Steve Pressman on the ethics and economics of the Greek financial crisis
At the American Institute Economic Research's Daily Economy blog, visiting fellow (and ASE trustee) Steve Pressman of Monmouth University looks at the Greek financial crisis through the lens of several philosophers, namely Adam Smith, Jeremy Bentham, and Aristotle, injecting a much needed ethical dimension to this economic debate:
A common put-down of economists is that they know the price of everything but the value of nothing. This pithy comment encapsulates two very different views of money, and can be helpful in understanding how to resolve the Greek financial crisis.
Adam Smith, regarded as the father of economics, took a moral view of money. For Smith, money was about being able to have a decent standard of living, or being able to “appear in public without shame.” He supported government regulation of lending rates because he feared that lenders would take unfair advantage of the destitute. Following the Smithian view of money, we developed bankruptcy laws that let people (and business firms) escape from crushing debt, and survive without this debt hanging over them.
The philosopher Jeremy Bentham adopted a more economic perspective. He thought that Smith’s moral view of money was inconsistent with his laissez-faire economics, where people determined what was best for them, and markets determined what was best for the economy overall. Bentham pointed out that usury laws limited individual freedom and had bad economic consequences: Lenders would not lend at low rates, and so we had less investment and spending. The economic view of money states that bankruptcy laws encourage reckless behavior and speculation, since if something goes wrong there is a simple out.
Understanding these two views of money is crucial for understanding the Greek tragedy whose last act will take place this week in Brussels (unless everyone agrees to kick the can down the road for another few weeks).
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