Man, a Self-Maximizing Agent
With Wealth of Nations, Adam Smith essentially engraved his name in the history of Economic Sciences as the champion expositor of modern day economic thought. His reverence rests on his argument on rational economic behavior being backed by self-interest – a euphemistic persona of greed – and how that very behavior leads to communal economic prosperity. Smith based his authority on empirical observations, a priori assumptions, and introspection. His art of writing followed a set pattern, which began with deductive generalization, followed by an inductive justification and ultimately expanded to wider models to certify his understanding. In this paper, I shall strive to emphasis on how Adam Smith used rhetoric like “naturally” and “nature” to strengthen his inductive argument and to justify his own deductive deliberation on that matter. And I shall primary focus on how Smith believed economic thinking was a privilege to which only humanity had access. In all, I shall center my argument around how humans are, by nature, self-maximizing economic agents capable of engaging in rational thinking so as to reap the maximum benefit.
“Nobody ever saw a dog make a fair and deliberate exchange of one bone for another. Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that.” Through this, Smith is presenting to us an empirical understanding of the behavior of a dog, or any other animal for that matter, and how only our species is “naturally” capable of engaging in a rational economic transaction; exchange is natural to human behavior. “It is common to all men, and to be found in no other race of animals, which seem to know neither of this nor any other species of contracts” thus explicitly stating that human society and human social interactions are unique and economic behavior remains exclusive to this society. Our interaction with one another is not limited to reaction to a stimulus, such as that of an animal, but of intelligent forms of physiological and psychological expression. This attribute of humanity can be linked to their ability of free speech and the art of communication. Thus it can be concluded that the function of this passage was to highlight the universal fact that the ability of free speech gives us, as a species, the ability of persuasion and a sense of autonomy, and freedom which permits us to behave in a rational and self-maximizing way.
“The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labor.” Smith is trying to show that there exists no natural distinction in genius in men; its only in time, when upon being subject to division of labor when we can start noticing the first signs of heterogeneity in productivity of the subjects. The idea is that each individual is then bound to perform a different task for society in congruence to his caliber and productive capacity. And that task is one in which he excels at, thereby endorsing Smith’s division of labor theory. In the case of animals, however, that distinction in productive capacity and caliber does not contribute in any way to their well-being or survival. That very difference in the geniuses and talents which gives humans their sense of purpose in society has no bearing on any other species, which is why the animals are obliged to survive by themselves independently. Human behavior in this case is motivated by self-interest, since a person would be able to attain much more by pursuing what he is proficient at, thereby contributing to his self and to society. There exists a sort of natural understanding among humans which enables them to divide the labor so as to integrate that divided labor into a high functioning society which benefits all its constituents, however, the same cannot be said for animals since they do not possess that form of freedom and communication to enable such a complex rational thinking.
This system of division of labor, however, has its flaws, the most essential and troublesome being that of creating the “double co-incidence of wants” among the society members. No exchange can be initiated if both the parties aren’t in possession of the other’s demand. “In order to avoid the inconveniency of such situations, every prudent man in every period of society, after the first establishment of the division of labor, must naturally have endeavored to manage his affairs in such a manner, as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined a few people would be likely to refuse in exchange for the produce of their industry.” Smith is trying to assert that an individual, at some point or another, may not be in possession of an article of interest to the other party to initiate exchange. Therefore, it is considered “natural” for him to strive to maintain a stock of certain items which could be used in such exceptional cases. In this paragraph, Smith is using the idea of logic to back his self. By adding the term “naturally”, Smith is presenting to us the idealistic situation in which, motivated by his innate tendency to truck, barter, and exchange, man would act in a rational way and ensure the access to additional resources to engage in a transaction. And this action, consequently grants them the autonomy and freedom to exchange their goods for their wants at any point of time, thereby enabling them to behave in a self-maximizing manner.
“What are the rules which men naturally observe in- exchanging them either for money or for one another, I shall now proceed to examine. These rules determine what may be called the relative or exchangeable value of goods.” The essence of this statement by Smith is that man, upon securing a reasonable number of goods for the purpose of exchange will then evaluate his need and the relative value of that need in comparison to his stock of goods. Smith says that humanity, due to its inherent rationality, is able to ascertain the “value” of an object to itself and then take an informed decision regarding the exchange. Smith mentions that an object may have two kinds of “value” attributed to itself, value in use and the value in exchange; the former referring to the intrinsic value, while the latter dealing with the market value of the object. Upon the evaluation of the both the values of that object to himself, man takes a decision whether relative cost of that object is worth giving away his own possession for. The idea is to establish that his need is being met by the exchange of his object, but the exchange should be made at the rate so as to ensure that he is not at loss in the transaction. Thus upon evaluating his self-interest in that transaction, man is attempting to make a rational decision with respect to his need, and this entire process is natural to his kin, thereby naturally behaving, as a species, as self-maximizing agents.
The ideals of capitalism rest on the edifice of private property, market society, value, and profit motive. Assuming that everybody shares this “common human nature”, it is needless to say that all humans are self-maximizing economic agents whose actions are motivated not out of sympathy or general benevolence but out of self-love, and it is this self-love which enables them to behave rationally. And centered around these principles is the innate human propensity to truck, barter and exchange. Often also regarded as the “Bible” of Capitalism, Wealth of Nations gives us a very sophisticated insight into the mentality of humanity and its behavior. It is therefore clear that by juxtaposing human behavior to dog or animal behavior, Smith wanted to emphasize on how man’s rationality is natural to his self, for his self-maximizing proclivity.