Self-Interest is Not Selfishness

In a post I made on 10 November (see below), Greg Baldwin posted a comment. I would normally just reply to the comment. However, I consider the exchange of wider interest and importance, and to avert it being missed by those who do not search for the rare comments Lost Legacy receives, I post the exchange of comments for wider readership:

“Greg Baldwin said...

Thanks for the comment. Secretly I want to believe that self interest and selfishness can be neatly distinguished, but I'll confess quotes like this from our friend Mr. Smith have not helped me to find the clear distinction:

"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 self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

`Adam Smith, Wealth of Nations’

I'm not sure I fully understand everything Smith is trying to say here, but self-love + self interest do seem to be at least the basic ingredients for selfishness...no?

What am I missing?"

To which I replied:

Hi Greg

Thanks for your comment.

Many people quote the “Butcher, Brewer, Baker” example from Smith’s Wealth Of Nations (WN I.ii.2: 26-27) without appreciating exactly what he was saying. He advanced the same example in the 1762-3 lectures (23 March, 176: vi.46: 348) that he gave in Glasgow University (Smith, Lectures On Jurisprudence, Oxford University Press/Liberty Fund: 1978), hence it was an early part of his oeuvre long before he wrote Wealth Of Nations.

‘Self-interest’ and ‘self-love’ in 18th-century discourse did not mean selfishness and were clearly distinguished.

Bernard Mandeville (1724) celebrated selfishness as a virtue (as did Ayn Rand in the 20th century). Smith regarded Mandeville’s teachings as “licentious” (Moral Sentiments, 1759: TMS VII.ii.4: 306-14)).

Examine the quote: we expect our dinner “from their regard to their own self interest”. But there are two people in each transaction: the hungry would-be diner and the shopkeeper potentially supplying the meat, beer, or bread.

Smith excluded the virtuous motive of their “benevolence” as too weak to rely upon regularly (as common sense suggests it would be, except at the margin). So how is the transaction to be conducted?

“We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

We don’t talk of our necessities in the transaction but address “their self-love” - they are self-interested too! They have gone to the trouble of securing supplies of “meat, beer, and bread” and offering them for sale to potential customers.

The earlier transactions of the “butchers, brewers, and bakers” to secure their supplies (from farmers and those along the supply chain) involved multiple transactions on the same basis. All suppliers need access to freely bargained exchanges to supply their families with their needs from others.

In the sentences immediately preceding the ones you quote, Smith wrote:

“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 such 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.”
(WN I.ii.2:26)

This is a clear description of the bargaining processes by which we obtain “those good offices which we stand in need of”.

Each party is self-interested in the outcome, but (and it is an important ‘but’) neither can obtain what they want without addressing what the other wants in voluntary exchange transactions. Two utterly selfish egoists would seldom, if ever, come to a voluntary agreement – neither would give up anything in place of demanding their price “or else”.

As Smith put it, in social converation we “persuade” to get what we want. Highlighting why something (what we offer to give) is good for someone is often a good place to start when seeking what we want to get.

That is the meaning of the paragraph from which you take the well-known quotation (in the process of which you elide from the 18th-century meaning of self-interest and self-love to a later meaning).

To read this as Smith advocating selfishness is quite different from the intended and explicit meaning of Smith's moral philosophy, as expressed in that paragraph.

And that Greg is the answer to you question: “What am I missing?”

An Unbridled Error

Stephen Fleischman, writer-producer-director of documentaries (see www.amahchewahwah.com, e-mail stevefl@ca.rr.com), writes in the
The Smirking Chimp HERE:

“Hypocrisy Unbridled”

“Going back to Adam Smith, the concept that the "invisible hand" of the free market would keep the capitalist economy in balance has been the conventional wisdom. Capitalism must grow or die. And grow it did. Mergers and acquisitions became the modus operandi as corporate enterprises struggled with their competitors to survive.”

Comment
Stephen Fleischman writes a racy and articulate polemic against the “hypocrisy” of certain ideas about capitalism, as taught him from his long experience in tv news media.

Yes, the “conventional wisdom” may very well be as stated above, but this view has nothing to do with anything Adam Smith wrote. The “conventional belief” was an invented myth by certain economists in the 1950s. Indeed, it is a distortion of the significance of Adam Smith’s single reference to “an invisible hand” in Book IV of his Wealth Of Nations which also discusses markets in Books I and II, without mentioning “an invisible hand”.

This is more than an academic quibble. If you believe that markets are kept in “balance” (whatever that means!) by such an entity then you are in severe danger of complacency when events show that markets are out of “balance”.

Recent events have shown how fragile such beliefs attributed to Adam Smith are with leading personages, such as Alan Greenspan, who included in his very public “mea culpa” a renunciation of his belief in the “invisible hand”, as if Adam Smith had somehow let him down and was responsible for his own self-deception, courtesy, it may be said, of listening too much to Ayn Rand.

Beyond The Facts

Anthony North posts in Beyond the Blog HERE:

“Let me make something very clear. Greed is not bad. In order to succeed both individually and as a society, we need to be stimulated. Due to this, we have urges. Without them I doubt if humanity would have advanced at all – and greed is one of those urges.

The problem comes in the level of greed we display. Be too greedy and we hurt both ourselves and society, so it’s a matter of balance. Sadly, though, in today’s capitalism we have a glorification of greed, with it getting out of control. This was not how capitalism was meant to be, originally devised by Adam Smith as a
philosophy to go alongside thrift. We seem to have turned something noble into a feeding trough.”

Comment
“Greed is one of those urges” but is it predominant? Is everybody greedy for everything all of the time? I don’t think so. Life would be pretty grim if it was.

Bernard Mandeville, author of “The Fable of the Bees” (1724), developed a whole philosophy on the basis that greed predominated and he gave it his blessing (“Private Vice, Public Virtue”).

Ayn Rand modernised the idea that selfishness was a virtue and created a school for her philosophy (“Objectivism”) which found popularity undergraduates philosophy classes. (You can find some of her lectures on U-Tube, with wide-eyed students listening in awe).

However, greed and selfishness were never popular with Adam Smith. He called Mandeville’s philosophy “licentious” but plausible in parts as an observation of an aspect of human nature in his book The Theory of Moral Sentiments (1759).

Anthony asserts that “in today’s capitalism we have a glorification of greed, with it getting out of control.” Well, is a point of view, though you can read 18th-cxentury sermons in the same tone, and I doubt whether you will find examples throughout history where similar sentiments have not been expressed by someone about their contemporaries.

But Anthony also asserts “This was not how capitalism was meant to be, originally devised by Adam Smith as a philosophy to go alongside thrift.” Where does Anthony get the mishmash of erroneous ideas to compose such a sentence?

There is no such way in which ‘capitalism was meant to be’. Social systems are not ‘designed’ by anyone. The appear in various forms and experience different histories according to how individuals react to circumstances.

Hayek, and others, refer to this as a ‘spontaneous’, or ‘emergent’ order, unintentionally arising by the independent actions of people. That, if I may say so, is their strength. No single person could undertake the myriad of actions that would enable an economy to establish itself, for good or ill.

Which makes the second part of his paragraph, “originally devised by Adam Smith as a philosophy to go alongside thrift”, a misreading of both the emergence of what we call now call capitalism and a misattribution to Adam Smith of that which he had no conscious part.

For a start, Smith neither knew the word, nor the phenomenon of ‘capitalism’. The word itself was first used in English (Oxford English Dictionary) in 1854 by Makepeace Thackeray in his novel, The Newcomes. Smith died in 1790. He couldn’t devise that which did not yet exist, and couldn’t devise a complex economic system even if he had wanted to. In fact, he warned against ‘men of system’ who, ‘wise in their conceit’, force their designs upon others.

Adam Smith was a moral philosopher and saw his scholarly duty as ‘doing nothing, but observing everything’. He analysed how commercial societies functioned in 18th-century Britain – already a major trading economy and major political player in Europe – and wrote in his Wealth Of Nations a devastating critique of mercantile political economy, as practised in Europe.

The players in commercial society dispersed in their private lives did not conform to a master plan for commerce or government. Depending on their history and circumstances their commercial societies grew ‘slowly and gradually’ (some of which struggled because state interventions held back their natural courses and all were affected by the usual ‘jealousies of trade’, petty wars of dynastic succession, legislated anti-competitive tariffs, protections and prohibitions, and the vagaries of different personalities.

To see history as a journey from a sort of ‘ideal’ design towards “a feeding trough” is quite inadequate. Anthony North should re-think his assessments, perhaps read a bit more Adam Smith, and reflect on his current opinions.

Edmund Gets It Wrong Too

Edmund Conway, apparently the economics editor, writes in The Telegraph (London) HERE:

“What Gordon Gekko got wrong”

The "invisible hand" is shorthand for the law of supply and demand and explains how the pull and push of these two factors serve to benefit society as a whole. The simple conceit is as follows: there is nothing wrong with people acting in their self-interest. In a free market, the combined force of everyone pursuing his or her own individual interests is to the benefit of society as a whole, enriching everyone.

Smith used the phrase only three times in his 1776 masterpiece The Wealth of Nations, but one key passage underlines its importance: "[Every individual] by directing [his] industry in such a manner as its produce may be of the greatest value he intends only his own gain, and 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. I have never known much good done by those who affected to trade for the public good."

Comment
Edmund Conway gets it wrong too.

Geko’s script writer was expressing Bernard Mandeville’s philosophy (The Fable of the Bees, 1724), and, in modern form, the ideas of Ayn Rand. He was not expressing anything written by Adam Smith.

Adam Smith’s use of the popular 18th-century metaphor of ‘an invisible hand’ in Wealth Of Nations (1776) had nothing to do with his exposition of supply and demand. Smith clearly states his theory of supply an demand in Books I and II of Wealth Of Nations without once mentioning ‘an invisible hand’.

Edmund Conway discloses, inadvertently I am sure, that he has never read Wealth Of Nations:

“Smith used the phrase only three times in his 1776 masterpiece The Wealth of Nations”

If he had read it even once he would know that Smith only used the metaphor, ‘an invisible hand’ ONCE in all 900-plus pages of Wealth Of Nations, in Book IV, chapter 2, paragraph 9, page 456 (Oxford University Press, 1976).

I wonder where the other two references are? If Edmund Conway can show us any other references to the metaphor in Wealth Of Nations, I and most other Adam Smith scholars would be most surprised to say the least.

As a journalist, Edmund should know that statements claiming to be fact should always be checked and then double-checked by Editors, especially economics editors.

Friends Like Richard Are No Help At All

Richard Bernstein writes in the International Herald Tribune (11 March) HERE:

'Responsible middle' gets no help in crisis’

'So, what's in this for me?" my friend wanted to know. He was asking in good Adam Smith fashion - whose theory was that the common good emerges when everybody works for their own selfish interest - how he could benefit from the current financial crisis.’

Comment
I would advise ‘Zach’ (Richard Bernstein’s friend) not to ask said Richard anything about what’s going on (or not, as the case maybe) in the house-finance markets, because anybody who does not know what Adam Smith’s ‘theory’ (indeed, moral philosophy) was about, and who makes such a ridiculous tabloid hash of it, is not the person to trust on such matters.

Adam Smith never said anything like: ‘the common good emerges when everybody works for their own selfish interest’. And this is not just a quibble.

Smith gives over 50 instances of people working for their ‘own selfish interest’, under the guise of working for their ‘self interests’ (a quite different idea, but that will only confuse Richard), which worked against the ‘common good’ in Books I and II of Wealth Of Nations. Clearly, Smith would not have been so inconsistent as Richard claims him to have been.

In fact, Smith never spoke favourably of selfishness. Richard confuses him with Ayn Rand (1960s) or even Bernard Mandeville (1734). They both lauded selfishness (Rand by making it a virtue and Mandeville by making it a social compulsion – ‘private vice, public benefits’). But not Adam Smith; he called Mandeville's theory 'licentious'.

I’m sorry for Zach having a ‘friend’ like Richard.

Left Split Modern Rightwing from Adam Smith

Devilstower writes in the Daily Kos, HERE:

An obviously leftish rant against the right, entitled: “The President and Private Pay”, which includes this paragraph:

“In the past, people were able to distinguish between capitalism and chaos, and understood that government intervention in the markets was needed when the organizing principle of the markets was sent askew. The idea that the market is inviolable and all-knowing didn't really start with Adam Smith. It's more a product of the Ronald Reagan-Ayn Rand fusion of the 80s -- the one that drove "hands off" legislation leading to the S&L meltdown. That was the source of inspiration for stripping away the protection that had kept the market sane since the last time these guys got their way.”

Comment
I make no claims for or against the political contents of Devilstower’s piece. The politics of another country are not my concern. The key sentence for me is:

“The idea that the market is inviolable and all-knowing didn't really start with Adam Smith. It's more a product of the Ronald Reagan-Ayn Rand fusion of the 80s -- the one that drove "hands off" legislation leading to the S&L meltdown.”

At last, a recognition that the linking of Adam Smith to post-1950s mainstream economics was and remains a false attribution and is a step forward in re-asserting Adam Smith’s legacy.

So close is the identification of Adam Smith to Ayn Rand’s (among other modern ideologues) has led to immense confusion, even ensnaring Greenspan, who like so many leading commentators on these issues, linked the Adam Smith invented by Friedman, Arrow, and other Nobel prize-winners, to general laissez-faire policies with which there is little textual support in Wealth Of Nations or Moral Sentiments.

Of course, the Left also misread Adam Smith as some sort of social democrat on the basis of selective quotations from his polemics against mercantile political economy, still prevalent in the 21st century, as it was during the 15th-18th centuries.

But small steps by one side or the other add up, slowly and gradually, to rectifying these errors, and are to be welcomed no matter from which place on the political spectrum they come from.