250 years after Adam Smith published The Wealth of Nations, an earlier work remains the key to understanding it.
250 years ago this week, Adam Smith published his second-best book. This heresy might get me banned from my beloved free market madrassa, the Adam Smith Institute, especially as we mark this landmark anniversary.
But it is important to note that it was his other great work, which Smith was still refining on his deathbed. The Theory of Moral Sentiments is also a masterpiece, and it is required reading for those of us wishing to truly understand The Wealth of Nations, whose publication is being widely marked. Without it, we end up at caricature, where the market operates more like a Hobbesian war of all against all than the deeply human, creative, disciplining, sympathetic construct that it largely is.
Where did Smith’s ideas come from? He was deeply knowledgeable about the ancient world, as educated men of his day were. Praised for his Greek at Glasgow University, he was also allowed to skip the remedial first year Latin that was otherwise mandatory for first years. Classics were where he first developed an understanding of virtue, and how essential it is for the individual as well as the communities in which they live. Already you can see this is a far cry from the stereotype some would make of his philosophy today.
Smith once says that his own system of virtue “corresponds pretty exactly” with that of Aristotle’s. He took inspiration from Aristotle’s practical wisdom, making claims based on empirical study rather than abstract first principles: “We become just by the practice of just actions, self-controlled by exercising self-control, and courageous by performing acts of courage”.
He also followed, to some extent, his methodological approach. Aristotle moved from his Nicomachean Ethics, a work of moral philosophy that sets out how to live a good life, to his Politics, which sets out how to comport oneself in a broader setting. I would argue that Adam Smith did something similar with “TMS” and “WoN” – as scholars are wont to abbreviate them.
He also takes inspiration from Cicero, at one point copying a metaphor almost wholesale. In his De Officiis, Cicero uses a running competition to show the parameters of how to behave with others, even in competitive ways: “When a man runs in the stadium, he ought to strive and compete to the greatest possible extent in order to win, but he ought in no way to trip his fellow-competitor or to push him over; thus, in life, it is not unjust for anyone to pursue whatever he finds useful, but to despoil another is a violation of justice.”
Smith’s version is uncannily similar: “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.”
Smith showed that our moral life begins in what he called sympathy, our ability to imagine ourselves into the lives of others, and that from this natural capacity we develop conscience, and from conscience, virtues
Smith showed that our moral life begins in what he called sympathy, our ability to imagine ourselves into the lives of others, and that from this natural capacity we develop conscience, and from conscience, virtues. Imagining witnessing our actions through the guise of an impartial spectator (an addition to Cicero’s concept as seen above) helps us check our behaviour.
This is how markets operate, too. If we were to lie and cheat and steal to get ahead, it may give us some temporary advantage. But if we were to continue to act in that way, we would soon find ourselves without others willing to trade with us. Again, the idea that discipline, education and example can lead people to act with tolerable decency first comes about in Smith’s earlier work, and it helps one understand the larger insights of the Wealth of Nations.
This takes us on to the later book and economic systems. Karl Marx thought capitalism was built on selfishness and exploitation, so he proposed a system built on collectivism and central direction. Smith knew this is totally wrong; self-interest, channelled through exchange and competition, produces outcomes that benefit everyone, as if guided by an invisible hand. But crucially, he knew that it only worked in a society where people also possess sympathy, trust, honesty, and a sense of fairness.
Socialism fails every time it is tried by assuming you can stamp out human self-interest and human sympathy by replacing the distributed moral judgment of millions of individuals with the plan of a committee. Even here, Smith saw ahead, describing the central planner hundreds of years before the welfare state came along: “The man of system… seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.”
Today, Britain is losing those bonds of sympathy and trust that Smith knew was essential. There are many reasons for this. A nanny state that commands and constricts, rather than allowing people to learn virtue through acting with one another in a tolerably decent manner. The admittance of large numbers from different cultures who seem to be blissfully unaware of any impartial spectators – to put it mildly. And the replacement of exchange with mercantilism and regulatory capture, to name but a few.
The solution to these ills is to rediscover both sides of what makes us human – our self-interest and our sympathy – and design systems around that, rather than centrally planned monoliths. Adam Smith knew that the wealth of nations could only be built up by humans learning to act virtuously, desiring not just to be loved, but to be lovely. We should relearn this lesson.
