Self-Interest Implies Self-Governance but Does Not Guarantee It

self-interest social coordination self interest self governance self command

Michael Munger for AdamSmithWorks

[S]ociety cannot subsist unless the laws of justice are (mostly) observed as a matter of convention, so that everyone knows that everyone knows how to act, and will act justly, without being forced to do so. An orderly and flourishing society is “agreeable,” just for its own sake, and because of our self-interest in being a member of such a society. We take pleasure at observing this order, and this flourishing.

January 10, 2024

In The Theory of Moral Sentiments, Adam Smith showed what is necessary for a society to function, the minimum requirements that would enable strangers to coexist and cooperate. Many of the current difficulties in so-called “advanced” societies are the product of forgetting Smith’s insights. The central insight, the one on which everything else hangs, is the fact that it is in our self-interest to govern our selfishness, and observe moral norms.

In Part II, Chapter 3, of Theory of Moral Sentiments Smith notes the necessity that people--who, after all, “can subsist only in society”—must coordinate their actions and divergent expectations. In personal and family relations, this coordination properly depends on assistance that “is reciprocally afforded from love, from gratitude, from friendship, and esteem” (emphasis added). Smith argues that such a “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.”

Fair enough. Love, personal beneficence, and family connections all matter. That’s the first condition. But Smith’s goal in Theory of Moral Sentiments is the elucidation of a system of propriety and self-governance that substitutes for love, affection, and personal connections. In other words, even at this early stage—well before An Inquiry into the Nature and Causes of the Wealth of Nations (Wealth of Nations), and a focus on division of labor, in 1776—Smith was groping toward understanding how a social system could operate at scale, and at a distance. Rejecting the attachments of romantics such as Jean-Jacques Rousseau to small scale and low levels of wealth, Smith was embracing the benefits of universal “opulence” while recognizing the challenges posed by commercial society.

Smith writes:

“[Even if] 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 still be upheld by a mercenary exchange of good offices according to an agreed valuation.”

Smith lacked the modern concepts of “incentive compatibility” and “self-enforcing equilibrium,” but that is what he was reaching for here. The simile, “as among different merchants,” is an illustration that each of us obeys the rules because we know those are the rules, and we would face disapproval from those on whom we depend if we violate those rules. Further, we depend on others to follow those same rules, because that is the foundation for our own expectations about how to conduct our affairs. That’s the second, more realistic condition, which allows societies to operate at scale.

The severity of the problem is limned by Smith’s third social condition, the societal disaster that attends the collapse of propriety and self-governance as means of coordinating expectations. If custom and manners fail, and if people stop caring about the disapproval invited by violating social norms, then each of us can do literally anything that we can get away with. Formal rules and legal sanctions alone fail to exercise effective sovereignty over society. Interestingly, exactly this criticism has been made recently by scholars on the right; Patrick Deneen, for example has claimed that:

“Liberalism … is understood to be the greatest possible freedom from external constraints, including customary norms. The only limitation on Liberty, in this view, should be duly enacted laws consistent with maintaining order of otherwise unfettered individuals.” (Deneen, 2018, The Failure of Liberalism)

My first reaction, on reading Deneen’s characterization of what he calls “liberalism,” was that he simply has the definition wrong. But he has a point, in the sense that liberalism in the absence of a system of propriety and self-governance is a disaster.

The “middle kingdom” (to use Lord Moulton’s phrase) of obedience to rules that are not formally enforced has to be preserved. If the only limitations on liberty are the formal laws, society collapses into Smith’s third, dysfunctional condition. Self-governance and propriety are required, and must be nurtured. As Smith puts it:

“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 bands 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… Beneficence, therefore, is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it.” (Emphasis added.)

To be clear, then, the three sets of constraints that Smith lays out are as follows:

First, the love and beneficence that binds friends and family. These are indispensable, but can only operate locally, and at small scale.
Second, the rules of propriety and correct action, ranging all the way from manners to laws written down in statute books. These rules, many of them unwritten (as I wrote here) and even unspoken, can—if they are shared—coordinate expectations and actions at large scale. General, abstractly enforced, but unwritten rules enable a society to function even if personal connections are absent from most of the nodes of contact and cooperation.
Third, if the system of informal norms and the sense of proper duties of obedience to formal rules collapses, then the only constraints on behavior are the police, and the explicit threat of punishment by the courts. If the only enforcement mechanism is formal enforcement, of written rules, then the rules no longer provide a scaffolding that allows for the coordination of expectations and actions.

One of the best interpreters of Smith, the late Walter Williams of George Mason University, had an illustration of the importance of a system that economized on the need for that scarce resource, “love.” As Williams put it:

[It is] wonderful that Texas cattle ranchers make the sacrifices of time and effort caring for steer so that New Yorkers can have beef on their supermarket shelves. It is also wonderful that Idaho potato growers arise early to do back-breaking work in the hot sun to ensure that New Yorkers have potatoes on their supermarket shelves.[But] is there anyone who believes that ranchers and potato growers, who make these sacrifices, do so because they care about New Yorkers? They might hate New Yorkers. New Yorkers have beef and potatoes because Texas cattle ranchers and Idaho potato growers care about themselves and they want more for themselves. How much steak and potatoes would New Yorkers have if it all depended on human love and kindness? I would feel sorry for New Yorkers. Reasoning this way bothers some people because they are more concerned with the motives behind a set of actions rather than the results. (Emphasis added.)

Of course, Williams was referring to the role of self-interest in commercial society from Wealth of Nations, but the insight connects back to the system of self-governance Smith laid out in The Theory of Moral Sentiments. An example will illustrate the connection.

An Example

Suppose Gus walks into a Brooklyn bodega. He might think about stealing a $10 bag of beef jerky. But the owners, Marisol and Vicente, are Gus’s cousins! So theft would never even enter his mind. Who would steal from their family? That’s the first, and most effective, level of enforcement: we trust others in our immediate circle of family and close friends.

Take the second condition. A different Gus (now, an out-of-towner from Iowa) enters a bodega in Brooklyn, and hears two people (apparently the owners?) talking in Spanish. Gus has never been in this shop before, and likely will never enter it again. The discussion behind the counter is quite animated, occupying Marisol and Vicente’s entire attention, and Gus could easily pocket the beef jerky without being noticed. But it doesn’t occur to him to do so, because it’s wrong to steal. Marisol and Vicente do not worry much about people stealing merchandise, because they are honest themselves and believe that others are honest. There is occasional shoplifting, of course, but by and large the owners’ trust in customers is vindicated by the fact that people want to be trusted, and as a result people are trustworthy, even if they don’t know each other.

It is the third condition that is problematic. Imagine that Gus visitsthat bodega in Brooklyn, but it’s now a scene from a Batman movie where social order in Gotham City has collapsed He enters the store, his hoodie hiding his eyes and casting his face in deep shadow. Everything in the store that costs more than $1 is behind the counter, and the counter itself is encased by thick, bullet-proof plastic. The man and woman inside the fortified redoubt eye Gus suspiciously, and he gives them a sidelong glance, glittering with contempt.

The beef jerky he wants to steal is behind the counter, so Gus settles for grabbing a handful of candy bars and makes a break for the door. The owners call the police, but the cops are responding to a dozen other crime calls that all involve more damage than a few candy bars. Gus escapes, as both he and the store owners expected he would, because the formal rules by themselves are unenforceable. The store, unable to support both the increased cost of rampant theft and the loss of business from having everything behind glass, soon closes in bankruptcy. There are no stores anymore, no way to buy things that people need, and no jobs for local people who need income.

Smith’s Contribution: Societies Can Thrive in Condition Two

The example illustrates just how the theory of propriety in Theory of Moral Sentiments underpins the theory of commercial self-interest in Wealth of Nations. Walter Williams is right, of course, that it is the pursuit of making a living for Texans that sends beef, and a living for Idahoans that sends potatoes, to New York City. But it is also a kind of self-interest that protects the norms and folkways of commerce, which in turn allow people to transact and cooperate without constant and intrusive formal oversight by law enforcement. The system is largely self-governing, as long as each of us cares about acting well, and deserving the respect and admiration of those around us. As Smith argues in Theory of Moral Sentiments, Part III, Chapter 5:

What is agreeable to our moral faculties, is fit, and right, and proper to be done; the contrary, wrong, unfit, and improper. The sentiments which they approve of are graceful and becoming; the contrary, ungraceful and unbecoming. The very words, right, wrong, fit, improper, graceful, unbecoming, mean only what pleases or displeases those faculties.[T]hese, therefore, were plainly intended to be the governing principles of human nature… They have a much greater resemblance to what are properly called laws, those general rules which the sovereign lays down to direct the conduct of his subjects. Like them they are rules to direct the free actions of men: they are prescribed most surely by a lawful superior, and are attended too with the sanction of rewards and punishments. Those vicegerents of God within us never fail to punish the violation of them by the torments of inward shame and self-condemnation; and, on the contrary, always reward obedience with tranquility of mind, with contentment, and self-satisfaction…[B]y acting according to the dictates of our moral faculties, we necessarily pursue the most effectual means for promoting the happiness of mankind.

But why? Why would we obey the rules, if those rules are not being enforced? The answer cannot be that we obey the rules against theft, and the rules dictating good manners, only out of fear of punishment, any more than it is a warm sentiment of beneficence and the common good. Rather, the motives have to be internal, so that we govern ourselves. Smith’s answer is interesting, and powerful:

…It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct…. It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters.

In other words, it is not benevolence, but a more fundamental kind of self-interest, that enables us to solve the complex problem of coordinating impersonal cooperation at enormous scale. In Section II, Chapter 3 of Theory of Moral Sentiments Smith puts together the pieces of his argument. It goes like this: society cannot subsist unless the laws of justice are (mostly) observed as a matter of convention, so that everyone knows that everyone knows how to act, and will act justly, without being forced to do so. An orderly and flourishing society is “agreeable,” just for its own sake, and because of our self-interest in being a member of such a society. We take pleasure at observing this order, and this flourishing.

That is in fact Smith’s central point, presaging his later claim that "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 interests.” In this case, people are not actually motivated by a concern for society, but rather by a concern for an individual: themselves. Yet concern for right action by the self redounds to the benefit of the larger society, even if the individual has no intention of providing such a public benefit. Smith concludes Chapter 3 this way:

That it is not a regard to the preservation of society, which originally interests us in the punishment of crimes committed against individuals, may be demonstrated by many obvious considerations. The concern which we take in the fortune and happiness of individuals does not, in common cases, arise from that which we take in the fortune and happiness of society... [Further, our concern] does not necessarily include in it any degree of those exquisite sentiments which are commonly called love, esteem, and affection, and by which we distinguish our particular friends and acquaintances. The concern which is requisite for this, is no more than the general fellow-feeling which we have with every man merely because he is our fellow-creature. (Section II, Chapter 3; Emphasis added.)

But the system is fragile, precisely because it rests on self-interest motivating self-governance. Precisely because our desire for self-governance derives from our concern for “a stronger love, a more powerful affection,” the “superiority of our own characters,” there is no overarching mechanism for motivating concern for the system as a whole. Again, Smith seems prescient, in noting that society can survive well by economizing on the need for beneficence, but the collapse of self-governance and the immanence of injustice must “utterly destroy” the civilization those norms once supported.

Recommended Readings on Themes Raised Here

Patrick Deneen, The Failure of Liberalism. Yale University Press.
James Otteson, Adam Smith’s Marketplace of Life. Cambridge University Press.
Adam Smith, The Theory of Moral Sentiments.
Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations.