From time to time, a number of my friends have remarked on the GOP’s emphasis on Adam Smith’s The Wealth of Nations and its corresponding neglect of his Theory of Moral Sentiments–a work that casts considerable doubt over the simplified message for which people cite Wealth of Nations .
Like most Americans, I was familiar with the citation and Smith’s celebration of “the hidden hand,” and unfamiliar with the work itself, so it was interesting and enlightening to read an essay/book review in the New Republic titled “The Betrayal of Adam Smith.”
I had always thought that Wealth was a single volume making a coherent argument about economics; apparently, I was very wrong.
To call it wide-ranging is an understatement; the opposite of a tightly focused, logical argument, its five volumes and 1,000-plus pages range over everything from the problems with apprenticeship to the origins of money to the “discouragement of agriculture in the ancient state of Europe after the fall of the Roman Empire.”
According to the author of the essay, the massive work was “replete with contradictory ideas.”
and The full complexity of his thinking was reduced to the catchphrase “the invisible hand,” even though (as intellectual historian Emma Rothschild has noted) the words appeared just a few times in his entire corpus of work, and only once in The Wealth of Nations.
The book that prompted this essay was “Adam Smith’s America,” by Glory M. Liu, what the reviewer calls an “intriguing account of Smith’s reception in the United States.”
The Wealth of Nations was published in 1776, the same year the Colonies declared their independence, and many of those who sought to break from Britain were familiar with Smith’s work—both Wealth and his earlier writing. As Liu shows, the first thinkers to make use of Smith in America were more inclined toward his musings about politics and psychology than any of his economic prescriptions. Nor did they interpret Smith in a way that narrowly aligned him with a particular political perspective
John Adams, most notably, drew on Smith to meditate on the political power of the rich. In an argument that echoes Smith’s in The Theory of Moral Sentiments (his first major book), Adams suggested that there was a deep tendency in human psychology to defer to the wealthy and powerful and to treat them with an esteem that was unseemly for democratic citizens. Smith had warned that the poor man was “ashamed of his poverty,” while the rich man gloried in the “attention of the world” that his wealth conferred. This genuflection, Adams insisted, was still present in the new republic. Wealth had a way (as Liu puts it) of transmuting itself into power even in a constitutional order that lacked an aristocracy.
One of the lessons Americans took from Smith was that countries don’t become rich or poor due to geographic luck, climate and resources (or God smiling on the inhabitants), but rather on how it organized labor—on human will, ingenuity, and effort.
In earlier works, Smith wrote that “sympathy”—or the ability to identify with the pain and joy of others—was among the “original passions of human nature,” and that “the greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.”
How could this be congruent with his argument in Wealth that “self-love”—the “propensity to truck, barter and exchange one thing for another”—was what set humanity apart from other animals? …Self-interest was the defining principle of human nature, and the source for the immense division of labor that produced “general opulence” without anyone quite planning that it would do so. But how to reconcile self-interest with sympathy?
An early Chicago School economist wrote that Smith saw a “wide and elastic range of activity for government,” believing that “self-interest and competition were sometimes treacherous to the public interest they were supposed to serve”—and that collective action is sometimes necessary.
It was later economists–especially Milton Friedman, Friedrich von Hayek, and George Stigler– who are responsible for our current understanding of Smith.
They were drawn to Smith for his commitment to the idea of individual self-interest as the principle that underwrote the entire theory of the price mechanism. For them, as Stigler wrote, The Wealth of Nations was “a stupendous palace erected upon the granite of self-interest.”
That current, truncated understanding of Smith is the “betrayal” of the title.
The essay/review is lengthy, but it’s well worth reading in its entirety. Today’s misunderstanding of Smith is an example of what happens when readers approach a work through an ideological lens. “Captains of industry” emphasize the “hidden hand” in much the same way contemporary theocrats cherry-pick passages from the Bible.
Both are betrayals.
12 thoughts on “Revisiting Adam Smith”
Prof K says:
my friends have remarked on the GOP’s emphasis on Adam Smith’s The Wealth of Nations and its corresponding neglect of his Theory of Moral Sentiments–
Reading that, my mind went to the wild eyed rage of the crazed Trump supporters with homicidal intent looking for Nancy and pledging to HANG MIKE PENCE. I am not all together sure what is wrong with the current Republican activists, but I suspect none of these folks were reading Adam Smith. 😉
The discussion of “wealth of nations” on this Memorial Day Weekend, as we await the outcome of the wealth of the Republican party foundation, currently founded on the unstable ego of self-proclaimed billionaire Donald Trump, is holding this country hostage as the continuation of his January 6th attempted coup, is either timely or in poor taste. I suppose which side you are on depends on your personal financial level or if you are praying to receive Social Security and Disability checks and not losing your food stamps to survive. All nations are built on its people and the majority of “we the people” of the United States of America should be remembering those whose lives and deaths being celebrated this mid-term election year by watching the betrayal of the slim controlling majority in the House of Representatives with no idea what the Senate minority will do with any bill they are handed…IF there is ever a bill to hand over. Will this country’s stability and survival internally and globally and all America has stood for for 230 years be lost to the highest bidder in the current debt escalation battle with our internal enemies in control?
It is believed by some that Milton Friedman’s economic policies have negatively impacted the US and UK as wealthy nations. His ideas on Neoliberalism, including privatizing government, have been influential. Friedman and his associates, known as the Chicago boys, were connected to the Reagan and Thatcher administrations, and their policies were implemented by these leaders. It is important for President Biden to carefully consider the debt ceiling negotiations and the priorities he sets for budget cuts.
I wonder if Adam Smith authored the notion of “rational actors” as the basis of his free-market theories.
Also, there is a fine line between “self-interest” and “self-centered.” Einstein corrected Smith by saying that humans have both individual and collective interests. In 1939, society (US) actually looked down upon our collective identity. It’s only gotten worse since Friedman was allowed to shape the US and UK. The negative consequences are plain to see. Our societies have become dependent upon the Military-Industrial Complex, including the EU, which is exactly the opposite of what Einstein proposed.
Jeffrey Sachs and Thomas Piketty are probably the most woke economists of our time which is why the Western Media has marginalized them both preferring to cover propaganda backed by the Wealthy Few – Oligarchs.
Count me among the small number of people who never believed that Smith was advocating anything even remotely like the economic system we currently celebrate. Self interest has to take into account the well-being of those around us.
Smith anticipates Immanuel Kant’s famous argument that, while morality does not depend on religion, it can lead us into religion—–in “the natural course of things,” unjust and indecent people win out over just and decent ones. It is hard to countenance this fact unless the universe somehow compensates for such injustice. So our very moral impulses, Smith says — “the noblest and best principles” in human nature — lead us to believe that “the great Author of our nature … will complete the plan which he himself has taught us to begin” and establish for us “a future state,” in which justice and decency are rewarded (III.5.10). People who lack such a belief need not be immoral — they may indeed, like David Hume, be models of virtue — but they will be prone to the “melancholy … reflection” that they live in “a fatherless world.” (Adam smithworks.org)
The Pharisees zealously advocated rules. Not content with the Mosaic law, they developed numerous rules or “commands of men” that invalidated God’s commands. Besides developing these rules that went beyond what God asked, their legalistic outlook encouraged the view that righteousness could result from knowing and keeping these human regulations.—Matthew 15:1-20; 23:1-5; Luke 18:9-12.
I agree Peggy. My reading of Wealth of Nations led to a focus on Smith’s connection of the invisible hand to the well being of all the people.
Before going to law school I briefly considered the pursuit of a PhD in economics, my undergrad degree, but didn’t. Smith was an often used standard by which we measured the Chicago School and others who cherry-picked his efforts to come up with a nod to fairness in their world of greedy explanation.
Per Todd’s effort today > I am a Piketty aficionado, and per Peggy’s effort today > I agree. Smith could not have envisioned the economic system we have today with day trading, algoriths etc. in the marketplace and exploitation of labor via help from government with its right to work and other such statutory devices in exchange for “campaign contributions” (aka bribes).
A personal note > I introduced my younger daughter to Smith’s “invisible hand” long ago and we have ever since referred to her bank account as “the Hand,” a secret code phrase just between us chickens until now.
Authors writing during The Enlightenment era had many new and exciting ideas. They were also often wrong, partly because they were exploring new territory. None of them should be considered an infallible guide for our time, especially not in regard to something as complex as economics. The proof of an idea is in whether it works in the real world. It seems pretty clear now that unregulated capitalism does not.
I am by no means a follower of academic economics, but have long believed that the “invisible hand” concept is nought but a ploy by those who wish to have no regulation regarding economic activity, aka: The Greedy.
The economist Joseph Stiglitz made the best comment about the misconceptions about Smith’s thinking. He said that people forget that “the Invisible Hand is invisible”- and it would seem to follow from that, that it does not exist. So, the comment that “the Market” know best, is based on the assumption that a non-existent process exists.
Smith also assumed that “self-interest” would be no danger in allowing free trade because no one would act against the interests of their own community and nation. He did not foresee how the radical individualism at the core of what eventually became laissez-faire capitalism would steadily erode and eventually destroy communities (both human and natural) that allow unregulated free markets. I work through how this has happened in my book “The Wealth or Health of Nations”. I also discovered, to my great disappointment, that Marxism is even worse – Marx did realize that industrialization of labor and farming would destroy communities and fertility but he didn’t care. After waiting 30 years for a good economic alternative, one has finally appeared: Regenerative Economics harnesses the creative dynamism unleashed by free markets but via working with the regeneration creativity of nature instead of against it, and empowering participation at every level of society. I’m convinced John Fullerton will be hailed as the Adam Smith of the Ecological Age – IF we can get there.
I never finished reading The Wealth of Nations, and have not read Smith’s other works either, but I do remember being struck by something he wrote about supply and demand for labor, suggesting that employers would find it in their self-interest to not artificially meddle with this balance, but if labor tried to organize, government would step in. I think he was only partly correct in that.
I never understood why Smith’s work should be treated like a bible, but like the bible, too many people like to cherry pick their quotes.