Augustin Tünger, “Facetiae Latinae et Germanicae,” which depicts St Peter paying a fee by extracting coins from the mouth of a fish. How can we spend money ethically? Recent debates about the economy have rediscovered the question, “is that right?”, where “right” means more than just profits or efficiency. It’s everywhere: from the Occupy movement to corporations being damned for “immoral” tax avoidance, and public outcry over “unfair” solutions to the eurozone crisis. Some argue that because free markets allow for personal choice, they are already ethical. Others have accepted the ethical critique and embraced corporate social responsibility. But before we can label any market outcome as “immoral,” or sneer at economists who try to put a price on being ethical, we need to be clear on what we are talking about. For some, “ethical economics” is about using resources in a sustainable way. Reducing carbon dioxide emissions, for instance, is certainly kinder to future generations than accepting the dictates of supply and demand. Ethical investing typically goes beyond ecology to consider several other criteria: are factory workers paid the minimum wage? Would the investment support a dictator? Is anyone being harmed? If all investors followed a rule not to support dictators, then the world would probably improve. Investors can be offered a long menu of these considerations, and have their portfolio moulded around their own understanding of “ethical.” Interestingly, their answers often reveal more consensus on what isn’t ethical than what is. Arm sales, tobacco products, and human rights abuses are all out. But what should be in? Where these approaches consider ethics within the market, other systems of ethics call for more fundamental change. In Islamic finance, for example, religious tenets forbid usury and favour sharing risk across the whole economy. Islamic investments tend to offer low but safe returns. Critics might call this inefficient but that’s a market-based verdict. Banning usury, alcohol, pork or slavery is itself a judgement on the market—and one that cannot really be priced. Most radical of all are the ethical systems that reject the market completely. Marxists, some feminists and a few Buddhist approaches to economics take this line: their ethics dispute the starting points of classical market economics—ideas like individual consumer sovereignty, private property and the attractiveness of material wealth. They conclude that to be ethical, an individual should withdraw from the market entirely, or even actively disrupt it. There is not just disagreement on how far ethics should affect the market. There are also different views on where ethics should apply when someone makes an economic decision. Consider Adam Smith, widely regarded as the founder of modern economics. He was a moral philosopher who believed sympathy for others was the basis for ethics (we would call it empathy nowadays). But one of his key insights in The Wealth of Nations was that acting on this empathy could be counter-productive—he observed people becoming better off when they put their empathy aside, and interacted in a self-interested way. Smith justifies selfish behaviour by the outcome. Whenever planners use cost-benefit analysis to justify a new railway line, or someone retrains to boost their earning power, or a shopper buys one to get one free, they are using the same approach: empathising with someone, and seeking an outcome which makes that person as well off as possible—although the person they are empathising with may be themselves in the future. Instead of judging consequences, Aristotle said ethics was about having the right character—displaying virtues like courage and honesty. It is a view put into practice whenever business leaders are chosen for their good character. But it is a hard philosophy to teach with PowerPoint—just how much loyalty should you show to a manufacturer that keeps making a loss? Show too little and you’re a “greed is good” corporate raider; too much and you’re wasting money on unproductive capital. Aristotle thought there was a golden mean between the two extremes, and finding it was a matter of fine judgement. But if ethics is about character, it’s not clear what those characteristics should be. There is yet another approach: instead of rooting ethics in character or the consequences of actions, we can focus on our actions themselves. From this perspective some things are right, some wrong—we should buy fair trade goods, we shouldn’t tell lies in adverts. Ethics becomes a list of commandments, a catalogue of “dos” and “don’ts.” When a finance minister refuses to devalue a currency because they have promised not to, they are defining ethics in this way. According to this approach devaluation can still be bad, even if it would make everybody better off. Many moral dilemmas arise when these three versions pull in different directions but clashes are not inevitable. Take fair trade coffee, for example: buying it might have good consequences, be virtuous, and also be the right way to act in a flawed market. Common ground like this suggests that, even without agreement on where ethics applies, ethical economics is still possible. Whenever we feel queasy about “perfect” competitive markets, the problem is often rooted in a phoney conception of people. The model of man on which classical economics is based—an entirely rational and selfish being—is a parody, as John Stuart Mill, the philosopher who pioneered the model, accepted. Most people—even economists—now accept that this “economic man” is a fiction. We behave like a herd; we fear losses more than we hope for gains; rarely can our brains process all the relevant facts. These human quirks mean we can never make purely “rational” decisions. A new wave of behavioural economists, aided by neuroscientists, is trying to understand our psychology, both alone and in groups, so they can anticipate our decisions in the marketplace more accurately. But psychology can also help us understand why we react in disgust at economic injustice, or accept a moral law as universal. Which means that the relatively new science of human behaviour might also define ethics for us. Ethical economics would then emerge from one of the least likely places: economists themselves.