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Below is how I experienced the current climate that has led to the economic ression/depression we are now in. I expressed my thoughts in an article [below]. Today I would add to the list, in addition to Ennorn et al, Bear Sterns, Merrill Lynch, AIG, and Lehman Brothers, otherwise what I wrote is as pertinent today as it was at its publication in 2007. Thank you for considering my thoughts relative to your radio project.


Ed Grippe


Dr. Edward J. Grippe
Norwalk Community College, CT
Published in Contempory PhilosophyVol. XXVIII No. 1 & 2, Fall 2007

1. In a recent New York Times article entitled “In Economics Departments, A Growing Will to Debate Fundamental Assumptions” , it was noted that a rising number of career economists have begun to specifically challenge “the profession’s most cherished ideas about not interfering in the economy” , and more generally they have called into question the neo-classical model which Milton Friedman helped to shape. The more radical among the challengers have been labeled ‘heterodox’, implying that there is an orthodox view of free markets and the irrefutable benefits derived from them. It will be my contention that the neo-classicalists illicitly appropriated Adam Smith’s notion of the “Invisible Hand” to legitimize corporate control of the economy through the intentional manipulation and subversion of the laws and regulations meant to promote the common good by containing market excesses and the collusion to benefit from this unrestrained behavior.

2. Adam Smith in his famous Wealth of Nations observed:

Each individual . . . neither intends to promote the public interest, nor knows how much he is promoting it . . . . He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

A religious man, Smith saw the promotion of the interests of society as the invisible hand of a benevolent God acting through the world to maximize human happiness. For the mechanism of the invisible hand to work it must be assumed that God has created humans with a certain nature. A critical part of that nature is the personal pursuit of happiness through the acquiring of wealth. In the individual’s striving to become wealthier, involuntarily, the sum of total human happiness is increased via the organs of exchange and the division of labor. Smith further recognized that in practice the maximization of human happiness required a social structure of considerable complexity. In order for the invisible hand to work, property rights and the social mores of the culture—such as prohibitions against deception, theft, and corruption —must be recognized and honored.
The contemporary interpretation of the invisible hand, as Helen Joyce describes it, is that it is a process in which “the outcome to be explained is produced in a decentralized way, with no explicit agreements between acting agents.” (It is a process that is not intentional.) And “The agents’ aims are neither coordinated nor identical with the actual outcome which is a byproduct of those aims.” That is, it happens in an undirected free market, where, out of the twin concerns of self-interest and for self-improvement, the individual is forced to think about what other people want in order to attract their interest for and elicit their cooperation in his or her entrepreneurial project. As Smith put it:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.

3. This appeal to self-love as the engine of human happiness, in ethical terms, is labeled as Ethical Egoism. A normative theory (i.e., a theory about how we ought to behave), Ethical Egoism argues that we have no duty except to what is best for ourselves. James Rachels stresses that this ethical theory does not say that we are to promote our own interests as well as the interests of others. Rather the only ultimate, and hence moral, principle of conduct is self-interest. Of course this does not preclude cooperation with others. Rachels notes that:

It may very well be that in many instances your interests coincide with the interests of others, so that in helping yourself you will be aiding others willy-nilly. Or it may happen that aiding others is an effective means for the creating some benefit for yourself .

In fact, Ethical Egoism demands these sorts of cooperative actions. What the theory stresses, however, is that benefiting others is not what makes the actions right, what makes them right is that they are to one’s own advantage in the long run. We may choose to altruistically help others at our own expense. Human nature allows for this sort of liberality, but Ethical Egoism advises against unbridled altruism as an unwarranted sacrifice of personal integrity and a loss of autonomy. Also, the foolish pursuit of immediate pleasures that wealth can bring is equally discouraged by Ethical Egoism in favor of the acquiring of long-term benefits for oneself. Thus, the pursuit of wealth ought to be done with enlightened self-interest.
It is further argued that in this pursuit, one should follow certain rules such as (1) keeping promises (for example, fulfilling contractual agreements), (2) speaking the truth (avoiding deceptions in, say, advertising), and (3) acting in an honest fashion (rejecting the harms and resultant the loss of public confidence resulting from corruption and fraud). Of course, the following of these rules is not done out of a social responsibility borne of altruism, but from an Ethical Egoist’s understanding of the Golden Rule: “Do unto others” because if we do others will be more likely to “Do unto us”.

4. Milton Friedman, the famous advocate of the Capitalism and the free market system, in a 1970 New York Time Magazine article entitled “The Social Responsibility of Business is to Increase Profits,” embraces the Golden Rule according to Ethical Egoism. Arguing that only people, and not entities such as corporations, can have responsibilities, Friedman contends that in “a free-enterprise, private property system, a corporate executive is an employee of the owners of the business,” and as such, the executive must conduct the business in accordance to the employers’ desires. These employers, the stockholders, generally desire to make as much money as possible, within “the rules of society . . . embodied in law . . . and in ethical custom.” Decisions by the corporate executive that result in a transfer of stockholders’ investments away from the intended self-interested purpose of profit-making toward “social” purposes, such as community improvement projects, and the hiring of underqualified workers, almost always amounts to a non-consensual taxation of investors. Frowning on these corporate concerns for the social welfare as, at worst, “a suicidal impulse,” and at best, rationalizations and “hypocritical window-dressing” that approach fraud, Friedman chides the corporate leaders to discard the cloak of social responsibility even when it is used to promote a business’ bottom line. For despite the short-term kudos they may earn, the use of investors’ funds for allegedly worthy causes only “helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces.” Friedman contends that socialism run by “the Iron fist of Government bureaucrats” looms, and with it the mismanagement and misappropriation of wealth that comes when, as Smith wrote, “kings and ministers . . . pretend to watch over the economy of private people, and to restrain their expense.”

Friedman, offering the contemporary interpretation of Adam Smith’s sentiments, states:
In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no values, no “social” responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form.

Thus democratic liberty depends on a free market. Friedman argues that the great virtue of private competitive enterprise is that “it forces people to be responsible for their own actions and makes it difficult for them to ‘exploit’ other people for either selfish or unselfish purposes.” This, of course if true, is a boon for each person. The creation of a zone of free, autonomous action guarantees for each individual an economic liberty that has a positive and beneficial effect on one’s social and political interests. Free enterprise can be adequately exercised only by a free people. The invisible hand for human happiness manifests itself through the implementation of Ethical Egoism and not through altruistic social responsibility.

5. Nevertheless, I contend that there are serious flaws in this libertarian argument. I will concentrate on only one in this article: that of the claim, made by Friedman, that private competitive enterprise makes it difficult to exploit others.
Recall that Smith couched his view of human happiness in terms of divine benevolence. It was God’s creative act that made humans strive for happiness and believe that personal wealth would greatly aid in the procurement of said happiness. Smith also wrote his treatise as a counterbalance to the dominant economic theory of his time: Mercantilism. In those heavily planned and dictatorial societies dominated by the mercantile overseer, the notion of economic freedom of choice was both novel and revolutionary. With poverty endemic and wealth highly concentrated, Smith’s libertarianism could be and was viewed as a call for the reform the social conditions in the name of God. Thus it could be argued that The Wealth of Nations was a direct act of social responsibility on Smith’s part. (He didn’t go on a book tour or appear on 60 Minutes to increase sales and hence his residuals). Ironically, the publication of Smith’s masterwork on self-interest must be appreciated as largely an act of social altruism. As Robert L. Heilbroner writes:

Smith is not, as is commonly supposed, an apologist for the up-and-coming bourgeois; . . . he is an admirer of their work but suspicious of their motives, and mindful of the needs of the great labouring masses. But it is not his aim to espouse the interest of any class. He is concerned with the promoting of the wealth of the entire nation. . . . (After Smith) [w]e are in the modern [democratic] world, where the flow of goods and services consumed by everyone constitutes the ultimate aim and end of economic life .

If the purpose of The Wealth of Nations was to justify the struggle for wealth and the greed it spawns by transforming this selfish scrabble into the an egalitarian godsend for the common man, then Smith’s libertarianism also must be understood as humanitarianism.
But the contemporary notion of the invisible hand evident in Friedman’s writing comes out of a different historical setting. The contemporary era is largely devoid of appeals to a deity, especially in the arena of business. The metaphysical grounding that Smith depended upon to mount his challenge to the concentration and control of wealth in the hands of a few has been retired, and in its place stands a philosophical supposition about the nature of humankind derived from the notion that self-interest is rational. Yet in a world without grounding how can we discern the rational (when reason governs self-interest) from a mere rationale (the use of reasoning to advance one’s self-interest)?
With this question in mind, consider the following statement from Friedman.

In a free society, it is hard for “evil” people to do “evil,” especially since one man’s good is another’s evil.

This is the relativism that is at the heart of Ethical Egoism. If self-interest is the moral basis for capitalism, and if the standards of behavior ultimately reduce to one’s own act of judgment concerning right and wrong, it follows that an individual can never be unbiased about his or her perceived interest. How, then, can one get the perspective necessary to evaluate one’s own behavior to conform to the social “rules of the game?” Add to this relativism the claim by Friedman, previously quoted, that all associations are voluntary, and that, (and I quote again) “. . . no individual can coerce any other, . . . all parties to such cooperation benefit or they need not participate,” and we have a fatal contradiction. Either the individual’s radical freedom to join or leave associations, along with the moral relativism that Friedman espouses, provides no basis for cooperation in areas of social and political spheres (e.g., the keeping of contracts, truth-telling, and acting in an non-corrupting fashion), or there is a realm of cooperation that reaches beyond self-interest to a grounded and commonly held good.
Here is what is at stake. If the common good that would ground social responsibility cannot be found, or is outright denied, then cooperation is wholly contingent upon one’s perceived self-interest. In a competitive environment this seems natural and wholesome. For example, Corporation A is out to beat the competition, and Corporations B, C, and D are engaged in the same effort. To gain an edge, Corporation A attempts to make a product or provide a service that the consumer will find more valuable and/or at a lower cost than of the competitor’s. This is good. However, to gain a greater edge, Corporation A also attempts to that bribe government officials to win the bid for a lucrative project. At this point Friedman would argue that this action breaks the rules of the game. Corporation A is said to be a “bad apple,” one that doesn’t play be the rules and will be ostracized and otherwise penalized. So market forces work to check and balance itself, without appeal to an Adam Smith-style deistic guiding hand.
But suppose Corporation A is shrewd. Instead of offering a bribe, it lobbies the government to amend, add, or eliminate a law or policy—whatever serves them best—and that change gives them a now legal advantage over their competitors. But this might be seen as acting against the ethical custom of the society to which Friedman appeals (i.e., the constitutional exercise of equal voice, or the ability to have equal access to one’s representatives). But why should Friedman or anyone else be concerned with the ethical customs, even those embodied in the United States Constitution? After all, he claims that in a free market there is no need to participate in any association that is deemed to be not of benefit to one’s interest. And if there is no illegality involved, the free market system supports this refusal to participate on the grounds of self-interest alone. Friedman in his book Capitalism and Freedom concludes, “there is one and only one social responsibility of business—to use its resources and engage in activities designated to increase its profits so long as it stays within the rules of the game.”
But why stop there. In a world where there is no metaphysical or moral grounding other than self-interest, then laws may be seen as no more than encoded customs, or cultural rules of a game that served some long-ago interest, or the interest of some other individual or group that may be no longer viable in the contemporary world. These laws could be seen as relics of traditions past, holdovers that block the exercise of a free market and interfere with innovation (think: anti-cloning laws). This is indeed a troubling thought, for it undermines the main pillar of democracy: the rule of law and the related claims of objectivity and impartiality upon which it rest. With objectivity and impartiality in question what is taken to be enlightened self-interest now depends on the skill of persuasion or “spin”, and who controls the meaning of terms controls the meaning and scope of the societal rules by which we all play. It is a social system whereby ambitious egoism produces wealth that may or may not trickle down to the commoner, a system Adam Smith was opposed when it was in the guise of Mercantilism.
It gets more troubling. If meaning is up for grabs, this state of affairs will impact internal corporate relations as well. Remember that for an Ethical Egoist, the promotion of the corporate interest is contingent upon the egoist’s personal benefit. Friedman uses this to establish the linkage between corporate managers and their stockholders. As employers, the stockholders judge whether to keep or to fire the CEO on the basis of his or her performance, that is, whether the executive’s policies and practices promotes profits and long term corporate stability. This scrutiny by itself, however, does not prevent the manipulation of the business’ performance, and hence the stock prices by the corporate managers for their personal gain and to the detriment of the shareholders. The names of firms such as, Enron, Global Crossings, Adelphia, and Parmalac come to mind. Competition for corporate profits does not stop at the front doors of the business; it extends into the boardroom.
But the reader might say that the list just mentioned goes to show that the system works, and that the “bad apples,” even those in the boardroom, are eventually singled out and held accountable by society. This assumes that the term “accountability” has more than a relative, politicized meaning. But in a Friedman universe it cannot. Then, as John Wild writes in a different context, but apropos to out topic,

When thus defended, democracy is represented as a wholly negative doctrine, its aim being exhausted in the avoidance of tyranny. All common action and government are viewed as evil, though perhaps necessary in a minimal degree. From this point of view, cooperative action of any sort is regarded as undemocratic, and the function of government is reduced to that of removing all checks to individual action, no matter how capricious or even vicious this might be. Presented in this negativistic manner, democracy would seem hard to distinguish from anarchy; and modern experience, to say nothing of the experience of the ages, has shown that freedom, when thus identified with license, leads inevitably to the domination of those who are most greedy and self-assertive.

Unless there is a grounded common good to which one can be socially responsible, justice is reduced to mere manipulation of words, or to partisan coercion, or to force. Reason is reduced to rationales; truth becomes the exercise of rhetorical flourishes; and might makes right. In a world without grounding, there can be no “bad apples,” only winners and losers in a no-holds-barred power struggle to survive. This is the sort of world structure, where the interests of the commoner were swamped by those of the powerful, that Adam Smith worked to overturn. And this is a world against which our country’s founders, though efforts that could be rightly termed as socially responsible, sacrificed mightily so as to allow for this time, our time, where the notion of self-interest could be and ought to be extended beyond enlightened self-interest to a cosmopolitan concern for and identification with our fellow humans, both here and abroad. As Martin Luther King said in an effort to bridge the destructive self-interest of his time, “No one is free until we are all free.” And I contend that the “freedom” that Milton Friedman espouses is an equivocation on King’s sense of democratic freedom. In the hands of a Friedman capitalist this term is no more than a Machiavellian ruse by the powerful to control the economical environment and to subjugate the common “consumer” for their (the powerful’s) selfish benefit. Enron, Global Crossings, and the rest were not isolated bad apples but the obvious fruit from a tree infected by the virus of an unchecked Ethical Egoism, a worldview that, at bottom, is identical with license that ends, not in the benefit of most as Adam Smith envisioned, but in the subjugation of a society by those most greedy and unscrupulous.

1 New York Times, July 11, 2007, p. A17.

2 Ibid.

3 Adam Smith (1776/1904). An Inquiry into the Nature and Causes of the Wealth of Nations. Fifth edition, ed. Edwin Cannan. (London: Methuen and Co., Ltd)

4 Helen Joyce “Adam Smith and the Invisible Hand”. +Plus Magazine: Issue 14, March 2001.

5 Smith, Op Cit.

6 James Rachels (1999). The Elements of Moral Philosophy, Third Edition. (New York: McGraw Hill College), p. 84

7 Milton Friedman (1970). “The Social Responsibility of Business is to Increase Profits”. New York Time Magazine, September 13, 1970.

8 Ibid

9 Robert L. Heilbroner. (1986). The Worldly Philosophers, Six Edition. (New York: Simon and Schuster/Touchstone Books), p. 53.

10 Friedman, Op Cit.

11 Ibid.

12 Ibid.

13 Op Cit, Joyce.

14 John Wild. (1963)“Plato as an Enemy of Democracy: A Rejoinder” in Plato: Totalitarian or Democrat? Thomas Landon Thorson, ed. (Englewood Cliffs, N. J.: Prentice-Hall, Inc.), p.109.