1. What is the difference between self-interest and selfishness? Why is this dis
ID: 1188245 • Letter: 1
Question
1. What is the difference between self-interest and selfishness? Why is this distinction important when considering the competitive market economy as appropriate for a society?
2. Does your textbook present only positive economics and avoid and normative economics? If not, give some examples of normative issues covered in your textbook.
3. What did Adam Smith believe serves to curb self-interest in an economy?
4. What does it mean to seek the kingdom of God in a democratic capitalist economy? How can it be done?
Explanation / Answer
3-Adam Smith described self-interest and competition in a market economy as the %u201Cinvisible hand%u201D that guides the economy. This episode of %u201CThe Economic Lowdown%u201D explains these concepts and their importance to our understanding of the economic system.
A market economy is an economic system in which individuals own most of the resources %u2013 land, labor, and capital %u2013 and control their use through voluntary decisions made in the marketplace. It is a system in which the government plays a small role. In this type of economy, two forces %u2013 self-interest and competition %u2013 play a very important role. The role of self interest and competition was described by economist Adam Smith over 200 years ago and still serves as foundational to our understanding of how market economies function.
Self Interest is the motivator of economic activity.
Why do you go to work? Why do you go to school? There may be many reasons, but at their core you probably go to work and school because you are self-interested. To be self-interested simply means that you seek your own personal gain. You go to work because you want to get paid so you can buy the things you want. You go to school so you can get a better job someday and earn more money to buy the things you want. In fact, most of the economic activity we see around us is the result of self-interested behavior. Adam Smith described it this way in his book, The Wealth of Nations:
%u201CIt is not from the benevolence (kindness) of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.%u201D
So why does the baker choose to bake? The answer is self-interest. The baker wants to earn enough money to feed his family and buy the things he wants and the most effective way he has found to do that is to bake bread for you. In fact his bread has to be good enough and the service friendly enough that you are willing to give up your money freely in exchange for his bread. The baker while serving his self-interest has produced a good that is very valuable to you. The miracle of a market system is that self-interest produces behavior that benefits others.
Is being self-interested greedy? Is it immoral? While the term self-interest has negative connotations, it does not necessarily imply greedy or immoral behavior. Self-interest just means that you seek your goals. In fact, your self-interest might lead you to study hard for your math test, give money to your favorite charity or volunteer at a local school.
4-All things considered, democratic capitalism will carry a heavy burden to Judgment Day. Its fundamental structure has proved to be productive, its liberties are broad; consequently, its responsibilities are many. Had the experiment failed, had the United States remained a primitive country, badly governed, surly and anarchic, the world might love it more. If the United States were unable to govern itself, the world could scarcely look to it for leadership. If the United States were still poor, no others could blame it for their own poverty. A former colony like other former colonies, it might be eligible for help from the World Bank.
But the United States is not stricken weak with poverty. Its system has been productive beyond compare. Its experiment has (so far) worked. Its people are free. Its burden of responsibility is, therefore, higher.
In this book, I have not been concerned to pass judgment on the practice of capitalism. I have been concerned to grasp the ideals latent in its practice. This procedure seems to me legitimate. There are hundreds of books about the ideals of socialism, many of them written before there was even a single instance of socialist practice, many others written by ignoring socialist practice. If it is legitimate for socialists to dream and to state their ideals, it is also legitimate for democratic capitalists to dream and to state our ideals. One must compare ideals with ideals, practice with practice.
Some will retort that the real world of democratic capitalism is harsher and more evil than I describe. The question is, By which standards should we judge harshness and evil? In order to judge the practice of democratic capitalism severely but fairly, the first step is to judge it in the light of its own ideals. These must first be stated. They are latent in its own practice; they don%u2019t have to be pulled out of the sky.
To say that democratic capitalism does not meet the ideals of socialism is plainly inadequate. It does not even attempt to do so. It has its own ideals. Whether in practice it achieves, as well, the ideals of socialist and does so better than any extant socialist state - is an empirical question. Someone should assemble the evidence to answer it.
Nor does it suffice to say that democratic capitalism does not measure up to the full standards of Jewish and Christian visions of the Kingdom of God. It does not pretend to do so. No political economy dares to pretend that it measures up to that Kingdom. Yet democratic capitalism does welcome judgment under that Kingdom's clear light: For it is a system designed to be constantly reformed and transformed, and it alone of all known systems has within it resources for transformation through peaceful means.
In the light of its own ideals, criticism of democratic capitalism is both possible and necessary. Undoubtedly, the system has failed its own. ideals, in large ways and in small. It is designed to be a free system within which individuals, interest groups, and moral minorities may try to direct it according to their lights. "Many things," Shakespeare writes in Henry V, "may work contrariously."
Almighty God did not make creation coercive, but designed it as an arena of liberty. Within that arena, God has called for individuals and peoples to live according to His law and inspiration.
Democratic capitalism has been designed to permit them, sinners all, to follow this free pattern. It creates a non coercive society as an arena of liberty, within which individuals and peoples are called to realize, through democratic methods, the vocations to which they believe they are called. Under God, they may expect to meet exact and just judgment.
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