The
notion that capitalism (which should be called the free market system)
is based on glorifying greed is an old canard, and a dangerous one. It
is simply the recognition that, if you give people individual liberty
("the right to life, liberty, and the pursuit of happiness") they will
tend to act in the best interests of themselves and those/what they care
about; and given that this is the strongest motivation of all humans
possess, the greatest economic good for the greatest number will follow.
As Adam Smith is famously quoted, "It is not from the benevolence of
the butcher, the brewer, or the baker, that we can expect our dinner,
but from their regard to their own interest." And in case you think
Smith only meant material acquisition only, he also said, "How selfish
soever man may be supposed, there are evidently some principles in his
nature, which interest him in the fortune of others, and render their
happiness necessary to him, though he derives nothing from it except the
pleasure of seeing it."
Original link: https://www.economist.com/blogs/freeexchange/2013/11/economic-history
Smith
sowed the seeds of his own problems. He tended to write pithy soundbites
that left his ideas open to distortion. One of his best-known quips:
"It
is not from the benevolence of the butcher, the brewer, or the baker,
that we can expect our dinner, but from their regard to their own
interest."
Journalists and
economists frequently use this quotation. Most people think that Smith
was advocating pure egoism. In fact, according to Athol Fitzgibbons, an
economic historian, the reader can only understand the quotation within
the context of the passage. And deeper analysis shows that Smith was
making a subtle point, rather than advocating pure selfishness.
In
the "Theory of Moral Sentiments", his second most famous book, Smith
discusses the position of philosophers in society. He argues that it
would be contradictory and unjust for them just to think about their
self-interest. Instead philosophers needed to cultivate a sense of
public duty in order to be any good at helping to solve the world’s most
pressing problems. But butchers, brewers and bakers did not need such
lofty aspirations—unlike philosophers, they could probably do their job
well by acting selfishly. So according to Mr Fitzgibbons, when Smith
mentions "their own interest", he is arguing that “not all occupations
are pursued with the same low motive in mind”. Smith certainly did not
intend to suggest that self-interest was the only driving force of human
behaviour.
And other evidence suggests that
Smith had a more complex view of human action than most people give him
credit for. This quotation appears on the very first page of the "Theory of Moral Sentiments":
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
Smith
voices similar opinions when he mentions the “invisible hand”. The
metaphor is used today for the idea that selfish individuals, operating
independently, will bring about the best possible outcome. But this is a
misinterpretation of Smith. The phrase "invisible hand" is used only
three times (here, here and here)
in Smith’s works. And according to Emma Rothschild, an expert on 18th
century economic thought, its use was “ironical on each of the three
occasions".
So much for selfishness. Smith’s
ideas of the division of labour were revolutionary, says Tony
Aspromourgos of Sydney University. Smith opens the "Wealth of Nations",
his most famous book, with a discussion of a pin factory:
[T]en persons [...] could make among them upwards of forty-eight thousand pins in a day…But if they had all wrought separately and independently [...] they certainly could not each of them have made twenty, perhaps not one pin in a day.
He reckoned that the “proper division and combination of [...] different operations” was a sure-fire way to business success.
But Smith did not obsess over economic efficiency, as we have argued in another blog post.
In fact, he thought that the division of labour could have negative
effects—both for the individual and for society. In a later part of the
"Wealth of Nations", Smith reckons that as a result of strict labour
specialisation, the worker “has no occasion to exert his understanding
or to exercise his invention”, and consequently “becomes as stupid and
ignorant as it is possible for a human creature to become”. To combat
these risks, say Ms Rothschild and Amartya Sen, Smith advocated an
extensive system of public education. It was possible, thought Smith,
that “almost the whole body of the people” should be educated—even in
the “sublime” principles of science.
Smith
also worried about the divisive effect that economic specialisation
would have on human relationships. He wanted state expenditure on
“publick diversions” which, he argued, would help to unite people of
“rank and fortune” with those of “low condition”. And Smith thought that
any civilised society should be able to afford philosophers as well as
butchers, brewers and bakers—all of whom contributed to society in
different ways—even if some of them were not economically productive.
People refer to this as Smith’s “social division of labour”.
None
of this is to argue that Smith was anti-market—or a Marxist, as some
have occasionally suggested. But his ideas are not suited to isolated
quotation, which generally leads to big distortions in what Smith really
wanted to say.
