The importance of ethics in economics

This blog will publish articles on a wide range of topics related to Catholic social thought – both theoretical and practical. This first post discusses the importance of ethics in economic action – a key theme of Catholic social teaching since the financial crisis.

Economic action involves human persons choosing means to meet chosen ends. Economics therefore has an intrinsic link with ethics, even if those who practice the discipline of economics prefer to narrow its scope. For example, when it comes to ends, a business owner can choose whether the purpose of the business should be the production of pornography or the production of edifying literature. When it comes to means, a business owner can decide whether to employ and exploit trafficked migrants or to treat the business’s employees justly and humanely. The business owners or managers can also choose whether to promote its products to consumers in a positive but honest way or by dishonest marketing which appeals to the temptations of greed, lust and gluttony.

This connection between ethics and economic life was pointed out by Pope Benedict XVI in Caritas in Veritate, 36):

Economy and finance, as instruments, can be used badly when those at the helm are motivated by purely selfish ends. Instruments that are good in themselves can thereby be transformed into harmful ones. But it is man’s darkened reason that produces these consequences, not the instrument per se. Therefore it is not the instrument that must be called to account, but individuals, their moral conscience and their personal and social responsibility.

Pope Benedict then summed up the connection succinctly: “every economic decision has a moral consequence” (37italics in original).

A Christian approach to economics needs a stronger basis for ethical judgements than an understanding of the empirical consequences of our actions.

Economists do sometimes consider ethical issues. However, they tend to treat them empirically. For example, Nobel Prize winner Kenneth Arrow (Arrow, 1972) stated: “Virtually every commercial transaction has within itself an element of trust…It can be plausibly argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence.” Interestingly, considering the problem from the perspective of a theologian, Pope Benedict made a remarkably similar comment in Caritas in Veritate (17) in which he said: “Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function” (emphasis in original).

The empirical analysis of the technical economist can complement the inter-disciplinary thinking of others who approach the discipline in a different way. A Christian approach to economics needs a stronger basis for ethical judgements than an understanding of the empirical consequences of our actions.

The importance of ethics in economic life was noted by the Cardinal Archbishop of Westminster, Vincent Nichols, after the financial crisis. In various letters and homilies, he stressed the importance of practising the virtues in finance and business life, including in his 2010 pre-election letter in which he said:

“The classical virtues form us as people who are prudent, just, temperate and courageous…The virtue of prudence, or right reason in action, is the opposite of rashness and carelessness. It enables us to discern the good in any circumstance and the right way to achieve it…The virtue of courage ensures firmness, and the readiness to stand by what we believe in times of difficulty. It is the opposite of opportunism and of evasiveness…Justice is the virtue by which we strive to give what is due to others by respecting their rights and fulfilling our duties towards them. The virtue of temperance helps to moderate our appetites and our use of the world’s created goods. It is the opposite of consumerism and the uninhibited pursuit of pleasure.”

It is very easy to relate each of these virtues more specifically to economic action. For example, in the area of financial markets, the practice of prudence would have prevented a large bank from taking over another in such a way that it undermined its financial soundness in the pursuit of the prestige that comes from size. Courage is required if employees are to speak out about the dishonest or imprudent practice of colleagues. Justice would ensure that people were paid in accordance with their contribution to the enterprise. Temperance would reduce the appetites of those in some parts of financial institutions to pursue commercial gain at the expense of other values.

We often think of ethics in economics in relation to big events such as the financial crisis or think that it is for those at the top of the economic tree (CEOs of big banks, for example). However, to end by repeating the quotation from Pope Benedict: “every economic decision has a moral consequence”.

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Philip Booth

Author: Philip Booth

Published: 17th January 2020

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© Catholic Social Thought 2020