Natural Law Theory Explained With Examples in Business

Natural Law

Investopedia / Jessica Olah

What Is Natural Law?

Natural law is a theory in ethics and philosophy that says that human beings possess intrinsic values that govern their reasoning and behavior.

Natural law maintains that these rules of right and wrong are inherent in people and are not created by society or court judges.

Key Takeaways

  • The theory of natural law says that humans possess an intrinsic sense of right and wrong that governs our reasoning and behavior.
  • The concepts of natural law are ancient, stemming from the times of Plato and Aristotle.
  • Natural law is constant throughout time and across the globe because it is based on human nature, not on culture or customs.
  • This is opposed to theories that laws are socially constructed and created by people.
  • Examples of natural laws exist in several fields from philosophy to economics.

Understanding Natural Law

Natural law holds that there are universal moral standards that are inherent in humankind throughout all time, and these standards should form the basis of a just society.

Human beings are not taught natural law per se, but rather we “discover” it by consistently making choices for good instead of evil. Some schools of thought believe that natural law is passed to humans via a divine presence.

Although natural law mainly applies to the realm of ethics and philosophy, it is also used extensively in theoretical economics.

Natural Law vs. Positive Law

The theory of natural law believes that our civil laws should be based on morality, ethics, and what is inherently correct. This is in contrast to what is called "positive law" or "man-made law," which is defined by statute and common law and may or may not reflect the natural law. 

Examples of positive law include rules such as the speed that individuals are allowed to drive on the highway and the age that individuals can legally purchase alcohol. Ideally, when drafting positive laws, governing bodies would base them on their sense of natural law.

"Natural laws" are inherent in us as human beings. "Positive laws" are created by us in the context of society.

Examples of Natural Law

Examples of natural law abound, but philosophers and theologians throughout history have differed in their interpretations of this doctrine. Theoretically, the precepts of natural law should be constant throughout time and across the globe because natural law is based on human nature, not on culture or customs.

When a child tearfully exclaims, “It’s not fair [that]..." or when viewing a documentary about the suffering of war, we feel pain because we're reminded of the horrors of human evil. And in doing this, we are also providing evidence for the existence of natural law. A well-accepted example of natural law in our society is that it is wrong for one person to kill another person.

Examples of Natural Law in Philosophy and Religion

  • Aristotle (384–322 BCE) is considered by many to be the father of natural law—argued that what is “just by nature” is not always the same as what is “just by law.” Aristotle believed that there is a natural justice that is valid everywhere with the same force; that this natural justice is positive, and does not exist by "people thinking this or that."
  • For St. Thomas Aquinas (1224/25–1274 CE), natural law and religion were inextricably connected. He believed that natural law "participates" in the divine "eternal" law. Aquinas thought eternal law to be that rational plan by which all creation is ordered, and natural law is the way that human beings participate in the eternal law. He further posited that the fundamental principle of natural law is that we should do good and avoid evil. 
  • The author C.S. Lewis (1898–1963) explained it this way: “According to the religious view, [what is] behind the universe is more like a mind, that is to say, a conscious, that prefers one thing to another. There must be 'something' which is directing the universe, and which appears to me as a law urging me to do right.”

Philosophers of natural law often do not explicitly concern themselves with economic matters; likewise, economists systematically refrain from making explicit moral value judgments. Yet the fact that economics and natural law are intertwined has been borne out consistently in the history of economics.

Examples of Natural Law In Economics 

Because natural law as an ethical theory can be understood to be an extension of scientific and rational inquiry into how the world works, the laws of economics can be understood as natural laws of how economies “should” operate. Moreover, to the extent that economic analysis is used to prescribe (or proscribe) public policy or how businesses ought to conduct themselves, the practice of applied economics must rely at least implicitly on some ethical assumptions:

  • Early economists of the medieval period, including the aforementioned Aquinas as well as the Scholastic monks of the School of Salamanca, heavily emphasized natural law as an aspect of economics in their theories of the just price of an economic good. 
  • John Locke based his theories related to economics on a version of natural law, arguing that people have a natural right to claim unowned resources and land as private property, thereby transforming them into economic goods by mixing them with their labor. 
  • Adam Smith (1723–1790) is renowned as the father of modern economics. In Smith's first major treatise, The Theory of Moral Sentiments, he described a "system of natural liberty" as being the matrix of true wealth. Many of Smith's ideas are still taught today, including his three natural laws of economics:
  1. The Law of Self Interest: People work for their own good.
  2. The Law of Competition: Competition forces people to make a better product.
  3. The Law of Supply and Demand: Enough goods would be produced at the lowest possible price to meet demand in a market economy.

What is the theory of natural law?

Natural law is a theory of ethics that says that human beings possess intrinsic values that govern our reasoning and behavior.

What are examples of natural law in systems of government?

In the U.S. constitution, the right of citizens to life, liberty, and the pursuit of happiness is a motto based on natural law. In the penal code, certain crimes are almost universally accepted as punishable, including murder and rape.

How does natural law affect business?

Natural law affects businesses from an ethics standpoint, whereby they a firm should not defraud its customers or other stakeholders. For instance, the marketing of drugs should be made with full disclosure of potential harms and not be sold as "snake oil."

What are some flaws in natural law theory?

Since natural law assumes universalizing rules, it does not account for the fact that different people or different cultures may view the world differently. For instance, if people interpret differently what it means for something to be fair or just, the results will differ.

Article Sources
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  1. Britannica. "Natural Law."

  2. Constitutional Rights Foundation. "St. Thomas Aquinas, Natural Law, and the Common Good."

  3. Tyler DeVries. "Mere Christianity."

  4. Stanford Encyclopedia of Philosophy. "School of Salamanca."

  5. Pomona College. "Locke on Rights and Property."

  6. Foundation for Economic Education. "Natural Liberty."

  7. Britannica. "Invisible Hand."

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