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...

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 na├»ve 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)....

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.

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