The Actual Collapse and the Importance of Moral Values (ethics); Some Reflections Regarding the Roots of the Current Crisis

Abstract

Economists who talk about free markets seem to ignore that Adam Smith (considered as the father of laissez-faire economics) wrote also “The Theory of Moral Sentiments”; and that Max Weber, the famous sociologist, connected hard work and moral values (ethics) with the advance of capitalism. Public policy has to deal with the social fallout of unlimited greed, lack of honesty, cynicism, selfishness, etc, which the current financial crisis illustrates conspicuously. The actual financial crisis, which has shaken the beliefs of even the most ardent supporters of unfettered markets, cannot be explained only by years of cheap money and growing imbalances in the world economy. Mistakes in macro-economic policy were accompanied by gross abuses of securitisation, abnormally skewed incentives and loss of moral compass, inadequate risk-assessment models and failures to check for systemic risks, a breakdown of due diligence and an almost blind belief in the self-regulating virtues of markets.