ADAM SMITH
Adam Smith (1723-1790) was a Scottish philosopher and economist who is often considered the father of modern economics. His ideas laid the foundation for classical economics and significantly influenced the development of capitalism and economic thought.
1. The Theory of Moral Sentiments
- Opposition to Mandeville and Hobbes: Adam Smith's "The Theory of Moral Sentiments" addresses key philosophical debates of his time, particularly countering ideas put forth by Bernard Mandeville and Thomas Hobbes. Mandeville argued that benevolence has no social benefit and that human actions are inherently selfish, while Hobbes viewed morality as relative to individual desires. Smith rejects these views and argues that humans possess innate principles of sympathy and altruism.
- Rejecting Selfishness: Smith opens "The Theory of Moral Sentiments" by rejecting the assumption of human selfishness. He posits that despite selfish tendencies, humans are naturally inclined to care about the well-being of others. This caring nature stems from an inherent interest in the happiness of others, even when it doesn't directly benefit oneself.
- Sympathy and Human Nature: Sympathy, as described by Smith, is a fundamental aspect of human nature. It involves experiencing pleasure or pain based on observing the happiness or suffering of others. Smith argues that people derive pleasure from seeing others happy and feel pain when witnessing their distress, highlighting the social and empathetic dimensions of human emotions.
- Understanding Sympathy: Smith delves into the mechanics of sympathy, likening it to modern empathy. Sympathy allows individuals to relate to others' emotions by imagining themselves in the other person's situation. This imaginative process forms the basis for moral judgments and guides ethical behaviour.
- Sympathy in Moral Deliberation: Smith emphasizes that sympathy is essential for moral deliberation and judgment. It enables individuals to evaluate the appropriateness of emotions and actions, both in themselves and in others. This process of mutual sympathy fosters social unity and cooperation.
- Limits and Nuances of Sympathy: While sympathy serves as a foundation for moral approval, Smith acknowledges its limitations and nuances. He discusses how sympathy varies based on relationships and proximity to others, as well as the role of imagination in understanding different perspectives.
2. The Impartial Spectator in Adam Smith's "The Theory of Moral Sentiments"
- Imaginative Judgment: Adam Smith introduces the concept of the impartial spectator in "The Theory of Moral Sentiments" as a mechanism for individuals to judge their own actions objectively. Through the use of imagination, individuals create a mental division between themselves as the examiner and judge and themselves as the person whose conduct is being judged. This process allows for a dispassionate evaluation of one's actions and motives.
- Role of the Impartial Spectator: The impartial spectator serves as an anthropomorphized representation of a calm and disinterested observer. It helps individuals gain insight into their own behaviour by providing a perspective that is detached from personal biases and emotions. This imaginary figure allows individuals to step back from their immediate impulses and assess their actions more rationally.
- Self-Division for Self-Knowledge: Smith argues that self-deception is a common source of human troubles. By dividing oneself into the examiner and the person being judged, individuals can achieve a more candid and impartial view of their conduct. This process leads to better self-knowledge and helps in making more informed moral judgments.
- Limits of Impartiality: While the impartial spectator aids in moral reflection, Smith acknowledges its limitations. The judgment of the impartial spectator is not infallible and is subject to the individual's knowledge and experiences. Social biases and cultural norms also influence the impartial spectator's perspective, highlighting the complexity of moral judgment.
- Critique of Aesthetic Attraction: Smith warns against prioritizing aesthetic beauty or systemic coherence over empirical evidence and human interests. He criticizes the societal tendency to idolize wealth and beauty, which can distort moral judgments and undermine ethical principles. Smith's caution extends to economic and social engineering, emphasizing the importance of natural principles and individual agency.
- Discovery of Moral Standards: The impartial spectator helps individuals discover general rules of morality through observation and reflection. Moral standards emerge from collective sentiments of approval or disapproval toward certain actions. Over time, these standards become principles that guide behaviour based on their intrinsic moral value.
- Aristotelian Influence and Moral Realism: Smith's approach to moral philosophy reflects Aristotelian influences, emphasizing the interaction between intellectual virtue and moral judgment. Despite appearing relativistic at times, Smith's theory is rooted in moral realism, suggesting that moral truths are discovered through experience and shared sentiments rather than mere personal preferences.
3. Virtues, Duty, and Justice in Adam Smith's Philosophy
- Self-Command and Virtues: Adam Smith underscores the importance of self-command as a foundational virtue from which all other virtues derive their lustre. Self-command enables individuals to modulate their sentiments and emotions, allowing them to align with societal expectations and the standards set by the impartial spectator. This virtue is crucial for fostering positive sentiments such as humanity, kindness, and friendship while minimizing negative emotions like anger, envy, and malice.
- Desire for Worthiness and Duty: Smith highlights humans' innate desire not only for praise but also for praiseworthiness and the avoidance of blameworthiness. This desire reflects the influence of the impartial spectator as a guide to moral worth, even in the absence of external observers. Duty, according to Smith, sets a standard of right action that transcends community norms and reflects intrinsic moral principles.
- God and Duty: Smith's discussion of duty extends to the role of God as the ultimate authority in moral judgments. While Smith was a deist and believed in a non-interventionist God, he argued that humans are God's regents on earth responsible for judging their behaviour. The awareness of God's laws reinforces adherence to moral standards, aligning individual actions with broader ethical principles.
- Justice as a Pillar of Society: Smith emphasizes justice as the cornerstone of societal order, describing it as a "negative virtue" that prevents harm and upholds individual rights and safety. Adhering to principles of justice is essential for maintaining social cohesion and preventing harm to others. Justice encompasses respecting the life, property, and personal rights of individuals, forming the basis for ethical conduct within communities.
- Connection to Political Economy: While Smith's discussion of virtues, duty, and justice is foundational in moral philosophy, it also intersects with his work in political economy, as seen in "The Wealth of Nations." Smith's ideas on justice and individual rights inform his economic theories, emphasizing the importance of fair trade, property rights, and the rule of law in fostering economic prosperity and social stability.
4. An Inquiry into the Nature and Causes of the Wealth of Nations
- Overview of The Wealth of Nations: Published in 1776, Adam Smith's "The Wealth of Nations" (WN) is a substantial work that delves into the intricacies of economics and societal organization. Unlike his earlier work, "The Theory of Moral Sentiments," which focused on moral philosophy, WN presents a systematic exploration of economic principles and their implications for societal wealth and progress.
- Structure and Content of The Wealth of Nations: The book is divided into five books or sections that cover various aspects of economics and societal development. These sections include discussions on the division of labour, the role of stock and capital, the historical evolution of wealth, economic growth in commercial societies, and the role of government in market economies.
- labour and Wealth Creation: A fundamental premise in WN is the idea that the annual labour of a nation is the primary source of its wealth. Smith contrasts this view with the prevailing mercantilist perspective that equates wealth with the accumulation of money and goods within a nation's borders. Smith's emphasis on labour as the source of wealth reflects his departure from the traditional economic thinking of his time.
- Free Trade and Economic Growth: Smith advocates for free trade as a means to increase wealth and economic growth. He argues that restricting trade, as advocated by mercantilists, stifles opportunities for labour and limits the potential for wealth creation. Instead, free trade expands markets, encourages specialization, and promotes innovation, leading to greater prosperity for individuals and society as a whole.
- The Role of Self-Interest and Market Dynamics: Smith introduces the concept of self-interest as a driving force in economic activities. Contrary to conventional moral views, Smith argues that individuals pursuing their self-interest within a free market context contribute positively to the public good. This perspective challenges notions of economic behaviour solely motivated by altruism or charity.
- Specialization and Efficiency: Smith highlights the importance of specialization and division of labour in enhancing productivity and efficiency. He uses examples such as the pin-making process to illustrate how specialization leads to increased output and economic growth. Specialization allows individuals to focus on specific tasks, leading to higher skill levels and innovation.
- Wealth Distribution and Social Progress: While emphasizing the benefits of economic growth and wealth creation, Smith also addresses concerns about wealth distribution and social well-being. He argues that a thriving commercial society can improve the living standards of the lower ranks of society, ensuring that basic necessities are accessible to all individuals.
- The Invisible Hand and Market Dynamics: One of Smith's famous concepts is the "invisible hand," which refers to the unintended benefits that result from individuals pursuing their self-interest in a market economy. Smith suggests that market forces guide resources and activities in ways that promote overall economic welfare, even without intentional coordination or central planning.
5. History and labour in Adam Smith's "The Wealth of Nations"
- Smith's Historical Account and Economic Progress: Adam Smith's "The Wealth of Nations" outlines a historical progression of human civilization through four stages: nations of hunters, nations of shepherds, agricultural nations, and finally, commercial societies. Smith views this progression as natural and progressive, with each stage representing an improvement over the previous one. This historical framework also serves as a basis for understanding economic and political developments in different societal forms.
- Interaction Between Town and Country: One of Smith's key insights is the dynamic interaction between urban and rural populations in any society. Agricultural lands provide sustenance, while urban areas contribute to manufacturing and innovation. Smith acknowledges the physiocrats' emphasis on agricultural labour as crucial but expands the concept of value to include all productive labour, whether agricultural or urban. This perspective highlights the interdependence and mutual benefit of different economic activities within a society.
- Division of labour and Economic Efficiency: Smith emphasizes the importance of the division of labour in enhancing productivity and efficiency. By dividing tasks and specializing in specific areas, individuals and societies can produce more with less effort. This principle applies not only to manufacturing processes, as exemplified by the pin-making example, but also to broader economic activities across different sectors.
- Economic Value and Labour Theory: A central concept in Smith's economic theory is the labour theory of value. He argues that labour is the real measure of exchangeable value for commodities. Smith contends that differences in natural talents among individuals are relatively minor in terms of labour value, allowing for a universal standard to compare the value of different goods and services across time and place.
- Price, Value, and Market Dynamics: Smith delves into the complexities of price determination and market dynamics. He distinguishes between natural price, which covers all necessary costs of production, and market price, the actual price at which commodities are exchanged. A well-functioning market aligns these prices, reflecting the true value of goods and services based on labour inputs and market forces.
- The Paradox of Value and Utility: Smith addresses the paradox of value, where essential goods like water have low market prices compared to non-essential goods like diamonds. He distinguishes between value in use (utility) and value in exchange (market price), acknowledging the subjective nature of utility but grounding value assessment in labour as a more objective measure.
6. Political Economy in Adam Smith's "The Wealth of Nations"
- Smith's Concept of Natural Liberty: Adam Smith's "The Wealth of Nations" is not merely an exploration of economic mechanisms but also a treatise on political economy. Central to Smith's ideas is the concept of "natural liberty," advocating for minimal state intervention in the market. He proposes that the market, guided by self-interest and competition, can efficiently allocate resources and promote economic growth without excessive government interference.
- Roles of the Sovereign: Smith delineates three primary roles for the sovereign or government: protecting society from external threats, maintaining justice and order within the society, and providing public works and institutions that benefit society collectively. These roles are essential for ensuring a functioning and prosperous society while also addressing potential controversies and challenges such as the nature of justice and the means of protecting society.
- Military and Justice: Smith engages in debates about the best means of protecting society, discussing the merits of a citizen militia versus a standing army. He also touches upon the complexities of justice, although he doesn't fully articulate a comprehensive theory of justice. However, he emphasizes individual rights and limited government interference in matters of conscience and personal liberty.
- Public Goods and Social Unity: In Book Five of "The Wealth of Nations," Smith delves into the importance of public goods, including education and social regulation. He advocates for universal education to counter superstition, promote social cohesion, and equip individuals with the necessary skills and knowledge to contribute meaningfully to society.
- Education and Social Progress: Smith's discussion on education highlights its role in fostering intellectual development, social virtues, and civic engagement. He recognizes the detrimental effects of the division of labour on individuals' intellect and moral judgment, emphasizing the need for government intervention to prevent such consequences and promote the overall well-being of society.
- Moral Foundations of Political Economy: Smith's arguments in "The Wealth of Nations" are not isolated from his moral philosophy. His emphasis on universal wealth, limited government, and individual rights stems from a broader moral framework. Smith's systematic approach connects economic principles with moral considerations, emphasizing the interplay between economic policies, social progress, and ethical values.
