Sunday, June 21, 2009

Ethical Considerations in Economic Activity

A fundamental principle of modern economics states that people will only agree to part with something when they can replace it with something that affords them equal or more satisfaction. But this principle only considers the satisfaction that comes from owning material goods. Sometimes we can experience a sense of satisfaction by parting with something without getting anything tangible in return, as when parents give their children gifts: because of the love they feel for their children, they feel a more rewarding sense of satisfaction than if they had received something in return. If human beings could expand their love to all other people, rather than confining it to their own families, then they might be able to part with things without receiving anything in return, and experience more satisfaction in doing so. This satisfaction comes not from a desire to obtain things to make ourselves happy (tanha), but from a desire for the well-being of others (chanda).[*]

Another economic principle states that the value of goods is determined by demand. This principle is classically illustrated by the story of two men shipwrecked on a desert island: one has a sack of rice and the other a hundred gold necklaces. Ordinarily, a single gold necklace would be enough, more than enough, to buy a whole sack of rice. But now the two men find themselves stranded on an island with no means of escape and no guarantee of rescue. The value of the goods changes. Now the person with the rice might demand all one hundred gold necklaces for a mere portion of the rice, or he might refuse to make the exchange at all.

However the question of ethics does not come into this discussion. Economists may assert that economics only concerns itself with demand, not its ethical quality, but in fact ethical considerations do affect demand. In the example of the two shipwrecked men, there are other possibilities besides trade. The man with the gold necklaces might steal some of the rice while the owner is not watching, or he might just kill him in order to get the whole sack. On the other hand, the two men might become friends and help each other out, sharing the rice until it's all gone, so that there is no need for any buying or selling at all.

In real life, it could happen in any of these ways. Factors such as personal morality or emotions such as greed and fear can and do affect economic outcome. A demand that does not stop at violence or theft will have different results from one that recognizes moral restraints.

One way to evaluate the ethical quality of economic activity is to look at the effects it has on three levels: on the individual consumer, on society and on the environment. Let us return to the example of the bottle of whiskey and the Chinese dinner. It is obvious that, though their market prices may be the same, their economic costs are not equal. The bottle of whiskey may damage the consumer's health, forcing him to spend money on medical treatment. The distillery which produced the whiskey may have released foul-smelling fumes into the air. This pollution has economic repercussions, forcing the government to spend resources on cleaning the environment. Moreover, one who drinks and suffers from a hangover on the job will work less efficiently, or he might get drunk and crash his car, incurring more economic costs. Then there are detrimental social effects: drinking can contribute to crime, which has very high costs for society.

Although ethical questions, they all have economic ramifications. They imply the necessity of looking at economic costs on a much wider scale than at present -- not just in terms of market prices. There is now a trend towards including environmental costs in economic calculations. Some economists even include them in the cost of a finished product. But this is not enough. In the case of the bottle of whiskey, apart from the environmental costs, there are also the social, moral, and health costs -- inefficient production, auto accidents, liver disease, crime -- all of which have economic implications.[**]

A second way to evaluate the ethical quality of economic activity is to determine which kind of desire is at its root. The most unethical economic activities are those that feed tanha while undermining well-being. Trade in tobacco, drugs, and prostitution are examples of detrimental economic activities geared solely toward satisfying a craving for pleasure.

The more people are driven by tanha the more they destroy their true well-being. This principle applies not only to the obvious vices, but to all economic activities. Thus, in decisions dealing with consumption, production, and the use of technology, we must learn how to distinguish between the two kinds of desire and make our choices wisely.


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