Adam Smith and Gordon Gekko

In the movie Wall Street, Gordon Gekko (played by Michael Douglas) is a wealthy, unscrupulous corporate raider. Gekko is driven by greed, and he is not ashamed to admit this. In one scene, Gekko delivers a speech that has become famous:

Greed, for the lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.

This speech isn’t altogether unrealistic; some (many?) people think that Gordon Gekko was onto something. For example, during a commencement speech in 1986, stock trader Ivan Boesky said something similar: “Greed is all right, by the way. I want you to know that. I think greed is healthy. You can be greedy and still feel good about yourself.” This comment was greeted with laughter and applause — at the University of California, Berkeley, no less!

Adam Smith — the 18th-century Scottish philosopher who is widely viewed as the father of capitalism — is often cited to justify the “greed is good” philosophy. For example, here is an article in The Economist characterizing Adam Smith as a proponent of greed:

The case for greed was perhaps best made over 200 years ago by Adam Smith, who argued that the invisible hand of market forces would ensure that the efforts of individuals acting in pursuit of their own self-interest made society as a whole better off.

Similarly, this article in The Atlantic states that Adam Smith “is widely thought to have advocated unbridled greed and selfishness in the name of allowing the invisible hand of the market to work its magic.” And this article in The Washington Post characterizes Smith as claiming that “the ‘invisible hand’ of the market ... miraculously transforms individual greed into collective prosperity.”

Some argue that this is an inaccurate characterization of what Smith actually believed and wrote. Those who view Smith as eschewing greed often cite Smith’s book The Theory of Moral Sentiments (“TMS”) in support of their position.

I have started to read TMS several times, but I have never gotten very far. To be completely honest, it’s not the easiest book to read.

Fortunately, I came across Russ Roberts’s book, How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness, which describes the main ideas in TMS but in a much more accessible way. Roberts’s book also tries “to bring Smith’s ideas into the present and see how they might be useful” to a modern reader.

Based on Roberts’s description, TMS sounds like the ultimate self-help book. Roberts calls TMS a “road map to happiness, goodness, and self-knowledge.” According to Roberts, Smith

dispenses timeless advice about how to treat money, ambition, fame, and morality. He tells the reader how to find happiness, how to treat material success and failure. He also describes the path to virtue and goodness and why it’s a path worth pursuing. … Smith tells us how to live the good life in the fullest sense of that phrase.

There is much in Roberts’s book that suggests Smith would have been horrified to see his name invoked in defense of greed. Roberts says that Smith was “disdainful of material ambition for its own sake,” and he wrote about “the futility of pursuing money with the hope of finding happiness.”

What leads to happiness, according to Smith, is “being loved and being lovely.” By “loved” Smith isn’t just referring to romance. Instead, Smith

means that we want people to like us, respect us, and care about us. We want to be appreciated, desired, praised, and cherished. We want people to pay attention to us and take us seriously. We want them to want our presence, to enjoy our company.

By “lovely” Smith means worthy of being loved — decent, honorable, generous, kind. In other words:

To be content, you need to be … respected and respectable. You need to be praised and praiseworthy. You need to matter to other people, and you need for their image of you to be the real you — you need to earn their respect and honor and admiration honestly.

Roberts summarizes Smith’s advice as follows:

Smith is showing us a better path to contentment than the one the world holds out to seduce us with. There is another way to be loved. Instead of pursuing attention via wealth or fame or power, pursue wisdom and goodness.

All of this sounds like guidance that could have come from a leader of my church, and it certainly does not sound like an endorsement of greed. Yet Roberts also acknowledges that “no one did more than Adam Smith to make capitalism and self-interest respectable,” much of this based on what he subsequently wrote in An Inquiry into the Nature and Causes of the Wealth of Nations (“WoN”). Is that a contradiction?

Roberts doesn’t think so. He says that TMS is “about a different sphere of human interaction” than WoN. Whereas TMS “is overwhelmingly a book about the people closest to us,” WoN is “about how we behave in a world of impersonal exchange, which is inevitably a world of strangers.”

I think I understand what Roberts means, and I agree with him that “a modern person has to inhabit two worlds at the same time — a world … that is held together by love and a world that is held together by prices and monetary incentives.” But it seems to me that this could easily be interpreted to mean that the principles discussed in TMS are limited to the sphere of human interaction that involves family and friends. If that is the case, wouldn’t that suggest that people should be as greedy (or at least as self-interested) as possible in the world of impersonal exchange? And wouldn’t that suggest that Gordon Gekko was at least partially correct?

I don’t think that’s what Roberts is saying, but it does seem to me that there’s a bit of a paradox at play here. Roberts characterizes Smith as saying that “ambition — the desire to be rich or famous or both — is a poison to be avoided.” Yet Roberts also acknowledges that “great benefits for others can result” from ambition because it “induces us to strive, to innovate, to improve, to accumulate, to produce.”

I’ve recently been thinking about how paradoxes are sometimes complementary, and perhaps this is another example of that concept. Some ambition and self-interest is inevitable, and it can be beneficial for both individuals and society as a whole. But it seems to me — and I think both Smith and Roberts would agree — that it’s possible for people to become too self-interested, even in the world of commerce. This suggests that our self-interest and ambition, and whatever benefits they yield for society, should be held in fruitful tension with other virtues like selflessness, benevolence, and charity, even in the world of impersonal exchange.

Gordon Gekko wouldn’t see it that way. But after reading Roberts’s book, I suspect that Adam Smith would.