Abstract
Beyond a very dominant reluctance among many practitioners and academics in finance and capital markets to accept the relevance of ethics and morality, a closer look behind the curtain of the technically minded understanding of financial modelling reveals interesting links between finance and ethics. Starting with a more religious observation concerning finance and its rivalry with economics, an introduction to basic elements of ethics is being presented here. It can be clearly demonstrated that virtue, deontological, and teleological ethics can contribute to financial matters but have fallen into oblivion over the last century. Of greatest concern is the role of utilitarianism as part of teleological ethics as it implicitly underlies the neoclassical-based finance and capital market theory. Also the unveiling of the hidden ethical roots of finance and capital markets, exemplary contributions demonstrate how the gap between ethics and finance could be bridged.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Sedlacek (2011) in general has elaborated a very sophisticated and fundamental discussion of the different strands of religious sources and drivers of economics.
- 2.
The ban of usury interest taking for Christians was proclaimed on the Nicene Council in the year 325 (Ballestero et al. 2015, p. 8).
- 3.
In some parts, this impression is due to the currently dominating self-understanding of economics as a science that is free of value judgements. This attitude also represents the outcome of a long tradition in the dispute over method in science between the Austrian marginal utility school represented by Carl Menger (White 2008) and the historical-ethical school represented by Gustav von Schmoller at the end of the nineteenth century (Shionoya 2001).
Bibliography
Ballestero E, Pérez-Gladish B, Garcia-Bernabeu A (2015) Socially responsible investment – a multi-criteria decision making approach. Springer, Cham
Baron MW, Pettit P, Slote M (1997) Three methods of ethics: a debate. Blackwell, London
Bartlett RC, Collins SD (2011) Nicomachean ethics. University of Chicago Press, Chicago, IL
Bassiry GR, Jones M (1993) Adam Smith and the ethics of contemporary capitalism. J Bus Ethics 12:621–627
Bentham J (1789) An introduction to the principles of morals and legislation. London (1970)
Boatright JR (1999) Ethics in finance. Blackwell, London
Donaldson T, Werhane PH (1996) Ethical issues in business. A philosophical approach. Prentice Hall, Upper Saddle River, NJ
Errico L, Farahbaksh M (1998) Islamic banking: issues in prudential regulations and supervision. IMF Working Paper, No. 30. Monetary and Exchange Affairs Department. http://www.imf.org/external/pubs/ft/wp/wp9830.pdf. Accessed 20 Aug 2018
Fama E (1970) Efficient capital markets. J Financ 25(3):383–417
Fama E (1991) Efficient capital markets: II. J Financ 46(5):1575–1617
Fisher I (1930) The theory of interest as determined by impatience to spend income and opportunity to invest it. Macmillan, New York
Friedman D (1987) Just price. In: Eatwell J (ed) The new Palgrave, vol 2. Macmillan, London, pp 1043–1044
Horrigan JO (1987) The ethics of the new finance. J Bus Ethics 6(2):97–110
Kant I (1785) Grundlegung zur Metaphysik der Sitten, gesammelte Schriften (Akademie-Ausgaben), Bd. 6. Berlin
Knetsch JL, Thaler RH (1986) Fairness and the assumptions of economics. J Bus 59(4):285–300
Kritzman M, Markowitz HM (2017) An interview with Nobel Laureate Harry M. Markowitz. Financ Anal J 73(4):16–21
McWilliams A, Siegel D (1997) Event studies in management research: theoretical and empirical issues. Acad Manag J 40(3):626–657
Mill JS (1863) Utilitarianism. Parker, Son and Bourn, London
O’Hara M (1995) Market microstructure theory. Blackwell, Cambridge, MA
Ostroy JM (1973) The informational efficiency of monetary exchange. Am Econ Rev 63(4):597–610
Raines JP, Leathers CG (1994) Financial derivative instruments and social ethics. J Bus Ethics 13:197–204
Rawls J (1971) A theory of justice. Belknap Press of Harvard University Press, Cambridge, MA
Ross SA (1978) Some notes on financial incentive-signalling models, activity choice and risk preferences. J Financ 23(3):777–794
Rychen DS, Salganik LH (2003) A holistic model of competence. In: Rychen DS, Salganik LH (eds) Key competencies for a successful life and a well-functioning society. Huber Publishers, Ashland, OH
Sedlacek T (2011) Economics of good and evil. The quest of economic meaning from Gilgamesh to Wall Street. Oxford University Press, New York
Sen A (1987) On ethics and economics. Blackwell, Oxford
Sen A (1993) Money and value. On the ethics and economics of finance. Econ Philos 9(2):203–207
Shionoya Y (2001) The German Historical School: the historical and ethical approach to economics. Routledge, London
Siddiq MN (1995) An overview of public borrowing in early Islamic history. J Islamic Econ Stud 2(2):61–78
Smith A (1776) An inquiry into the nature and cause of wealth of nations. W. Strahan and T. Cadell, London
Soppe A (2000) Finance and ethics, Erasmus University Rotterdam. Dissertation, Dept. of Finance. Rotterdam
Taleb N (2007) The black swan. Random House, New York
White LH (2008) Menger, Carl (1840–1921). In: Hamowy R (ed) The encyclopedia of libertarianism. Sage, Thousand Oaks, CA, pp 325–326
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2019 The Author(s), under exclusive licence to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Schäfer, H. (2019). On Values: The (Hidden) Ethical Framework in Capital Market Theory (An Outline of Ethics in Economics and Finance). In: On Values in Finance and Ethics. SpringerBriefs in Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-04684-2_3
Download citation
DOI: https://doi.org/10.1007/978-3-030-04684-2_3
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-04683-5
Online ISBN: 978-3-030-04684-2
eBook Packages: Economics and FinanceEconomics and Finance (R0)