Gordon Gekko on Greed
Is it really good?
Oliver Stone has made of sequel of sorts to his 1987 movie Wall Street. In the original the central character, Gordon Gekko, famously says, “Greed … is good.” He seems to have meant that wealth-creation and innovation are founded on “greed,” something that, understood in a certain way, many readers of The Freeman might agree with. But it’s important to realize that he was only partly right.
First, greed or, better, self interest, certainly does in a sense drive material progress and so on, but only if and to the extent that social institutions, the “rules of the game,” are truly consistent with the free market – that is, private property, free exchange, and the rule of law.
But not everything that looks like a free market is a free market. If the economic system departs from the rules of the free market, self-interest tends not to promote the general welfare at all. For instance, private property is violated every time special interests use government to seek a bailout or protection against competition.
Nevertheless, there is a certain “free-market” attitude, which I am told can even be found on Wall Street itself, that whatever self-interest produces must indeed be good. Those with this attitude don’t take the trouble to sort out the basic requirements of the free market from the various regulations, protections, and transfers that are at odds with it. You know, the sort of “free marketer” that Steven Colbert satirizes on his television show. To such persons, the collapse of the financial market and the recession are evidence of failure of the “free market” and unbridled capitalism.
Two Kinds of Free Marketers
I think this attitude can be traced to two different mindsets that you could call free-market-friendly. One of these sees self-interest itself as a virtue, and unfettered self-interest in particular as the highest good. But what does “unfettered” mean?
While the subject is far too involved for me to delve deeply into here, I will say that I think it depends on whether the fetters reside within the agent, in the form of norms and conventions she has internalized, or outside the agent, in the formal rules and regulations that are enforced by external authorities.
Those who tend to use the phrase “unfettered self-interest” or “unbridled capitalism” seem to have in mind a situation in which there is no locus of restraint whatever, either within the agent or outside the agent. Of course, the complete absence of restraint in this sense would result in the Hobbesian “war of everyone against everyone,” precisely the picture of modern finance that Oliver Stone paints in his movies.
In this rather naïve view the agent is free to pursue her self-interest wherever she finds it, even when it means acting opportunistically and dishonestly – so long as she observes or appears to observe the external rules and regulations. Thus the hotshot Wall Street operator takes advantage of any opportunity she chances on, even if it violates the norms of honesty and conventions of fair play, since these don’t really exist in her internal moral world. They believe that “greed is good” even when the rules of the game violate the rule of law, for example, by spreading the cost of risky investments among taxpayers (e.g., Fannie Mae) and concentrating the benefits on a few big players (e.g., Goldman Sachs).
(See Horwitz and Boettke’s “The House that Uncle Sam Built” for an excellent explanation of just how government policy did this leading up to the recent housing/financial crisis.)
Growing-Up
Now, a more mature view doesn’t claim that everything that shakes out of even an ideal free market, whatever that may mean to you, is good and without (even significant) imperfections. It recognizes that in such a world aggression and fraud would still take place (though probably a lot less than in one dominated by standing national armies) and that nonaggressive behavior ranging from the annoying to the offensive to the deeply disturbing (no need for me to detail what these are for me or might be for you) would still be plentiful.
But the mature view recognizes that honesty, fair play, and trust are all important elements of the free market. Without these, private property, free exchange, and the rule of law may still be observed under the watchful eye of external authorities, but they would not flourish, and neither would material prosperity and wealth-creation take place on the scale and consistency that we’ve seen since the rebirth of the liberal idea in modern times.
Moreover, this view recognizes that when profits and losses, the good and the bad, redound to those responsible for making the decisions that produce them, market participants tend to grow more responsible and make better decisions. That is what the free market does: It makes us more responsible by making us more responsible. As a result, just those kinds of internal restraints against opportunism that grease the wheels of the market process emerge over time: the norms of trust and the conventions of reciprocity and fair play. This doesn’t mean, of course that “greed is good.”
Rather, the attitude is something like, to paraphrase Winston Churchill on democracy, “the free market is the worst possible system – except for all the others.”
***
The sequel just opened and I haven’t seen it yet. Let’s see how much the filmmaker has grown up in the past 23 years.
Comment by Tyler Watts on 28 September 2010:
Prof. Ikeda,
Quite thoughtful comments. I’m glad you bring up Gekko because I like to use that line, and in fact that entire scene, from the original Wall Street. I indicate my agreement with Gekko’s “Greed is good” mantra, but with an asterisk: “as long as that greed is constrained by good institutions, such that the best way to actuate that greed is to enter the market as an entrepreneur in search of profits.”
I present Gekko as my model entrepreneur: he sees a profit opportunity in the grossly mis-managed Teldar Paper Company. He has a track record of success (profits) in turning companies around, hence “the market” rewards him with continued funding. When he reorganizes the company, presumably by firing the lackadaisacal, bureaucratic management and bringing in some eager new blood who are willing to pare down the firm’s costs across the board, he has the chance of turning the company around from losses to profits. He will then of course want to gain market share to further grow the company and raise the share price. I suggest that the natural means he will seek to do this is by “sharing” the newfound profits with the company’s customers by cutting product prices. Thus Gekko wins, the stockholders win, the customers win; the only losers are the inefficient old management and employees– but isn’t this exactly what we would want to happen if market efficiency is our goal? It’s a great picture of the social benefits of the ruthless pursuit of profits in the unbridled capitalist economy.
I highly recommend the Teldar Paper speech from the original Wall Street. It’s the only economically worthy part of the movie:
http://espanol.video.yahoo.com/watch/4253343/11434313
Comment by Tom Blanton on 28 September 2010:
I have a hard time understanding why those who claim to be proponents of a free market choose to describe greed as a good thing.
Most war mongers don’t proclaim that wrath is good. Great chef’s don’t go around telling people that gluttony is good.
The word “greed” carries an awful lot of baggage. There are implications that aren’t flattering. Much like the Christmas time screeds about what a wonderful guy Scrooge is, the “greed is good” slogan is probably not the best way to convince people that free markets are desirable.
Above, Tyler Watts writes that greed must be constrained by good institutions. It seems to me that smart entrepreneurs, knowing that greed can be self-destructive, will restrain themselves and seek a reasonable profit based on providing a good service or product at a price people are willing to pay. Entrepreneurs that overcharge, cut corners, engage in misleading or fraudulent business practices, and/or seek political favoritism often end up out of business – because of greed.
Tyler Watts may like to do business with the greedy people that he finds so admirable. Personally, I’d rather do business with people that I believe are honest and reliable, who are good at what they do and enjoy what they do. But that’s just me – a guy who wants free markets with as few “good institutions” as possible.
Comment by Angelo Noel on 28 September 2010:
This is a greatest problem here in Brazil.
First, the compannies which have a really close relationship with the governament (you can read: lobby), get advantage on licitations and other ways to make deals for built “public goods” and then, when the media find out the irregulations with the contribuitors money, every socialist college student, philosophers and sometimes the president, blame the entire capitalist system, and in the better cases the “self-interest”.
But the problem is that they don’t realize anything about the real free-market and about this parasites (both governament and this “entrepreneurs”).
Comment by David Johnson on 28 September 2010:
“Self interest” is the appropriate word to use for the motivation that drives the market.
Greed is to self interest as lust is to love. It is an unhealthy fixation.
Comment by Ralph Blanchette on 28 September 2010:
“In this rather naïve view the agent is free to pursue her self-interest wherever she finds it, even when it means acting opportunistically and dishonestly – so long as she observes or appears to observe the external rules and regulations.”
That’s the best Mr. Ikeda can do to attack “self-interest”? Acting “opportunistically” is bad? But he doesn’t bother to give us a definition or example of bad opportunism, probably because it would reveal who is the naïve one. As for “dishonesty”, I suppose he is talking about fraud, which is against the rules of a free society and the only question is proving it, right? Or is dishonesty wider than fraud? Does he think an honest ‘Mom & Pop’ grocer would and should inform his customer that the supermarket up the road sells the same items for less? Is it improperly opportunistic to buy a rare book at a garage sale for 50 cents and then sell it for $500? If he doesn’t care or dare to get into moral specifics, his moral opinions are worthless.
If you are looking for profound studies of the connections among self-interest, morality, and capitalism read Ayn Rand’s _Atlas Shrugged_ and _Capitalism, the Unknown Ideal_.
Comment by MovieFX on 28 September 2010:
Is it not ‘value’ is good? To commodity something – even a human – is to announce it’s value. If a person strikes, or even dies, for an institution is she/he not a commodity of that institution?
Wall Street has a fascinating sub-plot in retrospect. The film begins with a board sweep of the skyline, ending in the Twin Towers. Bud Fox, at the start of the film, is selling repackaged debt. Gecko, in the first scene, is engaging in short selling. The turning point of the film is when Fox adopts insider trading practices – the very practices which lead to the clamp down which began the repackaged/sub-prime debt innovations which so destabilised the stock/leverage equation of the US housing market. In the scene in which Fox accept the role as Gecko’s inside info finder, Gecko refers to his driver as ‘Mohamed’. The deliberate doubling in the film is used to blur the morality of the message – Fox’s father and Gecko both have heart attacks, and the difference between the paper company and the airline is that one is mismanaged, the other is miss-valued due to fear of the union. This subtext is a retrospective subtext, so it is the areas of the film which cannot be read retrospectively (because they still have relevance and resonance) which hit home. The final scene Bud still appears doomed to go to jail, yet the final walk up the court steps causes the camera to pan back to the financial district, in which the towers dwarf even the law courts, and we are forced to realise that despite spending the whole film with these characters that we are distanced from them and their motives by there own justifications for their actions – the art of war, the work ethic, materialism and post-modernist morality. The true cause of their situation – ‘getting emotional about stock’ – is what causes all of the conflicts in the film and, in many respects (mistaking market forces for good or bad morality, protectionist practices and inflexible prices transferring into inflexible working arrangements – all combined with sticky prices and manufactured unequal markets) drives the plot.
Comment by Phil Lewis on 28 September 2010:
Wall Street is mired in a stage of development that I describe as thriving and encouraging an environment of over-regulation. So called capitalists are often anti-capitalists … encourage non-competitive combination and regulation to restrict entry into business. Obama and his cohorts “wonder” why employment is static, business formation is non-existent and investors are unwilling to invest. Perhaps the real culprit is regulation, taxation and political entities making formation of new businesses a daunting process. This wasn’t always the case … the USA was built and prospered in a far different environment … and it continues to deteriorate.
Gordon Gekko … greed and all that … a minor issue. The greedy, corrupt leeches on Wall St. wonder why the individual investor has bailed. Gordon Gekko may know. Small investors, independent investors have discovered the truth of corrupt manipulation, near criminal derivatives and dubious accounting. It all adds up to “greed” that Gekko would relish.
Comment by Don on 28 September 2010:
I have no desire to see Wall Street or Gordon Gekko. As a businessman, he is NO role model for me. For hundreds of years Greed has been identified as a “deadly sin” because, as has been said, it consumes and destroys everyone who practices it. A true capitalist is not an exploiter but a contributor. Once again Hollywood is trying to make capitalism look very stupid and in need of guidance from Big Brother Uncle Sugar.
Comment by Albert D. McCallum on 29 September 2010:
Lets get real about greed. Everyone is greedy and selfish. We all seek to maximize our satisfaction. No one deliberately sacrifices satisfaction for the benefit of another. Many may find satisfaction in bringing satisfaction to others. Still, each individual greedily and selfishly seeks to maximize his own satisfaction. To condemn greed it to condemn everyone for a condition which they didn’t choose and can’t reject.
The problem comes when individuals resort to aggression in pursuit of their selfishness. Character counts. Unless most people reject aggression as an acceptable means of pursuing their self interest, we can not stop aggression, and it will destroy us. Unless most recognize that the practice of aggression leads into the swamps of destruction for all, including the aggressor, they likely will not reject it. In such case we are doomed. Greed isn’t the problem aggression is. Aggressively plundering others is the real problem. In true free markets there can be no plunder. Free traders can satisfy their greed only by providing value to other traders.
Comment by Ben Douglas on 29 September 2010:
Greed, love, envy, altruism, etc. are EMOTIONAL MOTIVATORS, not action as such. Therefore, none of them are inherently moral or immoral, for these terms are reserved to action alone. One may perform good or evil actions under any one of these motivations. Motivations, thus, are poor indicators of the moral content of an action. Rather, we must exam action in and of itself for moral content. We may tag murder, theft, rape, fraud, etc. with moral superlatives, namely, BAD, precisely because they are actions. Similarly, we may tag all market exchanges (neglecting for a moment considerations of externalities) as GOOD, because they benefit all parties to the exchange in the ex ante sense.
Comment by foundersfan on 29 September 2010:
I think that Gordon used the wrong word to describe his ideology.
Greed, if you use the biblical definition, means acquiring profits through fraud or dishonesty. I use the biblical definition gleaned from Strongs Exhaustive Concordance because I believe the Bible has the most MORAL authority.
I believe before we can talk about processes and institutions that we should first define “greed”. It does not mean just self interests, it means dishonest self interest. Desire so much for one self that one will greedily (fraudulently) pursue profits.
He could have used the words “drive” “zeal” or “passion” in place of greed and done just as well without invoking fraud.
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