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Compassion and empathy encompassing all beings seems to be the Buddhist ideal. How do Buddhists reconcile this today with Adam Smith's invisible hand? I.e., the idea that following our self-interest will lead to the best (economic) results? Was Buddha wrong or was Smith wrong?

Note: It is clear that self-interest and the invisible hand are qualified and moderated in today's capitalist societies. On the other hand, it is still the core of their economic mechanisms and our daily economic behavior. And the communist experiment based on the idea of sharing everything ended up as a large tragedy (not the least for Tibetan Buddhists).

UPDATE:

Thanks for the interesting spectrum of answers so far.

Let me expand:

Buddha empathizes with the whole universe and takes decisions that benefit the whole universe most. Extreme altruism based on extreme knowledge leading to the optimal result. While Smith says that following one's egoistic self-interest leads to the optimal (economic) results. And no knowledge of the rest of the universe is needed - just follow your own self-interest. Both are recipes for the behavior of the masses, but Smith's is much simpler to implement.

Example 1: If I follow my self-interest and buy a product from the cheapest supplier, I support the most efficient allocation of resources (in an ideal market), the most talented businessmen and managers, etc. Others are incentivized to improve or learn another skill. Should I instead empathize and support them too?

Example 2: Communism/socialism tried to replace Smith by planning across the whole economy. An attempt at global empathy and selfless maximization of the common benefit. But it did not work and the result was much worse than Smith's approach. The road to hell was paved with good intentions.

Example 3: Google avoids paying taxes in the EU via the Irish trick. Eric Schmidt once commented that they are "proud capitalists". So he/Google believes in doing good via Smith/self-interest. Many other people (in the EU in particular) think that using such loopholes is unethical and bad for the EU economy.

What would be the Buddha/Buddhist views in these cases?

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  • The answers and comments are useful - thanks again for all of them. They made me think of asking a followup question on this forum in the future. All the moral criticism of the invisible hand is justified. But its important aspect is not appreciated here. The invisible hand is a mechanism that propagates information across billions of actors. It decides what will be produced, done, and how. It is a huge distributed computer processing a lot of data every second. None of us (Buddha maybe?) sees all that data when we want to decide "more ethically". Hence also the failure of planned utopias. – Dianne Sep 3 '20 at 18:35
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I think it is clear that Buddhism does not concern itself with capitalism, or any other economic “ism,” except to the extent that one should occupy oneself with a “right livelihood.”

And I want to point out that modern ‘capitalism’ bears little resemblance to Adam Smith’s use of the word. He had nothing good to say about corporations, and his use of the term “free trade” referred, not to to the ‘right’ of multinational corporations to move their capital freely around the world in search of cheaper labor pools, but rather to the right of each individual to freely move about to ply their trade. This is clearly not the case today.

Modern capitalism cannot survive without captive labor, who necessarily suffer, in order to keep costs as low as possible. This—modern corporatist capitalism—is not “right livelihood” in Buddhist terms, but people today are stuck within a system that is oblivious to the needs of the majority of people, spiritual or economic, or even sustainable in any sense. Capital can move on, after destroying an area, impoverishing the captive populations. Thus, we face the continuing crisis of global ecocide for ‘profit’.

The only “invisible hand” evident in today’s economy is one that pops out to sweep whatever is on the table into some private pocket. Quant-trading firms are only the most recent and efficient example of this, in the financial trading markets.

Compassion towards all sentient beings is more than an “ideal” in Buddhism, it is the path to accomplishing everything else, including our survival as a species.


Update to the OP’s update:

I’d like to correct some of your assertions. I am doing this because you are making assumptions about the Buddha and Buddhism as if they operated under the same understanding as economists, which is not the case.

The Buddha does not ”empathize with” anything. The Buddha manifests what is known as “Great Responsiveness” (Mahakaruna), which is often translated as “great compassion.” It is different though, than the compassion that unrealized humans can manifest, as it is not a feeling of compassion towards the suffering of others.

It is, instead, a mode of being in which all actions are directed spontaneously towards the benefit of all beings in each context (moment). This does not exclude the one manifesting the responsiveness, but includes all, thus it is not altruism—in its normal sense—either. (By that I mean that in Buddhism, “selfless” (Anatta) means something totally different than “selfless” in economic theory.)

Thus, when the Buddha taught, for example, his answers were always slightly different, just as his questioners’ understanding was always slightly different, and just as yours and mine are slightly different. This difference in teachings was not something planned, they arose spontaneously. I want to emphasize that because it is so different from the world we believe we live in, unless you happen to be an engineer who has to deal with the stochastic nature of electronic components on a micro-scale, where the spontaneity is something one has to always design for.

So, think of Mahakaruna as the great Market in the sky, making sure everyone involved goes home comfortable with what transpired, only really, and not just in some abstract, in the best-of-all-worlds, kind of academic hypothesis. Because, while Smith could assert “that following one's egoistic self-interest leads to the optimal (economic) results” he could never prove such a thing, and our experience to date is strongly indicative that no such thing is true.

I’d also like to point out that Smith’s “recipe” is only simple if you exclude the monetary system, banking system, communications technology, shipping capabilities and the infrastructure all that needs, storage facilities, corporate transnational legal structures, blah, blah.

In short, Smith’s “recipe” is only simple because all of the hard work has already been done. Unfortunately, it all got sold at a steep discount by corrupt politicians to greedy—as opposed to just ”self-interested”—people, who have undermined the proposed elegance and positive benefits of such a system, in order to aggrandize their own wealth, no matter how destructive (i.e. costs foisted off on the public) their activities are.

It may be true that communism and socialism (not the same things in theory, just in historical practice) have failed, but corporate capitalism is in the end months of ecocidal destruction of the world.

And whatever corporate capitalism actually is, it is lightyears away from anything Smith ever envisioned—but more to your question, it is anathema to what the Buddha taught.

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  • Smith's ideas have been expressed exactly and proved: en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics . Everybody agrees that these are simplified models - that's how science proceeds. Such simplified models however do advance our understanding of the world and help us think further. – Dianne Aug 30 '20 at 6:55
  • But you criticize other economic systems in your question, based on their real-world failures. I do the same of capitalism. A Wikipedia list of theorems, derived from simple models of systems prove nothing. You seem to want to assert a simplistic comparison between Buddhist Compassion versus self-interested economic activity, while ignoring all the real-world faults of activity based upon self-interest. The two cannot be compared because they are in different categories. Apples and Oranges, in other words. – StillJustJames Aug 30 '20 at 8:16
  • My comment was focused only on the claim that "he could never prove such a thing". Nothing else. – Dianne Aug 30 '20 at 8:36
  • Dismissing the question as Apples vs Oranges seems a bit too easy. Both Buddhism and Economics are vast topics. It is easy to dismiss any attempt at a high-level comparison as simplistic and uninformed. But Buddha/Buddhism do advise us on our everyday life. Often from the point of view of applying compassion and kindness. So it should be able to provide concrete answers - e.g., to the three concrete examples. And so will attempt economists, using their scientific theories and reasoning. – Dianne Aug 30 '20 at 8:51
  • I do not ignore the real-world issues of self-interest - see the words "qualified" and "moderated" in the original question. And I acknowledge that the models, theorems and proofs are (very) simplified. But the fact is that even with all the qualifications, self-interest and the invisible hand are still a very large part of both today's economic theory and practice. – Dianne Aug 30 '20 at 8:55
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The Buddha was not wrong, and Adam Smith was not wrong either. Both are addressing different topics, but they overlap.

First, let's see what the Buddha taught.

Running a business and participating in economic activities is allowed for lay people, as long as they observe the five precepts and virtue (sila), which includes Right Livelihood (samma ajivo). Please also see this answer and this answer.

The Vanijja Sutta states:

"Monks, a lay follower should not engage in five types of business. Which five? Business in weapons, business in human beings, business in meat, business in intoxicants, and business in poison.

"These are the five types of business that a lay follower should not engage in."

Next, the Buddha taught about financial management, or perhaps you can say microeconomics.

The Sigalovada Sutta states:

The wise endowed with virtue
Shine forth like a burning fire,
Gathering wealth as bees do honey
And heaping it up like an ant hill.
Once wealth is accumulated,
Family and household life may follow.

By dividing wealth into four parts,
True friendships are bound;
One part should be enjoyed;
Two parts invested in business;
And the fourth set aside
Against future misfortunes."

The Dighajanu Sutta states:

"And what does it mean to maintain one's livelihood in tune? There is the case where a lay person, knowing the income and outflow of his wealth, maintains a livelihood in tune, neither a spendthrift nor a penny-pincher, [thinking], 'Thus will my income exceed my outflow, and my outflow will not exceed my income.'

The Adiya Sutta talks about the five types of benefits that can be obtained from wealth, which are summarized below:

'My wealth has been enjoyed,
my dependents supported,
protected from calamities by me.
I have given supreme offerings
& performed the five oblations.
I have provided for the virtuous,
the restrained,
followers of the holy life.

For whatever aim a wise householder
would desire wealth,
that aim I have attained.
I have done what will not lead to future distress.'
When this is recollected by a mortal,
a person established in the Dhamma of the Noble Ones,
he is praised in this life
and, after death, rejoices in heaven.

Also from the Anana Sutta which talks about "the four kinds of bliss that can be attained in the proper season, on the proper occasions, by a householder partaking of sensuality", summarizes it as follows:

Knowing the bliss of debtlessness,
& recollecting the bliss of having,
enjoying the bliss of wealth,
the mortal then sees clearly with discernment.
Seeing clearly — the wise one —
he knows both sides:
that these are not worth one sixteenth-sixteenth
of the bliss of blamelessness.

Now what about Adam Smith's invisible hand?

Adam Smith is talking about the link between microeconomics and macroeconomics - the self-interest of individual people and firms (aka the invisible hand), and its effects on macroeconomics - how would a free market economy be shaped by the self-interest of individual people and firms.

So, if you combine what the Buddha taught and what Adam Smith proposed - if every person followed what the Buddha taught, then we would see the following effects:

  • The invisible hand would bring a downfall in the five types of businesses which are considered wrong livelihood
  • 25% of all income would be saved
  • 50% of all income reinvested in businesses that do not violate the five precepts and Right Livelihood
  • 25% of all income spent on enjoyments that don't violate the five precepts and Right Livelihood
  • Very low rate of bankruptcy and insolvency due to individuals maintaining their livelihood in tune and being debtless as far as possible
  • Sufficient expenditure to ensure the needs of individuals and their family members are taken care of, within their means, and within the confines of the five precepts and Right Livelihood
  • Donations and charity will be done, especially by the lay Buddhists to the monastic order, so that they are well taken care of

So, I don't see a conflict between the two. Self-interest here simply means how the individuals make their financial decisions.

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You think by pursuing self-interests you're feeding the economic growth, when in reality you are feeding Samsara. But let me take a step back.

Buddha gave many teachings. If you read the suttas, collections of student memories of him giving the teachings, you'll see that he comes back to some topics again and again, in different variations.

One topic he comes back to quite often is the topic of (metaphorical) feeding. There he shows how various types of tendencies grow when given food or sustenance.

For example, when we eat physical food, we give sustenance to the physical organism, so it can continue living and growing bigger. When we consume mental food, we give sustenance to our mind and intellect, and it can grow bigger. When we consume an addicting substance we give sustenance to the addiction so it can continue and grow. When we consume political speeches which are full of divisive rhetorics and hatred, we feed anger in ourselves, so it can continue and grow. -- All of these are cyclic tendencies that feed on certain type of fuel helping them grow and perpetuate themselves.

Similarly, when we pursue our self-interests, this too can be seen as a type of fuel or sustenance. In this case we consume material goods and services and they serve for our personal enjoyment as well as food for our social and economic activity. In other words, it serves as food for the maintenance and growth of the same cyclical tendency, the tendency of other people to satisfy your interests in exchange for compensation so they can pursuit their interests. This is called consumerist economy, a system where consumption has to keep growing in order for it to work.

Depending on your perspective, this can be seen as a good thing, or it can be seen as a horrible thing. From my perspective, pursuing our self-interests feeds a cyclic tendency called consumerist society, which is a backbone of Samsara. Consumerist society promotes the exact values and perpetuates the exact evils that keep the mind suffering and deluding itself. Yes, it provides the continuous improvement of material conditions but at what price? At the price of keeping the mind trapped in a cycle of frustration, consumption and pursuit, and destroying the planet through overconsumption of natural resources.

You think by pursuing self-interests you're feeding economic growth, but in reality you are throwing logs in the fire of Samsara.

Now, you are asking, is there an alternative? Is it possible to build a better society, given the catastrophic demise of every communist experiment around the world? In my opinion, it's hard but not impossible. We would need to shift the basic value system from being focused primarily on self-interest and reorient it towards altruism as the central social paradigm. A donation-based system of volunteer engagement, sitting on top of universal basic income, sitting on top of a limited supply digital currency. No state to oppress people! No government to blame for our problems! Direct democracy, or you could say altruistic donnation-based meritocracy. Sort of Open-Source-on-steroids or Kickstarter-as-political-system, adopted by the society at large. I'm sure Buddha would have approved ;)

I know, I know, it sounds like a utopian fantasy. But let me ask you one question: What do you want to live for? Do you really want to die without having lived? If not then why not try something different? Why not try something more positive than the past?

Because right now, things aren't looking up. Things are getting worse.

So what do you think? Are you ready to take some risks and embrace change? Are you ready to start living life to the fullest? Are you ready to stop being a slave to the system and your own mind? Are you ready to be free?

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  • heh, thanks man. sorry about fighting – user2512 Aug 28 '20 at 17:31
  • The (possibly sad) state of affairs is that only Smith seems to give us (with many qualifications) a simple/practical recipe (supported by an explanation) on how to self-organize production: buy products for the lowest price. Altruism as a way to self-organize the economy at large has so far failed. We may need some more science of altruism resulting in more pragmatic recipes. E.g., how should I decide between supporting an open-source project X or Y? Is there a procedure Buddha would apply? – Dianne Aug 30 '20 at 7:48
  • @Dianne The Buddha's advice about right livelihood for laypeople doesn't seem very detailed -- I supposed he'd recommend you become a monastic if you're so inclined. I make it a rule to avoid "defence" projects (i.e. business in weapons). Apart from that I've been willing to work with telecomms mostly, and fintech too, and would prefer to work in telemedicine if I could. – ChrisW Aug 30 '20 at 15:37
  • Buddha's guidance to his contemporaries is as relevant today as ever: to prioritize sponsoring of the ethically worthy. Meaning, the way you decide which "open source project" to sponsor is by assessing its ethical impact. If you think the project will contribute to long term health, peace and well-being of many people, then that's the project you sponsor. It does take some thinking to assess potential projects but perhaps that's exactly what's missing in the "buy low sell high" approach? – Andrei Volkov Sep 1 '20 at 13:55
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Adam Smith was obviously wrong because his invisible hand resulted in much cruelty, poverty & crime during the Industrial Revolution (including slavery & child labour), resulting in, for example, the establishment of Australia as a convict settlement in 1788, which resulted in the decimation of the indigenous Australian people.

If an invisible hand worked to mitigate the cruel effects of greed, Buddhism would not have been required to provide teachings about the duties of government (DN 26) and the duties of employers & employees (DN 31).

If societies followed the teachings of Buddhism, free-enterprise would occur ethically and alternate extreme non-Dhammic ideologies, such as Communism, would never arise.

As for Tibet, it appeared to be a 'capitalist' society prior to Communism, where a minority of feudal landlords owned most of the capital or land and often treated the peasants cruelly. While not related to Buddhism, I personally doubt capitalism is inherently related to free-enterprise & democracy but is, instead, another form of totalitarianism were a small group of people take ownership & control the capital (means of production).

In summary, the Western history of its industrialization shows it was both necessary & optimal when government regulated capitalism with ethical laws; similar to those recommended by Buddhism.

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Compassion and empathy encompassing all beings seems to be the Buddhist ideal.

This sounds more like jainism than the dhamma. In buddhism, the ideal is ''Endowed with wisdom and virtue.'' https://suttacentral.net/sn11.16/en/bodhi

With buddhism applied to non ascetics, you just fall back to the five precepts, giving food and so on like https://suttacentral.net/an5.36/en/bodhi and the next sutta. For instance The non-lack of possession is the fruit of giving https://suttacentral.net/tha-ap521/en/walters and of course the fruit of the gist is best when the receiver is ''Endowed with wisdom and virtue.''

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