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3. Self-Interest
- University of Michigan Press
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CHAPTER 3 Self-Interest All contradictions may be found in me. . . . I have nothing to say about myself absolutely, simply and solidly without confusion and without mixture. —montaigne A fundamental assumption of economics is that the dominant drive in individuals is a rational striving to maximize self-interest. This behavior is in essence a constant in all human nature: it is inherited in our genes and is a characteristic of the human biogram. “It makes possible the mathematical modeling of economic problems” (Samuelson 1947, 21). Theoretical structures, rigorously worked out and using this assumption as axiomatic, ‹ll the economic journals and innumerable texts Self-interest is de‹ned in the Oxford English Dictionary as “Regard to, or pursuit of, one’s own welfare esp. to the exclusion of regard for others.” It is equivalent to sel‹shness; which is de‹ned as “regard for one’s own interest or happiness to the disregard of the well-being of others.” Bluntly, as Robert Solow puts it, this canonical hypothesis is greed. As long as self-interest is not adulterated with regard for others, it is not fuzzy, blurry, or unreliable and thus can be a ‹rm basis for mathematical modeling. Many conventional economists hold the autistic position that it is heresy to hold that the major function of economics should be to explain human economic behavior and that this behavior may not be consistent with this rational maximizing assumption (Stiglitz 1983, 999). When pressed, some economic theorists may assert that of course they know that this assumption is an unrealistic, narrow view of human nature. It is only chosen for analytical convenience. The latter statement is obviously true. But does that justify erecting a theoretical structure or model on the assumption, forgetting to mention at the end that the model cannot be taken as a realistic guide to the actual world? In fact, self-interest is not a simple concept. Analyzed, it turns out to be a second-order desire. We have desires for various commodities—food, 22 clothing, cars; and states of affairs—for good health, for respect. These are all primary desires. It is in our self-interest, for example, to eat when we are hungry. When you eat, you are satisfying your primary desire—to alleviate your hunger—so it is in your self-interest to satisfy a ‹rst-order desire, hunger for food. That is, self-interest is a second-order desire whose object is to satisfy a primary desire. Self-interest has as its goal the satisfaction of those ‹rst-order desires that affect us directly. And, as we shall see in the discussion, some ‹rst-order desires are for things quite distinct from oneself (Nagel 1995, 220–21) As human beings in society and the economy, we are concerned with what people do and how they do it. It is not always necessary to know why people do what they do. The what and the how can be determined from observation, but the why is much more dif‹cult or even impossible to ascertain. William James drew a distinction between the I and the Me. The Me is the object of all of one’s sel‹sh concerns; the I is the ultimate thinker, which decides on actions. The I can make decisions directed toward bene‹ting the Me, or it can make decisions that will bene‹t others or even harm the Me. But this is counter to the economics assumption that every individual, that the I, always acts on the basis of self-interest—that it always acts to bene‹t the Me. One of the great philosophical questions is whether or not human beings have free will. The economics assumption implies that humans do not. If in every circumstance the path of self-interest is always and inevitably chosen, then, you have no freedom of choice or free will. To have free will, you have to be able to choose. People are capable of forming and choosing among second-order desires. You can decide whether you want to choose the path of self-interest or some other course. Your I can decide what kind of person you want to be. In the words of William James, “A life is manly, stoical, moral, or philosophical, . . . in proportion as it is less swayed by paltry personal considerations and more by objective ends that call for energy, even though that energy bring personal loss and pain” (1902, 48). Sometimes, as a last resort, the conventional...