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John Commons on Customer Goodwill and the Economic Value of Business Ethics: Response to Professor Sen

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  • Black, Robert

Abstract

This paper shows how John R. Commons’ analysis of a firm’s goodwill value gives analytical support to Professor Amartya Sen’s contention (BEQ, 1993) that business ethics makes economic sense. A firm’s market value consists of the value of both tangible and intangible capital, including the goodwill value of ongoing customer relations. If a firm is to defend its goodwill value, it needs to have the protection of the courts and to pursue ethical practices. The courts defend fair competition by giving protection from unethical competitors while the firm defends its reputation with honest dealings. By implication, firms which depend on ongoing customer relations will tend to engage in more ethical business practices than firms which do not. Even a firm which makes a mistake that compromises its product’s safety may reduce the loss of goodwill value over time by admitting the mistake early rather than hiding it. Also by implication, the transition from a command socialist economy to a market economy cannot be made instantaneously since trust, reputation, and these ongoing customer relations—key institutions of market economies—cannot be generated instantaneously.

Suggested Citation

  • Black, Robert, 1994. "John Commons on Customer Goodwill and the Economic Value of Business Ethics: Response to Professor Sen," Business Ethics Quarterly, Cambridge University Press, vol. 4(3), pages 359-365, July.
  • Handle: RePEc:cup:buetqu:v:4:y:1994:i:03:p:359-365_01
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    Cited by:

    1. Valentinov, Vladislav, 2023. "Stakeholder theory: Toward a classical institutional economics perspective," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 188(1), pages 75-88.
    2. Murray, Keith B. & Vogel, Christine M., 1997. "Using a hierarchy-of-effects approach to gauge the effectiveness of corporate social responsibility to generate goodwill toward the firm: Financial versus nonfinancial impacts," Journal of Business Research, Elsevier, vol. 38(2), pages 141-159, February.
    3. Vladislav Valentinov, 2023. "Stakeholder Theory: Toward a Classical Institutional Economics Perspective," Journal of Business Ethics, Springer, vol. 188(1), pages 75-88, November.

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