Saturday, May 26, 2012

Once More on Adam Smith on Self-Interest and Bargaining


“Das Charles Darwin Problem & The Bourgeois Virtues”
In 1776, he published his second book--The Wealth of Nations--in which he explained economic prosperity as arising from the division of labor based upon the natural human propensity "to truck, barter, and exchange one thing for another."  He indicated that this system of exchange depended on self-interest: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but their regard to their own interest."  To the German scholars, there seemed to be an obvious contradiction between Smith's emphasis on sympathy in his first book and his emphasis on self-interest in his second. 
In the nineteenth century, some German scholars identified das Adam Smith Problem as the apparent contradiction between Adam Smith's two books.  In 1759, Smith published his first book--The Theory of Moral Sentiments--in which he explained morality as arising from sympathy.  He began the book with a chapter on sympathy by declaring: "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it."  In 1776, he published his second book--The Wealth of Nations--in which he explained economic prosperity as arising from the division of labor based upon the natural human propensity "to truck, barter, and exchange one thing for another."  He indicated that this system of exchange depended on self-interest: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but their regard to their own interest."  To the German scholars, there seemed to be an obvious contradiction between Smith's emphasis on sympathy in his first book and his emphasis on self-interest in his second.  Some of them concluded that Smith must have changed his mind about human nature, deciding late in life that self-interest was stronger than sympathy among human beings, and thus that self-interest was a more reliable ground for social order.”
 Comment
The so-called ‘Das Adam Smith problem’ has been around since the 1850s and was answered many times since.  A summary of the fragility of the idea that Adam Smith “changed his mind” between publishing Moral Sentiments in 1759 and Wealth Of Nations in 1776, was given in the introduction by David Raphael and Alex Macfie to the Oxford Edition of Moral Sentiments in 1976, pages 21-25.  I shall not, therefore, rehearse it here.
 However, Larry Arnhart repeats a fairly regular assertion that Smith indicated that this system of exchange depended on self-interest: ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but their regard to their own interest.’  This is a common careless reading of Wealth Of Nations committed by modern economists and sociologist, anthropologists, psychologists, and politics faculty.
Smith discusses the nature of the bargaining process in commercial society.  It was not a general assertion about self-interest being central to the operation of commerce.  Indeed it suggests that self-interest alone is not enough, much as benevolence alone would not allow commerce to function (for there are insufficient resources available for distribution by everybody to everybody else, on demand and reliant of universal benevolence).
Examine Smith’s argument closely.
He will be more likely to prevail if he can interest their self–love in his favour, and shew 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.
 Each bargainer (for there is always at least two persons engaged in such transactions - the buyer and the seller) “is more likely to prevail if he can interest their self love in his favour and shew them that it is for their own advantage to do for him what he requires of them. The corollary is that if each tries to prevail by only seeking to satisfy their own self-interest, they are unlikely to succeed.  Two self-interested egoists would never agree, because neither would move from their initial demands.  Bargaining ain’t like that.  It requires movement from their initial positions; they have to modify their self-interests and the best way to conduct such movement said Smith is to address ourselves “not to their humanity but to their self–love, and never talk to them of our own necessities but of their advantages”.
In 40 years of studying, consulting, and practicing negotiation behaviour in Business Schools at all levels of business and public administration in most continents, I realised early on that the essential truth of what negotiation is about was summed brilliantly by Adam Smith in Wealth Of Nations in 1776 (and noted in his Early Draft before that in 1763) in the simple statement:
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”.
Now what could be clearer than that?  Larry Arnhart presents the so-called Adam Smith problem incorrectly.  I suggest, respectfully, that he go back to Wealth Of Nations and read it more carefully.  I offer the same advice to all those senior economists who have no excuse for persisting with such fundamental errors about Adam Smith’s views on the mediation of self-interest in negotiation of those “good offices which we stand in need of”. 
[Risking charges of immodesty, may I suggest that my many books on negotiation may be consulted, too.]

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