The First Philosophy of Economics: Self-Interest
~ Metamorphosis of Narcissus by Salvador Dali
“Every individual endeavours to employ his capital so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it.”
~ Adam Smith, The Wealth of Nations (1776)
All economic models rely on one assumption when predicting human behaviour, namely, all men work for their self-interest. Subtracting this element of self-interest from the equation, it would be impossible to predict human behaviour. François Quesnay (not Adam Smith) is perhaps the first economist to claim that self-interest is the motivation behind all economic activity.
The notion, however, that self-interest is the main driver behind human actions date back much longer. The Greek philosopher Aristotle was one of the first few individuals to document the claim that self-interest is the primary economic motivator. According to Aristotle, all men seek pleasure and avoid pain. The term ‘pleasure’ of course, means anything ranging from hedonistic pleasure to the pleasure of achievements and attainment of goals.
Barring what economists and philosophers have said in the past, let us take a step back and examine how valid this assumption is today. First and foremost, self-interest is very different from being selfish. To work for your self-interest may not necessarily mean that you are working for selfish reasons. For example, a green environmentalist may be serving his or her self-interest by protecting the environment. Protecting the environment can be hardly considered as a selfish reason. But for the green environmentalist, the interest of the environment is in his or her interest!
Lets take a more controversial example. Does a Buddhist monk work for his self-interest? Assuming that a monk attempts to lead a really religious life following Buddhist doctrines, is he then working for his self-interest? On the surface, you might say no since Buddhist monks are thought to be selfless – some living simple and secluded lives. Buddhism preaches altruism in many different forms; so how can they be working for their self-interest? But thinking deeper, why is the Buddhist monk leading such a life? Is he not aiming for self-enlightenment so that he may be spared an afterlife of suffering (or cessation of suffering or etc)? Does such an aim mean that he is not working for his self-interest? I think not.
Consider responsible parents. They work hard and save up a lot of money for the higher education of their children. On the surface, this might seem like the most selfless thing to do. However, you must also consider that parents take pride and joy in the achievements of their children because they view their offspring as an extension of themselves. Although such deeds are not selfish in nature, it also doesn’t mean that responsible parents are not working for their self-interest when looking after their young.
One of the reason why it is so easy to incorporate many things under the presumption that all men work for their self-interest is the difficulty in determining or defining what someone’s self-interest really is. Here it is wise to remember a quote from Alexandre Dumas, “All generalizations are dangerous; even this one.” The key to determining at self-interest is motive. By understanding a person’s motives and intentions you will likely find where his self-interest lies and, hence, the reason behind his actions.
In economics, different individuals w0rking for their own self-interest may not necessarily be a bad thing. Adam Smith’s quote above illustrates this perfectly. When different individuals work for their self-interest and yet work towards benefiting a society, it is produces a harmony of interests. Quoting Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”
So the next time you go to the supermarket, ask yourself this: would the butcher, brewer, or baker sell you something or anything at all if he does not derive any profit from it? Depending on your answer and philosophical disposition, it might be time to give him more money or ask for a discount.
Train of thought
- All individuals work for their self-interest (inclusive of harmony of interests whereby the self-interest of different individuals are aligned).
- All individuals work to improve our personal wellbeing by consuming goods and services.
- All individuals make decisions through information collection and conscious calculation of alternatives to determine which option is the best to satisfy our needs or wants.
- Thus, all individuals make calculated and rational choices (based on the information available to them at a point in time).