Adam Smith on Self-Interests, Not Greed

 A correspondent to an earlier post on the "Greed is Good" fallacy prompts a longer reply than is possible in the Blog comments facility.  Here is my response:

The “Butcher, Brewer, and Baker” quote is often used as the reference by those who believe mistakenly that self-interest is a synonym for “greed”.

This view reveals a total misunderstanding of what Adam Smith meant by “self interest”.

In fact, the very sentence quoted actually advises the customers of the “butcher, brewer, and baker” on how to bargain with the said shopkeepers offering to sell their meat, beer and bread:

“But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. 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” (Wealth Of Nations, Book 1, chapter 2, paragraph 2).

Greedy self-interested customers who demanded that the sellers supply their meat, beer, and bread at low prices for no other reason that they did not wish to pay the price the greedy sellers demanded would go home hungry and the greedy sellers would fail to sell anything.

Smith’s views were clear: we are in “almost constant occasion for the help of[(our]brethren, and it is in vain for [us] to expect it from their benevolence only. [We] will be more likely to prevail if [we] can interest their self–love in [our] favour, and shew them that it is for their own advantage to do for [us] what [we] require of them”. 

Of course the same is true for solely self-interested greedy “butchers, brewers, and bakers”!  They will prevail only if they “lower their” price demands to what their customers “can go along with”.  For both self-interested buyers and for self-interested sellers they must mediate their self-interests to arrive at successful transactions.

The process by which they mediate their self-interests is by persuasion, as outlined by Adam Smith in his “Theory of Moral Sentiments” and how that is best achieved in negotiations or bargaining exchanges is explained in the sentence immediately before the “butcher, beer, baker” example: “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.” (Wealth Of Nations, above).

I hope this is made clear by tutors at Harvard University and that you also make it clear in your classes too.

Greed is not good!  That is the opposite of what Adam Smith taught.