Tuesday, June 21, 2011

An Original Thinker Who Is Worthy of a Closer Look

James Otteson, professor of philosophy and economics at Yeshiva University (New York), interviewed on Adam Smith

Adam Smith: Philosopher and Political Economist’

Misconceptions of Smith come from both political directions, as it were. Some have portrayed Smith as a doctrinaire laissez-faire libertarian, while others, more recently, have portrayed him as something like a contemporary progressive liberal. Neither is accurate. His review of the available historical and economic evidence led him to conclude that, after providing protection for people’s lives, liberty, and property, minimal government interference in people’s lives led to prosperity for all—including especially the poor. So he was genuinely concerned about the least among us, and his policy recommendations were based primarily on concerns about their welfare. Yet his recommendation of limited government was presumptive, not absolute: It served as a default to which exceptions could be made if the evidence for the particular case warranted it. I call his position “pragmatic classical liberalism.”

Smith accounts for the generation of shared moral standards in the Theory of Moral Sentiments by recourse to something he calls the “desire for mutual sympathy of sentiments.” In this case, “sympathy” does not mean pity: It means a “correspondence” or “harmony” of sentiments. His claim is that we all desire to see our own sentiments echoed in others, and we are chagrined and even pained when we realize our sentiments are not shared by others. Because this desire is mutual, it acts as a centripetal force drawing people into society and community with one another. It also acts as a regulative force disciplining us through rewards and punishments (achieving or failing to achieve mutual sympathy of sentiments, respectively), thereby generating—spontaneously—a moral order that is the product of human action but not of human design.

Smith employs a similar “invisible hand” explanatory mechanism in the Wealth of Nations, though there the fundamental driving motivation is not the desire for mutual sympathy of sentiments but the desire of everyone “to better his condition.” The difference is explained by the fact that in the Wealth of Nations Smith is describing our exchanges and transactions with people most of whom we do not know. Unlike our moral communities, people in the marketplace are typically strangers to us; a different set of motivations is therefore appropriate. Smith argues that we are still required to fulfill the rules of justice, but that among strangers the special affections we develop for our friends and loved ones are neither expected nor, therefore, usually appropriate. In both works Smith is trying to understand the creation and development of human social institutions—moral community in TMS and commercial society in WN—and what I call his “marketplace model” applies in both. Because of the different circumstances of interaction among family and friends, on the one hand, and traders in the marketplace, on the other, different motivations are appropriate; the analyses in the books nevertheless integrate into a coherent whole.

In part three of your Adam Smith book you explain what “Smith got wrong” (chapter 8). One of the mistakes Smith made in the Wealth of Nations was in thinking that human labor was a constant that could be universally measured and that it was the central determining factor of value. He seemed to believe that when a person is evaluating whether the price for a good or service is worth it, he will measure the price against the amount of his own labor that he estimates would be required to produce the good or service in question. This makes his view, I think, a “subjective-labor theory of value,” which is a step in the right direction. Nevertheless, the consensus of modern economics is that an attempt to base value on labor is a mistake. …

In chapter 9 of your book you make a case for what “Smith got right.”
It turns out that Smith got a lot right—both in his moral psychology and in his political economy. Perhaps two that bear mentioning are his claims regarding (a) mutual sympathy of sentiments and (b) the prosperity promised by commercial society. Modern psychology has discovered that human beings do, in fact, desire a “sympathy of sentiments” with one another, and many different studies from several different disciplines have discovered not only the importance of this desire but also its regulative effect on human behavior. Moreover, in the two-and-a-half centuries since Smith wrote the Wealth of Nations, those societies that approximated Smith’s recommendation of rule of law, free trade, and limited government have produced unprecedented levels of wealth and rises in standards of living, including for their poor. Smith believed this would happen, but not even he could have imagined the astounding productive powers of markets that subsequent history demonstrated.

Your award-winning 2002 book, Adam Smith’s Marketplace of Life (Cambridge), offers a systematic reinterpretation of Smith’s moral philosophy. Specifically, you argue that Smith provides a single “marketplace model” to make sense of various human social institutions. Can you explain what is the “marketplace model” and why is it a “reinterpretation” in light of the relevant literature?

… In my Adam Smith’s Marketplace of Life, I argue that both books can be seen as part of a larger social-scientific project, namely, the attempt to explain the creation and maintenance of large-scale human social institutions. I argue that in TMS Smith develops what I call the “marketplace” model of social institutions, in which exchanges and interactions of moral sentiments and judgments give rise over time to shared standards of morality. I lay out in detail how Smith’s account of morality is a version of an “invisible hand” argument. I then argue that the same model is present and at work in his Wealth of Nations, though here he is accounting for not moral community but economic markets.

I think Smith’s “marketplace model” for him enjoys a general application to human sociality, making it a kind of “grand unification theory” of human social phenomena.
(© 2011 Evangelical Philosophical Society www.epsociety.org)


I regard James Otteson’s work on Adam Smith particularly invigorating and worthy of the attention of scholars, particularly his Market Place of Life (Cambridge University Press, 2002), an original interpretation of Smith’s common method of analysis that has been neglected by too many scholars.

In the first edition of my ‘Adam Smith: a moral philosopher and his political economy, in the Great Thinker in Economics series from Palgrave, 2008, I extended James Otteson’s market place model from the original applications that he used to demonstrate his model from Moral Sentiments, Wealth Of Nations, and Smith’s Essay on the origins of Language (figure 2.1, p 42), by applying it to Smith’s Essay on Astronomy and his Lectures On Jurisprudence (figure 2.2, p. 43).

Jim’s common model across all of Smith’s Works has four elements, ‘Motivating Desire’, ‘Rules Developed’, ‘Currency’ and ‘Resulting Unintended System of Order’. The hint that Smith used a common system of analysis was first made, without explanation or illustration by Dugald Stewart in his eulogy to Adam Smith delivered to the Royal Society of Edinburgh in 1793.

Otteson is the first to have attempted to uncover the common rules, and did so remarkably well. I found that that they work for all five of Smith’s works. Unfortunately the economic exigencies of modern publishing required that the second edition of my book had to lose 8-10,000 words, and I was forced to sacrifice the details of Jim’s ‘market place’ model in the general cut back.

I offer my application of Otteson’s market-place model to Smith’s Essay on Astronomy ([1744-c.50) 1795 p 31-105):

Motivating desire (through intercourse with others):
To discover the connecting chains of intermediate events;

Rules developed (‘to assess and judge’ diverse actions and motivations):
For the testing and debate of successive explanatory systems;

Currency (that which is exchanged to solidify and test principles):
Hypotheses, idea, and speculation:

Resulting unintended system of order (to give a firm foundation to the rules, standards and protocols that bring these associations into being’):
‘Introduction of order into the chaos of discordant appearances.’

Readers are urged to follow the link and consider James Otteson’s insightful work, especially his Market Place of Life. They do not have to accept his theological ideas to appreciate an original thinker.

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