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Bernard Madoff, Adam Smith, and capitalism's moral crisis

The business of business may be business, but the business of life is not.

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Business ethics professors are the Cassandras of the financial world. In good times, their warnings about the economic consequences of moral misbehavior go unheeded. In bad, people blame them for not raising their voice.

Thus, financial crises present a special set of challenges for business ethicists. After the fraud and flamboyance of the late 1980s and the dot-com implosion in the early part of this decade, business schools scrambled to explain the moral meltdown of some of their best and brightest. They called on ethicists to diagnose these lapses in professional integrity and to provide business schools a road ahead where their star pupils would no longer exchange their pinstripes for prison stripes, where they would prove themselves prudent stewards of the nation's wealth and role models to our youth.

So much for that idea.

The current financial mess is extraordinary, but it differs in degree only from those before it. Take all the mistakes and misdeeds of the past few years and strip them of the arcana of credit-default swaps, mark-to-market accounting, and other terms that serve more to confuse than edify, and a common denominator remains: greed. Not the kind of greed that gets you thrown in jail, but a more pernicious strain, the greed that breaks no laws but turns a blind eye, that relies on the quiet collusion of the morally bankrupt and the grossly negligent.

The Gordon Gekkos of the world are rolling their eyes. The business of business is business, they would say, hoping to silence the Wendy Whiners of the commentariat and tenured scolds of the B-School set. They won't – not because their pronouncement is wrong, but because it's incomplete. The business of business may be business, but the business of life is not.

No one knew this better than Adam Smith, who spent as much time worrying about the moral consequences of capitalism as he did deriving its theoretical underpinnings. Long before his "Wealth of Nations" provided a template for economic growth, Smith wrestled with the demands of a society's moral development in "The Theory of Moral Sentiments."

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