Economics and Ethics

Studying the complex and evolving relationship between economics and ethics can provide interesting and important insights to improve the theory and practice of socially responsible business management. Economics is concerned with the development and application of positive (i.e., scientific) means to achieve efficient allocation of productive resources to enhance material prosperity and satisfy consumer preferences. Ethics is concerned with the development and application of normative rules to guide human behavior toward realization of the good life, based on expectations of personal fulfillment, fair treatment, and equitable social outcomes. While both efficient and equitable outcomes are desirable and to some extent complementary, they are not necessarily equivalent. This gives rise to the ongoing tension between economic and ethical theory and practice and the recent search for ways in which economics and ethics can better overlap to mutual advantage.

During the late Middle Ages, ethical moralizing took precedence over economic rationalizing as the Church sought to mitigate the impact of economic selfinterest on the traditional social order. Calls for a “just price” on life-sustaining goods during periods of famine, as well as a ban on Christians charging “usury” (interest) for moneylending, reflect a theological urge to curb the selfish pursuit of economic gain. Such constraints on self-aggrandizement were deemed necessary to preserve the social fabric while also shielding threatened souls from the temptations that could deny them entry at Heaven's gate. Even so, it is interesting that some Scholastic theologians recognized the complementary relationship between economics and ethics by advocating private property ownership on the grounds of encouraging economic efficiency.

As a notable figure of the 18th-century Enlightenment, Adam Smith offers an intriguing juxtaposition of ethics and economics. His two major works, The Theory of Moral Sentiments and An Inquiry Into the Nature and Causes of the Wealth of Nations, reflect his simultaneous, seemingly paradoxical, stature as a moral philosopher and as the father of modern economics. Resolution of the “Adam Smith problem” can point toward a potential, albeit partial, reconciliation and integration of ethical and economic modes of thought and action in the 21st century.

This potential arises from a growing recognition that business managers currently encounter difficulty balancing their imperatives to “do well” (i.e., pursue profits) and “do good” (i.e., treat stakeholders in an ethical and socially responsible manner), since they are expected to understand and apply two alternative and seemingly contradictory ways of thinking and acting. R. Edward Freeman launched a search for a more integrative approach to business decision making in 1994, challenging the conventional “separation thesis,” which held that the assumptions and methods of economics and ethics must be regarded as logically distinct approaches to sense making and problem solving. A more integrative balance between economics and ethics in business decision making requires consideration of the normative claims of a wider range of stakeholders. However, a more integrative perspective must take into account the continuing contribution of allocative efficiency to human welfare. Such consideration calls for some rethinking of the ways in which facts and values have been employed in the past to make sense of human experience.

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