Adam Smith was Right

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It certainly sounds like KPO (Keen Perception of the Obvious) to say that we should all live for own self-interest, but the fact is many of us don't, and that many people try to convince us not to and clearly the most difficult aspect of this self-interested approach to existence is having an uncompromised recognition of what our self-interest is exactly. Why? Because so much of what we do is in conflict and self-interest can easily become self-indulgence and lead you down a path to misery or another Stephen King novel.

 

My pleasure is often in conflict with my health. Responsible behavior is constantly getting in conflict with the time I have available. I acquiesce to the wants of others even though I sense trouble because I believe it is in my self-interest to play nice. I don't play nice and pay the price.

 

Adam Smith decided that in economics you should have none of these dilemmas that complicate other areas of your life. Having more capital is always deemed to be superior to your self-interest than having less capital. I have pondered this, trying to find a hole in his reasoning, but I see none. All other things being equal, I can find no circumstance in which more capital would be a hindrance except if you were in the company of bad people and more capital would make you more of a target for their evil schemes. And perhaps there is the major drawback of having more capital, evil schemes, but let's ignore that.

 

Let's just assume that having more capital will allow you to do more things for yourself, which has more potential to benefit your self-interest than having less, unless like me you are a person who habitually makes bad decisions with your capital which means having more capital would only allow you to make more bad decisions, or even worse decisions, but if you had enough capital you could hire a capital expert to make those decisions for you, but you'd first have to find a way to keep more of the capital you get to be able to afford the capital expert, which might require you to change your habits and thus not need the expert after all. But I digress.

 

In conclusion, in many things it can be said that pursuing self-interest is not guaranteed to improve your lot in life, but I think I've clearly shown that in terms of capital, all other things being equal, it certainly should. If not in reality, then perhaps it could have a placebo effect.

 

Based on the work of Adam Smith, not closely related by blood that I know of.

Comments

mark henry smith Added Aug 7, 2017 - 7:13pm
I never felt better than when I had all of that capital. I was always trying to think of the best thing to do with it to benefit my self-interest, and the best never materialized, so I squandered it. Maybe that's another problem with pursuing one's own, best, self-interest, figuring out what best is. Darn. 
John G Added Aug 7, 2017 - 7:22pm
Adam Smith decided that in economics you should have none of these dilemmas that complicate other areas of your life.
Did he?
Adam Smith must be the most misquoted and misunderstood economist in history.
I don't think even Keynes gets put through the sophists' wringer as much.
 
EXPAT Added Aug 7, 2017 - 7:35pm
Marko. Money is a means to an end. When money becomes the end, then you no longer have a reason to live. That is why so many rich and famous people kill themselves.
 
You and I are both satisfied to do what is necessary. Since our needs are simple, and we prefer knowledge over luxury, we can spend more time on acquiring knowledge, and less making money.
 
 
George N Romey Added Aug 7, 2017 - 7:54pm
There are only so many houses you can live in or boats you can sail or power.  Money has become a sign of acceptance in the elite set. If your peer CEO that you play golf with buys another house somehow you aren't much of a CEO if your salary doesn't allow you to buy another house.  Its called diminishing returns or too much of a good thing is not good.  
 
I believe money can buy happiness up to a certain point.  It can certainly relieves mental stress and burdens and give you the resources to do things that you enjoy.  However, at some point you've got all you could ever need but want more.  At that point it turns to an unhealthy obsession.  Think of it this way.  Wanting to be in well physical fit is a good thing.  Then you see these stick figure women at the gym that swear they need to lose another 20 pounds. Not good and never pretty.
 
The problem with this silly arguing of Smith, Ricardo, Keynes, Friedman and Rand is that they were before the age of technology. You can build a website, write code, do financial and marketing analysis and many other modern jobs from anywhere in the world.  
John G Added Aug 7, 2017 - 7:57pm
OK George, then why do you get your economics from the 1920s?
john guzlowski Added Aug 7, 2017 - 8:04pm
Money is good.  Poverty is bad.
 
A rich man eats a poor man for breakfast.  
George N Romey Added Aug 7, 2017 - 8:08pm
John money is good and poverty is bad but its all to do with moderation.  Some income inequality in a society is good.  People should be motivated to want more for themselves and their families. However, what we have increasingly is a rigged system that makes sure the rich just keep getting richer (those born into wealth) and the remainder poorer.  Social mobility is the key to income growth and productive societies. The tenacious rise and the froth doesn't,  That being said the froth still deserve a basic standard of life which they are not getting.  
john guzlowski Added Aug 7, 2017 - 9:12pm
George, I agree with you, but convincing a rich man that a poor man deserves "a basic standard of life" is hard.  Even first generation middle class folks don't think the poor deserve it.  I've seen some amazing studies of the way Americans in one class resent helping the folks in the class just below them.  
EXPAT Added Aug 7, 2017 - 10:11pm
john guzlowski.
You disappoint me. I thought from your writing you had a better understanding of life.
 
Jesus never had a shekel, that he didn't give to others, but made an impression on the world that none of your rich men can even comprehend, never mind eat for breakfast!
 
Whitney Houston had it all, riches, talent, family,  adoring masses and died of drugs in a bath tube, just like a lowly prostitute with nothing!
 
Mother Teresa came from a well off family, but chose poverty as her calling. I read her books, and she was the happiest person I ever encountered.
How many RICH Saints can you name.
 
Enjoy your money john! It is all you will have!
There is an old Hebrew curse, that goes something like:
May your ship return Laden with Gold! And may it not be enough to cover your medical bills.
 
EXPAT Added Aug 7, 2017 - 10:15pm
target="_blank">Matthew 19:24 Again I tell you, it is easier for a camel to go through ...
biblehub.com/matthew/19-24.htm
Again I tell you, it is easier for a camel to pass through the eye of a needle than for a rich man to enter the kingdom of God."
Lady Sekhmetnakt Added Aug 7, 2017 - 11:26pm
"Money is good.  Poverty is bad." 
 
A more honest quote would be "Greed is good" (~Gordon Gecko, Wall Street). 
John G Added Aug 8, 2017 - 12:42am
The love of money is the root of all evil. Maybe not all, but a heck of a lot.
You'd have to be a sociopath to have more than you could ever spend and still want more.
And climb on the backs of those lower down the ladder to get it.
Yet the right lauds these sociopaths and psychopaths.
Something wrong in the wiring.
EXPAT Added Aug 8, 2017 - 1:52am
John G. A little twisted there boy!
OF the richest men in the USA, the top six are Liberals according to Forbes:



 
#1
Bill Gates
$81 B
61
Medina, WA
Microsoft



#2
Jeff Bezos
$67 B
53
Seattle, WA
Amazon.com



#3
Warren Buffett
$65.5 B
86
Omaha, NE
Berkshire Hathaway



#4
Mark Zuckerberg
$55.5 B
33
Palo Alto, CA
Facebook



#5
Larry Ellison
$49.3 B
72
Woodside, CA
Oracle



#6
Michael Bloomberg
$45 B


EXPAT Added Aug 8, 2017 - 1:53am
We won't even mention the leader of your movement George Soros.
Robert Burk Added Aug 8, 2017 - 5:39am
Wrong. Wrong in saying we ought to live self initerested lifes and wrong in attributing such an obviously wrong idea to Smith. He may not have had the intelligence to develop a rational theory but he was too moral to think self interest was the ultimate 1st Principle, it was if I may say, something he resigned himself to because of peoples sin and he could not devise a better plan.
 
His and your mistake is thinking the individual is the social unit. It is not, the proper social unit is the small group. It is by committing your error that no one has come up with either a rational economics or a way to organize society so it does not produce social costs. Our problems exist becaue of the mistakes you perpetuate. I have several books out if you are interested in a rational economic and social system.
 
John G Added Aug 8, 2017 - 5:52am
There are a lot of people who've never read Adam Smith comment on what they think he said.
I think that is evident here.
Reading the Wealth of Nations is more than difficult. 
Katharine Otto Added Aug 8, 2017 - 11:47am
Mark Henry,
 
I've been thinking about "prosperity consciousness," which goes beyond simplistic rich vs. poor divisions. "Prosperity consciousness" is a state of mind that includes health, open-mindedness, and the desire to share blessings, in whatever form they come.
 
Having read "Wealth of Nations," I think it's hard to sum it up in a sentence or two.  The idea of self-interest, to me, means that you have to take care of yourself, to keep from burdening others.  Only when you can stand on your own feet can you be of help to others.  Part of self-interest is having enough to share.  And, I have found that when I have more money or possessions than I can easily manage, they can be more trouble than they are "worth."  The risk of becoming "predator bait" is real.
 
It is a mis-conception to equate "self-interest" with selfishness.  The "poor" who resent the "rich" are just as money-driven, because both groups place too much emphasis on money.  I figure those who want to accumulate wealth must enjoy managing it more than I do.  Like George R above, I wonder what gratification people get from more property--which requires constant maintenance--than they can reasonably use.  It down begin to own you, not the other way around.
 
mark henry smith Added Aug 8, 2017 - 1:29pm
Thank you so much for these comments, they have inspired much thought.
 
All great thinkers are prone to being misinterpreted and the greater the thinker the more prone. Yes, Adam Smith feared what the premise of his theory made obvious, that the accumulation of capital to promote the growth of productive enterprises could become a hindrance to a Godly life. A Godly life being one dedicated to the furthering of Godly values and serving as stewards of creation. A Godly life is not lived for the self. The self is merely a tool for the promotion of better living for all we care about.
 
If you study Adam Smith, you will not find a hypocrite. You will find a man who served in government, supported his church, believed in the values of hard work and ingenuity in solving problems. He saw that capital was the key to sustaining an on-going concern, for without the means to make initiative reality, initiative belongs to the person who can fund the project. He saw capital as the basis of democracy, since many small investors could pool their money and take on the entrenched wealthy in areas closed off from innovation. Better ideas would win if capital was allowed to flow freely.    
 
So self-interest in capital investment wouldn't just help the individual improve their lot, it would improve society by making citizens keenly self-interested in how markets work, in the promotion of free markets, in the creation of a stable society where trade can happen with as little friction as possible. I look at his theory as perceiving each individual to be drops of capital in an ocean of investment potential. Any drop can leave to find better waters if they see a better offer. All drops are equal and all are governed by the same rules.
 
This is not the world and never will be and Adam Smith was aware of this, so he added conscience in the form of an invisible hand, or God, or something to counterbalance the natural human tendency towards excess. He feared monopolies since they tend not to be efficient in their use of resources, and that was ultimately Smith's concern, the efficient use of resources being the guide for economic and social development.
 
But he didn't tackle externalities, natural monopolies, or the complex investment strategies of the modern financial landscape, since these problems weren't clearly understood, or didn't exist in his time. Still, his reasoning is sound. In terms of capital and a life of sufficient wealth to allow a plethora of choices leading to happier outcomes, more is better, in almost all cases. And the reason people accumulate so much more capital than they need has nothing to do with economics, but with human nature.
 
Thank you Expat for the unexpected kind words. And to all of you, go out and try to make a difference for good, to be the mechanisms for the construction of a better world. I think that's what Adam Smith was hoping his ideas would stimulate.  
George N Romey Added Aug 8, 2017 - 8:12pm
Marko we live in a much more interconnected world than Adam Smith.  In his time most people were land owners (the rich) or land workers (the serfs).  And unfortunately slaves.   Land owners took care of land workers maybe not in the best way but they wouldn't starve. Today the vast majority people in a developed world are dependent upon the "corporation" for their livelihood.  The "corporation" has felt less and less inclined to want to provide an adequate living.  I don't see this situation improving only getting worse.  I have to wonder how long people will endure this.
Katharine Otto Added Aug 8, 2017 - 9:32pm
Mark Henry,
I have a different perspective on Adam Smith.  I saw him as a cold-blooded reptile who was looking everywhere he could to maximize taxation and exploit labor for profits for stockholders.  He did become customs officer for Edinburgh after "Wealth of Nations" became such a huge success.  When he wrote about the "idle," he never clarifies whether he's talking about court sycophants or people on the street.  
 
It seems the Brits have a long tradition of looking down on honest workers.  Work, like manual labor, is demeaning, I guess, so a "gentleman" would go into the military or become a cleric.  They spread their empire around their world, depending on slaves and conquered people to produce the raw materials they consumed in their machines and resold at maximum profits.  The Americas would never have needed slavery if not for exports.  This is Adam Smith's legacy.  "Wealth" was published in 1776, by the way.  Does that date sound familiar?
mark henry smith Added Aug 9, 2017 - 1:16pm
George and Katherine,
 
When I bring the two of your comments together, I get a clearer picture of the Adam Smith legacy.
 
George, the corporation as a legal construct to raise capital in the pursuit of a profitable enterprise is not necessary. They exist to shield individuals from the actions of their creations, and the reality is that every investor is in part a creator. I believe Adam Smith would be appalled at this economic landscape that's been created where people accept less and less responsibility for how their capital is being used to influence world affairs.
 
How many of you with 401 K's make any personal decisions on how your money is invested? This is the madness we live in. We have an investor class that rails against the government being too powerful and taking too much, but when blame is being handed out they blame the government for not keeping a closer watch over the areas where they get in trouble. You can't have both and what we have is the absolute worst. We have a government that doesn't regulate business as much as let business use it as a scapegoat. The two play off of each other like a comedy duo. How many investors does it take to make policy? None. They pay the government to do it.
 
Katherine, it's been a long time since I read, Wealth of Nations, and I have to admit that I'm basing much of argument on old memories and conjecture, but let's never forget that all people are hostages of their time. From the get-go the colonies were raped for raw materials. That was the motivation for imperial control. People were just another raw material. I'm not ever going to claim that Adam Smith was an enlightened man, but he was very astute in understanding that the best motivation for human action, on the whole, is self-interest, and that in human interactions the most easily recognized source of an improved quality of life was an increase in capital.
 
Today, we have a broader perspective to work with and we are keenly aware that capital cannot do the job alone, but let's be honest, the reason we don't accept slavery easily in the modern world is that we believe in the rights of all people, all over the world to be paid for their labor, that they have the right to accumulate capital and work towards a greater ambition. I have to believe that Adam Smith had a hand in this development. That he was convinced that the poor and the primitive were products of their own lack of initiative and deserved their lot was a very Protestant attitude that many successful people still hold today.      
George N Romey Added Aug 9, 2017 - 2:45pm
The bottom line despite our many advancements we haven't changed a lot since the days of slavery.
Mike Haluska Added Aug 10, 2017 - 4:24pm
Most wealthy people do more good for more people unintentionally in a single day than all of the "do-gooders" put together in a year.  The FIRST thing you have to do to help the poor is NOT BECOME POOR YOURSELF!!!
Katharine Otto Added Aug 10, 2017 - 11:50pm
Mark Henry,
Point well taken.  But Adam Smith was of a privileged class and believed, like others of his class, that the lower classes should work as hard as possible so others could profit. He claimed farmers were lazy, but my take was farmers only work as hard as they need to.  Nothing lazy about that, according to me.  That's smart.
 
I say we are "economic slaves" to the government today.  How many people believe we need government to survive?  Who protects you from your protector? 
 
I guess "self-interest" can be interpreted many ways. You make a good point about 401(k)s which is why I would never have one.  The government and Wall Street are married.  If you want to know why we get the legislation we do, ask who really benefits?  The answer is in "the market."
 
 
George N Romey Added Aug 11, 2017 - 9:09am
When our middle class has collapsed because of Federal Reserve and Wall Street control of the economy to think people haven't become impoverished is naive thinking. If we return to a real productive economy maybe that statement will be true. Americans are being made poor on purpose.
Mike Haluska Added Aug 11, 2017 - 3:56pm
Katherine - your comment:
 
"I say we are "economic slaves" to the government today.  How many people believe we need government to survive?  Who protects you from your protector?"
 
is your most eloquent and profound by far.  The main instrument of this pseudo-enslavement in my opinion is the un-Constitutional Income Tax.