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1. In this article, George J. Stigler discusses a paradox he identifies as arising from Smith’s central self-interest motive in the Wealth of Nations. Mainly, that unlike in the private realm, where individuals seem to succeed in pursuing their self interest, and the result is positive for both each individual and for the society as a whole, in the public realm, however, where the majority’s “self interest” is “pursued” through a political process that ultimately reflects the judgments of a small group of people with political power, the effect of self interest for a society is at best ambiguous, and at worse negative.

   Basing his discussion on two quotes from the Wealth of Nations, one on the powerful role of commercial self interest for mankind’s prosperity (WN, I, 313 [279]), and Smith’s view of the higher governing level of prudence in society, “though the principles of common prudence do not always govern the conduct of every individual, they always influence that of the majority of every class or order”, the author is puzzled by their seemingly contradictory nature. He asks: “If self interest dominates the majority of men in all commercial undertakings, why not also in all their political undertakings? Why should legislators erect ‘hundreds of impertinent obstructions’ to the economic behavior which creates the Wealth of Nations?”

   The author’s question reveals a first assumption (interpretation of the text), that Smith’s self-interest is equal to prudence and propriety. I think it is only because Stigler starts with this assumption (i.e., uses the two terms interchangeably), and because of his second assumption, that the “political undertakings” visible in societies are equal to the “majority of every class or order” that Smith refers to in the above quote, that the author is able to further his discussion. However, I think a more attentive reading of Adam Smith, through the lenses he offers in the Theory of Moral Sentiments, can shed light on Stigler’s confusion. Mainly, Smith seems to be consistent with the public choice theory when he says that “principles of common prudence do not always govern the conduct of every individual,” this is a case where utility does not conform to propriety, and the political circumstance in which people act does not favor necessarily propriety, but partiality. Smith has a broader view on what “the majority of every class or order” is. His view encompasses what he calls in the TMS, the fourth source of moral approval, that of thinking through the effects of an action in the wider and the longer-term perspective on the world, without the consideration of which it would not be possible for societies to prosper.

   posted 06 Oct 2010, 8:55 PM by Olga