Branko Milanovic: The Iron Logic of Gordon Gekko (a guest post)



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Dear Peter,

I am on my way to Moscow and just read the first three chapters of your book. Let me now give you my first reaction because I am afraid I might go back to the rest of the book only in a week or so (i.e., after Moscow, since my program in Moscow is quite hectic).

I do not know much about biological evolution (biology was never my favorite subject in high school) and just a little bit more about pre-agricultural (or pre-historical) human societies. So there I learned a lot from your first three chapters, and I have nothing to add or comment. But when you discuss more recent, and dominant, economic ideology I do have an opinion. I actually find myself in sympathy with the operations of Gekko, Skilling etc., not because I like them as individuals but because I see an iron logic in their behavior. Let me explain that iron logic as composed of three elements.

  1. Personal ethics do not exist
  2. Laws exist and they are supposed to embody the general moral rules so that we know what we can do, insuring that the pursuit of our private interest leads to some greater social good
  3. We then just follow our private interests.

In a (less than ideal) metaphor, imagine the rules as fences around a path, like in bobsledding. You can do whatever you want on that path, and should never hit the fence. But the fence is designed by somebody else (society) in such a way that while you yourself, never caring about why the fence was set just where it was set, will maximize the speed of your own movement and the overall average speed of all actors. 1/

I am thus intellectually sympathetic to the view that personal morality exists only outside economics or capitalism. I might like the guys who are nice and ethical, but when it comes to economics I really do not expect them to be so. I even very much doubt when they claim they are. I tend to see them as hypocritical. This is not in their job description.

Gekko-giving-his-Greed-speechThis is the philosophy that I think motivated Skilling and the others. It is what I called in the attached blog (“Kant and Henry”) the idea of outsourcing morality. Morality is embedded in the fence and I am going to play by the rules (but nothing more) and, even when I consciously do not play by the rules (as for example when I cheat and score a goal by hand), I do not have to feel bad about it. It is the job of the referee to catch me and punish me. In other words, there is no internal ethical mechanism to stop me from scoring a goal by any means I can find.

This is I think a very powerful ideology which motivates lots of people, all around the world, from China to Africa to the US. It goes back to the Fable of the Bees which I found quite sensible; as I found Smith’s denouncing of the Fable, while accepting its basic idea that private vices lead to public virtue, inconsistent, and actually badly argued in the Theory of Moral Sentiments.

This is also, I think, why capitalism can never inspire “admiration” or “love”. It is a system really built on the best use of our vices, including greed. The sad truth is that systems built on different principles have failed miserably because they accord less well with human nature. Actually, they do a great mischief by insisting on “morality” which is then used by the “bad guys” to pursue their own personal agendas while cloaking it under the name of common good or ethics.

Finally, this is why I also find all moral outrage about the behavior of Wall Street in the run-up to the crisis wrong-headed or hypocritical. The system is built in such a way that the only thing you need to worry about is law, and not being caught (if you fail to observe the law). Since these guys generally behaved within the law (as it was then, or as they helped, by funding it, define it), there is nothing to complain.

But let’s see if I change my mind by chapter 8…!



1/ This does not apply to what you describe as Skillings’ approach to internal organization of the firm which (as discussed in Chapter 4 with reference to sports and any organization) was deeply desctructuve. My three “iron logic” points apply to what I think is a view of individuals or companies competing against other individuals or companies.

Branko Milanovic is author of The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality (2010, Basic Books). He was formerly lead economist in the World Bank’s research department and currently is visiting presidential professor at City University of New York Graduate Center and an affiliated senior scholar at the Luxembourg Income Study.


Notes on the Margins: Published with Branko’s permission. I will be responding, but it may be a few days because I am off to Tampa to help run a Seshat workshop on China and for other Evolution Institute business. Meanwhile, comments are welcome!

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Gordon Ingram

Much to take issue with here.
Firstly, this idea of someone with no internal code of ethics, who is only regulated by what they can get away with according to societal conventions, is immediately recognizable to a psychologist (like me) as pretty much the definition of a psychopath. So here you are just confirming what many anticapitalists believe: that the people who are most drawn to capitalism, and who often rise to take charge of key institutions such as banks, are basically psychopaths, or at least sociopaths. What we can do to rectify this situation is of course another question, and a very difficult one, but I think we can start by recognising that it is not a very healthy situation for society to be in.
Secondly, you make this idea of people bending the rules to see what they can get away with sound quite innocent, a friendly game of football or a bunch of people larking about on a snowy mountainside. Perhaps it would be if financial people did indeed accept the rules and the risks of getting caught, and did not try to evade capture or lobby to change the rules. But, of course, they do do both those things. In your sledding analogy, it is as if the more experienced sledders were constantly lobbying to put the fences closer and closer to a cliff, so that they could go faster and faster, even though less experienced sledders would be at risk of falling to their deaths. Or in your football analogy, it is as if powerful clubs were lobbying FIFA to turn a blind eye to handballs by their players, and any referee who booked the likes of Messi or Ronaldo for diving would find himself out of a job the next day. This would clearly make a mockery of football, just as many would say that our current flavour of casino capitalism makes a mockery of our economic system.
Thirdly, this idea of capitalism being the only system that works. Well, any system works, up until the point at which it doesn’t work 🙂 To use another flawed analogy, where we are with casino capitalism at the moment is like being on an open freeway in a car where the brake pedal has been replaced by a second accelerator. “This system works great!” exclaims the driver. “With two throttles, I can accelerate twice as fast.” And then he sees that the road up ahead is closed by an accident…
So, come back in a thousand years and tell us that capitalism is the only system that works. If it hasn’t evolved into something much better by then, I doubt anyone will be around to know it.

Gordon Ingram

On reflection I’ve realised that I didn’t really address your key point, which is that capitalism is a seductive ideology. I guess what I’m trying to say is that it is not a seductive ideology to most (educated, non-sociopathic) people. It is seductive to a minority of problematic individuals who are good at pulling the levers of the system to exploit the rest of us. Also of course seductive to many poor people in impoverished autocratic states, who dream of riches in a less worse system than the one that is currently exploiting them.


Excellent comments Gordon!

Fleeced is a board game by Nick Park. The rules are in a manual found in the box. The idea of the game is to produce one winner. For a couple of hours it offers some dramatic, fun and humorous moments.

The economic system has been gamified. The rules are called laws, often found in constitutions. The fact it lasts a lifetime and produces only one winner, who is probably a sociopath, is what does not make its dramatic moments entertaining.

Unlike Fleeced, however, the rules of the economy game change over time and can be changed by the players – if only the majority people realised it was a game!

It is in the interest of people to understand the economy as a “game” as the sociopaths play it, because it has rules that can be changed in their favour.

The economy game of the moment is never “an inevitable expression of human nature.”

To improve the game wealth inequality could be capped. The top 1% of the population could be limited to holding 5% of the wealth instead of the 50% it is now (for the world – but similar statistics within states). Similar measures for top 5% and top 10%.

The top 1% owning 50% is not “an inevitable expression of human nature” because it wasn’t like this even 10 years ago.

If individuals begin to exceed the 5% cap measures could be put in place to redistribute the excess into grand legacy projects, like a new utilities system or free health service or research into anti-gravity propulsion systems.

Life should be a game for everyone to play and enjoy.

Ross Hartshorn

I think this is a reasonably good explanation of the mainstream capitalist economic ideology. What is missing (from both this article and the ideology it describes) is an evaluation of where the “fence” comes from. Economics tends to wish away this problem, thinking only that this is the government’s job, as if government was something that existed outside of the rest of society.

In reality, of course, government is composed of individuals who very much exist inside this society. They are swayed by money, so large income inequality will tend to make them set the “fence” in a way that benefits those with more money. They also, as human beings, admire those who are widely admired, and often copy their actions (the politician who says government should be run “like a business”, meaning “like those successful people whose faces we see on magazine covers”).

Moreover, even within the sports analogy, when someone like Lance Armstrong or the New England Patriots gets caught breaking the rules, we don’t merely condemn them for getting caught, but for breaking the rules in the first place. In some cases, if enough people who are winning seem to be breaking the rules to do so, society loses respect not only for the referee but for the sport in general (e.g. boxing).

While a decent job of summarizing the ideology in question, if this is meant as a defense, it isn’t very convincing, primarily because by “outsourcing morality” it assumes a perfect and incorruptible government that does not exist.

Mike Waller

At the most basic level, fundamental issues such as free will and morality remain highly problematic; but unless we wish to live Hobbesian lives (“nasty, brutish and short”) we sure as Hell need to assume they are real and that appropriate punishments must be meted out to those who cross the line. Heavy punishment is justified because of the consequences fort eh wider society. There are major costs in (a) “policing” Gekko-like behaviour and (b) picking up the pieces when millions of ordinary folk pay the price that arises from the ruthless pursuit of self-interest e.g.the sub-prime victims.

One has also to consider the impact such behaviour has on capitalism itself. The triumph of capitalism supposedly arises from the sheer efficiency with which it allocates and re-allocates resources; monsters like Gekko screw this up big-time. Were the rest of us not constrained by thoughts of right and wrong, society could better protect itself by reaching back in time (or to Arabia!) for punishments that really would deter. Were this to be done, I have little doubt that all the Gekko’s would got caught would suddenly take a profound interest in human rights and the “immorality” of meting out such punishments! Even in the real world, I still think that cranking up the punishments is our best hope, particularly if summary dismissal with loss of all pension rights were routinely the fate of CEO’s who presided over the grosser episodes.

al loomis

some psychologists compared a population of medium prison to wall street traders and discovered a much higher incidence of sociopathic character on the trading floor, which should surprise no one.
in every human society, political constraints must control economic behavior.
in capitaist societies those constraints are few, and pointed towards controlling the lower class. but it doesnt have to be that way. cooperative human societies are possible, and have no trouble in raising children with suitable character.
it’s a matter of choice, in a democratic society, where those limits should be set to maximise well-being for the great majority of people. the problem is that there are no democratic societies, aside from switzerland. since humanity became dominant, predator personalities have flourished by preying on other humans. this is destroying the environment, so it is not good enough to say ‘ que sera, sera.’ we either struggle for democracy or watch our home burn, and drown.


The great irony is that Karl Marx predicted the emergence of such Iron Logic of capital and the fact that it will lead to the inevitable collapse of capitalism as a system. When a violation of the rules becomes the main source of profits, the game is over.
Thus, following Marx, we can call Gordon Gekko gravedigger of capitalism::)

Juan Alfonso

I am afraid I agree with the previous commenters. I have also read about Economy students becoming more selfish and less cooperative during economic games than average population…

First: rules and laws are nothing if they are not based on values and traditions that are meaningful to the people. That is: prosocial moral values which have undergone cultural and biological multilevel selection. “Legal” is not equivalent to “socially acceptable”, as seems to be assumed in the article.

One thing is playing by the rules in a morally unacceptable way (and even violating the rules from time to time if you think that you are not getting caught). That might be cheating all right but not such a bad thing. The problem arises when someone manages to modify the rules for his own advantage (or the elite advantage) and/or can control the regulation, enforcement and implementation of the rules. That is extremely destructive. This is what Geckos try first… This is a kind of meta-cheating: not breaking the rules (and regulation) but shaping them so that you can make more profit.

In the soccer analogy, one thing is scoring with the hand if the referee isn´t watching and other thing is bribing the referee. The first thing is tolerated cheating. The second is plain CORRUPTION. Nothing erodes more an economy, whether free-market or planified, than corruption. Even hardcore economists should agree on this.

Second: even economists say that economies are complex things based on TRUST. Trust in the rule of law. Trust in the value of the pieces of paper that we call “money”. Trust in that money will keep part of its value the next year. etc, etc. I miss this key concept in the above argumentation.

Trust have to be earned. Gordon Geckos don´t give a damn about trust. They try to free-ride the trust climate created by others, but in the long run they can get punished by law enforcers or by stake-holders. Stake-holders are decider agents that can punish other agents simply by not choosing them. In a free-market economy companies can´t afford not being chosen by stake-holders, That is why companies invest a lot of money in earning a good public image and behaving pro-socially.

Reputation is important. Rational Choice Theory is a very enlightening theory about how agents behave in a complex economy, but it is only a useful model. If you BELIEVE that this is how the world really works, then you are fooling yourself.


“I might like the guys who are nice and ethical, but when it comes to economics I really do not expect them to be so. I even very much doubt when they claim they are. I tend to see them as hypocritical. This is not in their job description.”

Milanovic’s “Any move is up for grabs as long as the referee doesn’t stop it” behaviour protocol (a sibling to the “I only followed orders” protocol in military contexts) is here arbitrarily limited to the behaviour of capitalists in the economic sphere and once spelled out there is no good justification for it.

Imagine a person who suffered an economic loss due to the financial shenanigans of the crisis. The person comes upon a situation where he can easily take a large amount of money from the much richer Gordon Gecko person without getting caught. Likewise if the person can kill the Gecko person and then take the money without getting caught. If the referee didn’t catch him then this is only a move within the game and we have as little (or as much) reason against it as we have against the Gecko behaviour in the first place.


“these guys generally behaved within the law (…. as they helped, by funding it, define it)”
It’s easy to stay within the law if it is you who define it and can change it any time it suits you.

Then what is there to talk about?


The appeal to the ethics of sports is silly. To make the metaphor complete we would need top athletes to regularly attempt to bribe referees. That doesn’t happen as much as “scoring a goal by any means I can find” implies it should because

1) It would ruin the game the athletes enjoy
2) It’s needlessly reckless

Similarly successful capitalists must on some level love the game. They are too rich to explain their participation solely on monetary reward. “This is the philosophy that I think motivated Skilling and the others.” I think a more likely explanation is that once referee bribing becomes common everyone is victimized by it – even the winning teams.


Milanovic’s remarks are typical of today’s [edited by admin] intellectualism. Gordon aptly identifies the sociopathy, but not the essential [edited by admin] of the remarks. A normal society would take the banksters as essentially the equivalent of murderers in the seriousness of their crimes (Blankfein quipped that he and other banksters were doing “God’s work”), and punish them accordingly, along with the Congressmen that allowed the “laws” which essentially legalized criminality. I note that the Chinese shot some of them. They seem to understand the problem. Our intellectual softness and sentimentalized moralism does not grasp the problem.

Bryan Atkins

Liked the 3 elements. Hear Dr. M on Gekko and Shilling, the logic part.
Think human nature is a moving set of codes, and increasingly malleable.
Not saying it’s wholly blank slate (though some programs / platforms do get uploaded by culture), and understand cheating is fundamental. It ain’t going away. Even hunter-gatherers who don’t use money, but valuable tobacco highly, will bury sharp stakes in their small tobacco plots … (Gee Joe, what happened to thy foot?)
Think a main problem with Dr. M’s argument is the omission of complexity, which encompasses the vast expansion of human & tech reach across all networks, and importantly, across time.
Regarding law, think its efficacy has been greatly reduced by exponentially accelerating complexity; and as we know, it can be bought.
Complexity, which also includes accruing knowledge, often erodes the efficacy of code over time: much of religious code; 1898 legal code; 1998 software code; 1298 etiquette, moral, and English language code, etc.
Here’s an abstract of sorts re Culture, Complexity & Code.,Complexity%26_Code.html
It’s an attempt to generate a science-based hypothesis regarding the interface of those topics. It’s young, and I think: it ain’t ideology. (Sure, my biased drool is unconsciously slobbered all over it — as many know, a given for all of us.)
Politically, it’s absolutely preposterous, ridiculous. Tough doodoo, think it has merit.
I try to retain a willingness to be wrong, and sometimes fail . . .

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