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Summary Phil.of Eco. & Economic Ethics for ECO
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Summary of the reader of P Eco. & Economic Ethics for ECO: Markets and Morality on economic freedom, happiness, inequality and virtues by Johan Graafland
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Samenvatting FiloCh. 1
1.1 economic ethics
What is economics?
Economics is the study of the economy. The neoclassical definition (by Robbins in 1935): ‘the science
which studies human behaviour as a relationship between ends and scarce means which have
alternative uses’
→ Core element: scarcity: if a person would have ample time and ample means, all ends can be
realized and the agent doesn’t have to economize.
The domain of economics exists of all aspects of human behaviour in circumstances of scarcity.
What is ethics?
Ethics is the study of morality → Velasques (1998): ‘Morality concerns the standards that an
individual or a group has about what is right or wrong’ → refers to what people are ought to do, how
the world should be.
There are also many non-moral normative standards (e.g. standards in successful marketing of
products)
Difference between moral and non-moral standards:
Moral standards are prescriptive statements
Moral standards should overrule other, non-moral standards
Moral standards should be impartial
Moral standards deal with issues that have serious consequences for the welfare of human
beings
Values can both be intrinsic and extrinsic in nature:
Intrinsic values: someone values something when one values it in itself; apart from valuing
anything else.
Extrinsic values: values that are merely good as a means to something else (money)
o = Instrumental values
Norms are the rules or conventions that should be followed up in order to realize moral values.
→ without norms values remain unattainable.
Virtues: personal character traits that enable a person to realize certain values. (patience, honesty…)
Preferences: priorities of persons between different things
Values motivate persons and norms regulate the behaviour. Besides moral norms, behaviour can also
be regulated by social norms (etiquette) or legal norms.
Moral norms judge behaviour as good and evil (cheating is bad);
Legal norms as legal or illegal (cheating isn’t illegal);
Social norms as proper or improper (you shouldn’t cheat)
Moral dilemmas
,A moral dilemma can be seen as a conflict between different moral standards including: values,
ideals and duties. → two types of standards: moral standards and practical standards (profitability,
self-interest, pride)
Classification of dilemmas
Moral standard Practical standard
Moral standard Moral dilemma Motivational dilemma
Practical standard Motivational dilemma Practical dilemma (deciding
colour of new company
vehicles, how much money
should be invested next year)
A motivational dilemma confronts an individual with the problem of moral motivation: what
motivates people to act in accordance with their moral standards.
Positive and normative statements
Policy advice relates to facts (goal of economics: providing knowledge about the world) and to values
(goal of ethics: attempting to reach normative conclusion about what’s good or bad). What policy
makers should do is derived from these two elements: a description of a state of affairs and a value
statement that prescribes the desired state of affairs:
1. Value statement: the government should foster goal x
2. Positive statement: if the government applies policy instrument y, x will increase
3. Policy conclusion: the government should apply policy instrument y
According to Friedman, differences about economic policy derive predominantly from different
predictions about the economic consequences of taking action (stat. 2) rather than from
fundamental differences in values (stat. 1).
Economic ethics
General normative ethics is the philosophical attempts to formulate and defend basic moral
principles. Several general normative ethical principles: utilitarianism, duty ethics, rights ethics,
justice ethics, virtue ethics and care ethics.
The application or further specification of moral action guides to a certain field is commonly referred
to as applied ethics. → economic ethics reflect on the moral standards that apply to economic
phenomena.
Kouwenhoven: two strands of economic ethics:
Microeconomic ethics → evaluates the actions of individual economic agents given the
economic structures or institutions.
Macroeconomic ethics → considers the morality of economic structures.
Economic ethics cannot be sharply distinguished from business ethics.
Macroeconomic ethics belongs to the broader category of social ethics. The domain of social ethics is
the morality of the societal relationships and structures.
1.2 Defence and critique of the free market
,Traditional defence of the free market
The most well-known moral defence of the free market system goes back to John Locke and
Adam Smith.
The two rights that free markets are supposed to respect are the right to freedom and the
right to private property. → The government isn’t allowed to intervene in economic
transactions that individuals voluntarily conclude on a market.
The second major molar defence of the free market rests on the utilitarian argument that
market institutions will produce greater benefits than any other institution that coordinates
the demand and supply of goods → Adam Smith
the market offers an efficient mechanism for exchanging the products produced by
specialized units:
o First, in a free competitive market, the price will tend to the Natural price.
o Second competition will also efficiently allocate the resources of the economy
(capital and labour) among the various industries of a society.
An interesting aspect of Smith’s theory is that this optimal situation is realized by self-interested
actors. Motivated by their own micro-goals of maximum utility or maximum profits, consumers and
producers carry out plans that serve the macro-goal of maximal economic utility of the society at
large. → invisible hand: if people interact freely, the pursuit of their self-interest is not incompatible
with serving the common good.
Economic objections
Critics on the free market:
in reality, there are many market imperfections that distort the operating of the market
(monopolies and oligopolies: (almost) no competition) → regulations of government are
needed.
In reality, rationality of people is bounded.
Ethical objections
Other objections against the defence of free operation of market which are more moral (instead of
market imperfections) in nature:
First, from a justice ethical point of view, it’s sometimes argued that perfect markets allow
large inequalities (gap between rich and poor increases)
Second, Locke takes the assumption that people have rights to liberty and property as self-
evident, but this assumption is unproven. Markets only respect certain negative rights.
Third, from a virtue ethical point of view it can be argued that free markets ignore the
demands of caring. → virtues of loyalty, kindness and caring tend to diminish, while the vices
of being greedy, self-seeking and calculating are encouraged.
, Ch. 2 Utilitarianism
The ethical theory that takes overall welfare (or utility or happiness) as its standard is utilitarianism.
Both in utilitarianism and in economic welfare theory efficiency is the main criterion to evaluate a
certain state of affairs. → basic principle: “the greatest happiness for the greatest number” = an
action is right iff the sum total of utilities produced by that act is greater than the sum total of utilities
produced by any other act the agent could have performed in its place.
2.1 Characteristics of utilitarianism
Utilitarianism as a principle can be seen to be a combination of three elementary requirements:
1. Consequentialism
→ consequentialism asserts that actions, choices or policies must be judged exclusively in
terms of the resulting, or consequent, effects, rather than by any intrinsic features they may
have. Outcome (not process) matters.
→Particular structure for ethics:
a. One needs to decide what is intrinsically valuable.
b. Then one assesses actions, policies and institutions in terms of their consequences or
contribution to these valuable goals.
c. If an action or policy is better than any alternative, consequentialism states that this
policy is morally obligatory.
→ Since the consequences of an action are almost always uncertain, most utilitarians express
their view in terms of the expected outcomes of actions.
2. Welfarism
→ welfarism requires that the goodness of a state of affairs be a function only of the utility or
welfare obtained by individuals in that state. It excludes all non-utility aspects of the
situation.
→ Jeremy Bentham: pleasure (+) and pain (-) regulate all human behaviour and all human
experience might theoretically be measured in terms of these basic units. With this it should
be possible to calculate a net sum total of utility = hedonism
→ Mill: distinguishes higher pleasures (intellect, moral sentiments) that are qualitatively
different from the lower pleasures (eating). The greatest happiness principle therefore is the
greatest balance of pleasures over pain, both in quantity and quality. The quality and the rule
of measuring it against quantity is to be assessed by competent judges.
→ individual sovereignty implies that individuals are the best judges of their own welfare. It
rejects paternalism: the notion that a third party may know better than the individuals
themselves what serves their interests.
→ formal theories specify how one finds out which things are intrinsically good for people,
but do not specify what those things are.
3. Sum ranking
→ individual sovereignty implies that individual utilities are the sole base for evaluating an
action or policy. The social welfare for the society as a whole is considered to be the sum of
these individual utilities.
→ actions and policies should be evaluated on the basis of the benefits and the costs they
will impose on the society as a whole, giving equal weight to everyone’s interest.
→ maximizing total welfare means that the marginal utility of different persons should be
equalized.
→ Singer: if it is in one’s power to prevent bad things (death, lack of food, shelter and
medical care) from happening, without thereby sacrificing anything of comparable moral
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