Adam Smith argued in _The Wealth of Nations_ that simple self-interest in an individual can lead to better outcomes for society at large. Although he seemed to backpedal a bit in _Theory of Moral Sentiments_ and suggests that sympathy is necessary for that to be the case. Nevertheless, Adam Smith’s economic theories can be said to have fathered the United States’ capitalist, free-trade economy.

Since his first book (Wealth) was written in 1776, you can safely assume there’s also been plenty of debate since then.

But when it comes down to it… people often don’t act in their own self-interest because they are ignorant, not paying attention, or swayed by emotion. For example, there’s been big brouhaha in the US in the past few years about why people are voting against their own self-interest. And you only have to look at people who approve the deforestation of the rainforests, belching of noxious chemicals into our water systems, etc., to know that it’s not just poor southern voters who have this problem.

There seems to be a disconnect in companies because people become psychologically removed from the outcomes of their behavior. Research has seemed to show that the larger the group, the less responsibility any member feels for any adverse decision the group comes to—including the action the group takes. And when it’s just part of your job, apparently most people find it easy to justify doing things they wouldn’t consider in their private lives. And when contemplating the actions and nature of human beings, we can never forget things like the Stanford Prison Experiment.

I also feel that human beings, in general and on the whole, have a serious disability to think long-term. What else can explain the predicament we find ourselves in? There isn’t a baked-in evolutionary value to very long-range planning: as long as you live long enough to reproduce, and can rear your offspring successfully until reproductive age, you’re a genetic winner.

This has gone on longer than I intended In conclusion, I think we’d all be better off if we were aware of the history and research behind these topics. There’s very little new under the sun (and human nature seems rather unchanging). It saddens me to see this kind of discussion going on without reference to the big thinkers who have come before.

You write: “Davies should not have used the word “calculation” in reference to parents. Most parent’s behavior is not calculated, but instinctive.” Exactly! That is the whole point. But if you apply an economic/calculative lens to view intimate social interactions (as Gary Becker does), you will start to perceive them in instrumental terms; the genie will be out of the bottle. This is what I am accusing some aspects of web 2.0 of doing as well. They take areas of our lives which we hadn’t thought about in selfish terms, and suddenly present them to us as transactions to be efficiency-maximised.

Is that clearer?

Individual self interest and the survival of the species are two different things, is all I am saying. And that’s why Josh’s Del.icio.us lesson is an impressively nuanced design premise:

individual value precedes social value

Note that he doesn’t say individual value supercedes social value.

From the Davies piece:

Where Becker took the utilitarian assumptions of economics and pushed them into areas of society seemingly untouched by rational self-interest, Web 2.0 takes the efficiency-enhancing capabilities of digital technology and pushes them into areas of society previously untouched by efficiency criteria.

As Joshua pointed out, this is manifestly false. Technology is almost by definition about increasing efficiency and the car, the telephone and — dare I say it — fire all preceeded Web 2.0 in pushing ‘efficiency criteria’ into society.

When you strip away Davies’ hyperbole what you’re left with is the rather trite assertion that sometimes the journey is the destination and technology threatens to alter the way we get from A to B thereby decreasing the overall value of our experience. Welcome, Mr Davies, to the age of the wheel.

While it’s true that technology is likely to change the ways in which we do things (the argument really is that banal) Davies does nothing to show that this will be negative. As Joshua has noted, technology has altered society previous to this. It can’t just be taken as a given that society is worse now than it was when people had a life expectancy of 35. There are legitimate concerns about human interaction in the digital age (I tried to raise some on my blog a while ago, plug plug) but Davies doesn’t even bother. He just throws his hands in the air because — oh my God — Amazon suggests books I might want to buy.

And while it’s hardly more than a throwaway remark I couldn’t resist pointing this one out:

Bands now shoot to fame with their first record, then disappear soon after.

Yes. This never happened before 2003. Curse you, MySpace.

What is powerful is, all other things being equal, more capital is allocated to the most rational decision makers. (You can find counter-examples to this argument very easily if you examine it too closely, but that would be inappropriate since it is a macroeconomic tendency)

A good example of this at work is the difference in the investment behaviors of individuals who became wealthy through business success and through fortune (lottery and to a lesser degree exceptional but narrow talents like singing, acting, hitting baseballs).

It’s not as simple as black and white, since business success often involves some or a great deal of luck, and professional athletes need a drive in addition to the natural talent, but one group has rationality as a more significant requirement for success. Those who win by fortune often spend their money quickly, and wastefully. Jets, drugs, cars, expansive homes. Business leaders have some of the same behavior but it scales at a much different rate.

i am a progressive politically, and don’t think everything’s ok. (conservatives typically think everything’s ok). i love that you are promoting ideas from economics because that is the area i am most interested in these days. FYI - there are fairly new branches of thought in the study of economic theory called “cultural economics” and “social economics”, which begin to open up the discussion in interesting ways. neo-classical economic theory merely states a “nothing but” ideology, meaning, there is nothing but market transactions that can be measured in prices, and that’s how we learn what’s going on in the world. very rational. cultural and social economists really want to try to account for the idiosyncratic behaviors of (um, people) and how that affects prices and the nature of transactions. i am reading a book called “talking prices” which is about the art market. if you think about it, there is probably no market more opaque and arbitrary (in terms of pricing patterns) as the art market, and it is social and cultural economists that are the ones cracking this code - not the neoclassical ones.

that being said, i agree that we are all self-interested to a large degree. but we can also be motivated by the interest of others who may or not be immediately in our own personal spheres of concern. for example, i often support entrepreneurs in developing countries via microloans (kiva.com) whom i don’t know, and whose outputs are not even accessible to me. i simply believe that there really is a butterfly-in-beijing-makes-rainstorm-over-my-head effect. hell, and i also believe in karma. is karma about self-interest or is it about the *interplay* between self-interest and interest in the world at large?

again, great post. and good luck getting your new enterprise off the ground - i am really looking forward to *your* output.

Interesting comments about companies and shareholders, too. I work for a company whose parent says shareholders are their primary customers after The Board. I’ve only been here 3 weeks (new to being in the corporate world, too) and have not yet seen how this shakes out in practice, but I can say that they are leaders in the industry and are watched and cited by analysts and competitors alike.