Celebrating Adam Smith at 300

By Dominic Pino

Thursday, September 14, 2023

 

The following is adapted from a speech the author delivered at Capital Matters’s conference on the Adam Smith 300 essay series, held on September 13, 2023, in New York City.

 

Born in 1723, Adam Smith turned 300 this year, and Capital Matters commissioned an essay series to celebrate the birth of the father of free-market economics. Working with Dan Klein and Erik Matson at George Mason University, we have been publishing a new essay on Smith each month, investigating different aspects of his life and thought.

 

Smith was a great thinker, yet today he is often ignored or simplified. Some dismiss his ideas as out-of-date or disproven by modern events. Others invoke him positively but use him as little more than a symbol of free markets, using the same handful of famous quotations and never engaging further.

 

Capital Matters’s mission is to explain, defend, and celebrate capitalism, and we believe explaining, defending, and celebrating Smith is a key part of that important mission. It’s a mission that not enough people are doing these days, unfortunately, even among conservatives who could historically be counted on to defend free markets. As William F. Buckley Jr. wrote in National Review’s mission statement in 1955, “The competitive price system is indispensable to liberty and material progress,” and that’s still true no matter what any politician may tell you. Buckley’s right, and Adam Smith was there first.

 

Who is this guy? For Adam Smith’s actual birthday in June, we wanted to get as close to Adam Smith as possible. So we got Craig Smith, who is the Adam Smith Senior Lecturer in the Scottish Enlightenment at the University of Glasgow. He wrote about the intellectual and social environment in which Adam Smith lived.

 

He, like everyone else, was influenced by his surroundings. Scotland had only recently secured a stable polity after a tumultuous 1600s. Smith understood the importance of political stability, and you can think of the Wealth of Nations as asking, “Given that we have a stable state for the first time in anyone’s living memory, how do we ensure prosperity for the people?”

 

Smith’s intellectual contemporaries in Scotland included great religious thinkers, engineers, natural scientists, moral philosophers, and medical men. They often conversed with each other in interdisciplinary exchanges of ideas. He was also influenced by Scottish Presbyterianism, which emphasized literacy and education as vital to a good society. Smith’s exact religious beliefs are unclear. Wherever he came down on that question, though, Smith’s work is accessible and valuable for believers and nonbelievers alike.

 

As Caroline Breashears, an English professor at St. Lawrence University, wrote for the series in March, Smith’s first academic job was as a professor of rhetoric. His most famous one was as a professor of moral philosophy (economics professor wasn’t a job yet), but Smith began his career teaching about Cicero and the ancients alongside more recent writers such as Jonathan Swift.

 

This isn’t just a line on Smith’s C.V. In the Theory of Moral Sentiments, Smith frequently cited literature and his library was full of literary works. Sympathy, central to Smith’s moral philosophy, is modeled by great rhetoricians, who know how to connect with their audience and inspire them to better conduct. Smith also has a penchant for parables, using short, illustrative stories to make larger points.

 

So what were Smith’s ideas? He only published two complete books in his lifetime, 1759’s Theory of Moral Sentiments (TMS) and 1776’s Wealth of Nations. A topline conclusion on what each is about can be summarized in two concepts. For TMS, it’s sympathy. For Wealth of Nations, it’s the division of labor.

 

Sympathy, or fellow-feeling, is central to Smith’s moral philosophy. He talks about how it’s obvious that we don’t act from self-interest all the time, and that our feelings of sympathy with other people guide our actions. We think about what an impartial spectator, real or imagined, would think of our actions. Even when we are alone, we are still engaged in sympathetic reasoning with what Smith calls “the man within the breast,” the conscience, who is a representative of universal benevolence. Smith’s view of humans is so based on sociality that even his theory of the self is social.

 

The division of labor then allows humans to flourish. We ought to do what we do best and trade for the rest, and by doing so, nations become wealthy. This was in direct contrast to the prevailing economic view of Smith’s day, mercantilism, which put state-directed activities such as colonization and trade restrictions at the center of economic policy. Without state superintendence, the self-interest of humans with freedom to produce and exchange as they pleased, what Smith called the “system of natural liberty” in Wealth of Nations, would lead to prosperity.

 

There might seem to be a contradiction in Smith’s two works. How do the sympathetic humans in TMS become the self-interested humans in Wealth of Nations? This framing of Smith’s work, called the Adam Smith problem, was invented by German social scientists in the 1800s and dominated much of Smith scholarship in the century after Smith died.

 

Like many ideas from German social scientists in the 1800s, the Adam Smith problem is wrong. There is no contradiction. As Dan Klein and Erik Matson wrote for the series in January, Smith understood the limits of knowledge, foreshadowing Hayek’s famous work on the knowledge problem. Smith understood that the further away we get from our own situation and circumstances, the less effective we are at making people’s lives better. At the national level of analysis, a policy of leaving people be makes more sense than it would at the direct interpersonal level, where beneficence is more suitable.

 

We were thrilled to have Nobel Prize winner Vernon Smith write for our series in February. He emphasized Adam Smith’s focus on beneficence and its limits. Smith wrote in TMS that none of us can know for sure what other people are feeling or thinking at any given moment. But we can relate to them from our own experience. We know what it feels like to stub our toe, and when we see someone else stub his toe, we can almost feel the sensation in our own bodies, for example. We use our shared sentiments to modify our own behavior and improve it. Those sentiments develop from the bottom-up into institutions that form communities.

 

Refusing to governmentalize social affairs, and reducing the governmentalization of social affairs where it already exists, entrusts people to pursue their own interests their own way, in Smith’s words. The division of labor makes us more productive, and as if guided by an invisible hand, our self-interest serves the good of the whole. We can’t be benevolent to millions of people, but we can make an honest living and in doing so provide goods and services that others need to survive and thrive. And we are chastened by our conscience and our desire to be praiseworthy in the eyes of our peers to behave morally.

 

As Yuval Levin wrote for the series in April, the U.S. has embodied Smith’s unification of self-interest and sympathy better than most other countries. Despite the significant and fierce disagreements between many of the Founding Fathers, Smith was nearly universally admired. John Adams, Thomas Jefferson, James Madison, and Alexander Hamilton all wrote positively of Smith. They saw his economic writings as descriptive, explaining the new commercial society that was emerging in their day and would fully take off during the industrial revolution decades later. And they saw his moral writings as prescriptive, guiding people on how to behave morally in the new commercial landscape.

 

In addition to the Founders, Smith was on good terms with another figure important to American conservatives: Edmund Burke. As Samuel Gregg wrote for the series in May, Burke and Smith shared a commitment to liberal economics against the prevailing winds of mercantilism. They got there by different paths. Burke emphasized natural law more than Smith did, and Smith had the ability to be more philosophical than Burke, who was a member of Parliament who had to deal with political constraints that Smith was free from. But each arrived at the same conclusion: that free markets were best for the general prosperity of the people.

 

Neither of them were advocates of what we’d call “big business” today. Thomas Sowell famously offered his students $100 if they could find anywhere Smith says something positive about businessmen in Wealth of Nations. Burke and Smith both opposed the British East India Company, the state-backed trading monopoly that made many elites in London wealthy. And they both recognized the importance of non-market habits and morals in the maintenance of market systems.

 

Smith was part describer and part reformer. Smith permits exceptions to his free-market principles. These exceptions are not concessions. They are simply realizations that real life doesn’t always align perfectly with theory, and Smith often grants them in pursuit of a greater increase in liberty in the longer run.

 

Paul Oslington wrote for the series in August about how Smith permitted usury laws then in existence in Britain even though they are a clear violation of market principles. Jeremy Bentham, the utilitarian philosopher, ripped Smith a new one about his apparent inconsistency. Bentham made some good points, and Smith’s argument for allowing usury laws to continue isn’t his best. But Smith tried to remain sensitive to what was practically possible, perhaps inspired by his friend Burke’s prudence. And as Oslington wrote, who ended up being the father of free market economics, Bentham or Smith?

 

Even free trade, the policy issue for which Smith is perhaps best known, permitted exceptions. Don Boudreaux wrote for the series in July about Smith’s approach to free trade in the Wealth of Nations. There’s no doubt that Smith viewed free trade as the desired outcome. He provides no safe harbor to the committed protectionist and is withering to the mercantilists of his day. His logic on the superiority of free trade is just as compelling now as it was in 1776.

 

Yet Smith permits four exceptions to free trade: national security, equalizing tax burdens between foreign and domestic goods, strategic tariffs, or leaving longstanding restrictions in place if the disorder would be too great by removing them. Each of those four exceptions, though, is in pursuit of enlarging the market and freeing trade. And Smith frequently doubts how salient these exceptions are in practice. He believes the disorder argument to be frequently exaggerated by domestic manufacturers for their own gains, and questions the capability of politicians to target strategic tariffs properly.

 

Smith sets up his case for free trade, and his case for many other causes, as a presumption, similar to the presumption of innocence in a court of law. He says our presumption should be in favor of free trade, free people, and free markets. There are sometimes cases where that presumption is overcome. But just because Smith permits exceptions doesn’t make him a squish. In fact, it makes his system of natural liberty stronger by making it readily adaptable to the real world.

 

Neither a rote ideologue nor a muddled mind, Adam Smith provides a clarifying and useful lens through which to view our modern commercial society. As we continue to explore his thought and legacy today, I hope you’ll walk away inspired to read his work and engage with it. If you actually read Wealth of Nations, you’ll be ahead of 99 percent of academic economists today in your knowledge of Smith. Starting where Smith started, with the Theory of Moral Sentiments, is also a great idea, and a much shorter read. But the most concise way to appreciate Smith’s genius is by reading his essay on the history of astronomy.

 

It can be read in one sitting, and it traces the development of astronomy from the ancients through to Isaac Newton. Smith writes about how humans stared at the sky in wonder, perplexed by how the sun, moon, and stars appeared to move. That sense of wonder spurred them to develop theories to explain the movement, initially very intricate theories of cycles within cycles that then became simpler with greater understanding. It was Newton’s principle of gravity that finally made the heavens comprehendible. Smith writes that Newton’s work led to “the discovery of an immense chain of the most important and sublime truths, all closely connected together, by one capital fact, of the reality of which we have daily experience.”

 

Sound familiar? The economy, too, is a complex system of constant motion that inspires a sense of wonder in those who study it. It permits of countless complicated theories about its operation that leave us wanting more. And in it we can also discover an immense chain of the most important and sublime truths, all closely connected together, by one capital fact, of the reality of which we have daily experience: liberty.