In Praise of Competitive Markets

When the necessary conditions are met the market is a powerful and efficient mechanism for allocating

resources. What we now have is not a market economy. It is increasingly a command economy centrally

planned and managed by the world's largest corporations to maximize financial returns to top managers and

the wealthiest shareholders at the expense of the rest of society. If the corporate libertarians were to bear

serious allegiance to market principles and human rights, they would be calling for policies aimed at

achieving the conditions in which markets function in a democratic fashion in the public interest. They would

be calling for measures to end subsidies and preferential treatment for large corporations, to break up

corporate monopolies, encourage the distribution of property ownership, internalize social and environmental

costs, root capital in place, secure the rights of workers to the just fruits of their labor, and limit opportunities

to obtain extravagant individual incomes far greater than their productive contribution.

Corporate libertarianism is not about creating the market conditions that will result in optimizing the public

interest. It is not about the public interest at all. It is about defending and institutionalizing the right of the

economically powerful to best serve their immediate interests without public accountability for the

consequences. It places power in institutions that are blind to issues of equity and environmental balance.

2. Greed Isnʼt Good: The Lost Lessons of Adam Smith

by Steve Brooks on December 10, 2010

In his 1776 classic The Wealth of Nations, the father of free-market economics explained how the marketʼs

“invisible hand” transformed private self-interest into public wealth. In the 1987 film Wall Street and its recent

sequel, Gordon Gekko (Gordon Gekko is a fictional character and the main antagonist of the 1987 film Wall

Street and the antihero of the 2010 film Wall Street) summed it up in three words: “Greed is good.”

Both Gekko and many economists got Adam Smith wrong, says Eli Cox, marketing professor at the

McCombs School of Business. In a manuscript called Creed of Greed, Cox resurrects a forgotten Smith, a

more complex thinker than the free-market cheerleader who gets taught today. Cox contends that Smithʼs

original conception of self-interest has been distorted by modern economists. He singles out the Chicago

School of Economics, and its credo that the only social responsibility of a business is to increase its profits.

“Adam Smith would be appalled by the greediness of people in general,” says Cox. “Smith recognized that

unbridled greed can destroy a society, and that even groups of murderers and thieves living together require

rules of conduct in order to survive.”

How did Smith get so misunderstood? By reading him out of context, says Cox. Economists cherish

passages like this one from The Wealth of Nations: “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.”

But that bookʼs 1,080 pages represent less than a third of Smithʼs writings, points out Cox. The other twothirds

throw a different light on what Smith meant by self-interest.

As chair of moral philosophy at the University of Glasgow, Smith considered his most important book to be

The Theory of Moral Sentiments, published in 1759 and revised up through his death in 1790. In it, he first

used the phrase “invisible hand,” describing not economic markets but a deityʼs ordering of the moral

universe.

In that moral universe, says Cox, Smith expected individuals to set limits on their own self-interest through

prudence, justice, and benevolence. The goal of self-love was to provide lifeʼs necessities, not its luxuries,

and not to take advantage of other citizens. “Society,” wrote Smith, “cannot exist among those who are at all

times ready to hurt and injure one another.”

In contrast, Smith wrote harshly of greed: “What is the end of avarice and ambition.... Wealth and

greatness are mere trinkets of frivolous value no more able to procure ease of body or tranquility of mind

than the tweezers cases of the lover of toys.”

To Adam Smith, concludes Cox, greed was not part of self-interest. He envisioned free markets in which

merchants practiced both prudence and fair play. He compared unethical behavior to rust in a machine. If it

wasnʼt paired with self-restraint, self-interest could end up breaking the machine.

If Smith could view todayʼs markets, guesses Cox, “Heʼd be delighted to see the prosperity enjoyed by the

world and the extent of free trade.” As a thrifty Scot, though, heʼd be dismayed by the rise of fly-by-night

investments and credit-card debt. Above all, he would bemoan the decline of business ethics and the rise of

greed.

“The best system is a deregulated free-market system, assuming that a critical mass of individuals are

trustworthy and play by the rules,” says Cox. “If not, government should and usually does step in. If people

will not regulate themselves, government is better than anarchy.

“When one person screws up, a little bit of the freedom of the markets goes away. When people are

unethical, theyʼre hurting the system of free enterprise.”