If you had to pick one person from human history who has been grievously misquoted with far-reaching consequences, you’d need to look no further than Adam Smith. Okay, maybe Jesus, but then Smith.
As the “father of capitalism”, the Scottish economist and philosopher (1723-1790) is typically associated with liberal economic policy and light-touch regulation, but that’s largely thanks to decades of conservative thinkers twisting his life’s work to fit their ideology. Through their efforts, Smith’s idea of “the invisible hand” – an observation he made that self-interest can sometimes have social benefits – has been turned into an iron law of 21st-century capitalism.
As Glory Liu, author of a marvellous new book, Adam Smith’s America, explains “the history of reading Smith is a history of unhistorical readings, selective interpretations, even political appropriations”.
At heart, Smith was not a prescriptive thinker. He was an observer. He witnessed a new form of social relations emerge at the dawn of the Industrial Revolution and analysed how this would shape human affairs in the future.
One of the most prescient chapters of The Theory of Moral Sentiments (1759) – the first of Smith’s two classic works, the other being An Inquiry into the Nature and Causes of the Wealth of Nations (1776) – is the observation that people “sympathise” more readily with the rich than with the poor: “the rich man glories in his riches, because … they naturally draw upon him the attention of the world”, while “the poor man goes out and comes in unheeded”.
By sympathy Smith means something closer to our modern idea of empathy: the emotional attention we give others. There is an innate fascination with purveyors of bling, regardless of their moral character, be it an aristocrat in Smith’s era or Andrew Tate today.
Smith highlighted this human sentiment not to approve of it. Quite the reverse: he saw this “natural” empathy for moneyed classes as corruptive. For the rich, it corrupts by allowing them to think they can do anything they want as they are already getting acclaim. For the rest of us, it corrupts by encouraging us to think happiness lies in trying to be more like the rich.
The troubling emergence of Tate, a Bugatti-flaunting narcissist, as an influencer of many boys and young men shows how the instinct to gaze intently at “the man of rank” remains strong in society.
As today’s Unthinkable guest, Liu discusses Smith’s thinking further.
What did Smith mean exactly by “the invisible hand”?
Glory Liu: “He mentions it only once in the Wealth of Nations, but it’s mentioned three times overall across Smith’s different works. In very simple terms, he says, sometimes you don’t know you are actually promoting the public good by doing something in your self-interest. But that’s not an absolute statement. He is not saying every individualistic action is good for the public.
“There can be unintentional consequences that can be harmful as well, and that’s something that’s not often picked up on. And that’s because in so much of the subsequent interpretation, especially from the 1970s onwards, especially in America, the invisible hand comes to represent the miracle of free markets.”
When was the turning point exactly in reimagining the invisible hand?
“In my tally, that pivotal moment happens in the postwar era with the rise of the public intellectual and economist Milton Friedman, of the Chicago school of economics.”
Friedman had material to draw on. Smith did speak approvingly of “commercial society”.
“I would say Friedman and Smith were in awe of the powers of the modern commercial economy … Friedman really wants to show people that modern capitalism has this power to enhance everybody’s wealth and everybody’s freedom.”
Where would Smith stand today on the political spectrum? Close to Bernie Sanders or the Republican right?
“I get asked this question so much, and I always have to say he is really hard to place. There is a right-leaning Smith who really prioritised economic liberty as a form of individual liberty, who really emphasised the decentralisation of not only formal government institutions but also morality. His scepticism of expertise and rule by experts, and really any attempt to intervene in human affairs from the top down, you can find aspects in Smith’s writing, sure.
“But that is a very, very far cry from saying: I am against government intervention period, or we need less government.
“In fact, a lot of Smith’s criticism in The Wealth of Nations is not directed at the government writ large but state capture of the government, the way in which private interest groups colluding with legislators extort laws out of them in their own favour … That could be a point of convergence of left and right.
“The left version of Smith tends to emphasise things like his moral egalitarianism – equality as a value and not just liberty … Smith was deeply concerned with how the advanced vision of labour would corrode our moral and cognitive abilities, and this is why he supported public education.
“People have gone back to The Theory of Moral Sentiments to show that Smith was really worried about how our tendency to sympathise more with the rich than with the poor was the greatest and most universal cause of our moral sentiments. That is really a striking passage, and I think people have leaned into that version of Smith not only because it is so salient, given the kind of problems we have been living through, but also because the neoliberal reading of Smith has been dominant for so long.
“Where would he stand today..? The more interesting question for me is how would Smith think about the problems of the modern economy. On my reading, Smith was so special as a thinker because he foresaw both the really, really good and the really, really bad of a new form of social and economic relations.”
A big concern for Smith was developing moral character. That side of him – the virtue theorist – doesn’t really feature in modern economic debate.
“Yeah, the way Smith was thinking was not in these disciplinary silos we have today. One thing I deal with in the book is … why did we get this style of reasoning, this mode of argumentation, where efficiency is the only goal: we maximise benefits and try to minimise costs; we are always looking for the ‘efficient’ policy. That view I think is a narrowing or perversion of what Smith was up to.
“As you say, he saw human behaviour and human institutions as complex and multifaceted. Humans are motivated by self-interest but also really care about how others saw them through sympathetic exchange, and he was a virtue pluralist. He believed that wisdom and virtue and pursuing peace of mind and tranquillity were higher goods of human flourishing, not just making money.
“Lots of Smith commentators have drawn out where Smith seems to lament spiritless striving, the poor man’s son who is trying to keep up with the Joneses, and that at the end of his life he realises all he devoted his life to, just to make more money, just to have more possessions, to get the social rewards from other people, are nothing; they have not given him peace of mind. So I think Smith was a phenomenal observer of human life. He saw how humans were motivated by many different reasons and sentiments, and the way in which our society prioritises one value – efficiency, or wealth maximisation or growth – above all else would have been very foreign to him.”
Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism, by Glory M Liu, is published by Princeton
