Self-Interest and Adam Smith
May 16, 2020Posted by on
This week on Facebook: The term self-interest means so many different things that I thought that a post would go someway to explain what self-interest means to me — especially when used in my 2017 post Self Interest, Economics & Altruism. In my dotage I am now more likely to read Adam Smith’s book on The Theory of Moral Sentiments than in his later book An Inquiry into the Nature and Causes of the Wealth of Nations. We could say that the moral sentiments on which Adam Smith based his inquiry into the wealth of nations, was not only lost on government (particularly the British parliament) at the time, but that they are lost to modern business management.
However, Adam Smith continues to be quoted as justification for the actions taken by governments and business management organisations, conveniently leaving out any moral sentiments attached (or choosing to misrepresent them), adding to the self-interest debate and prompting my inclusion of a reference to Common Caricatures of Self-Interest and Their Common Source¹. To understand Adam Smith you have to understand what he wrote both in “Wealth of Nations”, and his “Theory of Moral Sentiments”, Smith was an enlightenment moral philosopher and his thinking was influenced by the idealism of classical philosophy. Smith believed people should act morally even when pursuing their self interest. This is different from selfishness, rather it is enlightened self-interest.
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. 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. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. An Inquiry into the Nature and Causes of the Wealth of Nations (Book I Chapter II)
The focus on development as self-interest did not usher in, as Prime Minister Tony Blair would have us believe, an era of enlightened self-interest where “idealism becomes realpolitik.” Instead, development is promoted disproportionately when and where it serves the interests of wealthy countries. This will likely aid development in targeted states, but a widening gap will emerge as those not targeted are left further behind. Self-interest, and the countries left behind
I reflect often on, “Just what those who live in a developed economy are prepared to give up, if in fact they have to giver up anything?” In my 2018 post Wealth & Prosperity I tried to answer this question by asking another, “There has probably been more advances in technology during the 21st century and certainly more advances post WWII than at any known time in human history, so are the advances in technology to blame for the disparities in wealth and an increasing disillusionment with prosperity?”.
An entrepreneur who makes a profit in the marketplace has benefited others by giving them something they wanted more than alternative uses of the resources. Despite this argument we continue to hear moral condemnations of self-interested behaviour. Sacrifice and altruism are said to be our highest calling. Markets Channel Self-Interest to Serve All of Society
Assuming that self-interest is the sole motivating factor to self fulfilment² then collectively it may be that enlightened self-interest really is when idealism becomes realpolitik. However, perhaps there is new generation who take a more benign approach and apply Adam Smith’s concept of social good to a global society³!
The visibility of this global wealth disparity may, perhaps, create a disillusionment with wealth (per se) and a desire for a more prosperous global society. Wealth & Prosperity
1. Adam Smith: Today Smith’s reputation rests on his explanation of how rational self-interest in a free-market economy leads to economic well-being. It may surprise those who would discount Smith as an advocate of ruthless individualism that his first major work concentrates on ethics and charity.
2. Guess what? Self-interest is bad for the economy: Self-interest as the driver that, like an invisible hand, permits individuals acting on their own behalf to benefit society as a whole goes back to Adam Smith. But Smith at least realised the drastic inequities it would cause and proposed measures, including progressive taxes, to mitigate the worst effects. No such caution has been in evidence since the 1960s as the concept has become the central belief around which all Anglo-American corporate governance, and thence management as a whole, revolves.
3. The Real Adam Smith: A Personal Exploration by Johan Norbert, takes an intriguing, two-part look at Smith and the evolution and relevance of his ideas today, both economic and ethical. It’s difficult to imagine that a man who lived with horse drawn carriages and sailing ships would foresee our massive 21st century global market exchange, much less the relationship between markets and morality. But Adam Smith was no ordinary 18th century figure. Considered the “father of modern economics,” Smith was first and foremost a moral philosopher. The revolutionary ideas he penned in The Wealth of Nations and The Theory of Moral Sentiments, changed the world.
4. Self-Interest Is Not Selfishness: If all a person cared about was limited to himself or herself, that person’s self-interest could be equated with selfishness. But if someone cares about anything or anyone else beyond themselves, then this differs from selfishness in several important ways.
5. Kindness and Self-Interest: In fact, a growing body of research confirms that treating employees with kindness is actually in an organisation’s best interests—in addition to being just good human relations and common sense.
Referenced Articles Books & Definitions:
- A bold text subscript above and preceding a title below (¹·²·³), refers to a book, pdf, podcast, video, slide show and a download url that is usually free.
- Brackets containing a number e.g. (1) reference a particular included article (1-5).
- A link (url) includes the title references and source, a long read (or video exceeding 10 min)) url* is often indicated as shown.
- The intended context of words, idioms, phrases, have their links in italics.
- Occasionally Open University (OU) free courses are cited.
- JSTOR lets you set up a free account allowing you to have 6 (interchangeable) books stored that you can read online.
¹Common Caricatures of Self-Interest and Their Common Source (url/pdf): A realistic conception of self-interest is needed in the social sciences generally and public choice theory specifically; if widely adopted, this realist conception could boost explanatory power and perhaps even elevate what’s possible in our polity. A significant result of the spread of public choice theory in the past half-century is a widening distrust and disdain of government, politicians, and policymaking; by now each is suspected of being “contaminated” by self-interest, no less than are markets. Paraphrasing Shakespeare, there is now “a plague on both their houses.” Accounts of “government failure” now routinely accompany those of “market failure,” so failure now appears ubiquitous, in markets and politics alike.
³The Passions of Adam Smith — Self-Interest, Sympathy and Societal Good (url*): Smith saw the market as a societally useful coordinating system for harnessing self-interest, one of man’s many motivations, to produce good outcomes. Smith did not think markets always worked, that they worked perfectly, that they worked solely in the absence of any government involvement, or the like. Most importantly, to me, Smith never denied the obvious ways in which people are altruistic or other-regarded, rather, he focused on the limitations of such motivations for coordinating a complex society. Indeed, this scope of benevolence is part of Adam Smith’s distrust of politicians — even those who are most altruistic may still be focused helping a fairly narrow subset of others, and may end up hurting the whole.