Friday, March 20, 2009

Adam Smith and Greed

Richard Gwyn writes on: ‘Unchecked, unregulated greed breeds corruption’ in the Toronto Star HERE:

Capitalism is about greed. It's not exclusively about that. It's also about creativity and independence (the alternative to the market is some form of bureaucracy), providing a service or good that people need, and about providing jobs.

But greed is the motor that powers capitalism. Way back in the 18th century, Adam Smith understood this when he wrote in The Wealth of Nations that the self-interests of the butcher, the baker and the candlestick maker benefit the rest of us.
Smith, though, also wrote a second book, one that he regarded as far more important. Its title was The Theory of Moral Sentiments. In it, he tried to come to terms with the ethical consequences of unleashed greed and self-interest

In what is a familiar story line, at least to readers of Lost Legacy, Richard asserts, as if it is self-evident (though not to the ultra-poor masses of unemployed labourers and their families in large swathes of the planet, looking in on the life-styles of the vastly richer peoples of Canada) that ‘greed is the motor that powers capitalism’.

Richard goes ‘way back’ to the 18th century when almost the whole world was stuck in poverty, superstition, disease that carried off most children who were born, and those who ‘survived’ had the luxury of living, if ‘lucky’ to the ripe old age of about 40.

Murder rates per thousand were higher than the most gang-ridden modern slum towns, illiteracy was almost total, and the ground where you first stood on (if you survived infancy) was the only ground you would ever know. Richard should ask himself: where would he rather live – in the slums of Mumbai or rural Darfur or the slums of Toronto?

His evidence for ‘greed’ apparently comes from his misunderstood point that Adam Smith allegedly made in that famous partial quotation ‘that the self-interests of the butcher, the baker and the candlestick maker benefit the rest of us’.

Actually, it was about the ‘Butcher, the Brewer, and the Baker’ from whom Smith observed that it was a more reliable way to get the ingredients for your dinner (obviously 18th century nutrition was not as well catered for in Scotland at the time, which is why many Scots left out shores for Canada, including my maternal grandfather, a coal miner, for Toronto) to appeal to the self-interests of said ‘Butcher, the Brewer, and the Baker’, rather than telling them solely about your self-interests or needs.

Why was this so significant?

Well, merely considering your own self-interests was unlikely to persuade them to serve you; two parties only intereted inn themselves cannot conclude a bargain, as Smith makes clear in the same paragraph that Richard misquotes:

He will be more likely to prevail if he can interest their self-love in his favour, and show 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, I.ii.2: pp 26-27)

What is greedy about applying the observed offer to exchange what you have (money) for what he has (ingredients for your dinner)?

Smith did not quite write ‘a second book’ – The Theory of Moral Sentiments was in fact his first book (1759 – 17 years before Wealth Of Nations, 1776). In it he did not try ‘to come to terms with the ethical consequences of unleashed greed and self-interest’. He discussed how people behaved, well, kindly, or otherwise.

He discussed morality, including the morality of the historic development of property and its consequences, particularly the division of labour and the creation of complex supply chains that, from productivity. raised the ‘meanest labour’ in Scotland into higher standards of life than the most powerful ‘kings of Africa’ and North America, including around the area that became Toronto.

In fact, Smith decried the philosophy of Bernard Mandeville (1732), who claimed that ‘Private Vice was Public Virtue’, and he described it as ‘licentious’ and stated that Mandeville’s assertions about the benefits of greed were wrong in practice and in philosophy.

Richard aims at the wrong target. He might care to reflect on the basis for his assertions about Adam Smith.

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