Cinematic Defenders of the Free Market Faith

At the end of “Wall Street and Vine,” his essay published in 2005 attempting to explain why he feels Hollywood is critical of business, University of Illinois law professor Larry Ribstein concludes that “the best way to counteract [Hollywood] films’ misleading message about business is to let business speak for itself.” The Acton Institute, a Michigan-based think tank that attempts to enlist the religious community in support of a free market agenda, has done just that in its 2007 documentary The Call of the Entrepreneur.

In this post, I point out some gaps and contradictions in the Acton Institute’s documentary and also show how Prof. Ribstein’s equally warm embrace of free market principles leads him to a dubious hypothesis about the motivations of the creators of films. Thus, this post will be a critique of two defenders of the free market faith.

The Call of the Entrepreneur is a documentary that blends profiles of three entrepreneurs with pontification by a variety of faith-based free market advocates, including Acton Institute president Rev. Robert Sirico, George Gilder, and Michael Novak. The three entrepreneurs are Brad Morgan, a Michigan dairy farmer who has built a business on high-quality compost; Frank Hanna III CEO of Hanna Capital, a privately-held financial services firm; and Jimmy Lai, a Hong Kong-based clothing and media mogul. All three, as far as I can tell from the movie as well as from online searches, have built companies that have prospered. But there are aspects of Hanna’s and Lai’s stories that set off alarms.

Frank Hanna described the essence of his entrepreneurship as the use of financial engineering to pool, minimize, and transfer risk. Even though he didn’t use the term, it is clear from the description that his firm was creating collateralized debt obligations (CDOs) such as mortgage-backed securities (MBS’s). Of course, it was these instruments that blew up during the financial crisis of 2008, when it turned out that the bursting of the housing bubble meant that virtually all the mortgages in a typical MBS tanked at the same time. The film was made in 2007, before the financial crisis. The Hanna Capital website even today tells us only that the value of its portfolio at the end of 2007 exceeded $ 4 billion. The unanswered question is what happened since then. Quite likely $4 billion was Hanna Capital’s high-water mark.

In The Call of the Entrepreneur, Hanna triumphantly proclaims, “but for financial engineering the US would not be what it is today.” Post-financial crisis, we can say exactly the same words but, ironically, with an entirely different meaning.

Jimmy Lai tells us about how he escaped from Guangdong Province in Communist China in 1960 to make his fortune in Hong Kong. At the age of 12, he immediately went to work in a factory from 7 am to 10 pm. The obvious question is whether Hong Kong had any child labor laws at the time. Either it had no such laws or it did and Lai’s employer was violating them. Rev. Sirico interprets Lai’s story with the comment that the wealthiest places on earth have the least regulation and the least taxation. Does the absence of regulation include either openly permitting or failing to detect and prosecute child labor?

Lai moved from clothing to the media out of anger at the brutal Chinese suppression of the Tiananmen Square protests in 1999. While that is an entirely appropriate reaction, and while I admire the determination and imagination that characterize Lai’s story, I would feel a bit more comfortable with his role as press baron if he had some formal education.

The talking heads in the movie go far beyond the three entrepreneurial stories to proselytize for the minimalist state advocated by von Hayek. While city-states with minimalist government have grown rapidly, there have been more than a few economic success stories of nations with more interventionist government (the four Nordic countries, Australia, Canada, and Germany, for example).

Perhaps the most amusing bit of commentary was by Rev. Sirico arguing, with an orchestra playing the Jupiter movement of Holst’s The Planets, that entrepreneurs, like impresarios [sic], coordinate the creativity of others so that they produce pleasing melody rather than cacophony. While the linguistic roots of the term (“carry between”) are consistent with that idea, the true creator in Rev. Sirico’s example is the composer. This leads to the much more complicated issue of the encouragement and protection of intellectual property, something that requires a state that is more than minimalist. Indeed, the minimalist states that Rev. Sirico praises have often permitted the piracy of intellectual property.


Prof. Ribstein made the unusual argument that Hollywood’s creative class is anti-capitalist because of intrinsic nature of the film enterprise. Film production requires large pools of capital and films are made with an intention of earning a return on that capital. This means catering to audience tastes. Thus constraints are placed on the creatives (screenwriters, producers, directors) and it is these constraints that they face in their working life that have made them resentful of capitalists and capitalism.

An alternative explanation might of course be that capitalism is a flawed economic system and that at least some films give voice to a critique of capitalism. Another alternative explanation is that narrative requires conflict and that one of the dominant fables of conflict in social realism is between heroic individuals and large institutions. In this fable the large institutions could be located in either the public or private sectors.

On reading Ribstein it becomes clear that he idealizes capitalism. Thus he writes “Firms have powerful incentives to build reputations as good corporate citizens in order to encourage people to buy their products” (p. 64, online version), “real firms will not invite, and in fact try to prevent, the unethical or irresponsible corporate behavior films portray,” (p. 65), “the capital markets thrive on truth, and would have no interest in cover-ups,” (p. 66), “Markets penalize the antisocial and the bigoted,” (p. 66), “competitive firms are great social levelers that bypass entrenched classes, castes, and ranks,” (p. 66), “firms create wealth in the long run by inventing and selling better products rather than by chance,” (p. 68), and “the stock markets, far from the perverse gods of film fiction, fairly accurate reflect firms’ value,” (p. 68). In short, if capitalism is the best of all possible economic systems, then the film-makers’ criticism must be a result of their perverse experience with that system, rather than its failings.

Ribstein never seems to imagine a counter-narrative in which people who have done very well in the capitalist system could nonetheless be critical of its failings. The most prominent examples that come to mind are George Soros, Warren Buffet, and Bill Gates (the latter in the sense of using his wealth through his foundation to solve social problems the free market has ignored).

The most recent example of Ribstein’s thinking about the capitalist system is a 2009 paper, “How Movies Created the Financial Crisis,” published in the Michigan State Law Review. Ribstein argues that there are a variety of narratives explaining – that is, finding fault for – the financial crisis. These include no one’s fault, government’s fault, speculators’ fault, the banks’ fault, capitalists’ fault, and the fault of financiers who created CDOs and CDSs.

Ribstein speculates about which of these narratives will ultimately be incorporated into films about the financial crisis. Ribstein prefers a film with a heroic narrative about the contrarian investors who had the foresight to anticipate the crisis and made large and winning bets by shorting CDOs and buying CDSs. This would demonstrate that “competitive markets ultimately reward anybody with a good idea, industry incumbents often attempt to ally with government to squelch the innovator, free markets triumph in the end against all odds, and this outcome helps everybody.” However, because “films are less about the actual evils of capitalism than about filmmakers’ resentment of capitalists,” he predicts we are not likely to get such a film.

Michael Lewis’s book The Big Short told the story Ribstein wanted to see in the cinema, but without the free market triumphalism he was hoping for. Ribstein quotes one of the shorts, James Chanos, who urged Oliver Stone in making Wall Street 2 not to focus on the hedge fund managers – advice Stone rejected – and instead focus on the banking system. Chanos had it right, however.

In his documentary Inside Job, producer-director-writer-interviewer Charles Ferguson (whose IT-based fortune enabled him to escape budget constraints on realizing his vision), told a much more complicated and nuanced story about the financial crisis, apportioning blame broadly across the financial sector, its academic apologists, and its public sector regulators. I found Ferguson’s story, while difficult to summarize in a sound-bite or a tweet, much more compelling than Ribstein’s free market fundamentalism.

When the true believers in the idealized free market – Ribstein as critic of Hollywood’s supposed bias and the Acton Institute using the stories of three entrepreneurs as the point of departure for proselytizing – do have their say, I find much to challenge in the stories they tell.

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