Sunday, February 04, 2007

Smith Taught Mediated Self-Interests in Both Moral Sentiments and Wealth of Nations

Forbes carries an article by Rich Kargaard on the subject I discussed yesterday, the famous advice when negotiating with the ‘Butcher, Brewer and Baker’ traders for your dinner. Here’s what Rich Kargaard says:

“The great Scotsman seemed to say two contradictory things. In The Wealth of Nations (1776) he wrote these famous words about self-interest: "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." This sounds like selfishness: Greed is good.

But Smith never believed that. In his earlier book, The Theory of Moral Sentiments (1759), Smith defined self-interest not as selfishness or greed but as a psychological need to win favor within one's society. Smith revised The Theory of Moral Sentiments after he wrote The Wealth of Nations. He did not change his belief that moral sentiments and self-interest are the same thing.
Let's not forget our Adam Smith. When we do, capitalism loses its moral authority, and the redistributionists win.”

I much enjoyed his piece on, ‘How moral is capitalism’ and I noted his reference to Adam Smith’s two books at the end of the piece, and thought he conceded too much to his critic (read the whole piece to see what I mean at: in his distinction between Wealth of Nations and Moral Sentiments.

The problem arises from interpreting Smith’s famous passage about trading for your dinner with the Butcher, Brewer, and Baker.

Smith said bargainers address each other in something like the following manner: ‘Give that which I want and you shall have this which you want’ and ‘it is this manner that we obtain from one another the far greater part of those good offices which we stand in need of.’ (WN I.ii.2: p 26) Now he doesn’t say how they should formulate their solution at this point, but he hints very strongly how this should be done (in fact he is quite prescriptive on the point).

In that most famous quotation from Wealth of Nations, of the transaction (process) among the ‘butcher, brewer, and baker’, he observes: ‘it is not from their benevolence … but from their regard to their own interest.’ So, if the bargainers want something from the other party they have to take full account of the other party’s, not their own, self-interest.

Yes, they have to think of the other person’s self-interests first and by bargaining to arrive at a mediation of their different interests by converting them to the common interest of a voluntary settlement. We call that negotiation; ‘the process by which we obtain what we want from someone who wants something from us.’

But we have not yet done, because Smith said more. He advised prescriptively (so Smith did not consider it optional) that ‘we address ourselves, not to their humanity, but to their self-love’, which is clear enough in advising the bargainer not to appeal to charity or to address herself to her own self-love only. To make this clear, he also advised her ‘never to talk of them of our own necessities, but of their advantages’. Again, it is clear: don’t think of your needs, think of the other party’s advantages from completing the bargain with you, and to do this effectively you must look for what advantages trading with you has for him, not yourself.

This is not greed, nor begging for charity. If two greedy people try to bargain they will never come to an agreement because neither would ‘give in’ nor compromise. If we all beg, who would create the goods and services we need, including our dinners?

What he said in Wealth of Nations (1776) is no different from what he said in Moral Sentiments (1759): ‘Society may subsist among different men, as among different merchants… by a mercenary exchange of good offices according to an agreed valuation.’ (TMS II.ii.3.2: page 86).

Moreover the separation of the dates of publication of his two books is misleading. He did not write one thing in 1759 in Moral sentiments and another thing in 1776 in Wealth of Nations, 17 years later. We know this from student notes of his Lectures in Jurisprudence, found in two copies in 1895 and 1958, and both published in 1978 (Liberty Fund).

On Tuesday 29 March, 1763, (LJ(A) vi.45-6, p 348) Smith delivered a lecture on the butcher, the brewer, and the bakers’ transaction in identical wording to that which later appeared in Wealth of Nations. This was part of his University of Glasgow lectures series which he delivered each year from 1751-1764. In other words, he was regularly delivering both the contents of Moral Sentiments (which was his lectures on the Ethics part of his philosophy) to the same student audience as he delivered his political economy lectures (much of them reproduced word-for-word in Wealth of Nations). He did not change his mind about ethics and markets – they were the same ideas he always had and they took account of each subject’s compatibilities.

By the way, Smith never said approved of greed, nor did he ever say anything about greed other than the staunchest criticism of the idea of greed, which more to do with Bernard Mandeville (1714) than anything Smith said.


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