Sunday, April 22, 2007

Please: Self-Interest in Adam Smith Does Not Mean Selfishness

Economists who stay in silos within their discipline miss a great deal of useful inter-disciplinary work that could contribute to their own insights in how societies and their economies work, and it is always encouraging to see prominent economists looking beyond the rigid demarcation lines around our subject. It would also be beneficial for some economists to look outside their own silo into the work undertaken within other silos within economics, as a start towards looking out of their windows.

Mark Thoma’s Blog, Economist’s View, (22 April) is always worth reading from selected articles and the inevitable shoals of comments that they attract.

Today he has a post entitled, ‘Unnaturally Good?’, which is about the prevalence of altruism and the problems this creates for some social scientists and how it was answered by ‘a brilliant British biologist named William D. Hamilton’, quoting from The Sunday Times online (Srilanka): ‘Is Goodness Natural?’, by Lee Alan Dugatkin, (Professor of Biology and Distinguished University Scholar in the Biology Department at The University of Louisville). His most recent book is "The Altruism Equation: Seven Scientists Search for the Origins of Goodness", Princeton University Press, 2006):

Hamilton ... began by defining three terms: the genetic relatedness between individuals (labeled r), the cost of an act of goodness (c), and the benefit that a recipient obtained when someone was nice to him or her (b). Using some beautiful mathematics, in the early 1960’s Hamilton discovered that altruism and blood kinship are not linked by an all- or- nothing relationship.

Instead, what is now known as “Hamilton’s Rule” states that altruism evolves whenever r times b is greater than c. In other words, if enough relatives receive benefits from altruism to outweigh the cost of altruism, then altruism spreads; otherwise, it does not

This sparks off the usual shoal of comments, in one of which Smith Acolyte says:

Only a small minority in each nation are truly altruistic beyond their immediate family/friends.

Adam Smith wrote that capitalism works because in a free market people can promote the common good by pursuing their own selfish interest. Not that everyone pursues only their own selfish interest, but many (most) do. No large economic system can work if it depends upon altruism. Small communes that depend upon altruism can last for awhile, because altruistic people can band together to help each other

Adam Smith said no such thing. Apart from Smith never mentioning the word ‘capitalism’ (not invented until 1854 – Smith died in 1790) or the phenomenon of capitalism and the ‘industrial revolution’, feature of the mid-19th century onwards, and completely unrecognisable to anyone living in the mid-18th-century, he most certainly never wrote favourably about ‘selfishness’, nor saw a positive role of it in society.

That is a gloss put on his work by 20th century neoclassical economists and picked up by their students. Smith also wrote a great deal about the self-interested actions of individuals working against the ‘common good’. A short sample would include his criticisms of ‘merchants and manufacturers’ seeking protection from competition; tradesmen (petty businesses in towns who conspire against the public to raise prices and cut supplies), sovereigns (governments) that make war for trivial ends, armies that indulge in rapine and plunder, landlords who are idle, adventurers who fail in business, prodigals who spend revenue on consumption and decry frugality, people who defraud banks and savers, retainers who are unproductive, agitators for trade protection and mercantile political economy, gullible legislators, politicians and all ‘men of system’ whose nostrums threaten social stability.

All these people (and others) act in their self-interest and against the common good.
People acting in their self-interest, but not always or necessarily (and the difference is important, may act unintentionally and without direction in a way that does benefit the public good. But that is not by acting ‘selfishly’. Self-interest is not selfishness. To confuse the two is to adopt the ideas of Bernard Mandeville (‘Fable of the Bees', 1724), which Smith directly criticises in ‘Moral Sentiments’ as a ‘pernicious’ notion.

On Hamilton’s rule I observe that it does not explain behaviours regarded as ‘altruistic’ among people unrelated to themselves genetically, but it is a most useful starter for those getting into the subject.


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