By Eli Cox, Chair, Department of Marketing
Ordinary Americans have a deepening mistrust of free-market capitalism as our nation has gone from Enron, WorldCom, Adelphia and Tyco to Bear Sterns, Freddie Mac, Fannie May and Lehman Brothers. Sadly, this mistrust is justified because too many corporate executives have adopted the creed of greed. This creed is based on the false view that Adam Smith believed that that personal greed generates the public virtue of economic growth. In fact, Smith would have been revolted by this misrepresentation of his views, as he actually wrote the following:
“Justice [the human virtue of not harming others]…is the main pillar that supports the whole building. If justice is removed, the great fabric of human society which seems to have been under the darling care of Nature must in a moment crumble into atoms….Men, though naturally sympathetic, feel so little for others with whom they have no particular connection in comparison to what they feel for themselves. The misery of one who is merely their fellow creature is of so little importance to them in comparison to even a small convenience of their own. They have it so much in their power to hurt him and may have so many temptations to do so that if the principle of justice did not stand up within them in his defense and overawe them into a respect for his innocence, they would like wild beasts be ready to fly upon him at all times. Under such circumstances a man would enter an assembly of others as he enters a den of lions.”
Smith is most famous for The Wealth of Nations (1776) but he discussed the ethical foundations for a free-market system in his first book, Theory of Moral Sentiments (1759). The quote found above is drawn from The Wealth of Nation states that unbridled greed destroys a free market system.
The pernicious view that “economic man” is selfish and rational and that Smith’s invisible hand will clean up the mess has been perpetuated by the Chicago School of Economics. Milton Friedman (Nobel Price 1976) argued that corporate managers should be economic men who should maximize profits without engaging in socialist activities like caring for workers or the environment. What he failed to recognize us that corporate managers may and often do try to maximize their own wealth at the expense of stockholders as well as customer.
Economist Gary S. Becker (Nobel Prize 1992) in his analysis of the legal system stated that his approach:
“…follows the economists’ usual analysis of choice and assumes that a person commits an offense if the expected utility to him exceeds the utility he could get by using his time and other resources in other activities. Some persons become ‘criminals,’ therefore, not because their basic motivation differs from that of other persons, but because their benefits and costs differ.”
If Friedman and Becker are right and the typical business person is an “economic man” who is selfish, rational, and amoral, then free-markets have no chance. The U.S. tried free markets in the nineteenth century and unbridled greed ruined it for the rest of the people. Ronald Reagan provided a second chance and the unbridled greed ruined it for us again. Will we ever get another chance?
4 responses so far
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1 Tom Humes // Sep 30, 2008 at 2:22 pm
Nice Site layout for your blog. I am looking forward to reading more from you.
Tom Humes
2 Gavin Kennedy // Oct 1, 2008 at 2:05 am
Congratulations Professor Cox for your accurate assessment of the low quality of much of current comment on Adam Smith and the misrepresentation of his works emanating from Chicago since the 1950s.
I have posted a supportive comment on my Blog.
3 Cicero // Oct 29, 2008 at 7:38 pm
Enron, Freddie Mac, and Fannie May (sic) are not examples of the free market or capitalism. Today’s financial calamity, like the Great Depression, the raging inflation and brutal recession of the 70’s, and the dot.com and housing bubbles of late are a direct result of the bipartisan, unconstitutional actions of Congress, primarily the ceding control of our money supply to a group of private bankers called the Federal Reserve. These criminal are not “federal” and they have no “reserves”.
Fannie and Freddie were created, granted with huge special privileges, and protected for decades by Congress (largely democrat though clearly bipartisan). This Bernanke speech from 2007 details the malinvestment caused by the powers Congress granted Fannie and Freddie and how they created the havoc in the market that led directly to our current fiscal nightmare: http://www.federalreserve.gov/newsevents/speech/Bernanke20070306a.htm
This NY Times article details the bipartisan corruption that allowed Fannie and Freddie to enjoy huge advantages over their truly private competitors:
http://www.nytimes.com/2008/07/13/business/13lend.html?partner=rssyahoo&emc=rss
The Federal Reserve itself, created through the collusion of Congress and private bankers, is even more evil. The NY Times article “The Nixon Recovery” of 2/4/04 admits the Fed is independent and that they print or don’t print money to sway elections, causing the runaway inflation and brutal recession of the 70’s. (link: http://query.nytimes.com/gst/fullpage.html?res=9F02E6DB1E3BF934A35751C0A9629C8B63 )
The NY Times, article, “The Education of Ben Bernanke” reiterates that the Fed manipulated that election for Nixon, creating the massive double digit inflation of the 70’s and fixing that mess by raising rates and creating the “brutal recession” that followed. We learn that idle builders (my father was a carpenter) “were so enraged that some sent him two-by-fours in the mail.” It admits the Fed is created the housing bubble by pumping easy money in an effort to stem the damage of the dot.com bubble (that they fueled with easy money). It notes the Fed “…has vast powers over the economy” with its “…control over the supply of money” and that “only the…Fed can create new money.” It notes the Fed ignored warnings (of people like Ron Paul) and “the speculative lending continued.” (link: http://www.nytimes.com/2008/01/20/magazine/20Ben-Bernanke-t.html?_r=1&th&emc=th&oref=slogin )
Bernanke admits Fed caused depression in the conclusion of this 2002 Speech here on Fed Website: http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm
Bernanke admits creating money from nothing in a speech on 11/21/02 on the Fed’s website: http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/ (4th paragraph under heading “Curing Deflation”).
Greenspan knows the evils he has unleashed. Read his early, seminal work from 1966 titled “Gold & Economic Freedom” here : http://www.321gold.com/fed/greenspan/1966.html
These are the tip of the iceberg in stories from the NY Times and speeches from the Federal Reserve that I have researched. Capitalism is decidedly not the problem – the cesspool of unconstitutional greed and corruption and collusion with rich corporations, lobbyists, and special interest groups like Trial Lawyers, is. I call it a corporatocracy. The solution is not a massive takeover of our economy by the fedgov and their cohorts in the Federal Reserve, as is underway. It is a return to the Constitution. Do not throw your vote away on Caligula or Nero this election – vote third party. Write in Ron Paul’s name if you must, since he was the only candidate whit a multi-decade record of striking at the root of the evil. He was fighting the Federal Reserve long before the earliest YouTube video I could find of him debating a governor about monetary policy.
The media is complicit in this crime. Enron mis-stated earning by about a half billion dollars. Lotsof people suffered. The media was, understandably, outraged. A LexisNexis search of the first 9 months after the story broke revealed 3,000 media hits. Fannie Mae was created by the fedgov, granted huge special privileges, and protected for decades (mainly by the democrats, according to the NY Times – see above). Regulators found $11 billion in accounting errors in this government sponsored entity that had promoted housing for poor people that they could not afford (though plenty of greed played its part). A similar LexisNexis search done with the term Fannie Mae for those same media outlets, from the day the story broke in the following nine months showed 37 media hits for Fannie Mae. Twenty-two times the fraud; about a tenth of the media coverage, (source: http://www.glennbeck.com/content/articles/article/198/14949/ )
Comments, feedback, constructive criticism welcomed.
Repectfully,
Cicero
Kearsey@Comcast.net
4 Jim Johnson // Feb 23, 2009 at 10:56 pm
Can we not learn from our past and be a better community, country , and society for it ?
Let me first identify my biases:
1.) I am an American -
2.) I also happen to be an African American born in the late 40’s which makes me a
“Baby boomer” - who was I high school at the time of Bobby, Martin and John
[Bobby Kennedy / Martin Luther King Jr. / John F. Kennedy]
3.) I am, as is my wife, a college graduate of a very fine PAC 10 school.
4.) I am married, happily - with two children, both children are college educated
5.) Both are also college graduates - Morehouse College & Northwestern University
6.) I do not believe that any one party has had all the right answers for our country over
Its history - so I will not disclose my party affiliation - Not for lack of pride - I just
think it basis’s the reader/listener to much when ones political affiliation causes one
To not be open minded about “an arguments strength and weakness” on what
Might best serve the American citizenry.
7.) I have some other interesting demographic features - however, enough already -
I would like to simply say:
I believe that for much of our American History - the USA middle class has been the great secret weapon of America’s version of Capitalism….
Capitalism without any Rules or Regulations:
I think the problems that we now see, and have surfaced in the USA and in the world are no different than if we had two “Super Bowl” teams arrive at the super bowl (any Super Bowl) and the head official simply said:
Team A and Team B - please meet here on the field of play and there will be no penalties called…. (1.) No off sides, (2.) no pass interference, (3.) no illegal use of hands, (4.) no unnecessary roughness, (5.) no illegal procedures, (6.) no pass interference, (7.) no delay of game, …. As a matter of fact - let’s just throw out the rules and regulations and just the two of you “just have at it”…. and may the best team win….
That is what unbridled capitalism would produce… and the rest of society would not advance… actually, it is more likely that absent any protocol, rules, or procedural requirements it would simply be the standard barbaric behavior that is all to common among human nature.
God Bless America …
And may God Bless and protect our President
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