willingness by individuals to help people they don’t know while in collectivist cultures compassion is directed “primarily toward family and members of other close-knit groups.”

Marsh said “Nations that provide the most help to strangers…include the world’s five most individualist countries” — the United States, Australia, New Zealand, Canada, and the United Kingdom.

In the New York Times, Marsh wrote: “On average, people in more individualist countries donate more money, more blood, more bone marrow, and more organs. They more often help others in need and treat nonhuman animals more humanely.”

Marsh also notes one result of collectivistic cultures is they have “in-groups” and “out-groups.” The average citizen in those nations tends to value the in-group but not others. “This is the unfortunate, and perhaps inevitable, the downside of maintaining strong group bonds and identities,” said Marsh. “Decades of psychology research reliably find that dividing people into defined groups causes them to treat members of other groups worse.”

But individualists focus on individual rights, which “reduces the emphasis on groups — and the difference between ‘us’ and ‘them’ that notoriously erode generosity toward those outside one’s own circle.”

As individualism erodes the concept of “us and them” it inevitably increases social tolerance. In Ireland, there were massive economic reforms and deregulation. The result was an explosive economic expansion never known there before, earning it the name: the Celtic Tiger. With prosperity came an increase in values associated with individualism and in short order the once staunchly Catholic nation voted for gay marriage with 66% supporting it.

The Financial Times wrote: “Ireland’s apparent willingness to embrace gay marriage is therefore as much a product of the Celtic Tiger years as it is a reflection of the decline of the Church’s influence.” Irish sociologist Tom Inglis said of Ireland, “We have all signed up for cultural liberal individualism and a laissez-faire approach to civil rights.”

Prof. Jean Twenge looked at what she called today’s iGen generation and said their individualism made them more libertarian and tolerant because they were “raised in a highly individualistic culture.” In the journal Social Forces, Twenge and her co-authors concluded an “increase in tolerance is positively correlated with higher levels of education and individualistic attitudes.”

Yes, what is erroneously called capitalism does increase individualistic values. But they are not the disasters critics imagined them to be, unless you think social tolerance, increased compassion, and generosity are a problem.