PRESIDENT MICHAEL D Higgins has officially launched a nationwide ethics initiative. His hope is to encourage a wide-ranging debate on the relationship between ethics and society, with particular attention paid to the relationship between ethics and our economic system.

Such debate is a welcome addition to our public discourse. For, it seems the discipline of economics has lost its way in recent times. Its failure to predict – or want to predict – the recent financial crisis, coupled with the questionable way in which it responded, tells us the discipline is need of review. Part of the problem has been the assumption that economics is immune from ethical reasoning: that economics deals with scientific facts, and ethics with philosophical values, and never the twain shall meet.

My previous article argued, in an effort to dispel this illusion, that this distinction between facts and values is not as clear as it seems, and that values – the things that are important to us – play an essential role in all economic analysis.

Here, I want to argue that it has not always been the case that the relationship between ethics and economics needed such justification. In fact, an ethical approach to economics is nothing new.

Economics and self-interest

Adam Smith is considered the ‘father of modern economics’. As Einstein is to modern physics or Darwin is to biology, he is a major authority figure in his discipline. An 18th century Scottish thinker, he is most widely known for writing The Wealth of Nations, a book that has contributed more to the development of economic thinking in capitalist societies than any other. What is less widely known, however, is that as well as being an economist, Smith was also a moral philosopher. He was deeply interested in the fundamental principles of human morality and our nature as social beings.

As both an economist and a moral philosopher, however, Smith did not lead a life of intellectual dichotomy. He considered the two strands of thought as inherently connected. Smith was aware that economics, at root, is a study of human behaviour and thus to embark on an economic analysis one must first examine the nature of human beings and their conception of the good life. How else could one discuss how to organise wealth and resources? To what end?

This he did in his first major work was A Theory of Moral Sentiments. Here he argued that we are creatures of sympathy, and that our moral obligations are dependent on our ability to enter imaginatively into another’s plight or suffering. For a variety of reasons, this ethical dimension of Smith’s work faded into obscurity in the centuries that followed. Economics became increasingly ‘scientific’ and concerned only with the mathematical and the quantifiable aspects of wealth creation.

Smith’s ideas on economics have become distorted

In neglecting the ethical and moral framework developed by Smith, much was lost. His ideas on economics became distorted: pulled as they were from their ethical context. For example, Smith is often cited as the source of the idea that people act primarily out of self-interest. The free market is supposed to harness the self-interest of each individual for the betterment of all. In every introductory economic text book Smith is quoted: “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.”

This notion of self-interest took hold in the 20th century under the Chicago School of economists and it became their mantra. The only responsibility an individual, or a corporation, has is to themselves they argued. And they repeatedly referred back to Smith as the one who developed this idea. It became immortalised in pop culture as the phrase ‘greed is good’. It allowed those who exploited others for their own gain to feel justified as merely doing what economics told them they should do.

Self-interest’ is ambiguous

Yet, such a narrow view of self-interest is not at all what Adam Smith had in mind. Repeated reference to that one quote is a distortion and vulgarisation of his complex views about ethics and human behaviour.

First off, the very idea of ‘self-interest’ is ambiguous when taken out of context. It can mean the immediate satisfaction of your present aims and desires: instant-gratification and self-indulgence. Or it can mean the wise pursuit of what will makes one’s life go best in the long run.

Of course, when Smith was talking about self-interest he wasn’t talking about gross short-term self indulgence. He was referring to the pursuit of long-term enlightened self-interest, properly restrained by the humble virtue of prudence.

When Smith spoke of self-interest he had in mind something like the business man who treats his customers well so that they will return again and again for future business, and tell others of their good experience. He did not have in mind the financial gambler, who swindles a client into investing in worthless bonds so he can make a quick fortune and leave a trail of destruction and heartache in his path.

Consider the broader ethical fabric

Recent economic thought and education has failed to consider the broader ethical fabric that underlies his economic analysis. Quotations are cherry-picked to fit neatly into the existing system, regardless of whether they do justice to Smith’s actual views. We have lost the subtle distinctions at play; the nuanced definitions about how we behave.

President Michael D. Higgins’ ethics initiative is calling for a return to this style of classical economics, where economics is viewed as a moral and mathematical science.

Several centuries ago Smith offered us a hugely influential economic theory, but did so through a rich tapestry, interweaving threads of psychology, moral philosophy, jurisprudence and history. It is time for us reintroduce this kind of understanding to our economic thinking.

Robert Grant has a PhD in Philosophy from Trinity College Dublin, where he is currently a tutor in Logic and the History of Philosophy. He is also research analyst at RelateCare. He blogs at robert-grant.squarespace.

Column: Don’t be fooled, values are inescapable – in life and in economics