A letter to Daniel about comments about Adam Smith

This is a reply to a comment that my friend Daniel made a long time ago about the economist Adam Smith . . .

By Etching created by Cadell and Davies (1811), John Horsburgh (1828) or R.C. Bell (1872). The original depiction of Smith was created in 1787 by James Tassie in the form of an enamel paste medallion. Smith did not usually sit for his portrait, so a considerable number of engravings and busts of Smith were made not from observation but from the same enamel medallion produced by Tassie, an artist who could convince Smith to sit. [Public domain], via Wikimedia Commons

Portrait of Adam Smith, courtesy of Wikimedia Commons

To recap: Quite a few months ago I posted something on a social media site about P.J. O’Rourke describing Adam Smith as a pre-modern, the work was more important than the man. Daniel posted a comment that a friend of his told him if most people every actually read Adam Smith, they’d be pretty surprised what he actually said.

Skip forward to today and I’ve been spending the last few weeks slowly re-listening to the audiobook recording of On the Wealth of Nations by P.J. O’Rourke.

Daniel,

Your long-ago comment (which I was not able to find to directly quote) regarding Adam Smith — that most people don’t know his works and ideas nearly as much as they think they do — was very correct.

To start on the many popular misconceptions, O’Rourke is of the opinion that The Wealth of Nations, Smith’s second work on a larger theme of “inventions of the imagination”, cannot be understood without first reading Smith’s preceding book, The Theory of Moral Sentiments, which was about moral philosophy, sympathy and sentiment. Morality and ethics, both public and private, are just as important for a society’s well-being and prosperity as economic theory or policy.

That is definitely not something most people mention when they talk about Adam Smith.

While many people who cite Adam Smith also mention terms like “laissez-faire” and “the invisible hand”, Smith never used the term “laissez-faire”. And his very few references to “the invisible hand” did not mean some type of self-correcting market force that meant it was unnecessary to regulate the economy.

Listening to O’Rourke’s commentary on Smith, I am struck by how polarized most people’s views of human nature are in the current day. That is an odd thing to reflect on when listening to a book about economics, but there it is.

Smith writes often about human nature in The Wealth of Nations (and The Theory of Moral Sentiments is obviously almost entirely about human nature). O’Rourke mentions numerous times that Smith had the good fortune to write The Wealth of Nations before the social sciences had become so specialized that it’s not viewed to be possible for an economist to be a psychologist or vice-versa. Smith was often aware of what parts of human nature would fight against some of his recommendations, and grounded many of his economic theories on observations about human nature.

This is a sad contrast to the present day, where I see people who think that all businessmen are inherently greedy and immoral or amoral, and on the other hand those who think all businessmen are inherently good and able to distinguish when short-term benefits come with extreme long-term costs. Those who think all businessmen are bad think they should be regulated as much as possible and always viewed with a suspicious eye. Those who think all businessmen are good think they should be deregulated as much as possible and always given the benefit of the doubt.

But today I see very very few people who are in between, seeing businessmen — and indeed, all people — as being fundamentally human, capable of both altruism and selfishness, and more likely to be damaged by blind self-interest, self-delusions, and an ignorance of history as anything else.

Smith saw people as carrying both good and bad intentions, and so while he wanted there to be as much economic opportunity as possible, he also saw that freedom was not possible without regulation. However, regulation should be limited as much as possible to enforcement of contracts, a stable currency, and hope that they would be able to keep the fruits of their labors.

Smith was of the opinion that no two businessmen could meet without some plot against the whole of society being hatched, and that any regulation regarding a specific trade or type of business which is proposed to the government by members of that trade or business should be viewed with as much skepticism and suspicion as possible.

Smith wanted businesses to be able to keep the fruits of their labor, but was of the opinion that excessive profits were bad for society and almost certainly the result of unnecessary trade restrictions passed by government. If the market were open without unnecessary trade restrictions, then any company which received excessive profits would soon find so much competition in that market they would either go out of business or have to lower their prices and no longer receive excessive profits.

This sounds very true of much of what goes into business regulation. There are some regulations which are necessary. But it is easy to pass from necessary regulations into unnecessary and overly complicated regulations that make the bar for entry into the market so difficult many small businesses can’t make a profit long enough to turn into a larger company which can afford to hire someone whose only job is to navigate unnecessary and overly complicated regulations.

I hope you found this letter interesting, it’s rather disjointed from my perspective. I’m still reflecting and getting into order my own thoughts on some of Smith’s (and O’Rourke’s) ideas.

I have ordered The Theory of Moral Sentiments, I am looking forward to reading it. O’Rourke describes Smith as saying that it’s not enough for someone to think they are virtuous by feeling sympathy for everyone, without any critical thought about their own principles or the principles (or lack thereof) in the actions of the person they are feeling sympathy for. In addition, it’s not enough for a man to think he does good to wish well for the whole of mankind. I think The Theory of Moral Sentiments will be worth reading for that alone, as I have become so very very tired of dealing with people who like to talk about how much they care about this, that or the other, the somehow can’t bring themselves to actually do the difficult work of talking with any of the people they claim to care about so much.

Anyway, I’m starting to wander in my thoughts even more now, so I’ll end this letter. Take care and I hope all is going well for you. 🙂

 

One thought on “A letter to Daniel about comments about Adam Smith

  1. Thanks for the remembrance!

    Well, I am not completely prepared to give you an adequate answer, whereas my lectures about Smiths are not so fresh. But reading your text I you got a similar point of my vision: people use concepts with untidiness, negligence wich causes several errors of thought and another problems.

    Specifically, in Smith’s case, I think that only the convenient (for the “hard liberals”) part of his work is remembered and periodically revived. You quote some titles of Smith’s works that goes completely against the common sense interpretations.

    Good text!
    Hope all is going well with you!
    Abraços

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