Recent debates about the economy have
rediscovered the question, "is that right?", where
"right" means more than just profits or efficiency.
Some argue that because the free markets allow
*5*for personal choice , they are already ethical. Others
have accepted the ethical critique and embraced
corporate social responsibility. But before we can
label any market outcome as" immoral," or sneer at
economists who try to put a price on being ethical,
*10*we need to be clear on what we are talking about.
There are different views on where ethics should
apply when someone makes an economic decision.
Consider Adam Smith, widely regarded as the
founder of modern economics. He was a moral
*15*philosopher who believed sympathy for others was
the basis for ethics (we would call it empathy
nowadays). But one of his key insights in The Wealth
of Nations was that acting on this empathy could be
counter-productive -he observed people becoming
*20*better off when they put their own empathy aside,
and interacted in a self-interested way. Smith justifies
selfish behavior by the outcome. Whenever planners
use cost-benefit analysis to justify a new railway line,
or someone retrains to boost his or her earning
*25*power, or a shopper buys one to get one free, they are
using the same approach: empathizing with
someone, and seeking an outcome that makes that
person as well off as possible-although the person
they are empathizing with may be themselves in the
Instead of judging consequences, Aristotle
said ethics was about having the right
character-displaying virtues like courage and
honesty. It is a view put into practice whenever
*35*business leaders are chosen for their good character.
But it is a hard philosophy to teach-just how much
loyalty should you show to a manufacturer that keeps
losing money ? Show too little and you`re a" greed is
good" corporate raider; too much and you`re wasting
*40*money on unproductive capital. Aristotle thought
there was a golden mean between the two extremes,
and finding it was a matter of fine judgment. But if
ethics is about character, it`s not clear what those
characteristics should be.
*45* There is yet another approach : instead of rooting
ethics in character or the consequences of actions, we
can focus on our actions themselves. From this
perspective some things are right, some wrong-we
should buy fair trade goods, we shouldn`t tell lies in
*50*advertisements . Ethics becomes a list of
commandments, a catalog of "dos" and "don`ts."
When a finance official refuses to devalue a currency
because they have promised not to, they are defining
ethics this way. According to this approach
*55*devaluation can still be bad, even if it would make
everybody better off.
Many moral dilemmas arise when these three
versions pull in different directions but clashes are
not inevitable. Take fair trade coffee (coffee that is
*60*sold with a certification that indicates the farmers
and workers who produced it were paid a fair wage),
for example: buying it might have good
consequences ,be virtuous, and also be the right way
to act in a flawed market. Common ground like this
*65*suggests that, even without agreement on where
ethics applies, ethical economics is still possible.
Whenever we feel queasy about "perfect"
competitive markets, the problem is often rooted in a
phony conception of people. The model of man on
*70*which classical economics is based-an entirely
rational and selfish being-is a parody, as
John Stuart Mill, the philosopher who pioneered the
model, accepted. Most people-even economists-
now accept that this" economic man " is a fiction.
*75*We behave like a herd; we fear losses more than we
hope for gains; rarely can our brains process all the
These human quirks mean we can never make
purely "rational" decisions. A new wave of behavioral
*80*economists , aided by neuroscientists ,is trying to
understand our psychology, both alone and in
groups ,so the can anticipate our decisions in the
market place more accurately. But psychology can
also help us understand why we react in disgust at
*85*economic injustice, or accept a moral law as
universal. Which means that the relatively new
science of human behavior might also define ethics
for us. Ethical economics would then emerge from
one of the least likely places: economists themselves.