Business Systems, CSR, True Cost and Environmental Ethics

Business Ethics Class

What are the two main tasks of an economic system?

1) Produce goods and services — deciding what will be produced, how, and by whom.
2) Distribute goods and services — deciding who will get what and how much.

What are the main types of social devices for organizing economic systems?

Tradition, Command, Markets, and Mixed systems

What is the central question about government’s role in business?

should governments allow businesses to trade freely without interference, or should they restrict business activities to protect citizens?

What does a “Free Market” system believe about government interference?

Government should not interfere; people should freely trade, recognizing rights and utility. Government restrictions cause unfairness and inefficiency.

What does a traditional economic system rely on?

traditional economic system relies on customs, traditions, and beliefs that have been passed down from generation to generation to make economic decisions — like what to produce, how to produce it, and for whom.

Custom and tradition — economic roles and work patterns are inherited.

• Example: If your parents are farmers or hunters, you become one too

What defines a command economic system?

A system where the government or central authority decides what is produced, how it’s made, and who gets it. It limits individual freedom in favor of order and equality. Locke would oppose it because it violates natural rights to liberty and property.

What defines a market system?

A free-market system based on voluntary exchange, minimal government interference, and respect for natural rights. People control their property and labor. Ethically, it supports liberty but can become unjust if unregulated, leading to exploitation or pollution.

What is a mixed economy?

A combination of market freedom and government oversight that balances efficiency with fairness. The government allows free enterprise but regulates to protect citizens and prevent harm — the ethical “balancing act” between liberty and responsibility.

ethics of free markets

governments should not interfere with the free market because people have the right to liberty and property. Recognizing rights and utility makes markets fair and beneficial.

negative ethics of free market 

unrestrained free markets can cause unethical behavior — including unfair competition, global pollution, sweatshops, discrimination, and neglect of the poor.

What is the ethical “balancing act” between markets and command systems?

tension between economic freedom and social protection. Too much freedom can create injustice and harm; too much control limits innovation and liberty.

Who was John Locke?

english political philosopher (1632–1704) known for developing the theory that humans have “natural rights” to liberty and private property.

hat did Locke believe about liberty and property?

People have a natural right to liberty and to control their own property. Free markets support these rights because they allow voluntary exchange without government interference and let individuals decide what to do with their property.

According to Locke, where do moral principles and rights come from?

Rights are natural — they do not come from governments or laws but exist by nature.

what are Locke’s three key natural rights?

• The right to liberty — to live freely and make choices.

• The right to self-ownership — to control one’s body and labor.

• The right to property — ownership that arises when someone mixes their labor with nature.

What does Locke mean by “mixing labor with nature”?

When a person works on something (like farming land or crafting a product), they combine their labor with a natural resource, making it their property. This act gives moral ownership.

What is Locke’s “bundle of rights” related to property?

It includes the right to use, consume, sell, dispose of, give, change, and exclude others from using one’s property. Ownership gives individuals full control over their possessions.

What is Locke’s “State of Nature”?

t’s a condition without government where all people are equal and free under natural law. However, it’s not a lawless or chaotic state — reason governs it. People are obliged not to harm others in their life, health, liberty, or possessions.

What does Locke mean by “The State of Nature is not a state of license”?

Even in total freedom, moral law (reason) still limits actions. Freedom doesn’t mean doing whatever one wants — it means acting responsibly within natural law.

Why did Locke believe government is necessary?

Because the state of nature is dangerous — without a government to protect rights, people’s life, liberty, and property are at risk. Government arises to preserve these natural rights but must be limited to that purpose.

How did Locke’s ideas influence the U.S. Constitution?

The 5th Amendment reflects Locke’s beliefs: “No person shall be deprived of life, liberty, or property without due process of law.” This protects the same natural rights Locke emphasized.

How do Locke’s ideas appear in property laws today?

Many property laws assume that when someone invests labor and effort into creating or improving something, they gain ownership — reflecting Locke’s belief that labor creates property rights.

What did Locke believe about free markets and government interference?

Locke believed government should only protect people’s rights, not control their choices. Individuals should be free to use and exchange their property however they want. Free markets, in his view, encourage independence and mutual benefit.

Why did Locke see free markets as moral?

Because they are based on voluntary exchange and respect each person’s right to liberty and property. They allow people to benefit from their labor without unfair government restriction.

What are some criticisms of Locke’s belief in natural rights?

question whether rights are truly “natural” or just social constructs. Others argue his focus on individualism ignores society’s duty to care for others.

What is the difference between negative and positive rights?

• Negative rights: The right to be free from interference (Locke’s focus).

• Positive rights: The right to receive certain benefits or help (like welfare or healthcare).
  Locke’s philosophy emphasizes the former and minimizes the latter.

Who was Thomas Aquinas and what did he believe about property?

13th-century Catholic philosopher who argued that private property is not “natural” but a social construct — a human-made system that benefits society when used responsibly.

what was Aquinas’s argument for private property?

He believed society works better when individuals own property because:

1. People take better care of what’s theirs.

2. It prevents disorder by assigning responsibility.

3. It reduces conflict since people are content with their own possessions.

What did Aquinas mean by “Every man is more careful to procure what is for himself alone”?

People are more motivated to work hard and maintain resources they personally own rather than shared ones — private property encourages effort and responsibility.

How does Aquinas differ from Locke on the origin of property rights?

Locke said property rights arise naturally from labor; Aquinas said they are socially created — society decides ownership rules for peace and order

What ethical idea does Aquinas connect to ownership?

That owning property brings social duties — owners should use their resources in ways that benefit others and prevent conflict.

How does Locke view property compared to Aquinas?

• Locke: Property is a natural right that comes from labor and exists before government.

• Aquinas: Property is a social institution created to keep peace and promote care for resources

How do Locke and Aquinas differ on the role of government?

• Government’s only role is to protect life, liberty, and property.

• Aquinas: Government helps shape property rules for the good of society.

How do their views connect to business ethics?

Locke promotes economic freedom and minimal interference, while Aquinas promotes moral responsibility and fair distribution. Modern business ethics combine both — freedom with accountability.

What modern economic system best reflects Locke’s ideas?

Capitalism — it values individual freedom, private property, and voluntary exchange.

What modern economic system best reflects Aquinas’s influence?

Mixed economies — they support private ownership but add government regulation to ensure fairness and prevent harm

What is the ethical balance between Locke and Aquinas in modern society?

The balance between individual liberty and social responsibility — markets should remain free but must operate with moral limits to protect people and the planet.

Who was Adam Smith

Adam Smith (1723–1790) was a Scottish economist and philosopher known as the “Father of Modern Economics.”

Why is adam smith important.

He introduced the idea that free markets and private property naturally produce greater benefits for society than government interference ever could. His ideas form the foundation of capitalism and modern market economics.

What does Smith mean by “utilitarian arguments for the free market”?

He believed that when people act in their own self-interest within a competitive market, their actions unintentionally benefit society as a whole. The market system allocates resources efficiently, resulting in the greatest overall happiness — a utilitarian outcome.

How do people behave in a system of free markets and private property?

• People buy what they want at the lowest price they can find.

• Businesses respond by making what people want, at prices consumers will pay.

• To stay competitive, businesses reduce costs and avoid waste.

• The result: goods are produced as efficiently as possible and at the lowest price, maximizing society’s economic utility.

Why does Smith believe free markets produce efficiency?

Because competition forces businesses to meet consumer needs at the lowest cost. Everyone acts in self-interest, but the combined result benefits society — creating more goods, lower prices, and efficient resource use.

What is the central idea of The Wealth of Nations?

Smith argued that division of labor — breaking work into specialized tasks — is the greatest driver of productivity and economic growth. This specialization improves skill, saves time, and leads to innovations in machinery.

What did Smith write about division of labor?

The greatest improvement in the productive powers of labour, and the greater part of skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of division of labour.”

This means that specialization makes workers more skilled and production more efficient.

What are the three reasons division of labor increases productivity?

• Increased dexterity: Workers become more skilled and efficient when focusing on one task.

• Saving of time: Less time is wasted switching between different jobs.

• Invention of machines: Specialization encourages technological innovation.

What is the source of the division of labor, according to Smith?

t’s a natural human tendency to trade, barter, and exchange goods. Humans are social beings who depend on cooperation — but cooperation happens through mutual benefit, not generosity. This instinct to trade leads naturally to specialization and economic growth.

What did Smith mean when he said, “Embrace self-interest”?

Smith argued that people act out of self-interest, not generosity. people serve others best when pursuing their own goals — because self-interest drives trade and production that benefits everyone.

How does self-interest promote the common good?

By pursuing their own benefit, individuals unintentionally promote the good of society. This happens not because they intend to help others, but because the market forces them to serve others’ needs to succeed.

How is self-interest connected to utilitarianism?

Utilitarianism focuses on outcomes, not intentions. Even if someone’s goal is personal gain, if the result benefits society (more goods, better quality, lower prices), it’s ethically justified.

What is the “Invisible Hand” in Adam Smith’s theory?

The invisible hand is the idea that when individuals act in their own self-interest in a free market, they are unintentionally guided to promote the welfare of society.

“By pursuing his own interest, [a person] frequently promotes that of society more effectively than when he really intends to promote it.”

Why is competition important to the invisible hand?

Competition regulates the market by balancing supply and demand:

• If supply is less than demand → prices rise → more producers enter → shortages disappear.

• If supply is greater than demand → prices fall → producers exit or shift → balance restored.
  Competition ensures efficiency, prevents waste, and keeps prices fair.

What role should government play in the economy, according to Smith?

Do nothing! Smith believed government interference distorts markets. The market naturally allocates resources to meet consumer demand most effectively. Government cannot respond quickly enough to market changes and often causes inefficiency.

Why did Smith oppose government control over markets?

Because he believed that markets self-correct through competition and the pursuit of self-interest. Interference slows this process and prevents society from achieving maximum utility.

How did Adam Smith view property rights?

Smith supported a private property system, not common or government ownership. He believed private ownership leads to better care, efficient use, and innovation. When people own property, they have a personal stake in maintaining and improving it.

What are the three components of the price of a commodity?

• Wages — payment for labor.

• Profits — return to business owners or investors.

• Rent — payment for use of land or resources.
  Smith wrote: “Wages, profit, and rent are the three original sources of all revenue and exchangeable value.”

What is a “natural price”?

The price that is just enough to cover wages, profit, and rent — no more, no less. It’s the “central” price toward which market prices naturally move.

What is a “market price”?

The actual price at which a product sells, determined by supply and demand. It fluctuates above or below the natural price based on scarcity, production costs, and competition.

What can cause fluctuations in market price?

• Trade secrets or manufacturing advantages (one company can produce cheaper).

• Monopolies, which reduce competition.

• Temporary shortages or surpluses in supply.

“The market price of any commodity, though it may continue long above, can seldom continue long below its natural price.”

What was Smith’s view on wages?

Employers naturally try to keep wages low, but competition for skilled workers can push wages up. He believed wages should be determined by equity, not law, because laws cannot properly regulate wages.

Did Adam Smith support a minimum wage law?

No. He believed government should stay out of wage regulation. However, he recognized that paying fair wages is in the employer’s self-interest — happy workers are more productive and reliable.

“Where wages are high, workmen are more active, diligent, and expeditious than where they are low.”

How did Smith justify fair pay within a free market?

He believed it’s equitable and practical — paying workers enough to live well increases productivity and stability. While the government shouldn’t set wages, ethical employers benefit from treating employees fairly.

What are the major criticisms of Smith’s free market assumptions?

1. Assumes no seller can control prices — but monopolies and trade secrets exist.

2. Assumes all production costs are internalized — ignores pollution and external costs.

3. Assumes everyone acts from self-interest — neglects altruism and community values.

4. Assumes government cannot allocate resources efficiently — Keynes later challenged this.

Who was John Maynard Keynes, and what did he challenge?

John Maynard Keynes (1883–1946) was a British economist who argued that free markets don’t always self-correct. He taught at Cambridge and became a major influence on 20th-century economics.

What did Keynes believe about markets?

He believed that total demand (from households, businesses, and government) might sometimes be less than total supply, leading to unemployment and economic downturns — proving markets can fail.

How did Keynes think government should respond to low demand?

Governments should step in to increase demand by adjusting interest rates, taxes, and spending. By doing so, they can stimulate production, create jobs, and stabilize the economy.

What is the core of Keynesian economics?

Government intervention is necessary to maximize social utility and ensure markets function properly. While Smith said “government should do nothing,” Keynes said “government must act” when markets fail.

How do Smith and Keynes differ ethically?

• Smith: Believed free markets naturally lead to fairness and efficiency through self-interest.

• Keynes: Believed markets can fail to protect society’s welfare — so ethical responsibility requires government to help stabilize the economy

What was the U.S. like in 1800 before industrialization?

It was an agrarian (farming) society. No cities had over 100,000 people, and 6 out of 7 workers were farmers.

How did the U.S. change by 1860?

The population grew from 5 to 30 million, and only about half of workers were farmers. Wealth became more concentrated — 10% of people owned 70–80% of the wealth.

What was the Industrial Revolution?

A “quantum leap” in industrial production — major innovations led to the creation of industrial factories, changing how goods were produced.

What were typical factory rules during the Industrial Revolution?

• Workday: 6 a.m. – 7 p.m. (two ½ hour breaks)

• Must ask permission to leave

• No unrelated activities or conversations

• Workers had to report dishonest coworkers

What were working conditions like?

Dreadful — no job security, no minimum wage, unsafe environments, and heavy use of women and children as cheap labor until child labor laws were passed.

Who was Karl Marx?

A philosopher and economist (1818–1883), known as the harshest critic of capitalism and private property. He was influenced by European industrialization and worker exploitation.

What key work did Marx write?

The Communist Manifesto (1848), co-written with Friedrich Engels, outlining his critique of capitalism and vision for a classless society.

What are the two sources of income in capitalism, according to Marx?

1. The sale of labor (workers selling their time and effort).

2. Ownership of the means of production — factories, land, and materials used to produce goods.

What does Marx mean by “surplus value”?

Owners pay workers only what they need to survive and keep the rest — the surplus value — as profit. This exploitation makes owners richer and workers poorer.

What classes does capitalism create?

• Bourgeoisie: the wealthy ownership class.

• Proletariat: the working class, who sell their labor.
  This system turns workers into commodities and deepens inequality.

What is “worker alienation” according to Marx?

The separation of workers from control over their work, products, and true needs — capitalism makes people work to satisfy someone else’s goals.

What are the four types of worker alienation?

• From one’s own work.

• From the product created.

• From relationships with others.

• From knowing one’s real needs or purpose.

What causes worker alienation?

• Viewing everything in terms of price and profit.

• Private ownership of production, which benefits owners only.
  Marx argued that property should serve everyone, not just the wealthy.

What does Marx mean by the “immiseration of workers”?

Workers’ conditions worsen under capitalism as production and wealth concentrate in the hands of a few.

What problems did Marx see in mass production?

• Overproduction leads to economic depressions.

• Machines replace workers, causing unemployment and lower wages.

• Global power concentrates among factory owners.

How did Marx describe the bourgeoisie’s behavior?

They reduce all human relationships to self-interest and continually expand markets through exploitation, creating a world “after their own image.”

What did Marx mean by “history is the history of class struggles”?

All societies evolve through conflict between rich and poor groups. The industrial era would lead to a final conflict between bourgeoisie and proletariat.

How did Marx’s proposed movement differ from past ones?

Earlier revolts benefited small groups, but Marx’s revolution would be led by the majority (the proletariat) for the good of all.

What was Marx’s solution to capitalism?

A classless society where the means of production are owned collectively, abolishing private property — which he said already doesn’t exist for most people.

How did Marx view government in capitalist societies?

He saw it as a tool of the wealthy class, used to protect the interests of the ruling elite and shape public beliefs in their favor.

What do critics argue about Marx’s idea of justice?

They say his version of justice wrongly assumes equality or distribution based on need. Instead, justice should reward people based on their contribution to society.

What did John Locke and Adam Smith argue against Marx?

• Locke: Individuals have a right to private property.

• Smith: The invisible hand of free markets benefits society better than forced equality.

How have capitalist systems addressed worker inequality?

Through labor unions and legal reforms that protect workers’ rights without abolishing private property.

Why do many believe capitalism works better than socialism?

Capitalism allocates resources more efficiently, improves living standards, and offers more personal freedom and opportunity than socialist systems.

What did Locke and Smith believe about government interference?

They believed government should not interfere with the free market.

• Locke: Emphasized natural rights to liberty and property.

• Smith: Believed in the “invisible hand” — competition and self-interest naturally balance the market.

Who argued that an unrestrained free market is unethical, and why?

Karl Marx — he saw free markets as exploiting workers and creating inequality.What ethical concepts frame these debates?

What ethical concepts frame these debates?

• Negative and positive rights (freedom from interference vs. right to certain goods)

• Role of self-interest (how much should guide behavior)

• Justice and care/community (fairness vs. collective well-being)

What is Rerum Novarum?

A papal encyclical issued on May 15, 1891 by Pope Leo XIII, written during the Industrial Revolution. It addressed the relationship between capital and labor and became the foundation of modern Catholic social teaching.

What issue did Rerum Novarum respond to?

The dehumanizing factory conditions of industrial workers and the ethical problems of both capitalism’s greed and socialism’s rejection of property rights.

How did Pope Leo XIII view property rights?

• Private property is in accordance with natural law and existed before government.

• Governments cannot abolish private property.

• Rejects socialism’s “community of goods,” which he said causes confusion and harms society.

Why does private property support human nature, according to Pope Leo?

Because it provides peace and stability and encourages individuals to improve themselves and care for others responsibly.

What duties does an employee have?

• Work faithfully and fairly as agreed upon

• Respect property and employer

• Avoid violence or dishonesty

• Defend causes peacefully

What duties does an employer have?

• Respect employees and allow religious duties

• Avoid overworking or underpaying

• Provide just wages suited to age, strength, and ability

• Treat workers as people, not tools