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Intervention by Denise Caruso Read Intervention by Denise Caruso, Executive Director of the Hybrid Vigor Silver Award Winner, 2007 Independent Publisher Book Awards; Best Business Books 2007, Strategy+Business Magazine


by Mike Neuenschwander ~ April 28, 2009.
Permalink | Filed under: Hybrid Vigor, Social Trust Online.

Free markets and free political systems have grown intertwined, but they remain very distinct ideologies. To call what happens on the trading floor “free” in the same way we refer to human liberty is an egregious overloading of the word “free.” As we consider how to reinvent free-market systems, it’s critical to distinguish between free markets and freedom. We can retain civil liberties as we construct a vastly different, more responsible financial system.

Let Greedom Ring

Greed is at the heart of free-market capitalism. Unlike in polite social settings, where showing one’s greed is highly inappropriate, greed is a prized and cultivated trait in an economic context. In economic theory, greed drives the market while constraining fraud. The combination of greed and freedom is allegedly all that’s needed to keep the market in check. Even former Federal Reserve Chairman Alan Greenspan espoused this view—until recently. Frank Partnoy puts it best in the updated afterword of his re-released book, “F.I.A.S.C.O. Blood in the Water on Wall Street”:

I thought Greenspan’s laissez-faire zealotry clouded his judgment…. Greenspan even boasted that there was no need for rules prohibiting fraud, because the markets inevitably would discover it. According to Greenspan, market competition alone, without any regulation,was sufficient, because no one would do business with someone who had a reputation for engaging in fraud. (Partnoy, 257)

It should be obvious to everyone now that competing self-interest isn’t enough to thwart fraudulent behavior or to keep failures from turning into catastrophes. Greed mixes with instinctual social behaviors to yield unconscionable consequences. “Herd mentality” causes periodic stampede conditions in the market, forming “bubbles” that can only normalize by bursting. Greed makes investors ignore warning signs for a mere 12% interest. Greed makes bedfellows of competitors. Greed interferes with mechanisms (such as reputation) for developing stable trust, creating instead an environment of blind trust.

By analogy, Greedom is a nightclub where—in a dimly lit, deafening, and bacchanalian environment—style wins out over substance.

Freedom and Trust

In contrast, modern democratic societies are founded on ideals of civil liberties and seeped in language of a “social contract.” The goal is to balance self-interest with societal interest. In modern democracies, freedom isn’t anarchy; nor is it mob rule. A free society is one in which trust can emerge because the governing authority systematically condemns exploitation.

Democratic systems are far from perfect. But they do a much better job than financial markets at cultivating social trust. Let’s all agree that decisions about our financial and civil freedoms shouldn’t be left to the derivatives traders or investment bankers. A true “free market system” needs to move away from the sophomoric idealism of greed toward a system of participation, transparency, and trust.


  1. Drewby

    I disagree whole heartedly with your statement that greed is at the heart of free-market capitalism. Such a statement implies that the converse, socialism of one form or another, is devoid of such motivation. If that were the case, there would be no such thing as governmental corruption.

    I think most disciples of Austrian economics would take umbrage to your assertion of Alan Greenspan as the spokesperson for free-markets. By their very nature, true free-markets are a highly decentralized organism that is ever changing. The buggy whip manufacturers may be on top today, only to find themselves dethroned by the Henry Fords of tomorrow. Alan Greenspan lost all creditability of any kind of free-market analyst when he went to work for the Federal Reserve. The Federal Reserve is the height of centralize planning and the antithesis of all things relating to the free-decentralized-market, because if you don’t have true freedom in the monetary system, a true free-market is a virtual impossibility.

    The current economic conditions that you blame on greed and the free-market have many of their roots in governmental policy and corporate crony-ism. After 9/11 the Federal Reserve placed interest rates at point lower than what the free-market would have demanded. Cheap money abounded and people (the herd) began looking for the next up and coming industry. Low interest rates made it attractive to buy a home or upgrade your existing home. Fannie Mae, Freddie Mac and FDIC remove a good portion of the moral hazard for bankers who make bad loans. The mortgage brokers and bankers knew they would be selling the notes of the loans they made to the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac and they would therefore bear the brunt of the risk. The bankers and brokers knew that if things got too rough for the GSEs government would surely step in and bail them out. Even if things did trickle down to their local bank branch, the FDIC is always there.

    In a true free market there would have been no Fannie Mae, Freddie Mac or FDIC. If the bankers/brokers got a little too greedy, the only thing they would have to look forward to is real bankruptcy, fraud charges and jail time.

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