Friday, December 02, 2011

Adam Smith Was Not a Naive Moralist

Kyle Westway, described as “the founding partner at Westaway Law, an innovative New York City law firm that counsels social entrepreneurs. He lectures on social entrepreneurship at Harvard Law School and Stanford Law School.”. He writes in Harvard Business Review Blog network (1 December) Kyle Westway, is described as “the founding partner at Westaway Law, an innovative New York City law firm that counsels social entrepreneurs. He lectures on social entrepreneurship at Harvard Law School and Stanford Law School.” He writes in Harvard Business Review Blog network (1 December) HERE

Adam Smith Was Not Schizophrenic"

The left wants to end capitalism. The right says if we could just get the government out of the way, then the capitalist system would work. … To gain some clarity, we need to consult Adam Smith.

Adam Smith, the father of modern economics, was the first to assert the concept of free market capitalism. In his most popular work The Wealth of Nations he wrote about the oft-quoted "invisible hand." But in his first work, The Theory of Moral Sentiments — which he considered his most meaningful contribution — he writes about our duty to fellow members of society. Pundits on either end of the political spectrum quote whichever work suits their argument. Predictably, the right quotes Wealth of Nations and the left quotes The Theory of Moral Sentiments. Given the gap between modern capitalism and the morals-based approach from his first book, one can't help but wonder if Smith was an intellectual schizophrenic, essentially promoting two competing theories.

… The Wealth of Nations presupposed actors in the capitalist system operating on the moral framework he laid out in the Theory of Moral Sentiments. The free market has no conscience of its own: it is made up of billions of people transacting. Though Smith asserts that each of these people are guided by their self interest, he presupposes that each of the actors in the marketplace are guided by some internal morality and an awareness of one's place within the broader context of his community — locally and globally.

The current version of capitalism is not the one envisioned by Smith at all. He was seeking to create a system defined by efficient allocation of resources driven by self-interest, but guided by self-restraint. This is conscious capitalism.”

Adam Smith’s thinking was not quite so unsubtle as Kyle Westway makes it out to be. Westway’s image of Smith is from the modern myths of Smith’s moral philosophy and political economy, as taught at Harvard (see student views of Professor Mankiw’s lectures) and Stanford (and aesewhere), with little reference to Smith’s Moral Sentiments or Wealth Of Nations.

Smith in The Wealth of Nations did not write “about the oft-quoted "invisible hand” – he only mentioned it once" and he did not present the IH metaphor in reference to markets, supply and demand, and equilibrium, as it is too “often quoted”. He wrote of a quite different ‘invisible hand’, in reference to the specific object of the IH metaphor (the concern of some, but not all merchants, for the security of their capital if sent abroad in the “foreign trade of consumption”, leading them (“led by an invisible hand’!) to invest their capital in “domestic industry” – Book IV, chapter 2, paragraph 9, page 456). Smith did not mention ithe IH metaphor anywhere else in his Wealth Of Nations. I recommend to Kyle Westway that he finds the reference and reads it carefully, if only to “gain some clarity”, as one expects lawyers to read the evidence.

I agree that “his two preeminent works [amount] to a unified theory”, but not the theory as propounded by modern economists, on both the Left and the Right.

“Smith asserts that each of these people are guided by their self interest” is right so far as it goes, but whether they are all guided by “internal morality” in the sense implied by Kyle Westway may be misleading, and it is not a conclusion intended to be drawn so generally by Adam Smith. Wealth Of Nations as a whole is not a naïve moral tale written by a simpleton. He was quite specific in a advising those looking for their dinners at the "butchers, brewers, and bakers" , not to refer to their own self-interest but to address the self-love of the those from whom they wish to buy (Wealth Of Nations, I.ii.2. 27).

Adam Smith was a keen judge of people’s behaviour, and he notes just how often their behaviour falls well short of being universally benign. After all, he studied jurisprudence at Oxford (1744-6) and was awarded a doctorate in laws from Glasgow (1763). His Lectures On Jurisprudence [1762-3] 1978) show his competence in the foibles and failings of people, especially the ‘vile behaviours’ of the ‘rulers of mankind’, and of rioting labourers goaded by their employers to act to prevent imports competing with their products.

True, Moral Sentiments is morally positive, not negative, but it was not written as a celebration of the universally benign benefits of people acting in their self-interest. In Wealth Of Nations there are over 70 examples in Book IV of self-interest leading to non-benign results. Book V addresses the depredations of self-interests of colonial invaders. He wrote in a letter that Wealth Of Nations was a “very violent attack on the whole commercial system in Britain” and it shows a keen sense of realism that merchants, legislators, and those who influence them, are often guided by their self-interests which are directly counter to the interests of the general population, and he often demonstrates an absence of any, let alone some, “internal moral” guidance in the sense meant by Kyle Westway. "

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Blogger airth10 said...

Nevertheless, Kyle Westway shouldn't be admonished for bringing up the schizophrenic nature of Smith's work.

Humankind is by nature schizophrenic and contradictory. Smith shown a light on this nature with his two towering works. And in its schizophrenic nature humankind heeded Smith's words and constructed capitalism, a schizophrenic extension of itself. Communism collapse because it tried to extinguish this inexorable nature from humankind.

3:02 pm  
Blogger Gavin Kennedy said...


My comment on Kyle's article is not that he says that Smith was 'schizophrenic' (his article actually denies that charge) - but that was a view expressed by some German philosophers at the end of the 19th century, who had not read student notes of his lectures on 'Jurisprudence', found in a house clearance sale in 1895. What they believed was a 'two theory' Adam Smith was nothing of the kind. Smith's work is a unified whole.

The modern version, articulated by Kyle, comes from taking the modern invention of a version of Adam Smith on self-interest, namely that even selfish behaviour leads to benign outcomes, and contrasting that with Moral Sentiments.

Once you strip out the modern errors of whatSmith meant by 'self-interest', as actually articulated by Smith, the so-called contradiction evaporates. That is my point. There is no 'invisible hand' mediating selfish actions into benign public benefits (an idea expressed by Bernard Mandeville in 1724).

Of course, contradictions abound. Smith did not articulate 'capitalism', a word invented in English in 1854, not 1776.


10:06 pm  
Blogger airth10 said...


Thank you for that. I may have been a little free in my interpretation of what Kyle said. Nevertheless, when a layman reads and tries to digest the two pillar works of Adam Smith he is bound to come away with a confusing message.

3:48 am  
Blogger Gavin Kennedy said...


Thanks. Smith's works are made more confusing by the grip of myths about what he wrote on academe (which should know better) and on popular discourse that takes the myths on trust, especially as articulated by senior academics, even Nobel prizewinners. Even those who (privately know Smith much better) and say so, keep quiet because all promotion and tenure in respectable universities requires public adherence to the direction in which the profession has followed since the 1940s.

Hence, my own frustration and why I went public with my books on Smith, articles and papers at seminars, and the Lost Legacy Blog, assisted I confess, by my retirement in 2005 after 33 years teaching.


10:15 am  

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