Adam Smith, the ‘father’ of capitalism Flashcards
What was Adam Smiths arguments
Smith’s argument is that when people follow their rational self-interest competing in a free market, the result is economic prosperity which benefits society and general happiness.
What is a free market
In a free market, people gain money by providing a product or service that others are willing to pay for.
What does a free market encourage
Competition
which encourages productivity and innovation resulting in economic growth. Free market capitalism harnesses self-interest for societal gain, as if guided by an ‘invisible hand’.
This is the origin of the view that good business decisions have positive social results and is thus linked to good ethics.
Utilitarianism on capitalism & business ethics
Bentham was influenced by Adam Smith. Bentham and Mill mostly agreed with Smith’s reasoning, accepting that in general happiness is maximised by leaving markets free.
However, they both thought that restrictions needed to be placed on the market in some cases to direct it towards maximising happiness where it failed to.
Bentham thought the government should guarantee employment and impose a minimum wage.
The Utilitarian view then is that CSR is generally good and if globalisation detracts from CSR then it is generally bad.
Kant on capitalism & business ethics
Kant was influenced by Adam Smith and agreed that the division of labour was important for progress. Capitalism is based on autonomous market interactions and contracts between employers and employees. It involves individuals pursuing their rational self-interest.
Kant’s ethics accords with this as it depicts the rational individual as the centre of moral responsibility. When contractual arrangements and market interactions involve the treatment of people by each other as ends, they are good.
However, when either business practices or the macro effects of capitalism result in people being treated as mere means or otherwise violate duty, it seems that Kant would think that immoral, even if it was good for the profit of the business.
The Kantian view then is that CSR is our duty and globalisation which undermines CSR is wrong.
M. Friedman on CSR
Milton Friedman (libertarian) claims that the only responsibility of a business is to “make as much money for their stockholders as possible”.
Friedman therefore rejects the approach of both Kant and Utilitarianism. He would not accept that restricting markets or businesses is acceptable, whether to maximise the general happiness or to ensure the treatment of stakeholders as ends.
What Friedman beleive free market capitalism is the result of and what does he argue about the reality powerful businesses
Free market capitalism is the result of freedom, voluntary co-operation. Any attempt to control markets, even with the best of intentions, requires force and power.
Friedman argues that no one is angel-like enough to wield that power without becoming corrupted.
Evidence that supports Friedmans case
The only escape from extreme poverty is capitalism and largely free trade. Societies which depart from that are worse off.
Evidence which supports Freidman’s case is that the percentage of the world in extreme poverty dropped from 70% in 1960 to 17% in 2012.
More evidence suppporting Friedmans approach to CSR
Evidence for Friedman’s point is that northern Europe might be more equal than the USA, but it is less innovative. There’s a reason silicon valley is in America.
What is the problem for friedman
The problem for Freidman is that he thinks freedom is good, yet freedom leads to monopolies, especially under globalisation.
Monopolies actually end up undermining innovation and freedom. The only way to ensure that the market remains free is government intervention and control. Friedman accepted this, but in that case, he has to accept giving the government power.
Issue with Adam Smiths argument
Adam Smith’s arguments made much more sense in his time when capitalism was just starting out. The macro-effects of globalised capitalism are disastrous for the environment and for the free market itself.
What is the overall consensus of this argument
Kant and Utilitarianism are right that some restrictions should be placed on markets.
