Tuesday, August 09, 2005

On The Mediation of Self Interest

It’s a start in the right direction or and the end run in an old wrong song. Ariana Eunjung Cha writes the following:

"Adam Smith said that self-interest is the purest form of altruism. . . . As venture capitalists we are driven to produce financial returns, but to do that we have to think carefully about whether our investments solve unmet needs," said Robin Bellas, a general partner with Morgenthaler Ventures,” (“Dot-Coms Are So '90s; In Silicon Valley, Doing Good Is the New Thing”, Ariana Eunjung Cha, a Washington Post Staff Writer, Tuesday, August 9, 2005).

I am not sure where “Adam Smith said that self-interest is the purest form of altruism”, so we cannot be sure which it is. With ‘Discuss’ added at the end it could be a useful topic for an undergraduate class paper. It could also be an ingenious apology for leaving “merchants and manufacturers” completely free to do whatever they want to make profit.

Cha’s article continues the theme of enterprises deliberately adding ‘do good things’ to their portfolio of interests, either because ‘doing good is good to do’, or because it is good for PR (as Professor Friedman proclaims – as long as the CEO does not believe the PR and sticks mainly to makiing profits).

I have argued in “Adam Smith’s Lost Legacy” (Palgrave, 2005) that a fundamental error in economics is to see Adam Smith as a advocate of self interest by looking after self and letting others look after themselves. This is to misunderstand both “Moral Sentiments” and “Wealth of Nations”.

Markets (for moral sentiments and for goods and services) mediate the different self interests of participants. Each must modify their self interests to address the self interests of those they directly transact with. Just as a person must lower the self interested outrage at some discomforting event to the pitch with which the internal spectator can sympathise (or some expression of happiness at some joyous occasion), which modifies the social expression of feeling, making them acceptable to others, so two bargainers transacting for an exchange of what each wants for what each has got must, modify their starting rate of exchange (what each gets for what they want to give), making voluntary exchange possible, replicable and peaceful.

In that sense, Adam Smith could have held the view that pure self interest, expressed as the best way to serve one’s own interest is to serve the interests of others, could be seen as the ultimate in altruism. I would still feel uncomfortable with the link if put this way. Altruism is a rare behaviour, unreliable when you need it and not universally replicable in practice. More reliable are behaviours associated with moral sentiments and voluntary exchange and these are universally replicable, and are replicated across society, as Adam Smith showed, and society endorses in practice.

But, if it creates discussion on what he meant I am happy to pass the notion on to readers.

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