This question might be slightly puzzling to the contemporary diplomat, who firmly believes that states should be moral entities founded on transcendental human rights. I came across this question while reading Albert O. HIRSCHMAN: The passions and the interests (I recommend to those involved in political science and international relations to read it. It is short, clear, and insightful. What I write here owes much to it, though the oversimplifications are mine).
Plato was the first in the West to ask this question in his Republic (IV, 427e – 433 e). He outlines the four virtues of a state:
Plato being Plato, he fudged the question as to why or how a social construct – the state – might be endowed with virtues, and how the virtues should operate within it. He argued that the virtues would be embedded in the all-knowing “perfect guardians.”. Virtues, in Plato’s view, were the prerogative of the elite governing the state.
Statue of the Wisdom King Fudō Myōō by Kaikei, Kamakura period, early thirteenth century
Plato’s personal union between “guardian” and state bedeviled the question of state virtue for the next 1500 years. The Renaissance, and, in particular, Machiavelli, reopened the issue arguing consequentialism. The state’s “virtues” were the means allowing it to survive among rivals. True, Machiavelli was still wedded to the “prince.” His “prince” or “guardian,” however, now had two objectives. Qua leader his goal was to secure the survival of the state in this world. Qua person he had to secure his salvation in the world beyond. It was schizophrenic. No wonder many despised Machiavelli.
Machiavelli’s outlook was primarily international relations: The Middle Ages were a period of chronic wars of the states against the states (or, if one prefers, went through a phase of state formation). The Renaissance inaugurated the age of civil – mostly religious, but also economic – wars. It lasted over 100 years. It was the age of unbridled passions.
Under the onslaught of the passions, the meaning of “state virtue” began to change. Next to ways of stopping the great and sudden, arbitrary actions (grand geste) of the sovereign, political scientists now sought ways and rules securing sustained integrity of the (Republican) state against the public passions that might tear it apart.
This inquiry arose from the recognition that “moralizing philosophy and religious precept could no longer be trusted with restraining the destructive passions of men.” (p. 15) Also, rationality, with its one-on-one approach, was found to be impotent face to the immoderate passions of the sovereign or the diffused passions of the populace.
How is this goal to be achieved?
Democratic and aristocratic states are not in their own nature free. Political liberty is to be found only in moderate governments; and even in these, it is not always found. It is there only when there is no abuse of power. But constant experience shows us that every man invested with power is apt to abuse it, and to carry his authority as far as it will go. Is it not strange, though true, to say that virtue itself has need of limits?
To prevent this abuse, it is necessary from the very nature of things that power should be a check to power. A government may be so constituted as no man shall be compelled to do things to which the law does not oblige him, nor forced to abstain from things which the law permits.
MONTESQUIEU The spirit of the laws XI, 3
And it is fortunate for men to be in a situation in which, though their passions may prompt them to be wicked, they have nevertheless an interest in not being so.
Book XXI, 20
I shall ever repeat it, that mankind is governed not by extremes, but by principles of moderation.
Book XXII, Chapter 22
The insight emerged that, if we cannot eliminate the passions, we might be able to temper or moderate them. But how?
The role of virtue was rediscovered. Virtue not so much a moral compass (as in Christian theology), but as a deliberative process in the situation (see my 359). Spacing and pacing a passion in time – delaying gratification – may be a better way forward. Revenge is a dish best served cold. In so doing, however, we transform the passion into an interest in and over time. Virtue is mostly about acting in the situation and in time.
Personal virtue might be useful in tempering the great and sudden, arbitrary actions (grand geste) of the sovereign. But what about a republic, which was then emerging as the “ideal” form of government? How to reach most citizens and temper their passions? The deliberative habit had to be both universal and strong enough to pit itself against unbridled popular passion.
In searching for ways to pit passion against passion, Western political thought embraced the idea of giving free rein and encouragement to private economic initiatives and acquisitive pursuits. The pervasive character of commerce not only lowered the people’s public passions; it also reined in the ruler by confronting him with the economic consequences of any arbitrariness. Greed is relentless but slow (the interest rates in those days were of the order of 1%).
The spirit of commerce brings with it the spirit of frugality, of economy, of moderation, of work, of wisdom, of tranquility, order, and regularity.
MONTESQUIEU: The spirit of the law V, 7
HIRSCHMAN’s novel claim is “that the diffusion of capitalist forms owed much to an equally desperate search for avoiding society’s ruin, permanently threatening at the time because of precarious arrangements for internal and external order.” (p. 130)
Political scientists soon recognized that pitting commerce against political passions was far from innocent. For one, with wealth comes inequality. Wealth allows the few holders to indulge their passions to the hilt: wealth may revive passions in the longer run. It is significant that the issue of state-sponsored redistribution of wealth arose at that time. It represented a clear break with the received wisdom that redistribution was bad for the state. This heuristic was grounded in the experience of the Roman Republic, which tore itself apart over the agrarian laws. A different, redistributive justification was found in Jewish law.
At the same time, the division of labor inherent in capitalism tends to blunt the civic virtues of the populace. As Tocqueville argued: “The taste for material enjoyments… develops more rapidly than the enlightenments and habits of liberty.” (p. 123) Adam SMITH argued that wealth would ruin the aristocracy. At a deeper level, commerce favored an “arm’s length” disposition which undermines the paradigm of trust on which society had rested until then. Following HIRSCHMAN, this disposition prejudges the choice between “exit, voice, loyalty” away from loyalty and for the exit.
The relationship between economic interests and passions at the outset was perceived to be unstable and not self-correcting. The conclusion was that a sustainable society needed both economic and political checks and balances to stay the course. “States need virtue” meant that a paramount task of the state was to manage the balance between interests and passions through an explicit and complex self-adjusting system.
And then, something happened. Adam Smith arrived. “He abandoned the distinction between the interests and the passions in making his case for the unfettered pursuit of private gain: he chose to stress the economic benefits that this pursuit would bring rather than the political dangers and disasters that it would avert.” (p. 69) Efficiency became its own reward and worth pursuing in any case. By foregrounding efficiency, Adam SMITH unwittingly justified replacing trust with arm’s-length relations. He justified a momentous change in disposition without a thought to its hidden social consequences.
Adam SMITH was the discoverer of the “unexpected social consequences” – the invisible hand. Extrapolating from efficiency, he argued that unexpected social consequences were benign. In so doing, however, he broke the instrumental link between commerce and the control of passions. SMITH “affirms that economics can go it alone: within wide limits of tolerance, political progress is not needed as a prerequisite for, nor it likely to be a consequence of, economic advance, at least, the highest councils of government.” (pg. 104) He also saw no need for the political process the mediate the tension between the general interest of improved overall efficiency and the particular, i.e. the consequences of its negative effects on groups of people.
It is ironic that the discoverer of the unintended social consequences might have fallen victim to his brainchild. He failed to foresee that changing the disposition from one of trust to one of arm’s-length would, in the long haul, undermine the social fabric which enabled capitalism in the first place.
We are witnessing the long-term consequences today (just as we did in the XIXth century when labor and capital struggled outside the political process). Anger is trust denied. Worldwide anger is on the rise – inchoate, hardly articulated, hence destructive. What seems tragic to me is that society seems to have lost its capacity to deal with social anger by creating appropriate social institutions. At best, it pits rationality against emotions. Rationality, however, has no traction.
To answer the original question: Should states have virtue? Yes, states should have virtue to cope with anger that accompanies, in any case, a society built of “arm’s length” rather than trusting relations, but also one in which rapid economic development changes the relative positions of members of the society. Inequality stalks the land. It might not help that we are tackling the issue as long-term growth might be declining.
 In the Sinic civilizations, of course, virtue is the foundational concept – as set out in the term “harmony.” I may add, in passing, that Plato’s “temperance is akin to “Harmony:” Here the relevant quote. “because temperance is unlike courage and wisdom, each of which resides in a part only, the one making the State wise and the other valiant; not so temperance, which extends to the whole, and runs through all the notes of the scale, and produces a harmony of the weaker and the stronger and the middle class, whether you suppose them to be stronger or weaker in wisdom or power or numbers or wealth, or anything else. Most truly then may we deem temperance to be the agreement of the naturally superior and inferior, as to the right to rule of either, both in states and individuals.”
 Here Plato’s take with regard to state wisdom:
And good counsel is clearly a kind of knowledge, for not by ignorance, but by knowledge, do men counsel well?
And the kinds of knowledge in a State are many and diverse?
There is the knowledge of the carpenter; but is that the sort of knowledge which gives a city the title of wise and good in counsel?
Certainly not; that would only give a city the reputation of skill in carpentering.
Then a city is not to be called wise because possessing a knowledge which counsels for the best about wooden implements?
 Both Cicero (De officiis) and Ambrose make virtue a duty and prerogative of the elite. Christianity reinforces the issue by introducing eschatology. No longer is the “guardian” trained in virtues, he is personally accountable to God for his behavior.
 Petrarch and Leonardo Bruni already generated an approach to politics that was already remarkably secular in character. See: Eric NELSON (2010): The Hebrew Republic. Jewish sources and the transformation of European political thought. Harvard University Press, Cambridge.
 Christianity introduced eschatological time. https://en.wikipedia.org/wiki/Eschatology According to this view, our actions should not be judged by the consequences in this life, but in eternity. In so doing, time and timing are eliminated as irrelevant.
 Henceforth, page citations refer to HIRSCHMAN’s book.
 All living beings know how to delay gratification. One only has to see the care and skill with which a lion stalks its prey. In fact, one could argue is all about delaying the inevitable entropy.
 HIRSCHMAN does not specifically highlight the aspect of time. Yet the very term “interest” speaks for the role of time.
 See: Eric NELSON (2010): The Hebrew Republic. Jewish sources and the transformation of European political thought. Harvard University Press, Cambridge.
 HIRSCHMAN makes here the very interesting point that capitalism was not the unintended consequence of Protestantism, as WEBER argues.
 See: Eric NELSON (2010): The Hebrew Republic. Jewish sources and the transformation of European political thought. Harvard University Press, Cambridge; particularly Chpt. 2.
 A disposition or Einstellung is our brains’ tendency to stick with a familiar idea, to the point where this can literally blind us to superior solutions. See: Merim BILANIĆ – Peter McLEOD (2014): Why good thoughts block better ones. Scientific American 310, 3.
 Paul SEABRIGHT (2004): The company of strangers. A natural history of economic life. Princeton University Press, Princeton. This corresponds to the transition from Gemeinschaft (community) – to Gesellschaft (society) as analysed by Ferdinand Tönnies https://en.wikipedia.org/wiki/Ferdinand_T%C3%B6nnies
 Albert O. HIRSCHMAN (1990): Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States. Harvard University Press, Cambridge
 An exemplary quote from John MILLAR (1735 – 1891): “The spirit of liberty appears, in commercial countries, to depend chiefly on two circumstances: first, the conditions of the people relative to the distribution of property, and the means of subsistence: secondly, the condition with which the several members of the society are enabled to associate and to act in concert with one another.” (pg. 88)