Systems Matter Part 8: Self-Interest vs. Selfishness

When Adam Smith introduced the verbiage of “self-interest” into his economic and cultural reporting he laid himself wide open to misunderstanding, misinterpretation, and criticism.

A person of a different economic ilk, wanting to end all arguments regarding the intent and integrity of Adam Smith, and dismiss him as a greedy scoundrel, would only need to portray him as the champion of selfishness. Such a person needed only to claim, “Smith is the epitome of the bourgeoisie capitalist interested in only grabbing, at any cost, the wealth of this world at the expense of the poor and downtrodden.” The verbal assassination would have pretty much been accomplished at that point.

Instead of indulging in the semantics game, let’s stop and examine just what Adam Smith was saying:

. . .the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty in the attempting to perform, which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and in directing it towards the employments most suitable to the interest of the society. According to the system of natural liberty, the sovereign has only three duties to attend to, three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain, because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.(1)

Adam Smith presumes that every person wants to end up better off in life. If left to pursue voluntary transactions of business and barter with other free individuals, the only transactions that will be successfully completed are those transactions where both free trading partners end up better off. A system that promotes that freedom where everybody ends up better off not only encourages additional such transactions but greatly increases the total volume of successful business.

But the human desire to end up better off could be, but is not necessarily, selfish. To possess the desire to make good decisions and end up better off in life displays the admirable qualities of accountability. Good stewardship of life and of those things we possess reveals our willingness to accept and practice personal responsibility.Selfishness is the attitude and spirit where an individual insists on his or her own arbitrary demands on other people regardless of consideration or cost. It is the whole idea of me first . . . it’s all about me. That spirit of selfishness is counterproductive to good business because both parties do not end up better off.

That is why Adam Smith insisted that the government must not be greedy or selfish either. The greedy intentions of the government, or the individuals who control the government, are also counter-productive to the positive growth of an economy, because when they are greedy all parties involved do not end up better off.

Smith tried to build into the system checks and balances to control the selfishness and greed even of the government or Sovereign by saying that their reach and function should be limited to (1) protecting their citizens from outside danger or oppression, (2) the rule of law where the citizens are protected from other individuals within the country, and (3) the establishing and maintaining of certain institutions or services that could not be offered by a single person or a small group of individuals, e.g. courts, recording of public documents, road systems, etc.

The very government itself has the power and opportunity to induce its constituency, by promises of largesse, to believe that the government can exclusively make the citizens better off through receiving favors, grants, and subsidies from it. Those promises are based on a delusion that the government of the nation envisions, generates, and controls all the wealth of that nation, and has the right to distribute that wealth to whomever is willing to totally acquiesce to the government leaders making those promises. The government does not earn any of the money it promises to give away, but, rather, has to take the money away from individuals who have already earned it. Those promises of favors, grants, and subsidies are a form of buying-off the constituents.

When the government promises to take away from those constituents who have earned wealth in order to redistribute that wealth to those who did not earn the wealth, they are appealing to the selfishness of the recipients who would enjoy receiving largesse gained from the efforts of others rather than from their own efforts. A government or Sovereign may have the power to manipulate a model of redistribution through coercion, but, obviously, all the individuals in the deal do not end up better off. At that point the economic model moves into a model of contraction rather than an economic model of growth and production, and over the long haul it cannot remain sustainable.

As we will see later, the free market system depends on the possibility of voluntary and free political and economic choices within the framework of a fair and just rule of law. Throughout history there have been very, very few occasions where cultures and civilizations have experienced the phenomenon of the combination of political and economic freedom at the same time. Great Britain and the United States experienced that kind of exceptional freedom.

The resulting economic system did allow for the observing of what could happen if that political and economic freedom could come together and function successfully. There had never before been such a model created of economic growth, production, and expansion, and to think that the successful experiment had been realized in such a relatively short amount of time.

The exceptional results of the American experiment are largely due to the thinking and writing of several men of common ancestry divided by a large body of water called the Atlantic. They were able to compress, condense, and consolidate the dreams and the desires of the millions of people throughout the centuries who had longed for the opportunity to experience economic and political freedom.

In America, Thomas Jefferson was writing about a new nation that would be the first in history established on the principle that every person is entitled to pursue his or her own values. On the other side of the ocean, Adam Smith was writing about the possibilities of a free market where individuals could pursue their own objectives of voluntary transactions. Both believed that the role of the government should be that of an umpire and not a participant. Each believed that the pursuits of one’s own values and interests were not necessarily greedy or selfish, but necessary for everyone to end up better off.

Those men of creative vision believed that an entire group of people could move forward and achieve the goal of personal as well as national wealth. It was possible to pursue self-interest without being selfish or greedy, and the end result would be a unique model where everybody ended up better off.

Next Week: Essentials of Free Market

(Research Ideas from Dr. Jackson's writing project on Cultural Economics) 

© Dr. James W. Jackson   

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