The Ethical Economics
Study Center

ALTRUISM/CHARITY

"It is better to give than to receive." -Jesus Christ

"The best way to find yourself is to lose yourself in the service of others."
-Mahatma Gandhi

"I slept and dreamt that life was joy. I awoke and saw that life was service. I acted and behold, service was joy." -Rabindranath Tagore

These quotes epitomize the common sentiment that charity is the greatest of all virtues. In contrast, selfishness is frequently viewed as a vice. Most children are scolded when they do something self-serving and are praised why they do something helpful to others. Indeed, another well-known saying is that charity begins at home. This is fitting because the most notable example of charity really is the sharing that occurs within a family. Parents must give to their children in order to nurture them to adulthold. Children often take care of their parents when they become elderly. Siblings of different ages take care of each other. Such sharing regularly extends into the local community among neighbors and friends. Here I remember stories of farm communities banding together to rebuild a neighbor's barn that had burned down. Such communities composed of altruistic individuals is surely a nicer place to live than one filled with self-serving Scrooge-like misers.

Extoling the virtues of altruism and charity, many people cast aspersions on business and economics because its foundation is built on self-interest. Adam Smith famously said, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." Economic models begin with a presumption that consumers want to maximize their own utiltity or happiness and that firms seek to maximize their profits. Economics textbooks will regulalry discuss the issue of wealth and income inequality, but will typically conclude that it is outside the purview of economics to decide what is best, and certainly will not suggest that charity designed to equalize incomes is a necessary component of an economic system. However, there are a few things that must be highlighted about altruism or charity in a economic system.

First, it is worth recognizing that every exchange of one item for another consists of a self-serving act and an altruistic act combined. When the baker sells bread to his customers, he is motivated by the money he will receive in exchange. However, in order to satisfy his interest in making money, he must provide a desireable product to his customer. He must give something of value in order to receive. The remarkable thing about exchange is that both buyer and seller become better-off because of the exchange. As long as the trade is mutually voluntary and with accurate information it will only occur if both parties believe it will benefit themselves.

Another way to describe the same process though, is that trade will only occur if both parties give something valuable to another. Looked at from this vantage point, one could even argue that markets are predicated on the assumption that people wish to do good for others. And if they do that, by finding valuable items to bring to the market, then it will generate the secondary effect of benefiting themselves.

A second point about charity and markets is that there is nothing in economics suggesting that voluntary charitable giving to others is harmful. By harmful I mean nothing that would cause a reduction in economic efficiency. Most everyone would surely prefer to live in a society in which people are compassionate and willing to help others who are suffering from undue displeasure or distress. Especially in today's modern world, with an abundance of surplus, we can afford to provide assurance that the least fortunate among us have some resources. Noting that individual fortunes often change, there is always some probability that even the richest of individuals may one day find themselves penniless and in need of compassion from others. Compassion and offers of charity to the less fortunate. thus, create a form of insurance that covers everyone.

Finally, I must point out that the presence of so many charitable organizations around the world and the fact that charity and altruism is so frequently praised and encouraged within society proves that there are demands for this behavior. In a free market capitalist economy, one central feature is the freedom to work where one wishes, to purchase what one desires and to behave in whatever way one cares to as long it it poses no damage to others. Self-interest and altruism are not either-ors. Being self-interested in the marketplace, subject to the ethical constrants described herein, does not preclude one from being generous to others with ones' time and money.

Steven Suranovic, December 1, 2019

Ethical Principles
Promoting Economic Efficiency

  • Giving to others is one side of every market exchange
  • Charity is not Necessary for Economic Efficiency
  • Charity is Unlikely to be Detrimental to Economic Efficiency

 

Why?

  • Every exchange involves a self-serving effect combined with an altruistic effect.
  • Even an allocation in which one person has all the goods is economically efficient.
  • Individuals may have preferences about more appealing distributions of income or wealth, but such redistributions do not raise economic efficiency.