It is commonplace to assume that humans have plans and purposes. These are sometimes summarized as “utility functions,” but that is a superficial substitute more suitable for classroom examples than serious research. Sometimes we use an even more narrow and misleading summary term: greed.
One way to think of the difference between self-interest and greed is that greed suggests a narrow, short-term focus on the self. In a way, this can be a useful starting point, because it allows for conflict between what is good for an individual, or small groups, and what is useful for the larger society.
Many people have modeled this problem using some version of the prisoner’s dilemma, which nicely captures the problem of separating individually rational actions and the larger outcome for the group. In particular, the PD analysis shows that individuals pursuing greed may achieve outcomes that don’t even qualify as truly voluntary, because literally everyone is worse off. Greed is, in such settings, not in your self-interest.
That’s pretty standard, and if you have ever had a public policy or mainstream economics class you have likely discussed it. In fact, it’s a summary of what Thomas Hobbes was saying: if greedy people have too much liberty, there will be the “war of all against all.” So self-interest leads people to limit their own ability to be greedy, provided everyone else’s greed is similarly limited.
But there is another possibility: Greed could be good, in some settings at least. People pursuing their own narrow self-interest might actually make everyone else better off. Such situations are often called “invisible hand” settings, where the action intended by the individual has another consequence, a consequence that the individual never intended, but which benefits the society.
It’s hard to say just where this kind of reasoning started, though Bernard Mandeville certainly focused on it directly. Adam Smith, who gave us the “invisible hand” metaphor, was actually much more circumspect than Mandeville, believing that the dictates of the “impartial spectator” would lead people to consider the welfare of others automatically. The habit of consulting the impartial spectator was named “propriety” by Smith, and propriety and the habit of obeying convention is one of the key moving parts of Smith’s entire system.
There is one aspect of Smith’s system, however, where the invisible hand operates with full and awesome force, and that is the motivation of acquisition, or “the pleasures of wealth and greatness.” Smith observed that many people seemed obsessed with this kind of greedy acquisition, though Smith was doubtful that those who acquired great wealth would thereby be made happy. The point was that, just as Gordon Gekko famously said, “Greed, for lack of a better word, is good.” Smith thought that such greedy pursuit of acquisition had a crucial, and in fact indispensable, role in the development of society.
The theme that the watchful eye of the impartial spectator would over time tend to teach habits of propriety that would make us happy, and ensure proper rewards for good action and proportionate sanctions for bad action, is Smith’s central claim. And he was convinced that propriety was the guide to true happiness. But he thought that, for some people at least, the desire to acquire would likely be excessive, at least in terms of the happiness it actually delivered.
In The Theory of Moral Sentiments, Part IV, Chapter 1, Smith lays out his argument, which I will paraphrase in part and quote in part. We imagine that wealth and greatness are “grand and beautiful and noble, of which the attainment is well worth all the toil and anxiety which we are so apt to bestow upon it.”
But it isn’t “worth all the toil.” Wealthy people are not happier, and in fact in many cases they are less happy than those in lower stations of power and wealth. Yet we still seek power and wealth (in this, Smith is echoing Thomas Hobbes’ claim that human nature is competitive, diffident, and vain) in ways that aren’t rational.
The rationality of the motivation actually comes from the rewards to the group of having ambitious, acquisitive members. Societies that nurture greed in this way will be better off than societies that foster an egalitarian sensibility. The reason is that the desire for wealth and greatness adds much more to the “public stock” than even the most gluttonous wealthy person could ever take out.
As Smith put it:
And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants. It is to no purpose, that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets, which are employed in the oeconomy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice.
The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. (Emphasis added)
John Nye, of George Mason University, reprised this theme with a little more modern twist two years ago when he pointed out that poor and middle class folk should actually be grateful to Smith’s “great and wealthy” for having nice cars. At first, in fact cars were not very good, were very expensive, and could only be seen as the silly playthings of those who had more money than sense. More recently, satellite phones cost thousands of dollars, had limited functionality, and looked and felt like plastic bricks. But now that desire by the wealthy to have cool stuff has resulted in almost all of us having access to phones, and microwaves, and cars that are remarkably inexpensive and reliable.
It’s true that a lower middle class person has a used Corolla, and the wealthy person has the latest Tesla. But both of them have reliable transportation, and electronic gadgets, and a reasonably safe place to live in air-conditioned comfort. Both have an internet connection where they can use Google, Facebook, and Wikipedia, and both can be reasonably secure in knowing that they will not die from an infected cut or an untreatable fever. And while the price of really excellent electric cars (if that is what a Tesla is) is too high for now, the greed of the rich will soon make it possible to produce electric cars for the masses.
The point is that greed can be good. The greed of the wealthy for showing off has led to a remarkably wealthy society, the most egalitarian culture the world has ever known. It’s called capitalism, where everyone has access to marvels and delights that would not be available to even the most privileged in a society where naive altruism was the rule.