The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword
• Economic Liberalism the Classical View
• 1: The Classical Psychology of Liberalism
• 1: The Theory of Moral Sentiments
• 2: The Lectures
• 3: The Wealth of Nations
• 4: The Achievement of Smith
• 2: The Political Ideas of the Classical Economists
• 1: The Political Philosophy of Hume and Smith
• 2: The Paradox of Economic and Political Freedom
• 3: Human Nature, History, and Government
• 4: The Nationalism of the Economists
• 5: The Structure of Government
• 6: Economic Improvement and Social Progress
• 3: Liberalism In the Great Century
• 1: The Importance of the Nineteenth Century
• 2: The Practice of Policy
• 3: The Meaning of Economic Liberalism
• 4: The Ideas of Policy
• 5: The Theory of Policy In Mill

1

The Theory of Moral Sentiments

In Smith’s writings there are three distinct conceptions of economic psychology—three versions of the economic man—and they correspond to the development of the idea in his three major works. The first was The Theory of Moral Sentiments, published in 1759, and there the normative or moral aspect of psychology was predominant. His last work was The Wealth of Nations, 1776, and in it he stressed the positive or factual side of psychology. In between came the Lectures on Justice, Police, Revenue and Arms which he delivered about 1763 but never meant to publish. In his first book, Smith’s main interest was the question of how man distinguishes right from wrong and how he acts upon that distinction—i.e., how do we know what is moral and what makes us behave morally. The answers are fairly simple. Moral behavior is that which is approved by someone else who is not committed to our situation and so can view it objectively. That person is the impartial spectator. Usually he is a mental construction that we make in order to get a disinterested view of our conduct, but we may have an actual person in mind. From him we learn what is moral. He also makes us want to be moral because, according to Smith, each of us wants the approval of our fellow men. It is an innate desire. The idea is an interesting version of “other direction” which David Riesman uses in The Lonely Crowd and is just the opposite of the Stoic moral hero who was completely inner directed.

ECONOMIC MOTIVATION

In this first work, Smith digressed on economic behavior. He explained why men are acquisitive and why that motive is beneficial to others. By an ingenious argument, he traced the motive to both man’s sense of beauty and his capacity for self-deception. In the eternal fitness of things, men find beauty. Wealth is one of the fit means to the good life, the life of virtue and wisdom, and therefore a thing of beauty. It brings men the approval of their morally enlightened fellows (the impartial spectator). But the approval actually is mistaken, according to Smith, because wealth is not as fit a means to the good life as it appears to others to be. Once a man has acquired wealth, he finds it is trivial beside the “more solid” attainments of wisdom and virtue. The impartial spectator happens to be wrong. Nonetheless, it is his approval, not our own, that we want. We continue to acquire wealth because others think we thereby come nearer to the good life. Every person’s wish is to be taken notice of, to be attended to, to be acclaimed. Hence we work to grow rich even after we no longer want riches as much as we want other things. The desire for approval—for a sympathetic response from others—is a stronger motive than the sense of beauty, but it could never be effective if mankind at large was not mistaken. How the economic man might behave under the eye of an impartial spectator who was a rich man is a problem Smith did not write about.

The role of sympathy as an economic motive is perplexing when set against its place in other forms of behavior. Outside the market, a man must feel that he deserves approbation before he can enjoy it. His conscience is stronger than his vanity and hence the appearance of virtue cannot supplant the reality. But on the market, his conscience is less strong than his vanity. He adds to his fortune simply because it gets him the approval of others. The greater is their gullibility, the happier he is. Smith tries to demonstrate that the illusory quality of wealth is providential: it makes, he says, for an abundance of goods and for social peace. Nevertheless his argument has an unfortunate implication: he makes Providence deprive men of their conscience in order that they will not starve or annihilate each other.1

To have avoided the implication, Smith would have had to make utility instead of sympathy the decisive motive of economic behavior and he also would have had to maintain that the possession of wealth is the good life, or at least one of its prerequisites. But this line of argument would have produced an embarrassment in another direction. If wealth is a thing of beauty, what of painting, music, poetry, of man’s nature, the heavens? To give all such things the same importance in the design of Providence—to make poetry and pinball contribute equally to the good life—is undiscriminating, to say the least. Smith, like most (but not all) sensible men, refused to carry his argument to its logical conclusion. What utilitarianism ultimately and offensively implies is that among experiences there are only quantitative, not qualitative, differences. The point was not abstract but personal for Smith. Throughout his writings he expressed a dislike for rich people—for their arrogance and ostentation—and showed it in his manner when writing about them. The dislike is most apparent in The Wealth of Nations but there is enough of it in the Moral Sentiments, the Essays, and the Lectures to indicate it was something he felt always. Why he should have favored an economic system that fosters money-making is one of the questions which every reader of Smith must ask. The answer, I believe, is that he approved of a market economy because on balance it promoted the good life—the life of learning, beauty, personal virtue, and good works. The belief was qualified however, because he also believed that free economic conduct did not always have these effects. When it did not, he opposed such conduct. This is an explanation of the great paradox in Smith’s writings: that he should declare himself for a free market and at the same time oppose many of its results.

ECONOMIC MORALITY

In the Moral Sentiments the economic man acts only in his own interest (which is to get approval) and with a prodigious waste of effort (because the approval is undeserved). Still his behavior has beneficial effects on others. His desire for approbation is stronger than his acquisitiveness and forces him to uphold justice. The material progress of society is promoted by the very uselessness of his wealth. After satisfying his own material wants—which, Smith implies, are not much greater than those of the poor—he spends the surplus on retainers, servants, and others, whereby a general plenty is diffused through society. He is guided by an “invisible hand” to promote the welfare of others. In this as in other ways Providence shows its benevolence.2 The famous words “invisible hand” appear first in The Theory of Moral Sentiments.

For all of his good works, the economic man does not secure the highest approval. It is given to behavior that is moral for a better reason than necessity and is benevolent by intention, not accident. The economic man is respected for the practice of the middling virtue of prudence, which is below justice and benevolence and just above propriety, the least of the virtues on Smith’s ethical scale. As a prudent creature, he lives within his income, is cautious, and follows the path of security, never yields to (never experiences?) the temptation to make and meddle, never seeks preferment. What he does, steadfastly and with clear head, is to add to his estate. His values under scrutiny are of the family cultivated by Poor Richard, except for an inclination to mind his own business.

His accomplishments are commonplace. Still, his position forces him to join knowledge with prudence and to raise both in esteem, and he stands in strong, if uninspired, contrast with the upper classes, who daily experience the conflict between the temptations of wealth and the requirements of wisdom and virtue. Moreover, the behavior of the economic man has vast indirect consequences, not only in providing for those less fortunate than he but in helping to build the kind of an environment in which the virtues higher than prudence can find expression and which together with wisdom are the highest achievements of men. They never could be brought about, Smith believed, in an aristocratic milieu of wealth and power, which was the milieu of his age.

The economic man was in this way given a place in the benevolent design of the universe. Smith’s conception disclosed his faith in the gentleness and wisdom of Providence, a faith which he expressed in his reaction to everything he saw about him. He observed that man was inclined to respect power uncritically and to turn away from the problems of those nearest him; but, he continued, this was fortunate because it supported the class distinctions that civil peace required. Here is an engaging sketch of the “political man,” truckling before his master and ignoring his fellow servants with whom he might unite and become master himself. There is an Italian proverb that says when the poor give to the rich the devil laughs. Being more religious, the Italians have been less inclined to mistake their desires for divine guidance. Not so the Anglo-Saxons. They see nothing impious in believing that what they want is what Providence actually meant them to have. Moreover, by being gratified that Providence is benevolent they are in effect commending its works, giving it their approval. The optimism of the eighteenth century strikes me as conceit rather than as something simple-minded, fatuous, or Panglossian.

When the moralists of the period moved away from a faith in natural benevolence, as was notably done by Smith, they did not become irreverent or skeptical but modest and realistic. They also became more informative. Consider how uninformative are other of Smith’s observations in The Theory of Moral Sentiments. Men, he said, usually look more at the consequences of an act than at its intentions, a habit that seems unjust to those whose good will is defeated and unreasonably generous to those whose good works are fortuitous. Yet what would become of society if approval were granted only for intentions, Smith asks, and answers that every court of justice would become an inquisitorial chamber. At another point he observed that estimable men were often afflicted with an excessive delicacy of sentiment, were more practiced in the “amiable” than in the “manly” virtues, and were unreasonably disturbed by an unjust reproach. Their weakness, however, made the good and the wise indulgent of the failings of others while making them exacting of themselves.

THE MEANING OF NATURAL ORDER

These are features of the natural order which to Smith was the manifestation of the natural law governing social behavior. This order has a much different meaning from the harmony described in The Wealth of Nations. According to the doctrine of natural law, averred by Smith in his early writings, and only there, man is endowed with certain characteristics or moral faculties which in their totality comprise human nature. This nature is common to all men in all places and is governed by a force superior to them. That force is the natural law and it emanates from God. The end is beneficent—the glorification of God as his benevolence is revealed in the happiness of man—and the end is realized when the natural order is established. It is inevitable, and in the movement towards it, nature follows a uniform succession of events. Natural law and that which it creates and governs—human nature and natural order—are discoverable by man through the use of his moral faculties. They show him the path of virtue and guide him along it. The philosopher’s quest, Smith declared in one of his Essays, is to discover the law of nature, to apprehend

What he meant by this idea, he explained in The Theory of Moral Sentiments.

In its economic aspects the idea is not satisfactory, but its defects are inseparable from its merits. The economic man of that book is not helpful in explaining even the main features of economic procedure. He never encounters the problem of economizing because he lives in a world of abundance. If he is successful in acquiring wealth, he also acquires approbation; if not, he is kept from want by the generosity of those who are successful. Having no economic choices to make, the quality of his rational powers is not at issue. If the economic man seeks to maximize anything, it is the approval of the impartial spectator. His choices are moral. He must select the kinds of conduct that will bring him into accord with the natural law. But even that conduct does not necessarily imply rationality. On man’s use of reason, Smith is equivocal. He prefers not to say whether men do good because they are reasonable, or because of original instinct, or “some other principle of nature.” He only states that man possesses moral faculties and is aware of their exercise by the pleasurable feeling that approbation gives. As long as Smith attended only to these kinds of choices, he could not make a plausible or useful explanation of economic activity. When however his interest in natural law subsided and he came to look at society in a secular and critical way, he then began his contributions to economic thought.

[1] Adam Smith, The Theory of Moral Sentiments (London, 1892), pp. 119, 264-265, 332.

[2]Ibid., p. 264.

[3] Adam Smith, “The Principles which lead and direct Philosophical Enquiries; illustrated by the History of Ancient Physics,” Essays on Philosophical Subjects (London, 1795), p. 106.