Going Along with Market Outcomes: Good Capitalism

 

Metaeconomics builds on the proposition from Adam Smith that the primal driver of human nature is ego based self-interest, which is also confirmed in modern behavioral science. What has been missed, perhaps purposely ignored, is that Adam Smith also saw the need to temper that self-interest with the sentiments --- empathy (and, perhaps even sympathy-compassion)  in today's language--- which in Metaeconomics is the empathy based (and thus ethics based) other-interest.  The key role of empathy has also been confirmed in modern behavioral science. And, it is empathy that ensures every one can go along with what the market produces, a key part of a good capitalism.

 

Smith saw the essential need for everyone to go along with the expression of self-interest,which is represented in what Metaeconomics calls the other-interest.  To understand  what Adam Smith was all about, and how it led to the idea of  how the pursuit of own-interest had to do with balancing self&other-interest, we consider two of the more salient quotes from Adam Smith about balance (see also Lynne et al., 2016, pp. 245-250; Lynne, in press, esp. Chapter 7):

…man 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 favour, and show 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. 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 (Smith, 1776/1789, loc 239-251)

 

Though it may be true, therefore, that every individual, in his own breast, naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle. He feels that in this preference they can never go along with him, … If he would act so as that the impartial spectator may enter into the principles of his conduct, which is what of all things he has the greatest desire to do, he must, upon this, as upon all other occasions, humble the arrogance of his self-love, and bring it down to something which other men can go along with (Smith, 1759/1790, loc 1714-1727).

 

 

The ”not by benevolence” quote is claimed in mainstream Neoclassical Economics, especially the Libertarian Branch,  to justify the maximization of self-interest, even though Smith says own-interest.  We make sense of own-interest through Smith remarking on the constant need for help, the inherent interdependence, among all the producers of meat, beer, and bread, as well as with and among the consumers.  Said interdependence is between self&other-interest, and, writ large, between market&government. And, within the market:  Producers are interdependent with other producers.  Consumers are interdependent with other consumers.  Producers are interdependent with consumers.  Supply is interdependent with demand.  Jointness, interdependence, and nonseparability characterize the life experience of Humans---all Travelers on the Spaceship Earth.

 

Because of interdependence, Metaeconomics clarifies that within own-interest, we must address ourselves to the matter of self-love: It is the arrogance of  self-love as represented in self-interest only that causes not getting the meat, beer, and bread you want. In order for all to get what they want or need, the self-love, the self-interest only, the selfish part of human nature must be tempered by empathy, the sentiments.  In Smith’s words, “…humble the arrogance of self-love” to a level that others “…can go along with.”  Interdependence necessitates finding what everyone can go along with, what we can all accept, which gives the context to the market.

 

To go along with the other, and then move to accept it, also takes considerable self-control--- self-command as Adam Smith saw it. Self-control has to be exercised to be an impartial spectator and become mindful of what others will reasonably accept to achieve a shared other-interest. It takes self-control to consider the other-interest and temper excessive greed. With sufficient self-control to address the other-interest, the tragedies can be avoided, and true economic efficiency can be achieved. Metaeconomics seeks to bring all three constructs together---self-interest, other-interest, and self-control.

 

And, an important aside: the weakest among us are the people acting without self-control, whether in the market or the government.  The egoist-hedonist-narcissist maximizes self-interest without regard for anything but the arrogance of self-love.  Unfortunately, it is said kind of person that is enabled by mainstream, Microeconomics framing and single-interest theory: An economics without ethical reflection, and, without self-control. It leads to a weak, unsustainable, and bad capitalism, and, bad government if intertwined with it.

 

So, looking at some specifics, we might consider the following, in answering the question "Is Metaeconomics new?" 

 

Dichotomy:

  • No: In the sense that Adam Smith saw that achieving gains in  each individual's Own-interest came from the joint pursuit of the Self-interest  (in Smith, 1776/1789) and the Other(shared with others, yet internalized within own-self)-interest (Smith, 1759/1790): These Dual Interests are two non-separable, joint dimensions of that Own-interest, as in Self&Other-interest.  And, it was an economy given context by substantive ethical reflection.

  • Yes: In the sense that Metaeconomics, while drawing on Microeconomics (from Neoclassical Economics), works to integrate the role of the Self-interest---from Smith (1776/1789)--- and the role of the Other-interest which represents the  role of the Sentiments (in modern language, Empathy-->  Moral and Ethical Dimension)---from Smith (1759/1790), it also works to go beyond.  To do so,  it also draws upon Neoinstitutional Economics which mainly sees the Other-interest, but does not perhaps pay enough attention to the more primal role of the Self-interest.  So, Metaeconomics is new in the sense that a Human (not an Econ) mediates across the two interests,  rationally evolving a distinct entity, tempering and conditioning with adequate self-control the pursuit of self-interest. It is new in seeing the internal need to also reach suitable outcomes in the other-interest (i.e. bring in the ethical reflection, that which others can go along with) not just the self-interest, achieving balance in Self&Other-interest, so it is a new Dual Interest Theory (DIT)  in contrast to the Single-interest theory (SIT) of Neoclassical Economics and the Other-interest theory (OIT)  of Neoinstitutional Economics. It is also new in the sense of building on empirical science as is evolving in Behavioral Economics. So, Metaeconomics is about science&ethics.

 

Fusing the Dichotomy: 

  • Adds an Other-interest set of indifference curves to the standard microeconomic indifference curve diagram, and a set of Other-interest related isoquants to the isoquant diagram (See  https://www.metaeconomics.info/what-is-dual-interest-theory )

  • Every economic choice gives payoff in both the Self&Other-interest domains: The dual interests are absolutely joint, interdependent, and non-separable.  One cannot enjoy one without other; one cannot eliminate one without eliminating the other.  The iso-curves are absolutely overlapping at every point. 

  • Clarifies that  economic efficiency cannot be achieved through maximizing Self-interest or in maximizing Other-interest; Economic efficiency is possible only from maximizing the Own-interest, which always means a bit of sacrifice in both the Self-interest and the Other-interest.

  • Economic choice is about satisficing rather than maximizing either Self-interest or Other-interest: It is about maximizing Own(dual)-interest

  • Clarifies that  economic efficiency is achieved only with balance in Self&Other-interest while maximizing Own-interest

  • Economic efficiency requires good balance in Market&Government

  • Substantive investment in both Market&Government is essential to achieving economic efficiency

  • Degree to which self-control is actually able to bring the other-interest to bear in tempering self-interest becomes an important concern for empirical measurement and test

  • Recognizes a conscience (moral and ethical dimension) in the consumer (and producer) while adding the conscience to standard economic reasoning (into the models and theory), and better reflects the complexity of real human experience

  • Reflects the wide and deep understanding in economic science developed since the time of the first economist, Adam Smith, building upon these two traditions, both of which are built largely in moral philosophy, and logic, rather than empirical science:

    • Neoclasssical  Economics with the basic premises delineated in ​Smith (1776/1789)

    • Neoinstitutional Economics with the basic premises delineated in Smith (1759/1790)

  • Draws upon empirical, scientific understanding in economic psychology, economic sociology, socioeconomics, neuroeconomics, and especially behavioral economics along with plentiful empirical research in its own right

So, is it really new?  Much like in personality (psychology) theory:

 

Researchers await a new theorist who will assimilate the old theories and present an integrated theory incorporating previous concepts and propositions.  A cynical colleague of mine once said that such a task requires the services of someone in marketing because the ideas will not be new ones but merely old ones presented in new packaging (Lester, 1995, p. 161).  

 

This website is part of the marketing of Metaeconomics, clarifying the old ideas being used, with the main new idea being that we have joint, dual interests.  So, it is a  way to integrate across both old and new ideas, within the Metaeconomics Framework (MEF) and Dual Interest Theory (DIT). 

References:

Lester, D.  Theories of Personality.  Washington, D.C.: Taylor and Francis, 1995.

Lynne, G. D. Metaeconomics:  Tempering Excessive Greed. New York: Palgrave Macmillan, in press.

Lynne, G. D., Czap, N. V., Czap, H. J., and Burbach, M. E. "Theoretical Foundation for Empathy Conservation: Toward Avoiding the Tragedy of the Commons." Review of Behavioral Economics 3 (2016): 245-79.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Cannan, E. (Editor). New York: Random House, 1776/1789 (digital access at www.feedbooks.com).

Smith, Adam. The Theory of Moral Sentiments. Macfie Rafael,  D.D. and A.L. Indianapolis, Indiana: Liberty Fund, Inc., 1759/1790 (digital access at digireads.com).

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