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4 Reasons Capitalism Isn’t Defined By Greed

Many think capitalism relies on greed. Ayn Rand wrote about the virtue of selfishness, and Adam Smith insisted that self-interest, not charity, enables the market to work. However, neither Rand nor Smith would say Ebenezer Scrooge is a role model. Why is that?

Reason 1: Capitalism is About Wealth Creation, Not Money

At a Christmas party, Billy gets a yo-yo, and Johnny gets a Hot Wheel’s car. But Billy wants the car, and Johnny wants a yo-yo. When they trade, both are better off, because they got the thing they wanted.

Capitalism is like a huge, epic Christmas party, where each person trades what they have for something they want more. I choose to work, so I have money to buy my fiancée dinner. My boss chooses to pay me, because he wants my labor. In a just and free system which respects property rights and the ability to make money, people have the opportunity to flourish.

Money enables the great exchange of goods and services that makes everyone richer, but it is the means, not the end. True capitalism is not ultimately about money. It works to provide more wealth for everyone.

Reason 2: Greed is Blind

Greed obscures a person’s view of what is truly good for them and for society as a whole. If Percy desired to gain wealth, and chose to sell his wife into slavery to achieve that goal, he would be richer, but far worse off. Like Scrooge, he would trade true happiness for a larger bank account.

Pursuing self-interest rightly understood means doing what is actually good for you and for society—since a better society would benefit you. A man who hides his money under his mattress will have a lower net worth than one who invests in other projects, hiring those who need work, and benefiting the community as a whole.

Reason 3: Greed Doesn’t Work in the Long Run

Greed may drive a man to invest his money in a new idea, and start a business. Desiring money, he will work hard to deliver better value at a lower price, to beat out his competitors. As more customers buy from him, he makes more money and provides a service to the economy at large.

But if he continues on the path of greed, it will harm his customers, the economy, and perhaps even himself. If he lowers the quality of his product or increases his prices, customers will flock to his competitors. If he lobbies government to pass laws that give him a special privilege to do business and keep new competitors out, he may make more money, but in reality, he will merely keep new ideas from seeing the light of day.

The very innovation that made him rich and the society better off will be stifled if he chooses to grasp his wealth and keep other businesses from entering the market.

Reason 4: Greed’s Home is Government Favors

[pq]Greed’s most effective weapon isn’t the free market, but the manipulation of government power.[/pq]

Entrenched business interests prevent new ideas by stifling competition, and government provides the mechanism to maintain monopolies.

The traditional taxi system in modern cities helps people, but it is not as convenient as being able to order a ride from your smart phone, whenever you want. New companies like Uber and Lyft are providing this service, but taxi companies don’t like the competition. Using their government connections, taxi drivers have convinced some states—like New York and Virginia—to make their competitors illegal, thus guaranteeing profits for themselves.

Not all regulations are aimed at preventing competition. Nevertheless, greed’s most effective weapon isn’t the free market, but the manipulation of government power.