Index
1. The concept of ethics
2. Adam Smith
and his vision for traders and trade
3. Interest, fair
price and inflation
4. The main
cause of inflation is human selfishness
5. There can be
no ethics in business without an ethical conception of life
6. What happens
when the state becomes a trader?
7. Conclusion
1. The concept
of ethics
The word ethics comes from the Latin ethicum. The
dictionary defines the word ethics as: 1. Theoretical part of the moral
evaluation of human acts. Synonym: moral. 2. Philosophy: Set of moral
principles and rules governing human activities.
2. Adam Smith and his vision for traders and
trade
Adam Smith (1723-1790) founder of the Economic Liberalism
was a philosopher of entrenched ethical stance believer in the virtues derived
from a providential order. Contrary to what many people may believe, Adam Smith
was not a staunch defender of capitalism without limits. One of the most famous
quotes from his book The Wealth of Nations,
illustrates clearly the stated above, this concept is as follows: " The
merchants of the same item seldom meet together, even for entertainment and
diversion, but the conversation ends in a conspiracy against the public, or in
some contrivance to raise prices.”
Smith had suspicion about traders because he thought
they were trying to eliminate competition, create monopolies and sell at the
highest price possible; those facts were contrary to his ethical view of life
and his liberal conception of economics.
In various parts of its summit work, The Wealth of Nations, Smith reflects on
merchants and commerce. For example, in chapter IV of the book one "Of the
Origin and Use of Money " Smith
says that “Every man thus lives by exchanging, or
becomes in some measure a merchant, and the society itself grows to be what is
properly a commercial society.” In chapter IX referred to "Of the
Profits of Stock ", says that “Our merchants
and master-manufacturers complain much of the bad effects of high wages in raising
the price, and thereby lessening the sale of their goods both at home and
abroad. They say nothing concerning the bad effects of high profits. They are
silent with regard to the pernicious effects of their own gains. They complain
only of those of other people."
In chapter IV of book three regarding “How the
Commerce of the Towns Contributed to the Improvement of the Country" he said
that "A merchant, it has been said very
properly, is not necessarily the citizen of any particular country. It is in a
great measure indifferent to him from what place he carries on his trade; and a
very trifling disgust will make him remove his capital, and together with it
all the industry which it supports, from one country to another. No part of it
can be said to belong to any particular country, till it has been spread as it
were over the face of that country, either in buildings or in the lasting
improvement of lands.
In Chapter II of Book IV, “Of the System of Political
Economy” said: "Country gentlemen and farmers,
dispersed in different parts of the country, cannot so easily combine as
merchants and manufacturers, who, being collected into towns, and accustomed to
that exclusive corporation spirit which prevails in them, naturally endeavour
to obtain against all their countrymen the same exclusive privilege which they
generally possess against the inhabitants of their respective towns. They
accordingly seem to have been the original inventors of those restraints upon
the importation of foreign goods which secure to them the monopoly of the
home-market. It was probably in imitation of them, and to put themselves upon a
level with those who, they found, were disposed to oppress them, that the
country gentlemen and farmers of Great Britain in so far forgot the generosity which
is natural to their station as to demand the exclusive privilege of supplying
their countrymen with corn and butcher's-meat. They did not perhaps take time
to consider how much less their interest could be affected by the freedom of
trade than that of the people whose example they followed.” End of the quotes.
These concepts of the founder of the Economic
Liberalism bring out his clear understanding of the role played by the traders
in society and demonstrate the manipulation that has been made of his ideas
over time to justify non- intervention in the economy. Indeed, Adam Smith never
said explicitly that he agreed with the price control, but their reasoning is
clear that he was aware that traders and trade each carry in itself the germ of
speculation.
3.
Interest, fair price and inflation
Criticism of interest and usury appears for the first
time in the history of the Western world in the Old Testament. Then, in the Greek
civilization, were given the first steps to creating the economy. A pre-Socratic philosopher, Xenophon (430-355 BC),
in his work Oeconomics, was the
creator of the concept that referred mainly to the administration of the house.
After, Plato (427-347 BC), in his book The
Republic, condemns usury while Aristotle (384-322 BC) in his Ethics, censorship also the collection
of interest and usury, laying also the foundations of the theory of value and
the division of labor. Ancient Rome suffered from inflation and this caused
great conflict, to the extent that the Emperor Diocletian was obliged to enact
price controls and establish the death penalty for those who violate the
control. Then, in the Middle Age, the issue becomes more relevant with the
reflections of St. Thomas Aquinas (1225-1274) in his Summa Theological, which
prohibits usury and advocates for the fair price.
Nicholas Oresme (1340-1382) wrote the first treatise
on monetary economics, criticizing the tendency of the Kings to decrease the
content of gold and silver of the coins and considers the effects of these
measures on prices. It is Nicolas Oresme
the precursor of the concept which assures that the coins of minor value
substitute the coins of most value, idea developed later, in the sixteenth
century by Thomas Gresham, an adviser to Queen Elizabeth I of England.
The works of Xenophon, Plato, Aristotle and a
Diocletian in the Antiquity and the work of St. Thomas Aquinas and Nicholas
Oresme in the Middle Age, represent the economic ideology of each one of those
times.
But it is in the Modern Age, from the discovery of
America (1492), that economic thinking will be developed intensively. The main
concern of the first researchers of the economy was about monetary affairs
because of the arrival in Europe of vast amounts of gold and silver from
America caused great changes in the economy, including inflation.
The first economic doctrine was Mercantilism
(sixteenth to eighteenth centuries). Mercantilism believed that the wealth of
nations was formed by the quantity of accumulated precious metals. They thought that for obtaining wealth was
necessary to have a privileged position in the international trade by exporting
more goods and importing the strictly necessary. Mercantilism advocated state
intervention in the economy to provide the above explained purposes. The French
philosopher Jean Bodin (1530-1596), was the first speaker of the mercantilist
doctrine in his book, The Republic,
which also makes a study of the rise in prices and a defense of private property.
This work of Jean Bodin therefore opens up the great themes of modern economic thought:
protectionism and free trade, liberalism and socialism. From there is developed
all the modern economic conceptual structure. In England, the founder of
Mercantilism is Thomas Mun (1571-1641), with his work England's Treasure by Foreign Trade. In the 18th century,
in opposition to the Mercantilism Physiocrats doctrine arises, whose main
exponent was the French physician, Francoise Quesnay (1694-1774). Then appeared the Economic Liberalism, which
maximum figure is Adam Smith (1723-1790) and almost a century later, Karl Marx
(1818-1883), published his work, The
Capital, which constitutes a negation of the principles of Economic
Liberalism.
In the four main economic doctrines, Mercantilism, Physiocracy,
Economic Liberalism and Marxism, was always present the issue of free trade inside
the countries and between the countries, sometimes explicitly and at other
times implicitly. In the 20th century the subject occupied the
attention of rulers and economists, especially from the nineties, because of
the imposition of Neoliberalism to developing nations, by international
financial organizations.
Interest, fair price and inflation have always been
related to two practical facts: a) economic freedom or restriction by the state
and b) with the abundance or restriction of money. Believers in the Quantity
Theory of Money attributed inflation to the over abundance of money, but in
different historical moments has been demonstrated that this assumption is not a
single universal truth, but a relative truth. It depends on various factors like the idle capacity
of the economy. For example, an economy that is not employing all its capacity
of production can react quickly to monetary stimulus and increase the supply of
goods and services without noticeable changes in price levels.
David Hume (1711-1776), in his essay on money, was the
first to demonstrate the positive effects of a monetary expansion and explained
it through his theory of beneficial inflation. Three centuries after Hume,
another Englishman, John Maynard Keynes (1883-1946), expand and strengthen the
thesis of Hume, in his book The General Theory of Employment, Interest and
Money, which provided the basis for overcoming the Great Depression of the
thirties years of the 20th century. When the theory was published,
there were critics who claimed that the thesis would not solve the long-term
economic problems. To answer this objection, Keynes replied simply that in the
long run we all will be dead; thereby demonstrating that what matters is what
is happening here and now, because no one can know what will happen in the
future.
The thesis of Keynes had thirty years of continuous
success and that historical period was called the Age of Keynes; it covered
since the end of World War II until the late seventies when again the global
economy came back into crisis as a result of monetary manipulations developed early
in the decade by Germany and other European countries, events that led to the
devaluation of the dollar in 1971 and later to the crisis by increasing oil
prices since 1973. From these facts reappeared on stage Keynesian critics like
the Chicago School, who attributed the crisis, among other factors, to the State
intervention in the economy, the welfare policy which extended social benefits
to all sectors of society and the monetary consequences of that policy. First
it was the British Prime Minister, Margaret Thatcher, who took the principles
outlined by the Chicago School, whose main representative was Professor Milton
Friedman. Then the U.S. President, Ronald Regan, adopted the policy and
thereafter these principles became the ABC-book of the international financial
institutions, the World Bank and the International Monetary Fund.
Friedman tried to retrieve and enforce the thought of
Adam Smith regarding the non- intervention in the economy and, at the same time,
the essence of the Quantity Theory of Money, which attribute to the expansion
of the money supply the cause of inflation. It was therefore the opposite to
the idea of Keynes
view. However, we can spotlight that Friedman never ignored the short-term
effects arising from monetary expansion in terms of increased production, employment
and low inflation, like was demonstrated in the reality during the period between
the Second World War end and the seventies; a stage of expansion of employment,
production and low inflation. Friedman’s objection to the theory of Keynes was
essentially for their long-term consequences but recognized its positive
effects on the immediate. We can say, in short, that the conception of Keynes
regarding the benefits of increased investment on employment, production and
prices could not be denied so far.
4.
The main cause of inflation is human selfishness
The above explanations are justified because inflation
and speculation often pretend to be explained or justified because of increased
government spending and / or growth of liquidity in the economy. We cannot deny
that both elements may have an impact on inflation when, in fact, the abundance
of money is unrelated to the amount of goods and services on a given time. But
in my opinion, that is not the main cause of inflation. The main cause of
inflation is human selfishness that knows no limits to the accumulation of
wealth and whose goal is to accumulate and accumulate.
In the book Critical Appreciation of Monetary Policy, Apreciación Crítica de la Política Monetaria
(1), explained that the causes of inflation are, among others: a) devaluation
of currencies, b) usury, c) tax burden, d) augment in the price of inputs and services
e) the increase in demand in face of inadequate supply, i.e., the existence of means
of payment in an superior amount than the quantity of goods and services that exists in the society in a concrete time.
In countries affected by extreme price variations are
present one or more of the above factors, but to a greater extent, the tendency
toward speculation. It means the tendency to invoke the existence of any of the
above discussed factors to justify raising prices arbitrarily. That is the
attitude that clearly referred Adam Smith.
5.
There can be no ethics in business without
an ethical conception of life
In the essay entitled Wild Countries and Advanced Countries (2) I said that “What distinguishes
a savage country from an advanced country is that in wild countries the
behavior of a significant proportion of its population are opposed to moral
values defined
in the Ten Commandments of the Law of God, while in the advanced countries the
majority of its population respects those principles.
The ethics of trade is directly linked to two
fundamental commandments: a) You shall not steal b) You shall no covet the properties
of your neighbor.
The problem is that from the beginning of time man has
violated these principles. The current world is not an exception and only in
too few countries we can say that there is respect for these fundamental
principles.
There are countries where the situation is worse than
others. They are nations where there are no limits on speculative profits. High
interest rates, usury, speculation in food, medicine, dwelling and other
essential goods and services, are common elements in those countries. When this
happens, the chances of development disappear or are minimal.
6.
What happens when the state becomes a trader?
The other major problem facing nations is that many
political leaders misunderstand the meaning of politics and transform the
States and governments in business and / or private companies. The situation
has reached a level that now, in plenty 21st century, some
governments has authorized the creation of private armies, mercenary companies
to operate in theaters of war.
Some leaders believe that politics and governments is
a business that must be profitable. They want that public activities like health,
education, infrastructure and other public services provide profits. When this occurs,
a great damage is made to all the society. That is what is happening today in
Europe, in countries such as Portugal, Spain, Italy and Greece, which have
reduced public investment to privatize essential services.
7.
Conclusion
Only state action can prevent usury and speculation
through laws and moral action to sanction such conduct. Competition in the
market is not sufficient to keep prices at fair levels, because there are
uncontrollable speculative tendencies in the market, motivated by selfish
behavior whose only goal is to have more money. Understanding this reality is
essential. Adam Smith, the father of Economic Liberalism never said this explicitly,
but from his views on trade and traders we can infer that he was clear about
the need of to curb speculative behavior in society.
(1) Pablo
Rafael González. Apreciación crítica de
la política monetaria, el bolívar oro. Monte Ávila Editores
Latinoamericana, página 138. Caracas, 2007.
Entradas
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