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Another side of Adam Smith

In the first of our political philosophy columns Paul Reynolds seeks to rescue Adam Smith from the poverty of neo-liberal appropriation

For over 35 years, a serious intellectual and political crime has been repeatedly committed, with scant regard for scholarly attempts at correction. The current Conservative leadership commit this crime less than their predecessors, but it remains central to their neo-liberal political project. It is the profanation of the work of Adam Smith. One of the most important and sophisticated thinkers of the Scottish Enlightenment is reduced to the archetypal advocate for the 'free market', where individual choice and liberty are sacrosanct, motivation comes from the rewards of profit and property and anything involving state intervention is viewed alternately with hostility or suspicion.

This crime might seem lacking in urgency, since Smith died in 1790. It is not just a crime of profanity against Smith, but of impoverishment for British political culture and political life. Smith is commonly understood as a foundational thinker for neo-liberal ideas. The Institute that bares his names produces influential tracts attacking any vestige of communal, social and politically interventionist ideas.

So what did Smith say? Smith was a moral philosopher writing at the advent of the industrial revolution and in the first flourishes of the Scottish Enlightenment. This is important. He would not have understood the discipline of economics that claims to read his work, or its abstraction of market economics from civic life.

He wrote without knowledge of the worst excesses that would quickly become apparent in the first textile phase of the industrial revolution, and would not have used the vocabulary of the liberalism with its individualist, market oriented focus. Smith's work as a moral philosopher was to reconcile moral thinking with the new science and empirical thinking inspired by David Hume. His work sought to map the possibilities but also recognise the problems of the social transformations he was living through. Smith is best known for writing The Wealth of Nations, but what of contemporary readings of Smith's other substantial work The Theory of Moral Sentiments?

What is often described as the 'Adam Smith problem' is how to reconcile a book about the benefits of capitalist markets and individual self-interest with a book making a plea for civic values based on moral sentiment. For Smith, there is no problem. He is writing about the potential for the development of markets that express individual liberty through wealth creation, whilst acutely aware of the atomism and selfish corrosion of community that might follow unless morality was assured. He is famously acknowledged as recognising in market activity an 'invisible hand' that represent the sum of all self-interested market operations as beneficial to the growing volume of national wealth. Yet Smith mentions the 'invisible hand' only once in The Wealth of Nations, in Chapter 2 of Book 4, and once in part 4 of Moral Sentiments, which seems to belie the contemporary importance of the metaphor.

Smith's main concern in The Wealth of Nations is to described what he regards as the rationale unfolding of industrial market society and account for its benefits and possible points of tension, contradiction and weakness. Hence, most oft cited, the first three books of The Wealth of Nations sketch the logic of the market under a division of labour that enables individual liberty to express innovation in the pursuit of self-interest that simultaneously builds the wealth of the nation and its people, with Book 3 tracing the historical lineages of the enlightenment society Smith put his faith in. Yet what follows in The Wealth of Nations and elsewhere (such as his Lectures on Jurisprudence) is a healthy scepticism for what the market, profit and private property might bring in the absence of a moral sense.

In Moral Sentiments, his concern is how to think a civic morality amongst self-interested individuals. His solution is to recognise that social conscience and civic feeling comes from a combination of moral sentiment, or 'fellow feeling' and 'sympathy' for those around us, combined with the capacity to think as an 'impartial spectator', and to wish for the approval of that spectator.

For an enlightenment philosopher, it is precisely that appeal to a moral sense and intellectual capacity to see beyond the self and selfish concerns to the needs of the wider community that allows for self-interest and individual liberty to be deemed as positive in its contribution to civic values and community. Smith, in common with contemporaries like Hume, Adam Ferguson and Frances Hutcheson, and later English 19th century thinkers like John Stuart Mill, accompanied their 'science' of industrial (capitalist) development with a strong sense of character virtues in the emergent bourgeoisie and new professional classes. The assumption is that individual liberty will be exercised with a sense of civic virtues, and that these virtues will temper the excesses of individual self-interest.

It is precisely this sense that the enlightenment would reinforce a 'practical reasoning' that would reinforce civic virtues and a vision beyond self-interest that explains Smith's ambiguous attitude to government. He had considerable scepticism that government intervention could be beneficial, recognising how political interventions could be inefficient in action and oppressive to liberty. Yet he saw the necessity of state regulation in areas such as patents and legal contracts, of state policies in relation to protecting the national economy, such as trade tariffs, and of state intervention in respect of taxation and public works, recognising a potential gap between self-interested contributions to the civic good and necessary civic services and facilities such as roads. More, he speculated at length as to how the state might step in where character virtues fell to the lure of self-interest, though he recognised any such intervention created its own difficulties.

It is stretching Smith too far to claim he is a radical egalitarian or a socialist, a considered reading sees far more than the unbridled freedom of the market and of individual liberty for its own purposes. Noam Chomsky has argued that Smith was effectively a pre-capitalist thinker who would have despised the capitalism of today. Smith would find incomprehensible the inward looking and parasitic banking system, predicated on the optimalisation of returns and the accumulation of short-term profit, where the system itself generates revenues from recession and the economic vulnerability of nations.

For Smith, the 'space between the market and the state' is not the place to find a charity-centred social solidarity so vulnerable to the whim of self-interest. Rather, Smith would want a more robust response from the market itself in showing civic values, or feel forced to incentivise such a response through the state. This may be stretching a speculative reading of Smith, but one thing is clear it is more credible and more in the spirit of Smith than the bankrupt reading that Conservatives continue to propagate.