Tuesday, September 18, 2007
News Flash!
Even Alan Greenspan is jumping on the behavioral bandwagon! Apparently he too concedes that human beings are more complex (and presumably less focused on pure self-interest) than Adam Smith professed, and he asserts that an understanding of human nature is crucial to developing suitable models of the economy. I certainly agree.
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"... human beings are more complex (and presumably less focused on pure self-interest) than Adam Smith professed, and he asserts that an understanding of human nature is crucial to developing suitable models of the economy."
Your reading of Adam Smith is inaccurate. He never professed that Human Beings are simple creatures. Wealth of nations was just a one element of his work on how the markets function. For his views on human nature I will recommend read his book "Theory of Moral Sentiments." It is a rather brilliant read.
Here are two quotes from Smith, which appear contradicting to each other to many noneconomists, but infact are not. I once did an experiment and made some noneconomist friends who hadn't heard about Smith read these two and asked about the background of the two authors and whether they could be written by the same person. None of them could conclude that both pieces could possibly be written by the same guy (now ofcourse my survey methodology and results are quite questionable, but I found it quite interesting)
"Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence. But though this principle ultimately provides him with all the necessaries of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him he purchases food."
- Smith, Wealth of nations
"How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it."
Smith, Theory of moral sentiments
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