Ethics And Business

Mr. Opitz, an associate editor of The Freeman, served as a member of the staff of The Foundation for Economic Education from 1955 until his retirement in 1992. This paper was delivered at St. Mary’s University, San Antonio, Texas.

A few years ago there was an immensely popular television series, named after Dallas. The central character of this show was a powerful and unscrupulous businessman who got that way by climbing over the backs of rivals, manipulating politicians, and wheeling and dealing with shadowy figures on the fringes of the underworld. J. R. Ewing finally got in the way of a bullet, and for months this nation was racked by the question: “Who shot J. R.?” But the civilized man could only wonder why the trigger man waited so long!

Business and the businessman have had a bad press, almost uniformly. Do you remember the television show whose hero was a businessman? The show that portrayed this businessman as a person of integrity and vision, who labored long hours to produce a product that supplied a genuine need, which he marketed at prices people could afford? Who treated his employees with generosity and consideration, and his customers with unfailing courtesy? Who was a devoted family man, active in civic affairs, and a churchman? Who could recite Shakespeare by the yard, relaxed by listening to his fine collection of recorded symphony music, and could tell a Corot from a Monet? Do you remember that show? Perhaps it was a movie? Actually it was neither. Such a show was never produced; the subject is taboo, by today’s mores.

The businessman has rarely if ever been treated fairly and accurately in drama or fiction. Is this because there are no men and women of superior intellect and high character in the world of business, industry, and trade? Not at all. Has the world of business no dramatic possibilities? Of course it has. But the fictional businessman invariably turns out to be the villain. There is a reason why this is so; the businessman is portrayed as a scoundrel because there is an almost universal bias against business on the part of novelists and dramatists. Businessmen do not get a fair shake because novelists and dramatists—with rare exceptions—have an ideological axe to grind.

This is the impression that emerges from our casual contact with the world of popular entertainment, the world of television, films, and fiction. This impression is confirmed in an unpretentious little volume by Ben Stein entitled The View from Sunset Boulevard. Stein interviewed a number of Hollywood writers and producers of television shows in order to find out how they viewed the various aspects of American life. If a visitor from England were to spend a little time watching television, what image of America would he come away with? Stein deals with television’s treatment of crime, the police, government, the army, the family, and other aspects of American life, including business. How do the people in Hollywood regard business? “One of the clearest messages of television,” Stein writes, “is that businessmen are bad, evil people, and that big businessmen are the worst of all . . . the murderous, duplicitous, cynical businessman is about the only kind of businessman there is on TV adventure shows, just as the cunning, trickster businessman shares the stage with the pompous buffoon businessman in situation comedies.” A well known producer, Stanley Kramer, sees business as “part of a very great power structure which wields enormous power over the people.” And beyond that, Kramer implies, there is an “arrangement” between business and organized crime: “the Mafia is part of the entire corporate entity now.”

The warped feelings of wealthy and talented Hollywood writers and producers did not spring into existence unaided; it is one of the calculated end results of an intense propaganda effort that has been hacking away at the roots of Western society since the middle of the last century—attacking its religious origin, its values, and what is perceived as the last bastion of the bourgeoisie, business. A scholarly work which meticulously researched this vast literature appeared in 1954, by Professor James Desmond Glover of the Harvard Business School, entitled The Attack on Big Business. Professor Glover writes: “In volumes upon volumes of testimony before Congressional committees, in popular novels, in learned treatises and textbooks, in poetry, in sermons, in opinions of Supreme Court justices, ‘big business’ and its works are seen as evil and attacked. The literature of criticism of ‘big business,’ and of the civilization it has done so much to bring into being, represents by now a perfectly staggering mass of material.”

The Anti-Capitalistic Mentality

What is the rationale for this widespread antagonism toward the business system, otherwise known as capitalism? I don’t profess to understand all the reasons for the anti-capitalistic mentality, but the root cause of the antipathy is surely the perception, the mistaken perception, that the relation between employer and employee is that of exploiter to victim. The employer may intend no harm, he may intend only good to those who work for him, but in the capitalistic mode of production Karl Marx contended the worker is denied the full fruits of his labor; a portion of every wage earner’s product is garnished by his boss. To simplify Marxist theory, we might say that John Smith, who runs a machine in a shoe factory, punches the clock at eight o’clock in the morning and works till noon. During these four hours he produces six pairs of shoes, which represent his wage for the day. John Smith returns to his bench and works four more hours in the afternoon, but the shoes he produces during these four hours are expropriated by his employer.

This is a summary statement of the surplus value theory, otherwise known as Marx’s exploitation theory. It is a central contention of Marxism that labor alone creates value, the value of a commodity being measured by the quantity of labor normally necessary to produce it. But if it is labor alone that creates value, the value created should belong exclusively to labor. It does not, however; the lion’s share is grabbed by the employer while the real producer is paid only a subsistence wage.

This theory overlooks the role of tools and machinery in production. The tool user in this generation is many times more productive than his counterpart of a few generations ago. Why is this? His naked labor power is no greater than that of people over the ages. The enhanced productivity of labor today is due to the tools and machinery at the disposal of every one of us—and those tools are the fruits of the labor of earlier generations. If today’s “worker” retained the full product of his individual effort, and only that, the poor fellow would starve.

A contemporary of Marx, the celebrated Austrian economist Eugen von Bohm-Bawerk, demolished the surplus value theory in a book entitled Capital and Interest, published in 1884, the year after Marx died. The demolition job has been repeated many times since the appearance of Bohm-Bawerk’s great book, and the consensus of opinion among independent economists is that the surplus value theory does not hold water. The exploitation theory has great propaganda value, however, and it is used unthinkingly by those who are acting out a grudge against business, which, in their distorted vision, keeps the poor locked in their poverty in order that others might be rich.

Ben Stein, in the book mentioned earlier, records a portion of his conversation with television writer Bob Weiskopf:

“Q. Why are people poor in America?

“A. Because I don’t think the system could function if everyone was well off.

“Q. What do you mean?

“A. I think you have to have poor people in a capitalist society.

“Q. Why?

“A. To exploit. The rich people can’t exploit each other. Consequently they always exploit the poor.”

It is not only Hollywood script writers who profess to believe that the rich get richer only by making the poor poorer. The coordinator of the National Council of Churches’ Anti-Poverty Task Force asserts, “Poverty would not continue to exist if those in power did not feel it was good for them.” A moment’s reflection will reveal this insulting accusation for the silly sentiment it is. We live in a commercial and manufacturing society. Our economy is featured by mass production, not only in factories but also in agriculture. The products of mass production flood our stores and supermarkets and showrooms, to be bought by the mass of consumers. Mass production cannot continue unless there is mass consumption; and the masses of people cannot consume the output of our mass production factories and fields unless they possess purchasing power—the money to buy the goods of their choice. To suggest that those who have goods and services to sell have some sinister interest in keeping their potential customers too poor to buy is sheer nonsense! If the president of General Motors wants to sell you a Cadillac or a Buick or a Chevrolet—which he does—then he wants you to be rich enough to buy. In the free economy, everyone has a stake in the economic well-being of every other person.

It is in the immediate interest of business and businessmen that the masses of people be well off; people who are poor are poor customers, and business cannot survive without customers. Business has no stake in poverty; but there is a class of people who do need the poor, who do have an interest in keeping them poor. Permit me, in a slight digression, to offer you a few words on this point by the celebrated economist Thomas Sowell: “To be blunt, the poor are a gold mine. By the time they are studied, advised, experimented with and administered, the poor have helped many a middle class liberal to achieve affluence with government money. The total amount of money the government spends on its ‘anti-poverty’ efforts is three times what would be required to lift every man, woman, and child in America above the poverty line by simply sending money to the poor.”

Back now to the widespread animus against business, stemming from the false idea that labor is the sole source of value but is not allowed to keep what it produces. In the distorted vision of Karl Marx, business, industry, and trade—as these economic activities are organized in the free world—are intrinsically evil, and the businessman is a parasite and predator. Similar notions are entertained by many a man in the street who has never read a line of Marx, as well as by intellectuals who regard themselves as anti-Communists. Given this climate of opinion, the term “ethical businessman” is a contradiction in terms; it is the figure of speech known to English teachers as an oxymoron—a figure which juxtaposes incongruous terms like “virtuous thief” or “honest liar.”

Now, if businessmen are involved in activities which are intrinsically crooked, evil by their very nature, then it is pointless to discuss the ethical situations of business or the moral dilemmas businessmen sometimes face. It would be like instructing a thief on how to rob banks honestly! So I propose to spend a few minutes trying to understand the nature of the economic activities that engage businessmen, while touching upon some of the values that are implicated in the production of goods and services.

All Are Sinners

You have a right to know the direction from which I am coming at you, to know my bias. I have examined the catalogue of sins of which businessmen are allegedly guilty, and Lo! they are the very same sins exhibited by people in every other walk of life. We all break the Commandments now and then, every one of us. Businessmen have no monopoly on sin. My mind goes back to a conversation I had several years ago with a professor of economics with years of teaching behind him, who had also served for many years as the academic dean of a prestigious midwestern college. He said to me, “You know, Ed, a thoroughly dishonest man can last a lot longer in teaching or preaching than as a used car salesman.” There may be some hyperbole here, but my friend has a point. There are good and bad in all walks of life, and there are very few saints anywhere; but in the eyes of the law all are equal. The law should mete out justice upon the guilty party with impartiality. It should punish those who harass, steal, defraud, breach a contract, assault, or murder. This is the rule of law in action.

There is no justification for the assumption that all businessmen are evil people who must therefore be regulated, i.e., adjudged guilty until proven innocent. There is no more reason for regulating businessmen than for regulating clergymen or teachers!

Who Decides?

The free market economic system produces goods and services in abundance, and it rewards every participant according to his individual contribution—as his peers judge that contribution. “To the producer belongs the fruits of his toil,” is an ancient bit of wisdom, as true now as when first uttered. The relation between an individual’s effort and the eventual reward of his exertions is fairly clear in a simple situation like subsistence farming. You work by yourself, preparing the ground in the spring, seeding and tilling it, watering the furrows with your sweat during the heat of summer, reaping in the fall. The abundance of your harvest is directly traceable to your skills and the amount of work you put forth. The greater your effort the more ample your harvest—other things being equal. The harvest is your wage, and your wage in this instance is pretty much determined by your own skill and your own exertions; the more you put in the more you will take out. What you take out is your wage, the economic equivalent of your contribution.

How is your wage determined in a complex division of labor society such as ours? Justice still demands that every participant in the economy be rewarded according to his contribution to the productive process. But how shall we identify each individual’s contribution in order to reward him commensurately? Economists from Adam Smith to Ludwig von Mises to F. A. Hayek and Milton Friedman have worked this question over and come up with an answer that is completely democratic and economically efficient, while encouraging every person in the full exercise of his lawful liberties. The answer provided by the economist is: Let the market decide what each person’s contribution is worth and reward him accordingly. “The market” describes the process of social cooperation under the division of labor where free people specialize in a complex variety of tasks in anticipation of a consumer demand for the goods and services they produce—followed by multiple voluntary exchanges of these products in which persons give over something they value for whatever they value more. This market process will reward people unequally, but it will reward them equitably, compensating each person in a measure equal to his peers’ evaluation of his services.

The eminent economist Frank H. Knight, founder of the Chicago School, put the matter in these words: “It is a proposition of elementary economics that ideal market competition will force entrepreneurs to pay every productive agent employed what his cooperation adds to the total, the difference between what it can be with him and what it would be without him. This is his own product in the only meaning the word can have where persons or their resources act jointly.” In short, each person will get his fair share, defined as what others will voluntarily offer for his goods and services—provided there is general freedom.

Each one of us is judged by his peers; our offerings of goods and services are evaluated by consumers who give us what they think our offerings are worth to them, and not a penny more. This is a democratic judgment on the value of the products of our labor—one dollar, one vote—and it is made by consumers who are, as everyone knows, ignorant, venal, superstitious, neurotic, biased, and stupid. In other words, people just like us—because every one of us is a consumer! When it is a question of the wage we earn we are dependent on consumers, who couldn’t care less that we are upright men of sterling character; their sole concern is: Do we have a product or service they want? If we do, they reward us handsomely. If we don’t, it matters not that we have labored long and painfully over our brainchild; if the customers don’t want it, we’re stuck with it. This is consumer sovereignty.

Consumers run the free economy; producers cater to their demands. It’s their show. What kind of a show do they put on? Not always a good one, I’m sorry to say. But I’ll say one thing for consumer sovereignty: it sure beats the alternative.

Freedom to Excel and Fail

Freedom is a costly thing, and we cannot keep it unless we are willing to pay the price. It is required of each one of us that we firmly adhere to the processes of freedom, even when we can barely stand some of the products of freedom—the products being what people do when given their “druthers.” The freer the society, the more things people will do that we might find distasteful; this is one of the consequences of freedom, and we have to school ourselves to accept it. This we have learned to do in two important areas—freedom of the press and freedom of worship. We must learn to be equally tolerant in the areas of business, industry, and trade.

How fares the written word when the masses are relatively literate and free to pick their own reading material, where they themselves select the men and women who will do their writing for them? The highest paid writers may be those whose subliterary efforts jam the boob tube, some of whose opinions I quoted earlier. The magazines and newspapers of largest circulation may be those which cater to our prurient interests. Best-selling novels are forgotten by next year. But as much as anyone might deplore the decline of reading and the low estate of publishing—now that the press is free—no one with any sense would wish to add a Department of Censorship to the already overgrown government bureaucracy. To put the press under a Ministry of Information and Propaganda would be disastrous. Freedom of the press may give every idiocy a voice; authors may not reap a monetary reward commensurate with their literary talents; so be it, we say; it’s the price we pay willingly for freedom of the press. Freedom merely allows the budding genius the elbow room he needs to live, and breathe, and write. And books of solid scholarly competence still appear regularly for the small audience which needs the nourishment only the word can provide. My mind goes back to an observation of Ralph Waldo Emerson: “There are not in the world at any one time more than a dozen persons who read and understand Plato:—never enough to pay for an edition of his works; yet to every generation these [works] come duly down, for the sake of those few persons . . . .”

Take the matter of religious liberty, the separation of church and state. In a free society people are not punished for belonging to the “wrong” church. They belong to the church of their own choice, or they belong to no church, as the case might be. In any event, the law pays no attention, so long as no injury is done to person or property. What happens when people are free in the area of religion? First of all, they mangle the phrase “separation of church and state” into my least favorite American shibboleth! Even people who should know better distort and misuse the phrase.

Then there are the so-called “electronic churches,” the spellbinders who appear in television; there are the “hot gospellers” who dominate radio every Sunday morning; there are the cults in which people give over their souls to some figure of dubious charismatic allure; there is the new appeal of mystical imports from the exotic Orient; the occult flourishes, along with magic and superstition. And the mainline churches, in many instances, have subordinated theology to dubious economic and political theory. Church bodies support and help finance revolutionary and guerrilla activities. But is anyone campaigning to establish a government Department of Religion? Not to my knowledge. However much we may dislike certain manifestations of religion when belief is free, we shrug our shoulders and tolerate what we dislike as the price of religious liberty.

Some of these same considerations apply to the realm of business, industry, and trade, where, as H. L. Mencken once wryly observed: “Nobody ever went broke by underestimating the taste of the American public.” This is all too obvious in what is called the entertainment industry. Here is a hyperkinetic young man, lacking in musical sense, who makes eight million dollars a year by howling and gyrating in public places. Here’s another young man, gifted with a high musical I.Q. and years of study behind him. A handful of people appreciate his organ virtuosity and his sensitive interpretation of Bach. He earns a living as a bank teller, directs a choir, and gives an occasional free organ recital. Young people pay millions of dollars to hear the Rolling Stones, while the Boston Symphony has to pass the hat in order to survive. Is this fair? No. Is it a matter for political solution? That would be an even greater travesty of justice.

The Market Economy

Human beings everywhere have engaged in trade and barter. There is some specialization and a division of labor even among primitive people, with a consequent exchange of the fruits of specialization. The voluntary exchange of goods and services is the market in operation, and the market is everywhere. But the market does not spontaneously or automatically transform itself into the market economy; the market economy emerges only when the moral, political, and legal conditions are right. This occurred under the Whig philosophy of men like Edmund Burke and Adam Smith, Thomas Jefferson and James Madison. These men drew up a frame of government whose main purpose was to secure each person in his life, liberty, and property. This political idea of limited, constitutional government is grounded on the religious conviction that we are God’s creatures, possessing immortal souls. The conviction that persons are sacred is politically translated into our Creator-endowed rights to “life, liberty, and the pursuit of happiness.” Adam Smith referred to his “liberal plan of liberty, equality and justice,” with the free market as the economic counterpart to political liberty. The rule of law replaces the arbitrary will of rulers and personal freedom expands. It is significant that The Wealth of Nations appeared in the same year as the Declaration of Independence.

The discipline of economics as a separate subject matter was almost non-existent prior to Adam Smith. Virtually starting from scratch, Smith created nearly the whole edifice of economics. Adam Smith presupposed the legal framework of the Whig jurists, where the law would eliminate force from the marketplace, punish fraud, and enforce contracts. He also presupposed a high level of probity in the general population. Given these conditions, the market is self-starting and self-regulating; the buying habits of consumers guide producers, determining how the entrepreneur will decide to combine scarce resources for the maximum satisfaction of consumer needs. There will be a harmony in these diverse activities of millions of participants, as if everything were directed by “an invisible hand.” The market economy—dubbed “capitalism” by its enemies about a century after Smith—contained the promise of prosperity for the multitudes. These same masses composed a self-governing people. Political liberty expanded and people had lots of elbow room to pick and choose and plan their own lives.

The Declaration and the Constitution created the political frame for a people who aspired to the ideal of "liberty and justice for all.” Political liberty assured freedom in economic transactions between employer and employee, seller and buyer. The work ethic was enshrined in America and wages doubled, redoubled, and doubled again during the nineteenth century—an eightfold increase in real wages. For the first time in history the masses glimpsed the possibility of pulling themselves out of poverty and creating new opportunities for their children. America’s schools and churches sought to shore up the traditional value structure of our culture and to orient the newly enlarged popular freedom toward virtue. Their success, needless to say, was only partial.

Was there ugliness in American life? Of course there was. Freedom was misused; the scramble for wealth was sometimes pretty crass. The newly rich were vulgar; plunderers bought and sold politicians, and fortunes were scooped out of the public treasury—all in violation of Whig theory and free market economics. But you cannot blame capitalism for the miscreants who refuse to abide by its rules.

Despite the gray and black areas in our history, there was still open opportunity on these shores, in comparison to what was available in other parts of the globe. Thirty-three million people told us so by coming here as immigrants during the half century before World War I. They came because life here—although far from perfect—was far better for them than life elsewhere.

The business of America is not business. It never was. The business of America is individual liberty, with the law enforcing an even-handed justice among equal persons. When the law provides a free field and no favor—which was the original implication of laissez faire—the economic order is the free market.

The market economy does not carry any implication that business may act irresponsibly with impunity. If, for example, industrial wastes are disposed of in such a way that persons are injured or property damaged, the law should punish those responsible and offer redress to the injured party. If a seller misrepresents a product, he is guilty of fraud and the buyer’s injury should be redressed. If a businessman solicits and obtains a subsidy from government, or if government gives him monopolistic advantages over his competition enabling him to exact a higher price from his customers, he has forfeited his status as a businessman. A businessman as such has no power over anyone, his only leverage being the quality of his goods and the persuasiveness of his advertising. The businessman has the same rights and the same responsibilities as every other member of society, no more and no less.

Lord Acton’s aphorism about power has been overquoted, but it is still terribly true. Power must be curbed if we will that people shall be free, and an independent economic order does put fetters on governmental power. People who control their own livelihood have little to fear from rulers; but political control of the economic life of a nation is totalitarian rule. The market economy curbs power in another way as well; it channels the activities of energetic, ambitious, and competitive personalities into the production of goods and services and away from politics. The rich in a free economy get that way because consumers appreciate the goods and services they offer; and if these few wish their descendants to enjoy this wealth the bulk of it must be invested in industries producing goods for the masses.

The End of Liberty

Let us give credit where credit is due; business, industry, and trade have made us into a prosperous nation. But our wealth has not made us a happy nation, or a contented one. We have proved once again—as if any further proof were needed—that prosperity and worldly success are, at best, a means to ends beyond themselves. Refine and improve a means as you will, it still remains only a means, needing a worthy end if it is to be meaningful. There is a discipline that deals with ends and goals, with the purposes that make life significant; it is called religion, though not everything bearing that label qualifies. But genuine Christianity is at a low ebb in the modern world; we have lost that vital contact with God and the moral law which energized our ancestors and made life for them an adventure in destiny. The decadence of Christianity is the root cause of the modern malaise; Plato argued two millennia ago that disorder in society is a reflection of disorder in the soul, that is, in our defective thinking and misguided loyalties. The work of renewal must begin here, with individual persons, and then go on to a restoration of the theological foundation necessary to a free society.

This is not the task of business, industry, and trade; the economic order has a more humble role to play. Business and the free economy beget a prosperous society which provides people the leisure they need to cultivate those goods which mark a high civilization: religion and worship, education and science, arts and crafts, conversation and play. These are the areas where people exercise their freedom most creatively, where they discover the goals proper to human life. Responsible freedom in the economic realm has the important role of supplying the indispensable means for these ends.