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Creed Of Greed Not Supported By Adam Smith

By Eli Cox, Chair, Department of Marketing

Ordinary Americans have a deepening mistrust of free-market capitalism. 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 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 freemarket

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 Smithʼs 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 is 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 economistsʼ 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 ʻcriminals,ʼ 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?


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