November 17, 2018

Adam Smith: economist or negotiator?

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I have been thinking a great deal about Adam Smith recently as the refurbishment of his final home, Panmure House, comes to a conclusion and Edinburgh Business School prepares to celebrate with a grand opening.

Smith’s work on economics has been well documented since he wrote The Wealth of Nations in 1776, but he also made some interesting observations on negotiation.

1. Interests: anyone who has studied our Negotiation course will know all about how important interests are in negotiation. Interests are the reasons why you are negotiating: not what you are there to negotiate but the motivations behind what you want. Adam Smith discussed this concept in The Wealth of Nations:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

Smith is referring to trying to understand the reasons behind their provision of food or drink – they want recompense, but why? They may need to buy more stock, pay wages or even repair some equipment with the money for the goods. This opens up the negotiation for the exchange… Perhaps you can negotiate to fix brewing equipment instead of paying cash for your drink? This principle applies to any negotiation.

2. Exchange: negotiation is the process by which we obtain something from someone who wants something from us. It is an exchange. Adam Smith noted this behaviour too:

The propensity to truck, barter and exchange one thing for another is common to all men, and to be found in no other race of animals.

Smith is noting the human tendency to look for opportunities to exploit exchange: if we need something, we have a mechanism to get that in the form of bartering or negotiation.

3. Bargaining: the bargain is the agreement stage of negotiation, during which we put forward our conditional bargains for exchange. We make an exchange based on our negotiable wants but, as Adam Smith suggested, this is a human creation, not something you would see other animals doing:

Man is an animal that makes bargains: no other animal does this – no dog exchanges bones with another.

The ability to make this exchange or bargain is unique to humans. Although other animals (may) share, only humans use the bargain as a means to facilitate this.

So Smith was most definitely an eminent economist, but I think you can agree that he had some very early and accurate views on negotiation too.

All quotes are from Adam Smith, An Inquiry into the Nature & Causes of the Wealth of Nations, Vol 1, 1776

Florence Kennedy Rolland, Lead Tutor About Florence Kennedy Rolland, Lead Tutor

Managing Director of Negotiate Ltd & Approved Tutor and examiner for the Negotiation elective.