Freeman

ARTICLE

Hollywood's Views of Capitalism

The free enterprise system is not inherently corrupt.

MARCH 01, 1993 by RAYMOND J. KEATING

Raymond J. Keating is New York State Director of Citizens for a Sound Economy.

Although the movie industry has certainly thrived under the free enterprise system, Hollywood is often unfriendly in its cinematic portrayals of businessmen and capitalism, though there are some exceptions. A visit to your local video store reveals a disagreement among film makers over what capitalism represents. I recently rented movies by three prominent directors: Oliver Stone, Francis Ford Coppola, and Frank Capra. The contrasts were stark, especially between Stone and the latter two.

Oliver Stone’s Wall Street leads the movie-goer to believe that the securities industry is a rigged game, and that capitalism is inherently corrupt. Hard work as a means to success in the financial community is debunked, only to be supplanted by corruption and law breaking, as securities trading is seen as a game with little or no productive value. Stone presents a harsh judgment on an economic system he fundamentally misunderstands.

Wall Street has come to be the historical revisionists’ cinematic representation of the 1980s—the so-called “decade of greed.” It, unfortunately, offers a view prevailing not only in the film industry, but in academia and the media as well. In many ways, Wall Street perpetuates a class warfare myth, with contrasts being drawn between so-called haves and have nots, or the bourgeoisie and the proletariat.

The movie’s antagonist is Gordon Gekko, a corporate raider. Gekko’s speech at the stockholders meeting of Telder Paper, his takeover target, is meant by Stone to reflect the corrupt nature of capitalism. In fact, Stone managed—knowingly or not—to provide a glimpse of why corporate raiders provide a positive service in a free market economy. Gekko states:

Telder Paper has 33 different vice presidents, each making over $200,000 a year . . . . Our paper company lost $110,000,000 last year, and I’ll bet half of that was spent in all the paperwork going back and forth between all these vice presidents. The new law of evolution in corporate America seems to be survival of the unfittest. . . . I am not a destroyer of companies; I am a liberator of them. The point is, ladies and gentlemen, that greed for a 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. And greed—you mark my words—will not only save Teldar Paper, but that other malfunctioning corporation called the United States of America.

 

Greed or Self-Interest?

The word “greed” in such a speech is Stone’s carrier of corruption. It is his word of choice designed to elicit a specific response from the movie-going audience. After all, how could one view greed favorably? In fact, “self-interest” would have been a more apt term, which was understood over two centuries ago by Adam Smith, the father of capitalism. Smith wrote in An Inquiry into the Nature and Causes of the Wealth of Nations: “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.” Self-interest removes the judgmental nature of Stone’s presentation, while encompassing not only greed, but also industry, charity, self-improvement, and altruism, i.e., any human motivation.

Gekko’s later statements lend greater clarity to Stone’s view of the world. In reference to a Gekko plan to liquidate the holdings of an airline company, Budd Fox (the movie’s symbol of redemption as he in the end rejects the greed Gekko represents) asks, “Why do you need to wreck this company?” Gekko’s answer: “Because it’s wreckable!” Stone views the breakup of a firm as pure destruction. He is unable to understand what Joseph Schumpeter termed “creative destruction.” That is the notion that resources might be more efficiently used if freed from less profitable ventures and reinvested elsewhere. This is the dynamic aspect of capitalism that allows for renewal and growth.

But the essence of Stone’s limited vision is captured in Gekko’s definition of capitalism: “It’s a zero sum game. Somebody wins, somebody loses. Money itself isn’t lost or made, it’s simply transferred from one person to another—like magic. This painting here, I bought it ten years ago for $60,000. I could sell it today for $600,000. The illusion has become real, and the more real it becomes, the more desperate they want it. Capitalism at its finest . . . . I create nothing. I own . . . . You’re not naive enough to think that we live in a democracy, are you, Buddy? It’s the free market.” Stone does not understand that wealth can be created, not merely shifted around, and that the free market provides the incentives for individuals to create, innovate, and take risks. He sees a rise in the price of a painting as the pinnacle of capitalism. In fact, it is in those nations that have rejected free enterprise where the only source of value is to be found in a painting, for little else is created.

Wall Street presents a view of capitalism as being controlled by the few at the expense of the many—democracy versus the free market in Gekko’s words. Stone does not understand the nature of an exchange economy, missing a fundamental point that in a free enterprise system, one must first supply a service or good in order to demand; i.e., even the most greedy individuals must supply something that fulfills the needs or wants of another individual in order to participate in an exchange economy. Individuals vote with their dollars, if you will. The phrase “democratic capitalism” seems quite natural, for example, while “democratic socialism” seems oxymoronic.

 

A Man and His Dream

In direct contrast to Wall Street is Francis Ford Coppola’s Tucker: The Man and His Dream. I will not venture here to analyze the historical accuracy of this film about Preston Tucker. It is the message that concerns me. While Stone views the fundamental conflict in a capitalist system as being between rich and poor, Tucker presents a more accurate conflict—between a partnership of big government and big business versus the entrepreneur, or entrenched interests versus dynamic change.

Tucker is the story of a man who sought to build a better automobile, and therefore challenged Detroit’s Big Three auto makers. As Tucker exclaims, “That’s the whole idea—to build a better mouse trap.” His partner’s response—“Not if you’re the mouse”—signals the ongoing conflict. Tucker illustrates how a special interest seeks government protection from the forces of competition, i.e., from the forces exerted by innovators and risk takers. It brings to life the clash between the bureaucratic mind and the entrepreneurial.

One character representing old-guard bureaucrats states: “A well-run corporation doesn’t waste money to research innovations, unless of course, keeping up with the competition demands it.”

In contrast, Preston Tucker’s closing speech expresses the critical role of entrepreneurship:

We invented the free enterprise system where anybody, no matter who he was, where he came from, what class he belonged to, if he came up with a better idea about anything, there was no limit to how far he could go. I grew up a generation too late I guess because now the way the system works, the loner, the dreamer, the crackpot who comes up with some crazy idea that everybody laughs at that later turns out to revolutionize the world, he’s squashed from above before he even gets his head out of the water because the bureaucrats, they’d rather kill a new idea than let it rock the boat. If Benjamin Franklin were alive today, he’d be thrown in jail for sailing a kite without a license. . . . if big business closes the door on the little guy with the new idea, we’re not only closing the door on progress but we’re sabotaging everything we fought for, everything the country stands for.

Tucker: The Man and His Dream tacitly acknowledges that wealth can be created, and that the entrepreneur is the driving force of wealth creation and economic growth. Such entrepreneurship is evident in practically all aspects of a free enterprise system, including the securities industry which Wall Street condemns. For example, various financial instruments that provide for liquid markets and allow both small and large firms to raise financial capital are the products of hard-working entrepreneurs (junk bonds included). Not to mention that entrepreneurship is quite evident in the insights of many corporate raiders who are able to see added value where others cannot.

The two views of government presented in Wall Street and Tucker are instructive as well. In Wall Street, stock market regulators act as saviors, cleaning up what unbridled capitalism has wrought. In Tucker, the Securities and Exchange Commission does the bidding of powerful politicians and special interests in crushing the entrepreneur.

 

Frank Capra’s America

In the end, perhaps it was movie director Frank Capra who saw things most clearly. Few free market advocates can suppress a smile when viewing the scene from You Can’t Take It With You in which Lionel Barrymore’s character, Mr. Vanderhoff, gives an IRS agent a hard time. The playful exchange includes the following:

IRS AGENT: “Our records show that you have never paid an income tax.”

VANDERHOFF: “That’s right.”

IRS AGENT: “Why not?”

VANDERHOFF; “I don’t believe in it.”

And later, it continues:

VANDERHOFF: “What do I get for my money? . . . I wouldn’t mind paying for something sensible.”

IRS AGENT: “Something sensible. What about Congress and the Supreme Court and the President? We gotta pay them, don’t we?”

VANDERHOFF: “Not with my money.”

Capra often brought out America’s healthy skepticism of big government in his movies (Mr. Smith Goes to Washington is one example). However, in It’s a Wonderful Life, Capra truly presented a wide range of human behavior. Some individuals, like Mr. Potter (again Lionel Barrymore), stole and sought to monopolize, while others, like Jimmy Stewart’s George Bailey, sacrificed for others while still seeking a better life for his family. It is the individual who must take ultimate responsibility for his actions.

The free enterprise system is not inherently corrupt. In fact, it is morally superior to other economic systems, not only because it is the most productive—lifting individuals out of squalor—but because it is based on free, individual action. When compared with the centralized, coercive nature of socialism, it is clear that capitalism does provide for a wonderful life, where individuals can make the most of their abilities. It is only when government steps in the way that the dynamic, creative nature of the free enterprise system is stymied. Yet, even as Preston Tucker’s automobile company was brought down by special interests and big government, the final scene of Tucker: The Man and His Dream has Tucker, the innovator, sketching a new idea for little kerosene refrigerators that would allow even the poorest of people to keep milk cold. One might say that is truly “capitalism at its finest.”

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March 1993

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Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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