1. The modernhomo oeconomicusand Adam Smith’s idea of man
2. Self-interest and sympathy in the work of Adam Smith
3. The interaction between Smith’s human characteristics
4. Concluding remarks concerning Smith’s ideas and thehomo oeconomicus
1. The modernhomo oeconomicus and Adam Smith’s idea of man
„How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it” is the first sentence of Adam Smith’sTheory of Moral Sentiments (TMS)(Smith, 1976 , p.9). Despite Smith’s repeated emphasis on the importance of sympathy as a fundamental characteristic of human nature, Smith is often only associated with the idea that individuals are driven solely by their self-interest. The reason for this association is that self-interest seems to be the dominant motivator for human behaviour in Smith’s bookThe Wealth of Nations (WN). As a result, Smith’s idea of man is often seen as a first draft of the self-interestedhomo oeconomicusused in modern economic analysis. In the following, I will explain Smith’s much more comprehensive view of human nature, analyse how the ethics and moral aspects of theTMSand the self-interest of theWNfit together and compare Smith’s idea of man to the concept of thehomo oeconomicusin modern economics.
Before taking a closer look at Adam Smith’s two major writings, I will outline the basic assumptions of thehomo oeconomicusmodel in present-day economics. Thehomo oeconomicusis used to analyse how individuals make decisions (cf. Kirchgässner, 2000, p.13). The principal premise of the human behaviour concept is that thehomo oeconomicusacts rationally and pursues his self-interest (cf. Gabler Wirtschaftslexikon; Kirchgässner, 2000, p.13ff./46ff.). The behaviour of thehomo oeconomicusis analysed in situations of scarcity, i.e. in situations in which the individual cannot fulfil all needs simultaneously (cf. Horn, 1996, p.24 ff.; Rolle, 2005, p.198 ff.). In these situations, it is assumed that thehomo oeconomicusmaximizes his utility by acting according to his preferences.
The assumption of rational behaviour implies that individuals weigh the advantages and disadvantages of their decisions, particularly in human interactions like exchanges (Kirchgässner, 2000, p.14/20). Rational individuals will only enter into an agreement if it increases their utility. In economic analysis, individuals are not able to execute all exchanges which increase their utility. Restrictions of thehomo oeconomicusare often the household income and the prices of different goods (Kirchgässner, 2000, p.25). Which of the feasible exchanges are in fact made is determined by the individual’s preferences. The preferences of thehomo oeconomicusare usually more stable than his restrictions and show the subjective value of different options (cf. Rolle, 2005, p.182; Becker, 1982, p.5). Malevolence, jealousy and altruism are not part ofhomo oeconomicus’spreferences and are therefore excluded from the behaviour analysis. People who act according to thehomo oeconomicusmodel also disregard moral norms by following their self-interest only (Horn, 1996, p.70; Kirchgässner, 2000, p.16-17).
Smith would not reject the idea that self-interest is an important motivator for people in human interactions. On the contrary, Smith (1863 , p.7) explicitly writes that man “will be more likely to prevail if he can interest [other persons’] self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them”. However, a one-sided view of Smith’s idea of man as a precursor of the modernhomo oeconomicusdoes not do justice to Smith’s model. In Smith’s view, both the “selfish and the benevolent affections” are an important part of human nature (cf. Smith, 1967 , p.267). Smith rejects philosophical ideas in which human behaviour is only deducted from self-interest. Accordingly, Smith also strongly criticizes Mandeville who regards the selfish passion of vanity to be the sole driver of individual’s conduct (cf. Smith 1967 , p.306ff.). Smith points out that self-interest should be seen within a far more comprehensive motivational complex. Forman-Barzilai (2010, p.59) writes that “Smith [rejects] the utilitarian, rational-choice, “economic man” assumptions that posterity attributes to him”. Smith’s ideas of self-interest, sympathy, justice and benevolence go far beyond the modernhomo oeconomicusconcept.
At first glance, the contrast between Smith’s idea of man portrayed in theTMSand theWNis impressive. TheTMSdeals with ethical and moral principles which guide human behaviour while theWNseems to be concerned only with the selfish individual (cf. Reich, 1991, p.56). In scientific literature, the perception of a contradiction in Smith’s two major writings has provoked a long-lasting debate called the “Adam-Smith-Problem”. However, modern research has reached a consensus that the nineteenth (and partly twentieth) century view of the “Adam-Smith Problem” was created by a wrong interpretation of Smith’s key terms “sympathy” and “self-interest” and that theTMSand theWNare in fact complementary (Forman-Barzilai and Ratnapala in Zöller & Petri, 2010, p.53/58; Manstetten, 2000, p.237; Reich, 1991, p.63/64). As Wilson and Dixon (2006, p.256) put it: “All human beings are naturally motivated to pursue their own affairs. This does not mean that they cannot be endowed with the capacity to feel for others”. In this context, Manstetten (2000, p.236f.) argues that the often perceived contradiction between the idea of man presented in theTMSand theWNresults from the different perspectives of the two books: While theTMStakes an inside perspective when describing human sentiments and conduct, theWNfocuses on the results of human interaction in the form of wealth from an outside perspective. Later economists have often derived thehomo oeconomicusapproach from Smith’sWNonly. The man in economy, however, is only a part of the whole human being for Smith (Manstetten, 2000, p.236). In order to better understand Smith’s ideas and to contrast them with thehomo oeconomicusdescribed in the previous paragraphs it is important to have a closer look at two dominant themes in Smith’s writings: self-interest and sympathy.
2. Self-interest and sympathy in the work of Adam Smith
According to Smith, self-interest is a powerful driver of human behaviour. Smith (1863 , p.7) states that “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. We address ourselves, not to their humanity but to their self‐love and never talk to them of our own necessities but of their advantages”. Not only economists but also authors of secondary literature have described self-interest as Smith’s “universal characteristic of human behaviour” (Reich, 1991, p.53) and pointed out the “primacy of self-interest over sympathy” (Ratnapala in Zöller & Petri, 2010, p.53). Indeed, in Smith’s view “every man is […] first and principally recommended to his own care” (Smith, 1976 , p.82). The emphasis on self-interest is the part of Smith’s view of human nature which is consistent with thehomo oeconomicusused in modern economics. However, sympathy plays a particularly important role in Smith’s anthropology as well.
Sympathy is only described in theTMSbut not at all mentioned in theWN. According to Hottinger (1998, p.75), sympathy is not described in theWNbecause it is a very basic assumption about individual and social life. Sympathy is also not the straightforward counter-principle to the self-interest in theWN. Forman-Barzilai (2010, p.60) points out that Smith “never believed that the two were incompatible or worked in a zero-sum, either-or, fashion”. Sympathy is a man’s tendency to a general fellow-feeling with the passions of other people and should not be equated with benevolence (Smith, 1976 , p.10; cf. Peil, 1999, p.59). Nevertheless, sympathy leads to an inclination to identify imaginatively with other people and to be interested in their well-being. Peil (1999, p.60/64) even argues that human behaviour in Smith’s writings is founded more in sympathy than in an individual’s rationalistic calculus of private advantage and disadvantage. Wilson & Dixon (2006, p.254) also explain that “there is but one principle that governs human behaviour – and that master-principle is sympathy”. Such a view of human behaviour would differ substantially from the rational and utility-maximizing behaviour of thehomo oeconomicus.
Although sympathy plays an important role in Smith’s idea of man, Smith doesn’t see the human sentiment as a sufficient incentive for people to provide for each other in a society based on the division of labour (cf. Reich, 1991, p.53). According to Hottinger (1998, p.95/139/140), Smith knows that a “happy” society based on love, gratitude, friendship and esteem is a utopia (cf. also Smith 1967 , p.85/86). In a commercial society which relies on the division of labour, the dependency of everybody on his fellow men is so strong that sympathy is not enough and the life span too short to gain the favour of all people who produce the necessities and conveniences of life (Smith, 1863 , p.7). This view is strengthened by Smith’s observation that people usually put greater emphasis on their own interests than on the interests of other people (Smith 1967 , p.82-83). Smith believes that self-interest can support the interest of society even more effectively than sympathy or benevolence (cf. Peil, 1999, p.47; Hueber, 1991, p.199). Smith (1863 , p.199) writes that “by pursuing his own interest he [the individual] frequently promotes that of the society more effectually than when he really intends to promote it”.