The Role of Self interest in the Market
Introduction
The term market is defined as a place where business transactions are carried out, that is a place where goods and services are sold and bought. Market is practically important to each of us since this is where we get what we need for survival. Markets give consumers the freedom to choose goods and services that fully satisfy their desires. Adam Smith, a Scottish philosopher discusses the role of self interest in the market, in his great book, The Wealth of Nations, first published in 1776. Some of the roles of self interest in market are discussed below as Adam argues in his book.
Briefly, Smith defines the term self-interest as the action of seeking one’s personal gain. Most of the economic activities we see around are the outcomes of self- interests. He says, “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 self-interest” (Smith, 2019). This means that as the baker serves his own interests, he produces a very valuable product to other people. Thus, the magic of free market economy is that self- interest results into behaviors and actions that benefit other people.
Self- interest encourages competition. Since other self-interested people are competing in a marketing place, your self-interest is held in check and it serves as a source of motivation as well. For instance, as a business person, the only way one would be able to harvest more is through production of better, high quality, cheaper and more convenient products than those produced by the competitors within your niche (James & Rassekh, 2000). Smith therefore claims that competition serves a powerful regulator which is more powerful than any governmental regulation, as it restrains one’s ability to take advantage of their customers.
Furthermore, productivity is driven by division of labor and specialization, where workers are assigned roles and activities according to their areas of specialization (Wight, 2005). Adam relates that when we divide up a task and one takes on a specialized role, and in line with one’s self- interest, we can become more productive than if we were otherwise (Shamir, 2008). In case of a factory, Smith argues that there would be a lot of time wastage if every individual had to do all the tasks involved in the production of the final product. He claims that one should be allowed to work in fields of their specialization. Smith’s insight, then, is that a vibrant market results in great social wealth because it makes use of the natural drive that each individual has to make a good living.
Conclusion
It is always important to understand and appreciate the existence of market and ethical justification for the market, as well as to gain the understanding of the world of commerce. In his book, The Wealth of Nations, Adam provided the insights into the ethical importance of self-interest in the market and economy. Self-interest is known to be the catalyst of economic activity as it instills the spirit of motivation and competition in the market. Smith encourages that any business person should be self-interested and motivated and don’t be afraid to spend funds on what one wants.
References
James, H. S., & Rassekh, F. (2000). Smith, Friedman, and self-interest in ethical society. Business Ethics Quarterly, 10(3), 659-674.
Shamir, R. (2008). The age of responsibilization: On market-embedded morality. Economy and society, 37(1), 1-19.
Smith, A. (2019). The wealth of nations. Courier Dover Publications.
Wight, J. B. (2005). Adam Smith and greed. Journal of Private Enterprise, 21(1), 46.