Adam Smithhs Maximizing Prudent Behavior (Minimize Losses) Versus Jeremy Benthamms Maximizing Utility (Money)

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Maximizing Prudent Behavior (practicing the Virtue of Prudence) is what Smith means by the concept of self-interest (caring for one’s self). The primacy of the virtue of Prudence was established by Aristotle based on earlier discussions by Plato. All of the other major founders of different systems of virtue ethics (for example, Confucius or Buddha or Aquinas) have emphasized prudence, since it is not possible to give anything to anyone else if you have not been successful in attaining income or financial resources yourself. There can thus never be any conflict between Self-interest (Prudence) and Benevolence (Beneficence), since these virtues deal with different situations confronted by a follower of virtue ethics at different times in their lives. Applying the virtue of Beneficence can only possibly occur after the practice of prudence has been implemented successfully. There will always be a significant lag in time during which the prudent individual has been successful in attaining financial resources and circumstances occurring which will allow him/her to later practice beneficence. Only after they have successfully attained significant financial resources through prudent behavior will they be in a position to practice benevolence (beneficence). Smith would have considered it obvious that the baker, brewer and butcher had to practice the virtue of prudence first, and be successful, before that could practice the virtue of benevolence (beneficence) second. Bentham’s maximizing utility is strictly concerned with maximizing one’s own utility. Self-interest for Bentham begins and ends with one’s self regarding the acquisition of money. Bentham made it clear that the way to measure utility was in terms of how much money one had gained or lost. Thus, making money is his definition of good and losing money is his definition of bad or evil. This is one of the basic principles that underlies hedonism and egoism. Smith, like Aristotle, Augustine (near the end of his life), and Aquinas rejected egoism, hedonism, and utilitarianism. Supporters of Invisible Hand arguments are basically using Bentham’s argument, not Smith’s. The Invisible Hand argument concerns the belief that self-serving, selfish, individual, micro behavior is magically transformed through the magic of the market place into a macro, optimal, socially beneficial result for all. There is nothing in the Wealth of Nations linking this argument to Smith. Smith, as pointed out repeatedly by Kennedy (2008), would reject any such conclusion linking him to Bentham and/or utilitarianism or any such Invisible Hand argument. There is nothing in The Wealth of Nations supporting such an argument, since it leads directly to the very Benthamite, Laissez Faire position that Bentham simply described that Government should “be quiet” and “stay out of my sunshine”. There is only one economist, whose work I am familiar with, who has been consist and unbending in his conclusion that the term, Invisible Hand, meant very little to Smith. It certainly had nothing to do with his views on micro or macroeconomics. It was a short cut way of allowing Smith to discuss an issue, choosing either the domestic trade or foreign trade, without providing an in-depth explanation of how the merchants choice was related to and reflected a concern with, the questions of the roles of probability, risk aversion, and uncertainty aversion in his mind. Smith might have considered appending a footnote of his earlier discussions on pp.105-113 that dealt with risk, uncertainty, and probability. As pointed out by Kennedy, the great influence of Samuelson’s textbook, Economics, starting in 1948 and continuing in all later editions, has led to a severe misinterpretation of Smith. Samuelson’s erroneous summary of Smith’s Invisible Hand theory has become a standard belief in the economics profession. Exactly how this damaging error can be corrected is completely unclear to me at this time. For over ten years, Kennedy has constantly been engaged in correcting well over 1000 articles and books proclaiming Smith’s Invisible hand theory at his internet site, Adam Smith’s Lost Legacy. I draw the pessimistic conclusion that Smith’s legacy appears to have been lost.