Saturday, January 25, 2014

Adam Smith's Self Interest is Not Served by Selfishness

A correspondent asks about the natural role for co-operation in an economy, and below is my (short) response:
Adam Smith addresses the substance of your paper.  You are correct that Smith did not advocate nor excuse selfish behaviour.  He writes to that affect throughout both ‘Moral Sentiments’ and ‘Wealth Of Nations’.   Moreover, and most relevant, he was quite clear on the substance of your basic theme: humans everywhere depend on the voluntary co-operation of thousands of others (WN I.ii.).  That is the essential feature of any economy in any society.
Anthropologists show how human small bands (fewer than 30 adults) depend on each other for their sustenance, sharing in times of need and in many cases institutionalising this natural ‘insurance’ behaviour (observed not conjectured) in band-wide pooling of the products of their labours each day, which brings reciprocal sharing behaviours that empirically substantiates Smith’s point (in his case conjectured, not necessarily observed). For examples see Christopher Boehm. 2012. ‘Moral Origins: the evolution of virtue, altruism, and shame’. Basic Books. (Based on scores of fieldwork cases and specialist observations over many years).
However, Smith’s conjectured point led to his firmly and clearly asserted advice in his famous passage in Book 1, chapter 2, of the “butcher, brewer, and baker” example, widely misread (if read at all), with its specific emphasis on the male buyer (more likely his female relative!) searching for the main ingredients of his dinner requiring him to “address the interests (‘self-love’)” of the sellers, and specifically not address or refer to his own self-interests!  
The needs of the buyer are not an explicit part of the persuasive side of such transactions – that would mean the buyer relying on the seller’s benevolence, already excluded because benevolence was an “insufficient” resource (basically because nobody has enough of the means of everything to be totally benevolent towards everybody else for everything).
In short, Smith advised buyers to address their self-interests solely by addressing the self-interests of others, that is self-interests are only realised on a daily basis by each individual party to the transactions mediating their self-interests through persuasion, conversation, and bargaining, not by egotistically demanding others surrender to ours. This is fundamental to the Smithian doctrine of self-interest. It was also common in successful negotiations between self-interested and often antagonistic parties (as my 25 years fieldwork confirmed as a consultant negotiator in my former day job at Edinburgh Business School).  
George Stigler’s 1976 opening admonition that economics is founded on the “granite of self-interest” needs to be modified by the inclusion of the words “the granite of mediated self-interest”!  Smith might then have saved the Chicago ‘boys’ from embarrassment in Chile if they had read Smith properly and not been enthused by Stigler’s enthusiasms for a half-understood idea that wasn’t Smith’s anyway.


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