Thursday, April 16, 2009

A Sympatheic Commentor on Adam Smith's Views

Winton Bates writes ‘How High was Adam Smith’s Jen Ratio?’ in
Citizen Economists HERE:

‘I have been looking forward to reading “Born to be Good”. I have previously considered on this blog the question of whether the inner nature of humans is good and I want to explore this topic further.

However, after reading a few pages I began to wonder whether reading this book will do much to improve my jen ratio. The problem is that it seems to me that Keltner’s discussion of the views of Adam Smith is uncharitable. Keltner claims that Smith portrayed Homo economicus as some kind of ideal of human evolution who was designed to maximize self-interest in the form of experienced pleasure and advances in advances in material wealth ( p 8).

Smith had a realistic view of human nature. I don’t think he saw humans as rational maximisers of anything, but it is true that he did make some famous observations about self interest as a motivating force. Smith stated: “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” (“Wealth of Nations”, I.ii.2). It seems to me that this is an observation about the way the world works rather than a statement advocating selfishness.

I think the closest Smith got to advocating selfishness is his claim that by pursuing his own interests an individual frequently promotes that of society: “I have never known much good done by those who affected to trade for the publick good” (W.N., IV, ii, 9).

It is arguable that Smith was being too cynical at that point. It is possible to think of examples of a great deal of good being done by not-for-profit organisations e.g. in running schools and hospitals.

Anyone who had an interest in presenting a fair picture of Smith’s views of human nature, however, would also take account of the views he presented in “The Theory of Moral Sentiments”. For example: “The virtues of prudence, justice, and beneficence, have no tendency to produce any but the most agreeable effects. … In our approbation of all these virtues , our sense of their agreeable effects , of their utility, either to the person who exercises them , or to some other persons, joins with our sense of their propriety, and constitutes always a considerable, frequently the greater part of that approbation” (TMS IV, iii, 59).

It is not fair to portray Adam Smith as promoting an “ideology about human nature … with a jen ratio trending toward zero”.

The ‘Jen Ratio’ is complicated to explain and readers should consult the article in the link above.

Adam Smith never portrayed anybody as Homo economicus (a late 19th century notion, much lauded by modern economists to no valid purpose), nor as ‘rational maximisers’ (a mid-20th century assumption that removes people from markets).

Yes, the famous quote about “the benevolence of the butcher, the brewer, or the baker” is about self-interest (“Wealth of Nations”, I.ii.2: 26-7) and Smith is postulating from observation and this did not mean either party was ‘selfish’.

Look closely at the paragraph: there are two self-interested parties, not just one. You in your self-interest want your dinner and you are willing to pay something for it; the butcher, brewer, and baker, want (out of their self-interest) to earn revenue by supplying you with your dinner.

The bargaining problem is to find a price that both parties can agree upon. But how is this determined? If you just go on about why you need your dinner and you ignore the interests of the sellers, and the sellers go on about why you should pay them the price they demand and ignore your interests, the result will be deadlock. But Smith goes beyond that narrow view of self-interest.

He advises you to ‘address’ your conversation to the sellers advantages (interests), not your own necessities (interests)’. And bargains are obtained by offering the other party something that is to their ‘advantage: ‘Give me that which I want, and you shall have this which you want’, known as the conditional proposition. As each party lowers their demands and improve their offers, they move towards an acceptable bargain.

The alternative is to demand the other party surrender and you will suffer deadlock. Two selfish demanders get nowhere. If that was the rule of bargaining in commercial society, it would never prosper.

The reference to “I have never known much good done by those who affected to trade for the publick good” (W.N., IV, ii, 9: 456) is not about ‘selfishness’, its about the discordant music played by a few when trading, again for no good end.

Winton Bates demonstrates a sympathetic appreciation of what Adam Smith wrote and is to congratulated for that. My remarks above are offered to clarify important aspects of his thinking.



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