Monday, January 12, 2009

Self-interest vs Selfishness : Adam Smith's Capitalism

Capitalism is the cause of the current financial crisis!!! During the current financial debacle, capitalism is being blame as the main culprit.. Although I'm a leftist and would welcome and applaud any attack on capitalism, however the truth is capitalism is not at fault. The ones at fault here are the Capitalists. There is a major difference between capitalism and capitalists.

Obviously capitalism is a system and capitalists are the "followers" of capitalism. For example, Pol Pot is a communist. However does communism allow the genocide that Pol Pot ordered in Cambodia? Does communism allow the murders and killings that were done by Stalin (this guy kill more people than Hitler!!)???

It was the capitalists who allowed the rampant consumerism that causes the credit crunch and sub-prime crisis. Why did they allow this? Simply because they are greedy and selfish. In their opinion, it's alright to make a few quids at the expense of others. In their view this is what capitalism is all about...Well,they are wrong...BLOODY WRONG!!

Adam Smith is one of my heroes and to honour his legacy I'm going to set the record straight. Everyone knows that Adam Smith is the father of modern economics and the founder of capitalism. However how many of you know that he was a moral philosopher and taught morality and ethics. This fact is often conveniently left-out by the capitalists.

Long before Adam Smith wrote the monumental “An Inquiry into the Nature and Causes of the Wealth of Nations”, he wrote a book on morality titled “The Theory of Moral Sentiments”. We can only understand Adam Smith’s idea of the pursuit of self-interest if we read “The Theory of Moral Sentiments”. However, Adam Smith’s view on self-interest is heavily distorted and today is viewed as selfishness. This is far from the truth.

Adam Smith based his view of self-interest on his idea of the social looking glass. Adam Smith states the idea of the social looking glass, as man by nature is a social animal. He has to live in a group or society. For that he must have the feeling that people around him like, admire and have a good opinion about him. The idea of the social looking glass will keep the pursuit of self interest in control.

In Smith’s earlier “The Theory of Moral Sentiments”, selfishness is transformed. Man is able to put their selves in the position of a third person, an enlightened impartial observer, and in this way man will have empathy for someone in trouble, thus controlling their pursuit of self-interest.

In Smith’s “Wealth of Nations”, the individual pursuit of self-interest in a two-way exchange economy guarantees social harmony. In his economic behavior, an individual neither intends to promote the public interest nor does he know that he is promoting it. He intends only to provide for his own security. Adam Smith famously wrote, 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. Such self interest and economic self reliance were perfectly natural, grounded in the desire of bettering our condition, which comes with us from the womb and never leaves us till we go into the grave.”

In other words, we always put our self-interest as our main priority. However, it is in our self-interest not to "harm" others as in doing so we will have a good image. If the capitalists really embrace the idea of "pursuit of self-interest", there will be no credit crunch,sub prime crisis, speculation and NO FINANCIAL CRISIS dare I say. The fact is, recessions are cyclical however financial crises are man-made.

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