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Adam Smith: Self-Interest
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The ‘invisible hand’ for which Smith is famous first appears as a phrase in an essay he wrote on the history of astronomy. It recurs in The Theory of Moral Sentiments at iv. 1. 11. In spite of their insatiable greed and rapacity, the rich are unable actually to consume much more than anyone else, and so are led by the 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’. In The Wealth of Nations the emphasis is less on equal distribution and more on the promotion of the common good that arises from the pursuit of self-interest (see ... Mandeville).
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At the same time, Smith had a benign view of self-interest. He denied the view that self-love "was a principle which could never be virtuous in any degree." Smith argued that life would be tough if our "affections, which, by the very nature of our being, ought frequently to influence our conduct, could upon no occasion appear virtuous, or deserve esteem and commendation from anybody."
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Smith laid the intellectual framework that explained the free market and still holds true today. He is most often recognized for the expression "the invisible hand," which he used to demonstrate how self-interest guides the most efficient use of resources in a nation's economy, with public welfare coming as a by-product. To underscore his laissez-faire convictions, Smith argued that state and personal efforts, to promote social good are ineffectual compared to unbridled market forces.
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ADAM SMITH cannot be said to have constructed the capitalist system. What he did was provide the logic of a level ground of economic rights upon which free enterprise could be built more easily. And he suggested to the builders that they use the wheelbarrow of free trade, the plumb bob of self-interest, and all the specialised tools of specialisation.
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Smith's argument that the pursuit of self-interest can lead to a socially efficient outcome is the crowning glory of the Wealth of Nations. (Even though Cantillon had set out these ideas before Smith, a lot of the credit has traditionally been—and continues to be—given to Smith.)
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Self-Interest