ABSTRACT
This chapter argues that there is frequently a positive relation between ethics and profits; normally ethics enhances the bottom line rather than diminishing it. It also argues that the stronger thesis that in a world where many doubt the existence of a positive relation between ethics and profits, ethics can be a source of competitive advantage. The ethicist would seek to eliminate or radically reduce the transaction costs associated with resolving agency problems. In classical economics a voluntary economic exchange was considered to be transaction cost free. But in the real world, economic exchanges usually have some cost associated with them and sometimes these costs are considerable. Corporate misconduct raises the cost and reduces the amount of social capital. The chapter describes that capitalism can be successful only if there is widespread acceptance of certain moral norms, norms such as truth telling, bill paying, and fair play.
