Adam Smith on Cooperation

There is a tendency in economics to focus on one particular aspect of Smith’s broad legacy. This stems from the following widely quoted passage:

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.

Smith (1776, Chapter 2) – The Wealth of Nations

This is the foundation of much of the economic work over the 19th and 20th century; self-interested individuals achieving their own ends.

A little quoted passage, from earlier in the same paragraph, greatly changes the context:

In a civilised society he (man) stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.

– Smith (1776, Chapter 2) – The Wealth of Nations

Here, Smith is exploring the idea of widespread cooperation. The market mechanism is one institution through which we can achieve this cooperation, yet there are also many others. Smith proposed that the market mechanism is efficient for coordinating the trading between strangers – where personal cooperation is not feasible. Coase (1976) further explores this:

… Adam Smith’s argument for the use of the market for the organisation of economic activity is much stronger than it is usually thought to be. The market is not simply an ingenious mechanism, fueled by self-interest, for securing the co-operation of individuals in the production of goods and services. In most circumstances it is the only way in which this could be done. Nor does government regulation or operation represent a satisfactory way out …

The great advantage of the market is that it is able to use the strength of self-interest to offset the weakness and partiality of benevolence, so that those who are unknown, unattractive, or unimportant, will have their wants served.

– Coase  (1976, p 544) – Adam Smith’s View of Man

This implies that the market is an efficient mechanism where significant trust cannot be acquired through individuals. This is important considering the current ways in which we are coordinating in the commons based on trust and reciprocity, where the institutional governance rules are adequate.

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