Monday, October 16, 2006

A Mistake We Should Not Make

Of the many famous, oft quoted, paragraphs in Smith’s Wealth of Nations, the bit about the lack of ‘benevolence’ among ‘butchers, Brewers and bakers’ is among the most popular. It is also widely misunderstood.

Andrew O. Morriss, Professor of Business Law and Regulation, Case Western Reserve University School of Law in Cleveland, writes in the Charlotte Observer, North Carolina:

"Businesses that do, prosper and grow. Businesses that don't, go out of business. That simple test has had amazingly powerful results, producing goods and services that have enabled hundreds of millions of people today to live lives filled with wealth unimaginable even to royalty as little as a hundred years ago.
How was all this wealth created?

Adam Smith said it best in 1776 when he wrote in "The Wealth of Nations" that, "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest."

Markets harness self-interest to the good of all by rewarding those who meet human needs. It is too easy to forget that the natural state of humanity for millennia was poverty and that only recently have we stumbled on the institutions that enable all of us to escape from lives of hunger, disease and cold to a world so full of resources that a major problem facing the poor in America is obesity.

If we are all to have dinner tomorrow, we need to heed Adam Smith's advice and keep the politics out of today's business

Read the article at: (

Yes, but don’t leave it there, for that misses an important element of Smith’s reference to the ‘butcher, brewer and baker’ much quoted paragraph (WN I.ii.2: p 26-7).

At the moment when you are seeking your dinner and not relying on their benevolence, you still haven’t got your dinner, as Smith makes clear if you read on.

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.’ (WN II.ii.3: p 27)

In other words, we achieve our self-interest only by addressing the self-interests of others, and what is true for us is true for others. The butcher, brewer or baker does not tell us that we should buy their products because of their needs, their interests, they tell us about how their products, their meat, beer and bread will give us the bestest of dinners, the most wonderful nutrition, the joy of culinary delights and years of good health and happiness, etc. (OK, I exaggerate a little, but it’s called selling by appealing to the customer’s ‘self-love’ and self-interest.)

Now almost all Chicago trained economists miss this point and blithely quote Smith as if he never uttered another word, and from which they construct theories of self interest as if that is all that drives human behaviour in markets. Smith’s message was that it isn’t all there is. Gecco got it wrong, or at least the script writer did, when he wrote ‘greed is good’.

If bargainers solely concentrate on themselves and their self-interests they would hardly ever reach agreement until both parties are starving, one of them gives in, or they use force, none of which are conducive to social harmony. It’s not our self interest that drives markets through bargaining but the mutual mediation of self interest from each party to the transactions of life by addressing the interests of others.

Smith never made the mistake of stopping at only our own self interest. Neither should we.


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