[p2p-research] Adam Smith wasn’t the free-market fundamentalist he is thought to have been

[Ryan]

  Sent to you by Ryan via Google Reader: Adam Smith wasn’t the
free-market fundamentalist he is thought to have been via 3quarksdaily
by Abbas Raza on 5/6/10

It’s time we realised the relevance of his ideas to today’s financial
crisis.

Amartya Sen in the New Statesman:

Smith discussed that to explain the motivation for economic exchange in
the market, we do not have to invoke any objective other than the
pursuit of self-interest. In the most widely quoted passage from The
Wealth of Nations, he wrote: "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. We address ourselves, not to their
humanity but to their self-love." In the tradition of interpreting
Smith as the guru of selfishness or self-love (as he often called it,
not with great admiration), the reading of his writings does not seem
to go much beyond those few lines, even though that discussion is
addressed only to one very specific issue, namely exchange (rather than
distribution or production) and, in particular, the motivation
underlying exchange. In the rest of Smith's writings, there are
extensive discussions of the role of other motivations that influence
human action and behaviour.

Beyond self-love, Smith discussed how the functioning of the economic
system in general, and of the market in particular, can be helped
enormously by other motives. There are two distinct propositions here.
The first is one of epistemology, concerning the fact that human beings
are not guided only by self-gain or even prudence. The second is one of
practical reason, involving the claim that there are good ethical and
practical grounds for encouraging motives other than self-interest,
whether in the crude form of self-love or in the refined form of
prudence. Indeed, Smith argues that while "prudence" was "of all
virtues that which is most helpful to the individual", "humanity,
justice, generosity, and public spirit, are the qualities most useful
to others". These are two distinct points, and, unfortunately, a big
part of modern economics gets both of them wrong in interpreting Smith.

More here. [Thanks to Shan Manikkalingam.]



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