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.

[RC2]

But greed is human. Get use to it and learn how to handle it.

[gwilhelm56]

ONE MAN’s GREED ... Is another man’s ENLIGHTENED SELF INTEREST!!!

I guess to COMBAT GREED ...we must SPREAD THE WEALTH AROUND??

[equalitybeforethelaw]

Greed is fine and normal. Envy is the dangerous vice - it destroys both those that practice it and those that are targeted. Good news for Dems - envy is the most powerful of all vices when marketed wholesale.

[Las Vegas Ron]

Milton Friedman - Greed

[org.whodat]

True, so is murder and rape.

[Above My Pay Grade]

Greed is certainly not good. However, it is a reality. As fallen, sinful creatures, most people will try to get as much of what they want, with the least amount of effort.

In a perfect world, everyone would work hard to be productive as possible, even if it gained them nothing and would look out for their neighbors. However, we live in a far from perfect world.

Captialism acknowledges this and harnesses the power of greed (or in a milder form, “self-interest”)to increase productivity, innovation and prosperity. It is imperfect, but is the worst economic system, except for all the others.

The main function of the government should be to do what it can to ensure fair and free markets by preventing thieves and cheaters from corrupting and destroying markets.

[gwilhelm56]

Looks like nothing but TROLL BAIT!!

[org.whodat]

Envy is the dangerous vice - it destroys both those that practice it and those that are targeted. And those that use it as a club to beat down opposition sort of like saying so and so is a racists.

[org.whodat]

Bingo!!

[Jan_Sobieski]

This article needs to be shouted from every Grade School, High School, Community College, and Higher Institution in America! Remember, it was Judas Iscariot who was about the redistribution of wealth to feed the poor (as long as he got his cut). Jesus said, “the poor you will always have with you...” (John 12:8). Ask 100 High School graduates if they even know who Adam Smith was. If one person knows, you are lucky. Great Article!

[WallStreetCapitalist]

Amen. Greed is nothing more than attempting to get something “better” for you and your family; whether it’s clothing, food, shelter, or status.

The reason capitalism works so well is because it allows service to the economy to be rewarded with “claim checks” (dollars) that can be spent on anything that matters *to you*. That’s an important distinction.

For instance, I couldn’t give a crap about attending the World Series. In fact, I have the means and access to afford tickets and have never gone. But if Renee Fleming were performing a charity dinner at Carnegie Hall, I’d drop $1,000 for a ticket without thinking about it.

Every day when I wake up and create jobs, invest in growing my businesses, and reinvest profits into the American economy, I do it because of the things *I* want. A lot of people would think going after four-figure tickets to an opera singer would be nuts compared to the World Series but that’s why capitalism is great. I perform things they need in their lives in exchange for money that I can convert into things I want.

Greed is good. Greed is right. Greed is natural. The problem most people have is with the connotation of the word “greed”. They always associate it with needlessly taking so far above and beyond excess that it does damage. Most humans have an internal check that lets them know when they’ve gone too far or have no more utility - that’s why you see a lot of doctors or lawyers making $400,000 stop investing and start giving to charity, buying second vacation houses to spend time with their family, or collecting art.

[MrB]

What’s great about God’s Rules, inherent in human creation,

is that even the “greedy” working withing those Rules (the free market is natural extension of His Laws) are contributing to the common good,

even if they aren’t following His commands to give to the needy.

When the humans decide that they can BE gods, and make decisions for others,
THAT’S when the real trouble and genocide starts.

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

[gwilhelm56]

JUdas’ plan didn’t work out so well, now did it??

[MrB]

“greed”, when referring to enlightened self interest/betterment, IS good.

The LOVE of money, however, leads to sin and evil. You cannot serve two masters.

[Paperdoll]

i THINK AMERICA’S CAPITOLISM WAS BASED ON THE SAME PRINCIPLES AMERICAN SCHOOLS WERE FIRST BASED UPON, THE PRINCIPLES OF THE HOLY BIBLE. GREED IS NOT GOOD. HOWEVER, THE WORLD IS AN EVIL PLACE, AND PEOPLE CAN BE TOO EASILY INFLUENCED WHEN DENIED KNOWLEDGE OF GOD’S LAWS.

NEVER BEFORE HAVE WE WITNESSED THE RAMPANT EVIL ABROAD IN ANERICA, NOR IN THE WORLD TODAY. WE ARE WHERE WE ARE BY SATAN’S DESIGN, MAKE NO MISTAKE ABOUT IT. THE ONLY WAY BACK TO A SMOOTHLY FAIR METHOD OF EXCHANGE IS TO BRING THE BIBLE BACK INTO OUR SCHOOLS AND DOMES OF LEGISLATION. THERE IS NO OTHER WAY.

[Le Chien Rouge]

Coveting others peoples wealth in the name of victimization or exploitation is also non virtuous.

[wombtotomb]

Agreed. But this is the part most forget. Capitalism is greed tempered by fear. If you make one or the other non existent, capitalism ceases to exist.....

[RC2]

As is said...”Everything in moderation”.....What is wrong with greed if no one gets hurt in the process? Is not changing jobs for higher pay considered greed? In other countries, greed is bad. Especially if it is a socialist country. Having more than your neighbor, to them, is wrong. The old USSR was this way and it failed.

[John O]

Everything man does he does out of greed (self interest) of some sort.

Everything he does he does becuase it will reward him somehow here or in eternity.

True greed is best for all people, because when someone is seeking to maximize his return he will be helping all those around him to maximize their return. Poor people don’t buy as much as rich people. So how do you make more money? Help your customers to prosper so they can buy more from you.

Works spiritually, financially etc. The golden rule is called golden for more than one reason.

[mnehring]

Greed is an over-rated fault(sic). At that, the opposite of greed, altruism, is a myth. Everything we do is based on some sort of self-interest. Generally, greed is defined by the one who wants to you sacrifice of yourself for them. To paraphrase a great philosopher, ‘whoever tells you that you must serve them out of selflessness is speaking of servants and masters, and they intend to be the master.’

[griswold3]

Gecko said, “Greed, or lack of a better word, is good.”
I think he should have used ambition or another ‘better word’. But it wouldn’t have had the negative impact on captialism the movie had intended.
I have found few good definitions of ‘greed’.
Capitalism or free enterprise compells individuals to engage on their own free will.
The goal should be exchanging value to value. Each value determined by the individuals or creation of value to exchange to enhance one’s standard of living.
The ‘invisible hand’ as Obama puts it is now the ‘government hand’. Central planning fails everytime it’s tried in the US. I guess he’ll have to find out the hard way.

[meadsjn]

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

Excellent article. Those who insist that capitalism is all about lying, cheating, and stealing as much as possible, are more likely to be following David Ricardo's twisted interpretations of Adam Smith.

[21twelve]

“Capitalism is greed tempered by fear. If you make one or the other non existent, capitalism ceases to exist.....”

It would seem that some fear is instilled into businesses by the government. OSHA laws, EPA Rules, the IRS, etc. The “fear factor” goes down quite a bit I imagine when the business is run by the government. Post Offices and GM today, Health Care tomorrow.

Of course the fear of NOT making a profit is huge, and that too goes away when the government runs the business. (Profit? Heck, that’s what taxes are for!)

[mnehring]

You may want to re-read the article. It isn’t what the title may lead you to think.

[Tublecane]

“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.”

For the record, the line is, “Greed, for lack of a better word, is good.” The middle part is important. Everything Gecko says from there on is perfectly fine. He’s obviously talking about rational self-interest, amibition, and so forth. And there’s nothing wrong, by the way, with hostile-takovers of terminology. Free marketeers, for instance, gleefully embrace the word “capitalism,” which was popularized by Marx, and in the beginning wasn’t a good thing.

“Greed,” of course, has been around longer than “capitalism,” and people are less likely to accept redifinition. Stone plays with a stacked deck, of course. He gives free marketeers what they want to hear, except the word they’d prefer to use to describe it. So he gets away with throwing them a bone, all the while ensuring the remainder of the audience will come to his conclusion (i.e. that capitalism is bad).

[kidd]

Freepers should skip the article and read your post instead:

Captialism acknowledges this and harnesses the power of greed (or in a milder form, “self-interest”)to increase productivity, innovation and prosperity. It is imperfect, but is the worst economic system, except for all the others.

The main function of the government should be to do what it can to ensure fair and free markets by preventing thieves and cheaters from corrupting and destroying markets.

[melsec]

I do not believe greed is good. I do, however see nothing wrong with being wealthy. Job, Solomon, Abraham were all extremely wealthy. The Bible gives us some rules re sharing our wealth with others but this is meant to be the choice of a generous heart not the mandating by a greedy government.

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

Jesus makes it plain that those who are wealthy and wish to hold on to all they have are going to have a hard time getting into heaven.

Mel

[mnehring]

I do not believe greed is good

Maybe a better way to put it is that greed is an is. It is something that exists. It is like a hammer. In itself, it is neither good nor bad. It is how one uses it that is good or bad.

[stayathomemom]

The main function of the government should be to do what it can to ensure fair and free markets by preventing thieves and cheaters from corrupting and destroying markets.

Your post made my reach for my Catechism and check out Luther's explanation to the Ninth Commandment. (as we Lutherans number them):

The Ninth Commandment
You shall not covet your neighbor's house.

What does this mean?

We should fear and love God so that we do not scheme to get our neighbor's inheritance or house, or get it in a way which only appears right, but help and be of service to him in keeping it.

By the way, good post!

[parsifal]

Thank you for this post. I have been trying to get the conservatives here weaned away from the foul libertarians for years under the fear that conservatism would go down the drain with the idiotic Wall Street mess and the wealthy worshippers.

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

[Seruzawa]

What could better than a movie maker, sitting at the top of the capitalist food chain, making movies critical of capitalism? Are these guys for real? Do they really believe their rhetoric or are they entirely cynical? Too rich.

[GeronL]

I guess it depends on your definition of "greed".

Plus anyone who cheers up from NEWSWEAK cannot be trusted.

[AreaMan]

He’s obviously talking about rational self-interest, amibition, and so forth.

Hmm, who defines what is "rational?" and also what kind of ambition?

I think even "rational" self-interest and ambition untempered by any self-control or morality is negative. The Objectivism of Ayn Rand and the libertarians is decidedly amoral.

[AreaMan]

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

WTF? If by progressive you mean the corporatist, statist, left wing crap being peddled by the current administration...then no, you can't.

[mnehring]

What do you mean by “progressive on economic issues” Parsy?

[MrB]

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

Anyway, it’s about not being envious of others’ possessions. It’s telling you to respect private property.

And it’s for your own good, as you cannot have a peaceful life by constantly desiring what belongs to others.

[Dead Corpse]

Progressive? The word you are looking for is “Socialist”.

[Paperdoll]

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

Dr. Benjamin Spock bears a monolithic amount of blame for his championship of 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 only proven rules to raise a child is based on the truths contained in the Holy Bbible. Because the schools and legislators have prohibited the Holy Bible in schools and in Congress, God is permitting evil to prevail in our land.

[reagan_fanatic]

Greed is relative. The guy sitting next to you at work worked an extra 10 hours this week so his paycheck is bigger than yours. Some would think that's greed. Your neighbor sells his fishing boat for $6,000, $2,000 more than he paid for it. Some would think that's greed. The convenience store down the block sells a gallon of milk for $1.25 more than you could buy it for at the grocery store. Some would think that's greed.

It happens. Good or bad, it's just a part of who we are.

[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.