A few of our blog friends have been riffing on the usury law meme and each other.  See Matt B. here, Kate at Ideoblog, ProfB starting it all and responding to Kate and Matt.  I have defended usury laws before, and Paul Gowder's comment to Kate's post explains why.  Although the law may have no interest in stopping fully informed individuals from binding themselves or their entities to a high rate of interest that compensates the lender for a particular risk, the law realizes that in many cases the borrowers aren't fully informed of their bargain.  Unfortunately, many lenders and vendors seem to have a business plan that hinges on individuals legally binding themselves to obligations they don't understand.  Because the law is not very effective at making sure that borrowers are clear on their obligations, usury laws (interest rate caps) ensure that at least those caught in sharp business practices won't be damaged too bad.  Obviously, reasonable minds differ here, but I want to discuss something else.

I wanted to specifically respond to Kate's point, which seems to be that "usurious" interest rates can't be unethical if they are market-driven.  Kate makes the point that she doesn't want an "ethics tsar" determining what interest rates are unethical.  Of course, Kate is responding to ProfB's post on the Pope's discussion of usurious lending rates as unethical.  My seminar, the Ethics of Business, discusses just this intersection of what is ethical, what is legal, and what is good business practice.  Merely because a practice is good business or the product of a free market does not mean that I have to think it is ethical.  Ethical philosophies exist beyond utilitarianism, beyond what is the greatest good for the greatest number.  One might determine what is ethical based on the incentives of the actor or the values embodied in the action.  One might also determine what is ethical based on an intuitive sense of right or wrong that may or may not come from a belief in a supernatural being.  And at some point, one's sense of ethics may deviate from the workings of the free market.

One particular point we discuss in class is sharp business practices.  I may have a legal obligation to disclose some things and not others, but my personal ethics may tell me to disclose others.  My business sense may incentivize me not to disclose anything or selective things.  My religious beliefs may tell me to refrain from activity that may be legal and that may also be rational in a free market.  A religious leader may extol followers to also refrain from an activity that may be legal and that may also be rational in a free market.  This teaching may create individual inconvenience, such as not spending money one day a week, or may create huge obstacles, such as not lending money or not lending money at a high rate of interest.

Business Ethics | Bookmark

TrackBack URL for this entry:
http://www.typepad.com/t/trackback/38673/3792355

Links to weblogs that reference More on Ethics, Usury Laws and Markets: