MYTH NO. 1
Greed, a natural human instinct, makes markets work.
Adam Smith, the father of economics, first pointed out in his most famous work, “The Wealth of Nations ,” that in vigorously pursuing our own selfish interests in a market system, we are led “as if by an invisible hand” to promote the prosperity of others. Years later, Smith’s theme that capitalism runs on selfishness would find its most famous articulation in a speech by a fictional corporate raider, Gordon Gekko, in the movie “Wall Street”: “Greed . . . is good, greed is right, greed works.” (Defenders of free markets have been desperate to disown the “greedy” label ever since.)
Smith, however, was never the prophet of greed that free-market cheerleaders have made him out to be. In other passages from “The Wealth of Nations,” and in his earlier work, “The Theory of Moral Sentiments,”
Smith makes clear that for capitalism to succeed, selfishness must be tempered by an equally powerful inclination toward cooperation, empathy and trust — traits that are hard-wired into our nature and reinforced by our moral instincts. These insights have now been confirmed by brain researchers, behavioral economists, evolutionary biologists and social psychologists. An economy organized around the cynical presumption that everyone is greedy is likely to be no more successful than one organized around the utopian assumption that everyone will act out of altruism.
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