The Theory of Moral Sentiments (2 page)

Not only are Smith’s two books related, but his ideas in them also had something of a common origin. Smith had been appointed to the professorship of logic at the University of Glasgow in 1751, but he moved to the chair of moral philosophy the following year and held that position until 1764. His lectures on the subject not only contained the material on which the
Moral Sentiments
would draw, but as one of his students—John Millar, who later became professor of law at Glasgow—noted, the last part of his four-part lecture series also “contained the substance of the work he afterwards published under the title of
An Inquiry into the Nature and Causes of the Wealth of Nations
.”

Given the pervasive interdependence of these two books, it is amazing that many Smith commentators have been inclined to see a huge dichotomy between the two. Indeed, there is quite a voluminous literature on what has been called the “Adam Smith problem,”
¹
the common element of which is the fanciful belief that there is an inconsistency between Smith’s arguments presented in the
Moral Sentiments
, which “attributed conduct to sympathy,” and in
The Wealth of Nations
, which allegedly saw behavior as “being based on selfishness.” A recurrently asked question has been: Why did Smith abandon his earlier approach when he came to write
The Wealth of Nations
?

In fact, Smith never abandoned what he presented in the
Moral Sentiments
. Rather, he continued to advance that perspective, with many additional illustrations, even as he was engaged in presenting
The Wealth of Nations
.
²
The first version of the
Moral Sentiments
, published in 1759, was revised in the second edition in 1761, in the third in 1767, and in the fourth in 1774. Then, five years after the publication of
The Wealth of Nations
, came the fifth edition of
Moral Sentiments
, followed by a final—and much extended—edition, the sixth, in 1790, shortly before Smith’s death the same year. It is interesting to note that Smith’s first book, the
Moral Sentiments
, was also his last, in the form of the much-expanded sixth edition, with
The Wealth of Nations
coming in between.
³
Indeed in the “Advertisement” to the final edition of
Moral Sentiments
, Smith recollected the promise he had made in the earlier editions “to give an account of the general principles of law and government, and of the different revolutions they have undergone in the different ages and periods of society.” He went on to say that in
The Wealth of Nations
, “I have partly executed this promise.”

In each book Smith talks about a variety of human motivations, including both sympathy and self-love, and also many other concerns that drive human beings.
⁴
If self-love is of special relevance in seeking some particular explanation—for example, why people seek trade—then other motivations have important roles in explaining other types of choices—for example, work discipline and a commitment to obeying good rules and to treating others with respect and honour. The role of self-love in explaining particular economic phenomena does nothing to reduce the relevance of different motivations in the understanding of other economic regularities.

SYMPATHY AND SELF-LOVE

There is a strong tradition in the economic literature that has tended to assume—indeed, assert—that Smith believed “self-interest dominates the majority of men,” to quote the distinguished economist George Stigler, who took this belief, which he championed, to be “on Smithian lines.” A great many economists were—and some still are—evidently quite enchanted by something that has come to be called “rational choice theory,” in which rationality is identified with intelligently pursuing self-interest. Further, following that fashion in modern economics, a whole generation of rational choice political analysts and of experts in so-called “law and economics” have been cheerfully practicing the same narrow art. And they have been citing Smith in alleged support of their cramped and simplistic theory of human rationality.

The conviction that Smith believed in the dominating presence—and also the rationality—of human selfishness has even found its way into English literature via a limerick by Stephen Leacock, who was both a professional economist and a talented literary writer:

Adam, Adam, Adam Smith
Listen what I charge you with!
Didn’t you say
In a class one day
That selfishness was bound to pay?
Of all doctrines that was the Pith.
Wasn’t it, wasn’t it, wasn’t it, Smith?

In contrast, the
Moral Sentiments
actually begins with the following observation:

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. . . . That we often derive sorrow from the sorrow of others, is of a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.

While some men are born small and some achieve smallness, it is clear enough that Smith has had much smallness thrust upon him.

Smith famously discussed that to explain the motivation for economic exchange in the market, we do not have to invoke any objective other than the pursuit of self-interest. In his most famous and widely quoted passage from
The Wealth of Nations
, he wrote: “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.”
⁵
Unfortunately, in the tradition of interpreting Smith as the guru of selfishness or self-love (as he often called it—not with great admiration), the reading of his writings does not seem to go much beyond those few lines, even though that discussion is addressed only to one very specific issue, namely
exchange
(rather than distribution or production) and, in particular, the
motivation
underlying exchange (rather than what makes normal exchanges sustainable, such as trust and confidence between the two parties). In the rest of Smith’s writings there are extensive discussions of the role of other motivations that influence human action and behavior.

ECONOMICS AND THE LIMITATIONS OF THE PROFIT MOTIVE

Beyond self-love, Smith discussed how the functioning of the economic systems in general and of the markets in particular can be helped enormously by other motives. There are two distinct propositions here. The first is one of epistemology, concerning the fact that human beings are not guided only by self-gain or even prudence. The second is one of practical reason, involving the claim that there are good ethical and practical grounds for encouraging motives other than self interest—whether in the crude form of self-love or in the refined form of prudence. Indeed, Smith argues that while “prudence” was “of all the virtues that which is most helpful to the individual,” “humanity, justice, generosity, and public spirit, are the qualities most useful to others.”
⁶
These are two distinct points, and unfortunately a big part of modern economics gets both of them wrong in interpreting Smith.

The nature of the present economic crisis illustrates very clearly the need for departures from unmitigated and unrestrained self-seeking in order to have a decent society. Even John McCain, the 2008 U.S. Republican presidential candidate, complained constantly in his campaign speeches of “the greed of Wall Street.” Smith had a diagnosis for this: he called promoters of excessive risk in search of profits “prodigals and projectors”—which, by the way, is quite a good description of many of the entrepreneurs of credit swaps insurances and subprime mortgages over the recent past. The term “projector” is used by Smith not in the neutral sense of “one who forms a project,” but in the pejorative sense, apparently common from 1616 (so I gather from
The Shorter Oxford English Dictionary
), meaning, among other things, “a promoter of bubble companies; a speculator; a cheat.” Indeed Jonathan Swift’s unflattering portrait of “projectors” in
Gulliver’s Travels
, published in 1726 (fifty years before
The Wealth of Nations
), corresponds closely to what Smith seems to have had in mind. Relying entirely on an unregulated market economy can result in a dire predicament in which, as Smith writes, “a great part of the capital of the country” is “kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it.”
⁷

Smith’s criticism of an unregulated market economy did not go unchallenged. It is a matter of some historical interest that Jeremy Bentham took Smith to task in a long letter he wrote to him in March 1787, arguing that Smith should leave the market alone.
⁸
He argued, for those whom Smith saw as “projectors”—with various projects of making quick money—were also the innovators and pioneers of change and progress. Smith was good-humored about the critique.
⁹
But he knew the distinction between projectors and innovators well enough, and there is little evidence, despite Bentham’s expectations, that Smith wanted to revise what he had said on the need for regulation.

To understand the nature of a country’s financial stability in a way that is, as it happens, immediately relevant to the current economic crisis, it is extremely important to pay attention to Smith’s argument that “When the people of any particular country have such confidence in the fortune, probity, and prudence of a particular banker, as to believe that he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him; those notes come to have the same currency as gold and silver money, from the confidence that such money can at any time be had for them.”
¹⁰
Such confidence need not always pre-exist or survive, Smith argued; a climate of mutual trust has to be cultivated and fostered. Even though the champions of the baker-brewer-butcher reading of Smith, enshrined in many economics books, may be at a complete loss about how to understand the present economic crisis (since people still have excellent reason to
seek
more trade even now, in the middle of the crisis—only far less
opportunity
), the devastating consequences of mistrust and the collapse of mutual confidence would not have puzzled Smith.

MARKETS AND THE NEED FOR OTHER INSTITUTIONS

The spirited attempt to see Smith as an advocate of pure capitalism, with complete reliance on the market mechanism guided by pure profit motive, is altogether misconceived. Smith never used the term “capitalism” (I have certainly not found an instance). More importantly, he was not aiming to be the great champion of the profit-based market mechanism, nor was he arguing against the importance of economic institutions other than the markets. Smith was convinced of the necessity of a well-functioning market economy, but not of its sufficiency. He argued powerfully against many false diagnoses of terrible “commissions” of the market economy, and yet nowhere did he deny that the market economy yields important “omissions.” He rejected
market-excluding
interventions but not
market-including
interventions aimed at doing those important things that the market may leave undone.

Smith saw the task of political economy as the pursuit of “two distinct objects”: “first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services.”
¹¹
He defended such public services as free education and poverty relief while demanding greater freedom for the indigent who receives support than the rather punitive Poor Laws of his day permitted. Beyond his attention to the components and responsibilities of a well-functioning market system (such as the role of accountability and trust), he was deeply concerned about the inequality and poverty that might remain in an otherwise successful market economy. Even in dealing with regulations that restrain the markets, Smith additionally acknowledged the importance of interventions on behalf of the poor and the underdogs of society. At one stage he gives a formula of disarming simplicity: “When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.”
¹²
Smith was both a proponent of a plural institutional structure and a champion of social values that transcend the profit motive in principle as well as in actual reach.

ETHICS, VIRTUE, AND CONSEQUENCES

I turn now from the relevance of
Moral Sentiments
to Smith’s economic analysis to its salience to ethics and political philosophy. Smith had an abiding interest in how things actually work out, and in recommending actions and rules to be chosen he paid particular attention to the kind of world they would yield.
¹³
But he also noted the importance of the character of the actions themselves and the motivation behind undertaking them—not just what happens at the very end—in identifying what can be seen as virtuous.
¹⁴