The undemanding ethics of capitalism.

• Author: Niskanen, William A.

The United States and many other countries are now experiencing the first major financial crisis in over 75 years, a condition that too many people have been quick to blame on an outbreak of greed that they claim is characteristic of capitalism. Blaming a financial crisis on greed, however, is like blaming airplane crashes on gravity.

Greed and gravity are always with us, and capitalist markets usually channel self-interest into mutually beneficial behavior. On occasion, the public and private institutions that have the responsibility to monitor economic behavior fail to perform their roles before there are large losses to other parties. The Securities and Exchange Commission, for example, was slow to react to early information about the misleading accounting by the Enron Corporation and the massive Ponzi scheme by Bernard Madoff, and the private credit rating agencies are often among the last to recognize that they have substantially underestimated the risks of some securities. The current financial crisis, however, is primarily a consequence of public policies to promote home ownership that have long been supported by politicians of both parties combined with recent changes in the private market for mortgages, policies and market institutions that have led to massively unwise behavior but with little evidence of a knowing unethical exploitation of other people.

Forms of Human Interaction

An understanding of the market requires that we put it in context of other forms of human interaction. All forms of human interaction involve one or more of three types of relations: caring, exchange, mad threat. In a caring relation, one person does what another person wants (or needs) because he (she) cares for the other person. In an exchange relation, each person does what the other person wants. In a threat relation, one person threatens to do what the other person does not want unless the other person does what the threatening person wants.

Caring

A caring relation is inherently limited to one's family, friends, and others with whom one wants to maintain a close relation. In The Theory of Moral Sentiments., Adam Smith rejected the idea that man was capable of forming moral judgments beyond a limited sphere of activity centered on his own self-interest, stating:

The administration of the great system of the universe ... the care of the universal happiness of all rational and sensible beings, is the business of God and not of man. To man is allotted a much humbler department, but one much more suitable to the weakness of his powers, and to the narrowness of his comprehension--the care of his own happiness, of that of his family, his friends, his country [Smith (1759) 1976: 386].

Similarly, the late Paul Heyne, who may have been the most thoughtful contemporary writer about the relation between theology and economics, concluded that the New Testament ethics of...