Explain the Importance of Self-Interest in Smith's Economics. How Is It Related to the Wealth of a Nation?

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Matthew Thomas
Explain the importance of self-interest in Smith's economics. How is it related to the wealth of a nation? In order to answer this question we must first be very careful what is meant by self-interest. Smith was primarily a moral philosopher and concerned himself with drawing from history the patterns implicit to human nature. In The Theory of Moral Sentiments (Smith, 1759) Smith discusses in detail the conclusions he has drawn from this analysis concerning the framework for peoples moral judgements. Within this work a clear line of thought is developed: the sole aim of the individual is betterment of oneself taking into account how this betterment and the means to which this betterment is procured may be viewed by spectators. In what follows I will endeavour to explain further what is meant by this view of self-interest and the relative importance of this view in his latter publication An Inquiry into the Nature and Causes of the Wealth of Nations (Smith, 1776). An individual in every situation can only know for sure his thoughts regarding his own situation that are based on his own subjective experience. It follows that on observing other peoples situation in terms of wealth or poverty the individual regards its relative good or bad only in respect to what he expects to feel if he were to be placed in that position. Smith goes on to suggest that “It is because mankind are disposed to sympathize more entirely with our joy than with our sorrow, that we make parade of our riches, and conceal our poverty” (Smith, TMS, 1759, p106). So on observing the wealth held by a rich man, we see only the means to a greater utility if we ourselves were to be placed in that favourable position. We think rarely of the happiness the individual in question draws from this wealth, instead it appeals to our vanity precisely because we know that others would look upon us in a similar manner if we were in that position. Smith argues that from this comes ambition for...
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