Greed Is Not Good, and It’s Not Capitalism

The American ^ | 15 Oct 2009 | Jay W. Richards

[AreaMan]

AMERICAN.COM

A Magazine of Ideas

Greed Is Not Good, and It’s Not Capitalism

By Jay W. Richards

Thursday, October 15, 2009

Filed under: Big Ideas, Culture,

Economic Policy, Public Square

Capitalism doesn’t need greed. What capitalism does need is human creativity and initiative.

After months of hearing the media and pundits pronounce the untimely death of capitalism, it did my heart good to see a recent Newsweek cover story challenge the familiar trope. The author, Fareed Zakaria, noted that this pessimistic pronouncement gets air time in the wake of every financial downturn. But in reality, capitalism, over the long haul, has succeeded far beyond any other economic arrangement in human history. If worldwide communism couldn’t destroy capitalism, why are we so quick to believe that some bad fiscal and government policies in real estate will do it?

Unfortunately, some copy editor entitled the otherwise reasonable article, “The Capitalist Manifesto: Greed Is Good (To a point).” This is one of the worst myths about capitalism. It was immortalized by the character Gordon Gekko in the 1987 movie “Wall Street,” directed by Oliver Stone. Michael Douglas played ruthless corporate raider Gordon Gekko, a charismatic villain who insists that “greed is good.” Gekko was Stone’s scathing embodiment of capitalism, seductive and selfish to the core. And now, thanks to the financial crisis, Stone is working on a sequel.

More unfortunately, this “greed myth” (as I have called it) is often perpetuated, as it was on the cover of Newsweek, by the putative defenders of capitalism. From Ivan Boesky to the bestselling tomes of Ayn Rand, champions of capitalism have told us for decades that greed is good since it’s the great engine of capitalist progress. Even Walter Williams and John Stossel, two of my favorite free marketers, have used this argument in recent years.

Must we choose between capitalism and Christianity, or, more generally, between markets and morality? I think not.

The rhetorical problem with this approach isn’t hard to spot. Most Americans are at least nominally religious, with moral sensibilities shaped by the Judeo-Christian tradition. The Bible and the Christian tradition both roundly condemn greed, and “progressive” religious leaders such as Tony Campolo and Jim Wallis have used this to drive a wedge between otherwise conservative Americans and the free market. Campolo, for instance, has condemned capitalism as based on the “greed principle.” But are these critics right? Must we choose between capitalism and Christianity, or, more generally, between markets and morality? I think not.

The Virtue of Selfishness?

You might think that greed has been bound up with defenses of modern capitalism from the very beginning. You might recall Adam Smith, the father of modern capitalism, who famously wrote, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” Ayn Rand and others seemed to extend Smith’s point by treating greed as the basis of a free economy. There are connections here of course; but Smith never argued that greed is good. His view was far different, and far more subtle.

Adam Smith argued that in a rightly ordered market economy, you’re usually better off appealing to someone’s self-love than to their kindness.

First, Smith argued that in a rightly-ordered market economy, you’re usually better off appealing to someone’s self-love than to their kindness. The butcher is more likely to give you meat if it’s a win-win trade—if there’s something in it for him—than if you’re just asking for a handout. This is, or should be, common sense.

Second, Smith knew the difference between self-interest and mere selfishness. Every time you wash your hands or take your vitamins or clock into work on time or look both ways before you cross the street, you’re pursuing your self-interest—but none of these acts is selfish. Indeed, generally speaking, you ought to do these things. Greed, in contrast, is a sort of disordered self-interest. Adam Smith, the moral philosopher, always condemned it as a vice.

Third, Smith never argued that the more selfish we are, the better a market works. His point, rather, is that in a free market, each of us can pursue ends within our narrow sphere of competence and concern—our “self-interest”—and yet an order will emerge that vastly exceeds anyone’s deliberations.

That’s the problem with socialism and all sorts of nanny-state regulatory prescriptions: They don’t fit the human condition.

Finally, and most importantly, Smith argued that capitalism channels greed. He recognized that human beings are not as virtuous as we ought to be. While many of us may live modestly virtuous lives under the right conditions, it is the rare individual who ever achieves heroic virtue. Given that reality, we should want a social order that channels proper self-interest as well as selfishness into socially desirable outcomes. Any system this side of heaven that can’t channel human selfishness is doomed to failure. That’s the genius of the market economy.

And that’s the problem with socialism and all sorts of nanny-state regulatory prescriptions: They don’t fit the human condition. They concentrate enormous power in the hands of a few political leaders and expect them to remain uncorrupted by the power. Then through aggressive wealth redistribution and hyper-regulation, they discourage the productive pursuit of self-interest, through hard work and enterprise. Instead, they encourage people to pursue their self-interest in unproductive ways such as hoarding, lobbying, or getting the government to steal for them.

Adam Smith knew the difference between self-interest and mere selfishness.

In contrast, capitalism is fit for real, fallen human beings. “In spite of their natural selfishness and rapacity,” Smith wrote, business people “are led by an invisible hand ... and thus without intending it, without knowing it, advance the interest of the society.” Notice he says “in spite of.” His point isn’t that the butcher should be selfish, or even that the butcher’s selfishness particularly helps. Rather, he argues that even if the butcher is selfish, he can’t make you buy his meat. He has to offer you meat at a price you’ll willingly buy. He has to look for ways to set up a win-win exchange. Surely that’s good.

So a free market can channel the greed of a butcher. But that’s not the only thing it can channel. It can just as easily channel a butcher’s noble desire for excellence of craft, or his desire to serve his customers well because he likes his neighbors, or his desire to build a successful business that will allow his brilliant daughter to attend better schools and fully develop her gifts. Capitalism doesn’t need greed. What capitalism does need is human creativity and initiative.

In searching for the “spirit of capitalism,” Max Weber argued almost a century ago, “Unbridled avarice is not in the least the equivalent of capitalism, still less its ‘spirit.’” The greed myth, he thought, was “naïve” and “ought to be given up once and for all in the nursery school of cultural history.”

Weber was right; and yet we still encounter it from critics of capitalism such as Michael Moore, and its champions like Ayn Rand. Let us finally be done with this caricature. We need cogent defenses of capitalism that are accurate and that appeal to the moral moorings of most Americans. “Greed is good” isn’t one of them.

Jay Richards is the author of Money, Greed, and God: Why Capitalism is the Solution and not the Problem (2009) and a contributing editor of THE AMERICAN.

FURTHER READING: Richards regularly writes for THE AMERICAN’S blog.

Image by Darren Wamboldt/Bergman Group.

[familyop]

Capitalism is the best economic framework when founded on moral conservatism. If a capitalist nation rejects the ideals of moral conservatism, that nation will become a fascist state and dive toward destruction.

[stayathomemom]

In my Book, “thou shall not covet” is the 10th (Ex 20:17)... Is the Catholic Bible in a different order or something?

We Lutherans have two covet commandments. Nine is for house and inheritance, and Ten is for wife and anyone/thing that can be enticed away from someone else.

The first “humanist” said “you will be like God” (Gen 3:5).

It's interesting that you posted that verse as I looked up that text yesterday when someone posted an article on eugenics.

[Right Wing Assault]

There are greedy socialists, communists, muslims, atheists, Christians, men, women, too.

It is not the sole property of any group.

[WallStreetCapitalist]

There is tremendous wisdom in what you just said. The defining characteristic of capitalism is that you must be willing to risk wipeout or severe financial loss. This causes you to only invest in projects that have a higher than better average possibility of producing gains for you (and thus, the economy).

The problem with what happened on Wall Street is there was zero downside risk in the bonus calculations for traders. Warren Buffett has said he would have had the same upside bonus potential but would have required a contract that forced the trader into near or actual bankruptcy if they ruined the firm. He said that an enforceable contract such as that alone would have solved the entire problem without the need for any additional legislation because they are on the hook with you, the shareholders, and the tax payers. Rational self interest would kick-in not only on the trader's own positions, but he would be watching the positions of his coworkers, too.

[parsifal]

Tier one: Support social security and medicare. Support wage and hour laws, child labor laws, safety regs, minimum wage laws, unemployment benefits, and workers’ comp. Basic regulations like FDA, FTC.

Tier two,for those who want to walk on the wilder side. Slowly increase minwages to livable wages. Reinstate Glass Stegall. Raise tax rates on wealthy. Regulate derivatives and Wall Street in general.

Tier three, which is where even I start to have fears, stronger tariffs to support American jobs. Increased power for unions. Revise corporate laws to prevent executives from running big companies for their own benefit.

Where I get po’ed at the Libertarian influence is they don’t even want tier one. Tier two, is pretty much a slam dunk IMHO, but I could see discussion there. Tier three would be a big jump that would really have to be done carefully.

FWIW, I also think those who receive welfare should have to work some, period. I also think education spending needs to be cut and education revamped to comport with reality.

parsy, who laid it out.

[mnehring]

What you’ve described here is the basic platform of the “Third Way” Democrat- the Bill Clinton type who used this platform as a marketing position to appeal to moderates. It is one that moderate Republicans also take when they feel they must be compassionate. I’ll respond in more detail later on each of these. It may be an interesting discussion.

M, who thanks Parsi for being honest.

[TopQuark]

A well-constructed argument but put forth, unfortunately, against a straw man.

The problem lies with the meaning people give to the word "greed." In the context of Adam Smith, it is understood merely as self-interest. Many people use, however, as a synonym of selfishness. So, greed is good is false or true depending on the meaning of the word.

This is one of the reasons professionals use the word "wealthy" rather than "rich, for instance. When using "greed," one should be clear about the meaning he gives. That, and not what is good or bad, is the content of the article.

[TopQuark]

"Greed is the gathering and keeping of wealth without even the thought of helping out others."

Not at all if one uses the word "greed" as intended by the theorists of the social contract. "Greed is the gathering and keeping of wealth." You should've ended the sentence there to make the statement correct. It leaves open what you do with that wealth after it has been gathered. One may be charitable or not, but that decision is made after greed (self-interest) led the person to his wealth.

[Reeses]

Greed is fine and normal. Envy is the dangerous vice

Greed is really a subtype of envy. A person acting greedily is really trying to catch up to someone else's score out of envy, and they're willing to cheat. Like envy, most of the greedy are leftists. Most of what is called greed by leftists is really them projecting their envy onto others. True greed is fairly rare, while envy is epidemic right now. Both are contagious. Envy is evil, but it is also the spark behind human evolution. It leads to tribal warfare resulting in unnaturally fast and thorough evolution.

[Chunga]

parsy, who says yes you can be a conservative while progressive on economic issues

parsifal...your persona here has run the gamut from misguided to disingenuous to mendacious in the span of about a month.

Go back and rejoin the charlatans in your progressive, populist Democrat party. Your economic philosophy is perfectly in line with Barney Frank, Chris Dodd and Chuck Schumer.

Your twaddle won't fly with anyone who understands the most remedial tenets of conservatism. In other words, your canards won't fly here.

You're insulting the intelligence of the board with your double-minded attempt at redefining political labels. It's a breathlessly stupid tactic.

[meyer]

Greed Is Not Good, and It’s Not Capitalism

So who's greedy - the capitalist who invents, innovates, creates, organizes, and produces; or the freeloading democrat that lives off the taxes stolen from the capitalist?

[wombtotomb]

I wish I understood the ins and outs of wall street. It does fascinate me. I do, however, understand capitalism. It is so easy, an idiot could. I guess they are less than idiots who promote socialism..........

[parsifal]

Well, you and yours had your way for years and look where we are. You didn’t like gov’t and wanted to de-regulate, so you did, and look where we are. FWIW, I was about eight years ahead of the curve on this one. Look up my piece back on March 15, 2001 when I changed parties and read why. I was on to the irresponsible loans and at least one of the stupid changes in the law. Amazing how Karl Denniger is starting to post some of the same ideas and stuff I did about usurious rates and lousy lenders.

parsy, who at least is doing something breathlessly well

[Chunga]

So now you engage in full-scale historical revisionism:

It was the Clinton administration that issued the tracking regulations that encouraged ACORN and NACA to file petition after petition with bank regulators to hinder the banks from doing business the way they always had (i.e. making loans to credit-worthy parties) and extorting money from them under the threat of legal reprisals, then turning around and making the money available to people with bad credit, low income and in many cases, without any down payment at all..."subprime" mortgages...the Department of Housing and Urban Development insisted that Freddie and Fannie purchase these loan...then mandated that they buy 45% of all loans from people who were the biggest risks.

It was Dodd and Schumer and Frank...Democrats...members of your party...who refused to heed the warnings about these ticking time bomb loans...who refused to force Fannie and Freddie to comply with practices consistent with traditional oversight...and the guys cooking the books at these institutions...almost all of them Democrats...rewarded themselves with bonuses in the millions of dollars.

President Bush sounded this alarm repeatedly...and now it's President Obama...a memeber of your party...who is trying to spend his way out of this mess.

You want to know how to deal with a dpression or a recession? Study up on Warren Harding and the depression of 1920...he fixed it by leaving the market alone. It corrected itself.

Conservatives know who's to blame for this recession, and they know how to fix it. Cut taxes and cut spending...the antithesis of your philosophy. You're a sham!

[John O]

Man is born greedy.

True. We are born greedy but stupid.

Greed is a sin that, in order to live together in peace, must be bred out of man.

Impossible to breed it out. Greed is part of our inate nature (And for the survival of the species, must be so). The problem arises when self interest becomes shortsighted.

permissiveness. The schools have hung on his every word, thus we now have the “me” society. Greed and selfishness, both innate sins, have grown unarrested to bring us to where we are today.

The problem is not permissiveness (although that is a problem unto itself) the problem is the culture of instant gratification. People before were just as greedy, just as selfish, just as self-interested, but they practiced delayed gratification to work for, and receive, what they wanted in due time.

The only proven rules to raise a child is based on the truths contained in the Holy Bbible.

True. And why do we do the things the bible tell sus to do? Because it's in our own best interest to do so. IF we follow Christ, and seek to do His will, and love Him with all our heart, our lives will be the best they can be here on this earth (regradless of our circumstances) and we will spend eternity with Him in heaven. The bible is the handbook for living a truly successful life.

So, as I said originally, greed is good if you are intelligent about it. What most folk call "greed" I call stupidity as the practitioners of it gain in the short term but lose it all in the long term. I am greedy for the long term.

Because the schools and legislators have prohibited the Holy Bible in schools and in Congress, God is permitting evil to prevail in our land.

True.

[John O]

Tier one: Support social security and medicare.

There is not Constitutional authority for either of these programs.

We're kind of stuck with SS now as some people who are depending on it are too old to change to another plan. It should be privatized (Is it Brazil who privatized their system and people are seeing much, much better results? Someone down there has done it)

Medicare is one of the cost drivers pushing health care costs up. Just about everyone I know who is on medicare is an abuser of the system. They go to the doctor for entertainment as it costs them nothing.

Taking care of the widows and orphans is the Church's job, not the government's.

Support wage and hour laws,

Direct violation of the first ammendment. (Freedom to peaceably assemble). What Constitutional right does the government have to interfere in private contracts (which do not affect any one but the parties involved)? None.

child labor laws, safety regs,

Agreed.

minimum wage laws,

See wage and hour laws.

unemployment benefits, and workers’ comp.

See social security

Basic regulations like FDA, FTC.

Agree with some, disagree with others. If the regulation is in place to insure fair trade (most FDA regs etc) then it's cool. If the reg is in place to affect behavior (most ATF regs for example) then disagree.

Tier two,for those who want to walk on the wilder side. Slowly increase minwages to livable wages.

There is no such thing as a minimum wage livable wage. As minimum wage increases so does the cost of everything else. Minimum wage jobs are not WORTHY of being paid "livable" wages as they do not produce enough to be worth that much.

You may as well arbitrarily set the minimum wage at $100/hr. The economy will adjust in a very short time and these people will find themselves in EXACTLY the same state they are in now (compared to those who are producing).

Reinstate Glass Stegall.

Far better would be to stop forcing banks to lend money to those who cannot repay it.

Raise tax rates on wealthy.

Why? Why remove working capital from people who are creating jobs with it? The only fair tax is one that taxes everyone the same. Why should people who made something of themselves be punished for it? And why should we destroy our economy even further by raising taxes at all?

Tier three, which is where even I start to have fears, stronger tariffs to support American jobs.

Smoot Hawley!! Worked so well the first time that it really should be tried again. A worldwide depression would reset the whole economy. Good thinking!

NOT

Increased power for unions.

Why should groups of employees be allowed to blackmail and steal from their employer? Again this violates 1st ammendment. The assembling of an employer and his employees is no one's business but theirs. (As long as they both honor any contract they both agree to at signing)

Revise corporate laws to prevent executives from running big companies for their own benefit.

This is impossible to do. Everyone does everything they do for their own benefit.

Where I get po’ed at the Libertarian influence is they don’t even want tier one.

I'm not a libertarian and I don't want tier one. The government has no authority to do most of that.

FWIW, I also think those who receive welfare should have to work some, period.

This I agree with. If they are physically able to work they should be working 40 hours a week for whatever they get. Even if it's just shovelling snow or sweeping streets. If we are going to pay them we should get something back from them.

[melsec]

As you may already understand I couldn’t give a flying whatever about the theorists of the Social Contract :)

Cheers

Mel

[tnlibertarian]

Ask 100 High School graduates if they even know who Adam Smith was.

High school graduates? Shoot, the three Jeopardy contestants last night didn't even know who he was.

[TopQuark]

"As you may already understand"

Sure I do. When throwing pearls during an Internet chat, one does not know whether there is a swine on the other end.

"I couldn’t give a flying whatever"

It's your loss. People like you neither grow up nor learn anything. And their rudeness leaves them lonely.

Have a good day.

[melsec]

I hardly think that you gave out any pearls of wisdom. Maybe you should look up the meaning of greed. The swine that I am I decided to do it for you - as you can see the original meaning goes a back a long way. Turns out Swinishness is a synonym for greed!

Websters
Date: 1609
: a selfish and excessive desire for more of something (as money) than is needed

Roget’s Thesaurus
Main Entry: greed
Part of Speech: noun
Definition: overwhelming desire for more
Synonyms: acquisitiveness, avarice, avidity, covetousness, craving, cupidity, eagerness, edacity, esurience, excess, gluttony, gormandizing, graspingness, hunger, indulgence, insatiableness, intemperance, longing, piggishness, rapacity, ravenousness, selfishness, swinishness, the gimmies, voracity
Antonyms: benevolence, generosity

As for not learning anything or being lonely well that is rather a silly statement!