Tuesday, March 11, 2008

Again: Adam Smith Did Not Agree With Bernard Mandeville


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Mark Koyama, of Oxonomics (‘economic perspectives from the dreaming spires’) writes a comment on my previous post: “Private Vices, Public Benefits: The Straussian connection between Adam Smith and Mandeville” (here)

Kennedy begins:

'I know Bruce Fein is out of his depth in the sentence: ‘Smith recognized the happy convergence of private greed and public good in competitive markets.’

I actually think this statement is fair. Fein might well be thinking of the oft-quoted line about a the butcher and the baker. But Kennedy writes:
'This was never anything that was written by Adam Smith. Quite the reverse!”


Comment
Mark Koyama has to do more than that to give his opinion that it is a ‘fair’ judgement. If Smith did write anything that suggests he ‘recognized the happy convergence of private greed and public good in competitive markets’, Mark is obliged to cite the evidence.

What he cites in fact is: ‘Fein might well be thinking of the oft-quoted line about a the butcher and the baker,’ but does not explain his meaning. An interesting choice, but as I have explained many times on Lost Legacy (and in my book, Adam Smith’s Lost legacy, Palgrave, 2005) the ‘butcher, brewer, and baker’ paragraph is a clear example of the difference between seeking one’s self interest, as Adam Smith explained it, and the ‘private virtue’ of ‘selfishness’.

Here is Adam Smith on bargaining in Wealth of Nations (he made similar statements in his Lectures, 1762-3):

But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. 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. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens.’ (WN I.ii.2: pp26-70).

Apart from avoiding confusing 18th century ‘self love’ with selfishness. Note how his success in gaining another person’s ‘help’ depends on ‘if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them.’ And he repeats this as: ‘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.’

This requires him to consider the other person’s ‘self love’ and not to insist only his own. This is, decidedly, is not ‘selfish’ behaviour. It requires an active concern for others in seeking what we want. Smith expresses this as a bargain:

Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.

‘Truck, barter, and exchange’ by bargaining is not selfish and the point Smith is making is that by addressing what the other party needs we receive what we want. Bargaining mediates the self interests of both parties. Two bargainers start with two solutiosn to the same problem: the buyers and the sellers do not agree on the common price. In bargaining they eventually agree to a single solution in the form of a price they both agree to exchange at.

Two parties acting purely selfishly would be unable to modify their demands and improve their offers. They would inevitably deadlock in a battle of their egos; nobody would get their dinners and the butcher, the brewer, and the baker, would make no sales. Fortunately, the propensity to ‘truck, barter, and exchange’ is entrenched in human behaviour and society is more harmonious because of it.

Mark Koyama links Mandeville to Machiavelli ‘any attempt to impose virtue on society would led to poverty’. Adam Smith would have recoiled at the notion that ‘virtues’ could be ‘imposed’ on society; he said virtue ‘cannot be extorted by force’ (an obvious assertion, I hope) (TMS, p78, passim).

True, it is the main theme of the Fable of The Bees’ too, but who was proposing to do so?

It would take too long to go through the Smithian impartial spectator idea, but it’s all set out in Moral Sentiments, along with Smith’s analysis of the negative virtue of justice which is imposed by force.

Mark Koyama’s opinion on Adam Smith’s relationship with the licentious philosophy of ‘greed’, ‘selfishness’, private vices’ as presented by Bernard Mandeville is problematical when set against Smith's books.