Adam Smith's "The Wealth Of Nations"
The Wealth of Nations was written and published in 1776, and during this time was the beginning of the modern age. New products and ideas were being introduced that are still heavily used today. Manual labor and trade skills were probably the only form of employment and bartering was the only form of business. Many of us today take for granted whats available to us in regards to goods and supplies. But in the 18th century there were no grocery stores or hardware stores. The manufacturing of domestic goods fell in the hands of the artisans who spend their entire life learning and perfecting their desired trade.
The main idea in The Wealth of Nations by Adam Smith lies in the notion of economic growth. Throughout the century growth has evolved to new heights, different people had different ways of conducting business. The economic growth, according to Smith is emphasized in the expansion of the division of labour. The greatest improvement in the productive powers of labour (Smith, 3) Essentially, Smith specializes in the concept of the labour force. Smith compared the model of two different manufacturing methods. First, each worker was responsible for all of the 18 tasks involved in producing a pin. The other had each worker performing only 1 or a few of the 18 tasks that go into producing a completed pin. Smith concluded when a worker is specialized in a single job it will produce greater performance. More specifically, breaking down larger jobs into smaller jobs. Each worker becomes a skilled tradesman in his/her respected area of production, therefore increasing his/her efficiency. Smith suggests when workers dont have to switch between tasks it will save the company time and money. This great increase of the quantity of work which, in consequence of the division of labour, the same number of people are capable of...
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During the past thirty years, numerous studies have revised the traditional view of Smith’s economic agent as a mere self-interested individual, showing the close connection between the Wealth of Nations (henceforth WN) and the Theory of Moral Sentiments (henceforth TMS). Part of this debate has focused on the plurality of motives that create individual behaviour in both the social and economic contexts, resulting in a consequent reinterpretation of the Smithian economic agent. In addition, Smith’s moral philosophy has been reinterpreted in order to understand the emergence of institutions, and theoretical figures like the "impartial spectator" and the "prudent man" have been considered in order to gain a more comprehensive view of human behaviour. Nonetheless, the recent literature has also pointed out some theoretical differences between TMS and WN, even though such analytical revision does not constitute a contemporary version of das Adam Smith Problem In this regard, Vivienne Brown (1994) has stressed....
Bearing this general context in mind, the limited aim of this essay is to analyse some questions about the individual as an economic agent, exclusively focusing on the WN. In particular, this essay will consider the concept of self-interest, emphasizing the following three different points of view:
the features of the individual in a modern commercial society connoted by the division of labour;
the idea of "self-interest" as it relates to each social group. The assumption is that individuals assume (and perceive) their own interest from the viewpoint of their reference social group;
self-interest as a persuasive argument that characterizes exchange processes.
The thesis of the essay is that the idea of self-interest exhibits a certain degree of complexity, that self-interest is not the main incentive that drives human economic behaviour, and that this idea, generally shared in the Smithian literature, clearly emerges from Smith’s economic discourse. In fact, the first two analytical problems (points 1 and 2) show that self-interest is neither a transparent principle for individuals who are able to guide their actions correctly nor does it exhibit a set of features commonly shared by the majority. Given this limited context, I shall not examine how other moral "sentiments" or motives (for example, benevolence) could oppose, curb, or balance self-interest.
All this implies that self-interest coincides neither with the principle so frequently invoked in the liberal tradition (especially during the nineteenth century) nor with the concept usually used in economic theory as an explicit (or implicit) assumption for maximizing utility. In fact, it will be shown that Smithian individuals are not the best judges of their own "interest," and this sheds light on their hypothetical disposition "to improve" their condition. Finally, according to this view, the lack of a shared notion of interest points to some important problems concerning the capacity of the market to realize a spontaneous order that is able to increase public wealth.
1 - Division of labour and individuals’ "disintegration"
The first problem is linked with the possibility of individuals’ abilities to conserve their "undivided personality" in a generic society that is organized by the division of labour. As is well known, the term "division of employments" appears in Book I of the WN  See also Smith (1978) and Meek and Skinner (1973).. The transition from the primitive age that preceded the division of labour to the subsequent one can be interpreted as a generic phase in which individuals lost their original "undivided personality." This was necessary in order to attain social and economic development. In fact, before the division of labour, all individuals could discover and exercise their human faculties by applying themselves to any kind of activity. After the division of labour this was no longer possible, and personal faculties were, so to speak, separated from individuals and gathered together in "social spaces" (those of specialized "professions") defined by the division of labour. Smith also describes this process in terms of available time for individuals:
"A shepherd has a great deal of leisure; a husbandman, in the rude state of husbandry, has some; an artificer or manufacturer has none at all. The first may, without any loss, employ a great deal of his time in martial exercises; the second may employ a some part of it; but the last cannot employ a single hour in them without some loss, and his attention to his own interest naturally leads him to neglect them altogether".
Thus, the more the division of labour advances, the more the time available to the individual for multifarious activities decreases (and correspondingly the individual’s intelligence decreases). There is no space for dividing one’s time between productive and unproductive labour, in which the latter corresponds to the "martial exercises," activities that become a specific form of work (for example, that of the soldier). Moreover, as the quotation shows, this process delineates the sequence of the last three stages of society: pasturage, agriculture, and commerce (because, evidently, the division of labour is almost nonexistent in the first stage, which is based on hunting). It also means that the more societies evolve from one stage to another, the more their complexity and their internal division of labour increase.
In short, before the division of labour, any activity was a direct manifestation of personal faculties; after it, activities lost this distinctive feature. They were socially organized and, I repeat, they were gathered together in different "social spaces" (the spaces of employment, which is external to individuals), which gave them new shape and ruled them coherently with the logic of the division of labour (cf. Fiori and Pesciarelli 1999).
This was the first phase of the "disintegration" of the individual (Hont and Ignatieff 1988, p. 8). Intellectual labour, for instance, was now an activity undertaken by specific groups (scientists, philosophers, etc.) and not the direct manifestation of individual intelligence. This was the fundamental condition for the growth of social knowledge and corresponding to it was the reduction of individual intellectual capabilities (Rosenberg 1965). Evidently, this condition was strictly connected to the technical division of labour by which means further divisions were achieved in order to increase productivity. Moreover, the principle of the division of labour always exhibited its properties homogeneously and the technical division was conceived as an extension of the division among professions (WN I.i.2).
In Smith’s view, this situation reflects the famous contrast between "barbarous societies" (of hunters, shepherds, and the "rude state of husbandry") and commercial societies. In the former, intelligence is connected to the possibility of individuals’ exercising abilities, "invention," and creativity by means of "varied occupations" (WN V.i.f.51). In the latter, on the contrary, Smith (referring to laborers, or more precisely to the "greater part of those who live by labour, that is, of the great body of the people" – WN V.i.f.50, emphasis added) says, "the life is spent in performing a few simple operations" (WN V.i.f.50), and men become "stupid and ignorant"  This theme, well known in the Smithian literature,....
In sum, the "disintegration" of individuals can be observed in two processes:
First, the division of labour, as a general principle, which in precapitalistic ages introduced a simple "division of employments" and reorganized and included personal faculties in social spaces. The more this process advances, the less these faculties are the free manifestation of human abilities, but rather obey the rules that are separated from individuals. Of course, every age has experienced a division of labour (WN I.ii.3); consequently, the process by which individuals are separated from their faculties assumes greater importance the more the division of labour is a fundamental characteristic of a market society.
Second, the technical division of labour, which emerges clearly in modern manufacturing, denotes a more profound level of individual disintegration. It reduces human capabilities, which are not solely separated from agents but undergo a process of fragmentation (in fact, work becomes a set of a "few simple operations").
These arguments raise a number of questions: How do individuals (as divided entities) in a market society really know what their own "interests" are? Does the condition of partiality influence their knowledge of self-interest? Can they possess a shared view of self-interest? Are economic agents really the best judges of their interests? In rude societies - Smith says – "[e]very man […] can form a tolerable judgment concerning the interest of the society" (WN, V.i.f.51), but this is not so in a market society  The role played by "opinion" (and "judgment" of the....
2 - Self-interest and social groups
This topic can be further analysed by considering the role of the individual as a member of a social class.
The thesis sustained is that each "order of society" (labourers, capital owners, and landlords) exhibits (and acts in consequence of) a specific view of its specific interest. This latter seems to mould individual interest, which emerges through a process whereby agents assume the point of view of their reference groups, so that collective perspectives determine subjective ones. In particular, these various notions of self-interest (which social groups embrace) are not convergent. Consequently, people do not share a common concept of personal "interest." Moreover, the inclination to improve one’s personal condition  In the Smithian literature, the concept of interest... acquires different meanings based on the distinctive features of each social group. Finally, these meanings explain why each class is characterized by different choices and behaviours.
First, Smith affirms that "every improvement" in market society increases rents and wages. Nonetheless, both landlords and labourers are unable to recognize the close connection between their real "interest" and "the general interest of society" (WN I.xi.p.1-8)  In these pages Smith explains that rent increases in.... Their "real interest" consists of improving their personal circumstances in terms of private wealth. But, Smith remarks, both social groups fail to perceive the difference between their "real interest" and their subjective (or personal) one. The latter generally leads them astray from the correct way to improve their condition. The dichotomy between real interest and the subjective perception of one’s own interest is very important, because the first term represents the ideal principle that should direct individual choices and the latter is the motive that actually determines individual decisions in the economic arena, although it usually produces erroneous agent performances  Some authors have emphasised the role of the subjective....
The reasons for this dichotomy are described in terms of structural conditions that connote both classes (landlords and labourers). In short, the difference between real and subjective interest is not a mere temporary "visual illusion"; on the contrary, it is rooted in the historical and functional roles fulfilled by each social class. In fact, Smith maintains that the landlords often do not possess a "tolerable knowledge" of their real interest. This latter is not mere ignorance; instead, it mirrors structural (and historical) features of landowners. Consequently, Smith writes,
"That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary in order to foresee and understand the consequences of any publick regulation".
(WN I.xi.p.8, emphasis added)
Even in modern commercial society, landowners, who are the heirs of feudal landlords, maintain "that indolence" that impedes them from understanding their real interest. This indolence is rooted in a material condition of life connoted by "the ease and security of their situation."
Consequently, they conceive their own interest as lying in increased consumption, instead of increased wealth. This means that the subjective representation of their self-interest prevails over the "real" one. Only the former guides the choices of landlords as economic agents. The same propensity for consumption led the great proprietors to exchange their entire surplus and their power "for a pair of diamond buckles" (WN III.iv.10). Finally, the contrast with the merchants sheds further light on these phenomena:
"A merchant – Smith says - is accustomed to employ his money chiefly in profitable projects, whereas a mere country gentleman is accustomed to employ it chiefly in expence".
Once again, subjectively different notions of interest produce divergent plans and decisions: for landlords their interest coincides with increasing consumption, for merchants with increasing profits.
Similar considerations apply to labourers, who are prevented by their material circumstances from distinguishing real from subjective interest. As a consequence, Smith maintains,
"though the interest of the labourer is strictly connected with that of the society, he is incapable either of comprehending that interest, or of understanding its connection with his own. His condition leaves him no time to receive the necessary information and his education and habits are commonly such as to render him unfit to judge even though he was fully informed".
From this quotation one can infer that
self-interest is neither transparent nor well-defined for the labourer: he is "incapable" of understanding how his self-interest is connected to the general interest. This hypothetically implies that such a condition may prompt him to act contrary to his "real interest";
the labourer lacks "the necessary information." This can be considered as a consequence of his structural position in the system of the division of labour, which shapes his entire life and determines his partiality as human being;
Finally, the labourer is "unfit to judge [the connection between private and public interest] even though he was fully informed." His "divided personality" implies that the problem does not merely concern the amount of information. In fact, additional information would not change his inability to understand the external world  The cases of both landowners and labourers show that....
All this implies, as Smith himself affirms, that the labourer as an economic agent is certainly not the best judge of his own self-interest.
Capital owners, as is well known, are the exception compared with the previously identified social groups. They know their self-interest and consequently, at first glance, there is almost no difference between their real and subjective perceptions of interest. The former, in fact, coincides with the endeavour to improve their circumstances in terms of increasing private wealth, so that the "merchant ‘coherently’ is accustomed to employ his money chiefly in profitable projects" (WN III.iv.3); he follows the "principle of turning a penny wherever a penny was to be got" (WN, III.iv.17). Therefore, the "better knowledge of their own interest" (WN I.xi.p.10) defines the "superiority" of capital owners over both "country gentlemen" and (implicitly) labourers. But the interest of capital owners "is always in some respects different from, and even opposite to, that of publick" (WN I.xi.p.10)  "To widen the market and to narrow the competition.... Hence the capital owners’ clear notion of self-interest implies the possibility of an improper use of such knowledge from which selfish behaviour may derive. This engenders a new problem. In order for (real) self-interest to allow action by the "invisible hand," it must be consistent with the public interest. Smith, in fact, considers the growth of private and public wealth to be an essential condition for market order. If the capital owners’ behaviour is selfish, the "optimal" market order fails and economic agents increase their wealth, damaging the public  Additionally, "Smith went on to argue that the individual.... The gains of selfish merchants are losses for other individuals because free competition is altered. Consequently, in this case, too, the subjective notion of interest (the selfish view) guides (as in previous cases) the concrete choices of agents (merchants). The selfish interest prevails over the real (and appropriate) one. The latter involves the correct exploitation of opportunities and an ability to invest capital in the most profitable branches of industry. It implies proper behaviour in the economic arena and enables the "invisible hand" to act correctly. In contrast, the subjective selfish interest of merchants prevails over the ideal one, in which the term "ideal" denotes an "interest" that is able to generate a harmonious coherence between private and public welfare.
However, it should be pointed out that the subjective view of personal interest of landowners and labourers depends on a lack of understanding of what the real interest is. This means that there is no choice among alternatives. However, in the case of capital owners, this does not happen, and they are able to choose between two options (selfish or proper, self-interested behaviour). Nonetheless, the main problem remains: the subjective view prevails over the real one and determines agents’ decisions. This is an assumption that also applies to action by the "invisible hand": "every individual" pursues "his own interest," and it is not his intention to "promote" social welfare (WN IV.ii.9). Even well-informed agents do not consider how their choices modify public wealth. Consequently, in "optimal" conditions, the "invisible hand" brings about the convergence of both private and public welfare, although this does not occur if agents do not follow their "real" interest and act selfishly against the public interest. In short, with regards to capital owners, knowledge of the general interest is not a condition that is able to influence their decisions because the public (general) interest is achieved unintentionally by the "invisible hand." Like the other agents, they act in accordance with their personal views, aims, and preferences.
Finally, as in the case of the previous social groups, the structural position of capital owners is an essential determinant of the representation of their private interest. More specifically, their superior knowledge with respect to that of the other classes, in most cases, prompts them to refer to the selfish view when forming their decisions.
We can synthesize the themes previously discussed as follows.
The "real interest" - that is, the propensity to better one’s own condition by increasing private wealth - is not, in many cases, a transparent notion for economic agents;
Economic agents, given their structural and social position in market society, choose and exhibit preferences according to a subjective view of their own interest, which generally does not coincide with the ideal one (real interest);
The concept of subjective interest is not homogeneous among agents. The functional position in market society, in terms of class, profoundly influences this perception;
This argument assumes importance when considering "the great body of the people" that lives by labour, whose human "disintegration" impedes it from having a correct perception of its "real interest."
3 - Self-interest as persuasive instrument
Given these premises, it is evident that no transparent and shared notion of "interest" really guides the choices of economic agents. Nevertheless, a further argument requires examination. What happens in usual transactions, when individuals exchange something with the "butcher," the "brewer," or the "baker"? The thesis sustained here is that a fundamental role is performed by persuasion and not simply by self-interest.
A classic interpretation of the apologue of the "butcher," the "brewer," or the "baker" has depicted Smith as a theoretician of self-interest, although numerous studies have demonstrated that his "moral" view essentially modifies this narrow interpretation.
In a famous passage, Smith remarks that a human being needs the "help of his brethren," so that
"it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is their own advantage to do for him what he requires of them".
(WN I.ii.2, emphasis added)
To invoke "only" benevolence in a market context is not a persuasive argument. On the contrary, according to Smith, the strategy consists in a) addressing the other agents’ "self-love in his favour" and b) showing "them that it is their own advantage to do for him what he requires of them." At first, both actions do not require the agent to be selfish; rather, Smith points out, the first step of the persuasive strategy consists in showing the other parties of the transaction what their self-love consists of, and, particularly, what advantages they will obtain from the exchange. We start not from our self-interest (or self-love) but from others’ self-interest (although we are "interested" in accomplishing a certain transaction).
Once again, "self-love" (as well as self-interest) is not a transparent principle. Why should other agents be shown their self-love? If self-interest were perfectly known, no reason would prompt an individual to show others either self-love or the advantages derived from a given exchange. Everything would be perfectly known before the transaction. On the contrary, personal "interest" must emerge as a consequence of the exchange relationship. It is not the premise but the conclusion of the process.
The persuasive element also emerges in the following sentence:
"Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want".
The economic relation must not be rationally selfish; instead, it must be persuasive, because the aim of both parties is to obtain precise advantages, and this entails discovering what their reciprocal interest is.
This point was well made in Lectures on Jurisprudence (henceforth LJ(A)), in which Smith argued:
"If we should enquire into the principle in the human mind on which this disposition of trucking is founded, it is clearly the natural inclination every one has to persuade. The offering a shelling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade one to do so and so as it is for his interest".
(LJ(A), p. 352, emphasis added)
In my view, the context just sketched permits reinterpretation of the famous apologue of the "butcher" and the relative argument about benevolence:
"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".
(WN I.ii.2, emphasis added)
The same theme recurs on another occasion. Smith does not claim to be selfish, but instead points out that the persuasive strategy is to show others their "own interest" because it is not transparent to them. On the contrary, benevolence is not a good means of persuasion in the market  All this, evidently, does not mean that ethics disappears....
As shown, there are a number of reasons why the notion of self-love/self-interest is not evident to the eyes of economic agents. Their subjective perception differs considerably from what Smith calls individual’s "real interest." Consequently, addressing the "advantages" of landlords is very different than addressing those of capital owners. The views of personal interest to which they refer are profoundly different, and this implies that different strategies of persuasion must be used.