Saturday, November 24, 2007

George Stigler Did Not Understand Adam Smith on Self Interest

David Hoopes criticises an ‘award-winning paper from the Academy of Management Review (Ferraro, F., Pfeffer, J., and Sutton, R.I., “Economics Language and Assumptions: How Theory Can Become Self-Fulfilling”)’ in the Blog: Organisations and Markets here.

The award winning article says: “If people are relentless in the pursuit of their own self-interest and equally relentless in their lack of concern for others’ interests. . . .” What? Where did that second part come in?

I added a comment on the Organisation and Markets' Blog:

If people are misled that economists assert 'relentless self interest' (in its extreme the 'greed is good' perversion) we have George Stigler to thank (Wealth Of Nations 'is a stupendous palace erected upon the granite of self-interest').

It is a misreading of that famous passage about the 'butcher, the baker, and the brewer' (WN I.ii.9: p 27). Smith specifically enjoins you to address yourself 'not to our own necesities, but of their advantages'.

In bargaining that is what we must do: address the other party's self-interest, not our own. If we both relentlessly address own interests, we would never agree to a deal. We must mediate our self interest by taking account of the other party's self interests.

I discuss the subject of of Adam Smith's actual views on self interestin more detail in Chapters 22-24 of Adam Smith's Lost Legacy (2005: Palgrave Macmillan).


Post a Comment

<< Home