The pursuit of self-interest. Sounds like a harmless phrase, right? And yet no matter of modern political economy is more subject to controversy than the moral status of this motive force. What should we make of it?

In my business ethics classes, I tell A Tale of the Two Shirts, an allegory of sorts for the ethics of self-interest and its evolution over the past few hundred years. To set the stage, I take my students back to the 18th century, to the dispute that most inflamed the earliest days of capitalism: whether to embrace commercial self-interest at all.

An infamous fable

Long before paeans to self-interest were a mainstay of microeconomics classes, the instinct was strictly frowned upon. To declare that a zeal for one’s personal affairs should be the spur to a thriving society was to effectively announce that one was wicked and insane. Wicked, because the notion that an individual should be guided by what is best for himself rather than the people around him smacked of the devil’s business. Insane, because the idea that a community propelled by such an instinct wouldn’t soon collapse into chaos was so entirely counterintuitive as to be ridiculous on its face. If, as the philosopher Thomas Hobbes maintained, a world ungoverned by the iron fist of some central authority soon gave way to a war of all against all, private pursuits were a luxury no society could afford.

Insofar as Hobbes’s assumption was a commonplace of the world in which Adam Smith came of age, a supreme accomplishment of Smith’s The Wealth of Nations was the presentation of a sustained scientific argument for how a civilized society might be organized without the visible hand of the crown planning every commercial enterprise. Yes, in the land of laissez-faire, not every expression of self-interest would be honored—the laws would still prohibit the proclivities of pickpockets and confidence men—but Smith provided a credible vision for an economy in which the private interests of most commercial actors could be pursued without coordination or preclearance.

But what about the wicked part? It is one thing to say that it is possible to build a stable society upon the bedrock of self-interest, but morally speaking, is it desirable?

This was a thornier problem for Smith. He not only had to confront the moral sensibilities of the age, but he also had to contend with a mischievous spirit who had tackled the matter before him.

If largely forgotten by history, Bernard Mandeville was one of the most consequential figures of the generation of intellectuals who preceded Adam Smith. A Hollander by birth, an Englishman by choice, and a physician by training, he is mainly remembered for “The Grumbling Hive,” a satirical poem published anonymously in 1705. The sixpenny pamphlet grew into a book, The Fable of the Bees, that eventually came to include two essays, a commentary, and 20 “remarks.”

In 1724, the year Smith was born, Mandeville further added a “Vindication,” wherein he replied to the feisty chorus of critics who seemed to multiply with every new edition. Given that the original poem was little more than a caustic reel of unremarkable verse, what triggered so many readers? Like all great satirists, Mandeville laid bare an inconvenient truth about how the world actually worked, one that implicated his audience as the beneficiaries of an impossible choice.

The poem tells the story of a thriving beehive that, to 18th-century readers, looked suspiciously like Paris, Amsterdam, London, or any one of the most affluent urban centers in Europe. Were you to have asked these readers what made for such a bounty, they would have said it was the visible evidence of virtuous behavior. God blessed those who lived and worked in accordance with his laws, with the result that a City of God was also a City of Gold.

But not according to Bernard Mandeville. His “Grumbling Hive” was an orgy of villainy that didn’t merely include those who had affirmatively chosen a life of crime:

These were call’d Knaves; but, bar the Name,
The grave Industrious were the Same.
All Trades and Places knew some Cheat,
No Calling was without Deceit.

Soldiers, lawyers, doctors, tradesmen, merchants, even clergy—all career pursuits were motivated by vice. Indeed, for Mandeville, what it meant to be a member of his beehive, or, for that matter, a member of the human race, was that one would always be most urgently moved by baser passions: greed, envy, vanity, pride, and, of course, selfishness.

And yet, importantly, the hive flourished, not despite these motives, but precisely because of them:

Thus Vice nurs’d Ingenuity,
Which join’d with Time; and Industry
Had carry’d Life’s Conveniences,
Its real Pleasures, Comforts, Ease,
To such a Height, the very Poor
Liv’d better than the Rich before;
And nothing could be added more:

This made for Mandeville’s most provocative thesis in addition to the book’s subtitle: Private Vices, Publick Benefits. There was an inverse relationship between ethics and economic development. You could have luxury and vice, or you could have virtue and simplicity—but to have at once strong moral character and the accoutrements of affluence, this was nothing more than “a vain / Eutopia seated in the Brain.”

A second take

One can understand why Adam Smith found Bernard Mandeville’s Fable so unsettling. Its abiding message boiled down to Greed Is Good or, more charitably, Greed Is Better than Great Poverty.

Contrary to what is often assumed by apologists and adversaries alike, this is not the moral of The Wealth of Nations, but it fell to Smith’s first work, The Theory of Moral Sentiments, to distance his vision of human motivation from his rival’s. As Smith famously contended:

Dr Mandeville considers whatever is done from a sense of propriety, from a regard to what is commendable and praise-worthy, as being done from a love of praise and commendation. Man, he observes, is naturally much more interested in his own happiness than in that of others, and it is impossible that in his heart he can ever really prefer their prosperity to his own. Whenever he appears to do so, we may be assured that he imposes upon us, and that he is then acting from the same selfish motives as at all other times.

In other words, according to Mandeville (après Smith), humans always and everywhere act only on their own behalf, and to portray them in a more altruistic light, much less to predicate an entire economic system on such motives, is to confuse the foolish aspirations of a “vain Eutopia” for the harsh realities of the human condition.

Bluntly stated, humans are, and always will be, self-interested creatures. Period.

Fair enough, but does that also mean humans are, and always will be, selfish? It is one thing to say that human beings will inevitably do what they want to do—a fairly unremarkable observation that often passes for revelatory insight—but are the things that humans want to do themselves always the stuff of selfish behavior?

Smith didn’t think so. To say that some act is self-interested is merely to define a motive. (I am doing something to benefit myself rather than to benefit others.) But to further say that the act is selfish is to render a moral judgment. (In crude terms, that it is a bad act rather than a good one.) Accordingly, if every action we take without a gun to our heads is effectively selfish, as Smith accuses Mandeville of contending, it follows that any voluntary act is an act of selfishness.

That there won’t be universal assent on the fine line between laudable self-interest and outright selfishness is not a matter that bothered Smith.

To Smith, this suggestion is not merely absurd, but it also makes a mockery of the extraordinary amount of time we all spend debating what exactly our interests should be.

When you try to convince a friend to stop smoking, go to church, or finish a college degree, you are basically saying that she should be motivated by better interests than those that currently guide her. We do this directly in the recommendations we provide others, but more often implicitly in the approval or disapproval we show for the choices they make. For instance, if a friend says he intends to lose weight because diabetes runs in his family, most of us would respond approvingly. (That’s wonderful news! Tell me how I can help.) It would be less strange than strangely sadistic to declare that such a choice is clearly the mark of someone acting out of a sense of selfishness.

And yet, it is still the case that, when we choose to lose weight to improve our health, we do so principally for ourselves, even if others are pleased or even relieved by the decision. For Mandeville, that fact is enough to render the choice morally suspect, but Smith contends that almost no one honestly believes this. Instead, we recognize that not all self-interested pursuits are created equal. Some are clearly better than others, and indeed so much of the project of leading a moral life is trying to determine which interests are worthy of our approval and, therefore, should guide us.

A tale of the two shirts

Debates over the interests that ought to guide us are all well and good, but what is the connection between them and the economic project that Adam Smith is best known for? The answer is in how these interests play out in the material world of the marketplace.

Again, Smith calls out Mandeville’s absolutism. “It is the great fallacy of Dr. Mandeville’s book to represent every passion as wholly vicious, which is so in any degree and in any direction,” he wrote. Thus, any desire for pleasure or ease that “falls short of the most ascetic abstinence” is a “gross luxury and sensuality” such that, for Mandeville, “there is vice even in the use of a clean shirt, or of a convenient habitation.”

This is a novel conclusion, Smith thought, and, like a snake charmer, it may enchant us if we stare long enough at it, but if we take a step back, it seems a little ridiculous. I mean, quite honestly, does anyone really think there is anything objectionable in the desire for a clean shirt?

Each year, I present this question to my students, asking them by a show of hands to indicate whether they think the desire for a clean shirt is selfish. It won’t come as a surprise to hear that, at Chicago Booth, there are almost no disciples of Bernard Mandeville.

Having taken note of their verdict, I step to my right and ask if the desire for one new shirt a year from Walmart strikes them as selfish. Again, few takers. I step to my right again and propose three new shirts a year. Maybe a hand or two. Then, right again, how about a $450 Sea Island cotton shirt from Ermenegildo Zegna? Now we have some hands. How about three of these shirts? More hands. 10 shirts? 20?

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And on and on until, at the far end of the room, I ask them about the desire for a gold-spun shirt with ruby buttons for $250,000. By now, every hand is up—or nearly every hand, but we’ll return to the holdouts later.

Why do people put their hands up? That’s a complicated matter. For some, there comes a point when purchasing so many shirts seems an unappealing exercise in vanity. For others, if a little luxury indulgence is tolerable, too much is evidence of poor priorities and personal budgeting. For still others, a dollar spent on excess shirts is a dollar that might have gone to feed, shelter, or clothe the poor and vulnerable.

That there won’t be universal assent on the fine line between laudable self-interest and outright selfishness, or on the precise reason for flipping between them, is not a matter that bothered Smith. The key for him was that Bernard Mandeville is wrong when he says your desire for a clean shirt is selfish. When someone holds that anytime we think about our own needs, however modest they might be, we should feel embarrassed, that sentiment is at odds with the visceral wisdom of common sense. At the same time, it effectively shuts down any discussion of how we should lead our lives and the choices we might make individually and in common.

Which is another way of saying, it shuts down any debate about ethics.

As I said, Mandeville’s clean-shirt standard finds few adherents in my classes, but what about the holdouts at the other end of the spectrum, those unwilling to say that the desire for the gold-spun shirt strikes them in any way as outrageous? Personalizing the choice tends to change a few minds: Would you really be indifferent if your buddy blew a quarter-million dollars on a ridiculous shirt? But most of the time, resistance remains. What should we make of it?

Perhaps there are some people who sincerely see nothing wrong with the desire for a gold-spun shirt. But whenever I confront such students, I am reminded of the most famous (and famously misunderstood) quote from Adam Smith’s close friend, the philosopher David Hume: “Reason is, and ought only to be the slave of the passions, and can never pretend to any other office than to serve and obey.” What Hume meant by this is not that we should be slaves to our every desire, but, rather, that when we strive to override our sentimental understanding of the world—the feelings of like and dislike that form the basis of our moral, political, and aesthetic opinions—we risk becoming slaves to some ideological disposition.

In their own impassioned desire to defend free markets, proponents of capitalism will sometimes go to such great lengths arguing for the necessity of self-interest that they convince themselves of the wisdom of a reverse Mandevillianism and, therein, the warrant of the gold-spun shirt. Rather than any act of self-interest being morally suspect, all may be countenanced. Never say a word against greed, vanity, or selfishness (so the thinking goes) lest you begin paving the road to serfdom.

The problem is not only that this requires positions no one is actually comfortable with—do you really have no objection to the thief pursuing his self-interest when he snatches your wallet? It’s also that it warps the reasoning mind and robs capitalism of precisely the kinds of debates that Adam Smith thought were vital to the system’s success. If Mandeville was right, if capitalism is merely a system where private vices yield public benefits, it may endure for a time—to keep the wolf of poverty at bay, one will gladly sacrifice some scruples. But we will never be more than ambivalent about the system, and, more to the point, we will always be on the lookout for a safe opportunity to abandon it.

For Smith, rather than imperiling capitalism, debates about the worthiness of various interests, the ways they might be pursued, and the trade-offs between them were essential to the resilience of a free enterprise system. They strengthened the reflexes of personal responsibility and self-regulation that relieved the king—or, for that matter, a queen bee—of enlightened intervention. The hive of commerce would keep buzzing, but only if the participants could pursue their interests without constant fear of being stung.

John Paul Rollert is adjunct associate professor of behavioral science at Chicago Booth.

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