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Recovering Adam Smith’s Ethical Economics

Contemporary economists have been eager to claim Adam Smith and his ‘Invisible Hand’ as an early forerunner for modern ideas of people as self-interested, utility-maximising creatures. The truth, as Thomas points out, is a good deal more complicated than that.

Adam Smith

Originally published at The Philosopher’s Beard. Gratefully reproduced here with permission from the author.

“While some men are born small and some achieve smallness, it is clear that Adam Smith has had much smallness thrust upon him.”Amartya Sen

Adam Smith is famous for founding economics as an independent field of study by synthesising and systemizing classical economics in The Wealth of Nations. But he was also a significant moral philosopher in his own right who deserves to be recognised alongside his close friend David Hume as a key figure in the Scottish Enlightenment. Smith saw economics as a branch of moral philosophy, and he saw capitalism as an ethical project whose success required political commitment to justice and freedom, not merely an understanding of economic logistics.

These days Adam Smith is most familiar to us as an economist, and specifically as the defender of the famous Invisible Hand of free-market economics, wherein the private self-interested actions of private individuals, mediated through free markets, generate results that are good for all. The market-system comprehends the true level of demand for any good and provides the appropriate incentives – profits – for producers to adjust their output to match. No external intervention or guidance is necessary. A great deal of contemporary (neo-classical) economics can be understood in terms of translating Smith’s Invisible Hand metaphor into a systematic theoretical form, with a particular emphasis on the economic efficiency of perfectly competitive markets.

Anyone who cares to read Smith’s Wealth of Nations for themselves will find an economics discussed and justified in explicitly moral terms…

However the popular view of Smith that has resulted from this emphasis is twice distorted. Firstly, it is based on the narrow foundations of a few select quotations from The Wealth of Nations (WN) that are taken in isolation as summing up his work (Smith only mentions the ‘all important’ Invisible Hand once), and secondly these quotations have been analyzed in a particularly narrow way. Both selection and interpretation have been driven by contemporary economists’ interest in justifying orthodox economic methodology and their peculiar (Mandevillian) assumption of the selfish utility maximising homo economicus. The Chicago School economist George Stigler once famously declaimed, “I bring you greetings from Adam Smith, who is alive and well and living in Chicago”. What such ‘historians’ have achieved is the diminution of Smith’s economics to those bits which can be claimed to be early (and flawed) fore-runners of contemporary economic concepts and techniques.

But anyone who cares to read Smith’s Wealth of Nations for themselves will find an economics discussed and justified in explicitly moral terms, in which markets, and the division of labour they allow, are shown to both depend upon and produce not only prosperity but also justice and freedom, particularly for the poor. With those concerns in mind, it should not be surprising that Smith was a staunch and vehement critic of those particularly grotesque sins associated with early capitalism: European empires and the slave trade.

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