Economics is About Selflessness

If you walk down the street and ask any random person what they know about economics, I’d be willing to bet you’d get two potential responses: 1) supply and demand, and 2) people are self-interested. Both these responses are generally accurate, but a bit simplistic. To describe the former would require a 700+ page book. So, let me focus on the latter.

In economic models, people are assumed to be self-interested, which simply means that they are trying to improve their lot in life with the resources available to them. If people are motivated by this self-interest (which does not imply a lack of altruism), does this mean that economics is driven by self-interest? Absolutely not; our science indicates otherwise: economic behavior is driven by selflessness.

In order to get a voluntary exchange, both parties need to benefit. This means asking the question “what can I do for the other person?” It is true that the butcher is not benevolent enough to just give us our dinner; we must seek to give him something in return. Thus, we need to know what he wants in return and give it to him.

Free markets are often sold as being a meritocracy, but this is something of a misnomer. The confusion of this term comes up from time to time, especially when trying to examine wage gaps: “Person X is very good at Y. Why does he make less than Person Z who is doing Y’ “? In a free market, the person who earns the highest is not necessarily the person who is the absolute best at doing something, but the person who is best at providing what other people want. Jim may be the best salesman this side of the Mississippi, but if he’s selling encyclopedias door-to-door, we will likely earn less than middling salesman Jack who is selling high-end computers. The merit is based on who best serves others, not who is best.

The interesting implication of this is that markets inadvertently promote virtuous behavior. By encouraging and rewarding selflessness, markets foster virtues like justice and selflessness. This, to me, is a major insight of Adam Smith and liberal economics: the “invisible hand” promotes not just opulence but also virtue. It is a mistake to focus, as some economists do, on the edifice of self-interest; that is merely the beginning, not the end.

Along these same lines, I strongly recommend this article by Sam Fleischacker: “Economics and the Ordinary Person; Re-Reading Adam Smith.”