This is a commencement address given by Joan Robinson at the University of Maine three decades ago:
Morality and Economics, by Joan Robinson, May, 1977, University of Maine: I Want to speak about the philosophy of economics. It is an extremely important element in the view of life and the conceptions which prevail in this country. Freedom is the great ideal. Along with the concept of freedom goes freedom of the market, and the philosophy of orthodox economics is that the pursuit of self-interest will lead to the benefit of society. By this means the moral problem is abolished. The moral problem is concerned with the conflict between individual interest and the interest of society. And since this doctrine tells us that there is no conflict, we can all pursue our self-interest with a good conscience.
This doctrine is attributed to Adam Smith. Adam Smith was the founder of the economics of the modern world. He rejected regulation. He was against regulation and he was against government interference in trade and industry. He wanted to rely on the pursuit of individual self-interest to allow economic development. And, of course, he turned out to be quite right; in the modern world, there has been a fantastic degree of economic development with a level of productivity never attained in any other civilization.
Adam Smith says in The Wealth of Nations,
In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But 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.
In another passage, there is a famous phrase about the market leading individuals by an invisible hand to the benefit of all. He was talking in that particular context against protectionists. Adam Smith argued that there was no need to protect home industry because in fact every producer will prefer to sell in the home market if he can, rather than selling abroad. He intends only his own gain and his own security. In the pursuit of self-interest he is, "as in many other cases, led by an invisible hand to promote an end which is no part of his intentions".
The phrase "invisible hand"- taken from this particular context, the case against protection, has been used as a central doctrine in the teaching of orthodox economics: the notion that individuals have no need to consider the collective results of their behaviour. Do not worry about social problems. Social problems will all be all right if everybody looks after his own self-interest.
This leads Professor Kenneth Arrow, himself a great exponent of the mathematics of the market economy, to say, "The idealization of freedom through the market completely ignores the fact that this freedom can be, to a large number of people, very limited in scope". (The Limits of Organization) I think that when Adam Smith was telling the story of getting his dinner from the butcher, the brewer, and the baker he was really thinking of a gentleman who has money to spend. He was not thinking of the struggles of those tradesmen to make a living. The price system can generate this kind of error. Kenneth Arrow writes:
The price system can also be attacked on the ground that it harnesses motives which our ethical systems frequently condemn. It makes a virtue of selfishness. Some economists, much taken with this system, have argued that, for example, business corporations are committing a social wrong if they try to engage in socially desirable activities; their aims should be properly only to maximize their profits, and that this is indeed the socially most desirable activity that they can engage in.
This doctrine which, of course, is very widespread, favours those who have some base to start with. It follows the old rule: "To him that hath shall be given; from him that hath not shall be taken away."
There are many examples in the modern world showing how this doctrine of the free market - the pursuit of self-interest - has worked out to the disadvantage of society. You are well aware of the problems of environmental destruction which takes place with the development of high capitalist industry. The problem has come up now in Canada in a particularly horrible form with the spread of the minamata disease which was so devastating in Japan. This disease comes from emitting mercury into rivers. People who eat the fish from those rivers suffer from this incurable disease. If you are arguing in favour of maximizing profits, you must be in favour of allowing the industry to make cheap newsprint - so that you can have very thick newspapers at the expense of poisoning the rivers of Canada and allowing the Indian population to be killed (or worse, to remain half-alive).
There is another example which comes from the medical profession. Today there is some attempt to help poorer people who cannot afford the fees of doctors by giving them some medical aid. This is given to them in the form of payments which can be made to doctors. So the doctors fill out forms to say what services they have given. But as they are subject to the general doctrine of pursuing self-interest, they have to be checked. It becomes necessary to have a special bureaucracy to check these checks and to see whether the service has actually been given by the doctors who filled out the forms.
These are well-known examples - I think any of you can immediately think of innumerable examples - of what has happened as the result of upholding the doctrine that the pursuit of self-interest benefits society.
Now, I think it was a shame to associate Adam Smith with this doctrine. It is certainly true that he praised private enterprise and the market system as against state regulation. But he relied very much upon morality. He took it for granted that there is an ethical foundation for society, and it was against this background that he opened up his economic doctrine. In The Theory of Moral Sentiments, he wrote:
It is thus that man, who can subsist only in society, was fitted by nature to that situation for which he was made. All the members of human society stand in need of each other's assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices.
But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may be upheld by a mercenary exchange of good offices according to an agreed valuation.
Society, however, cannot subsist among those who are at all times ready to hurt and injure one another. The moment that injury begins, the moment that mutual resentment and animosity take place, all the bonds of it are broken asunder, and the different members of which it consisted, are, as it were, dissipated and scattered abroad by the violence and opposition of their discordant affections. If there is any society among robbers and murderers, they must at least, according to the trite observation, abstain from robbing and murdering one another.
Then he makes a comment on the sense of values which people have:
This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect, persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages....
The respect which we feel to wisdom and virtue is no doubt different from that which we conceive for wealth and greatness. It requires no very nice discernment to distinguish the difference. But notwithstanding these differences, those sentiments bear a considerable resemblance to one another. In some particular features, they are no doubt different, but in the general air of the countenance, they seem to be so very nearly the same that inattentive observers are very apt to mistake the one for the other.
Adam Smith believed in a natural order of morality. When man was formed for society he was endowed with the moral sentiments which would make society possible. But the second part of his doctrine, the "Wealth of Nations", has succeeded in undermining those sentiments to a very considerable extent and putting in their place the doctrine that the pursuit of profit is a substitute for morality.
Now even Professor Kenneth Arrow, the great exponent of orthodoxy, has come to the conclusion that a society of individualists cannot succeed and prosper and that along with the necessary institutions of government and business we must have the invisible institution of the moral law.
I hope that the moral consciousness which has grown up in modern times in the youth of America, which has led them to protest against the unequal balance prevailing between morality and the market, will continue to prosper in this generation and that you will find that the doctrines of Adam Smith are not to be taken in the form in which your professors are explaining them to you.