GBA business course

GBA 2013: Social and Ethical Issues in Business

Interactive Lesson Number 9 of 20

Copyright c© Dale Lee Clark 2013 All Rights Reserved

“$85 Billion; just say no?”

Case: Do the Math

QUESTION#1

1. Why might someone WANT to sell Cocaine (that is, what reasons might a person provide)?

2. Why might someone NOT WANT to sell Cocaine (again, what reasons might a person provide)?

Provide reasons for what you believe. Why should I agree with you?

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LECTURE OUTLINE NOTES

The Invisible Hand of Adam Smith; boo!

• According to Adam Smith, natural competition between free individuals must unavoid- ably lead to a balance of production that will control inequality by way of the nature of the market.

– This is the emergent property of a free-market system that he called, “the invisi- ble hand. . . ”

– So, what seems to be the problem?

∗ The ideal of a pure free-market system presupposes that the members of the market are rational.

· Clearly, people act irrationally all of the time.

∗ Besides, what counts as a rational action may depend greatly upon how many people are (or are not) acting in conjunction with one another.

· Consider a footbridge. . .

– With the advent of industry, the division of labor combined with the nature of the free-market, we derive a mechanism of competition that drives the quality and efficiency of production.

– Division of labor allows a person to focus on a single goal, and generate expertise.

– What else happens when a person focuses on only one thing?

∗ When a person only focuses on efficiency, other things can be lost, and we tend to lose sight of the bigger picture. Examples?

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Werhane: “Adam Smiths Relevance to Contemporary Moral Theory”

• Smith did not paint a very pretty picture of the future of a completely unfettered market system.

Consider the analogy of the pond and the ‘thriving’ algae, or if you prefer, consider the advent of ‘Skynet’.

– If the individuals of a society become too prosperous, demand for higher wages will eventually reduce capital and economic growth. Basically, as wages rise, the demand for labor will rise, profits go down, and there is less for reinvestment.

– If instead, there becomes too much capital for reinvestment in proportion to the demand for goods, the competition for goods will lower profits.

∗ Consider the latest financial meltdown.

– Smith also predicted the character of the citizens of such a ‘successful’ market system.

∗ The desire to escape the reality of poverty will lead to the moral decay of the poor, and so they will do whatever they have to do in order to survive.

∗ Similarly, the excess profits of the ‘higher’ classes will lead to their own moral decay, as the rich will be capable of doing anything that they desire.

– Karl Marx argued that this is why we should abandon Capitalism.

– Adam Smith believed instead that the value that could come from Capitalism was far too great to abandon; therefore, he suggested that our various social and ethical concerns could enable us to curtail the potential for the self-destruction inherent in a market system.

∗ Smith argued that this could only be done through a civil government that,

· enforces the laws of justice,

· and develops public works.

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POST LECTURE CRITICAL ANALYSIS

QUESTION#2

1. Can it ever be unreasonable to act rationally? Provide an example, and explain briefly.

2. Can it ever be reasonable to act irrationally? Provide an example, and explain briefly.

3. Assume it is TRUE that every member of the free-market ALWAYS acts rationally. Why might the Invisible Hand STILL be unable to do its job? (think about the foot- bridge example given in class.

Provide reasons for what you believe. Why should I agree with you?

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