Economics-oriented site The Big Money (an offshoot of online magazine Slate) late last week featured a piece by columnist Mark Gimein on a book of essays by economist Gary Becker and Judge Richard Posner, collected from contributions to their joint blog. Becker in particular is an adherent of the so-called “shareholder value theory” of business ethics, as elaborated by his mentor, Milton Friedman. As Gimein summarizes it, “Becker’s view of corporate morality is that the only ethical responsibilities of business executives are to obey the law, adhere to contracts (really just a subset of the first rule), and, most critically, to maximize the price of their companies’ shares.”

As Gimein shows, this theory amounts to next to nothing as a substantive approach to ethics; it practically recommends doing anything one damn well pleases. “The combination of the “shareholder value” theory and stock- and options-based compensation creates a beautifully virtuous circle. The profits of the shareholders are the CEO’s own interests, too, so if acting in the best interests of the shareholders (that is, raising the share price) is the CEOs main moral responsibility … well, gee, acting ethically means acting in his own best interest is always the right thing to do…. The … theory demands almost nothing of contemporary executives that they don’t already want to do…. So the shareholder value theory winds up telling executives that their only responsibility is to maximize their own profits, except insofar as they are guided by regulations that they actively try to minimize by lobbying. And, by the way, defeating or creating loopholes in laws is not only OK, but the only right thing to do because it, too, is—you know where this sentence will end—in the best interests of the shareholders.”

To the degree that the shareholder-value theory has any substance, it amounts to another iteration of the economists’ appeal to the “long run.” Becker, according to Gimein, “is convinced that having corporations follow their economic bliss will create the biggest economy, and the details of what happens along the way don’t really concern him. He is like the drawing room social Darwinists of the turn of the last century, looking so far ahead toward the mountain peak of ‘progress’ that the treacherous crevasse directly in front seems like a miniscule concern. The immediate objections that even the most ordinary reader will come up with—what happens if a company discovers that, say, using radioactive materials to make day-glo gadgets is dangerous, before the government has made them illegal?—elude his Nobel-prize winning gaze.”

What GImein discerns in Becker is practically the same thing that prompted John Gray (click here, scroll down) to become fed up with the thinking of F. A. Hayek by the third edition of his book on the Austrian economist.  Gray spent considerable time in search of the ultimate justificatory principle of Hayek’s economics — which he found to be couched not simply in terms of a bigger economy but a bigger population; an economy justified itself in terms of the size of the population it could support. Gray could not convince himself that a bigger population was always better. Furthermore, he came to realize that this principle would require a sort of “rolling sacrifice” of every generation for the next….