(no subject)

[sebastienne]

Shelving around the library yesterday, I came across a bookmark with the following quotation:

"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." ~ Adam Smith, 1723-1790.

It makes me very sad, and I'm not entirely sure why.

Comments

[steerpikelet.livejournal.com]

The economics book I've been reading this week argues that that's not *entirely* true. I can't explain why because I'm not sure I understand it 100% myself, so I'll give you the book when I'm finished if it will cheer you up. :)

[half-of-monty.livejournal.com]

What is it?

[ktroo85.livejournal.com]

I would agree it is not entirely true. Smith's argument is better replaced by one that says that individuals will take actions that give them the best possible result given the actions of the individuals around them.

I still think one of the best ways of explaining this is with the example they use in A Beautiful Mind. Basically five women walk into a bar, one is blonde and the others are brunettes. The four boys all fancy the blonde and want to make a move on her (this is the action that suits their own individual interests at this stage they are not interested in what the others might do). However it is pointed out that if they all make a move on the blonde they will cancel each other out and no one will get her,if they then turn to the brunettes the girls will not be happy at being second choice and leave. The better option is to go for the brunettes to start with as then with one girl each they are not getting in each others way. (this is the action that gives the best result for the individual given the actions of other individuals).

Hmm that was alond explanation and although uses some stereotyping and asumptions is a lot clearer than talking about agents,payoffs and strategies.

[half-of-monty.livejournal.com]

Smith's argument is better replaced by one that says that individuals will take actions that give them the best possible result given the actions of the individuals around them.

I don't see how this is a contradiction or replacement of Smith's argument. Fills in more details of the way in which acting in your own self-interest works, yes. But to act in your own self-interest you evidently must take into account the actions of those around you. Eg in the way that supply meets demand - bakers don't flood the market with bread because then the price would drop, so they take into account the amount of bread in production from other people.

But you are the economist and I am not (yet), so tell me: did Smith really think that acting in self-interest did not involve taking into account others?

[I find the five women in the bar an odd example, because surely that equilibrium isn't Nash? If one man then believes that all other men will go for a brunette, surely he increases his personal payoff by going for the blonde? Or is this an example of a different sort of equilibrium I haven't got to yet?!]

[ktroo85.livejournal.com]

With the five women,if one man thinks that everyone else will go for brunette then he will go for blond but then all men will think like this. Also this is technically a Bayesian game because the players don't know what the payoffs for the other players are and we are also ignoring the fact that there is probably a mixed strategy equilibrium as well as a pure one.

Have not studied enough of Smith to be completely sure on the other point but the idea of what is now known as Nash equilibrium was first shown in the Cournot Duopoly game and Cournot wasn't born until 10 years after Smith had died. There is also the issue that in Wealth of Nations Smitha argues that self interest alone will lead to social benefits whereas in Theory of Moral Sentiments he says that sympathy is required.

[half-of-monty.livejournal.com]

Ah, haven't got to Bayesian games yet. May resume argument in a few weeks!

I'll certainly agree that self-interest alone probably won't lead to social benefits, and you need sympathy and also governance over externalities. I'm Keynesian really I think. But maybe that's just because I want to run a small Oxbridge theatre with my spare case!

[shimgray.livejournal.com]

I still haven't read Wealth of Nations (it is in the pile, though!) but my understanding is not so much that he didn't think that, he just didn't particularly address it - later writers have expanded ways of defining "self-interest" beyond a simple financial model of It Means I Make More Profit, which is how we developed all these models of decision-makings and payoffs and compromises.

[half-of-monty.livejournal.com]

Ah right yes indeed. I also have read no original Smith; my point was more that the sentence quoted above is still broadly the underlying philosophy of how to understand the economy, rather than whether Smith was right in the details.

[liminereid.livejournal.com]

Because the comment is a perfect encapsulation of capitalisma nd implies no interest fellow feeling or empathy. man is a machine how is atavistic and acts purely to keep themselves going.

[half-of-monty.livejournal.com]

nd implies no interest fellow feeling or empathy

No it doesn't. That people will continue going to work because they need to, to provide for themselves and their families, does not in any way imply that they have no fellow feeling or empathy. Look around you.

[half-of-monty.livejournal.com]

Incidentally, another economics-historical anecdote: a communist official from Russia was visiting London during a thaw in relations. He saw the size and complexity of the great city, and asked "who is in charge of the bread supply to London". He was unable to comprehend the answer: "Nobody."

Because we can rely on bakers etc to act in their own self-interest, they will maintain an equilibrium where enough (but not too much, or they would lose money) flour is brought into the capital and turned into bread. And so people continue to eat without worry for supply. This contrasts with the communist system where grain would be allocated and moved around according to government estimates of demand - which tragically were not always correct, either by accident or design.

[jacinthsong.livejournal.com]

Not really. Economists aren't any more likely than anyone else to believe people aren't capable of altruism, we are people too after all (mostly).

[sebastienne.livejournal.com]

L, I love you, and respect your views more than almost anyone else I can think of on this topic:

Is capitalism the best system?

i have no idea how much economics you know about, and thus have probably pitched this far too low

[jacinthsong.livejournal.com]

Well...I think a mixed economy is the best possible system available, which is not quite what you asked. Classical economic theory simplifies to ridiculous extents, but nonetheless gets closer to how I think people act and produces better results than mercantilism did when Smith was writing, or communism and socialism more recently - it's not that people have no capacity for altruism and social feeling, just that they're motivated by incentives, and the best system is one which channels those incentives to the wider benefit. It's all very well for people to say that capitalist economics puts a price on everything, but that's what people do, if subconsciously: everyone weighs up the costs and benefits when deciding whether to do anything. It just quantifies that!

I also think that states have an extensive role in providing a safety net and correcting market failures. Markets in the real world are just not perfectly efficient, because a) people are not as rational as the theory makes them out to be and b) to cut a long story short (ie most of my microeconomics paper) self-interested behaviour can be contradictory when universally practiced, and even when they are they're far from equitable. Which, unsurprisingly, I do think is important. Fuck knows what that makes me. I can't call myself a socialist, and capitalist is too strong. What I do know is that how 'good' people are is just outside the scope of economics, rather than there being definitive pronouncements either way - much as I imagine you refrain from making moral judgements in psychology?

Re: i have no idea how much economics you know about, and thus have probably pitched this far too lo

[sebastienne.livejournal.com]

No, my economics is lacking to an impressive extent, so that was really about right. Thank you!

I think I see what you're getting at about not making value judgements, but I suppose that there is a place for that in economics that there is not so much in psychology, eg, when choosing to vote for a communist or capitalist party in an election.

I've always just considered myself to be "as-far-left-as-you-can-go", on principle, and perhaps there could be more nuance to my position. half_of_monty's anecdote about the soviets & bread has made me begin to think about things I have never thought about before...

Eg, all of a sudden I'm less comfortable identifiying as "anti-capitalist-because-the-system-is-inherently-evil" as I have been doing in my own unanalysed way for too many years.

Re: i have no idea how much economics you know about, and thus have probably pitched this far too lo

[the-whybird.livejournal.com]

all of a sudden I'm less comfortable identifiying as "anti-capitalist-because-the-system-is-inherently-evil" as I have been doing in my own unanalysed way for too many years

This makes me all glowy inside. Simply because people broadening their minds on a subject -- whichever direction their minds are broadening in -- is one of the things that is guaranteed to make me go squee.

Oh, and jacinthsong has managed to crystallise basically everything I feel about the economy in a few paragraphs, so kudos to her.

[half-of-monty.livejournal.com]

I'm sorry it makes you sad. It's evidently true, and I think it's great.

You love being a librarian, providing a wonderful and useful service to others, but would you actually bother if you weren't getting paid? Maybe, in a world where librarians were not paid, you would still love it so much you'd do the odd voluntary slot here and there, but in the main you'd be looking to your own self-interested to be able to pay the rent, eat etc.

A baker probably has a certain amount of love for baking; if he didn't, he might as well have chosen a different career. This love for his work might manifest itself in producing better quality bread, or a nice range including ones with nuts and sundried tomatoes in, or alternatively in trying to take over more of the market by producing more bread cheaper (which is also a good thing, as then people get cheaper bread).

However we depend on him for bread, and it's very risky to depend simply on benevolence; ask anyone who works in charity fundraising. If times were hard (so breadmakers had to spend less time benevolently making bread and more time looking out for themselves) there might very well be a bread shortage (making the hard times much harder). However, for the bread to run out in our real world, it would require the whole community of bakers to suddenly stop acting in their own self-interest. This is a lot more unlikely. Thus our supply of bread is guaranteed.

I'd much rather have guaranteed bread than benevolent, only-made-out-of-love bread.

[ktroo85.livejournal.com]

See my post above for why I don't think it is entirely true.

Also forgot to reply about economic books. Things have slightly crept up on me this week but I think my weekend is free, or are you going to be at oules tonight? (If you can't be in the oules show, be in my lovely review for Homes). I can bring along some textbooks for you if you like. Which micro book do you have atm?

[half-of-monty.livejournal.com]

We're doing oodles still, which is likely to go on till 4th week I think, and require two rehearsals a week for a couple of weeks. So sadly oules as well is out for me this term, but I might come to the pub after rehearsals sometimes? But not tonight, we're going to see the Stepen Fry panto in London!! Yay!

Weekend free, though, yes. The books I have at the mo are Rasmusen's Game Theory book and a free-online micro textbook (which is pissing me off by explaining differentiation from first principles), also Cassels `economics for mathematicians' (which I bought because I assumed it wouldn't do that! But haven't had a chance to look at it yet).

Oh and have also been reading `The Worldly Philosophers', as may be evident.

[ktroo85.livejournal.com]

If you are able to access the economics intranet (http://www.economics.ox.ac.uk/Intra/Under/UGInfo.aspx) you will be able to see all the undergraduate course options and their reading lists. Very basic game theory is under second year microeconomics and the more advanced stuff is under Economic Theory (actually the notes from that can be found here http://malroy.econ.ox.ac.uk/ccw/EconTheory.shtml). Gibbons' A Primer in Game Theory is the other recommended book.

For Microeconomics the best books to look at would be Gravelle and Rees or Katz and Rosen, both of which are called Microeconomics (I have both but need to keep hold of one for revision tutes). For the Public Economics Connolly and Munro's Economics of the Public Sector is the one that appeared on most of my reading lists.

[ex-leighwoos982.livejournal.com]

If Monkey saw that you were hungry or sad he'd share his bananas with you, and he wouldn't think to ask for anything in return.

[half-of-monty.livejournal.com]

I'm not sure I was clear why I don't think it's a statement to be sad about. Here's another go:

Smith is not saying that the main motivation of bakers etc is self-interest. What he is saying, is that the fact that they are acting in self-interest is the reason we can rely on them. Their personal motivations from day to day may depend on them as individuals, but the reason that society works is the lovely harmony of mutually beneficial self-interest.

[sebastienne.livejournal.com]

I see what you're saying, and think I agree, actually.

I suppose I was subconsciously feeling what liminereid makes explicit above, that there was so much of human experience left out of that neat little equation. But it's not like Smith's denying it, is it? It's just not relevant to the point he's making.

I like the phrase "lovely harmony of mutually beneficial self-interest" very much indeed. I think you will be the fluffy kind of economist.

[half-of-monty.livejournal.com]

Exactly.

If you're liking having vague preconceptions questioned, would you like to borrow the pop economics book (http://www.amazon.co.uk/Undercover-Economist-Tim-Harford/dp/0349119856/ref=pd_bbs_sr_1?ie=UTF8&s=gateway&qid=1200597612&sr=8-1) I've been reading? (or one of - I want to re-read the other two, and I think this one might interest you most anyway). It goes through public health services, globalisation and trade, and the China phenomenon. You don't have to agree with him all the way through - I don't - but it's so enlightening to see more clearly what it is you're disagreeing with.

[antoniabaker.livejournal.com]

Came in at the end of this very interesting topic, the depressing thing is, even though i actually have the title 'economist' I don't understand any more then anyone else.

I've always thought of Adam Smith's 'invisible hand' theory as quite beutiful and magical, it seems obvious to us now but at the time I don't think anyone had acutally bohtered to even think 'hmmm you know this bread on my table, how did it get there?'

Agree completley with half_of_monty, so glad your reading worldy philosphers, I'd like to reread soon, my brain is going stale. xx

[the-whybird.livejournal.com]

It makes me very sad, and I'm not entirely sure why.

It makes me very happy, because the implication is that even though the butcher, the baker and the brewer might be bastards only out for number one, there is a system which will take these three bastards out for number one and get a meal out of them.