Steven Pearlstein is a Post economics writer. He is also Robinson Professor of Public Affairs at George Mason University.

In 1714, Bernard Mandeville published the “Fable of the Bees,” a tale of a hive of industrious and avaricious bees that became so prosperous that it had the luxury of beginning to worry about its virtue — and by so doing brought on its own demise. It was Mandeville’s paradox of “private vice and public benefit” that Adam Smith would revive decades later in writing of the “invisible hand” of the market that miraculously transforms individual greed into collective prosperity. And ever since, economists and champions of free markets have relied upon this paradox to defend not only the wealth-creating efficacy of capitalism but its morality as well.

Liberal economist Samuel Bowles has made it his life’s work to challenge the ideas that greed is good and that free markets can be relied on to deliver the greatest good to the greatest number. In “A Cooperative Species,” Bowles and fellow University of Massachusetts professor Herbert Gintis showed that it is not only selfishness that has been hard-wired into our nature by the evolutionary struggle for survival — so have instincts such as cooperation, altruism and fairness. This biological evolution in favor of pro-social characteristics, they argued, has been reinforced by a simultaneous cultural evolution through which societies that have encouraged and enforced ethical and generous behavior have won out over those that have clung to the law of the jungle.

“The Moral Economy” is Bowles’s latest effort to purge homo economicus — the single-minded income-maximizing economic actor — as the conceptual foundation of our economic thinking. After all, even Adam Smith and free-market champions such as Friedrich Hayek acknowledged that free-market economies rely not only on people pursuing their self-interest but on people also being honest, fair and concerned for the well-being of others most of the time.

In his latest book, Bowles argues that it is not sufficient to rely on rule of law, property rights and private contracts — the holy trinity of free-market fundamentalism — to ensure pro-social behavior. Those incentives must be reinforced by widely accepted moral codes and norms of social behavior. Drawing on game theory, behavioral and experimental economics, and even neurobiology, he shows that over-relying on the market’s financial incentives will undermine moral values and social norms and cause them to atrophy, like unused muscles.

"The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens" by Samuel Bowles (Yale Univ.)

To illustrate the point, Bowles cites the story of a chain of day-care centers in Haifa, Israel, that imposed a fine on parents who were late in picking up their children at the end of the day. It turned out that the fine undermined the sense of moral obligation not to extend the workday of center staff and instead made the right to show up late something they could buy as an added service.

And then there’s the story of the Boston fire commissioner who, upset by what he felt was an abuse of sick days by firefighters on Mondays and Fridays, imposed fines for those taking more than 15 days. Insulted firefighters called in sick in droves over the Christmas and Thanksgiving holidays.

Equally ineffective: rewarding students with money if they get better test scores, giving bonuses to doctors who reduce the length of their patients’ hospital stays or offering money to passersby to help move a sofa. And as anyone who lived through the recent financial crisis understands, the surest way to destroy wealth is to provide too much financial incentive to overpaid and under-regulated investment bankers.

Bowles joins philosopher Michael Sandel, experimental psychologist Joshua Greene, education writer Alfie Kohn and management expert Daniel Pink in asserting that the pleasure we take in doing the right thing (or avoiding the shame of doing the wrong thing) is often a more effective incentive than money.

What works best, Bowles writes, is “to encourage civic action by appealing to both material interests and moral sentiments, framed so that the two work synergistically rather than at cross-purposes.” He cites numerous examples of when moral behavior and social norms have been enhanced, or “crowded in,” by market incentives, in contrast to those examples when pro-social behavior is “crowded out.” But what makes this somewhat belabored discussion so unsatisfying in the end is that Bowles fails to offer any useful criteria for knowing in advance whether an incentive will fall into one camp or the other.

“The Moral Economy” is based in part on the Castle lectures that Bowles delivered at Yale in 2010, and the first hundred or so pages have the clarity, accessibility and broad historical sweep that are the hallmarks of a memorable lecture. But midway through the book, Bowles begins to lose sight of the big picture and allows himself to get tangled up in logical hair-splitting and the arcane jargon of experimental social science. His points become repetitious, the flow of the argument is lost, and it’s hard to find the connection between the research and everyday economic reality. As a result, what might have been a useful critique of market fundamentalism, written for a general audience and drawing on a range of exciting new research, winds up as disappointingly narrow and academic.

One of the blind spots of modern economics has been its inability to incorporate moral sentiments and social norms into its models of how people, firms and even entire economies behave. Such norms and sentiments can be hard to define and even harder to measure; how they change and evolve remains largely a mystery. But, as the earliest philosophers understood, and as Bowles reminds us once again, civic virtue is no less important to a prosperous economy as it is to a successful state.

The Moral Economy
Why Good Incentives Are No Substitute for Good Citizens

By Samuel Bowles

Yale. 272 pp. $27.50