The central statement of Adam Smith's Wealth of Nations—for history, and certainly for economics—is that which affirms the value of self-interest: "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 self interest." The lines that follow this "butcher-baker" statement are often quoted as well: "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. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens."¹

In this famous passage Smith seems to be telling us that, within the range of human motives, those in the category of self-interest, and not those classed as benevolence, are chiefly responsible for our being adequately supplied with provisions for living and the other goods and services that an economy should provide. Economists often debate what, exactly, self-interest means: is it selfishness or something different, perhaps more enlightened? In a while we will give further attention to this debate. But let us first recall that when Smith's predecessors, such as Richard Cumberland and Francis Hutcheson, divided the middle range of human motivation into two categories they were quite clearly talking about "moral sentiments" on the one hand and selfishness on the other. Smith himself takes this division as the starting point of his refutation of selfishness in the opening lines of his Theory of Moral Sentiments: "How selfish so ever 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."²

With the quickening eclipse of the influence of religion in the eighteenth century, social writers and moral philosophers were constantly occupied with the question of how society could continue to be held together without the traditional guidance of religious teachings. Many even wondered whether society was being held together. Smith himself, in the passage quoted from his Wealth of Nations, could hardly make it clearer that by self-interest he means a concern with the self to the exclusion of a concern with the other: "We address ourselves not to their humanity but to their self-love…."

Indeed, what makes this passage so striking, and what has given it its claim on the modern imagination, is its shock value. Certainly this was true in Smith's day, when the traditional religious conception of morality was still closely adhered to. That which had traditionally been seen as a bad thing—selfishness or self-interest—was advanced by Smith as a good thing, a social benefit. It is not the traditional social benefit of benevolence, says Smith, that nourishes us and sustains us (and note the same linguistic root in benevolence and benefit), but its essential opposite—selfishness. What a startling revelation was offered to the world in Adam Smith's impressive and distinguished tome!

We now come very close to the point of being able to discern Adam Smith's mistake. It is brought into view when we ask a question of the self-interest passage that is usually not asked: According to Smith's own logic, what would an economy look like if in fact benevolence were the determining motive?

Adam Smith is telling us that the economy in his day, and by extension in our own, is guided by self-interest and not benevolence. How do we know this to be correct? Is Smith a master psychologist capable of probing the minds of people and observing their motives? Perhaps this is the case; Smith has been praised for his keen psychological insight. But Smith's passage seems to carry a definitiveness that precludes any further discussion as to the motives of economic actors in the marketplace. The power of its conviction does not seem to reside so much in its psychology as in its logic. We can see how this is accomplished in the passage when we answer the question that we have posed to it.

An economy based on benevolence would be quite different from our own, as Smith tells us. What, then, would it look like? How would generosity, kindness, and so on translate into the economic sphere? Smith, in his passage, gives us the answer most directly and categorically. In his terms, for benevolence to be operative in the economic sphere, goods would have to be given away, for free. If people have to pay for what they receive then this means self-interest and not benevolence is operating on the part of the butcher, the baker. It is only the beggar (one who is without means of payment) who depends on benevolence. The "appeal" to the self-interest of the butcher and baker that Smith refers to is precisely the exchange of money for their goods. To appeal to their benevolence would be to ask them to give away their goods without exchange—as a free offering.

So we find that Smith is telling us in this passage that in any economy based on exchange—which certainly includes any market economy, and perhaps any modern economy—it is only self-interest operating and not benevolence. Thus we can see that, knowingly or not, Smith is being categorical; his logic lies beyond psychological probing, questioning of motives, or any other empirical argument. That is why his passage carries such conviction and power—and why it has been one of the transforming forces in shaping the modern mind and the modern world.

We now are ready to see Smith's mistake. It becomes clear when we go to the second part of his thesis, which says that self-interest, rather than benevolence, promotes the social good and that, in fact, self-interest is more effective in promoting the social good than benevolence. Herein lies the big surprise revealed by political economy: the economic actor "intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."³ But here is a problem, a deep problem indeed, and one that goes to the heart of the matter. For we can ask, what about honesty?

If the butcher or baker can cheat us (say by using short weights on his scale), and he can get away with it, isn't it in his self-interest to do so? The answer must be yes. There is nothing in self-interest that rules out cheating, especially if one is good at it. It is not self-interest that prevents someone from cheating. Selfinterest only dictates that they not get caught. As we have seen, history is full of accounts of people deceiving, defrauding, coercing, and essentially stealing from others in their economic dealings. And we only know about those who were caught. Even among them, some have been seen as heroes; they did quite well, with their penalties hardly matching the gains of their crimes. In fact, we will see that economists came to conclude that from the standpoint of self-interest it would be irrational for someone not to cheat if they could be reasonably sure of getting away with it. "Honesty is the best policy" is not an economic doctrine.

Smith himself, throughout his second book, gives many acute descriptions of these tendencies on the part of entrepreneurial economic actors, and he doesn't mince any words about it. For example, in discussing merchants and dealers, he says it is they "who have generally an interest to deceive and even to oppress the public, and who accordingly have upon many occasions, both deceived and oppressed it."⁴

Smith's forthright talk of businessmen cheating and oppressing the public seems to stand in direct contradiction to his advocacy of self-interest as the sole principle necessary for the achievement of the public good. The saving grace was supposed to be the "invisible hand" of competition. It was competition that would keep these instincts and "expensive vanities" of the merchants, dealers, and landlords in line. Smith would hardly have been surprised at the motives of Rockefeller, but he certainly would have been chagrined at his success. Smith had essentially overlooked the possibility that self-interest would work to undermine and eliminate competition and thus to tie up the invisible hand. It is this outcome of unrestrained self-interest that is the fundamental flaw in any absolute policy of laissez-faire. This was not even adequately recognized by the early advocates of antitrust. When Senator Sherman spoke on behalf of the first antitrust legislation, he said, "The law of selfishness, uncontrolled by competition, compels it to disregard the interest of the consumer." Implicit in Sherman's statement, but seemingly not recognized by him, is the deduction that the law of selfishness also compels it to eliminate competition. For competition to continue to exist as a restraint on the rapacity of self-interest, it would have to be supported by a force or principle other than economic self-interest.

As we have seen, when taken by itself, self-interest naturally leads to cheating and dishonesty. The example of the merchant who cheats the consumer illustrates the problem of self-interest in the interpersonal or social context. But "cheating" also occurs in relation to the physical and natural context—the environment. For the principle of self-interest dictates that the individual seek self-benefit by imposing costs on the natural environment. From the Industrial Revolution and continuing down into the present, self-interest has produced pollution, depletion, and the progressive destruction of the natural world. The evidence begins with the foul streets, sewers, and air of Adam Smith's London and extends to the acid rain, ozone depletion, and "greenhouse effect" of today.

Now, approximately two hundred years after The Wealth of Nations, society is just beginning to recognize the destructive consequences of economic selfinterest; however, it does not as easily recognize that this state of affairs is implicitly supported by economic theory in its pure Smithian form. For example, in The Economic Way of Thinking, Paul Heyne tells us that we don't really need such a thing as clean water, because there really are no needs; there are only wants, and these are backed up by purchasing power, or demand. Demand can always find substitutes, says the economist, for there are "substitutes everywhere." "Who needs water?" Heyne asks. He explains: "People are creatures of habit, in what they think as well as what they do. Perhaps this also explains why so many have trouble recognizing the significance of substitutes and hence such difficulty in appreciating the law of demand. Water provides an excellent example." Heyne goes on to say that "we have confused the issue for ourselves by identifying pollution with environmental damage."⁵ So pollution is not environmental damage after all?

What then is pollution? Simply a disagreement over property rights, the economist tells us. Again Heyne: "Pollution exists when people's expectations about what they can and may do come into conflict. Pollution is eliminated when disagreements about property rights are resolved—when those who formerly protested the actions of others consent to those actions."⁶ In other words, pollution is not an objective reality. It is only a question of protest on the part of some about what others are doing. In the economist's world of self-interest, all is indeed self, including the environment; there is nothing objective. If the price system can be adjusted so that those who are unhappy about what they believe to be pollution can be paid enough to keep them quiet, then the so-called pollution will disappear. Following this logic, we can presume that at some point the polluter would find it too expensive to pollute and would therefore cut down on environmentally destructive acts. This assumes, of course, that there really is an environment separate from the self, a fact that economic theory fundamentally seems to deny, as we have just seen.

Heyne concludes: "There may be no more important lesson for us to learn about pollution than that pollution so thoroughly permeates our society that we cannot realistically hope to eliminate it. Pollution exists when teenagers play their transistor radios and thereby infringe on the right of other bus passengers to enjoy peace and quiet; pollution still exists, though in a changed form, when the other bus passengers infringe on the teenagers' right to hear music by enforcing their own desire for peace and quiet."⁷ So from the standpoint of economic theory, peace and quiet is pollution for the teenager. And so it goes. Logically, then, pollution must be a constant. Thus we should not be surprised to find that in forums held to discuss the problems facing the natural environment, economists are generally the most resistant to proposed solutions. For example, in a 1988 discussion of the consequences of the warming of the earth as a result of the greenhouse effect, environmental and resource scientists sounded the alarm. Irving R. Mintzer of the World Resources Institute warned, "We are talking about changing the entire fabric of nature." The economist quoted in this discussion, however—a professor at Carnegie-Mellon—is the voice of doing less rather than more: "There is no way to justify spending tens of billions of dollars a year to prevent the greenhouse effect."⁸ The economist had studied the law of demand and knew the "real values" involved. More accurately, he or she knew that there are no real values, just as there is nothing objective; there is only personal demand.

Smith's doctrine of self-interest is quite a remarkable one. The celebrated critical economist Joan Robinson is succinct and incisive in this regard: "This is an ideology to end ideologies, for it has abolished the moral problem. It is only necessary for each individual to act egotistically for the good of all to be attained."⁹ And there we have the essence of Adam Smith's mistake.

Our review of several periods of history has shown that the good of all is not attained by pure self-interest or egoism. There must be another principle operating in people, a principle that moderates self-interest in favor of the general good. We indicated above that a sense of honesty could be one such moderating tendency. Honesty follows a standard that is outside of self-interest, and this is precisely the definition of morality. Other such principles are fairness, integrity, reasonableness, and a sense of justice.

As a matter of fact, it is according to Smith himself that justice is necessary for the good to be attained. He says this at a point in his book that is far removed from the butcher-baker statement, which occurs on page 14 of the Cannan edition of Smith's work. On page 651, Smith reviews his "obvious and simple system of natural liberty," which is the central idea of his entire text. In fact, his call for liberty, or freedom from the restraints of a mercantile and aristocratic ruling system, and for the just treatment of the working person still rings down through the centuries. It is this call that aligns Smith with the liberty that the American nation was pursuing, coincidentally, in the same year as the publication of his book. Smith says, "Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interests in his own way, and to bring both his industry and capital into competition with those of any other man, or order of men." As long as he does not violate the laws of justice. This qualification is critical, yet it is missing from his earlier statement, which has become the hallmark statement for economics and for the place of self-interest in the modern world.

While a respect for justice is not necessarily equivalent to benevolence, it is certainly closer to benevolence than to self-interest, and that is why Smith counterbalances self-interest with justice in the grand concluding statement quoted above. Although, in his earlier work, The Theory of Moral Sentiments, Smith draws a fine distinction between justice and "beneficence," he clearly classifies both as "the virtues."¹⁰

We turn now to a final elucidation of the butcherbaker statement. Adam Smith made a mistake. He said, "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 should now be able to see that Adam Smith left out just one little word—a word which has made a world of difference. And if this mistake is not corrected, then the absence of that word could threaten to unmake a world. That word is only. What Adam Smith ought to have said was, "It is not only from the benevolence…."; then everything would have been all right.

I said before that we would eventually view the butcher-baker statement in an even larger context, and now is the time to do this, because in so doing we will find intriguing confirmation for our account of Adam Smith's mistake. For it turns out that four sentences before this statement we find the missing only. Smith, in attempting to explain the origin of the division of labor, contrasts the behavior of animals with that of humans. Animals, he says, are largely independent and have little need for the assistance of other animals. But man, on the other hand,

has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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, (italics added)

Of course, we don't mean to imply that Smith intended to insert the word only before benevolence, and that he mistakenly left it out. He intended it to be just the way it is; but in his intention he made a mistake. And what is so fascinating about this analysis of his text is that we can see how close he was to putting it differently. He almost might have said that self-interest wasn't everything, that some measure of benevolence was also needed for society to be benefited. But in the end, and just at the margin of his thought, he made the fateful decision to write on behalf of selfinterest to the exclusion of benevolence. What contributed to this, as we have pointed out, is that Smith saw benevolence as operating only in the donation of free gifts or charity, and he did not realize that it also needed to play a part in exchange as well—in the form of honesty, integrity, or fairness. The significance of the omission of only in the butcher-baker sentence is clear when we remember that this statement became the basis of the counsel of self-interest in respectable and academic thought.

As we have just seen, Smith's sanctioning of self-interest without any qualifying or restraining force completely eliminated the moral problem in human action. Morality is always a matter of choosing, and situations of moral relevance always involve conflict of interest. One has to choose between the interests of "rightness" (which can be taken to mean honesty, justice, fairness, the concerns of the other, the public, society) and the interests of the self in disregard of rightness. The nature of the latter choice was rather clearly expressed in the now immortal words of John Pierpont Morgan: "I owe the public nothing." Smith's statement equating the pursuit of the interests of the self with the public good completely eliminated the need for choice: Just do what's good for you alone, and the good for all will be attained. There is no more moral problem because there is no conflict of interest. There is only one interest, and that is self-interest.

It is quite striking, and still another confirmation of our analysis of Smith's mistake, to find in the famous "invisible hand" passage almost the same conceptual and moral slippage. In this passage, which appears on page 423, Smith says that the individual

intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

Smith states that in the pursuit of self-interest the individual is "led by an invisible hand" to promote the social good, although that is no part of his intention. Furthermore, by pursuing self-interest he will be more likely to promote the social good than if he intentionally sets out to do so. It should be noted how truly remarkable this statement is. Smith would seem to be telling us that if we want to find people who will best promote the public good, we should choose those who are essentially pursuing their own interest. Before the reader has been given the opportunity to realize just how strange this statement is, Smith goes on to say, "I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."

We immediately appreciate Smith's dry wit when he says that "very few words" are needed to dissuade the merchant from trading for the public good. It thus appears that Smith is referring to the hypocrisy, perhaps thinly veiled, of those who pretend to trade for the public good. So, the whole passage might then be taken as an ironic invective against such hypocrisy, and we can understand Smith as saying that one who honestly pursues his own self-interest does a lot better for society, or at least does it no harm, than one who deceptively claims to be pursuing the public good. Well and good, and we accept this caution against the ill effects of hypocritical claims in the public interest. But in the previous phrase Smith refers to those who "really intend" to promote the public good. Well, if these people really intend to do so, they cannot be the same hypocritical persons that Smith then seems to refer to. Therefore, Smith's adjective really is misused and misleading. To be consistent Smith would have had to have said something like, "those who apparently intend to promote the public good." To say it as he did leaves the whole passage as a contradiction, and as a remarkable condemnation of truly benevolent intentions.

In both the butcher-baker statement and the invisible hand passage we see that Smith came within a hair's breadth of not slipping into a philosophy of moral failure; the mere use of the right modifying word in each passage would have prevented immorality from finding its intellectual and theoretical justification in the name of economics. The tragedy of all this is that Smith was not a bad man at all. Indeed, Smith was a good man, and all of his intentions were highly honorable, as we will see further on. But in promoting his good ends through the means of justifying self-interest he made a fateful mistake—a mistake which allowed people of much more dubious intentions than Smith, beginning with Thomas Malthus, to find justification for their own self-interests in Smith's name and work.

We have said that in his economics Smith was dealing with the "middle range" of human motivation. This is necessarily the case because economics as a field concerns this middle range. The full range of human motivation involves the passions as well as the interests, to use Albert Hirschman's delineation of these forces in economic history.¹¹ We can see human motivation as very simply consisting of a bipolar dimension, with love on one end and hate on the other. These two poles represent the passions….

In the middle range of motivation are the interests, and these can be classified as benevolence and self-interest (or selfishness), to use the Smithian terms.

The conflict of interests that we have been discussing is the conflict between the upward and the downward directions on this continuum (or, more accurately, vector). To put it very starkly, but accurately, the choice between these directions corresponds to the choice between good and bad, or virtue and vice.

While it is easy to make a distinction between the two ends of the vector—between white and black—it is always more difficult to make such moral distinctions in the middle, or gray, area, of the continuum. But a distinction in the middle range is still the same kind of distinction; it is a distinction between good and bad.

In his doctrine of self-interest, Smith made what can be called a transvaluation. That is, he reversed the poles of the continuum of motivation, at least in the middle range. In effect he said that bad was good and good was bad. We will see shortly how Smith was influenced by a predecessor, Bernard de Mandeville, to make this transvaluation. Mandeville's famous utterance that "private vice is public benefit" was to leave its fateful mark on Smith.

We have seen, then, that transvaluations become the root of moral confusion when the polarity is mislabeled. The economic doctrine of self-interest has introduced just this confusion into modern life, and in an intellectually acceptable form. Modern society has been struggling with this problem ever since the inception of the science of economics in the late 1700s.

Transvaluation is not just a product of economics, of course, and people of ill will in all spheres inevitably use transvaluative language to justify their vices and evil intentions. Perhaps the most well-known literary portrayal of this is in George Orwell's satire Nineteen Eighty-four, where mechanistic man, living in a totalitarian regime, talks in the language of doublespeak or even "newspeak." Here war is called peace, and lies are called truths.

The misuse of language, or mislabeling, is an important aspect of transvaluation. For Confucius, the path back to morality lay, at least in part, in what he called "the rectification of names." Immorality flourished, according to the Confucian perspective, when things and actions were not called by their correct names.¹² The most serious instance of such mislabeling is when what is bad is called good, and vice versa.

We also need to be clear, however, that immorality is not just or primarily a problem of mislabeling. It is not only a language problem. Immorality flows from the unchecked ill will of the lower self, or lower pole of motivation. It is unchecked because the counterbalancing force, the higher pole, is overpowered or held in abeyance. Language enters the picture because unchecked ill will inevitably distorts language; transvalued language is then used to render the lower pole, or lower self, dominant over a higher self that has been linguistically disclaimed. It is the central thesis of this book that in its self-interest doctrine economics has served precisely this purpose.

It is the task of the present work, then, to affect a rectification of names in the area of economics, and in social action and policy in general. We want to show that self-interest in essence means selfishness, and selfishness cannot produce the social good because in fact it is the very force that destroys the social good, despite the claim of economics to the contrary. As a matter of fact, this claim provides one of the deep mystifications that bedevil what we call the modern world.

Notes

¹ Smith, The Wealth of Nations, ed. Edwin Cannan (New York: Modern Library, 1937), book 1, chap. 2, p. 14.

² Smith, The Theory of Moral Sentiments (Indianapolis: Liberty Classics, 1976), pt. 1, sec. 1, chap. 1, p. 47.

³ Smith, The Wealth of Nations, book 3, chap. 2, p. 423.

⁴ Ibid., book 1, chap. 11, p. 250.

⁵ Paul Heyne, The Economic Way of Thinking, 4th ed. (Chicago: Science Research Associates, 1983), pp. 22, 245.

⁶ Ibid., p. 245.

⁷ Ibid., p. 251.

⁸ "The Heat Is On: Calculating the Consequences of a Warmer Planet," New York Times, 26 June 1988, sec. 4.

⁹ Joan Robinson, Economic Philosophy (New York: Anchor Books, 1964), p. 54.

¹⁰ Smith, The Theory of Moral Sentiments, pt. 2, sec. 2.

¹¹ Albert O. Hirschman, The Passions and the Interests (Princeton: Princeton University Press, 1977).

¹² Cheng-ming in Fung Yu-Lan, A History of Ancient China, vol. 1, (Princeton: Princeton University Press, 1952).