Why Read Adam Smith Today? Enduring Wisdom

In my previous essay, I shared what I believe to be Adam Smith’s fundamental insights into political economy and social philosophy that should continue to aid our studies today. In addition to bringing important insight to our contemporary explorations, Smith also provides us with a great deal of wisdom relevant to our social relationships and interactions.

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

As Smith explained at the very start of The Theory of Moral Sentiments (1759), there are some deep-seeded principles operating in our nature that cause us to care about the fortunes of others.  These other-regarding sentiments are the basis of human sociability.  Unlike many other species who confront nature red in tooth and claw, we are not physically equipped to survive the cold or combat nature naked and unarmed. We do not possess by nature a fur coat, let alone sharp teeth and claws.  We stand naked before nature vulnerable to the vagaries of nature and the kindness of predators.  However, what we lack in natural protections we more than make up for in our ability to cooperate with one another.

 A key feature of our cooperative ability is that were it not for the greater productivity of the division of labor and social cooperation through exchange, we humans would be forever trapped in a Malthusian struggle.  Survival would demand that we engage in biological competition with “others,” rather than seek relationships at least of peaceful co-existence, and deep friendship and communion beyond kinship.  In short, there is no ‘das Adam Smith problem’ as the German historical school postulated.  There is no conflict between the central arguments of The Theory of Moral Sentiments and The Wealth of Nations, there is only a shifting of the context within which individuals are interacting and the postulated span of moral sympathy.  It is important, I would argue, to distinguish between empathy, which relates to proximity, and sympathy, which relates to projection.  Humans obviously have both empathetic and sympathetic capacities – if our partner in life suffers, we suffer with them; if we look at the plight of the least advantaged, we can imagine ourselves in that same position.  But there are limits to our sympathy that may not be present in our empathetic powers.

 I will come back to the enduring puzzle this presents to us, but for our present purposes the important point to stress is the link between the productive capacity that is generated by the sociability our moral sentiments invoke in us.  We live better together than we ever could apart.  This implies that we must find ways to turn strangers from potential enemies into valued friends.  By cooperating with one another, we can take on nature red in tooth and claw.  It is our reciprocal altruism and our ability to keep an accounting in our heads that enables human societies to both channel self-interest into socially productive patterns of behavior, and to continually improvise, innovate and experience betterment in the human condition.  Of course, as argued in the last section, Smith saw this not primarily as a behavioral argument, but an argument I would argue that saw a constant interaction between agency of the individual and the structure provided by the institutional environment.  In this regard, his wisdom to practitioners of the social sciences would be to stop in our efforts to box into corners agency and structure, and instead to analyze the complex interaction between them, if we hope to understand human behavior and human sociability.

 The better angels of our nature are  intimately intertwined with the institutions of property, contract, and consent, which yield a regime of peace, easy taxes, and a tolerable administration of justice.  Peace, I would argue, is a prerequisite to justice.  We must put down our weapons before we can negotiate and reconcile.  It is peace, not conquest and war, that enables us to find friendship with those who are either physically or socially distant from us.  For human society to escape the Malthusian trap, or the Hobbesian war of all against all, we must substitute trading for raiding one another.  Smith’s two great works compel the modern reader to take that admonition seriously. 

 Smith argued that hatred and anger were poison to the mind.  Instead of seeing others as “the other,” we must start to see one another as our dignified equals.  Human beings worthy of dignity and respect, not as subjects to be ruled, or resources to be confiscated.  Smith’s enlightenment ideals were a challenge to the prevailing history of mankind and the doctrines that justified the morality of conquest.  As Deirdre McCloskey has so eloquently argued in The Bourgeois Virtues (2006), human civilization advanced and experienced modern economic growth as we transitioned from the Warrior virtues of the ancients, to the Christian virtues, and finally to the bourgeois virtues of the Industrial Age.  She argues that the source of the cornucopia of material progress made between the 18th century and today is a consequence of how we talk about one another and to each other.  Again, it is about dignity and respect provided to ordinary individuals and the freedom that implies.   Ordinary individuals, if given the freedom and elbow room, can produce extraordinary things.  This was a radical departure from the wisdom that previously prevailed that communicated that extraordinary things could only be accomplished by extraordinary individuals if and when given the power to rule over others.

 Smith’s work makes us rethink the wisdom in our maxims about the ruled and rulers.  Elinor Ostrom (along with her husband Vincent Ostrom) in modern times have in many ways carried this Smithian wisdom farther than others in their exploration of self-governing democratic societies – their workability, their points of fragility, and what might be required to shore up their strengths for persistence.  Her work, as described in Governing the Commons (1990), is not just about the management by communities of common-pool resources, but as she makes clear at the end of this classic text, her work was merely a test-bed for the broader issue of self-governance.  How can it be that we can find Smithian answers to Hobbesian problems?  How can we realize social cooperation when we start in a world of conflict and strife?  Her genius was to see that solutions emerge in the creative and clever capacity of the individuals and communities she was studying.  She saw ordinary people achieving extraordinary things, and did not find the only solution to our social dilemmas in the wisdom and power of a King or legislator who was given the power to rule over us.  No, the key to effective governance is ruling with, not over people in the relevant community.

 Smith’s economics of natural equals is part of a cosmopolitan liberal tradition that emerged over the next few centuries, and which has been tested over and over by war, colonialism, protectionism, racism, xenophobia, and intolerance.  Rather than succumb to the darker side of our nature, we must be vigilant in our effort to cultivate the better angels of our nature.  As human history demonstrates, this is no easy task. But as human history also demonstrates, neither is it impossible to achieve.  We need scientific knowledge about the sources of material progress, we need to understand institutional evolution to provide effective constraints on the opportunistic impulses in us, and we need to cultivate those moral sensibilities that will help sustain the legitimating ideologies for a cosmopolitan liberal order.  Smith’s writings push the reader on the right path.

Adam Smith was developing not only a moral psychology and an analytical economics, but a broader political economy and social philosophy which he summed up as the liberal plan of liberty, equality, and justice.  His book on jurisprudence was not published in his lifetime, and all that remains is the lecture notes transcribed by students. But we can triangulate between The Theory of Moral Sentiments, The Wealth of Nations and Lectures on Jurisprudence (1896).  The last book is based on a series of lectures given at the University of Glasgow in 1762-1763, and the primary purpose was to provide a set of rules by which a civil government should be bound by and guided in its actions.  The primary purpose of government is security from injury, and as such the government must protect people, property and peaceful social relations.

 Smith, however, was not particularly trusting that political actors would bring about such a system of justice.  Instead, he saw the politician as an “insidious and crafty animal.” Lest anyone get the wrong impression, Smith also distrusted monopolists and the sophistry of the businessmen who benefited from the mercantilist system of government privilege and protection.  Part of the argument in constitutionally restricting government to what became known as the “nightwatchman state” (i.e., national defense, courts and police, and certain public works) was to discharge the state of too much responsibility which would test human nature and undermine the essential functions of the protective and productive state by unleashing the predatory state.  David Hume, Smith’s friend and intellectual compatriot, argued:

Political writers have established it as a maxim, that, in contriving any system of government, and fixing the several checks and controls of the constitution, every man ought to be supposed a knave, and to have no other end, in all his actions, than private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and ambition, co-operate to public good. Without this, say they, we shall in vain boast of the advantages of any constitution, and shall find, in the end, that we have no security for our liberties or possessions, except the good-will of our rulers; that is, we shall have no security at all. (1741, 84, emphasis added)

In modern language, we would describe Hume’s assumption about knavery as equivalent to assuming that actors are opportunistic with guile.  They will forever be seeking to find those margins where they can skirt the rules and exploit the situation for their private gain.

 Smith actually saw a wider scope for our knavery.  Not only did we have to concern ourselves with those acting opportunistically in their positions of power and privilege, but those arrogant enough to believe themselves fit for the task.  As he put it in The Wealth of Nations:

What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of greatest value, every individual it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him.  The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would no-where be so dangerous as in the hands of man who had folly and presumption enough to fancy himself fit to exercise it. (1776, 456)

In this passage, Smith is echoing his earlier indictment of the “man of system” from The Theory of Moral Sentiments, who is “apt to be very wise in his own conceit.” (1759, 233) Smith’s guidance, then, in developing the political economy of the liberal order – an order of liberty, equality, and justice – is that we must be forever vigilant against the knavery of our would-be rulers, and that knavery comes in the form of both opportunism with guile, and what F. A. Hayek would later dub the fatal conceit of the arrogant.

Hayek developed this argument in his essay “Individualism: True and False” where he argued that Smith’s enduring intellectual contribution was that:

///the main point about which there can be little doubt is that Smith’s chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst.  It would scarcely be too much to claim that the main merit of the individualism which he and his contemporaries advocated is that it is a system under which bad men can do least harm.  It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they are now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid.  Their aim was a system under which it should be possible to grant freedom to all, instead of restricting it, as their French contemporaries wished, to ‘the good and the wise’. (1948, 11-12)

As Hayek further elaborates, Smith was focused on finding that set of institutions which could induce ordinary individuals pursuing their everyday activities to contribute to the needs of others.  His great discovery was that the system of private property and freedom of contract provided just such an inducement.

 Smith had sketched out the guidelines for developing a robust political and economic system.  And his insight and wisdom, must be incorporated with his guidance of the liberal plan of liberty, equality and justice for us to build a robust political economy for the 21st century. Smith still speaks to us and is part of our “extended present” precisely because of these enduring scientific puzzles.

Perhaps the most cited contemporary practitioner of political economy is Daron Acemoglu. Consider the central argument in his books with James Robinson, Why Nations Fail and The Narrow Corridor.  Their emphasis is on whether the institutions adopted in a country are inclusive or extractive.  Those that adopt extractive institutions languish in poverty and are often characterized by violence.  On the other hand, those countries that adopt inclusive institutions experience economic growth and development, and social conflicts are reconciled either through informal cultures of peace or the formal system of courts and democratic participation in collective decision making.

 We must recognize that their conversation is the same one that inspired Adam Smith, and it is arguable that Smith can still contribute to this modern discussion with not only his detailed discussion of the violence trap and the analysis of the evolution of a system of liberty, but with a greater appreciation of the difficult and often tortured transition from personal to impersonal exchange.  I argued earlier that there was no “das Adam Smith problem”, but there is a problem of the tension that exists between the intimate order of our family and small community, and the extended order of the market.  Smith laid out the puzzle very early in The Wealth of Nations; we humans rely on the cooperation of multitudes for our daily survival. But scarce in our lifetime do we have the occasion to make but a few close friends beyond our kin. We must, Smith puzzled, generate cooperation in anonymity.  How is that possible?

 In the passages right after Smith puts forth this puzzle, we find his famous butcher, baker, and brewer statement- that we cannot rely on their benevolence for our dinner, but instead must recruit their self-love.  But as we have seen, whether that self-love is enlisted to pursue productive specialization and peaceful social cooperation through exchange will be a function of the institutional environment within which these individuals find themselves interacting.  If they are unconstrained by a respect for persons and property, by the rules of property, contract, and consent, by the self-regulating powers of market competition and the free movement of prices and the discipline of profit-and-loss, then the opportunistic and arrogant will step into the breach and thwart our efforts at establishing or sustain a liberal regime of liberty, equality and justice.

 The puzzle is more pronounced once we read closely The Theory of Moral Sentiments, because it should be evident that many of our moral intuitions emerged from our millennium of existence in small bands and governed often by kinship relationships exclusively.  In such a world, our cooperation in anonymity will be thwarted by in-group norms.  The moral demands of the great society, as Hayek has so often reminded us, must replace such in-group norms.  Our science of political economy must be a great antidote to the “poison of enthusiasm and superstition” that characterize traditional societies and our ancient ancestors.  The moral demands of the modern interconnected global economy must tame and substitute the moral intuitions of in-group identity. Easier said than done, as we see a constant longing for group identities in nationalism and religious fundamentalism, etc.  But if we hope to maintain a world of peace, easy taxes, and a tolerable administration of justice, we need to find a way.  My argument has been that after 300 years, Adam Smith can still be the relevant guide in our quest to achieve both a better understanding of the human condition, and how to repair a broken world to improve the human condition.


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