Adam Smith on the Butcher, the Brewer, and the Baker

Found in An Inquiry Into the Nature and Causes of the Wealth of Nations (Cannan ed.), vol. 1

The Scottish moral philosopher Adam Smith (1723–1790) was the author of two books, The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776).

Among the best-known passages in his works is the following from Book I, Chapter 2 of Wealth of Nations:

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. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence. But though this principle ultimately provides him with all the necessaries of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him he purchases food. The old cloaths which another bestows upon him he exchanges for other old cloaths which suit him better, or for lodging, or for food, or for money, with which he can buy either food, cloaths, or lodging, as he has occasion.

There are two common interpretations of this passage. The first (perhaps the most common) is that when interacting in the market, people do things only if they can benefit, not because they care for each other. Market action, say critics who make this observation, rewards and encourages greed.

Identifying greed as the underlying motivation for economic action has led some to wonder whether there is an “Adam Smith Problem”. Are there really “two Smiths”, one who sees humanity as motivated by self-centred greed (in Wealth of Nations) and one who sees us as motivated by a sort of other-regarding sympathy (in The Theory of Moral Sentiments)?

Smith scholars don’t see the Adam Smith Problem as much of a problem. The books are meant to be read together as two parts of an overarching (and never finished) project.

The second interpretation of the above passage is arrived at by reading through the lens of sympathy, the underlying principle of The Theory of Moral Sentiments. When thinking of sympathy, exchange with the butcher, brewer, and baker look different. Market action, like morality, requires us to be other-regarding. To get what we want, we must anticipate what others want.

We don’t just expect our dinner to be provided. We think about what those who provide it to us need and evaluate which needs we might meet. Under a barter system, we might have to figure out that the butcher wants a new scarf, the brewer needs new glass for her window, and the baker needs his next shipment of flour.

And it’s a two-way street! The butcher, brewer, and baker took up their trades because they’ve anticipated customers’ wants and needs. So long as people need meat, beer, and bread then these goods can be exchanged for the money that allows butchers, brewers, and bakers to meet their own needs.

Luckily, there’s no need to get knitting (unless you’d prefer to). In a market economy, all of these needs can be met by using a common medium of exchange: money. It might be that the more abstract, impersonal value of money is what makes it easy for us to miss the fact that we’re meeting each other’s needs in the market by thinking about how to serve one another.

If each of us can produce something that enough people need that we can meet our own needs by exchange, we’re able to specialize and contribute to the division of labour that by Adam Smith’s time was already making people in the world richer and better off.

Once goods and services are provided through the division of labour and market exchange, there’s no getting away from the system. Smith points out that even a beggar, who relies on charity to get their money, then relies on the market to meet their actual needs.