Self Interest & Adam Smith

Rational self interest & Adam Smith

Although Smith believed in the basic selfishness and greed of business leaders, he also firmly believed that in seeking their own self-interest, they are led by what he called an "invisible hand" to promote the well-being of society, without knowing it and without intending it.

Competition would lead them to supply goods the public wants, to produce those goods efficiently, and to charge only what they were worth. All of this would happen naturally, without control or regulation. Monopolies, to Smith, were the biggest evil, because they destroyed competition, which was in the best interests of society.

Self interest, economy and society

There was, on the highest level, what Smith called "a natural course of things," or "the natural progress of things toward improvement." The principle behind this natural course was what he described as "the uniform, uninterrupted effort of every man to better himself." This effort, based on self-interest, is what drives society. And it's the duty of government, and all others, to accept it and support it.

Adam Smith 's view: self interest is beneficial

The fact that Adam Smith saw self-interest as ultimately beneficial, and that it stimulated the economy for all, is one of the most controversial theories in his book. In a famous passage, 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 for their own interest. We address ourselves not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantage."

The influence of effects of Adam Smith 's self interest theory

Once Adam Smith established this idea of the value of self-interest, it was happily called up by wealthy and powerful manufacturers and industrialists looking for a way to justify their methods. It's very doubtful this is what Adam Smith intended. 

Adam Smith's view on self interest

Adam Smith did NOT favor the uncontrolled pursuit of self-interest. He thought in fact, that most people - farmers, workers, bankers, and manufacturers failed to recognize what their real self-interests were. Leaders in trade, for instance, had set up a heavy duty on certain goods to protect their profit, which in turn caused a smuggling of those goods that almost ruined their business. It was the long range effect of their methods, and not the short term effects, that really served their self-interest, and Adam Smith felt business people seldom realized this. They desired gain at the expense of the general good, and ultimately, therefore, at the expense of their own eventual good.