Mainstream economics today does not believe in ethics, or does not count ethics as a part of its program. Instead, it is based on the concept of “rationality”, asserting that both individual human action and economic policy at the government level are determined by mathematical calculations and valuations of costs and benefits. Specifically, the ends that are pursued can be “maximized” by optimally assigning the available means. The result of this approach is that ethical principles lose relevance as guides to human behavior. They are not optimal. They do not help to maximize the beneficial consequences of human action.
However, mainstream economics is a failure. The mathematical calculations are impossible. The economic process is driven by the innate creative capacity of human beings, constantly discovering new ends and means, giving rise to new flows of knowledge and information, making it impossible to calculate the future consequences of different human actions and/or political decisions. This is precisely why socialism and government intervention and central planning fail.
The entrepreneurial approach to economics does not try to calculate or predict outcomes. It recognizes that social affairs evolve spontaneously as a result of the participation of a very large number of human beings who act in very varied ways in different specific circumstances of time and place. They are guided by ethical principles that act as a sort of “automatic pilot” for behavior and therefore for human freedom.
Entrepreneurship consists of the innate capacity for all human beings to appreciate or discover the opportunities for gain that arise in their surroundings and to act to take advantage of them. Entrepreneurship is the human capacity to continually create and discover new ends and means that have a higher value. The ethical approach is not to redistribute what exists, but to stimulate creative entrepreneurship that is best adapted to the betterment of society. One axiom for such stimulus is that all human beings have a natural right to the fruits of their own entrepreneurial activity.
The market economy arises from this creative entrepreneurial capacity of human beings. In the dynamic creation of new knowledge and new opportunities arising from the interaction of thousands of human beings, it’s impossible to calculate costs and benefits. All human beings need a moral framework of principles to guide them towards the behaviors they should follow in order for there to be social coordination as well as individual betterment. This coordination process is both spontaneous and dynamically efficient. Therefore, justice and effective markets are not two values to be traded-off, but two sides of the same coin. Only justice can lead to efficiency, i.e. social coordination, and what is efficient can not be unjust. Moral principles of behavior and economic efficiency mutually strengthen and support each other.
Consequently, we can conclude that the most just society is the one that most forcefully promotes the entrepreneurial creativity of all the human beings who compose it. To do this, it is indispensable for each human being to be certain that he or she will retain ownership rights to the results of their entrepreneurial activity. Any system that expropriates these rights is immoral.
Mainstream economics disagrees. It focuses on the results of the social process, rather than the moral behaviors and rights of those who participate in it. It is a static analysis – it takes an historical moment in time when goods and services are given and fixed, and focuses solely on the distribution of them. But entrepreneurial impetus means that there is never a static moment in time. Production and distribution are taking place simultaneously, with continuous change.
The only way to impose the static concept of social justice on the dynamic entrepreneurial market is to stop it – to coercively prevent the free practice of entrepreneurship and the creativity and coordination that makes civilization possible. From an ethical point of view, the moral principle that all human beings have a natural right to the results of their own creative entrepreneurial activity is violated. Social justice is essentially immoral.
Free markets driven by entrepreneurship are the only just markets. And it is perfectly compatible for this entrepreneurial creativity and spirit also to be used voluntarily to seek, discover and alleviate any situations of urgent need into which other human beings may have fallen.
Adapted from The Ethics Of Capitalism, Jesus Huerta De Soto, Journal Of Markets And Morality, Fall 1999.