How Adam Smith Set the Stage for Economics Stripped of Ethics
TL;DR: We show how Adam Smith, in his classic Wealth of Nations, set aside the “moral sentiments” he had passionately defended as a philosopher. Instead of cooperation and compassion, he gave primacy to competition, division of labor, and self-interest as the arbiters of economics. In our reading, this seeded the impulse among later generations of economists, of stripping ethics out of economics.
Cover art by Diana Mariño
Adam Smith’s Turnabout in View
Something odd seems to have happened to Adam Smith’s worldview between 1759, when he published his Theory of Moral Sentiments, and 1776, when his much more famous Wealth of Nations went to print.
If you recall from our last post, in The Theory of Moral Sentiments, it is clear Adam Smith held dear the sanctity of universal spiritual values, such as compassion, generosity, temperance and love, as well as the “golden rule,” with its exhortation to do unto your neighbor, as you would want done to yourself
Yet somehow, this got diluted or lost when he turned his attention to economics.
In fact, the descriptive turnabout between the Theory of Moral Sentiments and the Wealth of Nations, in regards each ones’ core view of human essence, is so sharp it is positively dizzying.
When writing as a moral philosopher, Smith advocated for an empathetic, virtuous personhood with great concern for community and others’ well-being.
But when writing as an economist, Adam Smith devitalized important portions of this principled conceptualization. Instead, in The Wealth of Nations we become economic agents motivated mainly by the quest for personal gain.
In one of the book’s most famous passages, Adam Smith deploys his enormous prestige and intellectual capacity to legitimize the pursuit of unabated self-interest:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our 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.”
Thus stripped of all nuance, isolated and purposefully denied access to his or her higher moral functions, this reduced shadow of a person was plopped by Smith into a suddenly hostile theoretical terrain.
Gone are the “sympathy” and “fellow-feeling” of the Theory of Moral Sentiments.
I mean this quite literally; these two concepts, so integral to Smith’s earlier work on moral philosophy, do not appear at all in the more famous Wealth of Nations.
Instead, they are replaced instead with two concepts of human separation: the “division of labor,” and “competition.”
“Division of Labor” and Economic Efficiency
Adam Smith has been much lauded by economists for pioneering the notion of the “division of labor.”
Viewed from the prism of neoclassical maximization, it is easy to understand why; the concept’s internal logic appears unassailable.
The division of labor is simply a form of specialization.
An example best elucidates it. On a manufacturing assembly line, a single worker does not construct the automobile by him or herself. Instead, each worker on the line focuses sequentially on a particular part or process: body stamping, paint shop, interior, chassis, drive train, engine block, and so forth.
Thus working individually, yet at the same time together, they achieve much more than anything they could achieve on their own. This process maximizes productivity gains.
In more motivational language, it is the result of teamwork and cooperation. And what’s wrong with teamwork and cooperation? Seemingly nothing.
Yet there is a very important difference between the idea of cooperation as Adam Smith described it in his Theory of Moral Sentiments, and cooperation as he describes it in the Wealth of Nations. The difference lies in the motive for cooperation. In the Wealth of Nations, cooperation is not the objective. Instead, it is subordinated to the attainment of one’s self-interest. He says as much himself:1
“[Man] stands at all times in need of the co-operation and assistance of great multitudes…. [He] has almost constant occasion for the help of his brethren, and it is vain for him to expect it from their benevolence alone. He will be more likely to prevail if he can interest their self-love in his favor, and shew them that it is for their own advantage to do for him what he requires of them.”
“Give me that which I want, and you shall have this which you want.”
Thus, cooperation in The Wealth of Nations is a conditioned cooperation; or in Smith’s own words: “Give me that which I want, and you shall have this which you want.”
There is no sense that such cooperation is a moral imperative, or that it might offered as an act of kindness, or generosity. Instead, it is offered out of self-interest.
In contrast, seventeen years earlier, in the Theory of Moral Sentiments, Smith had taught that we cooperate with one another because to do so advances human happiness and even God’s plan for humankind.
“…By acting according to our moral faculties, we necessarily pursue the most effectual means for promoting the happiness of mankind, and may, therefore be said, in some sense, to cooperate with the Deity, and to advance so far as in our power the plan of Providence.”
In the Wealth of Nations, Adam Smith appears to have forgotten altogether this moral sentiment. Rather than awarding centrality to compassion and cooperation, as he did in his Theory of Moral Sentiments, the governing principle instead becomes competition.
“Competition” and Economic Efficiency
In the same way that the “division of labor” has been much praised by subsequent generations of economists, so too has Smith’s championing of competition, which is seen as a necessary ingredient for a well-functioning market.
This is because it facilitates “price discovery,” an elaborate way of saying that prices in a competitive market adjust up or down per the dynamics of suppliers trying to maximize gains and buyers trying to get the best possible deal. In Smith’s words:
“When the quantity of any commodity…falls short of the effectual demand…a competition will immediately begin….and the market price will rise….. When the quantity brought to market exceeds the effectual demand…the market price will sink...according [to] the competition of the sellers.”
This, too, is an observation with a seemingly infallible internal logic. “Supply and demand,” a mainstay of neoclassical thought, has migrated comfortably into the lexicon of twenty first century readers; it has become common sense.
Further, it is quite clear that competition in modern market economies has contributed to certain socially desirable outcomes, including innovation, entrepreneurship, new technologies, and the emergence of an extremely competent managerial class.
Rather, what is consequential is the primacy and exclusivity that Adam Smith gave to competition as a principle for economic organization, while at the same time abandoning the relevance of selfless cooperation, as he described it in his Theory of Moral Sentiments .
This, despite the obvious fact that competitive clashes can easily have unintended outcomes that run contrary to the value of human community that Smith had earlier championed when he wrote as a moral philosopher.
“Competition” and “Division of Labor” as Concepts that Foster Human Separation
So what we have here is one of the first examples, laid at the very fountainhead of the field, of a theoretician consciously launching into the discipline of economics, a concept that violates a universal value that the same theoretician had advocated in other writings.
For like the concept of the “division of labor,” “competition” contains within it certain seeds of human separation. Rather than foster unity, competition instead invariably provokes duality: a winner, and a loser.
Neoclassical economists will tell you that in a market economy, that is exactly the point: competition forces out inefficient companies. No matter if this is a competition stripped of all moral sentiment in a market with no sympathy or compassion; if a company cannot compete, it has no business being in the market at all. Either you win, or you lose. Again, this is another example of seemingly infallible economic logic.
But a lot of analytical subtlety -- and acknowledgement of human suffering -- can get lost when one treads along exclusively binary footpaths. Smith himself admits as much when he discusses wages in a scenario of declining economic growth. In that scenario, as demand for labor declines, and the supply of labor became “overstocked” and “overflowing,” then:
“Competition for labor would be so great….as to reduce the wages of labor to the most miserable and scanty subsistence of the labourer. Many would not be able to find employment even upon these hard terms, but would either starve….or driven to begging, or ...the perpetuation of the greatest enormities.”
Certain influential economic theories will have a ready answer to that scenario too: the way to avoiding descent into “the most miserable and scanty subsistence,” is at least partially to generate economic growth and the jobs that go with them.
But as we shall explore extensively later on, prioritization of economic growth, like competition, has the potential to generate unintended consequences, some of them quite onerous, if left untempered by the guidance of our highest moral selves. These onerous consequences include environmental degradation, inequalities of wealth and opportunity, and a dulling of human compassion.
Adam Smith Sets Aside his Moral Sentiments
At this point in our tale, what matters most is to acknowledge that the backstory of Wealth of Nations includes a turnabout of view on the part of its author.
In launching the Wealth of Nations, Adam Smith purposefully removed from his economic thought, spiritual values he had earlier championed as a moral philosopher in his Theory of Moral Sentiments.
In Theory of Moral Sentiments, Smith advocated on behalf of sympathy, compassion, temperance, and love.
In the Wealth of Nations, he replaced these expansive principles with the one-dimensionality of “self-interest.”
Upon so doing, Adam Smith seems to have cast a dark spell upon the emerging field of economics, as influential theorists in subsequent generations of economists have recoiled, as though it was some awful shock, from anything that might be called morality or universal human values; in abandoning treasured portions of his own spirituality and higher self when he turned his attention to economics, it was as if Adam Smith condemned all economists who followed him to do the same.
Next week, we shall begin our exploration of the 18th century Scottish philosopher Jeremy Bentham’s “Utilitarianism,” which came to have an enormous influence on important 19th century advances in economic theory. We’ll show that while utilitarianism can trace its roots back to Aristotle’s Nichomachean Ethics, it left out much of the latter’s robust system of ethics.
Additional Reading
Like his Theory of Moral Sentiments, Adam Smith’s Wealth of Nations long ago passed into the public domain. There are many editions available free on line. You can browse a sampling of them at the Internet Archive here: Wealth of Nations.
*As I mentioned in my prior post, I will always do my best to use inclusive language throughout this newsletter. The masculine pronoun in this quote, of course, is from the Adam Smith’s 18th century original, when we were in a positively primitive time, where gender equality was concerned. Feel free to swap in any pronoun you’d like to replace the masculine, if that will help make the text resonate more for you.