Question

explain why you should read both of Adam smith's books WN & TMS to understand his viewpoint on economics and politics.

Answer 1

Adam Smith saw man for what he truly is, dominated by selfinterest but not without concern for others, able to reason but not necessarily able to reach the best or right conclusion while all the time seeing one’s own actions through a veil of self-delusion. WN and TMS are equally important books, and in order to understand the economics and philosophy of Adam Smith, both must be read and studied.

Adam Smith’s two most prominent works, An Inquiry into the Nature and Causes of the Wealth of Nations (WN) and The Theory of Moral Sentiments (TMS), are to many economists and philosophers, very different, and even contradictory in the way each defines and advances the concept of human motivation. This notion of contradiction has led to the creation of what is referred to as the “Adam Smith Problem.” Many economists and philosophers alike have used these socalled contradictions and inconsistencies to attack the authorial integrity of Adam Smith’s work, their main argument being that WN is built on self-interest and TMS is built on altruism and sympathy. This argument presumes a single motivation, one of either self-interest or altruism. This idea that human behavior rests upon a single motivating factor, regardless of which you believe, seems incredibly simplistic and naïve.

Adam Smith is one of the greatest victims of this misinterpretation and misrepresentation. Smith’s reputation as the father of modern economics will most likely endure the test of time, and that is a title with which many would agree. The problem is not the title however, but the concepts that are associated with the name Adam Smith.

The canonical status of WN has survived successive revisions, with associated adjustments in emphasis and interpretation to what the name “Smith” stands for along the way. Economic and historical journals continue to publish articles dealing with particular aspects of Smith’s contributions, with Smith’s concepts broached by the understanding of Smith as an “economic liberal.” Famed economist George Stigler once noted that WN is a “stupendous palace erected upon the granite of self-interest”. This common understanding of Smith offers vindication of his arguments for natural liberty, self-interest, and laissez-faire. However, this understanding of Smith is incorrect due to how the term “self-interest” was used by Smith in his time versus how the term is understood today. Adam Smith understood self-interest as the awareness and care of one’s own well-being. Today’s understanding of the term “self-interest” implies an inherent selfishness that goes beyond one’s care for their personal well-being and enters the realm of greed. Therefore, the perception of Smith, which is largely based on the misinterpretation on what Smith meant by self-interest, set forth by economists such as Stigler, is extremely simplistic and naïve, something that has been recognized by economists, historians, philosophers, and psychologists over the past fifty or so years.

The understanding of WN has been expanded, and a more sophisticated image has emerged. Four broad trends can be distinguished in recent studies. 86 First, there is the conventional appraisal of Smithian analysis by historians of economics. The second tendency is for historians to locate Smith’s writing in a wider cultural and political context. The third trend reconstructs the eighteenthcentury Smith as a critic of twentieth-century economies. And lastly, the fourth trend emphasizes a “cultural-historical” Smith, which makes him more accessible to analysis to those whose domain of work has recently shifted away from “literature” towards a general study of textual politics.

German scholars sought to broaden their understanding of Smith by comparing the psychological assumptions of WN and TMS. These scholars found the assumptions of the two works contradictory, and thus the “Adam Smith Problem” was born. Smith’s moral philosophy and economics were labeled incompatible by these German scholars, bringing into question whether Smith had held a unifying vision of civil society. Whether or not this argument ever had merit will be discussed in depth later, but for now it is irrelevant. What is relevant here is that there was a renewed interest in Smith’s work. There was a broadening of understanding of Smith as an author and this led to the rediscovery of WN as a “history and a criticism of all European civilization”

There are many misinterpretations of Adam Smith and his overwhelming contributions to the study of economics and philosophy.As we can see from the opening passage of TMS, Smith was certainly not a believer in the strict and narrow concept that only self-interest served in generating social wealth, but that he believed benevolence played a vital role in human motivation.“neither Smith nor any of his successors has been able to demonstrate rigorously and robustly how private selfishness turns into public altruism” (Foley, 3). This again is a severe misinterpretation that is solely based on the common misconceptions of WN , and holds no reference to TMS, which, makes this claim uninformed and more importantly irresponsible.Smith is to blame for the savagery and competitiveness of today’s capitalistic economies.What is important to think about is whether it is correct to blame someone for the misinterpretations of their work or does the blame lie on the shoulders of those scholars who are doing the misinterpreting. What we are seeing here is the classic mistake of reading Smith is if he were a modern day economist. Due to this critical mistake, Foley, an institutionalist, arrives at many of the same erroneous conclusions free market capitalists have traditionally arrived at when reading Smith. Foley’s Adam’s Fallacy: a Guide to Economic Theology is an important example because it demonstrates the depth of the misinterpretation of Adam Smith. The majority of this paper is dedicated to criticizing the misinterpretations of free market capitalists, who in all respects view Smith as the godfather of economics. Foley is an institutionalist, who is very critical of Smith and his assumed role in the current state of capitalism. Foley trips over the same misinterpretations that the capitalists do, demonstrating just how critical it is to address this issue of the “Adam Smith Problem.”

The first step in dissecting Smith’s complex relationship between altruism and self-interest is to understand his system of natural liberty. Smith’s system of natural liberty is built on two key assumptions - one at the individual level and one at the social level. At the individual level, Smith said that society is composed of individuals who are all similar and are guided by an innate human propensity to trade and pursue self-interest. On the social level, Smith said that this system, to the extent that it accommodates human nature and to the extent that it establishes social harmony through economic growth, is an ideal social order.These two assumptions are the pillars that hold together Smith’s beliefs and theories, and are particularly important in understanding how WN was written.

WN was written as an analysis of the social phenomena he saw during the Industrial Revolution that arose due to self-interest. At no point in WN, however, does Smith suggest that self-interest is the single motivating factor of all human beings. WN was an attempt to find a basis on which people could live together when the Church no longer provided an unquestioned set of answers to inquiries about how society should be organized (Backhouse, 132). In addition, Smith was exploring how commercial society could prosper as a whole, even when men were pursuing their own self-interest (Backhouse, 123). By doing this, Smith could suspend morality when answering economic questions and create a model where economic growth was possible.

Some economists, including Jacob Viner, believe that the most important inconsistency between TMS and WN is that in TMS, Smith assumes that there exists a natural harmony, and in WN, Smith abandons this belief. I believe this is due to a gross misunderstanding of the two works. First, it should be noted that TMS is not an abstract treatise upon virtuous conduct, but a study of human psychology. It was written to show how self-interest, mitigated by sympathy and self-command, can result in prudent and sometimes beneficent actions (Tribe, 622). In comparison, WN’s purpose was to explain how commercial societies originate and create wealth. Put simply, WN is a study of the organization of economic life. It should be understood however, that Smith does not analyze how they are governed (Tribe, 623). As we can now see, TMS and WN are composed according to two very distinct forms of rhetorical strategy and the claim of inconsistency between the two books in regards to natural harmony is a weak claim at best. Of course, there are other so-called inconsistencies other economists have pointed to over the years. One important claim is that in TMS, human action is influenced by benevolence and in WN this is absent. As mentioned before, this is the most common reason given for the creation of the “Adam Smith Problem.” Economists who believe this claim commonly cite the following passage: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our own dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages” (Smith, 1776: 14). What these economists forget is what Smith says earlier in the same paragraph, that in a civilized society, man needs cooperation and assistance of great multitudes, because in his whole life he is going to only find a few friends (Smith, 1776: 14). Here, the intertwined nature of altruism and self-interest can be seen, and in order to understand it, Smith’s view of man needs to be understood.

Adam Smith’s view of man and human nature are important in helping us to understand his economics. For better or for worse, Smith is most famous for his development of the case for laissez-faire, the concept that government should not control economic activity. According to Smith, an economic system is governed by natural laws and is driven by prudence and the pursuit of self-interest. As stated earlier however, Smith never says self-interest is the sole motivating factor behind human behavior. This points out the main flaw in the creation of the Adam Smith Problem, because this problem presumes a single motivation, one of self-interest or altruism, a concept that relies on two extremes and does not give room for multiple motivations. Smith’s writings actually point out that there are multiple motivating factors in human behavior. Smith asserts that people do not only rely on the benevolence of others and that it is quite possible to be self-interested and have other concerns as well. Self-interest and benevolence have a multifaceted and complementary relationship with one another, something of which Smith is well aware and fully expects the reader to understand.

Next, Smith investigates human nature when it comes to one’s own wellbeing, whether it be financially or dealing with one’s health, when compared to that of a complete stranger. Smith states that the loss or gain of a small interest of one’s own appears vastly more important than the greatest concerns of a complete stranger. Smith provides a great hypothetical example of this conundrum in TMS, where he points out that if a man from Europe were to hear of a great disaster in China, where a hundred million people lost their lives, he would feel an initial sorrow for the people and might stay in a melancholy state for a time, but would sooner than later go back to his normal business.

The notion of the “impartial spectator” is seen in both WN and TMS. The problem, however, is that this concept is seen by many as the foundation of TMS but not WN. The reason for this problem lies with their misinterpretation of the “impartial spectator” as an all-knowing guide instead of seeing it as an evaluation tool for judgment. Put simply, the concept of the “impartial spectator” is not an effective way to analyze economic decision-making by itself. This is not to say that morality does not play a role in economic deliberation, but there are many other factors, such as the effect it has on your family, the repercussions it will have on the local, state, or global market, and how it will affect your relationships, that go into making a sound and beneficial economic decision. TMS argues in favor of this as well, arguing that the greatest cause of corruption of moral sentimentsis admiration for the rich. The concept of “impartial spectator” by its very nature counters the economic desires of people.

Adam Smith was not a strict advocate of laissez faire as so many believe him to be. Smith saw that self-interest and competition were sometimes treacherous to the public interest they were supposed to serve, and he was prepared to have government exercise some measure of control over them where the need could be shown and the competence of government for the task demonstrated (Viner, 231- 232). He knew that laissez-faire could be both good and bad.

Adam Smith saw man for what he truly is, dominated by self-interest but not without concern for others, able to reason but not necessarily able to reach the best or right conclusion while all the time seeing one’s own actions through a veil of self-delusion. According to Smith, a person can have both selfinterested and altruistic motivations for his/her actions. At no point does Smith suggest that there is a clear and single reason for mankind’s motives, and the only reason the “Adam Smith Problem” was conceived is due to a class of radicals, many of whom wanted to explain social phenomena without reference to a deity, who separated WN from moral philosophy because it acquired a more scientific character (Backhouse, 132). WN and TMS are equally important books, and in order to understand the economics and philosophy of Adam Smith, both must be read and studied.