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Truly a moral philosopher: "The Muir Portrait" of Adam Smith by an unknown artist (Scottish National Portrait Gallery) 

"Das Adam Smith Problem" — that problem was put to us a century-and-a-half ago by a German economist (August Oncken, little known today except for that memorable phrase), and we are still wrestling with it. At issue is the apparent contradiction between The Wealth of Nations and The Theory of Moral Sentiments — between the political economist and the moral philosopher.

This is not a case of an early and a late Smith (as with the early and late Marx). The Theory of Moral Sentiments, published in 1759, antedated An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776. But as Smith himself pointed out, the principal ideas of The Wealth of Nations appeared in his lectures in Edinburgh as early as 1750, again in a paper he delivered in Glasgow in 1755 (where he occupied the chair of moral philosophy at the university), and in drafts of the book that he worked on for almost two decades, to the despair of his friends who regretted the delay and feared that its length would discourage readers. Moreover, The Theory of Moral Sentiments was reprinted in 1774, only two years before the publication of The Wealth of Nations, so that he himself evidently perceived no disparity between the two.

One reason why this was not a "problem" for Smith — or for his contemporaries — was because he was not merely an economist, as we now understand that word. He was known at the time as a "political economist". Political economy had a dimension larger than economics, focusing not so much on individual transactions in the marketplace as on the political and social consequences of those transactions. This was in keeping with the mercantilist idea of the dirigiste state, in which trade — foreign trade primarily but also domestic — was deemed to be the proper province of government, reflecting the strength and prosperity of the state in relation to other states; trade was, in effect, war by other means. Smith may have been deliberately provocative when he gave his book a title, The Wealth of Nations, that would seem to place it within the mercantilist tradition — and then proceeded to reinterpret both "wealth" and "nations" so as to create a political economy that was the very antithesis of mercantilism.

If Smith's political economy was in sharp contrast to the prevailing mercantilist doctrine, his moral philosophy was no less opposed to the idea of a "moral economy" — the pre-industrial, pre-capitalist, Christian ideal based on the principles of equity and justice. The Victorian moralist, John Ruskin, had something like that in mind when he inveighed against Smith, that "halfbred and half-witted Scotchman" who deliberately perpetrated the blasphemy, "Thou shalt hate the Lord thy God, damn His laws, and covet thy neighbour's goods." A century later the socialist historian E.P. Thompson explicitly invoked the idea of a moral economy in describing the "crowd" in 18th-century England — the food rioters, for example, protesting against the high price of corn. That idea was the "legitimising notion" that inspired the poor — a traditional, paternalist view of the economy that respected social norms, obligations, and, most notably, fixed or low prices for food ("just prices," in the Catholic tradition). The Wealth of Nations, arguing against the Corn Laws and in favour of free trade, had the effect of "de-moralising" that moral economy, replacing it with a new political economy "disinfested of intrusive moral imperatives" — not, Thompson hastened to add (unlike Ruskin), because Smith himself was immoral or unconcerned for the public good, but because that was the objective effect of his doctrine.

When The Wealth of Nations was finally published, David Hume consoled Smith that while it required too close a reading to become quickly popular, it would, by its "depth and solidity and acuteness" and its "curious facts", eventually attract the public. The publisher was less optimistic. The first edition, in two volumes and over a thousand pages, consisted of 500 copies selling for the standard price of £1 16s, for which Smith received the grand sum of £300 — this for the author of the well-known and highly regarded Theory of Moral Sentiments that had appeared in a new edition only two years earlier. Those 500 copies sold out in six months, a second edition was published two years later, and three others followed in the dozen years before his death in 1790. The book was translated during his lifetime into French, German, Italian, Danish, and Spanish, and received the imprimatur of success in the form of a lengthy abridgement. Some of the most eminent men of the time, across the political spectrum, declared themselves his disciple: Edmund Burke and Thomas Paine, Edward Gibbon and Richard Price, William Pitt and Lord North.

Part of the success of The Wealth of Nations has been attributed, ironically, to the fact that it was not altogether original. The term laissez faire, like political economy, was an import from France dating from the reign of Louis XIV, when a merchant is said to have pleaded with the king's minister, Louis-Baptiste Colbert, "Laissez-nous faire." Later popularised by the Physiocrats protesting against the highly regulated economy, it was imported into England where it retained its French form. (The term itself does not appear in The Wealth of Nations, although the concept obviously does.) Similarly, the "division of labour," the subject of the first chapter of the book, had its antecedents in Chambers's Cyclopaedia in 1728 (complete with the pin-factory example publicised by Smith); in the French Encyclopédie decades later (which borrowed it, with the same example); and in a book by Smith's friend, Adam Ferguson, Essay on the History of Civil Society, published only a few years before The Wealth of Nations.

The Victorian economist Walter Bagehot, an admirer of Smith, conceded that these terms and concepts were not novel and that the idea of free trade was "in the air," although not generally accepted or established. "On the contrary, it was a tenet against which a respectable parent would probably caution his son; still it was known as a tempting heresy and one against which a warning was needed." A later economic historian, Joseph Schumpeter (less well disposed to Smith), agreed that there was little original in The Wealth of Nations — not "a single analytic idea, principle, or method that was entirely new in 1776". It was a "great performance" deserving of success, Schumpeter conceded, but that success came, paradoxically, from Smith's limitations. "Had he been more brilliant, he would not have been taken so seriously. Had he dug more deeply, had he unearthed more recondite truth, had he used difficult and ingenious methods, he would not have been understood." But those were not his intentions or aspirations. "In fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers." He spoke their language, made them feel comfortable, and, most important, was "thoroughly in sympathy with the humours of his time". 

Among the "humours of his time" that endeared Smith to his readers (but not to Schumpeter) was the moral philosophy that infused his political economy. So far from seeing The Wealth of Nations as a refutation of The Theory of Moral Sentiments (as some later commentators have), contemporaries welcomed the new book as a complement to the old. Edmund Burke, having reviewed the first book glowingly when it appeared, was as admiring in his review of the second. Nor did the new book displace or supersede the old. The appreciative memoir of Smith by Dugald Stewart, written three years after Smith's death, devoted 26 pages to The Theory of Moral Sentiments and only 17 to The Wealth of Nations.

The favourable reception of both books is all the more remarkable because their subjects are different and on the surface, at least disjunctive, if not contradictory. The animating spirit of The Wealth of Nations is "interest" or "self-love"; that of The Theory of Moral Sentiments is "sympathy" or "fellow-feeling". The memorable dictum that highlights the contrast between the two appears early 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." This sentence is often quoted out of context. The preceding passage is less stark — indeed, it might well have appeared in the earlier book:

In civilised society, he [man] stands at all times in need of the cooperation and assistance of great multitudes . . . In almost every other race of animals, each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.

Only then, after placing man firmly in society, dependent on the "cooperation" and "help of his brethren," does Smith invoke the idea of interest — not to deny the idea of benevolence, but rather to supplement "benevolence only" by another more dependable idea. The butcher, brewer, and baker are appealed to on the basis of their interests, because that would be more effective to achieve the same end — the good of others, their "brethren".

Another memorable phrase, the "invisible hand", is often cited as the attempt to reconcile self-love and the public good. By engaging in industry, man "intends only his own security . . . [and] his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. . . By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." This phrase appears only once in The Wealth of Nations, late in the book, as well as in Moral Sentiments in quite a different context. There the issue is not industry but luxury, the disparity between the rich and the poor.

In spite of their natural selfishness and rapacity, though they [the rich] mean only their own convenience, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of society, and afford means to the multiplication of the species.

The "invisible hand" has been given a teleological interpretation, as if some benevolent agent is active in bringing about that benevolent end. For Smith the hand is simply a metaphor for a free market, a "system of natural liberty", in which individuals exchange their goods and services without the intervention of any supervising hand or authority. Only in such a system could the division of labour produce the "opulence" that would distribute the "necessaries of life" for the benefit of all. "By necessaries," The Wealth of Nations explains, "I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without."      Society, the rich and the poor, employers and workers, even unto the "lowest order" — this is the "nation" in The Wealth of Nations. It is not the nation state in the mercantilist sense, but the people who constitute society. And not the "people", as contemporaries often used that word — those who play an active part in politics — but the "common people" as well, including the lower and even the lowest orders. By the same token, the "wealth" in the title is not the wealth of the state (again, as the mercantilist understood it), but the wealth, or well-being, of all the people. Only a "progressive" — that is, a free and industrious — economy, could bring about "a universal opulence which extends itself to the lowest ranks of the people, . . . a general plenty [which] diffuses itself through all the different ranks of society." To those who complain that if the poor shared in the "general plenty", they would no longer be content with their lot in life, Smith put the question: "Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or an inconvenience to the society?" His answer is unequivocal — and very much in the spirit of Moral Sentiments:

Servants, labourers and workmen of different kinds make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of the people should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.

Smith's critics often assume that his political economy was designed not only to further the interests of businessmen (not yet named "capitalists"), but also to vindicate and even exalt them. In fact, the rhetoric of The Wealth of Nations is more often deprecatory and even hostile. Of the three "orders" in society — landlords, labourers, and merchant-manufacturers — the first two are seen as acting in accord with the public interest and the last in conflict with it.

The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. 

Deception and oppression, conspiracy and contrivance are only part of this indictment. Elsewhere the merchants and manufacturers are accused of "clamour and sophistry", "impertinent jealousy", "mean rapacity", "mean and malignant expedients", "sneaking arts", "interested sophistry", and "interested falsehood". There are surely enough "intrusive moral imperatives" in The Wealth of Nations to satisfy an ethical socialist like Thompson and to distress a "scientific" economist like Schumpeter.

If Smith's moral rhetoric belies the conventional view of him, his political economy does so even more. His opposition to mercantilism is generally read as a criticism of government regulation and a defence of laissez faire. It is that, and much more, for his objection to mercantilism is not only that it inhibits a progressive economy by interfering with the natural processes of the market; it is also unjustly biased against workers. "Our merchants and manufacturers complain much of the bad effects of high wages . . . They say nothing concerning the bad effects of high profits . . . They are silent with regard to the pernicious effects of their own gains."

According to the mercantilist doctrine, low wages are both natural and necessary: natural because the poor would not work except out of dire need, and necessary in order to maintain a favourable balance of trade. As the popular writer and economist Arthur Young put it: "Everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious." Even Hume, not a mercantilist, believed that in years of scarcity, when wages are low, "the poor labour more, and really live better, than in years of great plenty, when they indulge themselves in idleness and riot." Excessively low wages, they agreed, would be counterproductive, providing no incentive to work. But this was an argument for subsistence wages, not high wages.

Smith, on the other hand, took a positive view of high wages, defending them as in the best interests of society as well as the labourer.

The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition and of ending his days perhaps in ease and plenty animates him to exert that strength to the utmost. Where wages are high, we shall always find the workmen more active, diligent, and expeditious, than where they are low.

High wages encouraging the "propagation", as well as the "industry", of people — in effect, Smith was refuting in advance Malthus's "principle of population". For Malthus, high wages lead to an increase of population, and because population grows "geometrically" and the food supply only "arithmetically", the result is the inevitable "misery and vice" of the lower classes. In Smith's expanding, "progressive" economy, high wages have the opposite effect. There the demand for labour keeps abreast of the supply, and wages remain high even as the population increases. So far from "misery and vice", the labourer enjoys a "plentiful subsistence" and the reasonable expectation of "bettering his condition".

This benign view of the condition and prospects of the labouring poor extends to the indigent as well — the "lowest ranks" of society. England was the first country — and for a long time the only country — to have a public, secular, national (although locally administered) system of poor relief. Unlike some of his successors — again, Malthus, most notably — Smith had no quarrel with poor relief as such. What he did vigorously oppose were the "settlement laws" that established residency requirements for the poor, thus limiting their mobility and opportunities for improvement, as well as depriving them of the liberty enjoyed by other Englishmen. In the same spirit, he argued for proportional taxation and taxes on luxuries rather than necessities, so that "the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor".

Smith's optimism failed him at one point. Toward the end of The Wealth of Nations, in what has come to be known as the "alienation" or "immiseration" passage, he described the effects of the division of labour on a man who has spent his life performing a few simple operations, with no opportunity to "exert his understanding" or "exercise his invention".

He naturally loses, therefore, the habit of such exertions, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any general, noble, or tender sentiments, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging; and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance, in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues.

This is a damning portrait — and a surprising one, because these are the labouring poor whom Smith earlier praised and for whom he held out such high promise. It also contradicts the opening sentence of the book: "The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour." Yet towards the end of the book, that "skill, dexterity, and judgment" — and much else — seem to be belied by the division of labour. An explanation for this apparent contradiction may be found in the final sentence of that passage: "But in every improved and civilised society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it."

"Unless government takes some pains. . ." Smith went on to suggest just how this might be done: by means of a state-administered, state-supported, state-enforced system of education. A school would be established in every district where children, including those "bred to the lowest occupation," would be instructed in reading, writing, and arithmetic. The burden of the cost of this system would be borne by the state, although parents would be charged a fee so modest that even the common labourer could afford it. The schools themselves would not be compulsory (there were already pauper schools and varieties of private schools), but some form of schooling would be. To ensure a proper level of instruction, the student would have to pass an examination in the "three Rs" before entering a guild or setting up in a trade.

Marxists have made much of this "alienation" theme (as they have christened it), without, however, attending to Smith's proposal to prevent, or at least mitigate, it. Marx himself, after quoting that passage in Capital, referred to this proposal as providing "education of the people by the state, but prudently, and in homoeopathic doses". The alternative measure he himself put forward might strike a modern reader as not so much prudent or homoeopathic as simply regressive. Writing almost a century after Smith, only a few years before the Forster Act of 1870 that established the principle of free, compulsory public education, Marx took as his model for educational reform the Factory Act of 1864, which permitted children under the age of 14 to work only if they spent part of the day at schools provided by the employer. Although he criticised that measure as "paltry", he approved of the principle of combining education with work, accepting the claim of factory inspectors that these children, in far fewer hours, learned as much or more than day-school children. His own proposal was heavily weighted toward work. "When the working class comes into power, as inevitably it must, technical instruction, both theoretical and practical, will take its proper place in the working class schools", making workers fit for a "variety of labours, ready to face any change of production". This was no passing thought on Marx's part. Almost 20 years earlier, in The Communist Manifesto, he derided the "bourgeois claptrap" about education, proposing instead free education with the proviso: "combination of education with industrial production."

Apart from the belated appearance of this pessimistic theme, the tone of The Wealth of Nations is notably optimistic. A flourishing economy is not only the precondition for the material improvement of the people; it also fulfills their natural desire for "betterment", a desire that "comes with us from the womb, and never leaves us till we go into the grave". Perhaps more important, it promotes liberty and good government. "Commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbours and of servile dependency upon their superiors." Smith credited Hume with calling attention to this beneficent aspect of industrialism: its civilising, moderating, and pacifying effect on the people, on society, and on government itself.

Beyond material improvement, beyond even liberty, security, and tranquility, perhaps the most remarkable aspect of The Wealth of Nations is its democratic character. Smith used the conventional words to describe what we now call the working classes: "lower ranks (or orders)", "the common people", "the labouring poor", or, simply, the "poor". But it is the functional, rather than the hierarchic, nature of the three orders of society that concerned him. His classes are defined by the source of their income: rent, wages, and profit. And wage earners, or labourers, constitute not the third order, as was customary at the time (and still is in general discourse), but the second order, taking precedence over merchants and manufacturers who are the third order. The labourer is a full partner in the economic enterprise, indeed, the most important partner, because labour is the source of value. Moreover, labour, like rent and profit, is a "patrimony", a form of property entitled to the same consideration as any other kind of property.

The patrimony which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of his hand; and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour is a plain violation of this most sacred property.

Democratic, too, is the concept of human nature implicit in Smith's political economy. The much quoted phrase, "the propensity to truck, barter, and exchange one thing for another," appears early in the book in the section on the division of labour. Smith refused to speculate about the origin of that "certain propensity in human nature" — whether it is innate in human nature or a consequence of the "faculties of reason and speech". In either case, it is a basic trait "common to all men" — just as the "moral sentiments", in the earlier book, are common to all men. These are the modest attributes that make the labourer a fully moral being, capable and desirous of bettering himself, of exercising his interests, passions, and virtues, and of enjoying the liberty that is his right as a free individual and a responsible member of society. No enlightened despot, not even an enlightened philosopher or legislator, is required to activate these qualities or to regulate and harmonise them for the general good.

This common human nature has even more dramatic implications, for it means that all men share not only these modest virtues, but also the "natural talents" that make for a distinctive "genius and disposition".

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. . . By nature a philosopher is not in genius and disposition half so different from a street porter, as a mastiff is from a greyhound, or a greyhound from a spaniel, or this last from a shepherd's dog.

Even today this stands as a bold assertion of the priority of nurture over nature, an affirmation of the natural equality of all people — not, to be sure, political, economic, or social equality, but a basic equality of human nature. Hume had earlier made a similar observation: "How nearly equal all men are in their bodily force, and even in their mental power and faculties, till cultivated by education." This may be one of the defining differences between the British and French Enlightenments. One of the most eminent of the French philosophes, writing about the same time as Smith, rejected any notion of the natural equality of men. When Helvétius was bold enough to suggest that circumstance, education, and interest account for differences in "l'esprit," Diderot rebuked him: "He has not seen the insurmountable barrier that separates a man destined by nature for a given function, from a man who only brings to that function industry, interest and attention."

A philosopher "not so different from a street porter" — this does not have quite the ring of that "self-evident" truth, "All men are created equal." Yet it does seem providential that The Wealth of Nations should have been published only months before the American Declaration of Independence. For its time and place, without the provocation of revolution or radical dissent, Smith's statement is memorable, all the more because it comes from one of Britain's most eminent philosophers — a political economist who was truly a moral philosopher.

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Roy Lisker
July 8th, 2012
2:07 PM
I'd thought that this problem was solved by Gerard DeBreu in 1984. That's why he received the Nobel Prize in Economics

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