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| A caption read, "Dedicated to the states where child labor is still permitted." (Library of Congress) |
Among MBA students, few words provoke
greater consternation than “greed.” Wonder aloud in a classroom whether
some practice might fairly be described as greedy, and students don’t know whether to stick up for the Invisible Hand or seek absolution. Most, by turns, do a little of both.
Such reactions shouldn’t be surprising. Greed has always been the
hobgoblin of capitalism, the mischief it makes a canker on the faith of
capitalists. These students' troubled consciences are not the result of
doubts about the efficacy of free markets, but of the centuries of moral
reform that was required to make those markets as free as they are.
We sometimes forget that the pursuit
of commercial self-interest was largely reviled until just a few
centuries ago. “A man who is a merchant can seldom if ever please God,”
St. Jerome said, expressing the prevailing belief in Christendom about
the relative worthiness of a life devoted to trade. The choice to enter
business didn’t necessarily deprive one of salvation, but it certainly
hazarded his soul. “If thou wilt needs damn thyself, do it a more
delicate way then drowning,” Iago tells a lovesick Rodrigo. “Make all
the money thou canst.”
The problem of money-making was not only that it favored earthly
delights over divine obligations. It also enflamed the tendency to
prefer our own needs over those of the people around us and, more
worrisome still, to recklessly trade their best interests for our own
base satisfaction. St. Thomas Aquinas, who ranked greed among the seven
deadly sins, warned that trade which aimed at no other purpose than
expanding one’s wealth was “justly reprehensible” for “it serves the
desire for profit which knows no limit.”
It was not until the mischievous
moralist Bernard Mandeville that someone attempted to gloss greed as
anything other than a shameful motive. A name now largely lost to
history, Mandeville became a foil for 18th-century philosophy when, in
1705, he first proposed his infamous equation: Private vices yield
public benefits. It came as part of The Fable of the Bees,
an allegorical poem that described a thriving beehive where dark
intentions keep the wheels of commerce turning. The outrage Mandeville
stoked had less to do with this causal explanation than with the
assertion that only by such means could a nation grow wealthy and strong. As he contended (with characteristic bluntness) in the conclusion to the Fable:
T’ enjoy the World’s Conveniences,
Be fam’d in War, yet live in Ease,
Without great Vices, is a vain
EUTOPIA seated in the Brain.
Philosophers lined up to take their shots at Mandeville, whose moral
paradox seemed so appalling precisely because it could not be so easily
dismissed. The most notable among them was Adam Smith, the founding
father of modern economics, who struggled to distinguish the mainspring
of his system from the one Mandeville proposed.
Consider how Smith describes the selfish landowner, of whom he says
the “proverb, that the eye is larger than the belly, never was more
fully verified.” Looking out over his fields, in his imagination, he
“consumes himself the whole harvest.” The belly, however, is not so
obliging. The greedy landlord may engorge himself without making a dent
in his crop, and he is “obliged to distribute” the rest in payment to
all those who help supply his “economy of greatness.”
This is Smith’s Invisible Hand at work. It is counterintuitive force
for good that, on first glance, seems not especially different from
Mandeville’s contention that private vices yield public benefits. Smith
was sensitive to this fact—Bernard Mandeville did not exactly make for
good company—and he struggled to create distance between them.
He did this in two ways. First, Smith emphasized the moral distinction between primary aims and secondary effects.
The Fable of the Bees never explicitly claimed that vice was good
in itself,
merely that it was advantageous—a subtle distinction that created
confusion for Mandeville’s readers which the author, a cynic through and
through, made little effort to dispel.
Smith, by contrast, made abundantly clear that, as a matter of moral
assessment, one should distinguish between the intentions of an actor
and the broader effects of his actions. Recall the greedy landlord. Yes,
the primary aims of his daily labors—vanity, sway, self-indulgence—are
far from admirable. But in spite of this fact, his efforts still have
the effect of distributing widely “the necessaries of life” such that,
“without intending it, without knowing it,” he, and others like him,
“advance the interest of society.” This is another way of saying, for
Smith, the moral logic of free markets was a law of unintended
consequences. The Invisible Hand gives what a greedy landlord takes.
The second move Smith made was to effectively redefine “Greed.”
Mandeville—and for that matter, the Church Fathers before him—spoke in
such a way that any self-interested pursuit seemed morally suspect.
Smith, for his part, refused to go along. He acknowledged that pursuing
our interests often entails getting what we want from other people, but
he maintained that not all of these pursuits, morally speaking, were
equal. We get what we want in a complex commercial society—indeed, we
get to have
a complex commercial society—not because we seize things outright, but
because we pursue them in a way that acknowledges legal and cultural
constraints. That is how we distinguish the merchant from the mugger.
Both pursue their own interests, but only one does so in a manner that
confers legitimacy on the gains.
Greed, as such, became an acquisitive exercise that fell on the wrong
side of this divide. Some of these activities, like the mugger’s, were
fairly prohibited, but those of, say, the mean-spirited merchant were
checked by censure and disgrace. These forces did not eradicate
selfishness, but by the moral distinction they maintained, they helped
establish a new ideal of the upstanding businessman.
That ideal was famously embodied by Smith’s friend, Benjamin Franklin. In his
Autobiography,
Franklin presented himself as the epitome of a new American Dream, a
man who emerged from “Poverty & Obscurity” to attain “a State of
Affluence & some Degree of Reputation in the World.” Franklin found
nothing to be ashamed of in riches and repute, provided they were turned
toward some broader purpose. His success allowed him to retire from the
printing business at 42 so that he might spend the balance of his life
on initiatives—civic, scientific, philanthropic—that all enhanced the
common good.
The example of Franklin, and those like him, gave reason for optimism
to those who understood the mixed blessing of free -markets. “Whenever
we get a glimpse of the economic man, he is not selfish,” the great
English economist Alfred Marshall wrote toward the end of the 19th
century. “On the contrary, he is generally hard at work saving capital
chiefly for the benefit of others.” By “others,” Marshall principally
meant the members of one’s family, but he was also making a larger point
about how our “self-interest” can expand and evolve when we have
achieved financial security. The “love of money,” he declared,
encompasses “an infinite variety of motives,” which “include many of the
highest, the most refined, and the most unselfish elements of our
nature.”
Then again, they also include lesser elements. Andrew Carnegie might
have proclaimed that it was the responsibility of a rich man to act as
“agent and trustee for his poorer brethren,” but the steel magnate’s
beneficence was backstopped by cheap labor, dangerous working
conditions, and swift action to break strikes. Besides, the active
redistribution of wealth was something of a side-story (and a subversive
one at that) to the moral logic of free markets. The Invisible Hand
worked not by appealing to the altruism of exceptionally rich men, but
by turning an antisocial instinct like greed into an unwitting civil
servant.
Still, by the early 20th century, some believed his services might
safely be dismissed. Reflecting on the extraordinary rate of development
in Europe and the United States, John Maynard Keynes suggested that
“the economic problem” (which he classed as the “struggle for
subsistence”) might actually be “solved” by 2030. Then, Keynes said, we
might “dare” to assess the “love of money” at its “true value,” which,
for those who couldn’t wait, he described as “a somewhat disgusting
morbidity, one of those semi-criminal, semi-pathological propensities
which one hands over with a shudder to the specialists in mental
disease.”
In other words, at last, we
could afford to shift our attention from the advantages of greed and to
disadvantages of greedy people.
Keynes’s views were extreme, but only in expression. Substantively,
everyone agreed with him that greed was still a vice and a rather
vicious one at that. A. Lawrence Lowell, the President of Harvard
University, called “a motive above personal profit” among businessmen a
prerequisite for establishing Harvard Business School, while its first
dean, Edwin Francis Gay, told a prospective faculty hire that the
pedagogy of his institution did not include “teaching young men to be
‘moneymakers.’”
As a lingering distaste for the profit-motive combined with continued
economic development, the assumption began to wane that self-interested
pursuits were the organizing force of a modern economy. Keynes pointed
to this when he extolled the “tendency of big enterprise to socialize
itself,” a phenomenon by which enlightened middle-managers—guided by
science, reason, and administrative esprit du corps—would at last
supplant the animism of the Invisible Hand.
If
“the corporate system is to survive,” Adolf Berle and Gardiner Means
wrote in the conclusion to their seminal study of the modern American
corporation, “the ‘control’ of the great corporation should develop into
a purely neutral technocracy, balancing a variety of claims by various
groups in the community and assigning to each a portion of the income
stream on the basis of public policy rather than private cupidity.”
Berle and Means wrote these lines in 1932. In hindsight, they don’t
seem exactly prescient. As a matter of economic science, the revolt
against managerial capitalism, and the reevaluation of greed, took shape
after the Second World War, led by efforts of the Austrian economist
Joseph Schumpeter and, later on, the architects of Agency Theory.
Against Keynes, Schumpeter presented a new vision of capitalism as
“Creative Destruction.” The “relevant problem” for economists, he said,
was not how capitalism “administers existing structures” (the purview of
the middle-manager) but “how it creates and destroys them,” an anarchic
activity undertaken by Schumpeter’s hero, the entrepreneur.
As an icon for capitalism, the pugnacious individualism of the
entrepreneur was entirely at odds with the vision of Berle and Means.
According to Schumpeter, what drove an economy was headlong innovation,
not careful administration. This was the hallmark of entrepreneurial
activity, the courageous effort of an inspired mind, not the fruit of
corporate collaboration.
An appeal to “private cupidity” was not the only way of eliciting
such inspiration, but it was certainly the most obvious. It was also
favored by the enthusiasts of Agency Theory, who began filling the ranks
of business schools and economics departments in the ‘60s and ‘70s.
They eschewed the common cause of managerial capitalism as an
endorsement of soft socialism, an inducement to fuzzy thinking, and a
recipe for corporate decay. Instead, they portrayed the company as a
collection of self-serving individuals whose interests could be aligned
with those of shareholders only by appeals to Keynes’s semi-pathological
propensity: the love of money. Thus, the rise of stock options,
performance pay, and other compensatory strategies that aimed to spark
innovation in the executive suite. For the most part, the moral
arguments called upon to support these recommendations took a familiar
form. Greedy behavior could be tolerated, even encouraged, but only if
it eliminated worse offenses: starvation, exposure, idiocy.
But choosing a lesser evil at the expense of a greater one is merely
an exercise in good judgment. It does nothing to change the nature of
what is chosen, and when a nation no longer fears, first and foremost,
the pangs of abject misery, it may be said that greed has largely served
its social purpose. An affluent people might fairly turn their
attention to the ugly behavior greed encourages and to the social and
political perils of extreme inequality. They may have good reason, in
short, to restrain the Invisible Hand.
Accordingly, in recent decades, a new line of argument has opened in
the moral defense of greed, a change that was augured and embodied above
all others by Ayn Rand. Rand understood that, when someone defended
greed by an appeal to the common good, he was also conceding that greed
could be checked by it. As the moral foundation for free markets, such
an argument was entirely unacceptable to Rand, who took aim at it in her
1965 essay
What is Capitalism?
“Implicitly, uncritically, and by default, political economy accepted
as its axioms the fundamental tenets of collectivism,” she declared in a
sweeping indictment of the Invisible Hand tradition. “The
moral
justification of capitalism does not lie in the altruist claim that it
represents the best way to achieve ‘the common good.’” That may be so,
but it is “merely a secondary consequence.” Instead, capitalism is the
only economic system in which “the exceptional men” are not “held down
by the majority” and in which (as she said elsewhere) the “only good”
that humans can do to one another and “the only statement of their
proper relationship” are both acknowledged: “Hands off!”
A woman who titled a collection of essays
The Virtue of Selfishness,
Rand was given to brackish candor. Yet at a time when many people think
that the common good is more often imperiled than empowered by
unbridled greed, she provides an alternative defense of the acquisitive
instinct by appealing to an ethics of gross achievement and a
formulation of personal liberty that looks with suspicion and disdain on
any talk of civic duty, moral obligation, or even prudential restraint.
Her aim was simple: To relieve greed, once and for all, of any moral
taint.
“I think greed is healthy,” an apparent acolyte told the graduating
class at Berkeley’s business school in 1986. “You can be greedy and
still feel good about yourself.” The speaker was Ivan Boesky, who
shortly thereafter would be fined $100 million, and later go to prison,
for insider trading. His address was adapted by Oliver Stone as the
basis for Gordon Gekko’s “greed is good” speech in
Wall Street.
An exhortation to shareholders of a sagging company, it reads like a
corporate raider’s war cry, with Gekko the grinning avatar of Agency
Theory.
Such a blunt endorsement of greed today remains far beyond the
mainstream. If we tolerate greed, it is because we accept the hard
bargain of the Invisible Hand. We believe that greed can do good, not
that it
is good. That, we are unwilling to say.
But for the most part, I don’t think we don’t say very much about
greed, not comfortably at least. Perhaps that is the inevitable price of
an economic system that relies on the vigor of self-interested
pursuits, that it instills a kind of moral quietism in the face of
avarice, for whether out of a desire to appear non-judgmental or for
reasons of moral expediency, unless some action verges on the criminal,
we hesitate to call it greed, much less evidence of someone greedy. We
don’t deny the existence of such individuals, but like Bigfoot, they
tend to be more rumored than seen.
Moral revolutions come about in different ways. If we reject some
conduct but rarely admit an example, we enjoy the benefit of being
high-minded without the burden of moral restraint. We also embolden that
behavior, which proceeds with a presumptive blessing. As a matter of
public discourse and polite conversation, “Greed” is unlikely to be
“Good” anytime soon, but a vice need not become a virtue for the end
result to look the same.
From:
http://www.theatlantic.com
