Wednesday, March 03, 2010

More on Smith and Market Morals

From Beezer Notes HERE

[Originally published and written by by Maxine Udall (“girl economist”) HERE

“The Market For Morals"

Markets are places of reciprocity, of fair exchange, of a sort of equalizing justice. Without money or markets, there would be “no exchange or association.” The demand for services that are mutually beneficial is part of what holds society together. In Aristotle’s time, markets drew people out of their homes and into the marketplace to interact with their neighbors and townsmen and women; to observe the behavior of merchants over time; to develop sympathy for the individuals that they traded with; and to become invested in the welfare of their community. Markets were the warp upon which was woven the social fabric that binds us into community.

In Adam Smith’s time, markets had expanded beyond the Agora and the village square, but the social by-products of market transactions were not much different. The oft-repeated transactions of market exchange and trade provided opportunities for the development of individual virtues such as temperance and prudence as well as the social glue of mutual sympathy, trust, loyalty, and justice. Unfortunately, Smith’s thoughts (in Theory of Moral Sentiments) on the moral glue that binds us have been largely ignored, while a very few passages from Smith’s Inquiry into the Nature and Causes of the Wealth of Nations have become the scaffolding in support of extremely dysfunctional markets and the rhetoric that promotes them.

Here’s Smith saying something similar, but more nuanced than Aristotle:

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 for 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.” [WN I.ii.26-7]

Of course, Smith’s conceptualization of “self-love” was much broader than the narrow “self-interest” that is often confused with it. Self-love hearkens back to Smith’s Impartial Spectator in TMS, the moral arbiter within:

“It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct…who calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration. It is from him only that we learn the real littleness of ourselves. It is this impartial spectator . . . who shows us the propriety of generosity and the deformity of injustice; the propriety of reining the greatest interests of our own, for the yet greater interests of others . . . in order to obtain the greatest benefit to ourselves. It is not the love of our neighbor, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, the love of what is honorable and noble, the grandeur, and dignity, and superiority of our own character

[TMS III.3.4: 137: from the Man of Humanity and the Earthquake in China]

Read the whole article - follow either link -it's well worth your time to read a concise exposition of the morality embedded in Smith's moral theory of markets and a timely reminder that there was much more to Adam Smith's analysis of how markets work most effectively in a moral environment.

Maxine Udall's Blog is well worth your regular visits (HERE)



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