Chapter 16: Self-interest and Justice in Development, by C.T. Kurien
(C. T. Kurien, an economist and writer, is Professor-Emeritus at the Madras Institute of Development Studies, India.)
Apart from personal friendship, my interactions with K.C. have been through the discussions on development, especially on justice in the context of development. For long justice had a prominence in what the Papal encyclical had referred to as "the development of people". Recently, however, it would appear that questions of justice have been relegated to the background. With the apparent triumph of capitalism over its rival economic arrangements the view is gaining ground that whatever may be the content of development, there is only one route to it and that is growth. Increasingly, the writings of Adam Smith are being evoked to rehabilitate what may be called a "growth first" approach to development. It is also held that according to Adam Smith, it is the self-interest of the individual that results in growth and wealth, and not any organized national effort to achieve them.
In view of these tendencies to go back to the "sources" to justify certain contemporary positions, it may be useful to examine what the early thinking on "development" was, noting, of course, that the term "development" in the sense in which it is currently used is of relatively recent origin. What I propose to do in this short paper, therefore is to take up for consideration Adam Smith’s views on the "development of people" and the role he has assigned to self-interest and justice in it.
It is widely held that Adam Smith was not only the founder of political economy, but that the processes he dealt with in his well-known work An Inquiry into the Nature and Causes of the Wealth of Nations (1776) were those of the unfolding of capitalist development. This is true up to a point. Though Smith himself did not use the expression "capitalist development" he was indeed dealing with the new economic order that was emerging at that time, especially in England, and undoubtedly that order was capitalism. But when it is claimed that Adam Smith was describing (and defending) the capitalist order, what is generally implied is that he was concerned with the accumulation of wealth. The title of his work gives credence to that view. To be sure, Adam Smith was concerned with the wealth of nations, but what is often overlooked is that for him the wealth of nations consisted primarily of the productive performance of people, the ordinary working people, that is. The opening sentence of The Wealth of Nations are: "The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations. According therefore as this produce, or what is purchased with it, bears greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniences for which it has occasion".
How to increase the produce of the people is the central theme of Smith’s great work. The produce of the people will increase when their productivity increases; the productivity of labour is increased through division of labour; the extent of division of labour is determined by the extent to which the produce can be sold; hence it depends on the market, i.e.., the social organization to facilitate exchange which is based on the principle. "give me that which I want, and you shall have this which you want." Productivity also depends on ‘stock’, that is, "a stockpile of food and implements" necessary for workers to do their work. It is this stock which has subsequently come to be referred to as ‘capital’, but in Adam Smith’s thinking it was not abstract value, but specifically designated goods, food and implements made available to those who labour. Smith was also of the view that workers themselves design much of the implements they consider useful. "A great part of the machine made use of in those manufactures in which labour is most subdivided were originally inventions of common workmen" was his considered opinion. He even cited the example of a boy whose task was operating the piston of a fire engine to open and shut a valve alternately, and who found that by tying a string from the handle of the valve to another part of the machine, the valve would open and shut without his assistance, thus freeing him to play with other boys! Smith, however, was not willing to leave the matter to the natural inclinations and institutions of workers. He was convinced that the training of the mind was essential for workers to become creative and productive. In a passage which deserves a great deal of attention in our country, more than two centuries after it was written, he said: "The man whose life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become... In every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people must necessarily fall, unless government takes some pains to prevent it" (The Wealth of Nations Vol. II, pp. 263-64 in Everyman’s Library Edition). That Adam Smith, considered to be the patron saint of the free enterprise system and the laws of the market should have forcefully asked for workers’ education, and that too at the initiative of the government, may come as a surprise to many. More about this later. But it may be noted that Smith advocated education not only to increase productivity and wealth, but also because he recognized that "an instructed and intelligent people. . . are always more decent and orderly than an ignorant and stupid one.
Smith was also concerned that the labouring classes should be properly and adequately rewarded. As in many other issue he supplied a common sense justification for it. After noting that the labouring classes constitute the greater part of society, he said, "What improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy of which the greater part of the members are poor and miserable" (Vol. I p. 70) Apparently, latter day admirers of Adam Smith who put forward the argument that what is important in the development process is that national income must grow, irrespective of what happens to the conditions of the majority of the people are unaware of the position that Smith took on this crucial issue. Indeed, Smith supplemented his common-sense argument with an invocation of the equity principle saying "It is but equity, besides, that they who feed, clothe, and lodge the whole body of people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged" (Vol. I p. 70)
Many more passages can be cited from The Wealth of Nations to show that Adam Smith did not advocate the kind of crude growth mania that is becoming something of a cult today and which also suggests, if not propagates, that growth and equity are not quite compatible. But I move on to a clarification of-another issue which frequently comes up in the contemporary discussion on development, the role of the state. Again, the popular lie, ably assisted by a well-orchestrated misinformation campaign, is that Adam Smith is the founder of the "leave it to the market" doctrine. Sure enough, Adam Smith was opposed to an excessively regulated economic regime that the mercantilists were practicing and, in that sense, was a staunch advocate of exchange, markets and trade. But he did not envisage an economic system in which the hand of the state was totally absent. On the contrary, he set the economic in a larger order in which the state ("the sovereign" in The Wealth of Nations) has a major role including in the economic sphere.
Smith assigned three specific roles to the sovereign. The first was to protect society from the violence and invasion of other societies and the second to protect every member of society from the injustice and oppression of other members. The first, thus may be considered as the military responsibility and the second the judicial responsibility of the sovereign, the state or the public authority. These may appear to be non-economic functions. However, the third responsibility that Smith assigned to the sovereign was unambiguously economic, namely, "that of erecting and maintaining those public institutions and public works, though they may be in the highest degree advantageous to a great society, are, however, of such nature that the profit could never repay the expenses to any individual or small number of individuals, and which is therefore cannot be expected that any individual or small number of individuals should erect or maintain" (Vol.1 pp.210-11). He pointed out that what public institution and public works would become the responsibility of the public authority would differ from time to time. As noted already, he brought education under this category of enterprises advantageous to society as a whole but not profitable to those who might try to organize it. And, of course, public works to provide the infra-structural requirements of the economy would constantly call for intervention by the visible hand of the state.
Against that background we may turn to an assessment of self-interest in economic activities as envisaged by Adam Smith. Among the passages usually invoked from Adam Smith, particularly by those who consider him to be a champion of self-interest, the most familiar is the one that has the reference to the "invisible hand". The passage reads as follows: "As every individual, therefore, endeavours as much as he can both to employ his capital in support of domestic industry, and so to direct that industry that its produce may be of greatest value, every individual necessarily labours to render the annual revenue of society as great as he can. He generally, indeed, neither intend to promote the public interest, nor knows how much he is promoting it. . . . He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote and end which was not part of his intention... By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it" (Vol. I p. 400). Nothing could be clearer than that: by following self-interest individuals promote the public interest, and more effectively than when they make conscious attempts to do so. The view is strengthened by another passage which comes from the earlier sections of The Wealth of Nations. "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 interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages" (Vol. 1 p. 13).
These passages show beyond doubt that self-interest plays a crucial role in Adam Smith’s understanding of economic processes. But, then, why did he recognize a significant and positive role for public authority in the functioning of the economy and why did he advocate reasonable wages and living standards for the workers, instead of leaving these to be determined by the economic processes themselves? It is difficult to find answers to these questions from The Wealth of Nations. We have to turn to other writings of Adam Smith, especially an earlier work of his and what he himself considered to be his most important one, The Theory of Moral Sentiments. This work was first published in 1759. A second, revised edition appeared in 1761. Two more editions appeared before the publication of The Wealth of Nations and a fifth came out in 1781, five years after The Wealth of Nations was published.
It may be recalled that Adam Smith was a professor of moral philosophy. It is legitimate to consider that Moral Sentiments contains the basic social philosophy that informs The Wealth of Nations. Smith was well versed in all systems of (Western) philosophy, but Stoicism, possibly, had the greatest influence on him. It has been suggested that his personal philosophy was probably a combination of Stoicism and the virtue of benevolence which Francis Hutcheson, his predecessor at the University of Glasgow, had demonstrated to be a philosophic version of the Christian ethic of love. There are frequent references in Moral Sentiments to a "divine Being", "the great Director of the universe" , "the all-wise Author of Nature" to obey whose will is considered as the first rule of duty of human beings; even their vices and follies fitted into the grand design of the Author of Nature whose hand always brought about a cosmic harmony. The opening sentences of Moral Sentiments are as follows: "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in very lively manner."(The passages quoted are taken from Adam Smith, Theory of Moral Sentiments, edited and annotated by D.D. Raphael and A.L. Macfie, Clarendon Press. 1976. The above quote is at p. 9.) This principle is sympathy and Smith considered that it was a quality not only of the virtuous and humane, but "of ruffians and the most hardened violator of the laws of society". Moral Sentiments shows also what for Smith was the principle that could be considered as the foundation of society, "Society may subsist," he wrote, "though not in the most comfortable state without beneficence, but the prevalence of injustice must utterly destroy it . . . (beneficence) is the ornament which embellishes, not the foundation that supports the building . . . Justice upholds the edifice. If it is removed, the great, the immense fabric of society. . . must in a moment crumble into atoms" (p. 86).
In Moral Sentiments self-interest is situated within such a larger system of virtues consisting of sympathy, benevolence and justice. In such a system the role assigned to self-interest bears close resemblance to duty or ambition. "We would despise a prince who was not anxious about conquering or defending a province. We should have little respect for a private gentleman who did not exert himself to gain an estate, or even a considerable office, when he could acquire them without either meanness or injustice. A Member of Parliament who shows no keenness about his own election, is abandoned by his friends, as altogether unworthy of their attachment. Even a tradesman is thought a poor-spirited fellow among his neighbours, who does not bestir himself to get what they call an extraordinary job, or some uncommon advantage" (p. 173).
In this short account I have tried to elucidate Adam Smith’s views on self-interest and justice in the economic sphere not to suggest that he can be relied upon to guide the contemporary quiet for the development of people. Its limited purpose is to correct the notion which is gaining currency of late that the gospel according to Smith is that the economy is a realm where self-interest reigns supreme and that considerations of justice are extraneous to it. On the contrary, it is quite legitimate to say that for Smith the economic order is part of a larger social order in which there is a prominent role for the public authority and that social order itself is situated in a moral order where sympathy and justice are the cardinal principles. Our Constitution reflects the same principle when it exhorts the state to "promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of national life". But, of course, principles alone are not enough to ensure that the development of people takes place along the right lines. Only an appropriate institutional milieu and carefully worked out policy measures will succeed in combining and balancing self-interest and justice in development. It is very much a contextual task.