Ethics in Economics and Finance Essay Example for Free

morals in Economics and Finance Essay morality is defined as a standard of human behavior that offers how to dally in many situations with friends, family members, employees, business people, professionals, etc. It is necessary to mention that to make rightfully respectable decision means to use trained sensitivity to ethical issues. In other words, moral philosophy is associated with acceptable human behavior in this or that e reallyday or scientific field. Ethics incorporates norms of conventional morality to distinguish wrong behavior from right behavior.Generally, ethical norms suggest honesty, truthfulness, goodness, integrity, justice and respect for others. Ethics is applied to all aspects of life as, for example, medicine, psychology, business, finance and political economy. Financial and economical ethics is considered subset of general ethics. (Frowen, 1995, p. 46) Ethics and Ethical Norms Researches argue that ethical norms and determine play beta role in ma intaining harmony and stability in social life as ethics suggests proper ways of human-human interactions.Ethics recognizes human needs and aspirations, as well as cooperative efforts, fairness and truthfulness. Ethics contributes social stability and ensures balance in all spheres of life and business. Social evolution has developed disposition cargon in humans to take care of ourselves and of others. Ethical norms are necessary for guiding human behavior and it is refereed to when it is necessary to resolve conflicts mingled with selfishness and selfishness, between conscience and material needs. In finance and economics ethical violations are associated with inconsistency in modern pecuniary-economic theory.Violations are overly attributed to inconsistencies in use if principal- federal agent manikin of relations in economic and fiscal transactions. It is noned that the financial-economic theory is based on the rational-maximizer paradigm which promotes capitalist establis hment stressing that individuals are self-centred and they tend to answer rationally when looking for ways of maximizing their own interest. The problem is that modern financial-economic theory contradicts ethical norms of loyalty, fidelity, trustworthiness and stewardship.Moral values are the core of conventional concept of way of life, but if humans are claimed to be rational maximizers, then traditional sense is impossible. (Frowen, 19995, p. 47-49) For example, Duska argues that to do something for another in a system geared to maximize self-interest is foolish. Such an answer, though, points discover an inconsistency at the heart of the system, for a system that has rules requiring agents to look out for others while encouraging individuals to look out only for themselves, destroys the practice of looking out for others. (Duska, 1992, p. 61) Ethics in FinanceEthics in finance plays classic role as it aims at ensuring fair deals and transactions. Moreover, ethics in finan ce addresses corporate governance, and agency relationships which should be purely contractual. In financial sphere, ethical behaviour should be based on carrot-and-stick approach. In corporate governance the conflict between stockholder and management is described as agency problem. To deal with this problem an agency theory was developed. It stresses that the principal and agent are both self-interested aiming at generating their gain. (Dobson, 1993, p. 7)Researchers say that we tend to entail our needs as, for example, management of retirement savings or stock and bond investing, to financial function as we may fail to carry them effectively. We are not as organized as financial managers, but we are not aware of agency problem. Lack of necessary information limits our ability to monitor managers behaviour. Therefore, modern world is characterized by selfish behaviour as people are willing to take on their things done by others. Such paradoxical situation explains ethical proble ms in financial sphere stressing that declining in morality is observed. (Dobson, 1993, p. 8)Ethical violations in finance are rather frequent nowadays and that mainly associated with stakeholder interest, insider trading, investment management and camping financing. Loyalty and trust in public and private dealings are lots violated. The most common occurrences are fraudulent financial dealings, corruption in government and public institutions, influence peddling, cheating customers some their trading profits, insider trading, unauthorized transactions, upon of customer funds in order to obtain personal gain, larceny and corruption in banks, improper pricing of customer trades, etc.Most frequently, wrong behaviour is associated with insider trading which is defined as trading in securities of particular company or organization with an effort to take advantage of information about material side of the company. In such a way, trade is provided with unfair advantage over other comp etitors in the same security. (Dobson, 1993, p. 59) Therefore, ethical codes are very important in financial filed as they set standards of acceptable behaviour, fair dealing and honest relations with customers.Ethical codes in finance tends to replace egoistic paradigm and to create such system which would promote, honesty, altruism and virtuous traits. It is rather common to fid ethical codes in modern financial markets and financial corporation. In financial markets such ethical codes are established by official regulatory agencies which are trying to ensure ethical and responsible behaviour as important part of all operations and transactions. Furthermore, re-examining of the core principle of capitalist society helps to address ethical problems in both financial and economic fields.Financial ethics suggests that individual should be presented as honest and altruistic promoting honesty and fairness in public and private dealings. The primary purpose of ethic in financial sphere is to set standards of internal good. (Dobson, 1993, p. 60-61) Ethics in Economics Ethics is related with economic sphere in three ways economists should follow ethical values trying to shape the way they are doing economics economic actors have ethical values which shape their own behavioural standards finally, ethical values are important for economic policies and institutions as they affect people differentially.However, from economic perspective ethics is defined as a matter of choice for everyone. galore(postnominal) economists argue that ethical values contribute positively economic welfare. However, there are ideas that economics is ethically neutral. Economists are interested in implication of exaltation Smiths idea that all human are driven by self-interest and egoism. Smith argued that self-interest led to the common good of nation. (Wilber, 1996, p. 135) However, he agreed that human should act in terms of internationalized moral law and police power of the state.Theref ore, it is recognized that in economic sphere all figures should act on the basis of acknowledged ethical norms as economy of every country needs efficient ethical behaviour to improve countrys reputation at the world scene. In economics ethics suggests avoiding corruption in government and promoting fair decision-making. It is a matter of fact that ethics is not an easy task for economic system and business as there will be always interest groups which will challenge ethical standards and values.Therefore, economics should pay more attention to ethics and social responsibility, as well as to set ethical codes of behavior. For example, businesses are defined as important institutions in any economic structure. Therefore, they are expected to follow ethical norms when deciding how to organize the work and to produce necessary goods and service. Businesses reflect the overall economic system and unethical behavior may create unfavorable reputation. (Wilber, 1996, p. 139) ConclusionEth ics plays crucial role in all aspects of life, especially in financial and economic sphere. In financial field ethics is associated with fair transactions and dealings, honest buyer-customer relations and avoidance of corruption. In economic field ethics is associated with social responsibility, ethical decision-making as the whole nation depends on them, and, of course, with no corruption on national level. Ethics is necessary not only for maintaining balance and harmony, but also for improving reputation of company, organization, and even country. (Frowen, 1995, p. 68)