Tuesday, June 25, 2013

Adam Smith on Greed (Again)

Matthew T. Clements, 2012. “Self-Interest vs. Greed and the Limitations of the Invisible HandSt. Edward's University, in “American Journal of Economics and Sociology” (forthcoming), also posted in http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1754537
Disappointing paper, limited analysis, especially on Adam Smith on self-interest, despite quoting the well-known,  “Butcher, Brewer and Baker” example in Wealth Of Nations that is as usually misunderstood and inverted too (of which I have commented many times on Lost Legacy).
The passage is not about “greed”, quite the opposite in fact. 
It is about trying to satisfy one’s own self-interest and recommends that when you want someone to co-operate with you – in this case by providing the ingredients for your dinner – you should address their self-interests and not your own.     Self-interests must be mediated by persuasion, particularly by showing them how it is in their interest (their “self-love”, not yours) that they provide their wares (meat, beer, and bread – a comment on 18th-century diets, perhaps)  - at a mutually agreed price.
The notion that self-interests are met by merely demanding that other people meet them is an absurd idea. Your needs are not more important than theirs and to think or act so is alien to Adam Smith’s philosophy in both his Moral Sentiments and Wealth Of Nations.
The need for and the habits of persuasion and bargaining are endemic to Adam Smith’s ideas of self-interests, and Smith attempts on numerous occasions to make this clear to his readers. Matthew T. Clements does not seem to have grasped this central theme in his reading of Adam Smith.  This is disappointing, though admittedly, he is in the company of the majority of modern economists, most of whom have not read his Works.
Moreover, Mathew T. Clements, strangely, in his otherwise interesting paper on the evolution of the current economic crisis, does not mention the “invisible hand” again. apart from its singular presence in his title, in his paper’s 24 pages.  I would have expected the editors of the American Journal of Economics to pick up this glaring omission prior to publication. 
Perhaps they need referees who are more familiar with Adam Smith’s Works.
(Hat tip to Ben Abbott).


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