The Ethics of Business

THE phrase ethics of business means right conduct in business, not merely as a possibility or a desirability, but as an actuality; not as a dream of Utopia, but as the notion of conduct by which the relations of business men with each other, and with the community, are actually regulated at any given moment. Its gist is to-day, and long has been, the belief that the individual may rightly and justifiably promote his economic welfare in any way which the law as enforced by the courts does not explicitly prevent. It is negative rather than positive, specifying what the individual may not do, instead of what he may. To sell as dearly as possible, to buy as cheaply as possible, both produce and labor, are its maxims. Business is a bargain whose only requirement is that both parties be satisfied; it is a sort of fight where each individual has the same opportunities to help himself, and where the state merely undertakes to prevent actual foul play.

Of late, this existing ethics of business has been more and more frequently held responsible for many of the most serious economic, political, and social evils. Clearly, problems growing out of the existence of railroads, trusts, banks, the stock-market, — ‘ big business,’ — result, from the relation of business men with each other. Prices result from the contact of manufacturer, retailer, and consumer; while the relations of manufacturer and employee bring promptly to the fore such burning issues as the hours of labor, wages, the closed shop, strikes, childlabor, and many more. Moreover, it is true that in the last analysis all these questions are psychological rather than economic, ethical rather than social. Their decision also will rest upon a standard of right conduct; for the laborer’s proportionate share of the profits of production, the standard of living involved in the demand for a minimum wage, for a maximum length of the working-day, are all dependent upon the denial of the justifiability of paying as little as a man will work for, of allowing him to work as long as he will, — upon a denial of the rightness of the present ethics of business. In fact, it is hardly an exaggeration to say that every issue now largely discussed by the public is one which can be decided only by agreeing upon a standard of right and wrong.

It is, therefore, an exceedingly striking and significant fact that upon the ethical issue the warring parties fundamentally disagree. On the one hand, we find the business men firm in the belief that, the great majority of transactions have been, and are, just and equitable, and according to all reasonable standards of right conduct. On the other hand, their accusers stand, equally insistent that the business men have done wrong, and loudly demanding legislation, constitutional amendments, and new political devices to make such conduct impossible in the future. It is not less remarkable that neither of the combatants seems to be conscious that the disagreement is fundamental. In fact, the reformers are rather inclined to insist that the present standards of conduct in business proceed mainly from the intentional dishonesty of a few men who could be punished by the courts, thereby putting an end to the entire trouble, if the judges were not equally venal. They thus give the impression that the difficulty is superficial and in the main the work of a few individuals. Nor will they accept a denial as conclusive of anything but guilt.

The issue, thus misunderstood, has been raised by the discussions of the presidential campaign into a matter of national significance, and the rectitude or turpitude of business conduct is fast becoming the dominant note in discussions about the tariff, the railroads, the recall of judges, the initiative and referendum. It seems almost as if the strenuous declarations of the radicals, and the articles in some magazines, were fast creating in the public mind by the mere force of reiteration a growing conviction that business has been, and in the main still is, dishonest.

The main difficulty — the disagreement on the vital and fundamental fact of what business ethics ought to be — is accentuated by the failure of the average business man, and of the average reformer alike, fully to understand what the present ethics of business is, what its history has been, and what sanctions of tradition, law, philosophy, logic, and theology stand behind it. They do not thoroughly grasp the fact that the first step in reform is not vilification of the superficial, but comprehension of the fundamental. We shall not need to resort to the distortions of fact so common among the exponents of the materialistic theory of history, to find the past crowded with so many data adequately explaining the existence of the ideas of right conduct now prevalent in business, that a brief article will barely permit their enumeration without the inevitable qualification or necessary proof which a scientific historian would demand. In fact, adequately to demonstrate the reasons for the present situation would be to write a history of the legal, social, philosophical, and ethical concepts of the race.

The earliest form of society of which we have definite traces in Europe was that of a ‘family’ composed of the actual or supposed descendants from a common mother. On this blood relationship, real or fictitious, were formed all the social units known to historic antiquity. Within these units, the blood-tie imposed upon the individual definite obligations toward the other members; toward aliens, the non-kin, the barbarians of the Greek writers, the individual assumed no obligations at all. In a primitive society whose ideas of private ownership of personal property were rudimentary, and whose ideas of property in land were nonexistent, and who still ate, like the Spartans, at a common table, the barter which went on was not considered trade, and was really inconsiderable in amount.

Trade in antiquity took place between families, clans, cities, between the groups of blood-kin, and the merchant was always an alien. The only ethical or moral notions primitive man had did not apply to trade. The merchant was outside the pale; they might do to him or he to them anything either could. Trade was therefore dangerous. Phœnician and Greek merchants piled goods on the beach and retired to the long black ships; the natives, who refused to come out of the woods till the dreaded merchants had pulled offshore, then appeared, inspected the pile, made one of their own, and sought again the safety of the woods. The Greeks rowed in, looked over what was offered, added to their own pile, and rowed out again; the natives returned, increased theirs, and retired; and so the process continued until both were satisfied. An unobjectionable bargain was one to which both consented; but to get a large amount in exchange for a small was positively laudable; and for either to carry off the other’s goods, or for the merchants to steal the natives’ women and children was common, and was considered excellent business and admirable ethics.

The very earliest notion of trade that history records, therefore, shows us that it was not governed by the usual ethical standards of community or family life; that merchant and consumer both considered perfectly justifiable any means by which one could best the other; and that the merchant was thought to be a professional robber against whose violence the most extreme precautions needed to be taken. Naturally, as Greek and Roman society developed, this primitive aspect of trade disappeared, but even the final formulation of the Roman law sanctioned individual selfishness in trade, and at least one writer of eminence explicitly declared that there was legal sanction ‘for either to over-reach the other.’

The barbarians who poured down upon the Empire from the forests of Germany brought with them the same primitive belief that the merchant was an alien who was not bound by the folk-law, and could not be tried by the hundred or shire-moot. They, loo, considered him a deceitful and dangerous man; no one was allowed to buy from him except before witnesses who could swear, when the man from whom they assumed as a matter of course that the merchant had stolen the goods should appear in pursuit, that the purchaser was innocent.

The early law of trade was, in fact, nothing but the law of theft. To all these notions the prevailing concept of the personality of law lent powerful sanction. Where we hold to-day that the place where the crime is committed, or the residence of the party, determines not only in which court the case shall be tried but the substantive law governing it, the Burgundian, the Visigoth, and the Saxon expected to be tried, wherever he was, by the law of his own tribe, by his law, the law into which he had been born. Thus the first notion in Germanic law, that an individual is responsible when away from home, claimed that he could only be held responsible to the law which governed him at home. The merchant’s law, then, was the idea of right conduct which he brought with him; this, and not the consumer’s idea of ethical behavior, was to govern their relations. Thus the ethics of business was not only different from the ordinary law of the community, but was to be settled by the standard of the merchant, not by that of the consumer.

The anomalous position of merchants in the feudal society which the Norman Conquest superimposed upon this Germanic society in England, the scorn openly expressed for trade as such, accentuated the merchant ’s isolation and, by refusing him the privileges of ordinary feudal law, freed him from its obligations. Throughout the Middle Ages, the individual merchant was personally responsible only to the king, and from him alone could he obtain redress for wrong. A number of tradesmen, associated together, secured from kings charters of liberties, which gave them iheir own courts and their own law, a right to control their own business, and to enforce their laws upon all outsiders. In time, as towns became more numerous, a Law Merchant came to be recognized, consisting of the customs approved by the majority of the towns, and administered with regularity and some uniformity by a well-known series of courts; a special house of merchants was for a time added to the national assembly in order to insure their payment of taxes.

Within the towns, the guild merchants and the craft guilds produced a series of rigid rules governing prices, wages, and all buying and selling, aimed wholly at aggrandizing themselves at the expense of the countryfolk who sold produce to them, and of the nobles who bought their silks and broadcloths. There was one price at which the guild member bought, and a higher at which the outsider purchased; but the latter must sell to the former for less than the guild allowed him to sell for to any one else in the market. Each market-day the mayor or wardens fixed all prices for all goods displayed. When the first bell rang the citizens might buy; after the second, if anything was left, others might buy.

The regulation of trade in all its branches was thus left for centuries in the hands of the merchants themselves, who naturally shaped its laws and its ethics in accordance with the feudal attitude toward it as a subject which really concerned no one but themselves, and which might very well therefore be regulated in their interest. With this Law Merchant and its courts, the royal courts —the King’s Bench, Common Pleas,, and Exchequer — had nothing to do until the seventeenth century; and not, indeed, till the eighteenth century did Lord Mansfield really ‘create’ the present common law of trade by accepting much of the old Law Merchant and amalgamating it with the practices and dicta of the common law. Is it not a fact of extreme significance to the student of the present notion of business ethics that for only a little more than a century has the merchant been deprived entirely of his own law and his own courts? Is it, after all, so very remarkable that business men still think that their notions of right conduct, and not those of the general public, should regulate commercial transactions?

When, however, the mercantile community was firmly subject to the common law and its courts, the judges began to apply to the relations of merchants with each other, and with their customers, the same notion of individual freedom already worked out by generations of judges for other cases — the idea that the individual might do everything he pleased until he infringed some one else’s rights sufficiently to cause the latter to sue him for redress in court. Remedy for infringement of another’s rights would not be given, however, until the accuser actually demonstrated to the satisfaction of the court a breach of some explicit law; and, what was more, until he proved a substantial injury.

The common law was negative and not positive: it enumerated no general categories of acts which were legal, or ethical concepts by which right could be distinguished from wrong, but merely listed certain specific acts which were illegal. All else was permissible; the individual must act at his peril. He was safe-guarded, indeed, by the fact that the courts would not of themselves investigate his behavior, nor use their own knowledge of the law, or of his acts, against him: they would hold him guiltless until the accuser actually demonstrated in court an offense punishable by law, and actually proved his injury existent. One famous judge even went so far as to declare that if he saw a man commit murder and knew that he was the only witness, it would be his duty to acquit the man in court. The defendant at law was liable, not for what he had done, but for what the plaintiff could prove he had done. Indeed, to break the law was not reprehensible or punishable; and the dialecticians eagerly argued that a crime unproven was no crime at all. Surely here are the clear outlines of the present notions of ethics as understood by the business world.

From the premises of the intellectual and philosophical revolution of the last four centuries this conception has drawn the subtlest of confirmations, partly from a misconception of the ideas of great thinkers, partly from the dissociation of those ideas from the general field of speculative thought to which they were intended to apply. It should never be forgotten that the force which has moulded history has been not so much the truth itself, as what honest and sincere men understood to be the truth.

The basis of nearly all modern thought has been the individual, but at no epoch of recorded history has the individual held such prominence as during the Renaissance. In the attempt to free him from the restraints imposed by feudalism, the scholastic philosophy and theology, the guild and open-field systems, he was left without any restraint at all except the opposition he would naturally meet from other individuals. The means which most quickly and surely attained the end in view were those most applauded and approved; the possible became synonymous with the right; and men whose familiar weapons were assassination and poison can hardly have had scruples about misrepresentation of goods, under-selling, and low wages. The possession of wealth was the evidence of the possession of ability, and therefore of virtue.

From the Reformation came an entirely different, but not less powerful, sanction which appealed to another section of the community. The Renaissance sanctioned the ethics of business as profitable; the Reformation added the weight of scriptural authority. It taught the individual that he was justified by faith alone; that he stood ' naked before God,’ with none to help him; that with his own hands and his own learning he must save his soul. It told him, that, when wallowing in the Slough of Despond, he would find in the Bible an infallible counsel and direction which God had Himself given man for every emergency. The Puritan, thus seeking God’s guidance in his daily tasks, found in Old Testament and New alike many a story of business dealing which explicitly showed patriarchs and prophets engaged in aggrandizing their personal fortunes by the same methods which his unconscious and instinctive preferences indicated to him, but which he could not accept without warrant of God’s law. The Bible, in fact, was a vivid record of the primitive notion of trade, and based the conception of its ethics upon the blood-kin. The old sanctions, long dead, were thus revived by the literal acceptance of the Scriptures. In fact, the Puritans of New England became noted for real piety and scrupulous morality and for exceptionally sharp dealing in business, stretching at times to practices which less ostentatiously pious people began to stigmatize as ‘ ungodly.’

To the support of theology came philosophy and logic, teaching that the good of the individual was supreme. Metaphysical distinctions and assumptions the average man understood little or not at all, but he did distinctly obtain a strong confirmation of his own idea that the pursuance of his own selfish ends in any possible way was justifiable, and indeed, that in their fulfillment lay the reason for society’s existence. Hobbes and Locke explicitly said that the state was created by the individual for the furtherance of his own ends. ‘The ultimate ground of public life and of social coherence was placed in the interests of individuals.’ Man was an isolated unit, essentially unsocial, if not anti-social; the ethical ideal of life was personal, and consisted in the fullest development of the individual’s possibilities. Such an individual was therefore lacking in definite altruistic responsibilities; his first duty was to himself and not to others. The Hedonists and Utilitarians developed a ‘logical’ explanation of all human life based on these premises.

On them, too, were founded the new democratic theories of the eighteenth and nineteenth centuries. Society was to Rousseau a voluntary union of individuals each of whom ent ered the social compact with the intention of receiving as great benefits as possible in exchange for the renunciation of as little as possible of his liberty. ‘The best government,’ said Jefferson, ‘is that which governs least.’ The rights of the individual to better his own condition, Rousseau declared, were inherent, imprescriptible, inalienable; inasmuch as laws, courts, and kings normally stood in the way of his development, restraints upon him should be as few and infrequent as possible, and the fewer and more infrequent the better for him and for society. Crime lay not in the infringement of some absolute standard, but in the breach of another’s rights. ‘Nothing can be prevented,’ read the Declaration of the Rights of Man and of the Citizen, ‘which is not forbidden by law, and no one may be forced to do anything not provided for by law.’ Such a notion of ‘liberty’ could not fail powerfully to support the old common law notion already applied to the law of trade.

Upon this same hedonistic basis of individual satisfaction, Adam Smith, Ricardo, and Mill reared the new science of political economy, the science of wealth and of the most efficient methods for its speedy acquisition. The normal individual, they premised, was purely selfish, and as the existence of ethical impulses could not be predicated with certainty, such motives must be considered accidental, capable of producing exceptions to the general law, but not of influencing the operation of the law of economic development itself. To have based the science of business logic upon selfishness, to have made the chief limitations upon the acquisition of wealth the strength of the desire for it, to have declared these considerations the ‘law’ by which the community had grown into being, to have assumed that to interfere with them would hinder the normal development of both community and individual, was indeed to place the right of man to follow his inclinations in pursuit of wealth, wherever they might lead him, upon a high pedestal. It was even easy to conclude that the working of economic law could not be changed, and that no conscious reform would be possible. Indeed, if this were the law of life, no reform was needed, for what existed was for that very reason right.

Upon very nearly this same basis, Spencer and Darwin constructed the doctrine of evolution. ‘Each individual shall take the consequences of his own nature and actions; survival of the fittest being the result.’ That cunning, ability, high morality, as well as physical force, might be decisive factors in determining who was fit, Spencer readily conceded; but he clung steadfastly to the conclusion that the man who survived, for whatever reason, would be thus proven the man whom the future needed. The individual was to use in every possible way every faculty he possessed, and those methods by which he secured his continued existence were proved by their success to have been the right ones in his particular case. An altruism which resulted in the sacrifice of the individual was not only a mistake from his point of view, but a crime from that of society: he had broken the law of life wittingly; he had committed suicide.

In this very struggle of individuals for survival, Spencer taught, was progress; and the greatest progress, and indeed any progress at all, was possible only by giving the individual full scope to develop in any direction he pleased. He therefore concluded, as had Rousseau and Jefferson for different reasons, that the function of the state was purely negative; that no virtues or values could be created or changed by legislation; that the state should merely insure the individual a fair chance. To him, as to Darwin, the ‘natural’ impulses of man’s nature—his strength, cunning, cupidity, selfishness had been the dominant factors in the evolution of existing society, and must be accepted therefore as the proper factors, as right and ethical as any, unless one assumed that the evolutionary process was in itself wrong. Ethics, morality, religion, all played their only part in evolution, not as absolute factors, but as elements in the strength or weakness of some individual which influenced the result of his struggle to best the other man. Is not the ethics of business the Spencerian law of social development? Are not its processes the very methods by which Spencer believed the world itself had been built?

In the subtlest of subtle ways has come from the latest American philosophy a sort of esoteric support for those who had begun to have vague doubts about the doctrines of Mill and Spencer. From the Pragmatism of William James they have drawn a conclusion which he certainly never intended, but which men unskilled in philosophical speculation not unnaturally drew. Professor James many times insisted that the test of the truth of an idea was its ‘cash value’ for the individual. What, indeed, he had in mind was the very subtle idea, based upon Lessing’s standard of the relativity of truth, that the criterion of truth is not so much the conformity of a concept to some absolute standard, as its workableness for the individual in question; but the popular conclusion was that the truth of ideas, religion, ethical standards, was to be tested by their usefulness to the individual, a standard which naturally became his material welfare. The individual, they understood, in fact created his own standard, and was furnished with the right to reject all other notions of right conduct than his own.

Undoubtedly, any one with the prophet’s vision who will now lift his eyes to the hills will see them already filled with chariots and horsemen ready to do battle with the present conception of business ethics. Undoubtedly, a proper understanding of the very factors here traced has been slowly undermining their past influence upon the public mind. Undoubtedly, many other powerful influences are building a strong social consciousness and a social concept of the loftiest and truest altruism, and steadily bringing to its support more and more noble men and women. There has probably never been a time in the history of the world when so large a proportion of the community was as anxious to do right as to-day. But it is none the less true that we must tilt, not against windmills and imaginary armies, but against the mental and moral standards of the race.

The new ethics of business proposes nothing less than to abolish a standard of right conduct by which the race has lived, and to put in its place an ideal of which a part of the race has often dreamed. We are face to face with the fact that the race is still essentially primitive in its social relations and aspirations. The few thousand years of recorded history have found it difficult to erase the impressions ground into us by the hundreds of thousands of years of barbarism.

The problem of reform is fundamental and transcends the individual. The summary punishment of many men, volumes of statutes, many political expedients, will not seriously affect the instinctive preferences and inarticulate beliefs which lead the average man to believe in the rectitude of his present conduct, and to declare that he cannot do business otherwise. All unconscious of his support, he is intrenched behind the primitive conception of trade, sustained by the common law, and fortified by modern philosophy, political economy,and the theoriesof democracy and evolution. The remedy must be no less fundamental than the problem. Until we have destroyed the fortifications, we shall not seriously impair the enemy’s real strength, and it is still to be proved that the walls will fall, if we, like Joshua and the Children of Israel, continue to march round them shouting and blowing rams’ horns.