For Smith, moral philosophy is the study of virtue and the faculty of mind that allows us to determine what is praise- or blameworthy conduct. When we understand the project of the moral sentiments, we can see that Smith adopts the same logic in his analysis of political economy. Political economy provides a lens through which to hone sensibilities about virtue and good conduct.
While Adam Smith has often been thought of as only the father of economics, most scholars now agree that the projects undertaken in the two books published during his lifetime, Theory of Moral Sentiments (TMS) and Wealth of Nations (WN) are not separate endeavors of moral philosophy and political economy, respectively, but two ways of approaching one, unified project about realizing human flourishing. Though it is recognized that Smith’s moral philosophy informs, supplements, and supports his economic project, what has not been explored as much is that Smith’s political economy also has moral implications.
Book IV of Wealth of Nations is often read for the way it details the key institutions of political economy and how economic theory meets political practice. Smith argues against mercantilism, the dominant economic theory of his time. He presents an alternative vision of trade that proposes to enrich not just the sovereign but to “enable” the people “to provide such a revenue or subsistence for themselves” (IV.Introduction.1). But he also utilizes this economic intervention to articulate a moral theory. He demonstrates the implications of economic policy for both material wealth and human dignity. The dignity of both his fellow subjects as well as distant peoples in the colonies of Britain and other imperial powers is often jeopardized due to the “groundless jealousy of the merchants and manufacturers of the mother country” (WN IV.vii.b.44), “private interest and the spirit of monopoly” (WN V.iii.1) and “national prejudice and animosity” (WN IV.iii.1). Smith seeks to replace policies governed by these passions with better economic institutions that will result in sympathy for others and foster respect for the human dignity of all.
In Book IV, Smith advances a moral project dignifying human beings by prioritizing their autonomy and liberty through identifying good and problematic economic institutions. Most often, we understand Smith’s project in Book IV to be what he called a “very violent attack…upon the whole commercial system of Great Britain” (Correspondence, 250). However, he furthers the moral project first articulated in TMS in 1759 but revised and refined through 1790, by demonstrating the value of human life and the priority of individual judgment via a discussion of collective flourishing. While there are moral arguments about economics throughout the whole of Wealth of Nations, it is especially important to see Smith as using political economy as a practical means to advance a moral philosophy in Book IV, because there he confronts the dangers of political practice for human well-being. Whereas Smith employs character sketches in TMS to help readers understand the implications of his moral arguments, the method of political economy he chooses in Wealth of Nations is to point to empirical examples to ground normative claims. A secondary implication of this essay is to show that for Smith, theory must never be abstracted from human reality because otherwise human freedom and dignity are easily displaced.
“Smith offers an alternative system of political economy based on free trade and mutual benefits, called the system of natural liberty.”
First, what is moral philosophy according to Smith? In Book VII of TMS, Smith moves from his own moral project to analyze other answers to the question of moral sentiments offered throughout the history of philosophy. He argues that a theory of moral sentiments should examine:
“First, wherein does virtue consist? Or what is the tone of temper, and tenor of conduct, which constitutes the excellent and praise-worthy character, the character which is the natural object of esteem, honor, and approbation? And, secondly, by what power or faculty in the mind is it, that this character, whatever it be, is recommended to us? Or in other words, how and by what means does it come to pass, that the mind prefers one tenor of conduct to another, denominates the one right and the other wrong” (TMS VII.i.2).
For Smith, moral philosophy is the study of virtue and the faculty of mind that allows us to determine what is praise- or blameworthy conduct. When we understand the project of the moral sentiments, we can see that Smith adopts the same logic in his analysis of political economy. Political economy provides a lens through which to hone sensibilities about virtue and good conduct. Smith argues here that moral philosophy must include the opportunity for individuals to exercise judgment.
Smith is aware of how counterintuitive articulating the project of a political economy that results in moral conduct is. The “thirst for gold” and power provide perverse incentives (WN IV.vii.a.17). He argues that “Folly and injustice seem to have been the principles which presided over and directed the first project of establishing the colonies; the folly of hunting after gold and silver mines, and the injustice of coveting the possession of a country whose harmless natives, far from having ever injured the people of Europe, had received the first adventurers with every mark of kindness and hospitality” (WN IV.vii.b.59). He also reflects that “it was not the wisdom and policy, but the disorder and injustice of the European governments which peopled and cultivated America” (WN.vii.b.61). Smith notes that “statesman…employ…the blood and treasure of their fellow citizens, to found and to maintain such an empire” (WN IV.vii.c.63). Smith establishes the uphill battle he has before him to show that political economy can be about more than individual greed and can be directed toward justice.
Therefore, Smith first appeals directly to self-interest by demonstrating the wealth to be gained by pursuing the economic system of natural liberty as opposed to the system of government awarding special privileges. For example, he references the expeditions to the new world in search of minerals as “expensive and uncertain” where explorers and rulers “flattered themselves that veins of those metals might in many places be found as large and…abundant” when “the value of those metals has, in all ages and nations, arisen chiefly from their scarcity” (WN IV.vii.a.18–19). He argues that colonization wastes money and often does not turn up the spoils expected. In the first chapter of the book, Smith also critiques mercantilism on its economic merits. For example, Smith considers the price of tobacco in the American colonies. While “by means of the monopoly which England enjoys of it” tobacco “certainly comes cheaper to England than it can do to France,” Smith argues that “had France, and all other European countries been, at all times, allowed a free trade to Maryland and Virginia, the tobacco of those colonies might…have come cheaper than it actually does…to all those other countries, but likewise to England” (WN IV.vii.c.17). In short, tobacco would be cheaper through free trade. He also argues against the inefficiency of allowing national prejudice to direct economic policy. In a frequently revisited example, Smith notes it results in expensive wine. He argues that wine could be grown in Scotland but it would require excessive resources at “thirty times the expense for which at least equally good can be bought in foreign countries” (WN IV.ii.15).
Arguing that Smith’s political economy is moral philosophy does not mean that profit or self-interest cease as motivation. Indeed in Book IV, Smith emphasizes the roles of profit and self-interest in driving industry with claims like: “It is only for the sake of profit that any man employs a capital in the support of industry.” (WN IV.ii.8) Because Smith prioritizes human dignity he foregrounds the individual as the unit of analysis. Throughout TMS he promotes individual interest as tied to virtue. Justice is the ultimate virtue he upholds throughout his work and is defined in TMS as negative virtue, or not harming others (TMS II.ii.1.9). Smith is clear that “mere justice” will not be enough to garner praise from others, but this minimum standard emphasizes the importance of human dignity. Smith also ties this understanding of justice to self-interest in the next section. He argues that “In the race for wealth” individuals can compete with one another, but they cannot harm one another as this is “a violation of fair play” and “the most sacred laws of justice…guard the life and person of our neighbour” (TMS II.ii.2.1–2). Justice allows for pursuing individual interests as long as we do not harm others, thus recognizing their humanity as equal to our own.
Smith offers an alternative system of political economy based on free trade and mutual benefits, called the system of natural liberty. He argues that such a system would: “break down the exclusive privileges of corporations, and repeal the statute of apprenticeship…add to these the repeal of the law of settlements, so that a poor workman, when thrown out of employment either in one trade or in one place, may seek for it in another trade or in another place, without the fear either of a prosecution or of a removal” (WN IV.ii.42–3). Elsewhere he also argues that “unfortunate…regulations” violate this system (WN IV.vii.c.44). Finally, the system of natural liberty involves not only free trade, but also a specific set of duties for the sovereign to protect “the society from violence and invasion”, from “injustice or oppression” of members of society to one another, and finally “establishing an exact administration of justice” (WN IV.ix.51).
Throughout Book IV, Smith presents a normative argument for why free trade is superior to mercantilism. The system of special favors undermines human dignity, fellow-feeling, equality, political representation, and rule of law by prioritizing the needs of some subjects over others.
“Smith presents his political economy as moral philosophy in his defense of the dignity and worth of individuals. Smith foregrounds individual freedom throughout his work. Part of his critique of mercantilism lies in its undermining of individual judgment and prosperity in favor of the few and powerful.”
Smith presents his political economy as moral philosophy in his defense of the dignity and worth of individuals. Smith foregrounds individual freedom throughout his work. Part of his critique of mercantilism lies in its undermining of individual judgment and prosperity in favor of the few and powerful. Smith notes that “the vile…masters of mankind” always seek their advantage (WN III.iv.10). He directly connects the ability to make economic decisions for oneself to individual rights and the duty of the sovereign: “To prohibit a great people, however, from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind” (WN IV.vii.b.44). For institutions to respect human dignity requires allowing individuals to make their own decisions rather than allowing the powerful to make decisions that only favor their interests. Smith defends this point on utilitarian grounds, in that “every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him” (WN IV.ii.10). He also defends the point on normative grounds: “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way” (WN IV.ix.51). Justice is the highest moral law and it requires individual freedom which allows people to pursue their own interests—another key component of Smith’s definition of “the obvious and simple system of natural liberty” (WN IV.ix.51).
Another issue with the system of special favors is that it turns subjects against one another. Since part of the foundation of Smith’s moral philosophy is to build sympathetic relationships between individuals where they experience “fellow-feeling” (TMS I.i.1.4), any set of institutions that intentionally sets individuals against one another threatens to disrupt this moral system. Smith writes “many manufactures have…obtained in Great Britain, either altogether, or very nearly a monopoly against their countrymen” (WN IV.ii.1). Smith argues that manufacturing groups are increasingly recognizing the utility in pursuing the prohibition of foreign goods. Corn, woolen, and silk manufacturers have “obtained the same advantage. The linen manufacture has not yet obtained it, but is making great strides towards it” (WN IV.ii.1). This advantage is gained while harming their fellows because such duties require them to pay more for essential goods.
The system of special favors also turns individuals against those in other nations and undermines rule of law. Putting taxes on goods from other countries has moral consequences: 1) It strains relationship between those countries such that whichever one was taxed retaliates (WN IV.ii.39) and 2) “Those mutual restraints have put an end to almost all fair commerce between the two nations” (WN IV.iii.a.1). While “commerce” should “be, among nations, as among individuals, a bond of union and friendship” instead because of mercantilist theory “nations have been taught that their interest consisted in beggaring all their neighbours” (WN IV.iii.c.9). Smith counters this tendency of mercantilism to vilify those in other nations by promoting the dignity of people of different cultures and ethnicities. Smith has indicated that the liberty of the subject of Great Britain is at risk due to these economic policies, but also condemns slavery (WN IV.vii.b.54) and Columbus’ treatment of the indigenous population (WN IV.vii.a.14–16). Regarding slaves, Smith advances an economic argument to make a moral point. He argues “the profit and success of that which is carried on by slaves, must depend equally upon the good management of those slaves” (WN IV.vii.b.54). Smith elaborates later on what good management means and its moral benefits for the slave in addition to more economic benefits for the master: “Gentle usage renders the slave not only more faithful, but more intelligent, and therefore, upon a double account, more useful. He approaches more to the condition of a free servant, and may possess some degree of integrity and attachment to his masters interest, virtues which frequently belong to free servants” (WN IV.vii.b.54). Smith calls the “law of slavery” “unfortunate” and he argues for the dignity of enslaved persons by asserting that they deserve to be treated well. He positions the slave as capable of virtue and argues that gentle usage will not only make him more economically productive but also give the slave something like freedom and the capacity to grow in virtue and learning. Smith falls short of arguing against slavery as strongly as twenty-first century readers might desire, but while many in his time are promoting slavery as key to imperial economic success, Smith acknowledges the humanity of the enslaved and their capacity for virtue.
Smith also promotes political economy as moral philosophy by asserting the importance of political representation. Justice requires allowing individuals to make their own decisions and pursue their own interests. Therefore, at its best, the political relationship between ruler and ruled should allow citizens “liberty…to manage their own affairs their own way” (WN IV.vii.b.52). Smith argues Great Britain does allow this kind of government in the colonies more than “the absolute governments of Spain, Portugal, and France… in their colonies…the discretionary powers which such governments commonly delegate to all their inferior officers are, on account of the great distance, naturally exercised there with more than ordinary violence” (WN IV.vii.b.52). Smith worries that such governments, when lacking sufficiently strong, centralized power to enforce the law or self-government to serve as a check on their power are “arbitrary and violent” (IV.vii.b.52). In the case of the American colonies’ building rebellion against the crown, Smith argues in a letter to Britain’s solicitor general Alexander Wedderburn known as Thoughts on America, that the ideal resolution between Britain and America would be for “both parts of the empire enjoying the same freedom of trade and sharing in their proper proportion both in the burden of taxation and in the benefit of representation…the principle security of every government arises always from the support of those whose dignity, authority and interest, depend upon its being supported” (Correspondence, Appendix B, 381). The consequences of mercantilism are immoral insofar as those policies undermine rights, the dignity of individuals, and political representation.
“Book IV is the location of the only reference to the invisible hand in the entirety of the Wealth of Nations. Despite popular parlance, the discussion of the invisible hand does not support the idea that greed is good, but instead, the idea that institutions can channel human beings’ natural self-interest toward the common good. Smith argues that with such institutions, ‘by pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.’”
Indeed though Smith thinks the American rebellion is mostly about gratifying the ambition of “the leading men of America” he also acknowledges that Britain should consider “the blood which must be shed in forcing” America to remain part of the empire (WN IV.vii.c.74-75). Smith resists both violence and exercises of arbitrary rule because they erode human dignity. Smith is not always sympathetic to the American colonists’ case for representation, such as when he argues that they are not paying their fair share for defense (IV.vii.c.73), but the overarching argument is that all members of a political regime deserve to be represented. He writes, “The assembly which deliberates and decides concerning the affairs of every part of the empire, in order to be properly informed, ought certainly to have representatives from every part of it” (WN IV.vii.c.77). Lack of political representation encourages the powerful to to tread on the rights of others, including the powerful using the populace to enrich themselves and further entrench their power.
Smith explains how political economic policies can even come to undermine the constitution of a state: “Every such regulation introduces some degree of real disorder into the constitution of the state, which it will be difficult afterwards to cure without occasioning another disorder” (WN IV.ii.44). Such economic policies also encourage smuggling which undermines rule of law (WN IV.iii.a.1). For Smith, politics and economics, like politics and morality and economics and morality, are all intertwined. Persistent economic policies favoring some subjects over others reduce the ability of the state to ensure an exact administration of justice.
Finally, Smith presents his political economy as moral philosophy by arguing against system thought. System thought ignores the impact of those systems on real human beings. While Smith asserts a “system” of natural liberty in Book IV, he avoids committing the same sin he accuses other moral philosophies of by also including various caveats to such a system, when necessary, to preserve human dignity. There are too many examples to examine in detail here, but some exceptions he makes include export subsidies or bounties (WN IV.v.a.35), retaliatory tariffs (WN IV.ii.39), tariffs that support national defense (WN IV.ii.23–4; 31), and public education (WN V.i.f.54). To take one example, Smith allows exceptions to free trade to support those who may be harmed in the transition from mercantile policy to the system of natural liberty. Smith argues that though the legislature should try to restore “the importation of foreign goods,” “humanity may in this case require that the freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection” (WN IV.ii.40). Smith takes into account those who have secured jobs under the prevailing economic rules and wants to ensure that these individuals are able to find new jobs as free trade is restored.
Instead of promoting a system that prioritizes the system’s internal perfection and coherence, good political economic policies should create rules and institutions which both prioritize the person’s individual judgment and foster good conduct and economic results.
Book IV is the location of the only reference to the invisible hand in the entirety of the Wealth of Nations. Despite popular parlance, the discussion of the invisible hand does not support the idea that greed is good, but instead, the idea that institutions can channel human beings’ natural self-interest toward the common good. Smith argues that with such institutions, “by pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good” (WN IV.ii.9). Political economic institutions that actually support the common good are those that enable individuals to coordinate given their pursuit of their own, diverse ends.
We know Smith remained committed to this portion of his political economy as moral philosophy argument because he articulates it most strongly in Part VI of TMS, which he added in 1790, arguing against the “man of system” who does not consider that each individual “has a principle of motion of its own altogether different from that which the legislature might choose to impose” (TMS VI.ii.2.17). For Smith, political economy is moral philosophy because creating opportunities for individuals to use their judgment, connect with their fellows, be treated equally under fair and impartial rules, and be politically represented dignifies the individual and generates overall economic prosperity.
This article has been cross-posted from Liberty Matters, part of the Liberty Fund network. It is part of the series “Compounding Interest: Revisiting the Wealth of Nations at 250“.
*Brianne Wolf is Associate Professor of Political Theory and Director of the Political Economy minor at James Madison College at Michigan State University (JMC).
Read more by Brianne Wolf.
