At "Adam Smith, Esq.," we don’t talk about Adam Smith himself very much, but at year-end it seems appropriate to pay a moment’s homage to this site’s intellectual godfather and, I hope, provide those of you who may not have studied him closely a slightly more nuanced perspective of his views.
To start, there could be no better introduction than this discussion of the interplay between his most famous work, obviously, The Wealth of Nations, and its predecessor by 17 years, the relatively unsung Theory of Moral Sentiments. The piece takes off from
Adam’s Fallacy: A Guide to Economic Theology, written by Duncan Foley of New School University in New York, which is described as "a beautiful little book. It contains some of the most lucid exposition of the core ideas of economics that I have ever read." (The reviewer is David Warsh, author of Knowledge and the Wealth of Nations, which I will soon be reviewing here; Warsh is a former Boston Globe columnist.)
The "fallacy" of "Adam [Smith]" is this:
"So what exactly is Adam’s fallacy? According to Foley, it’s “the idea that it is possible to separate an economic sphere of life, in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome, from the rest of social life, in which the pursuit of self interest is morally problematic and has to be weighed against other ends.” This abstraction of an economic sphere from the messy complexity of real life is indeed the kernel of present-day economics.
But this entirely overlooks Moral Sentiments (for the 18th-Century phrase "moral sentiments," substitute today’s more apt "conscience," and your understanding will increase), which opens thus:
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it…. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.”
And Adam Smith is astutely attuned to the inability to cabin human beings into the rigor of the model of homo economicus, without attending to
the social and psychological realities of free will, choice, and impulse:
And here he describes “the man of system,” who “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 on a chess-board; he does not consider that the pieces on a chess-board have no principle of motion besides that which the hand impresses on 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 choose to impress upon it.”
Indeed, these extra-homo economicus considerations are not just competitive with rational, gimlet-eyed, calculating analytics, at times they overwhelm "reason" altogether:
“What is it that prompts the generous, on all occasions, and the mean, upon many, to sacrifice their own interests to the greater interests of others? Is it not the soft power of humanity, is it not that feeble spark of benevolence which Nature has lighted up in the human heart, that is capable of counteracting the strongest impulses of self-love?”
Now, for some reason, the received wisdom handed down over 200 years later about Adam Smith is that he abandoned these views with publication of The Wealth of Nations. Well, I’ll spare you the academic arguments, but suffice to say there’s not a scintilla of evidence that was the case. Indeed, the better reasoned side of the debate, able to marshal far more evidence in support of its view, is that Smith intended a third and possibly even a fourth volume (cut short by his death, and his mandated destruction of all his unpublished manuscripts) reconciling and extending Moral Sentiments and Wealth of Nations
by adding to the mix a treatise on the theory and impact of law and another on science and the arts.
So where are we left here in the 21st Century?
Economics, a somewhat feckless discipline for the last few decades (there you have, in a nutshell, why I never entertained the notion of pursuing a Ph.D. in economics), has opted to "model what it can at the expense of ignoring what it cannot," and "moral sentiments" are famously unsusceptible to modeling.
One of my fonder, if milder, hopes is that my beloved discipline of economics will come to grasp more strongly the world as it really is with all its human complexity and contradiction, and return from its exile in the arid, mathematically intricate "blackboard economics" domain of homo rationalis economicus.
Happy New Year.
