Truth and Moral Capitalism

I just read a clever little human-interest story which brought me up short.

The story was about Peter Barton Hutt, of whom I had never heard.  He apparently introduced to the American consumer systemic learning of the “truth” about what they bought to eat – the mandated nutrition labels that sellers of food products must put on their packaging to inform customers of what is in the food they are buying.

Five decades ago, Hutt wrote the rules on disclosure of ingredients for the U.S. Food and Drug Administration.  Disclosures of ingredients have since appeared on billions and billions of packages in legible typeface.

But consider: how can a moral capitalism ever work if there is no truth?

Running capitalism on “your” truth or “my” truth just won’t cut it.  Such a system of illusions and delusions, of random guestimates, will never gain traction among human persons.  Who will trust whom about what something is or is not?

If there is not truth, how can any good, service or company be given a sound and sensible valuation?  Governments impose a requirement for telling the truth on those who issue securities.  Donald Trump is in big legal trouble for allegedly not telling the truth about the value of his ownership interests.  The courts impose liability on those who lie, cheat, deceive and misinform and so harm others.

Markets need flows of trusting buyers to survive from moment to moment.  Unquestioned reliance on the probity and honesty of sellers makes markets possible.  Caveat emptor – “buyer beware” – is an age-old caution putting a drag on market dynamics.  Not every seller tells all the truth all the time.

Alan Greenspan’s quip about the dangers of “irrational exuberance” – a form of truthlessness – has caused many a market bubble to form and then pop, leaving buyers sorry and angry over their unexpected losses.

If truth drives markets to produce the “wealth of nations,” as Adam Smith observed, who then can we find to always be truthful and keep our markets working for the best?