The Nature and Research of National Wealth is the representative work of Adam Smith. As the pioneer of classical economics, Adam Smith put forward a famous conclusion in this book: while pursuing his own interests, everyone will be "guided by an invisible hand to achieve a goal that is not his original intention", which will benefit others and maximize social and economic growth.
We can find countless examples of the above viewpoints in our lives. For example, in order to attract new customers and retain old customers, the tailor shop owner will try his best to make every piece of clothing well. Long-term fruit shops will not sell rotten fruits of poor quality in order to gain the trust of customers. In order to win the competition and gain more profits, pastry manufacturers will consider the quality of products for customers and strive for perfection. In order to maintain a good personal credit record, bank depositors will not deliberately default on various loans and accounts.
In Smith's hypothesis, it seems that everyone is such a "rational person", who knows the righteousness, gains and losses, takes care of priorities and thinks about everything. Smith's thought is also similar to what people usually say, "subjectively for yourself and objectively for others."
The theories of "rational man" and "invisible hand" have influenced human history, especially the world economic history of more than two centuries, which has been recognized by most mainstream western economists, and many of their economic theories are also based on this. In the ideal state of a series of assumptions such as "rational man", a perfectly competitive market economy can lead to the general equilibrium of the economy and the allocation of social resources can also reach the Pareto optimal state. However, when the ideal returns to the ideal, economists are surprised to find that the operation of social economy is mostly in a non-ideal state, and market failure is bound to occur. The reason of market failure is that monopoly, externality, public goods and power lead to incomplete information. Due to the existence of market failure, it is difficult for social economy to reach an ideal market equilibrium state if friction is not considered in solving some physical problems. Because of this, Keynes of Britain later founded the macroeconomic theory, advocating government intervention in the economy and national macro-control. Nevertheless, no one in the economic field can fundamentally refute the hypothesis of "rational man" for the time being.
However, people's understanding of natural and social laws will not stagnate. Johnf nash, an American economist, mathematician and outstanding contributor to game theory, finally discovered and put forward the famous "Nash Equilibrium" in his doctoral thesis in 1950s, and made a mathematical demonstration of it. Examples such as "prisoner's dilemma", both of which belong to Nash equilibrium, fundamentally challenge Adam Smith's view that "individual pursuit of self-interest can promote public interest". "Nash equilibrium" logically proves that individuals' pursuit of their own interests sometimes harms the interests of others and the public. The most obvious example is that shops that repair and replace bicycle tires have the motivation to sprinkle glass fragments or nails on the road without legal and moral constraints. Shops selling glass in troubled times will bribe slingshot manufacturers or the underworld. In this way, the society will not reach the ideal "Pareto optimality". For the seemingly rational behavior of individuals, the result will be judged from the perspective of groups and collectives, which belongs to "irrational" or even absurd ending, and then harms personal interests.
Later, American economist and sociologist Mansell Olson, the founder of public choice school, discovered the dilemma of collective action in 1960s and wrote one of his representative works, The Logic of Collective Action. The dilemma of collective action is actually another expression and extension of Nash equilibrium and prisoner's dilemma.
"Why does the' invisible hand' fail? Why can't the ideal of being subjective to yourself and objective to everyone be realized? It turns out that the result of collective action is public, and all members of the collective can benefit from it, including those who have not shared the cost of collective action. "
So there is a problem, because those members who don't share the cost of collective action can still benefit from collective action, that is, they can get a "free ride" that helps collective efforts or pay, so Olson draws a controversial conclusion: because of the existence of free rides, rational and self-interested individuals generally don't contribute to the struggle for collective interests. The realization of collective action requires preconditions. When the collective is a small group with a small number of people, collective action is more likely to occur; However, as the number of collectives increases and becomes a huge collective, collective action will become difficult. "Because in a large group with a large number of people, it is very difficult to solve the cost sharing of collective action through consultation; Moreover, the more people, the lower the per capita income, the stronger the motivation for hitchhiking, and the harder it is to find hitchhiking behavior. "
"Olson also found that collective action is easy to happen under two specific conditions, one is the asymmetry of collective members, and the other is the existence of selective incentives. The so-called "asymmetry" is the asymmetry of the income of collective members. The more benefits an individual member gets from collective action than other members, the greater his enthusiasm for contributing to collective action. If one of the three monks is a "water ghost" who drinks a lot of water, and the other two seldom drink water, then it is very likely that the "water ghost" monk will bring water to everyone. "Asymmetry" often appears in international collective actions. For example, the Asian financial crisis had a great impact on Japan, so Japan actively funded the establishment of the "Asian Monetary Fund".
From the above challenges to the theory of "rational man" and "invisible hand", economists realize that social and economic development cannot blindly believe in laissez-faire and free competition. The formulation of various economic policies and the operation of social economy are inseparable from the macro-control of the government. However, the "visible hand" of the government's macro-control and supervision is, after all, the hand of man, not the hand of almighty God. People will always have selfish distractions, or be disturbed by temporary emotions, which will make managers make mistakes and lead to improper macro-control or excessive macro-control. This requires the combination of "invisible hand" and "visible hand", with "invisible hand" as the main part, and "visible hand" only plays the role of system design, rule making, reasonable supervision, reducing transaction costs and rational use of monetary policy.
In addition, in the real society, not everyone is self-interested. The bottom of human nature, while containing the root of self-interest, also has the impulse to pursue true knowledge and belief, self-sacrifice and altruism. Adam Smith also wrote "On Moral Sentiments" earlier. Max Weber also analyzed the spiritual condition of western capitalist society in his masterpiece Protestant Ethics and the Spirit of Capitalism. It is believed that "the secular abstinence spirit and reasonable ethical life shown by Protestant ethics have inadvertently promoted the development of economic activities." "The ideal capitalism defined by Weber is strictly limited. It is characterized by reasonable calculation of revenue and expenditure and orderly arrangement of production and business activities, rather than using violent means such as robbery and plunder. " This modern rational capitalist economy, as scholar Yang Xiaokai thinks, needs to be in a group with spiritual beliefs to get a benign operation. For example, in a society with widespread religious or moral beliefs and belief in an afterlife, trafficking is relatively rare, people's behavior has a "bottom line" and the legal system is easier to implement. In such a society, the "invisible hand" plays a greater role, while the "visible hand" can play a relatively small role. Therefore, Adam Smith's theory of "rational man" and "invisible hand" is more suitable for people with faith and a society that stresses rules and integrity.