Wednesday, May 14, 2008

We Serve Our Self Interests Best By Serving the Self Inerests of Others

In The Daily Star (The newspaper for the heartland of New York) HERE
a correspondent, Robert C. Beckman, from Otego writes:

Deborah Tarrow's letter shows a lack of economics and history on her part. She decries making profit off the human need for food. Yet in Adam Smith's "The Wealth of Nations," he states:

"It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but for their regard to their self interest. We address ourselves, not to their humanity, but to their self-love and never talk to them of our necessities but to their advantages."

Free markets work because Smith's observation provides the greatest social outcome. The greatest social good is achieved when individuals pursue their own self-interest

Not quite. The quotation from Wealth Of Nations (WN I.ii.2. pp 26-7) is accurate except for Robert C. Beckman’s explanation of what it means. Adam Smith’s point was that to pursue one’s self interest in respect of acquiring the ingredients for dinner, you have to address the self interests of others who have the wherewithal to supply you with the meat, beer, and bread in your 18th century diet. This is qualitatively different from simply pursuing your self interest in a one-sided manner.

You would seek your dinner in vain by only addressing your own interest to the exclusion of those who would supply it only if it were in their interest to do so (“and never talk to them of our necessities but to their advantages”).

Missing this important part out from the quotation, Robert Beckman, draws his conclusion: “The greatest social good is achieved when individuals pursue their own self-interest”, but because he does not make it clear that the transaction is not just a one-way personal benefit, he undermines Adam Smith’s important message: we serve our self interests best by serving the self-interests of others.

It is the mutual exchange of our offers that are in each party’s self interest, which creates the positive harmony of the commercial society. Exchange is not a zero-sum game: what I gain is not at the expense of what you gain – there is a mutual exchange that makes both of us better off than we would be without such an exchange.

I gain my dinner and you gain the wherewithal to acquire what you wish from third parties:

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” (WN I.ii.2: p 26)

Leaving this part of Adam Smith’s exposition unsaid, leaves the reader with the idea that the blind search for one’s self-interested requirements somehow leads to the ‘greatest social good’, which is a short step from asserting that it is OK to act selfishly because social benefits, a view that was anathema to Adam Smith, the moral philosopher and contrary to his meaning.


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