Saturday, February 22, 2014

Common Mistake About Adam Smith on Self-Interest

 Andrew C. Ravkin reports (21 February) on a “Free Market” conference in Washington, DC, attended by the Dalai Lama.
“The Marxist Dalai Lama Visits a Washington Shrine to Free Markets”
The Dalai Lama, who has said, “Deep inside, as far as social economic theory is concerned, I am a Marxist,” spent Thursday morning speaking on two panels at a Washington shrine to free markets and limited government — at the American Enterprise Institute.
The Wall Street Journal summarized an initial discussion of happiness in a free-market economy, including this description of the Dalai Lama’s view of how self interest can benefit society over all:
“We are selfish. It’s very important for our survival,” he said. “But that selfish should be wise-selfish rather than foolish-selfish.”
Compassion and taking care of others are necessary qualities for people to be happy. “The truest form of self-interest is taking care of other people,” he said.”
The Dali Lama has some interesting views on self-interest. I think they need some qualification more along the views of Adam Smith on self-interest, which are quite different from those scholars who seem to think that Smith took an extreme view of how it was supposed to work in market economies. 
The idea that people seeking their self-interest should behave like self-centred egoists is certainly not an idea remotely kin Smith’s. 
He expressed his view in the famous “butcher, brewer and baker” example (WN I.ii.2: 26-27) that the customer should “address” the self-love of the seller and not their own.  In constructing the element of a bargain by both sides should attempt to mediate the self-interests with the self-interests of the other person. 
This did not mean that they simply gave in. This was a process of bargaining. Each party would follow the admonition of bargaining, which is not about simply giving in. 
Smithian bargaining is about finding a conditional proposition effectively in the form of:  “IF you give me this that I want, THEN I shall give you this that you want”.
The bargainers arrive at the mutually acceptable conditional proposition through conversation, covered in Smith’s “Theory of Moral Sentiments” (1759), by modifying their demands on each other. 
If they don’t proceed in this manner they deadlock, often in anger or at least in frustration.   This is not uncommon among bargainers, including professional negotiators, politicians and diplomats. 
Adam Smith uncovered part of the solution to the bargaining problem through conversation (“every man becomes a merchant”) in 1759 (TMS) and the complete solution in the conditional proposition (‘If Then’) in 1776 (WN). This explains why modern versions of “self-interest’ are misleading. “Self-interest” is not about “selfishness”!
[I re-discovered, so the speak, Smith’s format of the conditional proposition (IF-THEN) in 1972 after completing an MSc thesis based on observing 15 months of live union and management’s productivity negotiations at Shell Haven refinery.  This active interest continued for 40 years as a Consultant Negotiator and produced several books on negotiation, such as the “Everything is Negotiable”, “Kennedy on Negotiation” and “The Negotiating Edge”, etc. See Amazon books – all titles are now out of print hence I have no “selfish” self-interest in your purchases!]


Blogger Unknown said...

The Dalai Lama says: "The truest form of self-interest is taking care of other people."

No, this move has always been a non-starter.

The better move is focus on how few times we actually act in our pure self-interest.

3:41 am  
Blogger airth10 said...

Gavin: "…... scholars who seem to think that Smith took an extreme view of how it [self-interest] was supposed to work in market economies. "

I find that valuable ideas like Smtih's self-interest are often taken to the extreme or exaggerated for the purpose of instilling them in people. If sensible ideas are not exaggerated people wouldn't listen or taken them to heart. It's like the 'bull pulpit', bulling people to realize that 'self-interest' is in the long run the best for society.

Taking ideas to the extreme is what maximizes markets. Without the extreme of self-interest we would't have mass capitalism or market economics or the innovations that propels them.

5:37 pm  
Blogger Gavin Kennedy said...

Taking self interest to extremes is not Adam Smith's proposition or advice in anything he wrote.
It is also a nonsense if you think about it.
All men need the co-operation of "multitudes of others". No human society could survive if people behaved like you recommend. Co-operation requires people must persuade each other to mediate (modify) their self-interests by exchanging compromises on the selfish-stance you recommend and there is abundant evidence that they act in such a manner; it is called bargaining by persuasion, not arrogantly demanding and threatening that others must submit to his self-interests and sacrifice their own self interests. That way leads to violence and wars.
It was never Adam Smith's.

4:19 pm  
Blogger airth10 said...

Gavin, you've got the 'wrong end of the stick'.

I know Smith never took self-interest to the extreme and I never said that. That position, I implied, has been taken by others as a way of prompting capitalism.

And I realize that cooperation is an integral part of the capitalist system. It comes from an enlightened self-interest that recognizes the self-interest and needs of others.

4:52 pm  
Blogger Gavin Kennedy said...


Many apologies!
We are on the same page.
I misread your statement

8:53 pm  

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