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MGT610 Business Ethics, GDB # 2, Opening date Feb 02, 2015, Closing date Friday, February 06, 2015

GDB No 2:


Critics of Adam Smith on Utilitarianism




Adam Smith was a Scottish moral philosopher and he worked on political economy. His famous book “The Wealth of Nations” considered as the pioneer in providing the fundamental grounds for ethical and moral perspective of economies and established the criterion of redefining the meaning of Utility.


Utilitarianism is a theory in normative ethics holding that the proper course of action is the one that maximizes utility, usually defined as maximizing total benefit and reducing suffering or the negatives. This theory is an economic analysis that is human-centered (or anthropocentric) and has a moral foundation (Goodstein, 2011).





You have learned this concept in detail. Adam Smith has some assumptions and his arguments are based on these postulates.  You are required to identify those areas which are highlighted by Adam Smith in the course of morality and ethics for a society as a whole.


(10 Marks)



Goodstein, Eban (2011). "Chapter 2: Ethics and Economics". Economics and the Environment. Wiley. p. 26. ISBN 978-0-470-56109-6.

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From  Muhammad Jawad 

According to this reading of Smith, self-interested, economic actors in free competition with each other unintentionally create a self-constraining system. This system, the “invisible hand” which governs market transactions, functions both to regulate these self-interests and to produce economic growth and well-being such that no one actor or group of actors can take advantage of other actors or take advantage for very long. We suggest that this is a misreading of Smith. Smith is not a laissez-faire economist. Economic exchanges occur and markets are efficient, according to Smith, precisely because we are not merely non-tuistic, and economic growth depends on what today we call the rule of law. Smith was the Professor of Moral Philosophy at Glasgow, and argues precisely against, and may not have even imagined, a separation of ethics from economics, ethics from commerce; or ethics from his idea of a viable political economy.

Adam Smith's Moral Theory

          Smith delineates two levels of virtues. His lower or commercial virtues are self-interested ones and include prudence, justice, industry, frugality, constancy, and so on. Another set of virtues, the primary or nobler virtues, includes benevolence, generosity, gratitude, compassion, kindness, pity, friendship, love, etc. Although there is a hierarchical relationship between these sets of virtues, Smith explains that there must also be a balance or harmony between them. In the economic sphere, self-interest allows men to operate on the lower level of virtue and yet attain the greatest benefits for society as a whole. A man need not be totally virtuous for the economic system to function to maximize wealth. The lower virtues are at the base of Smith's value theory and his determination of market prices. Smith explains that, as people get beyond the level of primitive economy to enter an advanced society and civilization, there arises the opportunity to develop higher virtues. 

          According to Smith, the four principal virtues in a person's life are justice, prudence, benevolence, and self-command. It is through the exercise of self-command, Smith's cardinal virtue, that a man can rein in his selfish impulses, regulate his conduct, and indulge benevolence. Self-command involves the ability to control one's feelings, to restrain one's passion for his own interests, and to enhance his feelings for others. 

          In TMS, Smith explains the evolutionary process by which the virtues and moral sentiments develop. He is concerned with what produces moral behavior in man and with how man's sentimental capacity develops. He wants to understand how we progress from having virtually no such standards as children to having widely shared standards of moral judgment as adults. 

          Smith's moral theory relies heavily on the 18th century sentimentalist school of ethics comprised of empiricists who were strongly influenced by David Hume. Sentiments (also known as passions, dispositions, affections, or propensities) are feelings or emotions, and according to Smith, are the basis of moral judgment. These sentiments have been implanted in human nature by a beneficent and utilitarian deity in order to bring about the happiness and welfare of mankind. For Smith, these feelings are axiomatic and are behind a man's choices and actions. Some of these passions are selfish and some are unselfish. Like Hume, Smith considers the sentiments to be more fundamental than reason and to be what reason works on or what guides reason. The moral sentiments include approval, disapproval, gratitude, resentment, etc. 

          Francis Hutcheson, moral philosopher and Smith's teacher, believed there was a "moral sense" that existed as an innate sixth sense in each man. Smith rejected the idea of a "moral sense" as too individualistic. He argued that there is no need for a special faculty of moral intuition for perceiving the general principles of natural law. He believed that moral distinctions are founded on immediate sense and feeling, but that these feelings are latent within us and develop only as we come into contact with other human beings. Sympathetic interaction was Smith's term for this socialization process. What is moral is known through original experiences and the related feelings that a person has with respect to his own actions and feelings and to the actions and imagined feelings of others. Smithian man is a social creature who acquires a moral code via experience and induction. However, this code is founded upon the innate moral sentiments that nature has given to him. These innate moral sentiments include both selfish ones and sympathetic feelings for others. 

Normative ethics is the study of ethical action. It is the branch of philosophical ethics that investigates the set of questions that arise when considering how one ought to act, morally speaking. Normative ethics is distinct from meta-ethics because it examines standards for the rightness and wrongness of actions, while meta-ethics studies the meaning of moral language and the metaphysics of moral facts. Normative ethics is also distinct from descriptive ethics, as the latter is an empirical investigation of people’s moral beliefs. To put it another way, descriptive ethics would be concerned with determining what proportion of people believe that killing is always wrong, while normative ethics is concerned with whether it is correct to hold such a belief. Hence, normative ethics is sometimes called prescriptive, rather than descriptive. However, on certain versions of the meta-ethical view called moral realism, moral facts are both descriptive and prescriptive at the same time.[1]

Most traditional moral theories rest on principles that determine whether an action is right or wrong. Classical theories in this vein include utilitarianismKantianism, and some forms of contractarianism. These theories mainly offered overarching moral principles to use to resolve difficult moral decisions.[citation needed]

What is the main requirement of this gdb? it is a very wide topic.


in normative ethics, a tradition stemming from the late 18th- and 19th-century English philosophers and economistsJeremy Bentham and John Stuart Mill that an action is right if it tends to promote happiness and wrong if it tends to produce the reverse of happiness—not just the happiness of the performer of the action but also that of everyone affected by it. Such a theory is in opposition to egoism, the view that a person should pursue his own self-interest, even at the expense of others, and to any ethical theory that regards some acts or types of acts as right or wrong independently of their consequences. Utilitarianism also differs from ethical theories that make the rightness or wrongness of an act dependent upon the motive of the agent; for, according to the Utilitarian, it is possible for the right thing to be done from a bad motive.

The nature of Utilitarianism

Utilitarianism is an effort to provide an answer to the practical question “What ought a man to do?” Its answer is that he ought to act so as to produce the best consequences possible.

Basic concepts

In the notion of consequences the Utilitarian includes all of the good and bad produced by the act, whether arising after the act has been performed or during its performance. If the difference in the consequences of alternative acts is not great, some Utilitarians do not regard the choice between them as a moral issue. According to Mill, acts should be classified as morally right or wrong only if the consequences are of such significance that a person would wish to see the agent compelled, not merely persuaded and exhorted, to act in the preferred manner.

In assessing the consequences of actions, Utilitarianism relies upon some theory of intrinsic value: something is held to be good in itself, apart from further consequences, and all other values are believed to derive their worth from their relation to this intrinsic good as a means to an end. Bentham and Mill were hedonistsi.e., they analyzed happiness as a balance ofpleasure over pain and believed that these feelings alone are of intrinsic value and disvalue. Utilitarians also assume that it is possible to compare the intrinsic values produced by two alternative actions and to estimate which would have better consequences. Bentham believed that a hedonic calculus is theoretically possible. A moralist, he maintained, could sum up the units of pleasure and the units of pain for everyone likely to be affected, immediately and in the future, and could take the balance as a measure of the overall good or evil tendency of an action. Such precise measurement as Bentham envisioned is perhaps not essential, but it is nonetheless necessary for the Utilitarian to make some interpersonal comparisons of the values of the effects of alternative courses of action.


As a normative system providing a standard by which an individual ought to act and by which the existing practices of society, including its moral code, ought to be evaluated and improved, Utilitarianism cannot be verified or confirmed in the way in which a descriptive theory can; but it is not regarded by its exponents as simply arbitrary. Bentham believed that only in terms of a Utilitarian interpretation do words such as “ought,” “right,” and “wrong” have meaningand that whenever anyone attempts to combat the principle of utility, he does so with reasons drawn from the principle itself. Bentham and Mill both believed that human actions are motivated entirely by pleasure and pain; and Mill saw thatmotivation as a basis for the argument that, since happiness is the sole end of human action, the promotion of happiness is the test by which to judge all human conduct.

One of the leading Utilitarians of the late 19th century, a Cambridge philosopher, Henry Sidgwick, rejected their theories of motivation as well as Bentham's theory of the meaning of moral terms and sought to support Utilitarianism by showing that it follows from systematic reflection on the morality of “common sense.” Most of the requirements of commonsense morality, he argued, could be based upon Utilitarian considerations. In addition, he reasoned that Utilitarianism could solve the difficulties and perplexities that arise from the vagueness and inconsistencies of commonsense doctrines.

Most opponents of Utilitarianism have held that it has implications contrary to their moral intuitions—that considerations of utility, for example, might sometimes sanction the breaking of a promise. Much of the defense of Utilitarian ethics has consisted in answering these objections, either by showing that Utilitarianism does not have the implications that they claim it has or by arguing against the moral intuitions of its opponents. Some Utilitarians, however, have sought to modify the Utilitarian theory to account for the objections.


One such criticism is that, although the widespread practice of lying and stealing would have bad consequences, resulting in a loss of trustworthiness and security, it is not certain that an occasional lie to avoid embarrassment or an occasional theft from a rich man would not have good consequences, and thus be permissible or even required by Utilitarianism. But the Utilitarian readily answers that the widespread practice of such acts would result in a loss of trustworthiness and security. To meet the objection to not permitting an occasional lie or theft, some philosophers have defended a modification labelled “rule” Utilitarianism. It permits a particular act on a particular occasion to be adjudged right or wrong according to whether it is in accordance with or in violation of a useful rule; and a rule is judged useful or not by the consequences of its general practice. Mill has sometimes been interpreted as a “rule” Utilitarian, whereas Bentham and Sidgwick were “act” Utilitarians.

Another objection, often posed against the hedonistic value theory held by Bentham, holds that the value of life is more than a balance of pleasure over pain. Mill, in contrast to Bentham, discerned differences in the quality of pleasures that made some intrinsically preferable to others independently of intensity and duration (the quantitative dimensions recognized by Bentham). Some philosophers in the Utilitarian tradition have recognized certain wholly nonhedonistic values without losing their Utilitarian credentials. A British philosopher, G.E. Moore, a pioneer of 20th-century Analysis, regarded many kinds of consciousness—including love, knowledge, and the experience of beauty—as intrinsically valuable independently of pleasure, a position labelled “ideal” Utilitarianism. Even in limiting the recognition of intrinsic value and disvalue to happiness and unhappiness, some philosophers have argued that those feelings cannot adequately be further broken down into terms of pleasure and pain and have thus preferred to defend the theory in terms of maximizing happiness and minimizing unhappiness. It is important to note, however, that even for the hedonistic Utilitarians, pleasure and pain are not thought of in purely sensual terms; pleasure and pain for them can be components of experiences of all sorts. Their claim is that, if an experience is neither pleasurable nor painful, then it is a matter of indifference and has no intrinsic value.

Another objection to Utilitarianism is that the prevention or elimination of suffering should take precedence over any alternative act that would only increase the happiness of someone already happy. Some recent Utilitarians have modified their theory to require this focus or even to limit moral obligation to the prevention or elimination of suffering—a view labelled “negative” Utilitarianism.

Historical survey

The ingredients of Utilitarianism are found in the history of thought long before Bentham.

Antecedents of Utilitarianism among the ancients

A hedonistic theory of the value of life is found in the early 5th century BC in the ethics of Aristippus of Cyrene, founder of the Cyrenaic school, and 100 years later in that of Epicurus, founder of an ethic of retirement, and their followers in ancient Greece. The seeds of ethical universalism are found in the doctrines of the rival ethical school of Stoicism and in Christianity.

Growth of classical English Utilitarianism

In the history of English philosophy, some historians have identified Bishop Richard Cumberland, a 17th-century moral philosopher, as the first to have a Utilitarian philosophy. A generation later, however, Francis Hutcheson, a British “moral sense” theorist, more clearly held a Utilitarian view. He not only analyzed that action as best that “procures the greatest happiness for the greatest numbers” but proposed a form of “moral arithmetic” for calculating the best consequences. The Skeptic David Hume, Scotland's foremost philosopher and historian, attempted to analyze the origin of the virtues in terms of their contribution to utility. Bentham himself said that he discovered the principle of utility in the 18th-century writings of various thinkers: of Joseph Priestley, a dissenting clergyman famous for his discovery of oxygen; of the Frenchman Claude-Adrien Helvétius, author of a philosophy of mere sensation; of Cesare Beccaria, an Italian legal theorist; and of Hume. Helvétius probably drew from Hume, and Beccaria from Helvétius.

Another strand of Utilitarian thought took the form of a theological ethics. John Gay, a biblical scholar and philosopher, held the will of God to be the criterion of virtue; but from God's goodness he inferred that God willed that men promote human happiness.

Bentham, who apparently believed that an individual in governing his own actions would always seek to maximize his own pleasure and minimize his own pain, found in pleasure and pain both the cause of human action and the basis for a normative criterion of action. The art of governing one's own actions Bentham called “private ethics.” The happiness of the agent is the determining factor; the happiness of others governs only to the extent that the agent is motivated by sympathy, benevolence, or interest in the good will and good opinion of others. For Bentham, the greatest happiness of the greatest number would play a role primarily in the art oflegislation, in which the legislator would seek to maximize the happiness of the entire community by creating an identity of interests between each individual and his fellows. By laying down penalties for mischievous acts, the legislator would make it unprofitable for a man to harm his neighbour. Bentham's major philosophical work, An Introduction to the Principles of Morals and Legislation (1789), was designed as an introduction to a plan of a penal code.

With Bentham, Utilitarianism became the ideological foundation of a reform movement, later known as “philosophical radicalism,” that would test all institutions and policies by the principle of utility. Bentham attracted as his disciples a number of younger (earlier 19th-century) men. They included David Ricardo, who gave classical form to the science of economics; John Stuart Mill's father, James Mill; and John Austin, a legal theorist. James Mill argued for representative government and universal male suffrage on Utilitarian grounds; he and other followers of Bentham were advocates of parliamentary reform in England in the early 19th century. John Stuart Mill was a spokesman for women's suffrage, state-supported education for all, and other proposals that were considered radical in their day. He argued on Utilitarian grounds for freedom of speech and expression and for the noninterference of government or society in individual behaviour that did not harm anyone else. Mill's essay “Utilitarianism,” published in Fraser's Magazine(1861), is an elegant defense of the general Utilitarian doctrine and perhaps remains the best introduction to the subject. In it Utilitarianism is viewed as an ethics for ordinary individual behaviour as well as for legislation.

Late 19th- and 20th-century Utilitarianism

By the time Sidgwick wrote, Utilitarianism had become one of the foremost ethical theories of the day. His Methods of Ethics (1874), a comparative examination of egoism, the ethics of common sense, and Utilitarianism, contains the most careful discussion to be found of the implications of Utilitarianism as a principle of individual moral action.

The 20th century has seen the development of various modifications and complications of the Utilitarian theory. G.E. Moore argued for a set of ideals extending beyond hedonism by proposing that one imaginatively compare universes in which there are equal quantities of pleasure but different amounts of knowledge and other such combinations. He felt that he could not be indifferent toward such differences. The recognition of “act” Utilitarianism and “rule” Utilitarianism as explicit alternatives was stimulated by the analysis of moral reasoning in “rule” Utilitarian terms by Stephen Toulmin, a British philosopher of science and moralist, and by Patrick Nowell-Smith, a moralist of the Oxford linguistic school; by the interpretation of Mill as a “rule” Utilitarian by another Oxford Analyst, J.O. Urmson; and by the analysis by John Rawls, a Harvard moral philosopher, of the significance for Utilitarianism of two different conceptions of moral rules. “Act” Utilitarianism, on the other hand, has been defended byJ.J.C. Smart, a British-Australian philosopher.

Effects of Utilitarianism in other fields

The influence of Utilitarianism has been widespread, permeating the intellectual life of the last two centuries. Its significance in law, politics, and economics is especially notable.

The Utilitarian theory of the justification of punishmentstands in opposition to the “retributive” theory, according to which punishment is intended to make the criminal “pay” for his crime. According to the Utilitarian, the rationale of punishment is entirely to prevent further crime by either reforming the criminal or protecting society from him and to deter others from crime through fear of punishment.

In its political philosophy Utilitarianism bases the authority of government and the sanctity of individual rights upon their utility, thus providing an alternative to theories of natural law, natural rights, or social contract. What kind of government is best thus becomes a question of what kind of government has the best consequences—an assessment that requires factual premises regarding human nature and behaviour.

Generally, Utilitarians have supported democracy as a way of making the interest of government coincide with the general interest; they have argued for the greatest individual liberty compatible with an equal liberty for others on the ground that each individual is generally the best judge of his own welfare; and they have believed in the possibility and the desirability of progressive social change through peaceful political processes.

With different factual assumptions, however, Utilitarian arguments can lead to different conclusions. If the inquirer assumes that a strong government is required to check man's basically selfish interests and that any change may threaten the stability of the political order, he may be led by Utilitarian arguments to an authoritarian or conservative position. On the other hand, William Godwin, an early 19th-century political philosopher, assumed the basic goodness of human nature and argued that the greatest happiness would follow from a radical alteration of society in the direction of anarchistic Communism.

Classical economics received some of its most important statements from Utilitarian writers, especially Ricardo and John Stuart Mill. Ironically, its theory of economic value was framed primarily in terms of the cost of labour in production rather than in terms of the use value, or utility, of commodities. Later developments more clearly reflected the Utilitarian philosophy. William Jevons, one of the founders of the marginal utility school of analysis, derived many of his ideas from Bentham; and “welfare economics,” while substituting comparative preferences for comparative utilities, reflected the basic spirit of the Utilitarian philosophy. In economic policy, the early Utilitarians had tended to oppose governmental interference in trade and industry on the assumption that the economy would regulate itself for the greatest welfare if left alone; later Utilitarians, however, lost confidence in the social efficiency of private enterprise and were willing to see governmental power and administration used to correct its abuses.

As a movement for the reform of social institutions, 19th-century Utilitarianism was remarkably successful in the long run. Most of their recommendations have since been implemented unless abandoned by the reformers themselves; and, equally important, Utilitarian arguments are now commonly employed to advocate institutional or policy changes.

Summary and evaluation

As an abstract ethical doctrine, Utilitarianism has established itself as one of the small number of live options that must be taken into account and either refuted or accepted by any philosopher taking a position in normative ethics. In contemporary discussion it has been divorced from adventitious involvements with the analysis of ethical language and with the psychological theory with which it was presented by Bentham. Utilitarianism now appears in various modified and complicated formulations. Bentham's ideal of a hedonic calculus is usually considered a practical if not a theoretical impossibility. Present-day philosophers have noticed further problems in the Utilitarian procedures. One of them, for example, is with the process of identifying the consequences of an act—a process that raises conceptual as well as practical problems as to what are to be counted as consequences, even without precisely quantifying the value of those consequences. The question may arise whether the outcome of an election is a consequence of each and every vote cast for the winning candidate if he receives more than the number necessary for election; and in estimating the value of the consequences, one may ask whether the entire value or only a part of the value of the outcome of the election is to be assigned to each vote. There is also difficulty in the procedure of comparing alternative acts. If one act requires a longer period of time for its performance than another, one may ask whether they can be considered alternatives. Even what is to count as an act is not a matter of philosophical consensus.

These problems, however, are common to almost all normative ethical theories since most of them recognize the consequences—including the hedonic—of an act as being relevant ethical considerations. The central insight of Utilitarianism, that one ought to promote happiness and prevent unhappiness whenever possible, seems undeniable. The critical question, however, is whether the whole of normative ethics can be analyzed in terms of this simple formula.


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