By Adam Stromme
Editor-in-Chief, International Relations & Economics Undergraduate Student
When people think about Adam Smith, they often remember one thing before anything else: the “invisible hand.” And automatically, from that one particle of memory from introductory economics, the rest all falls into its familiar place. Amongst the great pantheon of Liberal thinkers, Adam Smith staked his claim in the history books for his vigorous defense of the Capitalist system of free enterprise, believing in the power and justice of the free market above the tinkering of the government, with its suffocating regulations, and paving the road for free marketeers everywhere to equate, as Milton Friedman did quite literally, “Capitalism and Freedom.”
There is just one problem with this portrait of Smith: it is almost completely without basis.
In need of an intellectual Godfather for the assumptions of their profession, Economists have turned Smith from the brilliant and complicated thinker he was into a “One armed economist.” For within the entirety of Smith’s work, with the famous 1776 tome that was The Wealth of Nations numbering over 950 pages alone, evangelical proselytizing about the virtues of markets, the power of self interest, and Capitalism as the superior basis for an economic system, are almost completely non-existent. It is an insult to the brilliant and deeply nuanced Scotsman that was Adam Smith, perhaps one of the greatest economists of all time and certainly of the Enlightenment, that his entire worldview has been distilled down to a Gordon Gekko-inspired jingle that “Greed is Good.”
Let’s find the real Adam Smith.
Given his legacy, it comes as a surprise to many to learn that Adam Smith was not an economist by trade, but a moral philosopher. Economics was, to Smith, more of a side profession: an offshoot of his central interest in the study of ethics and law. As a result, Smith’s political economy is absolutely inseparable from his ethics, which valued human dignity, freedom and compassion above all else, yet it is almost completely ignored by mainstream interpretations of his worldview.
Economists have turned Smith from the brilliant and complicated thinker he was into a “One armed economist.”
Perhaps the most instructive example of this lies in his famous discussion of the division of labour. That the example always referenced is the very first line at the start of the book, is perhaps a testament to the penchant of individuals to quote Smith without actually reading him: It reads: ”The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is anywhere directed, or applied, seems to be the effects of the division of labour.”
Few today would contest this, and Smith is in no small part the reason for that. His example of splitting up the work of a pin factory was a particularly illustrative example. But somehow scarcely any qualify his praise of the division of labour with what he wrote on it in Book V, when he points out that:
“The understanding of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations… has no occasion to exert his understanding… He becomes as stupid and ignorant as it is possible for a human being to become.”
Even at his most analytical moments when discussing economic questions, Smith’s instincts as a moral philosopher shine through, and he often sharply reproached the brutal subjugation of industrial society’s most vulnerable. Far from being a dispassionate observer of early commercial society, his anger at the injustices he observed perpetrated against the “inferior ranks of people” (referring to their class, and not their character) later became the framework for Marx’s theory of “alienation.” But the idea that meaningful work was a fundamental part of not just a person’s identity but their dignity, was Smith’s, not Marx’s.
Smith’s political economy is absolutely inseparable from his ethics, which valued human dignity, freedom and compassion above all else.
Equally nuanced was his understanding of the role of government in civil society. In their interest in adhering to his opinions word by word rather than his sentiments, many swiftly forget that writing about the role of government under an authoritarian Monarchy— no matter how adorable it might be now— is of a radically different character than under a Parliamentary Democracy with universal suffrage. Yet even then, Smith was an ardent defender of the need for government to secure the basic civic rights of all people, especially the less well off, and at the same time keenly aware of the self serving nature of the powerful in society, writing:
“Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. 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.”
Understood in this way, Smith’s deferential treatment of the rights of the individual in relation to the government was an expression of his staunch anti-authoritarianism, and not his love of the free market or his fear of any form of public authority. Tellingly, he expressed similar anti-authoritarian sentiments with respect to any self-serving tendencies of private power, including corporations, writing in the same chapter: “The pretence that corporations are necessary for the better government of the trade is without any foundation.”
Just as Smith detested authoritarian institutions, he hated arguments from authority. It was in this line of thinking that Smith chastised the “Man of System” in his 1759 treatise “The Theory of Moral Sentiments” as one who vainly “does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon [it].” Far from a single-minded advocacy of individualism, Smith’s argument was emphasizing the much more complicated problem of unintended consequences which plague the administration of any social system, planned or otherwise: a problem he learned to appreciate from the Father of Modern Sociology (and St Andrews Alumni) Adam Ferguson.
At this point, it should come as no surprise that the now famous reference to the invisible hand is also fatally misrepresented. In the famous line from the Wealth of Nations, Smith’s usage of the term is in defense of free trade on the grounds of what was called the “home bias” of investors to prefer, as if by an invisible hand, investment at home rather than abroad, while opening up larger markets for consumers. The notion of unintended consequences, so often stressed with this quote, was in reality an afterthought. As one might expect, it is an argument from equal parts benevolence and prudence, typical of Smith, and completely against the normal assumptions which stud theories of the free market in introductory economics classrooms everywhere.
Far from a single-minded advocacy of individualism, Smith’s argument was emphasizing the much more complicated problem of unintended consequences which plague the administration of any social system.
Setting aside a reference in astronomy, the only other reference to the invisible hand comes in Smith Theory of Moral Sentiments, but given that it refers to the tendency of the rich “as if by an invisible hand” to“make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants,” such a contention is hardly the most profound (or correct) take away from the economist in an era of record breaking inequality. Nor should the foundational work of economics be solely remembered for it. His commentaries on the colonies, trade, commerce, taxes, government, jurisprudence, ethics, religion, and altruism throughout each of the six constituent books all bear much richer fruit than the two word phrase which has rounded the globe.
So how are we to remember the real Adam Smith? Is it as an Economist? Essayist? Scholar? Perhaps, given his manifold contributions to the Classical Liberal tradition, the best answer is as an anti-authoritarian, dedicated to the belief that a free society is a moral society. And what is the nature of a moral society? In his own words: “[T]hat to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature.”
To enable these tendencies, was, to Smith, the virtuous end of any free society, and a far cry from how he is remembered today. So to those Liberals who admire his ideas, perhaps it is worth it to look once more for the real Adam Smith.
Feature image from: Charles Clegg