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.