Adam Smith, markets and morality

“[N]ow 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.

This is entirely off the mark. The last thing one can say about Smith is that he lacked philosophical depth. ....

Smith was the quintessential intellectual of his era. Intensely intelligent, knowledgeable about everything, he was painstaking, a perfectionist, often confused and a day-dreamer. ....

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.”

Karen Horn, "Why Adam Smith Still Matters", Standpoint (April 2009).

www.standpointmag.co.uk/node/1069

As Karen Horn points out in this excellent article, The Wealth of Nations is in no sense an ideological pamphlet but an analytical treatise on the logic of the market as a system of economic liberalism. Underlying this treatment of the economy is the theory of the “natural” basis of ethics and of free societies that Smith set forth in his Theory of Moral Sentiments (1759). Smith points out we are all naturally endowed with a capacity for “sympathy” for one another (or, to use the President’s term, “empathy” for one another), that is, a capacity to share and understand each other’s emotions and feelings. These mutual “sympathies” interconnect each of us with one another and by doing so control our conduct and lead to a moral consensus and legal order that imposes reciprocal duties among all and protects the rights and liberties of all. It is the common moral climate and prevailing legal framework created by “moral sympathy” – by our very own conscience -- that underlies Smith’s theory and ideal of the self-adjusting market economy.

In short, in Smith’s view the self-interest of homo economicus was tempered by his conscience and concern for others. Properly channeled and tempered, the actions of all in a market were harmonized through the “invisible hand” of competition to achieve freedom, justice and prosperity. In this sense, Smith tells us, because the actions of everyone engaged in a market consider what might be called a full concordance of mutual feelings and sympathies towards one another, markets are highly moral and already incorporate the empathy towards others President Obama regards as so important.

For this reason, Smith would say that steps by government to override market relationships and outcomes are not only unnecessary but counterproductive to true social welfare.

A Tdj by Doug Walker.