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Adam Smith Conceived A Complex Synthesis Of Morality, Sociability and Economics. Sympathy And Fellow Feeling Motivate Us All.

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Born in Scotland in 1723, where he lived most of his life and where he also died in 1790, Adam Smith is a mythical figure who fathered the modern discipline of economics, embraced unbridled self-interest, and fought against the government to promote capitalism and the interest of business and the rich.

Jesse Norman’s goal in his recent biography, Adam Smith: Father of Economics, is to show that the mythical Adam Smith is, well… a myth. His tools are the availability of an immense body of scholarship and an awareness of current events.

But how it is possible? Adam Smith did coin the idea of “invisible hand” and claimed that we don’t get our dinner from the benevolence of the butcher, baker, and brewer, but from their self-interest.

True, we do not get dinner from the benevolence of the butcher, baker, and brewer, but that does not mean they are not benevolent, or that benevolence does not exist (or worse, should not exist), and it does not even mean that morality (or anything other than self-interest) is nowhere to be found in markets. “The reason why humans and not dogs can make ‘fair and deliberate exchange’ of one thing for another is because exchanges presuppose a shared context of fairness… ” (page 181).

In fact, Smith’s first published book, The Theory of Moral Sentiments [1759], is a study on how we humans develop shared ideas of fairness and morality. Our morality is not derived from a divinely inspired moral sense, as Smith’s teacher Francis Hutcheson suggested, nor is it a sham to cover our self-liking as Bernard Mandeville suggested. For Smith, it is the result of a triangulation between an actor, an action, and a viewer (being either real or imaginary). Morality and sociability are thus entangled, natural, and not corrupted by society, as Jean-Jacques Rousseau had claimed instead.

As a matter of fact, the more society advances, the more commercial it becomes, that is, the more customs and mores refine and soften, rather than corrupt. Brutality and violence decrease. Women are better treated and increasingly recognized as equal. If in the past they were legally discriminated against, it was because men were the ones making the laws. (We still have a long way to go, given that in 2014 in the United States only 12% of the economists in academia were women). Slavery is also increasingly condemned. It faces the upward battle against our desire to domineer, but its inefficiency and the growing recognition of human equality that commercial societies foster brings hope.

“Smith’s attacks against crony-capitalism are even more remarkable when we think they were written before what we today call capitalism.”

But Smith is not Pollyanna. He recognizes the “pathologies” of commercial societies. Our tendency to admire the rich and powerful may blind our judgment. And our desire to better our condition may create powerful special interests that successfully lobby to create and maintain benefits for themselves at the expense of society. The entire “mercantile system” is an example of this pathology. The British built the system of tariffs and subsidies, as well as the entire colonial apparatus, to benefit themselves at the expense of a higher universal opulence which would have been present in their absence. Smith’s attacks against crony-capitalism are even more remarkable when we think they were written before what we today call capitalism.

The problem with mercantile special interests is that they also have asymmetric bargaining power compared to the working poor. The merchants and manufacturers can hold out for a long time, while the working poor can hold out only for a few days at best. The masters can and do maintain exceeding low wages and poor working conditions, and manage to do so with the backing of the law. The working poor, on the other hand, work from a very young age for long hours at repetitive tasks so much so that they eventually experience a sort of “mental mutilation.”

So while it is true that Smith loudly calls for government non-interference in the economy, when that interference is dictated by cronyism and special interests, it is also true that he does not hesitate to call for government intervention to favor the working poor. Compulsory education, with possible provision for building schools, and support for public diversions are examples to offer remedies to the possible deformation or destruction of the moral imagination and judgment of the working poor. Not to mention a series of public works—mostly of infrastructure but also a ban on small denomination notes and a cap on interest rates—that would facilitate commerce and thus bring that universal opulence that benefits mostly the poor (among whom child mortality was still astonishingly high).

Even the mythical invisible hand of the elegant mathematical general equilibrium or of the promoters of laissez-faire is not to be found in Smith. Smith’s invisible hand is more of a complex evolutionary phenomenon of historical markets, embedded in a political society which co-evolve with institutions, laws, and manners. Commerce, and the competition within it, not laissez-faire, does bring about both universal opulence and freedom. Global inequality is decreasing indeed. But the pathologies are not to be ignored, as the rising inequality within the most developed countries indicates. The “science of the legislator”, rather than the actions of “that insidious and crafty animal, vulgarly called… politician” (page 334, citing Smith) is thus a possible solution to contain the pathologies of commercial societies while keeping them flourishing and bringing all their unintentional and unplanned benefits.

Norman’s book is a remarkable analysis that shows both the complexity of an 18th century intellectual and his relevance for today. Even more so, given that this author is not a formal Smith scholar, but a British politician. Or shall we say, a legislator?

Norman’s prose is accessible to non-specialists and offers a fairly rounded and balanced picture of Smith. Specialists will not find any ground-breaking analysis. Yet they may find the book a valuable and complete general account of the state of the literature on Smith today as well as its continuous relevance. Even if the references in the text are extremely sparse, the bibliography is rich. And given the amount of secondary literature produced even just in the last decade, Norman had to pick his battle: he focuses on books, rather than articles, probably a wise choice as the number of articles is in the thousands. A stimulating book, worth reading.

Jesse Norman. Adam Smith: Father of Economics. Basic Books, 2018.

Maria Pia Paganelli is associate professor of economics at Trinity University.

Chaos on the Road Is More Orderly Than You Think

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To most people, an “anything goes” approach on the road seems crazy, to say the least. And why shouldn’t it? Cars weigh thousands of pounds and once moving at high speeds are essentially large deathtraps all charging towards each other.

On its own, this concept is concerning enough without having to imagine what would happen in the absence of all traffic signals. How would cars know when to stop and when to go? Surely this type of system, or lack thereof, would result in increased fatalities and sheer madness on the streets.

But while conventional wisdom says that some sort of traffic authority is needed in order for individuals to travel safely from point A to point B without killing each other, spontaneous order provides an alternative to this tradition.

Broken Traffic Lights

We have been trained our entire lives to obtain permission from authority figures before acting. Since the age of five, those of us sent to public schools were even taught that we must ask permission before doing something as simple and self-regulating as leaving our desks to grab a tissue or use the restroom.

It is no wonder then, that so many naturally accept government regulation as a necessity. Our lives have been riddled with rules and we fear what might happen without them.

However, as I have explained previously, individuals have an amazing ability to survive and even thrive in the absence of regulation and authority. And since cars are operated by individual actors, roads are no exception to this rule.

We have all had the experience of pulling up to a busy intersection only to find that the traffic lights are not functioning. But instead of panic or chaos erupting throughout traffic, something rather amazing happens: Within a few seconds, all the vehicles involved have managed to figure it out and traffic slowly gets moving again.

As a society, we have determined that the best course of action in this situation is to treat the intersection like a four-way stop. There was no meeting held or book printed in order for this to come to pass, it was simply adopted by society as the best practice.

Economist Steven Horwitz comments on this phenomenon:

If everyone agrees—whether explicitly or tacitly—on a particular practice, we no longer have to outguess or outstrategize other actors. The classic example of such so-called coordination problems is deciding which side of the road to drive on. As long as all agree, the particular choice is irrelevant. A rule about which side to drive on reduces the need to make a fresh choice on a case-by-case basis.

He continues:

We are born into a social world of various norms, rules, and institutions into which we are socialized from an early age. We learn to form expectations of others’ behavior based on those regularized practices.

But in addition to these “regularized practices,” there is another component of spontaneous order on the road: self-interest.

The Invisible Hand

As Horwitz writes:

The appeal to self-interest is our best way to convince others to do what we wish when we do not know them well enough to appeal to their fellow feelings for us.

Unless you live in a tiny town, you likely do not know all the other drivers stopped at any given intersection. Since there are no personal relationships with the other actors, the best way to proceed is to act out of self-interest, which in the case of a busy intersection would be to act out of self-preservation.

Most everyone wants to get safely from point A to point B. And because of this innate need to live, when we encounter obstacles, like an intersection without functioning traffic signals, we proceed more cautiously out of our desire to protect ourselves against other drivers. This also makes us more willing to cooperate and communicate with others on the road.

When our own survival is at stake, this self-interest works to the benefit of others. Just like you are concerned with your own safety on the road, so are other drivers concerned with their own safety as well. All the actors are better, more alert drivers because each is primarily concerned with his or her own wellbeing.

No one is eager to speed through an intersection without lights simply because there are “no rules.” Instead, in the absence of authority, individuals are actually more conscious of their decisions because they are, in this manner, directly responsible for their actions. They cannot blame it on a traffic light or on a silly law. All actions are their own.

Is precisely this self-interest that helps keep all other drivers safe. And because we have each experienced this situation, it makes it easier to encounter in the future.

As Horwitz writes:

A larger number of rule followers makes using the rule more attractive to potential newcomers because more users implies more opportunities to use the rule as a predictor of behavior, enhancing the likelihood of coordinated outcomes. When the behavior in question is so widespread that we can call it ‘generally accepted,’ the rule has become a social institution.

It is in our best interest to work together, not for some greater altruistic purpose necessarily, but because our own survival often depends on it. It is for this reason that this ability to recognize and operated within these generally accepted practices is so important to spontaneous order, as we will explore in more depth as the series continues. 

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