Jay Richards on Selfishness

Jay W. Richards, author of Money, Greed, and God: Why Capitalism is the Solution and not the Problem (2009), (15 October) writes in The American (the journal of the American Enterprise Institute) HERE:

"Greed Is Not Good, and It’s Not Capitalism"

“The Virtue of Selfishness?

You might think that greed has been bound up with defenses of modern capitalism from the very beginning. You might recall Adam Smith, the father of modern capitalism, who famously wrote, “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.” Ayn Rand and others seemed to extend Smith’s point by treating greed as the basis of a free economy. There are connections here of course; but Smith never argued that greed is good. His view was far different, and far more subtle.

Adam Smith argued that in a rightly ordered market economy, you’re usually better off appealing to someone’s self-love than to their kindness.

First, Smith argued that in a rightly-ordered market economy, you’re usually better off appealing to someone’s self-love than to their kindness. The butcher is more likely to give you meat if it’s a win-win trade—if there’s something in it for him—than if you’re just asking for a handout. This is, or should be, common sense.
Second, Smith knew the difference between self-interest and mere selfishness. Every time you wash your hands or take your vitamins or clock into work on time or look both ways before you cross the street, you’re pursuing your self-interest—but none of these acts is selfish. Indeed, generally speaking, you ought to do these things. Greed, in contrast, is a sort of disordered self-interest. Adam Smith, the moral philosopher, always condemned it as a vice.

Third, Smith never argued that the more selfish we are, the better a market works. His point, rather, is that in a free market, each of us can pursue ends within our narrow sphere of competence and concern—our “self-interest”—and yet an order will emerge that vastly exceeds anyone’s deliberations.

That’s the problem with socialism and all sorts of nanny-state regulatory prescriptions: They don’t fit the human condition.

Finally, and most importantly, Smith argued that capitalism channels greed. He recognized that human beings are not as virtuous as we ought to be. While many of us may live modestly virtuous lives under the right conditions, it is the rare individual who ever achieves heroic virtue. Given that reality, we should want a social order that channels proper self-interest as well as selfishness into socially desirable outcomes. Any system this side of heaven that can’t channel human selfishness is doomed to failure. That’s the genius of the market economy.”

Comment
I have criticised many times on Lost Legacy the cynical author of the Hollywood film script, Wall Street, for putting out the “Greed is Good” nonsense. Such a view had nothing at all to do with Adam Smith, either in Wealth Of Nations or Moral Sentiments.

Jay’s article is almost a perfect riposte to the Gekko libel about capitalism except for a paragraph elsewhere in it:

“In contrast, capitalism is fit for real, fallen human beings. “In spite of their natural selfishness and rapacity,” Smith wrote, business people “are led by an invisible hand ... and thus without intending it, without knowing it, advance the interest of the society.” Notice he says “in spite of.” His point isn’t that the butcher should be selfish, or even that the butcher’s selfishness particularly helps. Rather, he argues that even if the butcher is selfish, he can’t make you buy his meat. He has to offer you meat at a price you’ll willingly buy. He has to look for ways to set up a win-win exchange. Surely that’s good.”

Jay compresses two paragraphs together from Wealth Of Nations to make this unnecessary point about the so-called “invisible hand”. However, the example he makes of the “butcher, brewer, and baker” paragraph (Wealth Of Nations, Book I.ii.2:27) is spot on and worthy of wider circulation.

Regular eaders of Lost Legacy will know that Smith was not referring to all “business people” being “led by an invisible hand”, but only to those in a special case when they preferred the home trade to foreign trade, the trigger for their behaviour being their risk-avoidance regarding foreign trade (Wealth Of Nations, Book IV.ii. paragraphs 1 to 9: 452-56).

However, this corection is for the record only and in no way diminishes the excellent case that Jay Richards makes against the elision of self-interest into selfishness. Bernard Mandeville (1734: Fable of the Bees ) and his modern epigone, Ayn Rand, were absolutely wrong about selfishness. Adam Smith (and Jay Richards) was absolutely right about the anti-commercial sentiments of "selfishness".

A candidate for the October Lost-Legacy Prize?

An Hour in the Life Of a Humble Journeyman

I have a copy of Hector C. Macpherson’s (1899) "Adam Smith", Famous Scots Series, Oliphant Anderson & Ferrier, Edinburgh, in my library in France, which I had cause to look up shortly after I arrived at for a week. I acquired my copy in a second-hand bookshop in Edinburgh in the early 90s for £5.00. There is an interesting inscription on the fly-leaf:

“With Mrs Pollocks’ best wishes. To Willie T. McVittie, Manse Auldgirth. July 1916.” Maybe, “Willie” was of an age for a First World War call-up and Mrs Pollocks thought he needed some good moral guidance?

The Manse, of course, was the Church of Scotland’s local Minister’s house, provided by the Kirk (the phrase, "son of the Manse" was a much used one until recently) and many Manses have been sold at good prices because they generally were subtantially built).

When I wrote (2003-05) my Adam Smith’s Lost Legacy (2005, Palgrave Macmillan), I quoted from Macpherson’s book:

“...Smith’s conception of economic science, including as it did the co-operative and sympathetic side of life, was eminently hopeful and enervating. His view of the industrial order was wide enough to give full play to that subtle psychological chemistry by which egoism is transmuted in altruism. In Smith’s words: ‘In civilised society man stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.’ In such a state, as Smith goes on to show, man can most satisfactorily connect himself with his fellows through the medium of the reciprocity of services – a process which invests self-interest with a social and ethical quality. From this social and ethical germ develops all the higher virtues of civilisation.” (pp. 75-6)

“Hector Macpherson’s (1851-1924) unpretentious little book demonstrates a clearer understanding of Smith’s works than has been exhibited by many distinguished authorities. The sentence: ‘His view of the industrial order was wide enough to give full play to that subtle psychological chemistry by which egoism is transmuted in altruism’ allied to the phrase ‘the reciprocity of services’ cuts through the worthless babble about ‘selfishness’ and its associated ideas of ‘economic man’ (the one with the dismal personality).”

“...Economic science suffers, from what Macpherson called a ‘distracting confusion’, because it ignored how people actually satisfied their wants through reciprocal exchanges in real markets. Smith’s insight is no manifesto to selfishness, nor a triumph of the one-sided pursuit of self-interest (or indeed, a paean to the ‘granite of self-interest)! It is not necessary to wriggle to ‘softer’ interpretations of self-love’ to defend Smith’s insight.” (p. 114)

By the time I was compiling the Lost Legacy manuscript I had forgotten about Macpherson's ieas on the invisible hand and the social harmony that was induced by reciprocation. That particular part of my Lost Legacy concentrates on Smith’s unique assessment of the role of bargaining (corresponding with mine, as I had spent twenty-years observing and teaching bargaining at Business Scools).

I dealt briefly and inadequately at that time with the invisible-hand metaphor in chapter 39 of Lost Legacy, though traces of my eventual considered opinion are clear enough (see: "Adam Smith and the Invisible Hand: from metaphor to myth", 2009 HERE). It was not as important to me at the time in 2005 as it has become; the almost unanimous and serious misinterpretation of the famous "Butcher, Brewer, Baker" passage in Wealth Of Nations (WN I.ii.2: 26-27) was far more important than the invisible hand was to become.

Macpherson ascribes the invisible hand to the “ability” by which society in modern terms lessens the “individual struggle for existence” (progress to opulence?) in a “constant transformation of the onerous into the gratuitous utilities of life”. Looking at the transformation of the UK throughout the 19th century from Macpherson’s perspective, the spread of opulence was real (though children in Edinburgh slums were photographed shoeless around this time); in the early 19th century, Edinburgh slums were indescribably worse.

A Financial Advisor who Understands Adam Smith

Michael Hennigan, Founder and Editor of Finfacts (Ireland) HERE, writes a most encouraging post : ‘The "free market" in these calamitous times’, containing this gem:

“Adam Smith, the father of modern economics, in his 1776 book The Wealth of Nations, identified the importance of individual self-interest, but contrary to what some critics have claimed, his emphasis was that you serve your own self-interest by serving the self-interest of others. It is not what is generally concluded because the last line of the following extract is what is most often quoted, in isolation:

"In civilized society he [man] stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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 self-love, and never talk to them of our own necessities but of their advantages."

Comment
Regular readers of Lost Legacy will recognise this familiar quotation from Wealth Of Nations (WN I.ii.2: pp 26-7; Edwin Canaan, 1937 edition, p 14).

Michael Hennigan is absolutely right in his reading of this famous passage. Congratulations.

A Good Case for Markets Spoiled by Misuse of Quotations

Walter E. Williams posts (18 February) ‘Economic Miracle’ in The Patriot Post (‘the conservative journal of record’) HERE:

“Adam Smith, the father of economics, captured the essence of this wonderful human cooperation when he said, "He (the businessman) generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. ... He intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain." Adam Smith continues, "He is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. ... By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." And later he adds, "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."

If you have doubts about Adam Smith's prediction, ask yourself which areas of our lives are we the most satisfied and those with most complaints. Would they be profit motivated arenas such supermarkets, video or clothing stores, or be nonprofit motivated government-operated arenas such as public schools, postal delivery or motor vehicle registration? By the way, how many of you would be in favor of Congress running our supermarkets?”

Comment
While agreeing with much of the content of Walter E. Williams’s article, I am bound to say that he also exposes that he has never read Wealth Of Nations from which he quotes.

This is obvious from his lack of context to his quotation of the famous and sole ‘invisible hand’ paragraph from page 456 in Book IV of Wealth Of Nations, which doesn’t quite say what he alleges it does. But leave that alone. It is an error that many (most?) people make and I have answered it many times on Lost Legacy.

However, he then says: ‘And later he adds, "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”, which is on page 27 of Book I, that is 235 pages earlier than page 456, and is by no means ‘later’. Clearly, Walter has never opened a copy of Wealth Of Nations, otherwise he would not have made such a crass error.

Is this important? Well, it is indicative that Walter relies on ‘popular’ versions of the misuse of The Metaphor, which are usually quite wrong.

I have read prominent economists, of unimpeachable standing, join the invisible hand paragraph (there is only one in the entire Wealth Of Nations written by Adam Smith) to the ‘butcher, brewer, and baker’ paragraph as if they appear together.

Even then, they miss the point Smith makes in the ‘butcher, brewer, and baker’ example: Smith advised those seeking their dinner to appeal not to their own self-interests, but to address themselves to the self-interests of the ‘butcher, brewer, and baker’. In short: you serve your own self interests by serving the self interest of others, which is not how most economists conclude from what is plainly written there.

But, this paragraph has nothing to do with The Metaphor of ‘an invisible hand’ as Smith used it, nor anything to do with how the numerous authors before and contemporary with Smith used it (download my paper, Adam Smith and the invisible hand: from metaphor to myth, from Lost Legacy’s home page, in red).