Unfair to Adam Smith: his philosophy accords with modern psychology

I return to another article in Psychology Today (HERE), this time written by Darcia Narvaez, Associate Professor of Psychology and Director of the Collaborative for Ethical Education at the University of Notre Dame:

“Moral Landscapes Living the life that is good for one to live: The Cultural Airspace of Harmony Morality, Which emotions does your cultural airspace promote?

“Although the philosophers David Hume (1751/1998) and Adam Smith (1759/2002) considered concern for others to be fundamental to human character, empathy turns out to be highly influenced by one's upbringing. Parents and culture shape which moral emotions we dwell on and which morality we favor. Emphasizing anger, hate, fear, contempt leads to Bunker morality; emphasizing compassion, concern, love, forgiveness leads to Harmony morality.”

Comment
Darcia Navaez, PhD, has, in my view, a similar problem to that of Jim Taylor, PhD (Lost Legacy, 23 October): neither of whom is really up-to-speed on the works of Adam Smith, but by citing them in support of their otherwise most readable articles, I assume they felt that it would make their pieces publishable in Psychology Today, whose sub-editors would note that a well-known name makes their pieces reader-recognisable.

Smith did not believe that human characters or behaviours were, to quote a fashionable but incorrect metaphor, "hard wired", or 'inherent', or 'instinctive' (that was a view of Francis Hutcheson, Smith's Glasgow tutor). These behaviours and sentiments are learned and can vary widely according to upbringing and context.

Smith’s (and Hume’s) understanding of human nature – the sympathetic “concern for others” – was supported by a lengthy discussion in “Moral Sentiments” (1759) on how these “concerns” were generated, and they are not much different from Darcia’s elaboration of “Parents and culture shape which moral emotions we dwell on and which morality we favor”.

I refer readers to Moral Sentiments from which I could quote extensively from Smith’s early chapters, but feel on this occasion, his simple illustration is sufficient to make his point:

“Were it possible that a human creature could grow up to manhood in some solitary place, without any communication with his own species, he could no more think of his own character, of the propriety or demerit of his own sentiments and conduct, of the beauty or deformity of his own mind, than of the beauty or deformity of his own face. All these are objects which he cannot easily see, which naturally he does not look at, and with regard to which he is provided with no mirror which can present them to his view. Bring him into society, and he is immediately provided with the mirror which he wanted before. It is placed in the countenance and behaviour of those he lives with, which always mark when they enter into, and when they disapprove of his sentiments; and it is here that he first views the propriety and impropriety of his own passions, the beauty and deformity of his own mind. To a man who from his birth was a stranger to society, the objects of his passions, the external bodies which either pleased or hurt him, would occupy his whole attention. The passions themselves, the desires or aversions, the joys or sorrows, which those objects excited, though of all things the most immediately present to him, could scarce ever be the objects of his thoughts. The idea of them could never interest him so much as to call upon his attentive consideration. The consideration of his joy could in him excite no new joy, nor that of his sorrow any new sorrow, though the consideration of the causes of those passions might often excite both. Bring him into society, and all his own passions will immediately become the causes of new passions. He will observe that mankind approve of some of them, and are disgusted by others. He will be elevated in the one case, and cast down in the other; his desires and aversions, his joys and sorrows, will now often become the causes of new desires and new aversions, new joys and new sorrows: they will now, therefore, interest him deeply, and often call upon his most attentive consideration.” (TMS III.1.3: 110)

Smith discusses this process as dependent on contact with others, sequentially, first with parents (and other adults), then in the company of other children (school, playground, street games, etc., the great 'school of self-command'), through to entering adulthood.

How one treats others influences how they treat us; and from long sequences of complex interactions among humans in society, we are subsumed in the interdependent outcomes known as the ‘way we live’. He uses the metaphors of the “looking glass” and the “mirror” to emphasise the two-way nature of the what today we call the socialization of humans in society.

I recommend that readers either read Moral Sentiments directly or, for a short introduction to Smith’s moral philosophy, try my book, Chapter 2: “so weak and imperfect a creature as man”, pp 47-61, in Adam Smith: a moral philosopher and his political economy, 2008, Palgrave Macmillan.

Adam Smith and Religous Beliefs

Rev. Allen M Baker, Pastor of Christ Community Presbyterian Church in West Hartford, Connecticut, writes in Banner of Truth HERE

“Which will you choose?”

“By the sweat of your face you will eat bread (Genesis 3:19)”

In 1776 Adam Smith, a Scottish economist and Deist, a good friend of David Hume the sceptic, wrote his famous book Inquiry into the Nature and Causes of the Wealth of Nations that has profoundly affected the capitalist system in our world. Smith taught that an 'invisible hand of nature' guides the law of supply and demand and that if left alone will continue the increase in the wealth of nations equitably for all people. Smith failed, however, to heed the words of Genesis 3 concerning the implications of the fall into sin — namely that man is innately selfish and greedy, given to avarice.”

Comment
“Smith taught that an 'invisible hand of nature' guides the law of supply and demand and that if left alone will continue the increase in the wealth of nations equitably for all people.”

News to me, and I am sure it would have been news to Adam Smith. He never taught or wrote anything in the same sentence or paragraph about “the law of supply and demand” (Books I and II) and the “invisible hand of nature” (Book IV) (even the phrase “of nature” on this context is invented).

“the wealth of nations equitably for all people”.

Well, he wrote a book called (short title) the “Wealth Of Nations”, but did not refer in it to “equitably”. Distribution in its modern sense was not a topic in political economy in the 18th century. He said “progress to opulence” was a good thing – employment of labourers was good in the sense that it was better than destitution and the average life-span of 25 years.

Whether Smith failed “to heed the words of Genesis 3 concerning the implications of the fall into sin” is not documented. Being brought up in a Presbyterian household – his mother was very religious – he would know his Bible, but whether he took revealed religion seriously after his early 20s is another matter. It was unlikely that he was a Deist, at least after his mother died. In 18th-century Scotland, to be thought to be an atheist was not socially possible; Deism was also condemned but by the 1770s it was less so.

See my paper: The Hidden Adam Smith in his Alleged Theology”, presented to the History of Economics Annual Conference, University of Colorado, Denver, June 2009. Available from the address at the top of Lost Legacy’s Home Page.

“man is innately selfish and greedy, given to avarice”

“Innately” means it is within man from birth. What a low opinion Rev. Allen M Baker has of mankind. Some people are “selfish and greedy, given to avarice”, but many more are not. If we all were malformed that way we would “enter an assembly of men as [we] enter a den of lions” (Adam Smith, Moral Sentiments, 1759: TMS II.ii.3.4: 86).

It’s Rev. Allen M Baker’s kind of Presbyterianism that drove most Scots from the Church once the “Holy Willies” (as Robert Burns put it) no longer were able to force everybody into conformity with its oppressive doctrines (young Thomas Aitkenhead, a theology(!) student was hanged in Edinburgh in 1697 for so-called blasphemy).

What kind of loveless people were these men?

Smithian Competition Confirmed

Laura Fitzpatrick asks: “Are Humans Actually Selfish?” in
TIME (HERE)

“In his new book The Age of Empathy: Nature's Lessons for a Kinder Society, primatologist Frans de Waal uses a variety of studies on empathy in animals to debunk the idea that humans are competitive to the core.

Given all the science that tells us about empathy in animals and in ourselves, why do you think the idea persists that at bottom we're competitive backstabbers?

It was established at the beginning of the Industrial Revolution, when probably it was useful to have a picture of humans as competitive and to base the capitalist system on that image. And in doing so, a lot of political ideologues and economists started to forget that we are also a highly social species. The founder of economics, Adam Smith — to his credit — did realize that if you build a system completely on competitive principles it would not work very well.

What happened a year ago on Wall Street is exactly an example of what Smith was warning [about]. Society is not really made to be a purely competitive operation. And I think we have learned that lesson, but I don't know for how long. The whole argument that nature is red in tooth and claw, and for that reason society ought to be like that, is flawed. Because nature is not like that. If you look at our close relatives, you see animals who survive by cooperating. Yes, there is competition; there is dominance, hierarchy. They sometimes fight. They sometimes even kill each other. But they stick together because they survive together much better than alone.”

Comment
I’ve already commented this week on Frans De Waals’ new book this week, but it occurs to me that I have something to add in a comment on the context of ‘competitive’ in human relationships.

It has long been projected that Adam Smith favoured competition, as if he had written nothing about co-operation. Yet, in the first chapter of Wealth Of Nations he describes the long, and complex supply chain that eventually produced a common labourer’s woolen coat. Nobody was in charge of the supply chain – members of it may not have known, nor did they need to do so, anybody a link or two ahead or behind their place in it. Yet it functioned, if not effortlessly, well enough to provide the consumer with a woolen coat. This required, if not conscious co-operation, at least effective and consequential co-operation.

Buyers along the chain are not in competition with their suppliers; they are in competition with the set of other buyers, as are the set of all suppliers in competition with the set of other suppliers. The failure to appreciate this simple fact misleads many, including, too many, economists who mistakenly attribute to competition vices it never had.

Take the parable of the buyer in contact with the “butcher, the brewer, and the baker”. Most readers of the paragraph containing the parable, who have not read and understood Adam Smith in his books, Moral Sentiments and Wealth Of Nations, go hopelessly adrift in concluding that there is a clash of self-interest between the buyer of his dinner and his suppliers. They even quote it as evidence of their error in not understanding self-interst in Smith's lexicon!

Bargainers make and receive offers, which Smith states clearly as a conditional proposition:

“Give me that which I want, and you shall have this which you want” (WN I.ii.2: 26).

In short, the offers each makes are statements of potential exchanges they would accept. Until they find an offer acceptable to both of them, there is no deal.

The negotiation process is ubiquitous in commercial markets. Demanding everything for yourself and ignoring the demands of the other party is self-defeating.

In fact, Smith identifies how they reach a bargain a few lines further on:

“We address ourselves, not to their humanity but to their self-love, and never talk of our own necessities, but of their advantages.” (WN I.ii.2: 27)

In short, we have to persuade them (not force them), which is an entirely different image in practice to that of high-energy competition.

Over many years, I have extolled the virtue of competing with our rivals, not our customers.

Humans are not “competitive to the core” (a blatant misunderstanding among too many Homo-economicus thinking economists); we are social animals and, because of language, more so than our primate cousins.

The Wall Street Journal, which carried a similar report (thanks Brian) on Frans de Wall’s work, (“Tracing the Origins of Human Empathy” by Robert Lee Hotz HERE
ends with:

"They crossed the bridge with empathy, to realize something that is completely exotic to them," says Dr. Danziger. "True empathy is the ability to imagine how others are feeling, especially people who are not the same as you."

Most humans will recognise themselves in this observation. Smith also would appreciate the conclusion as confirming his 18th-century assertion Moral Sentiments.

A Wild Goose Chase; Another Disappointment

In another debate elsewhere on the invisible hand in Adam Smith, which I am engaged in lightly, a contributor identified not three uses by Smith of the popular 18th-century metaphor, but four.

That sent me to the library to search out the source of the 4th use. When examined, I find the claim is in History of Political Economy in January 1990, nearly 20 years ago.

I was surprised by the revelation of a fourth invisible hand in Adam Smith that I had missed, but my surprise soon became wonder – how did I miss it? - which, however, was soon dampened when I located and read it. The article, by Syed Ahmad, at the time of the Department of Economics at McMaster University, Hamilton, Canada, boldly titled “Adam Smith’s four invisible hands” (HOPE, 22:1 (137-44).

It discusses the three well-known instances, somewhat inadequately in my view, and achieves the four count by asserting that the reference to ‘an invisible hand’ in Moral Sentiments has two distinct meanings, adding a fourth meaning to the original three. Yes, I agree the claim is close to tentative in the extreme, but, to be fair, if Syed’s reasoning had worked he would have made a major discovery. Unfortunately, it doesn’t and he didn’t.

Syed asserts that the first invisible hand appears in Moral Sentiments in the guise of the “size of the landlord’s stomach” (139). You can read the quotation in full at: TMS IV.ii.10: 184-85. I must ask why does the physical limits of a human stomach – and all other stomachs in nature - need “an invisible hand”?

Syed adds the comment: “Without this limitation ‘all the thousands’ would have perished through his selfishness” (139). But the stomach’s limit is physical, not psychological. Moreover, if the landlords' stomach was without limits, so would every other human’s stomach be without limits too – the problem of starvation would then be exacerbated without limit.

Syed notes correctly that the “selfishness of the landlord is constrained for human survival”, but this has nothing to do with the invisible hand. He also accepts that “it was not man’s prudence or reasonableness or any other mental attitude which prevents catastrophe; it is the physical limitation of his stomach.”

But wait. Syed introduces the ‘second’ invisible hand ‘in the form of the residual selfishness of the landlord”. He notes that the size of the stomach prevents the landlord from ‘eating all the food he has” but “he could still let the rest go to waste” (a view implied by W. D. Grammp (2000. 'What did Adam Smith means by the invisible hand?' Journal of Political Economy, 108: 3, 441-65)in his weird account of the invisible hand). Syed calls this a “positive role” for “selfishness”.

He joins this muddle to Bernard Mandeville’s “Private vices, publick benefits” (“Whilst Luxury/ employ’s a Million of the Poor”). This sidesteps Smith’s concerns with the “thousands whom they employ” on their land producing the acres of food for consumption, before we take up the the issue of the landlord’s consumption of the luxuries supplied by the town’s artisans and producers of foreign imports.

Like the physical limitations of the stomach – an attribute of all humans long before the first landlords appeared from the agricultural ‘revolution’ 8-11,000 years ago – the absolute, inescapable necessity of feeding the labourers (and their families) who prepared the land, sowed the seeds from last season’s harvest, tended the crops (and the farm animals), and harvested and stored the products of the land is fully explainable without an invisible hand metaphor. If the labourers received nothing from a season’s harvest, they would starve and, if it was a general rule across all of society, who would undertake the labourers’ roles in the following spring?

Syed describes the limited stomach’s of the landlords as the first ‘invisible hand’ and the second role of distributing a share of the harvest to the farm labourers, the second invisible hand. Both roles are spurious as examples of an invisible hand explanation. In both examples, the parties to these transactions had no choice but to do what they did; there was no role for an invisible hand to lead them to do what they had to do anyway.

The only meaning that Smith could have meant was the singular role of the landlords in doing what they did as an example of unintentional outcomes, despite their delusions of greatness as the owners of their great estates and the employers of the thousands, who tended their fields and their domestic luxuries, plus, as trade between the country and the town (and foreign towns too) grew, their supply to landlords effective employed the skilled artisans and merchants who supplied luxury items (fine clothes, jewels, gold and silver plate, tapestries, and furniture).

Syed Ahmad did not discover a fourth invisible hand, and the two he elaborated upon in his article were contrived and, therefore, spurious.

New Book On Smith by Ryan Hanley

James Otteson, professor of philosophy and economics at Yeshiva University in New York, writes (9 July) in his personal Blog, James R. Otteson, PHD HERE:

“This Just In: An Excellent New Book on Adam Smith”

"I just received my advance copy of Ryan Patrick Hanley's excellent new Adam Smith and the Character of Virtue . I know it's excellent because I had an opportunity to read it in manuscript. In fact, the back cover of the dust jacket leads off with a blurb from me, which reads, in part, that Hanley's book is "one of the most important books on Smith in more than a decade."

Believe me, praise like that does not come easily from me. Everyone interested in Smith scholarship should read the book.”

Comment
I have had the pleasure of listening to a couple of lectures by Ryan Hanley on themes from Smith's Moral Sentiments. He is an authority and a very clear one at that. And Jim Otteson is a good judge of Smithian scholarship too.

Some people obfuscate Smith’s remarkably clear Moral Sentiments behind a veil of deep philosophical jargon, but Ryan is not one of them. He speaks at a brisk, but clear, pace, adding in short quotes from Moral Sentiments or pithy references, always with a page number attached from his memory. It is a performance to watch and listen to and audience members to whom I have spoken all remark on his high quality and authority which is a pleasure to listen to and learn from.

My order for his book will be in the post as soon as an address is available. I recommend that yours is too.

NB: I do not agree with all of Ryan’s conclusions about all aspects of his presentation of Smith’s ideas. Heaven forbid – we are good-natured scholars and I recognise polished talent when I come across it – so read and learn!

Promising Abstract on Adam Smith's Stance on Religion

Ross B. Emmett (James Madison College), write in First Amendment Scholarship Update HERE: in Man and Society in Adam Smith’s Natural Morality: The Impartial Spectator, the Man of System, and the Invisible Hand .

An abstract states (in part):

“One often hears the argument that Adam Smith’s Theory of Moral Sentiments provides a basis for the construction of a morality independent of a religion based on revelation. Central to this argument is Smith’s impartial spectator, whose study of human motivation through observation of the diversity of our actions shapes our capacity to both judge the motives of our present actions and inform our future ones. To the extent that one’s moral imagination attends to the impartial spectator, one’s judgment of actions will conform to a moral standard founded on human experience rather religious revelation.”

Comment
I picked out this paragraph (ignoring for this purpose some other remarks in the abstract on an ‘invisible hand’, having said plenty about The Metaphor recently) because it states something with which I completely agree.

It is absolutely right in my view that “in Adam Smith’s Theory of Moral Sentiments provides a basis for the construction of a morality independent of a religion based on revelation”.

Smith is clear that experience is the forming force of infants learning about appropriate moral behaviour – defined as those behaviours acceptable to others – and that such learning is not ‘innate’ in a God- implanted moral faculty (Francis Hutcheson).

A society of thieves and murderer refrain from stealing for or murdering each other; a society of Jews follows the Mosaic code; Mormons follow Joseph Smith’s code and Presbyterians follow their code (similarly with Muslims, Hindu's, and so on).

It is not clear if Ross agrees with this notion from his opening words: “One often hears the argument”, which usually is a prelude to disagreeing with the statement that follows.

It is also a phraseology similar to that used by Adam Smith throughout Moral Sentiments when he makes statements about religious doctrine and beliefs to the effect that he dilutes their religious undertones.

Ross’s statement that “one’s judgment of actions will conform to a moral standard founded on human experience rather religious revelation” is similar to that which I noted from my reading of Moral Sentiments for my paper: ‘The Hidden Adam Smith in his Alleged Religiosity’, available from the address at the head of this page.

Nicholas Gruen on Intellectual Property

Nicholas Gruen, an Australian economist, who has featured several times on Lost Legacy, posts at Club Troppo HERE and his recent paper:

“Adam Smith 2.0: Emergent Public Goods, Intellectual Property and the Rhetoric of Remix”, presented to the Copyright Future: Copyright Freedom Conference, Canberra (27th May) is now available (follow the link). Here is his introduction:

“I put quite a bit of effort into my two pieces on Adam Smith in Ross Gittins’ column while he was on leave and got quite a lot of positive feedback about them. So when I was asked to talk to an excellent conference organised by the indefatigable Fitzgerald siblings of QUT - Professors Brian and Anne - entitled Copyright Future: Copyright Freedom about the law of copyright in the age of the internet I decided to try to turn those columns, particularly the latter one, into a more substantial paper. Some academic stars were in attendance from around the world including Lawrence Lessig and it was a great conference. Plaudits to the Fitzgeralds and others associated with it.

One thing I really liked was the terrific way in which PhD students were involved, giving five minute talks on their research, being involved as discussants. They’re doing interesting things, and we were interested to hear what they were. Still, I christened Brian “Brother Didactica” because boy did we have a meal to chew through - full on papers, comments, discussants, questions, slide shows, from 8j.30 am till 6.30 at night. Seventeen people wheeled on and off the stage efficiently before lunch! And on it went.

I was one of the very few economists there, and was alarmed at how much of a meal lawyers can make of things that economists see as non-issues (like how to get the last penny of royalties to the copyright holders of ’orphan works’ - that is works that are not ‘public domain’ but for which rightful owners of copyright can’t be found.) I was sitting in a lengthy session about this and other not dissimilar problems in amazement that no-one reached for an economic perspective on this stuff (even if they didn’t want to treat it as the final word). I hope to blog about this. I wanted to say that there should have been more economists at the conference - which there should have been. But I didn’t want to say that if only economists were in attendance it would all be sorted. So if I get round to the post I have in mind I’ll spell out a little more about what I mean and explain where I think economists’ reasoning is strongest (something I’ve already forshadowed above) and where I think economists don’t think particularly well, and where lawyers do a better job.

In the meantime, I thought I’d post my talk which is the ‘paper’ of the ‘column‘ as it were, which I was pleased to find Mark Thoma thought worthy of his fantastic site Economists’ view. Likewise Gavin Kennedy liked my earlier column about Adam Smith and mirror neurons. Gavin and Mark Thoma have also picked up Don Arthur’s post on Adam Smith on poverty.”

Comments
(Excuse the shameless plug.) Nicholas is not just an economist; he is also a talented writer and he understands Adam Smith better than most who claim to quote him authoritatively. In short Nicholas has read Smith’s books, joining a very small elite among economists, and an even smaller elite of those who write about him with false confidence in the mainstream media.

Currently, I am in correspondence with Nicholas over his use of the phrase ‘hard wired’ in relation to human capacities for sympathy. His use fits the themes of ‘Web 2.0’ - it sounds ‘ITish’ – and therefore possibly legitimate on poetic grounds, but I am not so sure that it is appropriate for Adam Smith’s thinking.

Innate capacities in some sort of moral faculty, as asserted by Francis Hutcheson, Smith’s tutor and mentor, were rejected by Smith when he wrote Moral Sentiments, and presumably in the lectures he delivered on Ethics at Glasgow University (1751-1764) – and possibly during his public lectures at Edinburgh (1748-51) – in favour of the firm idea that humans acquire their capacities for sympathy from social experiences, first as infants and youth from their contact with others (the ‘great school of self command’).

Without that social contact, a human would have no notion of sympathy for others. Fortunately, humans have always been born into social contact (as were the primates before them). Absent their parents and contact only with non-human animals (a case was reported this week of a child growing up only with dogs and behaving like a dog) the person would be bereft of any notion of human behaviour. Smith asserted that because they had no mirror on their behaviour they would have to learn how to behave when they did come into society, which is where normal human beings learn about moral behaviour (whether they practice it or not).

I conclude that our moral capacities are not ‘hard-wired’; they are not placed there by God or Nature. This is also seen in the different behaviour sets practiced by humans living in different social cultures and how behaviour sets can clash remarkably clearly when in contact. Smith noted in Moral Sentiments how people in groups living off murder and theft would have to desist from murdering and stealing from each other if their society were to function – though they may happily murder and steal from people in other societies.

Our discussions continue… Meanwhile, follow the link and enjoy Nicholas' great writing and thinking talent - there ain’t a lot of it about and much of what there is available you will find in Nicholas Gruen’s short articles.

Great Article on Adam Smith's Moral Sentiments

Nicholas Gruen (my web buddy in Australia) has given me permission to reproduce his Web 2.0 article on Adam Smith's Moral Sentiments, which I mentioned on Lost Legacy a few days ago.

I consider Nick's articles are excellent introductions to Smith's Moral Sentiments, Smith's least understood book (which is a characteristic it shares with better known, but still very poorly understood other book, Wealth Of Nations:

"When Ross Gittins (presumably a famous Oz MSM columnist),asked me to write a couple of columns in his place as he went on leave I agreed and realised shortly afterwards that they would coincide more or less with the 250th anniversary of the publication of The Theory of Moral Sentiments. So I decided I’d try to write two columns as bookends on Smith and his theory of moral sentiments.

The first one was published a couple of weeks ago second one is in today’s [Sydney Morning Herald] and Age (Melbourne).

Adam Smith and Web 2.0

HISTORY plays tricks on us. The real internet revolution picked up after the internet bubble had burst. And the economist whose framework helps most in thinking about the internet revolution is none other than Adam Smith, who kicked off economics more than 200 years ago.

The internet boom involved companies using the net to broadcast to customers — like ads on TV — or to automate the sales process: for instance, with customers booking their own airline tickets or ordering books. Today Web 2.0, or collaborative web, is enabling armies of volunteers to build a better world. Some are building and giving away public goods such as open-source software (Linux and Firefox) and reference resources (Wikipedia). Others provide expert analysis and commentary on blogs, often surpassing professional journalists. Others, such as Facebook, connect people with something in common.

These phenomena can’t be easily explained within economists’ standard framework, in which economic decision-makers are reduced to the ideal type known in the trade as homo economicus. Homo economicus is a pure, calculating egoist optimising his profit or “utility” without regard for others’ views or conduct (except where they’re useful to his ends).

Homo economicus might not explain which films we see or with whom we socialise. But a theory’s job is to highlight some aspects of reality — by leaving out others. When you make investments or haggle for a car or house, you’re probably doing the best homo economicus impression you can.

Even here, however, something’s seriously wrong. We’re socially comparative beings. We care deeply about the conduct, opinions and values of our peers, using comparisons with them to orient our own ideas about what we need or value and how wealthy we want or need to be. As for the subtler aspects of our economy, from the motivation of employees to those amazing things Web 2.0 is bringing forth, well, homo economicus doesn’t seem to get close to what’s going on.

Enter Adam Smith’s Theory of Moral Sentiments, published 250 years ago last month, a book he intended partly as a theoretical foundation for his later economics. As Smith sees it, we begin our lives as blobs of infantile egoism — infans economicus, if you like. But from then on Smith sees the process that we now call socialisation deepening and transforming us.

We learn from our immediate family, on whom we are utterly dependent, that some things win their approval and admiration, others their disapproval and even disgust. Our craving of approval and dread of disapproval and our ability to understand others by imagining ourselves in their shoes draw us into a lifelong dialectical social drama.

In modern economics, the attraction of great power, fame or wealth is simple greed for more. Smith’s richer psychology offers a more plausible explanation. “(T)o what purpose is all the toil and bustle of this world?” Smith asks. What human drive lies behind avarice and ambition?

Is it to supply the necessities of nature? The wages of the meanest labourer can supply them. To be observed, to be attended to, to be taken notice of with sympathy, complacency, and approbation, are all the advantages which we can propose to derive from it. It is the vanity, not the ease or the pleasure, which interests us.

Smith was an advocate of self-interest in human affairs, but in a much richer, more interesting way than is usually thought. In advocating a larger role for self-interest, Smith identified the public goods that are prerequisites for self-interest becoming socially constructive. Within economics the invisible hand only works in a peaceful, lawful society, and with strong, free competition.

Within society more generally, self-interest becomes a rich ethical meal, not the morally anorectic egoism of homo economicus. Our natural sociality enriches and educates our self-interest. Craving esteem and imagining ourselves as others see us, we gain some objective appreciation of our own moral worth. And this is ultimately a spur towards virtue as we strive to be worthy of the esteem we crave (although, of course, as we are mere mortals there is much stumbling on our journey).

Web 2.0 is scaling up the scope for human sociality and opening up new vistas for the expression of self-interest. And yet profit-seeking is only a small part of how that self-interest is manifesting itself.

The way we express our self-interest on Web 2.0 is something new, and also as old as humanity itself. Why do millions of us blog? For the same reason we talk and write emails, text messages, instant messages and letters (remember them?). We do it to communicate feelings, ideas, needs and experiences with others who might understand us. They might even write back! Whether it’s the evolution of language itself or the evolution of culture and social mores, people’s interaction like this builds communities of shared meaning and understanding.

Even Smith’s description of a market was inherently social — he toyed with the idea that the fundamental human drive behind bargaining was the desire we each have to persuade others to see it our way. Smith would have understood the foundational proposition of an early Web 2.0 credo, “the cluetrain manifesto” — “Markets are conversations”.

As Web 2.0 burgeons, its denizens pursue their interests like the merchants in Smith’s Wealth of Nations, posting and commenting on blogs, making and exchanging programming code and mash-ups of each other’s content, making connections based on social or practical needs. Some serve practical needs — perhaps they need some software bug fixed. Others are “know-alls” proving their superior knowledge. Some express their love of a subject.

And just as the miracle of a healthy market enables the merchant’s self-interest to serve the common good, so this new alchemy of the web aggregates individual efforts into freely available public goods. Likewise this unruly mix of motives gives us glimpses of our better selves. To use Smith’s description of the psychology of ambition, it lures us on our quest for an “easy empire over the affections of mankind”, which is a hint, a tease calling us on a quest for a more distant and difficult destination — virtue itself."

[You can access a printed version of Nick's article HERE: http://clubtroppo.com.au/2009/05/01/adam-smith-and-web-20/ and contact him should you wish.]

Lost Legacy Prize for April - Simply the Best

Pejman Yousefzadeh in the New Ledger HERE
writes ‘In Praise of Adam Smith’ and introduces me (for which my deepest thanks, to Karen Horn, writing in Standpoint online HERE:

‘Instead, the present global financial crisis has made the godfather of classical economics look strikingly irrelevant in comparison with Keynes, the inventor of modern disequilibrium theory. Even worse, now that bankers are being castigated as the incarnation of greed, blindness and irresponsibility, the man who wrote in his famous Inquiry into the Nature and Causes of the Wealth of Nations that "it is not from the benevolence of the butcher, the brewer, or the baker" - or perhaps the banker in our day - "that we expect our dinner, but from their regard to their own interest" is again accused of being the chief advocate of heartless laissez-faire capitalism, a system that failed and had to fail. In this view, capitalism is nothing but a false religion, with Mammon as its god and Smith as its high priest. Critics worry that markets need a moral foundation that they automatically erode. They ridicule the naïve belief that free markets bring everybody happiness at no cost, a conviction allegedly lacking all philosophical underpinnings.’

From this unpromising start Karen Horn knocks the socks of almost all commentators on the relevance of Adam Smith. I sat up and paid attention when I read her next sentence:

‘His deep persuasion was that simply observing reality enables us to discover the underlying natural principles. The Scottish Enlightenment thinkers aimed at shedding light on the laws governing human behaviour, and on their consequences for life in society.’

She continued amazing me with her understanding of Adam Smith (I am so used to media commentators talking nonsense about him):

‘Absent-minded he may have been, but naïve he wasn't, let alone a cynic. Smith did not tolerate immoral behaviour. It would never have occurred to him that selfishness and greed might be viewed as being just normal - and even less that they might be morally laudable, let alone negligible. This differentiates him from Thomas Hobbes, in whose view man is a wolf to other men, and also from Bernard Mandeville, well-known for his poem "The Fable of the Bees", in which he - half satirically, half seriously - claims that private vices result in public benefits. Smith strongly objected to this view. The proof of this attitude is his first widely recognised book, the Theory of Moral Sentiments, published on April 26, 1759-250 years ago.’

If you have not read, or understood, Smith’s Moral Sentiments, I recommend that you follow the link to Karen’s article. It’s by far the best short summary of Smith’s moral philosophy I have read for quite a while. She explains the ‘impartial spectator’ clearly. She also demolishes the so-called 'Das Adam Smith Problem:

‘It is true that almost two decades elapsed between the first publication of the Theory of Moral Sentiments and the Wealth of Nations. But Adam Smith never left it at the first editions of his works. Both books underwent numerous rewrites and additions until the end of Smith's life. He worked on them continuously and in parallel but never fundamentally changed his mind. His approach and the logical system that he built always stayed the same.’

I would add to this the fact that Smith’s Lectures in Jurisprudence [1762-63] carry verbatim much that was to appear in Wealth Of Nations, emphasising the continuity in his economics from his days at Glasgow before he met the French Physiocrats in 1764-6. These lectures were not available until 1896 when a manuscript of students’ notes were found in Oxford.

‘Smith's major works both take the same methodological route, using parallel premises and leading to analogous results. Smith's approach is typical of the empiricism that was in vogue during the Scottish Enlightenment. He describes meticulously that which is - and not so much that which should be. He looks at people's behaviour and tries to deduce universal laws from what he sees. Since man is a social animal, the observations focus on human interaction.’

Comment
I urge you to read Karen Horn’s article. It is too good to miss. And the sensible comments attached from readers are gems indeed. There is even a mention for a theme relevant something that I am working on at present for my paper on the ‘Alleged religiosity of Adam Smith':

‘Some scholars have attributed Smith's optimism to his alleged Deism. He seems to show a belief in a Creator who has endowed the world with certain natural laws accessible to human reason, but who refrains from intervening in the course of worldly events. True or false, this is no founding pillar of Smith's system. Smith places the individual dispositions and actions of men at the baseline of his analysis. If these dispositions and actions cannot be traced back to providence but are instead triggered by secular social learning or simply sheer evolution, this doesn't invalidate his logical result. The masterpiece that matters is the social co-ordination achieved through interaction, and the generation of useful institutions that channel life in human society.’

I couldn’t put it better myself. I have no hesitation in awarding Karen Horn the Lost Legacy Prize for the best article on Adam Smith for April 2009.

Thought For the Day, no 8

It is often preached (a not inappropriate word in this context) that Adam Smith was a believer in what became known in the later 19th century as Homo eonomicus, or the perfectly rational person, driven by manic self-interest to maximise his personal utility.

In Moral Sentiments (1759), Adam Smith presents a different perspective to the uni-dimensional automaton that modern economists since the 19th century created, and which their successors in the 20th century increasingly refined, so to speak, to make this creature (for surely it was never intended to be regarded as human) fit into the determinate convenient mathematics of general equilibrium.

Smith on a richer, more complex, and more realistic vision of man in society is worth reading – and thinking about:

‘There can be no proper motive for hurting our neighbour, there can be no incitement to do evil to another, which mankind will go along with, except just indignation for evil which that other has done to us. To disturb his happiness merely because it stands in the way of our own, to take from him what is of real use to him merely because it may be of equal or of more use to us, or to indulge, in this manner, at the expence of other people, the natural preference which every man has for his own happiness above that of other people, is what no impartial spectator can go along with. Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so. Every man, therefore, is much more deeply interested in whatever immediately concerns himself, than in what concerns any other man: and to hear, perhaps, of the death of another person, with whom we have no particular connexion, will give us less concern, will spoil our stomach, or break our rest much less than a very insignificant disaster which has befallen ourselves. But though the ruin of our neighbour may affect us much less than a very small misfortune of our own, we must not ruin him to prevent that small misfortune, nor even to prevent our own ruin. We must, here, as in all other cases, view ourselves not so much according to that light in which we may naturally appear to ourselves, as according to that in which we naturally appear to others. Though every man may, according to the proverb, be the whole world to himself, to the rest of mankind he is a most insignificant part of it. Though his own happiness may be of more importance to him than that of all the world besides, to every other person it is of no more consequence than that of any other man. Though it may be true, therefore, that every individual, in his own breast, naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle. He feels that in this preference they can never go along with him, and that how natural soever it may be to him, it must always appear excessive and extravagant to them. When he views himself in the light in which he is conscious that others will view him, he sees that to them he is but one of the multitude in no respect better than any other in it. If he would act so as that the impartial spectator may enter into the principles of his conduct, which is what of all things he has the greatest desire to do, he must, upon this, as upon all other occasions, humble the arrogance of his self-love, and bring it down to something which other men can go along with. They will indulge it so far as to allow him to be more anxious about, and to pursue with more earnest assiduity, his own happiness than that of any other person. Thus far, whenever they place themselves in his situation, they will readily go along with him. In the race for wealth, and honours, and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of. This man is to them, in every respect, as good as he: they do not enter into that self-love by which he prefers himself so much to this other, and cannot go along with the motive from which he hurt him. They readily, therefore, sympathize with the natural resentment of the injured, and the offender becomes the object of their hatred and indignation. He is sensible that he becomes so, and feels that those sentiments are ready to burst out from all sides against him.’ (TMS II.ii.2.1: 82-83)

Great Correspondents in Our Time no. 1

Two interesting letters to the Wall Street Journal (HERE):

“The Moral Hazards of Managing Other People's Money"

“John C. Bogle in "A Crisis of Ethic Proportions" (op-ed, April 21) proposes that we try harder to be more moral, and in that misses the point of Adam Smith. Mr. Bogle cites Adam Smith's statement, "[M]anagers of other people's money [rarely] watch over it with the same anxious vigilance with which . . . [they] watch over their own" which is an indictment of human nature. Smith's position is that man's essential nature is a given, not something which can be altered. It is from this base that the invisible hand is derived. Setting up structures which rely on what man ought to be, compared to what he is, is like building a house on sand.” Adam Freund, Oak Park, Mich.

“Mr. Bogle cites Adam Smith's prescient words about the frailty and the faults of managers who manage other people's money. But this tension between the owners and the overseers of commercial activities goes back much further. Consider these words from John 10:11-13 ". . . the good shepherd giveth his life for the sheep. But he that is an hireling, and not the shepherd, whose own the sheep are not, seeth the wolf coming, and leaveth the sheep, and fleeth: and the wolf catcheth them, and scattereth the sheep. The hireling fleeth, because he is an hireling, and careth not for the sheep." Paul O. Gaddis, Franklin, Tenn.

Comment
What intelligent and informed correspondents write to the Wall Street Journal!
I have no time just yet for a comment - will try later.

Kofi Annan on Adam Smith and African Development

Peter Foster posts ‘Kofi sends Adam spinning’ in the National Post (HERE):

"Adam Smith believed that great danger lay in ‘partnerships’ between government and business. Kofi Annan has done more than anybody to promote such partnerships’
“The inside of Adam Smith’s grave must be worn pretty smooth by now, after two centuries of the great man’s spinning due to constant misinterpretation. Numerous additional rotations were surely in order yesterday when former secretary-general of the United Nations, Kofi Annan, delivered the annual Adam Smith lecture at the Kirkcaldy college that bears Smith’s name. Mr. Annan came at the invitation of deeply unpopular British Prime Minister Gordon Brown, who spent far more of his youth reading Das Kapital than The Wealth of Nations, but who also claims to be a Smith fan.”

“Mr. Annan typically tried to present Smith as an 18th-century proto-Bono. In fact, although Smith believed that personal benevolence was the highest virtue, he might have regarded Mr. Annan (and Bono) as typical of what he called “whining and melancholy moralists, who are perpetually reproaching us with our happiness, while so many of our brethren are in misery, who regard as impious the natural joy of prosperity, which does not think of the many wretches that are at every instant labouring under all sorts of calamities, in the languor of poverty, in the agony of disease, in the horrors of death, under the insults and oppression of their enemies.”

“Smith believed that great common good was provided by the pursuit of self-interest. He also believed that great danger lay in “partnerships” between government and business. Mr. Annan has done more than anybody (prodded by advisers such as Maurice Strong and Jeffrey Sachs) to promote such partnerships and lumber business with social and environmental “leadership,” thus diverting them from job creation.”

”The simple Smithian reference that Mr. Annan would perhaps do best to dwell upon is from the Sage of Kirkcaldy’s lectures at Glasgow University, where he suggested that “Little else is required to carry a state to the highest degree of affluence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.”

”What Africa needs is not more slush funds laundered via corrupt agencies and even more corrupt governments, but “peace, easy taxes and a tolerable administration of justice.”

Comment
I agree with Peter Foster, though, please, would he stop referring to Capital by Karl Marx as Das Kapital – somebody said on a Blog recently that people who refer to Marx’s Capital by other than its title in English have never read it (excepting, of course, those who read German!).

The reference to Adam Smith on ‘whining and melancholy moralists’ is from Moral Sentiments: TMS III.3.9: 139-40, and it is worth reading in context too. At the time he was contrasting two strands of morality (well represented in the Christianity preached in Scotland at the time):

“Two different sets of philosophers have attempted to teach us this hardest of all the lessons of morality. One set have laboured to increase our sensibility to the interests of others; another, to diminish that to our own. The first would have us feel for others as we naturally feel for ourselves. The second would have us feel for ourselves as we naturally feel for others. Both, perhaps, have carried their doctrines a good deal beyond the just standard of nature and propriety.

The first are those whining and melancholy moralists, who are perpetually reproaching us with our happiness, while so many of our brethren are in misery, who regard as impious the natural joy of prosperity, which does not think of the many wretches that are at every instant labouring under all sorts of calamities, in the languor of poverty, in the agony of disease, in the horrors of death, under the insults and oppression of their enemies. Commiseration for those miseries which we never saw, which we never heard of, but which we may be assured are at all times infesting such numbers of our fellow-creatures, ought, they think, to damp the pleasures of the fortunate, and to render a certain melancholy dejection habitual to all men. But first of all, this extreme sympathy with misfortunes which we know nothing about, seems altogether absurd and unreasonable. Take the whole earth at an average, for one man who suffers pain or misery, you will find twenty in prosperity and joy, or at least in tolerable circumstances. No reason, surely, can be assigned why we should rather weep with the one than rejoice with the twenty. This artificial commiseration, besides, is not only absurd, but seems altogether unattainable; and those who affect this character have commonly nothing but a certain affected and sentimental sadness, which, without reaching the heart, serves only to render the countenance and conversation impertinently dismal and disagreeable. And last of all, this disposition of mind, though it could be attained, would be perfectly useless, and could serve no other purpose than to render miserable the person who possessed it. Whatever interest we take in the fortune of those with whom we have no acquaintance or connexion, and who are placed altogether out of the sphere of our activity, can produce only anxiety to ourselves, without any manner of advantage to them. To what purpose should we trouble ourselves about the world in the moon? All men, even those at the greatest distance, are no doubt entitled to our good wishes, and our good wishes we naturally give them. But if, notwithstanding, they should be unfortunate, to give ourselves any anxiety upon that account, seems to be no part of our duty. That we should be but little interested, therefore, in the fortune of those whom we can neither serve nor hurt, and who are in every respect so very remote from us, seems wisely ordered by Nature; and if it were possible to alter in this respect the original constitution of our frame, we could yet gain nothing by the change.” (TMS III.3.8-9: 139-40)

Foster hits home with “slush funds laundered via corrupt agencies and even more corrupt governments” – he could have added that those who use their ‘moral authority’ to provide soft cover for the corrupt agencies and corrupt governments are also part of the problem too.

Nicholas Gruen on Smith's Moral Sentiments

Nicholas Gruen’s article on Adam Smith’s Moral Sentiments (first published in the Sydney Morning Herald, 10 April) is republished in On Line Opinion (Australia’s e-journal of social and political debate’) HERE:

I recommend that you follow the link and read Nick’s explication of the role of sympathy in human relations, as explained by Smith in his Theory of Moral Sentiments (1759).

Over at Econ Talk (HERE) Dan Klein and Russ Roberts are discussing the whole of Smith’s Moral Sentiments text (they are on part 3 of the series this week), but if you want a short, sharp introduction to Smith’s theory of reciprocal sympathy, Nick’s excellent and inimitable prose style in just the right tone will provide you with the tools in about 15 minutes reading (and thinking).

Here is the briefest of extracts for you (consistent with ‘fair dealing’ of copyright materials):

"Happy 250th birthday: Adam Smith the public figure

Smith’s great theme was that self-interest was healthy if balanced by similarly powerful forces tending towards the public good. In economic life in freely competitive markets, competition and self-seeking behaviour would - miraculously - serve both private and public interests. So long as a bargain was free and informed - for instance free of a merchant’s monopoly power or of fraud - it would improve the lot of all concerned.

And Smith’s Theory of Moral Sentiments argued that people seeking their own interests in a society were united by their sympathy or fellow feeling for others. If that sounds a bit lame to you - a monopolist’s sympathy for his customers rarely stops him exploiting them - Smith wasn’t arguing that people always do the right thing. His point was subtler and more powerful. Smith observed the way we internalise others’ values and live enmeshed in social meanings and expectations.
In thrall to Newton’s explanation of the movement of planets via a single, uniform principle - that of gravity - he looked for a similar foundation for human behaviour in society. In modern parlance Smith argued that we were “hardwired” for sympathy or fellow feeling with others, not in the sense that we always take their side, but in the deeper sense that our understanding and ultimate judgment of them depends on an imaginative sympathy, on the process of being able to place ourselves in their position, to see the world through their eyes."

Comment
Lost Legacy has corresponded with Nick Gruen since its foundation in 2005 and he is a perceptive literary scholar of Adam Smith’s Moral Sentiments. I have posted a couple of his articles in the past on Lost Legacy’s Home page.

Thought for the Day no. 6

I have been reading Charles Darwin’s lesser known book, The Descent of Man, and selection in relation to sex (1871), which reports on his research published after his Origin of Species (1859).

In it, Darwin makes a direct reference to Adam Smith’s Moral Sentiments (Smith’s first book, published in 1759) in his chapter discussing moral sense.

From this chapter, it is clear that Darwin agreed with Smith that moral sense was not an innate faculty (as suggested by Frances Hutcheson), but was learned from social contact with other humans in society.

‘Thus, the social instincts, which must have been acquired by man in a very rude state, and probably even by his early ape-like progenitors, still give the impulse to many of his best actions, but his actions are largely determined by the expressed wishes and judgement of his fellow men, and unfortunately still oftener by his own strong, selfish desires.’ (Descent of Man, p 86; see also footnote 17, p 82)

Darwin's theatre of activity included the whole range of animals, beside humans, and he used his detailed knowledge to test the extent of moral behaviour across a wider range of species than Smith, who considered only humans. He also drew on a hundred years of extra research not available to Adam Smith. On the whole, I think Smith's theories stand up quite well.

OZ Economist Explains Moral Sentiments

Nicholas Gruen, a long time reader of Lost Legacy, writes on the publication 250 years ago, April 1759, of Adam Smith’s, The Theory of Moral Sentiments, in The Sydney Morning Herald Here:

“Cut-throat behaviour makes empathy flow”

“Like his compatriots in the Scottish Enlightenment, Smith felt that self-interest was too powerful a force to be demonised in moral philosophy, as he felt Christian teaching had done. As he observed: "The appetites of hunger and thirst, the … sensations of pleasure and pain, of heat and cold, etc may be considered as lessons delivered by the voice of nature herself … Their principal object is to teach [us] how to keep out of harm's way."

And Smith's Theory Of Moral Sentiments argued that people seeking their own interests in a society were united by their sympathy or fellow feeling for others. If that sounds a bit lame to you - a monopolist's sympathy for his customers rarely stops him exploiting them - Smith wasn't arguing that people always do the right thing. His point was subtler and more powerful. Smith observed the way we internalise others' values and live enmeshed in social meanings and expectations.
In thrall to Newton's explanation of the movement of planets via a single, uniform principle - that of gravity - he looked for a similar foundation for human behaviour in society. … The whole of human sociality is built on these foundations. Indeed, armed with his theory, Smith argued that those who strive for riches do it not principally because of the utility it buys but because they crave the esteem of others. Smith despaired that we were so impressed by the wealthy.

Just as Shakespeare observed that all the world was a stage, Adam Smith introduced a similar idea to social science (or moral philosophy, as he called it). Reflecting on our own observation of others, we realise that others observe us and form opinions about us just as we do about them. This thought makes us all actors and spectators, not just of others' actions, but ultimately of our own. We keep an eye on our own conduct contemplating what others might think of us.

In the 1990s Italian neurophysiologists placed electrodes in monkeys' brains to study how they co-ordinated their hands and mouths to eat. Having located the small region that fired when an animal lifted food to its mouth, they found that the same region fired - only less strongly - when one monkey simply watched another lift food to its mouth. An extensive network of so-called "mirror neurons" was discovered, which fire and enable monkeys to recreate within their own brains what's going on in the brains of their fellows. Critically, mirror neurons don't respond in a mechanical way to given physical movements but only when the observer interprets such movements as having been made with a given intention - for instance, eating."

Comment
An excellent introductory start for readers who want to know something about Adam Smith’s moral philosophy (strengthened, of course, by reading Moral Sentiments and by listening to the Robert-Klein Podcasts introduced in the previous post).

You can read all of Nicholas Gruen’s article by following the link above.

Listen to Weekly Podcast Series on The Theory of Moral Sentiments

EconTalk’s host Russ Roberts, is starting an ambitious podcast series on 15 April about Adam Smith's lesser-known masterpiece, The Theory of Moral Sentiments, on the 250th anniversary of its initial publication under the auspices of the Library of Economics and Liberty (HERE), with Daniel Klein, Professor of Economics at George Mason University, whose teaching focuses on economic principles, public policy issues, and the liberal tradition of Adam Smith and Friedrich Hayek. He is the chief editor of Econ Journal Watch, an online journal dedicated to economic criticism from a Smith-Hayek viewpoint.

Russell Roberts is Professor of Economics and the J. Fish and Lillian F. Smith Distinguished Scholar at the Mercatus Center at George Mason University. He is especially interested in communicating economics to non-economists. He blogs at Cafe Hayek along with Don Boudreaux (HERE

An overview podcast of the upcoming series is available (HERE):

“Klein on The Theory of Moral Sentiments, Episode 1--An Overview.”

Dan Klein, of George Mason University, highlights key passages and concepts of the book including its relation to The Wealth of Nations, Smith's willingness to accept "vague, loose, and indeterminate" rules rather than precise ones for moral behaviour, Smith's criteria for assessing what is moral and what is not, and Smith's conception of justice.

This podcast is part of the EconTalk Book Club on The Theory of Moral Sentiments. It will be followed by four bonus podcasts in the coming weeks going through the book systematically. Interested listeners who wish to do their reading in advance can find the schedule along with more background on the book on the EconTalk book club page, accessible from the EconTalk home page.

I have listened to the initial overview podcast (1hr 23m) and warmly endorse its content and approach, which takes the form of Russ Roberts posing questions and Dan Klein responding, and with both discussing related themes. This approach works well in my view.

I don’t quite agree with everything, though my areas of doubt are minor. I particularly liked the initial statements that Adam Smith’s image is largely a caricature (including the ‘so-called’ invisible hand), and Dan Klein got my attention quickly with his upfront assessment of Smith's alleged religiosity being muted and unclear. Currently, I am working on my paper on “Adam Smith’s Religiosity: a review of the evidence” for the History of Economics Society annual meeting in Denver, Colorado, in June, and found this early assessment encouraging.

The idea is for Professor Klein to deal with Moral Sentiments in parts, with part 1 being covered next Wednesday, 15 April.

Listeners are advised to read The Theory of Moral Sentiments, part 1, which, if you have not got a hard copy to hand, can be downloaded free HERE:
This is the 6th edition, as published in 1790 in London.

You can get a copy of the defintive Glasgow Edition, published by Liberty Fund in 1982, and available in a low-priced edition from Liberty Fund (try Amazon for a really low-price). I saw details of an on-line version of this edition but I have mislaid them – perhaps a more careful reader can provide details for Lost Legacy?

Part 1 is only 66 pages long and gets you into Smith’s theme, ready to hear Professors Klein and Roberts go through its main ideas. I shall probably offer my own comments too...

Smith In Glasgow

Smith in Glasgow ’09 Conference
31 March – 2 April

I shall be away for three-days at a 250th commemoration seminar for the publication of Adam Smith’s Theory of Moral Sentiments (1759).

There will probably be light Blogging until I return unless I can find a connection (or how to work my iphone).

The programme both for the seminars and for the main events shows quite a galaxy of major Smithian scholars presenting their papers (‘spoilt for choice’ is my problem). I shall report on the events I attend (I am chairing one of the seminar sessions) and on the people I meet, some of whom were at the Balliol College conference in January, including David Raphael, who edited the Oxford University Press, Standard edition of Moral Sentiments.

Amartya Sen is presenting the main paper on Thursday, and pre-releases suggest it is a major event for economists on the current problems from his unique authoritative perspective.

The Loose Morality of Accountability in Banking

A correspondent drew my attention some time ago to a statement in Moral Sentiments, which was withdrawn from edition 2, but is reproduced in edition 6 as an editor’s footnote on p 111 (Oxford University Press edition):

‘A moral being is an accountable being. An accountable being, as the word expresses, is a being that must give an account of its actions to some other, and that consequently must regulate them accordingly to the good liking of this other. Man is accountable to God, and his fellow creatures. But tho' he is, no doubt, pricipally accountable to God, in the order of time, he must necessarily conceive himself as accountable to his fellow creatures before he can form any idea of the Deity, or the rules by which that Divine Being will judge of his conduct.’ (TMS III.1.3. footnote [2], p 111)

Comment
Apart from this being an example of Smith's editing out of earlier several references to God and the Deity, the idea of accountability to ‘fellow creatures’ may have some relevance to those bankers, traders, fund managers, and their assorted ilk, who seem to have escaped accountability even to today’s, and future, taxpayers who are paying to keep them in business and, apparently, in bonuses.

Selfishness Is Never a Smithian Virtue

Theodore Roosevelt Malloch, author of Spiritual Enterprise: Doing Virtuous Business (Encounter Books), writes in American Spectator this week, ‘The Deeper Roots of Our Financial Crisis’ (11 February), HERE:

“Capitalism, the goose that laid our golden eggs over the past decades, brings about immense transformation, particularly in its globalized form. It is in nature as Adam Smith reminded us in his first book, The Theory of Moral Sentiments, written long before his better-known work, The Wealth of Nations, all about what he called "the moral sentiments." He himself distinguished between self-interest, which he promoted, and greed. Self-interest is both good and essential. Greed is always wrong and bad. The key difference is the former uses self-restraint, which obviously requires a moral code and a moral compass. There are moral preconditions in a market economy: the sentiments of sympathy, benevolence and compassion, of approval; disapproval and indignation, which underpin the social order and make it possible to engage in business in the first place. Human beings are not just profit-maximizers. They have moral scruples, personal commitments and the desire for happiness. These set limits to their plans for personal profit, and also stimulate them to pursue profit in ways that honor their higher values and generosity. Many companies, large and small, exhibit these; they live and conduct business by these values, in every industry and on every continent. I collected sixty examples in my recent book but there are thousands upon thousands.”

Comment
Adam Smith also taught his course in ‘Ethics’ (moral philosophy) in his public Edinburgh Lectures, 1748-51, and at Glasgow University, 1751-64. Much of their contents were written up as The Theory of Moral Sentiments (1759). It is also important to realise that he also taught his Lectures on Jurisprudence, which contained elements of his ‘political economy’ and parts of which were repeated verbatim in Wealth Of Nations (1776 – though essentially completed c. 1763-4).

I mention this to be sure that Theodore Roosevelt Malloch does not accidentally give the impression that Smith’s moral philosophy was in some sense an ‘early work’ that was different in moral tones from his Wealth Of Nations, published some years later. Smith’s Work, essentially, a part of his oeuvre was not a ‘second thought’ as exponents of the myth of the 19th-century, ‘Das Adam Smith problem’, still tout seriously today (I heard a paper claiming it to be a continuing problem in 2008!).

Having said this, I congratulate Theodore on his assessment of Smith’s clear understanding, and repeated statements of the difference between self-interest and selfishness.

This is the second time today that I have offered congratulations to an author on this subject, which certainly makes a change from almost daily having to chastise authors for eliding the two quite separate motivations of self-interest and selfishness, and worse, attributing the erroneous elision to Adam Smith.

Smith didn’t ever get confused on this matter. Those authors – sad to say, many of them economists – who do so, confuse Adam Smith with a predecessor, Bernard Mandeville (1734), whom Smith criticised in Moral Sentiments as ‘licentious’, and they exhibit the ignorance of the Hollywood script writer who had Gordon Gecko mouth the savage words, ‘greed is good’, or perhaps, like Alan Greenspan of the Ayn Rand school of selfishness, misread what Adam Smith actually wrote, perhaps relying on Ayn to be authentic.

That misleading ideas about Adam Smith are not unanimous, encourages Lost Legacy in its not so-lonely battle against the epigones.

A Premier Speaks, Quoting Moral Sentiments

This is a story about Wen Jiabao, the Chinese Communist premier, contributed to by Lionel Barber, Geoff Dyer, James Kynge and Lifen Zhang writing in the Financial Times (UK), quoted in the Irish Times.com (Dublin) (HERE) is worth reading:

“Wen gives short shrift to those who blame fiscal crisis on China”

“AN ECLECTIC reader, Wen says that when he travels he always carries a copy of The Theory of Moral Sentiments by Adam Smith, the Scottish economist, which lays out the moral underpinnings for governing societies – and market economies.

“Adam Smith wrote that in a society if all the wealth is concentrated and owned by only a small number of people, it will not be stable,” he says.

It is an observation that holds just as well for the crisis-ridden US as it does for China, with its skewed model of development and rising inequality.”

Comment
Great to see that a Chinese communist is reading Adam Smith’s Moral Sentiments, if only to wrong foot capitalist leaders who haven’t read Moral Sentiments, or even Wealth Of Nations.

Of course, in having a go at inequality in capitalist countries, Wen, slides over the vast discrepancies in China, both economically, and overwhelmingly in political power, between the cadres of the Chinese Communist party, who double as high functionaries of the State, and the vast majority of the poor, especially in the countryside.

I don’t recognize the paraphrased comment Wen gives, allegedly from Moral Sentiments, which is about the virtues and proper behaviour of individuals, but I am more than willing to give allowance for a translation from English into Chinese and then back into English.

It may be taken, also, as a warning to China's own entrepreneurs in its stae-capitalist economy, that domestic inequality may only go so far before the State steps in with confiscatory taxation, if not outight expropriation, at some point.

One feature of Chinese State-Capitalism that may inhibit such drastic measures is the close integration of many members of the Communist Party and State bureaucracy with the domestic capitalist entrepreneurs at all levels, though that may not save foreign capitalist firms from discriminatory measures.

Wen’s response to questions about the causes of the current financial crisis are well worth reading (follow the Link).

An Economist Confines Adam Smith to the Bathroom

Stray Silvers writes the Stray Silver’s Blog (‘updated Tuesdays and Thursday’) 22 January, from Victoria, British Columbia, Canada HERE:

“The economics of a simpler time - a reading list for reformers”

“Some of you may wonder why Adam Smith didn't make the cut.”

[GK: he chose works by Malthus, Ricardo, and Mill]

”I quite enjoyed the Wealth of Nations - enough to re-read it several times. However, despite having some wonderful passages, as a complete text, it's mostly of historical interest. The book is too wordy for its own good, and extremely repetitive. The topics Smith covers are better dealt with in Mill and Malthus, who also correct a few of the pioneer's most obvious errors. Smith had a few specific axes to grind with respect to events that were important at the time and are now obscure, leading to very long stretches of boredom for the modern reader.

The Everyman edition of the Wealth of Nations, which I own, includes notes on the side of each paragraph summarizing its content. If you buy such a print edition, then Smith makes fantastic bathroom reading... flipping the book open to a random page and reading a paragraph or two at a time is a joy. Reading it through, though, as a cohesive work? Not so much.”

Comment
Chacun à sans goût.

However, Wealth Of Nations is not a textbook on economics; it is a critique, by an articulate and well-read moral philosopher, of mercantile political economy as operated by governments from the 15th century towards a fragile commercial society, as it was and as it was recovering in the 18th century, from the destruction of commerce following the Fall of Rome in the 5th century.

It was not a book of principles of political economy and should not be read as such. When it is read as a ‘principles’ text, the reader is likely to be misled overall, and the modern economist (impatient know-alls as they are educated to become) will retire as disillusioned as they are disoriented, which seems to be the case with Stray Silvers (truly, I mean this in the most respectful of ways).

Mercantile political economy was ‘full’ of policy errors which in Adam Smith’s view distorted the production of wealth – the annual output of ‘the necessaries, conveniences, and amusements of life’ – with detrimental effects on the potential spread of opulence to the majority of the British population in mid-18th century.

Stray Silvers correctly notes that these matters are ‘mostly of historical interest’, but I differ from his assessment of their value today, respectfully, by asking to what end would we study history as economists?

In my humble opinion, given that many of the policy questions that affect today’s society arise from similar mercantile policies examined by Adam Smith and are worthy of study for their modern relevance:

‘jealousy of trade’, hostility to potential trading partners; tariff protections, despite fifty years of GATT, WTO, and regional customs unions and ‘free trade’ areas;
corporate business monopoly-type behaviours based on sheer scale and intimacy with Big Governments;

restrictions on competition (public monopolies turned into private monopolies);
Big Governments on a scale not envisaged in Smith’s day but with the same outcomes when legislatures are influenced by special interest groups, well-funded by their beneficiaries;

calamitous social and economic policies (echoes of the Elizabethan policies of Statute of Apprentices, Settlement Acts; Guild monopolies);

mass regulations that often don’t work, and the absence of regulation where it is needed;

wars and preparation for wars, beyond the needs of legitimate defence;
‘failed states’ with kleptocracy in place of civil governments, based on liberty and justice in many parts of the world;

and a near total failure to spread opulence by wealth creation, rather than so-called ‘poverty relief’, despite a century of increasing opulence from economic growth when the world has an unprecedented and impressive record of technological progress.

These not just ‘a few specific axes [for Adam Smith] to grind’, nor were they solely ‘with respect to events that were important at the time and are now obscure’.

Many of these same policies are still with us and seem likely to remain so, despite Nobel Prizes being awarded to modern economists for their versions of their contribution to the ‘progress’ of our discipline, though much of their work, replicated in faculties across the world, are about imaginary economies that do not exist and which are absent of human beings, who resist representation by mathematical variables.

I suppose, however, it is a step in the appropriate direction that Stray Silver recommends people should read Malthus, Ricardo, and Mill. But I am not happy that Smith is left to the confines of the bathroom.

Reading snippets of Smith is what has got us into this mess in the discipline; too much to say about an imaginary world that doesn’t exist (and which legislators and those who influence them do not understand), and too much to say about what Smith never advised (laissez-faire, night watchman states’, ‘leave everything to an invisible hand’, corporate entities are best left alone – even when ‘bad’ they miraculously turn out to be the ‘best’ for society; ‘greed is good’ and selfishness is a virtue).

And that’s the problem. In the bathroom, readers may miss what Adam Smith actually, most of it contrary to what he actually wrote and advised, but when senior economists repeatedly advise governments, legislators, corporate leaders, public opinion formers, interest groups and the general public, that the policies they themselves made up, but which they insist authoritatively are attributed to Adam Smith, whose reputation they have lionized, if not credited with sainthood (‘high priest’ founder of economics, and such tripe), in the sure knowledge that few will actually read his Moral Sentiments and Wealth Of Nations (including some, perhaps, in their bathrooms), they get away with the Big Lie, but the rest of us pay, one way or another, for their intellectual treachery.

A Left of Centre Thinker on Society's Welfare

Stuart Holland is quoted in the Casino Crash Blog, (14 January)HERE for something he wrote in Red Pepper magazine, “The world after Keynes”

After a typical trail through Stuart Holland-type, ‘big thinking’, he asserts that:

“It also means recovering the claim of Adam Smith that, in any competition, the welfare of society should cast the balance against all other motives.”
Stuart Holland is billed “as a leading architect of Labour economic programmes from 1972 to 1983.”

Stuart Holland was a Labour MP in the early 80s, who gave up a safe seat (Vauxhall) to join research bodies close to the administration of the European Community. He wrote, at the time, something to the effect that the most potent place to be to affect a social democratic reform programme was through Brussels as it gradually took over social legislation from the different national parliaments.

At the time too, Mrs Thatcher epitomized national governments’ resistance to the imposition from the EU of Statist solutions, in place of competitive markets (though she acquiesced in ‘privatisations’ that turned state monopolies into private monopolies, which side-stepped the consequences of competition).

Only recently, I was wondering what had become of Stuart Holland when I noticed his "Capital versus the Regions" (1976), among books I sent to a charity shop.

Well, he turned up as a visiting professor at the University of Coimbra in Portugal. It is not evident how sure he is still of the role of the European Community.

He does not mention above how “the welfare of society” should “cast the balance against all other motives”. Whose version of the ‘welfare of society’ does the ‘casting’? Is it an injunction on legislators and those who influence them to consider the ‘welfare of society’?

I would appreciate some directions to find in Adam Smith’s Works where he says what Stuart asserts on his behalf.

I can think of several things that Smith said in this context, but nothing that suggests that a supra-state like the Economic Community should be charged to do so on our behalf.

Adam Smith’s critique in Wealth Of Nations of the state-managed commercial economy of the 18th century did not exude over-powering optimism that legislators and those who influenced were minded to act in such an exemplary manner even within the confines of a single (small) polity such as Britain.

His Moral Sentiments speaks of individual moralty and society's moral norms, but not of government's roles, other than in justice, but leaves open how "the welfare of society should cast the balance against all other motives".

I cannot see how the countries of the European Union, and the state-apparatus of Brussels, has moved us closer to such a morality, not least because the Commission's accounts have once again been refused approval by its accountants.

'Fair Trade' Made Possible by Globalisation

Mike Veseth, Robert G. Albertson Professor of International Political Economy at the University of Puget Sound, writes on the Wine Economist Blog on “Fair Trade Wine” (HERE):

“Fair Trade products attempt to use globalization to offset some of the negative potential effects of globalization. Global market forces can sometimes lead to the exploitation of natural resources and unskilled labor, for example. The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.

“…because consumers are often better informed and more interested in the origins of and production conditions associated with wine than for most other consumer goods.”

“Wine enthusiasts are thirsty for information about where wines come from, who made them and how. Fair Trade provides this information in a way that informs, educates and potentially produces social and economic change.”

Comment
I do not think it is the case that ‘The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.’

In fact, I am not sure that Adam Smith thought of “sympathy” quite in the way that Mike Veseth presents it. It is clear in Moral Sentiments that sympathy was both a general and a local phenomenon associated with how humans live in societies (as they always have).

We can be concerned about events that affect complete strangers, as well has have intense sentiments towards a close relative, with diminishing degrees of intensity as persons are more ‘distant’ in their relationship with us, for example, second and third cousins, through to strangers.

Indeed, that is how we would expect it to be. The circles of people with whom their immediate relationships overlap is an effective bonding force for society (of which the ‘six degrees of separation’ is a crude illustration). Your friends and acquaintances have their own and quite distinct friends and acquaintances, and, like the ‘little fleas’ in the poem, so on ‘an infinitum’.

Smith links these points well in Moral Sentiments, when discussing the connection between man the social animal, who knows a few others well and most others less well or not at all, and how this still stabilises society, both inter-personally and economically:

“It is thus that man, who can subsist only in society, was fitted by nature to that situation for which he was made. All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices.

But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.”

[TMS II.ii.3.1-2; 1872 ed. Kessinger Rare Reprints, pp 78-9;]

These remarkable, and not often noted, passages are the root of Adam Smith ideas about societies. Our need for the ‘assistance of others’ is universal, ever present, and unavoidable, no matter the size of our society or the age within which its acquires its means of subsistence.

Of course, from the vantage of the 21st century, our dependence on others is far greater that it was for the likes of Ghengis Khan in the 12th century – he was unaffected by the tribes of North America, Australia, and Western Europe – but in the global economy, developed since the 15th century onwards, ever wider and ever deeper circles of sentiment and influence have developed along the inter-twined influences of both “the agreeable bands of love and affection … drawn to one common centre of mutual good offices” and by “by a mercenary exchange of good offices according to an agreed valuation”.

It is the characteristic of commercial economies that their supply chains can operate without persons knowing much or anything about players two or a few links further on and back (and beside them) in any inter-locked supply chains that make up our mode of susbistence.

It is also not the case that the “sympathy that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.” It is the “a mercenary exchange of good offices according to an agreed valuation” that conveys the necessary information for markets to work.

By ‘good offices’ Smith means people exchanging services to each other, not necessarily confined to commercial transactions – there are no limits to exchange relations in Smith’s world, whether it is the development of language and conversation (think of today’s Internet), of political and religious ideas, of literature and arts, of information and knowledge and, in practice, almost all human activities.

The separation of consumers from producers, which almost always has been the case since individuals began to transact with relative strangers in the early, larger bands and then with complete strangers in other bands, and finally tribes and then ‘nations’, has always been the basic facility that ‘mercenary exchange’ made possible.

Exchanging wool for pewter in medieval Europe did not require intimate or any knowledge of who provided the merchants with the wool or the merchants with the pewter. The early humans who received stone ‘Venus’ figurines in exchange for decorative beads, say, most certainly did not know the members of a supply chain stretching hundreds of miles from where the stone originated.

Mike Veseth makes the interesting point that wine consumers are interested in “where wines come from, who made them and how”. This, of course, is the marketing message of ‘Fair Trade’ suppliers, who justify higher prices for wine because the original producers are in relative poverty and Fair Trade “provides this information in a way that informs, educates and potentially produces social and economic change”.

This is not an aberration of how markets work (always remember, exchange by markets is the fastest information processing method created by human societies), it is how any student of markets would expect them to work.

All along all supply chains, people make decisions to enhance their performance in their particular bit of it under the motivation of reducing their costs to enhance their supply capacity and increase or maintain their share of the profits.

When the spice trade showed such fantastic profits in medieval Europe, several seafaring nations competed (often bloodily) to identify the sources of spice and transport it back to Europe to sell at mark-ups that began at several thousand per cent.

Globalisation is the cause of well-meaning Fair Trade sympathies, not the enemy of them. The vast charitable NGOs conform to what Adam Smith expected from the ‘mercenary exchange of good offices’. He preferred, but did not expect in mid-18th-century Britain, that:

“Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy.”

But ‘should’ those conditions did not obtain, in their absence:

“Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.”

Mike Veseth, and Fair Traders, are not bucking the market, nor finding a new form of trade. They are finding another way, using the price mechanism, to enrich the “agreed valuation” for “the mercenary exchange of good offices”.

Indeed, it remains true still that the majority of consumers buying ‘fair trade’ products need to know nothing about the original suppliers or the others between them and the local supermarket, to complete their transactions to enjoy their wine. That is the power of global branding, which only globalisation makes possible.

A Text for the Season

Nick Nejad, in Rational Angle, selects a short extract (HERE) from Adam Smith’s “Theory of Moral Sentiments”

“...As nature teaches the spectators to assume the circumstances of the person principally concerned, so she teaches this last in some measure to assume those of the spectators. As they are continually placing themselves in his situation, and thence conceiving emotions similar to what he feels; so he is as constantly placing himself in theirs, and thence conceiving some degree of that coolness about his own fortune, with which he is sensible that they will view it. As they are constantly considering what they themselves would feel, if they actually were the sufferers, so he is constantly led to imagine in what manner he would be affected if he was only one of the spectators of his own situation. As their sympathy makes them look at it in some measure with his eyes, so his sympathy makes him look at it, in some measure, with theirs, especially when in their presence, and acting under their observation: and, as the reflected passion which he thus conceives is much weaker than the original one, it necessarily abates the violence of what he felt before he came into their presence, before he began to recollect in what manner they would be affected by it, and to view his situation in this candid and impartial light.

The mind, therefore, is rarely so disturbed, but that the company of a friend will restore it to some degree of tranquillity and sedateness. The breast is, in some measure, calmed and composed the moment we come into his presence. We are immediately put in mind of the light in which he will view our situation, and we begin to view it ourselves in the same light; for the effect of sympathy is instantaneous. We expect less sympathy from a common acquaintance than from a friend; we cannot open to the former all those little circumstances which we can unfold to the latter; we assume, therefore, more tranquillity before him, and endeavour to fix our thoughts upon those general outlines of our situation which he is willing to consider. We expect still less sympathy from an assembly of strangers, and we assume, therefore, still more tranquillity before them, and always endeavour to bring down our passion to that pitch, which the particular company we are in may be expected to go along with. Nor is this only an assumed appearance; for if we are at all masters of ourselves, the presence of a mere acquaintance will really compose us, still more than that of a friend; and that of an assembly of strangers, still more than that of an acquaintance.

Society and conversation, therefore, are the most powerful remedies for restoring the mind to its tranquillity, if, at any time, it has unfortunately lost it; as well as the best preservatives of that equal and happy temper, which is so necessary to self-satisfaction and enjoyment. Men of retirement and speculation, who are apt to sit brooding at home over either grief or resentment, though they may often have more humanity, more generosity, and a nicer sense of honour, yet seldom possess that equality of temper which is so common among men of the world.”

[TMS I.i.4.8-10: pp 22-23; 1872, Kessinger Rare Reprints, pp 22-23]

Comment
This is an important extract from Moral Sentiments, particularly the last paragraph about ‘society and conversation’. The society of other people and the normal relations of conversation with them is a harmonising influence of great consequence – yes, I know that conversations can cause trouble too – but the resolution of troubles requires conversation, as Smith notes:

“Men of retirement and speculation, who are apt to sit brooding at home over either grief or resentment, though they may often have more humanity, more generosity, and a nicer sense of honour, yet seldom possess that equality of temper which is so common among men of the world.” [Emphasis added]

Robert Burns, captured lonely brooding brilliantly when he wrote of the wife waiting at home in anticipation of her drunken husband's late return, in Tam O'Shanter: 'nursing her wrath to keep it warm'.
Burns read and admired Moral Sentiments and traces of his reading can be found in some of his poems.

Congratulations to Nick Nejad for selecting the extract.

Richard Epstein Reports Accurately the Kirkcaldy Adam Smith

Economics (‘just another Blog tagging resource for Economics students’) (26 December) posts extracts from a summary of an Econ Talk podcast between Richard Epstein and Russ Roberts HERE:

“Richard Epstein of the University of Chicago talks with EconTalk host Russ Roberts about the relationship between happiness and wealth, the effects of inequality on happiness, and the economics of envy and altruism. He also applies the theory of evolution to explain some of the findings of the happiness literature.”

“People think Adam Smith was a proponent of getting whatever you can and get ahead; but that was not his view; Theory of Moral Sentiments. Word “sentiment”–what he meant was the effort to figure out how people react toward the misfortunes of others. You don’t treat them as acutely as if they are your own; but you are not completely indifferent either. Impossible to only care about your children but not your children’s friends. Theory of inclusive fitness.”

Comment
Great to see positive reports of Adam Smith’s thinking because it makes a change (for the better). Would that the habit would spread!

So much is reported that carries ‘lies, damned lies, and as good as lies, otherwise known as quotations torn from their context’.

Adam Smith and 'Das Adam Smith Problem'

Ed Kaitz writes (1 November) in American Thinker (HERE):

“… Adam Smith Problem”

[Please note I only discuss Ed Kaitz’s ideas on ‘Das Adam Smith Problem’ here and shall not comment on the views of presidential candidates in line with the long-standing Lost Legacy’s self-denying ordinance to only discuss the political policies of people in the country in which I vote (Scotland, UK)]

‘German scholars in the nineteenth-century exercised a good amount of frustration over something they dubbed "das Adam Smith Problem." To the consistency-minded Germans the brilliant yet humble Scottish economist and "father of capitalism" had nevertheless left a rather dubious literary legacy: two monumental and influential books that seem to argue in radically divergent and quite insurmountable directions.

…in the first of Smith's books, The Theory of Moral Sentiments (1759), Smith makes a quite humane and often beautiful case for the power of human sentiment in the practice of social virtue. He binds humanity together at an extraordinarily deep level and demonstrates why "we sympathize with the natural resentment of the injured" when, for example, greedy industrialists "violate fair play" and "throw down" their competitors "in the race for wealth and honors." Indeed, Smith seems to foreshadow the bleak finale expertly captured by Orson Wells in his Citizen Kane when he argues that the twilight years of greedy men will be filled with thoughts of "terror and amazement" at their prior conduct and make them outcasts from "the affections of mankind".

Conversely, in his magisterial The Wealth of Nations (1776), Smith relentlessly drives another point: that our darker and asocial instincts of self-preservation, retaliation and competition nevertheless provide the potent and necessary ingredients to "rouse the industry of mankind." In short, in his commanding treatise on capitalism it is self-interest and utility, not benevolence and sympathy that can solve the problem of economic scarcity: "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." Indeed, what mystified German scholars was the quite sensitive and touching portrayal of human community in Smith's first book and statements like the following in his second: "It is his own advantage, indeed, and not that of society, which he has in view."

Similarly, to Smith, the only way to produce the public good is to not think of the public good! In his words: "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good." Self-interest then produces the public good through what Smith famously called "the invisible hand." More wealth is created for everyone when each thinks about his own interest. To Marx and Rousseau however this doesn't cut it since the very definition of morality is to think of others first, not yourself.

As a sentimentalist philosopher, Smith also noticed something quite remarkable about the human condition: we're all hard-wired with common sentiments concerning what constitutes fair competition and what appears to us as fraud or greed. We universally condemn the behavior of rapacious capitalists who "throw down" their competitors - they appear "detestable" to us. He recognized in his Theory of Moral Sentiments that the virtue of "justice" was required to keep these people in line with proper legislation. The danger however is that the lawgiver might "push" this legislation "too far" and "destroy liberty, security, and justice."

Why was Smith so concerned with preserving freedom? Because he understood that human sentiments like "beneficence" were only possible in a free society. In short, unlike justice, which can be extorted by force (threat of punishment), moral virtues like beneficence or fellow-feeling would completely disappear under something like socialism or communism: "Beneficence is always free, it cannot be extorted by force, the mere want of it exposes to no punishment; because the mere want of beneficence tends to do no real positive evil." Our common sentiment, in short, "approves" of fellow-feeling only if it has not been extorted by force. No one, says Smith, can force you to be a good neighbor - this has to be done freely.

Smith is interested in taking stock of human beings and finding out how to both preserve freedom and benefit society within the bounds of our given nature. Justice is there to force good behavior "to a degree" in a capitalist economy but we also need to recognize that the self-preservation instinct is the only dynamic engine for increasing wealth and avoiding poverty. But beneficence, freely given and not forced, serves as another check in the "race for wealth and honors." It is our common human sentiment says Smith that keeps us from looking "mankind in the face" and claiming that we prefer ourselves to all others.”

Comment
Ed Kaitz is a gifted writer and college teacher (I can’t give more details as there appear to be several 'Edward Kaitz’s' in US universities and all are plausible candidates as authors of the American Thinker article, which appears to be right of centre in tone).

He does a reasonable job in his discussion of the issues involved in ‘Das Adam Smith Problem’, to which I make some observations for readers who may not be aware of the missing links in Ed Kaitz’s exposition.

The German origins of the ‘Das Adam Smith’s Problem’ in the last quarter of the 19th century come from a misunderstanding occasioned by the different dates of publication of Moral Sentiments (1759) and Wealth Of Nations 1776) and is often presented today as Smith having ‘changed his mind’ in the 17 years between publishing his two books. This is a wrong inference from the separated publication dates.

Students’ notes of Smith’s lectures (1762-3 and ‘1764’) at Glasgow University were discovered in 1895 and 1958 and show that he taught his classes both from lectures that became Moral Sentiments and lectures that became Wealth Of Nations to students in the same classes. Large sections of his Lectures in Jurisprudence (1762-4; published in 1978 by Oxford University Press) were taken verbatim into Wealth Of Nations, as were taken his classes in Ethics into Moral Sentiments. The ideas matured together, first as lectures to students and then as prose for his two books, and there were no contradictions between the two books despite the different dates of their publication.

Moreover, Smith revised both books in the different editions published after their publication: Moral Sentiments' editions: 1759; 1761; 1767; 1774; 1781; 1790) and Wealth Of Nations editions: 1776; 1778; 1784; 1786; 1789. These co-terminus editions, together with the fact that his lectures in the 1750s-60s were delivered to the same classes of students each year, show conclusively that there is no question of Adam Smith ‘changing his mind’ about moral motives and economic behaviours.

If his students had not noticed that ‘he seem[ed] to argue in radically divergent and quite insurmountable directions’ in his lectures, contemporary faculty colleagues would have noticed and commented, and more importantly, he would have noticed too. The imagined ‘problem’ was noticed by nobody until misinformed
faculty in Germany a hundred years later jumped to the wrong conclusions, by which time philosophy and political economy were quite separate disciplines, though for Scottish moral philosophers a hundred years earlier they were part of the same discipline.

Ed Kaitz explains why "we sympathize with the natural resentment of the injured" when, for example, greedy industrialists "violate fair play" and "throw down" their competitors "in the race for wealth and honors" and then neatly implies a switch from Smith’s discussion ‘Of the sense of Justice, of Remorse, and of the consciousness of Merit’ in Moral Sentiments (TMS II.ii: p 82) to what a casual reader would suppose is Wealth Of Nations, because Ed Kaitz continues ‘for example, greedy industrialists’, when in fact Kaitz is still quoting from Moral Sentiments. The fuller quotation below illuminates the distinction (not that Smith would probably have meant the same thing as Kaitz in introducing ‘greedy industrialists’as we know some of them from 19th -20th-century history today:

“Though it may be true, therefore, that every individual, in his own breast, naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle. He feels that in this preference they can never go along with him, and that how natural soever it may be to him, it must always appear excessive and extravagant to them. When he views himself in the light in which he is conscious that others will view him, he sees that to them he is but one of the multitude in no respect better than any other in it. If he would act so as that the impartial spectator may enter into the principles of his conduct, which is what of all things he has the greatest desire to do, he must, upon this, as upon all other occasions, humble the arrogance of his self-love, and bring it down to something which other men can go along with. They will indulge it so far as to allow him to be more anxious about, and to pursue with more earnest assiduity, his own happiness than that of any other person. Thus far, whenever they place themselves in his situation, they will readily go along with him. In the race for wealth, and honours, and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of.” (TMS II.ii.2.1: p 83)

That there are examples of ‘greedy industrialists’ in the recent past behaving in reprehensible manners, has nothing to do with Smith’s point about people who ‘justle’ and forego the patience of the ‘impartial spectator’. For an account of Smith’s theory of the ‘impartial spectator, see my Adam Smith: a moral philosopher and his political economy, 2008, Palgrave Macmillan).

Ed Kaitz states ‘we're all hard-wired with common sentiments’, which may express Kaitz' view but it isn’t Adam Smith’s. The notion that we are born with a moral sense was that of Smith’s tutor, Professor France Hutcheson, among others, which Smith explicitly rejects in Moral Sentiments.

People learn about what others will go along with as part of their socialization (as we term it today), starting with the chastisement from parents and other adults, and then in the ‘great school of self command’, our school fellows, and on throughout our experience until we become mature adults. Other people set the boundaries of our behaviour, as we do theirs, which is Smith's very point about impartial spectators.

Hence, the notion that “what constitutes fair competition and what appears to us as fraud or greed” and that “We universally condemn the behavior of rapacious capitalists who "throw down" their competitors - they appear "detestable" is Ed Kaitz’s interpretation (to which he is entitled) but it was never an assertion of Adam Smith in either of his books.

Similarly to assert that Smith believed that ‘moral virtues like beneficence or fellow-feeling would completely disappear under something like socialism or communism’, is a construction too far if meant as a belief of Smith’s. Neither ‘socialism or communism’ had any meaning for Smith in the 18th century; these horrors were a long away ahead, which Ed Kaitz is perfectly entitled to articulate but not to enroll Adam Smith (who died in 1790) into his beliefs, though I agree with Ed’s sentiments.

Ed Kaitz quotes from Moral Sentiments that each man “naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle”. If the immediately preceding sentences from the same section of Moral Sentiments are read we can see Ed's spin on these words is unjustified:

“There can be no proper motive for hurting our neighbour, there can be no incitement to do evil to another, which mankind will go along with, except just indignation for evil which that other has done to us. To disturb his happiness merely because it stands in the way of our own, to take from him what is of real use to him merely because it may be of equal or of more use to us, or to indulge, in this manner, at the expence of other people, the natural preference which every man has for his own happiness above that of other people, is what no impartial spectator can go along with. Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so. Every man, therefore, is much more deeply interested in whatever immediately concerns himself, than in what concerns any other man: and to hear, perhaps, of the death of another person, with whom we have no particular connexion, will give us less concern, will spoil our stomach, or break our rest much less than a very insignificant disaster which has befallen ourselves. But though the ruin of our neighbour may affect us much less than a very small misfortune of our own, we must not ruin him to prevent that small misfortune, nor even to prevent our own ruin. We must, here, as in all other cases, view ourselves not so much according to that light in which we may naturally appear to ourselves, as according to that in which we naturally appear to others. Though every man may, according to the proverb, be the whole world to himself, to the rest of mankind he is a most insignificant part of it.” (TMS II.ii2.1: pp 82-83)

Finally, Ed Keitz asserts:

“Conversely, in his magisterial The Wealth of Nations (1776), Smith relentlessly drives another point: that our darker and asocial instincts of self-preservation, retaliation and competition nevertheless provide the potent and necessary ingredients to "rouse the industry of mankind." In short, in his commanding treatise on capitalism it is self-interest and utility, not benevolence and sympathy that can solve the problem of economic scarcity: "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 is a misreading of the paragraph in Wealth Of Nations (WN I.ii: pp 26-7) – a misreading widely shared by the majority of economists (and philosophers) who quote it. Smith actually enjoins readers to serve the self interests of others, in this case the ‘butcher, brewer, and baker’, in order to serve their own self interests (food for themselves and their families). Be other-directed and not self–directed!

The ultimate selfishness is to expect our necessary sustenance from others, free, gratis, and for nothing! Who will give the butcher, the brewer, and the baker things that they and their families need in food, clothing and shelter, let alone the objects considered necessary for a decent living standard? Smith observed, he did not preach.

If Ed Kaitz reads Adam Smith’s books as he wrote them and as he taught his students for years before, he will really understand why ‘das Adam Smith problem’ is a fantasy created by some talented people who didn’t understand his ideas, nor did they know about the context from which they were generated.

Adam Smith's Possible Thoughts on Mental Illnesses and Sympathy

A discussion on the radio yesterday about the reaction of work colleagues and (strangely) within the immediate family during which a person who had recovered from a mental illness (without saying what was involved) asserted that other people react to physical illnesses with far greater sympathy and understanding than they do to mental illnesses or disorders.

This struck me as odd in that I thought that any illness would attract sympathy from relatives and even some degree with others.

But Adam Smith explains that even within physical illnesses there are degrees of sympathy. The impartial spectator has sympathy for what it understands. Perhaps this extract from Moral Sentiments gives a flavour of Smith’s thinking, which I have lightly applied to mental illnesses (read the chapter for a fuller explanation).

“Pain never calls forth any very lively sympathy unless it is accompanied with danger. We sympathize with the fear, though not with the agony of the sufferer. Fear, however, is a passion derived altogether from the imagination, which represents, with an uncertainty and fluctuation that increases our anxiety, not what we really feel, but what we may hereafter possibly suffer. The gout or the tooth-ach, though exquisitely painful, excite very little sympathy; more dangerous diseases, though accompanied with very little pain, excite the highest.

Some people faint and grow sick at the sight of a chirurgical [surgical] operation, and that bodily pain which is occasioned by tearing the flesh, seems, in them, to excite the most excessive sympathy. We conceive in a much more lively and distinct manner the pain which proceeds from an external cause, than we do that which arises from an internal disorder.”
(TMS I.ii.1.9-10: p 30: Chap. I 'Of the Passions which take their origin from the body', p 27)

Adam Smith on Regard for the Elderly

Daniel Bulone contributes an interesting piece on Adam Smith’s Tunnel Vision (‘observations on exchange’) HERE:

He discusses the relatedness of ideas in Smith’s Moral Sentiments with Matt Ridley’s ideas in The Origins of Virtue: Human Instincts and the Evolution of Cooperation (1996). He writes:

“Though what he [Smith] is saying is technically true, Smith's points on the elderly seem somewhat appalling. "In ordinary cases, an old man dies without being much regretted by any body." Caring for the elderly does not fit into Smith's idea of pure self-interest, and it certainly does not suit Dawkins' scenario of protecting future generations. It does, however, fit Frank's reevaluation of altruism. In The Origins of Virtue, it states that "the virtuous are virtuous for no other reason than that it enables them to join forces with others who are virtuous, to mutual benefit." Caring for the old is not logical, but neither is giving blood or mentoring children. All of these activities inspire, as Ridley says, a sort of awe at the kindheartedness of the individual. By appearing altruistic, people open themselves up to new connections and resources.”

Comment
I think this may be misleading. The full paragraph in Moral Sentiments reads:

“This sympathy too, and the affections which are founded on it, are by nature more strongly directed towards his children than towards his parents, and his tenderness for the former seems generally a more active principle, than his reverence and gratitude towards the latter. In the natural state of things, it has already been observed, the existence of the child, for some time after it comes into the world, depends altogether upon the care of the parent; that of the parent does not naturally depend upon the care of the child. In the eye of nature, it would seem, a child is a more important object than an old man; and excites a much more lively, as well as a much more universal sympathy. It ought to do so. Every thing may be expected, or at least hoped, from the child. In ordinary cases, very little can be either expected or hoped from the old man. The weakness of childhood interests the affections of the most brutal and hard-hearted. It is only to the virtuous and humane, that the infirmities of old age are not the objects of contempt and aversion. In ordinary cases, an old man dies without being much regretted by any body. Scarce a child can die without rending asunder the heart of somebody.” [TMS VI.ii.3: p 219]

This is somewhat different in its implications that Daniel Bulone draws from its last but one sentence. One’s children are more cared about than other’s elderly relatives. It is in the ‘eye of nature’ through which ‘a child is a more important object than an old man’. In the interests of the propagation of the species (one of Smith’s fundamental animal drives common in the species) it must be so: no children, no future propagation; no ‘old men’, life continues.

He adds: ‘It is only to the virtuous and humane, that the infirmities of old age are not the objects of contempt and aversion.’ The ‘virtuous and the humane’ qualifies Smith’s approach to the elderly, manifested in his lifetime devotion to his frail mother who died in his house, aged 90, and was cared for by him and his cousin Janet with tender love. He inconsolable as seen in his correspondence:

‘I should have immediately acknowledged the receipt of the fair sheets; but I had just then come from performing the last duty to my poor old mother; and tho’ the death of a person in the ninetieth year of age was no doubt an event most agreeable to the course of nature; and, therefore, to be seen and prepared for; yet I must say to you, what I have said to other people, that the final separation from a person who certainly loved me more than any other person ever did or ever will love me; and whom I certainly loved and respected more than I ever shall love or respect any other person, I cannot help feeling, even at this hour, as a very heavy stroke on me. Even it this state of mind, however, it gives me very great concern to hear that there is any failure in your health or spirits.’

Correspondence of Adam Smith, Letter no 237 to William Strahan [MP; Smith’s publisher] 10 June 1784, p 275 [Strahan died 9 July 1785]

Daniel Bulone reads into Smith’s observations of how people regard elderly people (not necessarily how they are treated by the ‘virtuous and humane’) that ‘Smith's points on the elderly seem somewhat appalling.’ If they are appalling, it is an observation, not a recommendation.

Even today, in a much more ‘virtuous and human’ age, a report that an old man dropped dead in the street would not attract the kind of regard that a report that a child had dropped dead. Read any newspaper, watch any tv news channel for confirmation. Personal grief overrides impersonal observation.