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.

[melsec]

Oh yes “I couldn’t give a flying whatever” was rude and I apologise I was trying to be a little bit funny (hence the little smile at the end of the sentence). I should have realised that my bent sense of humour wouldn’t translate - Mea Culpa.

Mel

[TopQuark]

Thank you for your reply, Melsec. See you on other threads.

[melsec]

Hey Mate- happy to admit when I have harmed someone else - especially when it wasn’t intentional. I admit to being a bit of a smartarse I just tend to believe that others get it and I am a bit stunned when they don’t - once again sorry!

Mel

[Pan_Yan]

I was going to reply to Parsy, whom I've enjoyed having discussions with in the past, but you answered everything in much the way I would have. Well stated.

You don't have a soul. You are a Soul. You have a body. - C.S. Lewis

[parsifal]

If it makes you feel good to blame democrats for the mess, go ahead. They certainly have their share of blame although I am surprised you left out two of the most guilty democrats, who FWIW are high up in Obama’s administration.

Anyway, here’s you a good starting list:

http://www.guardian.co.uk/business/2009/jan/26/road-ruin-recession-individuals-economy

Then, if you want a detailed explanation of how we got to where we are there is this link. It will take you quite a while and the links within the article are fascinating. However, if your read this, and still think the poor widdle
bankers was habbing their widdle arms twisted, then let me know and I will send you a few more links from Wall Street insiders.

Really, “revisionism” does not become any of us. It went out of style with the commies.

http://www.crashopedia.com/index.php/Main_Page

parsy, who hopes you will put forth the effort to get past the simplistic answers

[mikemoose]

“The thought of modern industry in the hands of Christian charity is a dream worth dreaming. The thought of industry in the hands of paganism is a nightmare beyond imagining. The choice between the two is upon us.” Theodore Roosevelt

[John O]

I was going to reply to Parsy, whom I've enjoyed having discussions with in the past, but you answered everything in much the way I would have. Well stated.

Which just goes to show that even a blind pig finds an acorn once in a while. :^)

(Thank you)

[parsifal]

Then with all due respect, the GOP needs to change its name to the Troglodyte Party. Your reply is a perfect example of libertarian poisoning of conservatism.

First, social security and medicare: The United States is a real live country/nation, just like Sweden or England or China. Real live (and dead) western countries have always taken care of the poor. Eskimo tribes take care of their elderly. Indian tribes fed their elderly and sick. Real live human beings, apparently from the archaelogical record, including Neanderthals and further back to the “monkey people” took care of the members of their group. Now, here comes the GOP, in the latter part of the second millenia past Christ, and think that this is a bad thing. If that ain’t Ayn Rand’s dead nutjob hand reaching out of the grave, then I don’t know what is.

A society has choices in how it does this. Charging what amounts to a 16% tax on current labor to provide for post labor survival is not that bad an idea. Prior the the War of Northern Aggression, slaveholders in some states were prohibited from freeing their slaves when they reached old age. This is because even slaveholders recognized the injustice of working some poor SOB his whole life and then throwing him or her to wolves when they were no longer productive. You, and everybody who believes like you, should be utterly ashamed of yourselves for your lack of humanity.

You should also be ashamed of yourselves as alleged conservatives. Conservatism is at heart, COMMON SENSE. It is doing the things that help make your nation safe and strong and stable. Having people fall off the food chart and housing chart at a certain age don’t do none of that. Common sense is preparing for the inevitable. It is why we have an Air Force, for example. We know some SOB somewhere is going to start some sh*t with us and we want to encourage them to have second thoughts about getting creamed after they do it. It is the same with old age. We know it is inevitable no matter how much green tea we drink or how many vitamins we take. So, using our common sense, we prepare for it. We create a system whereby when a person reaches a certain age,, their income dryeth not up. We look at it as a cost of doing business. We lay something up for the future. Now the fact that gov’t has done spent it is pretty lousy, but the laying up is not wrong or unconstitutional.

Wage and hour-minwage laws: OMG! What a stretch. First Amendment? The Constitution provides for regulation of interstate commerce. what if one state was civilized, and conservative, and had a high standard of living and the neighboring state was a wahoo “libertarian” state that permitted one dollar an hour wages and no worker’s comp, etc. Lets just call the civilized state, Arkansas, for example, and the wahoo idiot state,let’s call Texas, for example. Products from Texas would undercut the price of products made in Arkansas in much the same way that Chicom products undercut American jobs. This would not be good, so Congress would have the right to set wage floors to prevent this from happening. That way the states could compete on a fairly even basis. Not unconstitutional.

Minwages: No, the cost of labor is not 100% of a product. If minwages workers get a dollar an hour more, their cost of living does not go up $1.00 per hour. Think about it. Have you ever turned down a raise because your cost of living would go up that much???? No. You would be committed to a mental institution if you said something like that, assuming your spouse did not kill you first. Imagine coming home and saying to wifey poo-”Darling, the boss offered me a $100 per week raise today but I turned him down. Ayn Rand and Von Mises tell me that increases in wages will be offset by an increase in prices so I thought it better to refuse that raise, and the bonus he wanted to give me.” This is where “libertarian theory” meets “How fast can you run from an angry woman with a skillet?”

Use your brains. Now as to the $100 per hour wage, there is a very simple answer to that. I will let you have some time to see if you can think of the answer. I hear this all the time, and it is pretty much an absurdist argument once one really thinks about it. If the answer don’t come to you, I will tell you.

Now this I find very disturbing: “Minimum wage jobs are not WORTHY of being paid “livable” wages as they do not produce enough to be worth that much.” BASED ON WHAT? You mean some poor schmuck ought to work 40 hours a week and not be able to survive? This is not “conservative” This is aristocratic thought. Peasants should just be content to stay peasants. Sorry, but regardless of our skills, we all have 168 hours in our week. If you work, you should be able to feed yourself, house yourself, and clothe yourself.

You have gone horribly astray in your thinking. Do you notice how the GOP candidates, who probably believe just as you do, do not come right out and say this during election campaigns? They have to hide it and not come right out say it. Do you know why? It is because it is an extremist, crazy view and most Americans would throw feces and rotten vegetables at said candidate, particularly when said candidate got to the part where abortion is wrong because every human life is special. Listeners would gag.

This is why I say libertarianism has poisoned the GOP and conservatism.

“Far better would be to stop forcing banks to lend money to those who cannot repay it.” -—Revisionist history. Poor widdle bankers were not forced to make loans which caused the meltdown. A comforting fairy tale for libertarians and misguided conservatives. Rather than face the “reality” of thieving bankers, you guys can pretend it was the poor folks and gov’t that caused all this. What a smug little fairy tale land you guys live in. Should you be interested in sliding down the magic beanpole to Planet Earth, you might try these two links for starts. One is very long but very worthwhile including the links within the article. If you are not afraid of learning new things and thinking new thoughts, it is fascinating:

http://www.guardian.co.uk/business/2009/jan/26/road-ruin-recession-individuals-economy

http://www.crashopedia.com/index.php/Main_Page

Finally:

“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.”

The answer is, real life don’t work that way. When you are job hunting, you are over a barrel most of the time. The field is not even. Unions in America seem to go overboard and shoot themselves in the foot, but collective bargaining seems to work in Europe. Germany I read is the biggest exporter in world and their standard of living is high. Somehow, unions and management are getting the job done there. I wish I knew more about it.

The practical reason for many of these suggestions is to have a strong stable nation where everybody has a stake in the system. When you have huge inequality of wealth, your nation suffers and splinters into class struggles. There has already been a “redistribution” of wealth in this country from the poor and middle classes to the rich. We have not become stronger or more stable as a result of this. Quite the opposite.

Higher wages are a way to redistribute wealth away from corporate profits and the rich to wage earners. This means demand is paid for with cash not increases in credit which is what has happened over the last three decades. This is not communistic or socialistic, it is simply realistic. Read Karl Denniger over at Market Ticker, or Marc Faber. Start reading articles at Naked Capitalism, These people are not commies. But they realize what happens when a nation gets off balance.

FWIW, I think we are already over the edge and the debts will have to be monetized, and there will be hyperinflation and we will each get a monthly stipend for basics from gov’t and work if we want to for extras, which most of us will do. I will be in my late 50’s then, or early 60’s. I plan on becoming a wandering poet and balladeer with young 20-something girlfriends along the way.

parsy, the conservative thinker

[parsifal]

You might like this Teddy Roosevelt recording onto “Edison cylinders”

http://www.nps.gov/archive/edis/edisonia/documentary.htm

parsy, who likes TR

[mikemoose]

Great recording...it is wonderful to hear Mr. Roosevelt in his own voice.

[Pan_Yan]

Conservatism is at heart, COMMON SENSE.

I fully agree with that commment. And commom sense tells me that it is the very nature of governments and bureaucracies to grow their own power. Every government program, no matter how well intentioned, gives the government more oportunity to grow. Power is a finite resource and for the government to have more individuals must have less.

Labor is also a finite resource. Economics 101, which I passed, tells us that raising the price of any resource lowers it's demand. This is called 'the invisible hand of the market'. If you lower the cost of a resource, demand will increase. At certain times some states do not have anyone making minimum wage because jobs are plentiful and workers few. In times like these higher minimum wages mean employers cut jobs or hire less people.

And we have given control of this process to the government! Is the government rushing to lower the minimum wage while unemployment is high? Never. It is a populist tool to win votes. The founders, who were much wiser than I am, not only put severe limits on the government's interference in business, finance and our personnal lives, but many of them argued quite forcefully that the new government still had too much power. The anti-federalist papers are just as important to our history as the federalist papers.

The things you have brought up from social security to banking regulation are the rights of the states. The states that abuse their powers will find their businesses leave and population empoverished. The states that manage regulation and taxation well will find that businesses move in and their populations thrive. The massive amount of power that the federal government has stolen from the state governments since the passing of the 17th ammendment has skewed this to the point that only in extreme cases like Michigan and California can states suffer the consequences of their own foolishness.

That government is best which governs least. - Thomas Paine. Not a revisionist.

The government is a power hungry monster that must constantly be kept in fear of the population. The only way this can happen is if it is kept small enough to be drowned in a bathtub.

[Pan_Yan]

Note to self: Use spell check. You aren’t that smart.

[parsifal]

I agree that gov’t can get too big, and frankly it is already. But,there are still legitimate functions gov’t needs to perform. Minwages are extremely non-intrusive. Same with Glass-Steagall. With so many jobless, the worst time to lower wages.

parsy, who is in birther land for a while

[Pan_Yan]

The employment contract should not be a suicide pact. Economics 101 also tells you that a company has fixed costs and variable costs. The only variable cost that can be changed immediately is labor. If a companies fixed costs are greater than their income then it should shut down. The minimum wage makes labor costs less variable. This means that a company only has a few choices if it is losing money. Lay people off or shut their doors completely. I think I would prefer a pay cut to going on public charity.

[parsifal]

But if wages go up across the board, then prices can too. Better than the poor and middle class using 29.99% credit cards and being on gov’t assistance.

parsy, the deep thinker

[Pan_Yan]

But if wages go up across the board, then prices can too. Better than the poor and middle class using 29.99% credit cards and being on gov’t assistance.

parsy, the deep thinker

I appreciate your deep thinking. You have made my point very succinctly. By raising the minimum wage you force more people out of employment and on to government assistance and 29.99% credit cards. And they can buy even less because prices are higher.

Higher prices mean people can consume less. If people consume less goods then less goods are produced. Even better, higher prices for American made products coupled with our ridiculous trade policies help channel more money overseas where wages are lower. That way we help raise the standard of living of other countries at our expense. A fabulous example of this was during the last economic boom China was outsourcing jobs to Southeast Asian countries.

[Pan_Yan]

I'm not a big fan of posting links and saying

"There. Read that!"

It feels like intellectual laziness. However, Peter Schiff wrote a very good piece about the minimum wage and he explains it much better than I can. Of course, I haven't made the millions of dollars that he did correctly predicting the tech bubble and the housing bubble bursts.

Minimum Wage, Maximum Stupidity

Please do me the courtesy of reading this, as I read many of the links you posted regarding tort reform.

You don't have a soul. You are a Soul. You have a body. - C.S. Lewis

[safeasthebanks]

Go away, farcy, you limp wristed lefty dweeb. You’re not a conservative and never have been. Freaking liar.

[altair]

They're missing the point.

Is it greedy to spend your last money on taxes or to feed your family?

Is it greedy to feed your neighbor's child when they don't have money while your own family goes hungry?

Both of those were examples of Randian greed. Another example was paying your employees the best wages to selfishly keep them in your employ rather than share them with someone else.

True (bad) greed is like the builder of the Taj Mahal - he cut off the hands of the builders after they were finished so that they would never build again.

[Gene Eric]

>> Greed Is Not Good, and It’s Not Capitalism

Neither is Capitalism greed.

Capitalism is the most liberal form of commerce. To say it’s not, is ‘hate speech’.