Great Example of Benign and Non-Benign Self-Interest in Markets
Nicholas Gruen writes in Club Troppo (Australia) Here:
“That makes them [mortgage brokers] like computer salespeople in a department store – people who often know a lot more about the product they’re selling than their clients and able to sell from a range of brands. The good ones try very hard to inform their clients and indeed to get them the best loan possible, both because they like helping people with their skill and because in a competitive marketplace, doing the best they can do for their clients is a pretty good recipe for their own self interest (See Adam Smith, 1776 for further details).”
Comment
I am pleased to say: absolutely correct! This is an example of the correct use and reference to Adam Smith on self-interest motivating some, though unfortunately, not everybody to behave morally in a market.
Indeed, in the context in which Nick writes (follow the link) he explicitly states that other mortgage advisors in Australia do not advise their clients with complete honesty (by disclosing that they receive commissions from a select group of mortgage funders and that, in consequence, they withhold information about the other non-commissioned, perhaps better, deals more suited to their customers).
That fact shows, if such a demonstration is really necessary, that self-interest is not always socially benign from everybody in every instance. That is why indiscriminate belief in ‘an invisible hand’ is so fallacious a construction placed by modern economists (post-Samuelson) on Adam Smith’s singular use of the IH metaphor in the specific instance in which he used it in Wealth Of Nations.
Please note, especially, there is no mention by Nick Gruen of the unnecessary use of the metaphor of “an invisible hand”, which is so easily slipped in today as a (benign) general rule, such as making ‘selfish’ motives unintentionally benign (pace Gekko’s praise of ‘greed’). Yes, it's so simple - why don't modern economists get it?
[Disclosure: I have corresponded with Nick on Lost Legacy since 2005 and regard him as a sound economist. I only saw the contents of this article this morning)]
“That makes them [mortgage brokers] like computer salespeople in a department store – people who often know a lot more about the product they’re selling than their clients and able to sell from a range of brands. The good ones try very hard to inform their clients and indeed to get them the best loan possible, both because they like helping people with their skill and because in a competitive marketplace, doing the best they can do for their clients is a pretty good recipe for their own self interest (See Adam Smith, 1776 for further details).”
Comment
I am pleased to say: absolutely correct! This is an example of the correct use and reference to Adam Smith on self-interest motivating some, though unfortunately, not everybody to behave morally in a market.
Indeed, in the context in which Nick writes (follow the link) he explicitly states that other mortgage advisors in Australia do not advise their clients with complete honesty (by disclosing that they receive commissions from a select group of mortgage funders and that, in consequence, they withhold information about the other non-commissioned, perhaps better, deals more suited to their customers).
That fact shows, if such a demonstration is really necessary, that self-interest is not always socially benign from everybody in every instance. That is why indiscriminate belief in ‘an invisible hand’ is so fallacious a construction placed by modern economists (post-Samuelson) on Adam Smith’s singular use of the IH metaphor in the specific instance in which he used it in Wealth Of Nations.
Please note, especially, there is no mention by Nick Gruen of the unnecessary use of the metaphor of “an invisible hand”, which is so easily slipped in today as a (benign) general rule, such as making ‘selfish’ motives unintentionally benign (pace Gekko’s praise of ‘greed’). Yes, it's so simple - why don't modern economists get it?
[Disclosure: I have corresponded with Nick on Lost Legacy since 2005 and regard him as a sound economist. I only saw the contents of this article this morning)]
Labels: Adam Smith on Self Interest, Invisible Hand, Paul Samuelson
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