Tuesday, June 26, 2007

Is It a Generational Problem?

Duncan Stephen, a 21-year-old from Kirkcaldy, Fife (UK), currently studying Economics and Politics at Edinburgh University, is absolutely correct in his interpretation of the selfish charge often made against Adam Smith specifically and the exchange transaction known as ‘bargaining’ (usually complete with the ‘butcher, brewer, and baker, quotation from WealthOf Nations).

Here are Duncan Stephen's comments on this crucial passage:

In Adam Smith’s world, the bread maker gets what he wants by thinking about what his customer wants. In return, the customer gets what he wants by thinking about what the bread maker wants.

While the bread maker’s ultimate goal — to make money — is selfish (as is the customer’s), neither party gets anywhere without considering the other. The baker knows that he can make more money by pleasing his customers, so he has to think about what his customers want. By the same token, the customer will not get his bread unless he thinks about what the bread maker wants.

So in this system you cannot get what you want if you are selfish. This sounds like a paradox. But the fact that you can only get what you want by taking into account what others want is part of the genius of the market system

The above transaction involving the bread maker is obviously an extremely simple example which doesn’t look too impressive on its own. But most people go through several such situations every day. I am sure both Adam Smith and Friedrich Hayek saw markets as an intertwining network of social interaction. In such a system, you cannot possibly be an individualist! You cannot trade with yourself, can you?”

This is a correct presentation of Adam Smith’s views from Book I, chapter ii of Wealth Of Nations. Would that those epigones who quote this famous, because much quoted, and as often misinterpreted, passage read what they quote a little slower and with more attention.

If Duncan Stephen can get it right from the start of his studies, why can’t those faculty profs get it right too? Economics will be in safer hands if Duncan is representative of the new students in the ‘next generation’ as ASI calls them, than it ever was with the (many) profs who got it wrong.


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