Saturday, November 26, 2016

SELF INTEREST IS NOT SELFISHNESS!

Mark van Vugt is a professor of Evolutionary, Work and Organizational psychology at the VU University Amsterdam and a research associate at the Institute for Cognitive and Evolutionary Anthropology at the University of Oxford. HERE (Originally published at New Scientist}
“Why the Invisible Hand from Biology is Better Than the Invisible Hand from Economics”
The notion that economics and business are all about competition and self-interest is alluring but wrong
“It is true that the basic Darwinian principles of variation, selection and retention can be invoked to understand the survival of different firms. Although not a purely Darwinian process – due to mitigating factors such as government regulations – the predictions have proven alluring to many economists. That’s because at first sight they bolster three pillars of neoclassical economics: one, that economic actors are self-interested; two, that self-interest leads to public goods (the famous “invisible hand” coined by the father of modern economics, Adam Smith); and three, that together these lead to market optimisation. However, applying this clichéd Darwinian reasoning leads to a paradox: firms are by definition groups of individuals, and therefore competition between firms implies selection among groups, not individuals. This undermines the three pillars above and instead predicts the emergence, at the individual level, of pro-group “altruistic” behaviour instead of selfishness. …
COMMENT
There has been much talk recently of introducing Darwinian explanations into economic behaviour. Interesting as this is, its problem is that 19th-20th ideas about ‘rational utility maximisers’ are way off course as explanations’ and certainly are not idea presented by Adam Smith  in the 18th century. Hence, dragging Adam Smith into this modern debate is erroneous.
The error comes down to the infamous misreading by Paul Samuelson (Noble Prize Winner) in his off-hand ‘clever’ remark that the Smith’s reference to an ‘invisible hand’ was about ‘selfish’ motives leading to ‘public benefits’. This remark was not ‘clever’. it was factually wrong. 
But 5 million sales later of Samuelson’s textbook, ‘Economics’ (McGraw-Hill) and several generations of Econ 1010 students believed the libel with all the passion of evengelical zealots and spread it intio the general media, as evidenced in this Evonomic’s paper. (Confession: Samuelson’s book was the set text in my first year student days in the 1960s).
Since 2005, on my retirement, I have waged a struggle to clear Adam Smith of what is intellectully a gross libel.
Mark van Vugt continues:
…The core idea is that while individuals may indeed pursue their own self-interest, they also have a suite of evolved psychological adaptations that – as if led by an invisible hand – steer their self interest to align with the good of their firm or even their wider society. But it is the hand of Darwin, not Smith.”
COMMENT
An arguable proposition (s  simile) but not helpful. Smith’s proposition in Wealth of Nations was quite different. He referred to a merchant who was concerned that sending his goods for sale in foreign countries was an avoidable risk (unfamiliarity with the honesty of foreign merchants and the probity of foreign legal conduct). 
Hence the merchant preferred to sell his products locally where he knew those he dealt with and felt secure of domestic legal redress should he be deceived. See WN: IV.ii.1-10. pp 452-6: check it out and think about it!
The metaphor was about the merchant being led by his intended private and invisible motives for his actions to secure his intended consequence - the relative security of his domestic transactions.
However, in addition to his personal motive there were unintended consequences from his domestic investment: his invested capital added to domestic “revenue and employment”. Now Smith asserts that such a consequence was a local “public benefit”.  Moreover, such positive unintended consequences were common, though NOT inevitable from all such domestic transactions.
The motivated domestic actions of merchants could produce innstead domestic disbenefits from the motivated actions of domestic merchants, and he gives numerous specific examples throughout Wealth of Nations. For example when merchants clamour for tariffs on foreign imports - even outright prohibitions - they narrow domestic competition and  raise domestic prices and their profits.
Now the question for Mark van Vugt is why he interprets Smith’s (singular) example of his use of the metaphor on ‘an invisible hand’ as being about his ‘selfish’ conduct when Smith’s example was about the merchant’s solely prudent conduct?
Has Mark understood Smith’s use of the metaphor (in fairly common use in the 17th-18th centuries; it was not ‘coined’ by Smith)?
Mark van Vugt continues: 
“…The fact that people work at all may lie primarily in the selfish motivations of employees, as Adam Smith recognised, but there will often be a vast area of common ground in which the interests of individual employees converge with those of their firm and the wider society. But the hand that guides humans to help each other by helping themselves appears to be the result of evolution – not Homo economicus.”
COMMENT
When and where did Adam Smith ‘recognise’ that people work for ‘selfish reasons? Is Mark serious?
The alternative for most people from not working is penury and starvation. 
Did Darwin, let alone Smith, really argue that animals hunted or gathered food for “selfish” reasons?
Is Mark aware that the use of ‘Homo Economicis’ is a modern concept, not Adam Smith’s?
Where is this ‘hand that guides humans?”
Metaphoric expressions do not exist independently of their ‘object’ in its context.

There is no ”invisible hand” in fact. See Adam Smith’s “Lectures on Rhetoric and Belles Lettres”, p. 29.

8 Comments:

Blogger Timothy Takemoto said...

This is all too long.

I had a look at p.29 of Rhetoric
https://archive.org/stream/lecturesonrhetor00blai/lecturesonrhetor00blai_djvu.txt
in which Smith is talking about Genius (which I presume he applied to himself)

"Genius always imports something inventive or creative ; which does not rest
in mere sensibility to beauty where it is perceived, but which can, moreover, produce new beauties, and exhibit them in such a manner as strongly to impress the minds of others. Refined taste forms a good critic ; but genius is farther necessary to form the poet, or the orator. "

From this it could be argued that the invisible hand is something inventive or creative that the genius of Smith imported or created which impresses the minds of others.

But perhaps in am on the wrong page! (e.g. p. 29 in a different edition).

I take the liberty of writing my own interpretation, which is pretty much expressed by Nuno Ornelas Martins here as a comment on a paper by Avner Offer
http://etdiscussion.worldeconomicsassociation.org/?wea_paper=self-interest-sympathy-and-the-invisible-hand-from-adam-smith-to-market-liberalism
which is that the impartial spectator and the way in which we act with self sympathy is the reason for or drives the "invisible hand," since as you say, human self-interest is not selfish because of the "split." We don't choose foods on the basis of which will be best to scoff but upon the basis of which guy, which one of ourselves, the spaghetti eater or the fish and chips eater, we feel more in sympathy with. I think that this self-sympathy can be felt towards visual and verbal self representations. The important thing is that mind or "I is another" (Rimbaud) and that mind sympathises with self-representations. I see this as being a sort of scientific religiousness or Bodhisatva Buddhism. We are not enlightened. We have ego (representations with which we sympathise) but this is good and we should continue to do so for the sake of society, until everyone is enlightened together.

But I can't see it in his case of the merchant investing locally. Hmm. Or maybe I can.

I guess if the merchant were completely "rational" (whatever that means) he would invest in whatever investment gave the best interest. It is the merchants aestheticism, or sentimental, sympathetic-ness that encourages him to invest locally. So in that sense it is because sympathy and not the micro-economic, "homo economicus" (that you criticise) mathematical Nashian reason drives our actions, the merchant invests locally. The merchant represents two selves to himself, one investing locally and the other investing abroad and though the investment abroad pays more, the merchant investing locally looks happier.

Somehow I think that if the spectator were only self-speech then he would behave like Nash or Hardin's homo economicus. From Hardin's tragedy of the commons. "Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?"" In Smith I get the sense of their being a visual aspect too such that the situation ("externalities," the depleted commons) impress upon the sympathy, leading to a 'better' "invisible hand".

I hope your health is as well as can be expected. My friend has cancer and I recommend to him fasting (Valter Longo), vegetables and their toxins, and perhaps ketosis.

12:57 am  
Blogger Sora Platform said...

I think that the word 'self-interest' was corrupted into meaning 'selfishness' sometime after Smith's death. In Smith's and Hume's writings, 'self-interest' was a good trait because it showed that the self-interested person knew what to do with his life. If I'm interested in singing, then I will sing. I am not 'selfish' whenever I sing, though I am properly 'interested'. Hume and Smith's word for selfishness was 'self-love' which was the root of pride and vanity. I speculate that Bentham or Mill might have corrupted 'self-interest' into meaning 'selfishness' which has stuck ever since.

- Juan Dalisay Jr.

5:26 pm  
Blogger Timothy Takemoto said...

But Smith uses the words like "rapacious" "selfish" "vain" and also "impartial", all in the same book.

1
We can never survey our own sentiments and motives, we can never form any judgment concerning them; unless we remove ourselves, as it were, from our own natural station, and endeavour to view them as at a certain distance from us. But we can do this in no other way than by endeavouring to view them with the eyes of other people, or as other people are likely to view them. Whatever judgment we can form concerning them, accordingly, must always bear some secret reference, either to what are, or to what, upon a certain condition, would be, or to what, we imagine, ought to be the judgment of others. We endeavour to examine our own conduct as we imagine any other fair and impartial spectator would examine it.

2
The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.

I think he means that if judgement is empathy, and if we must split ourselves to do it then for all our vain preening we will always be trying to create of *our self representations* a person who is lovable, while all the time forgetting the human doing the loving. The impartial spectator is the invisible hand. The hand has no head so, for those who judge (or think they judge) using self representation in mind, pure brute selfishness is impossible.

6:14 am  
Blogger Timothy Takemoto said...

Adam Smith's split-spectator & invisible hand metaphor may be saying a similar thing, to the "allegory of the long spoons" (which is claimed to be a saying in Scotland apparently, but I did not hear it when I lived there)
https://en.wikipedia.org/wiki/Allegory_of_the_long_spoons

Consciousness provides us with long spoons because consciousness splits us such that we can only see and enjoy the pleasure of real or imagined others.

Smith seems to be saying that the "hell" of the long spoon allegory is good however, in that "imagined others" includes the person we think is ourselves (in the mirror, in our minds eye, or as the hero of our self narrative), and in our imagination we think that 'he' can consume lots so we toil hard to attempt to give 'him' the "pleasures of wealth and greatness." Since we are really the invisible hand (or invisible person) we can't give ourselves much of anything. But the delusion that we might feed ourselves with our long spoon, and consume what we imagine, makes us very industrious. We amass great wealth that we can't feed to ourselves but only imagine feeding to ourselves. Modifying the spoon allegory perhaps one might say that everyone can only see the round end of the spoon and not its long arm.

12:36 am  
Blogger Sora Platform said...

Sure, Smith uses the words 'natural selfishness and rapacity'. But you fail to point out the sentences that precede that quote (like most readers who quote Smith out of context):

"The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is OBLIGED to distribute among (his servants or employees)"

The distribution of resources therefore is done by the natural obligation for even the most selfish capitalist (if we define capitalist as a greedy person) to distribute resources to others. This is obligation somehow disappeared after Economics was formalized, because 1) it went directly against the then-new doctrine of profit maximization of Economics (marginal revolution) and 2) Jean Baptiste Say removed morality from the Political Economy (which was the precursor to Economics).

Hume and Smith explained that humans tend to be selfish, but that is not how we are to act. In contrast, Samuelson says that humans tend to be selfish, but instead of advocating measures against it, he enshrined selfishness. (My startup is making a decentralized economic system that is 'social' instead of being based on 'selfishness' based on the maxims of Hume and Smith.)

8:07 am  
Blogger Timothy Takemoto said...

I agree. We are selfish in intent but we are unable follow through (according to Smith) due to the fact that we act so as to empathise with our imagined self, while we are not our imagined or narrated self, but the impartial spectator / invisible hand. But then I said this above.

Is it common awareness that the invisible hand is none other than the impartial spectator?

Perhaps Samuelson enshrines selfishness because he agrees with Smith that we can't follow through with it, and act selfishly.

It seems to me that with non-consumed goods, such as land we can both intend to be and be selfish. We can make it our private land. This applies to the hoarding of commodities too I believe. Perhaps there should be anti hoarding rules. Perhaps the Sora (cloud) platform should have negative interest rates to prevent hoarding.

5:53 am  
Blogger Sora Platform said...

The invisible hand is ‘dharma’ and the impartial spectator is ‘conscience’ or ‘bodhi’ in Buddhism. All of this has already been sorted out by Eastern philosophy.

Anything hoarded will go to waste eventually unless it is money, which nowadays is just a number. Numbers can be added up and stored forever but goods cannot. Food expires. MacBooks break down. Land can turn into slums or get swallowed up by sea level rise. The current mercantile/commercial system hoards value by converting real things into money or equity, then hoarding that. The nature of money as a number (nominal value) thus allows the inequality that we see today. (Hume explained the nature of numbers)

Smith’s best solution to this is not in monetary policy. Instead he advocated using real value (based on grains) instead of nominal value (based on fiat currency). By legalizing real value, then real value can compete with nominal value. We predict that if this were implemented, real value will eventually win since Smith says wealth is not in money (nominal), but in the real produce of the people.

Smith has already solved the challenges in economic theory and moral philosophy. The challenge our startup has is the legal and technical challenge of implementing his system before Trump’s mercantilist policies create a new Great Depression or new War of Jenkin's Ear with China (which our model from Smith also predicts i.e. if you apply Smith’s maxims you will see that Trump is a mercantile effect of the current mercantile belief that money is wealth).

7:08 pm  
Blogger Gavin Kennedy said...

Sora
Thank you for your comment. There is, I suppose more to your theory than that which you have explained.
Smith discusses monetary value in Book1 of Wealth of Nations.
Currently, I am working on my forthcoming books and I cannot spare the time to debate your interesting ideas.
Gavin

3:34 pm  

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