Friday, July 19, 2013

Adam Smith on Self-Interest Not the Same as Found in Modern Economics

From: Philosophy Stack Exchange, 'a question and answer site for those interested in logical reasoning'. HERE 

“Despite his legacy as the father of capitalism and authority on jurisprudence especially toward the end of his career, Adam Smith is usually known in ethics and philosophy classes by his classic The Theory of Moral Sentiments. In the way Aristotle’s Nicomachean Ethics is meant as a prelude to the Politics and The Athenian Constitution, I have read Smith’s seminal work in morality as a precursor to the economics and social philosophy laid out in The Wealth of Nations. Although Smith doesn't say so explicitly, I believe these seemingly separate works are constructed around the same indispensable principles and interests. It came as a shock to learn that many of the principles affirmed in both of these works seem to be greatly at odds with the conventional wisdom about capitalism, from its opponents and advocates alike. As Noam Chomsky wrote: “He's pre-capitalist, a figure of the Enlightenment. What we would call capitalism he despised…”
The crux of Smith’s theory of justice developed in Moral Sentiments lies at the heart of the Wealth of Nations: “To hurt in any degree the interest of any one order of citizens, for no other purpose but to promote that of some other, is evidently contrary to that justice and equality of treatment which the sovereign owes to all the different orders of his subjects” (WN IV.viii.30).
Rather than being a symbol for free markets Smith’s philosophy is more consistent with the themes of the Scottish Enlightenment and a critique on the abuses of crony capitalism (a term he never used). Should we accept this caricature of Smith or are the principles of sympathy, imagination, and intuition (all contributing to his articulation of justice) compatible with the self-interested value or the evangelical globalization being outsourced by capitalist?”
The short answer is “no”. Neither "self-interested value or the evangelical globalization being outsourced by capitalist” is compatible with Adam Smith's views.
Smith on “self interest” today is  caricature of his own views.  With the advent of marginal utility and maximisation of utility (especially in a mathematical format from the late 19th century) the focus was on the maths, not the real world.  Nor for that matter with Adam Smith!
Egoistic maximisers are both unyielding and, supposedly, able to accommodate to the unyielding maximisers with whom they dealt. If neither egoist moved how could they reach agreement? 
Smith’s views were different, as he explained in Moral Sentiments and Wealth Of Nations. Even worse, modern economists discussing the confrontation when visiting ‘butchers, brewers, and bakers”, often quote Smith's example to exemplify their own narrow views of self-interests at work!
An outcome satisfactory to both self-interested bargainers required that each mediate their initial self-interested demands into a common agreement on the principle of the traded conditional bargain: “I shall give you this that you want, if you give me that which I want”, each bargainer modifying their offers and demands to the satisfaction of the other. If one or both won't move, they would never reach a bargained agreement.
Lost Legacy makes my point regularly.   It is consistent with both books of Adam Smith, but not with modern presentations of the “MaxU” hypothesis.


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