Adam Smith as a Moral Philosopher

Adam Smith’s Theory of Moral Sentiments

We explain Adam Smith as a Moral Philosopher, and explore how his Theory of Moral Sentiments connects to his economic theory from The Wealth of Nations.

Adam Smith is best known as the father of modern economics, but his moral philosophy lies at the core of his economic philosophy.^[1]

Below we explain Adam Smith as a moral philosopher of the Enlightenment and discuss how to understand his theory of moral sentiments in the context of socioeconomics.

POLITICAL THEORY – Adam Smith. An overview of Smith.

Adam Smith’s major works are:

• The Theory of Moral Sentiments (1759) – (Read 1759 version online) (Revised 1790 Version Read Online) (Summary) (Buy Now)
• An Inquiry into the Nature and Causes of The Wealth of Nations (1776) – (Read Online) (Summary) (Buy Now)

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. – Adam Smith

The Gist of Adam Smith

Adam Smith presents his moral philosophy based on self-interest in his philosophical masterwork, and his personal favorite text, The Theory of Moral Sentiments (1759).

This book served as a framework for his economic masterwork, An Inquiry into the Nature and Causes of The Wealth of Nations (1776) which he wrote after 8-9 years of traveling and interviewing the world’s movers and shakers (including Benjamin Franklin).

Smith is hard to grasp unless you read his books in full (see links below), but a quick skim, or even the summary below will do. Before we present the main ideas of both books, it helps to translate the concept of “moral sentiment.”

Smith is a famous liberal philosopher of the Enlightenment.

The Theory of Moral Sentiments

Smith’s moral philosophy is based on Moral sentiment (personal and social passions; our natural desire to seek happiness and approval): The general idea is that self-interest drives positive behavior (not just in economic markets, but in other “social markets“). Smith details the many aspects of this theory over the 300 pages of his Theory of Moral Sentiments explaining how this simple concept applies to all of human behavior, but that is the gist.

What are Moral Sentiments?

Moral sentiments are “morals” that arise naturally as part of the human experience. They are our emotions (they are our sentiments, our passions). They drive our self-interest.

Here we could summarize moral sentiments and Smith’s moral theory to say, all human seeks happiness, our moral sentiments are our empathy (either empathizing with happiness of others or in commiseration with their pain; their lack of happiness), and all of our actions are driven by our self-interest and moral sentiments towards the ends of seeking happiness.

Smith’s moral theory is no different than the Greeks, only instead of treating a moral as a metaphysical form casting shadows on a cave wall, Smith treats fancies, tastes, feelings (like sympathy, empathy, duty, friendship, a desire to belong, etc) as natural human feelings (he treats it empirically).

With this in mind, we could go through Smith’s book describing literally every individual or social emotion, explaining how approval seeking and a desire for friendship and respect drive individual behavior, but that is a story for another day.

Here I just want to introduce you to Smith’s moral theory and show how it worked as the foundation for his theory of capitalism (Smith is the father of modern economics and a hero of liberalism; so this is important).

Moral Sentiment is About Empathy More than What We Think of as “Self Interest”, as Our Self Interest is Derived From the “Happiness” We Feel From Empathizing With Others

Now that we have summarized Smith’s position let’s explore his moral philosophy a little deeper.

For Smith, the term “moral” doesn’t refer to morality as understood by a specific religion, much like ethics and justice aren’t comments on a specific legal system.

Instead “morality” refers to deriving pleasure through making ourselves and others happy (more specifically, our social nature makes us happy when we empathize others, thus we help them to feel happy). It is a sort of selfish-selflessness inherent in the human condition, a type of empathy, sympathy, or compassion, born out of a desire to fulfill one’s ego and feel important.

It isn’t that Smith didn’t believe in higher ideals as presented by the Greeks, it was that Smith was an empiricist (relied on the senses for insight, not purely on ideas).

Smith, based on experience, did not expect altruism out of the merchant class, elite, the state, or even the average person. Instead of creating a philosophy of ideals, he created a philosophy that could help lift up people of all virtues and classes. Smith believed even the worst of people is driven by moral sentiment.

Adam Smith, Theory of Moral Sentiments. An overview of Smith’s moral philosophy.

BOTTOMLINE: Smith’s theory shows how the human need for cooperation and competition drives social markets, later he related this to the social market “economic market” specifically. This could be, and is in the book, also related to politics and an overarching theory of morality (including a utilitarian theory).

An Inquiry Into the Causes of the Wealth of Nations

Smith’s economic philosophy lays the foundation of the mechanics of free-market capitalism. In the book he describes the relationship between capital and labor, and how self-interest and competition in a free-market, paired with the laws of supply and demand, result in the Wealth of Nations.

In other words, Smith lays down the original theory of Capitalism; based on research and liberal principles. Before the rise of liberalism and thinkers like Smith, Kings and Churches tended to rule over both people and economies (in more aristocratic and monarchical “mercantile” systems).

Free-trade is, in this sense, a cornerstone of western liberal democracy (although so are sensible democratic laws that limit corruption in a free market, which is where things get complex; this is an “inquiry” into the causes of the Wealth of Nations, not a promise that corruption of government or industry can’t or doesn’t happen).

TIP: Or, in the terms of his own work, Smith shows us how to leverage Moral Sentiment to ensure the Wealth of Nations.

The Invisible Hand

Meanwhile, Smith’s “invisible hand” combines the two concepts: The idea, that the free-market guides itself due to self-interest inherent in the human condition. A moral social theory that connects directly to practical economics.

In other words, his two works together show how self interest, competition, and supply and demand result in a better division of labor and resources than state planning; classically liberal classical economics, i.e. laissez-faire capitalism. Below we focus on the personal and social moral self-interest, but relate things back to his overarching empirically sound economic theory to help connect the two works together.

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it… The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.” – Smith on His Moral Philosophy

BOTTOMLINE: Smith presents his social and economic philosophies based on his moral philosophy. The free-market will work because it is driven by self-interest, which is in turn driven by “moral sentiment.” Thus, Smith manages to present a strictly rational philosophy rooted in Hume-like empiricism. After all, Smith bases much of his economic and philosophical ideas on first-hand accounts and interviews, rather than on pure reason and theory. ^[2]

The Danger of the Oligarchs and Big Government; they Have Moral Sentiment Too

In Wealth of Nations, Smith is highly critical of “masters” (employers, including everyone from merchants to the robber baron class) conspiring to create monopolies and keep worker’s wages low, the spending habits of politicians, and much more.

Smith isn’t insinuating the “greed is good,” or that self-interest is always pretty.

He is simply saying, and here I am paraphrasing heavily, “let us create a system that allows a man to be free and to be driven by his self-interest. This will bear better fruit than the state trying to tell a man what is best for him. When we let the free-market handle supply and demand, resources are divided as if nature had divided them herself. Even though some people are very bad, on average, the free market works better than kings.”

The problem is of course, and Smith notes this, that the opinions of “the many” can become corrupted and so can the principles of free-market economics. When they become corrupt by government and barons, we get oligarchy and cronyism, and Smith’s who system breaks.

If one’s self interest is an advent of propaganda, then it is no longer their self interest. This is the problem with concepts like Smith’s hand, the General Will, and Democracy (see Plato on Democracy).

Criticism aside, and Smith’s own notes accounted for, Smith was by no means wrong (especially from the frame of reference of his time when state-controlled economies were very oppressive).

In fact, this is the point. State controlled economies, call it Monarchy, cronyism, or oligarchy… suck (just to translate Smith to modern English).

All that said, Smith will, despite his critiques of the worst of human behavior, insist that we let classical liberalism guide us anyway. And like the great anti-Federalist Thomas Jefferson, chooses a laissez-faire style for rational, moral, and ethical reasons (rather than for personal benefits).

Smith never insinuates that the unwelcome results of his theories, like monopolies, war-time spending, and other corrosive special interests, be celebrated. Rather, he warns us of their dangers, only hoping that his moral sentiment will prevail in the end.

One can argue it did not prevail, but tread carefully, before Smith the few ruled, after Smith the few ruled, and when Marx tried to stop it, the few ruled again.

We can’t be too cautious here.

Let me say it in a cheeky poem to make it more clear, “Democracy did not work for the Greeks, it does not work in pure free market capitalism, it does not work as the ends of Communism, it does not work as a pure system, this is true despite its great qualities of liberty and equality, because pure liberty and equality with no restraints is corrupting, that is why we do not like it, even though it sounds good on paper, as it really all results in the same thing, which is a state controlled economy, the rule by the few, this is to say, we do not like it Sam I am.” This is, it isn’t that Smith is wrong, it is that even his amazing theories need a few checks and balances. See why mixed-government Republicanism is better.

Adam Smith vs. Karl Marx – The Industrial Revolution Philosophers. Although you would never say his name out loud on the news for fear of people chasing you with pitchforks, Karl Marx is the other important economic philosopher of the industrial revolution. It helps to compare the two philosophies (which aren’t as different at their core as one might think). Keynes, Hayek, and Friedman are all largely a response to those who came before them, so Smith and Marx.

FACT: The Wealth of Nations was published in 1776 (the same year America adopted the Declaration of Independence) and has been highly influential in America since.^[3]

Does the free-market work? Today, in hindsight, we can see that Smith wasn’t fully wrong. The Baron’s of Industry directed most of their fortunes to philanthropic causes, and the individualist spirit of America born from the free-market testing ground of the late 1700’s forward, has seen many of Smith’s predictions come to life, both the good and bad. Ultimately, many believe that state intervention is necessary, but so far neither the laissez-faire crowd nor those who favor government intervention has been proved right. What has been largely proven is that moral sentiment does seem to be a driving factor of human ambition despite not always being able to overcome the pitfalls of cronyism or monopolistic practices.

Smith the Populist

Smith can be misread as an elitist, but he was arguably a true Populist in every sense.

First off, he didn’t live in 2017, he lived in a time when Kings controlled everything and people wanted more liberal democracy (they wanted freedom, including free markets).

Despite his work appealing to the merchants, bankers, and general .01% of the world as much as it did the Enlightened liberals, it is ultimately a statement against kings and for empowering people.

Sure, in practice the liberals led us toward a slightly oligarchical system by rejecting churches and kings… but not Barons. Of course, you have to team up with someone if you want to cut the head off the first estate, and the upper class of the third estate is as good a partner as any. You know, until the Jacobin revolution where everyone turns on each other and a Napoleon arises. 😀 (Partly joking; all historical class struggles aside, capitalism really is an important and natural system in its exalted and uncorrupted state. The problem here isn’t a specific system, it is whenever any type of “few” are in power, be they politicians or barons, the 95% suffer under their heel… although, see “tyrannical mobs,” they aren’t exactly better).

The point is here, that like Sun Tzu’s Art of War, or Aristotle’s Nicomachean Ethics, or Lao-tzu’s Tao, or Niccolò Machiavelli’s The Prince, Bernays’s Propaganda, or so many other classics, Smith’s texts act as a guidebook for leaders, but double as a populist manifesto.

Smith is critical of the unequal and immoral and presents a call to those with influence to steer the ship in the right direction, framed as socioeconomic tactics, and written to be acceptable for the times. His rationality may appeal to a money-man with a mind for numbers, but this should not be misunderstood as a single of moral apathy.

Smith believed that the freedom of men and markets would come at the expense of order, but if well tempered could lead to a great society and the wealth of nations.

Today, we can question if a pure free-market ideology can protect us against special interests. If not, exactly how much state intervention is needed. This is a conversation we started having back in the late 1800’s and early 1900’s when some were turning to Marxism after the abuses of Robber Barons, see the basic political parties.

Regardless of where we stand on the issue today, it’s important to keep in mind that the core of Smith’s philosophy was not based in economics; it was based on the idea that people can be trusted to make their own choices due to moral sentiment. The freedom to trade, own property, and make life choices is at the heart of the liberal revolution and these classical liberal principles are shared by all the great economists from Smith, to Marx, to Keynes, to Hayek, to Friedman.

We need to remember that the free-market isn’t based on some sort of pro-merchant or banker elitism; it’s based on the populist principles of classical liberalism.

Capitalism is good, because it is a democratic system, it is problematic, because “the few” tend to try to corrupt it toward their own ends (thus changing the system from free-market to oligarchy). Like with Communism the problem is the effects, not the democratic ideals. Although, between the two, liberalism and its capitalism are arguably better, as the government is generally less oppressive. That of course, unlike the examination of Smith, is opinion.

“The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led 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, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” – Adam Smith

1. Adam Smith’s Moral and Political Philosophy
2. HUME AND SMITH ON SYMPATHY, APPROBATION, AND MORAL JUDGMENT
3. United States Declaration of Independence