As stated, the argument does not carry us very far. In a large society, my behavior has very little effect on the behavior of others, so unless my gains from cheating others are very small or my losses from being cheated by others are enormous, my decision to cheat should make me, on net, better off. I can make that even more likely by adding hypocrisy to the list of my sins--preaching virtue, in the hope of persuading other people to be virtuous, while quietly practicing vice.
A number of more or less metaphysical solutions to this dilemma have been proposed, based on concepts such as "the categorical imperative" or "man qua man." An alternative approach, and one that I find more interesting, is to observe that most human interactions are, to a considerable extent, voluntary. My dishonesty may have a very small effect on the moral tone of the society in which I live, but it has a large effect on how attractive I am as a potential employee, employer, spouse, business partner, or friend. If my behavior is seen to impose costs (or benefits) on those who associate with me, other people will take that into account in deciding whether to do so. Honest employees are more valuable for most jobs than dishonest ones, hence likely to make more money. In this situation, at least, it would seem that honesty pays.
This argument implies that quite a lot of virtuous behavior follows from rational self interest, but not all virtuous behavior. Suppose I have an opportunity to cheat or steal, can receive a considerable benefit from doing so, and believe that I am very unlikely to be caught. The argument seems to imply that each such situation should be evaluated on its merits.
Many years ago, when I was a college student arguing with Objectivist friends, I took considerable pleasure in pointing this out to them. They firmly believed that in such a situation I should not steal, but they never came up with a justification for that belief that I found satisfactory. Eventually they asked me to stop coming to their meetings--giving me the distinction of having been purged from an organization of which I was not a member.
They never came up with an answer that I found satisfactory, but I think I may have. It is an entirely amoral answer--it does not tell us what one ought to do, what acts are virtuous or why one should act virtuously. It does, however, provide a plausible explanation of why people do act virtuously--why, for instance, many people will decline an opportunity to steal even if they are confident they will not be caught.
To put it a little differently, it is an explanation of why the sort of behavior that we usually describe as virtuous is, for many people, a result of acting in their individual interest, narrowly defined. Still more precisely, it explains why and in what sense it is in my interest to behave, even when nobody is watching, in a way that makes it in other people's interest to associate with me.
I start with two observations about human beings. The first is that there is a substantial connection between what goes on inside and outside of their heads. Facial expressions, body positions, and a variety of other signs give us at least some idea of our friends' thoughts and emotions. The second is that we have limited intellectual ability--we cannot, in the time available to make a decision, consider all options. We are, in the jargon of computers, machines of limited computing power operating in real time.
Suppose I wish people to believe that I have certain characteristics--that I am honest, kind, helpful to my friends. If I really do have those characteristics, projecting them is easy--I merely do and say what seems natural, without paying much attention to how I appear to outside observers. They will observe my words, my actions, my facial expressions, and draw reasonably accurate conclusions.
Suppose, however, that I do not have those characteristics. I am not (for example) honest. I usually act honestly because acting honestly is usually in my interest, but I am always willing to make an exception if I can gain by doing so. I must now, in many actual decisions, do a double calculation. First, I must decide how to act--whether, for example, this is a good opportunity to steal and not be caught. Second, I must decide how I would be thinking and acting, what expressions would be going across my face, whether I would be feeling happy or sad, if I really were the person I am pretending to be.
If you require a computer to do twice as many calculations, it slows down. So does a human. Most of us are not very good liars.
If this argument is correct, it implies that I may be better off in narrowly material terms--have, for instance, a higher income--if I am really honest (and kind and ...) than if I am only pretending to be, simply because real virtues are more convincing than pretend ones. It follows that, if I were a narrowly selfish individual, I might, for purely selfish reasons, want to make myself a better person--more virtuous in those ways that others value.
The final stage in the argument is to observe that we can be made better--by ourselves, by our parents, perhaps even by our genes. People can and do try to train themselves into good habits--including the habits of automatically telling the truth, not stealing, and being kind to their friends. With enough training, such habits become tastes--doing "bad" things makes one uncomfortable, even if nobody is watching, so one does not do them. After a while, one does not even have to decide not to do them. You might describe the process as synthesizing a conscience.
This is probably easier when we are younger. Parents who want their children to be happy and who believe, for purely practical reasons, that honesty is the best policy, may choose to train them to be honest. If some virtues are behavior patterns hardwired into us by our genes, the same process may take place at an even earlier stage. If honesty pays, people who are genetically inclined to be honest will be more likely to survive and reproduce, and genes for honesty will increase.
The genetic explanation also suggests why people show their thoughts and feelings on their faces. No doubt a human being could be designed with no facial expressions at all--but who would do business with him? Who would marry him? Just as honesty is valuable in our associates, so is being a bad liar.
I believe that I have now answered my initial question. I have shown how, starting with rational self interest narrowly defined, one gets to virtuous people--people who do not steal even when they are sure that nobody is watching. I have not, in doing so, answered any normative questions. In particular, I have not shown that you should not steal--to do that, I would first have to show that you should pursue your self interest narrowly defined. But I have given a possible answer for the positive version of the question-- an explanation for the existence of virtue.
It may occur to some readers that virtue is not all that exists. My argument seems, at first glance, to imply that everyone should be virtuous, which does not fit casual observation.
In fact, that is not what it implies; if my analysis is correct, we would expect to observe a world where many people were virtuous, but not all. To see why, consider the situation not from my standpoint but from that of my potential friends, employers, spouses, et. al. It is in my interest to be honest only because they are watching--not merely watching my individual acts to see if I act honestly, but watching my face, listening to my voice, observing in a thousand ways whether I am actually honest, whether I am the sort of person who would act honestly even if nobody was watching.
All of that watching is costly--it consumes some of the time and attention that they might otherwise spend on other things. In a society where everyone is honest, it is also unnecessary. So in a society where everyone was honest, nobody would bother to watch people to see whether they were honest--making dishonesty very profitable.
The answer to this apparent paradox, as to similar problems in game theory and evolutionary biology, is a mixed solution. Some people are dishonest, suffer the costs of being (sometimes) recognized as such, and receive the benefits of sometimes succeeding in their dishonesty. Because some people are dishonest, most people spend time and effort monitoring those they deal with--trying to determine both whether they are acting honestly and whether they are honest people. Because of that, many other people find it in their interest to be honest. The outcome is an equilibrium in which just enough people (selected from those best qualified--the most skillful liars) are dishonest to produce just enough monitoring to make it in the interest of everyone else to be honest. Extend the argument to all virtues--more precisely, to all of the patterns of behavior that are valuable to our associates and sometimes costly to ourselves--and you have a plausible explanation of the world we see around us.
Before ending this discussion, there are two more points to be made. The first is that although I have presented these ideas as my own, I am not the only one to have thought along these lines. For a published discussions of similar ideas, you may want to look at Robert Frank, Passions Within Reason: The Strategic Role of the Emotions. Essentially the same result is called an Evolutionarily Stable Strategy in sociobiology and a Nash Equilibrium in game theory.
My second point is that a similar analysis can explain some apparently irrational vices as well as some apparently irrational virtues. Consider, for example, what a psychiatrist would describe as an aggressive personality--someone who picks a fight with anyone who does not treat him with adequate respect and deference. In the short run this seems like a losing strategy, since the stakes are rarely worth the cost of the fight.
In the long run, however, the results may be more attractive. The aggressive personality is someone who has trained himself to behave in a certain way--and that fact can be observed by others. Since, in most cases, the things at stake are not worth a fight, the other people usually back down and the bully gets his way without having to fight for it--which makes his strategy a profitable one.
Why are we not all bullies? For much the same reason that we are not all virtuous. The more bullies there are the more often one bully encounters another--and, since they are both following the same strategy, must fight him. As the number of bullies increases, being a bully becomes less attractive, until we reach a point where the gain of usually getting your own way is just balanced by the cost of sometimes having to fight for it. In sociobiology, this is called a hawk/dove equilibrium--named after the hawks and doves one finds in politics, not the kinds one finds in the wilderness.
Published in Liberty Magazine, reprinted by permission
Readers interested in a somewhat more lengthy treatment of the economics/game theory of the aggressive personality will find it in the game theory chapter (Chapter 11) of the second edition of my book Price Theory: An Intermediate Text. They will find a similar discussion in my forthcoming book Hidden Order: The Economics of Everyday Life.