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).