Saturday, August 03, 2013

Adam Smith on Self Interest and Bargaining

Daniel Mitchell posts (1 August) in “CATO at Liberty” in CATO Institute HERE 
Americans Are Far More Compassionate than ‘Socially Conscious’ Europeans”
When I’m in Europe giving speeches and participating in conferences, it’s quite common that folks on the left will attempt to discredit my views by asserting that Americans are selfish and greedy.”
“Since I’m generally sympathetic to Ayn Rand’s writings, I don’t see anything wrong with people striving to make themselves better off. Moreover, Adam Smith noted back in 1776 that the desire to earn more money leads other people to make our lives better. One of his most famous observations is that, “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.’ ”
I was less interested in the subject that prompted Daniel Mitchell to raise his arguments against Leftists than his use of the evidence he took from Adam Smith’s “Wealth Of Nations” (Book 1, chapter 2, paragraph 2, pages 25 and 26) in support of his views in this discussion about assertions emanating from “Leftists’.
Mitchell quotes fromAdam Smith's famous “butcher, brewer, and baker” parable and makes, in my view a quite different interpretation than Adam Smith either was making or intended:
Adam Smith noted back in 1776 that the desire to earn more money leads other people to make our lives better.
I have commented on this particular paragraph several times on “Lost Legacy” and shall do so again no doubt.
Daniel Mitchell admits to his being “generally sympathetic to Ayn Rand’s writings” and he doesn’t “see anything wrong with people striving to make themselves better off”. Adam Smith would not have been “generally sympathetic to Ayn Rand’s writings”, particularly her insistence that there is “virtue in selfishness” which is more in tune with the writings of Bernard Mandeville (1724), whose philosophy Smith described as “licentious” in his “theory of Moral Sentiments (1759).  Rand may well have been influenced by Mandeville’s “Private Vices, Public Benefits” themes.
Smith observed that there is a “The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which publick and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration” (WN II.iii.31: 343).  Crucially, Smith also set limits to how far an individual could go in pursuit of his competing for his self interest with others, including behaviours like “jostling” a rival to the “ground” in a competitive race. 
Clearly for Smith there were boundaries to legitimate competitive behaviours.
Moreover returning to the “butcher, brewer, and baker” parable it seems to me three points should be noted that cast doubts on Daniel Mitchell using this quote as evidence in support of his contentions.
The first is that the quote is not about the primacy of self-interest as a selfish impulse.  The parable is part of Smith’s exposition of the fundamental human characteristics of bargaining behaviors.  Second, it is clear that Smith presents bargaining as a mutually agreed exchange in which each self-interested pary makes conditional propositions in the universal conditional proposition form of “If-Then”. These verbal exchanges continue until one is discoverable that is acceptable to both parties.  Smith expresses the meaning of each offer to exchange in a bargaining process: “Whoever offers to another a bargain, proposes to do this. Give me this which I want, and you shall have this which you want” (WN I.ii.2:26). 
Third, it is clear that two self-interested egoists determined to get their own selfish way at the expense of the other person’s selfish self-interests are unlikely to succeed in getting their own way.  If a frozen deadlock without movement were to remain the normal case, then bargaining exchanges would never have evolved socially, yet we know they did evolve albeit slowly, despite long periods when they were unknown altogether. 
Modern anthropological research suggests that bargaining evolved in a long process that was initiated first by “gift exchanges”, then by “reciprocation exchanges”, and finally by “bargaining exchanges”.  Also, all three forms of exchange continue to be used both as substitutes for each other and as conscious choices on their own account.
That all three means were forms of exchanges between humans adds credence to Adam Smith’s assertion that exchange was a form of behaviour, somehow related in the case of humans, to the “necessary consequences of the faculties of reason and speech”, of which he confessed “it belongs not to our present subject to enquire”, especially in the state of anthropological knowledge in the 18th century (WN I.ii.1: 25). 
For bargained exchanges to function each participant to some degree must eschew selfish self-interests to find a mutually acceptable solution to get some of what they want for some of what they are willing to offer to the other bargainer. 
The bargaining phenomenon is associated with the mediation of conflicting self-interests and is not an irreconcilable deadlock brought about by myths of a proverbial clash of selfish self-interested individuals.
[I wrote widely on the subject of modern negotiation behaviour in my former teaching posts at Strathclyde Business School (1975-87) and Edinburgh Business School (1987-2005).  Check Amazon: especially for: Kennedy: “Managing Negotiations”; “Everything is Negotiable!”; “The New Negotiating Edge”; “Kennedy on Negotiation”; “The Economist Pocket Negotiator” (most books in multiple editions and translations)].
I have no views on Daniel Mitchell’s assertion “that folks on the left will attempt to discredit my views by asserting that Americans are selfish and greedy”.  The political views of hard “leftists” (and for that matter, “hard Rightists”) are not worth spending time upon rebutting.  And anyway David Mitchell’s statistical evidence in his post (to read it, follow the link) appears to be fairly convincing.


Blogger airth10 said...

Well said.

Mitchell does seem to emphasize self interest too much, like Ayn Rand did. He doesn't seem too understand the need for a balance as Adam Smith did. He seems a bit extreme in his stance. But in a sense that is his duty in life, to preach as he does in order to counterbalance the extremes of the other side. He is pushing back, so to speak

The world and economic life is made up of the two extremes.

2:01 pm  
Blogger Gavin Kennedy said...


Yes, I agree, except I am not sure that the spectrum is defined by two extremes. There is a spectrum between the extremes. Ideologues tend to see the world as black or white, defined by their ideology.
Societies are far more complex, as are people.

7:23 pm  

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