Business Ethics Concepts & Cases: Manuel G. Velasquez

Business Ethics
Concepts & Cases

Manuel G. Velasquez
Chapter
Three
The Business System: Government, Markets, and International Trade
Economic Systems
 Tradition-Based Societies: rely on traditional communal roles

and customs to carry out basic economic tasks.
 Command Economy: economic system based primarily on a
government authority making the economic decisions.
 Market Economy: economic system based primarily on private
individuals making the main economic decisions.
“Free” Markets and Trade
• Free Markets = each individual is able to

voluntarily exchange goods with others and
to decide what will be done with what he or
she owns without interference from
government.
• Free Trade = citizens may freely trade goods

with the citizens of other nations without the
interference of tariffs, quotas, or other
government limits on the goods citizens may
buy from or sell to foreign citizens.
Locke’s State of Nature
• All persons are free and equal.

• Each person owns his body and labor,
and whatever he mixes his own labor
into.
• People’s enjoyment of life, liberty,
and property are unsafe and
insecure.
• People agree to form a government to
protect and preserve their right to life,
liberty, and property.
Criticisms of Locke’s View on
Rights
• Locke does not demonstrate that individuals
have “natural” rights to life, liberty, and
property.
• Locke’s natural rights are negative rights and he
does not show these override conflicting
positive rights.
• Locke’s rights imply that markets should be
free, but free markets can be unjust and can
lead to inequalities.
• Locke wrongly assumes human beings
are atomistic individuals.
Free Markets and Utility
• Adam Smith
– Market competition ensures the pursuit of self-
interest in markets and advances the public’s
welfare.
– Government interference in markets lowers the
public’s welfare by creating shortages or
surpluses.
– Private ownership leads to better care and use
of resources than common ownership.
• Hayek and von Mises
– Governments should not interfere in markets
because they cannot have enough information to
allocate resources as efficiently as free markets.
Criticisms of Free Markets and
Utility
• Rests on unrealistic assumption that there
are no monopoly companies.
• Falsely assumes that all costs of
manufacturing are paid by
manufacturer, which ignores the costs
of pollution.
• Falsely assumes human beings are
motivated only by a self-interested desire
for profit.
• Some government planning and regulation
of markets is possible and desirable.
Keynes’ Criticism of Smith
• Smith wrongly assumes demand is

always enough to absorb the supply of
goods.
– If households forego spending, demand can be less
than supply, leading to cutbacks, unemployment,
and economic depression.
– Government spending can make up for such
shortfalls in household spending, so government
should intervene in markets.
• Keynes’ views were challenged when
government spending did not cure
high unemployment but created
inflation.
Social Darwinism
• Belief that economic competition

produces human progress.
• Views of Herbert Spencer
– Evolution operates in society when economic
competition ensures the fittest survive and the
unfit do not, which improves the human race.
– If government intervenes in the economy to
shield people from competition, the unfit survive
and the human race declines, so government
should not do so.
– Assumes those who survive in business are
“better” people than those who do not.
Free Trade and Utility
• Advocated by Adam Smith.

– everyone prospers if nations specialize in making
and exporting goods whose production costs for
them are lower than for other nations.
• Advocated by David Ricardo.
– everyone prospers if nations specialize in making
and exporting goods whose opportunity costs to
them are lower than the opportunity costs other
nations incur to make the same goods.
Criticisms of Free Trade and Utility
• Ignores the easy movement of capital

by companies.
• Falsely assumes that a country’s

production costs are constant.
• Ignores the influence of international

rule setters.
Karl Marx: Criticizing Markets and
Free Trade
• Capitalist systems offer only two sources
of income.
– Sale of one’s own labor.
– Ownership of the means of production (i.e.
buildings, machinery, land, and raw
materials).
• Capitalism and its private property
system creates alienation among
workers.
Marx on Alienation
• In capitalism, workers become alienated when

they lose control of their own life activities
and the ability to fulfill their true human
needs.
• Capitalism alienates workers from their own
productive work, the products of their work,
their relationships with each other, and from
themselves.
• Alienation also occurs when the value of
everything is seen in terms of its market
price.
Marx and Private Property
• Private ownership of the means of

production is the source of the worker’s loss
of control over work, products,
relationships, and self.
• Productive property should serve the needs

of all and should not be privately owned,
but owned by everyone.
Marx’s Historical Materialism
• The methods a society uses to produce its

goods determines how that society
organizes its workers.
• The way a society organizes its
workers determines its social classes.
• A society’s ruling social class controls
society’s government and ideologies and
uses these to advance its own interests and
control the working classes.
Immiseration of Workers
• Combined effects of increased concentration,
cyclic crises, rising unemployment, and declining
relative compensation.
– Industrial power is concentrated in the hands of a few
who organize workers for mass production.
– Mass production in the hands of a few leads to
surplus which causes economic depression.
– Factory owners replace workers with machines which
creates unemployment; they keep wages low to
increase profits.
• The only solution is a revolution that establishes a
classless society where everyone owns the means
of production.
Criticism of Marx
• Marx’s claims that capitalism is unjust

are unprovable.
• Justice requires free markets.
• The benefits of private property and free
markets are more important than equality.
• Free markets can encourage community
instead of causing alienation.
• Immiseration of workers has not
occurred; instead their condition has
improved.
Mixed Economy
• Mixed Economy = an economy that retains a
market and private property system but
relies heavily on government policies to
remedy their deficiencies.

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Business Ethics

Concepts & Cases

 Tradition-Based Societies: rely on traditional communal roles

• Free Markets = each individual is able to

• Free Trade = citizens may freely trade goods

• All persons are free and equal.

• Smith wrongly assumes demand is

• Belief that economic competition

• Advocated by Adam Smith.

• Ignores the easy movement of capital

• Falsely assumes that a country’s

• Ignores the influence of international

• In capitalism, workers become alienated when

• Private ownership of the means of

• Productive property should serve the needs

• The methods a society uses to produce its

• Marx’s claims that capitalism is unjust

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