Economic ethics
Economic ethics is the combination of economics and ethics, incorporating both disciplines to predict, analyze, and model economic phenomena.
It can be summarized as the theoretical ethical prerequisites and foundations of economic systems. This principle can be traced back to the Greek philosopher Aristotle, whose Nicomachean Ethics describes the connection between objective economic principles and justice. The academic literature on economic ethics is extensive, citing natural law and religious law as influences on the rules of economics. The consideration of moral philosophy or a moral economy differs from behavioral economic models. The standard creation, application and beneficiaries of economic models present a trilemma when ethics are considered. These ideas, in conjunction with the assumption of rationality in economics, create a link between economics and ethics.
History
Ancient times
India
Ancient Indian economic thought revolved around the interplay between happiness, ethics, and economic values, recognizing their collective role in shaping human existence. The core principles of the Upanishads—transcendental unity, oneness and stability— stem from this philosophical relationship. Ancient Indian philosophy also demonstrates an early understanding of several modern economic concepts, such as regulating demand when it exceeded supply to prevent societal disorder. This was achieved by emphasizing that true happiness stemmed from non-material wealth, mirroring Alfred Marshall's principle of the insatiability of wants.The Rig Veda acknowledges economic inequality in Chapter 10, stating: "The riches of the liberal never waste away, while he who will not give finds no comfort in them". This suggests that wealth accumulation was not inherently immoral, but hoarding it was considered a sin. Similarly, Arthashastra established laws promoting economic efficiency within an ethical framework. Its author, Kautilya, argued that infrastructure development—primarily the responsibility of the king—was a key driver of economic growth, provided it was carried out in a morally sound manner.
Greece
Ancient Greek philosophers intricately linked economic teachings with ethical systems. Socrates, Plato, and Aristotle held that happiness was the highest good humans could pursue.This perspective presented challenges in reconciling ethics with economics, particularly regarding the role of pleasure in achieving happiness.
Callicles, a character in Plato's "Gorgias," argued that living rightly involves gratifying all desires through courage and practicality, advocating for the unrestrained satisfaction of one's appetites.
This stance posed challenges to the concepts of scarcity and consumption regulation. The division of labor emerged as a solution, where individuals focused on their most productive functions to efficiently meet basic human needs like food, clothing, and shelter, thereby maximizing utility.
In Xenophon's "Oeconomicus," inspired by Socratic ideals, the emphasis is on understanding the proper use of money and property rather than merely acquiring wealth for personal gain. This work underscores the importance of knowledge and virtue in economic activities, aligning with the notion that virtue is a form of knowledge essential for effective household management.
Middle Ages
Religion was at the core of economic life during the Middle Ages; hence the theologians of the time used inferences from their respective ethical teachings to answer economic questions and achieve economic objectives. This approach was also adopted by philosophers during the Age of Enlightenment. The Roman Catholic Church altered its doctrinal interpretation of the validity of marriage, among other motivations, to prevent competition from threatening its monopolistic market position. Usury or loans with high interest was seen as an ethical issue in the Church, with justice being valued above economic efficiency.The transition from an agrarian lifestyle to monetary commerce in Israel led to the adoption of interest in lending and borrowing, as it was not directly prohibited in the Torah, under the ideal "that your brother may live with you."
Economic development in the Middle Ages was contingent on the ethical practices of merchants, founded by the transformation in how medieval society understood the economics of property and ownership. Islam supported this anti-ascetic ethic in the role of merchants, given its teaching that salvation derives from moderation rather than abstinence in such affairs.
Classical economics
The Labour Theory of Value holds that labour is the source of all economic value. The distinction between "wage slaves" and "proper slaves" in this theory, with both being viewed as commodities, is founded on the moral principle that wage slaves voluntarily offer their privately owned labour power to a buyer for a bargained price, while proper slaves, according to Karl Marx, have no such rights.Mercantilism, although advocated by classical economics, is regarded as ethically ambiguous in academic literature. Adam Smith, author of the Labour Theory of Value, noted that the national economic policy favoured the interests of producers at the expense of consumers since domestically produced goods were subject to high inflation. The competition between domestic households and foreign speculators also led to an unfavourable balance of trade, i.e. increasing current account deficits on the balance of payments.
Writers and commentators of the time employed Aristotle's ethical counsel to solve this economic dilemma.
Neoclassical economics
The moral philosophy of Adam Smith founded the neo-classical worldview in economics, which states that one's quest for happiness is the ultimate purpose of life and that the concept of homo economicus describes the fundamental behavior of the economic agent. Such an assumption that individuals are self-interested and rational has implied the exemption of collective ethics. Under rational choice and neoclassical economics' adoption of Newtonian atomism, many consumer behaviours are disregarded, meaning that it often cannot explain the source of consumer preferences when not constrained by the individual. The role of collective ethics in consumer preference cannot be explained by neoclassical economics. This degrades the applicability of the market demand function, a key analytical tool, to real economic phenomena as a result. In principle, economists thus avoided, and continue to avoid, the assumptions of abstract economic models and the unique aspects of economic problems.Contemporary history
According to John Maynard Keynes, the complete integration of ethics and economics is contingent on the rate of economic development. Economists have been able to aggregate the preferences of agents, under the assumption of homo economicus, via the merging of utilitarian ethics and institutionalism. Keynes departed from the atomistic view of neoclassical economics with his totalistic perspective of the global economy, given that "the whole is not equal to the sum of its parts....the assumptions of a uniform and homogeneous continuum are not satisfied." This enforced the idea that an unethical socioeconomic state is apparent when the economy is under full employment, to which Keynes proposed productive spending as a mechanism to return the economy to full employment, the state where an ethically rational society exists.Influences
Religion
Philosophers in the Hellenistic tradition became a driving force to the Gnostic vision, the redemption of the spirit through asceticism that founded the debate regarding evil and ignorance in policy discussions. The amalgamation of ancient Greek philosophy, logos, and early Christian philosophy in the 2nd and 3rd centuries AD caused believers of the time to stray from moral principles. This led to the solution that they were to act in one's best interest, given appropriate reason, to prevent ignorance.The Old Testament of the Bible served as the source of ethics in ancient economic practices. Currency debasement was prohibited given its fraudulent nature and negative economic consequences, which were punished according to Ezekiel 22:18–22, Isaiah 1:25, and Proverbs 25:4–5. Relationships between economic and religious literature have been founded by the New Testament. For example, James 1:27 states that "looking after orphans and widows in their distress and keeping oneself unspotted by the world make for pure worship without stain before our God and Father," which supports the academic argument that the goal of the economic process is to perfect one's personality.
The concept of human capital valuation is evident in the Talmud. The idea of opportunity cost is grounded in the "S'kbar B'telio" concept in Talmudic literature. In ancient Israel, a Rabbi was not to be paid for his work, as it would imply that he was profiting from preaching and interpreting the word of God, but would be compensated otherwise for the work completed as a Rabbi as a means of survival, given they are not involved in any other profession.
The Qur'an and the Sunnah have guided Islamic economic practice for centuries. For example, the Qur'an bans ribā as part of its focus on the eradication of interest to prevent financial institutions operating under the guidance of Islamic economics from making monopolistic returns. Zakat is in itself a system for the redistribution of wealth. The Qur'an specifies that it is intended solely for the poor, the needy, zakat administrators, those whose hearts are to be reconciled, those in bondage, those debt-ridden, those who strive for the cause of God, and the wayfarer. The use of Pension Loan Schemes and other micro-finance schemes are exercised in this teaching through the inclusion of the Hodeibah micro-finance program in Yemen and the UNDP Murabahah initiatives at Jabal al-Hoss in Syria.