Adam Smith's Lost Legacy.

• Author: Evensky, Jerry

Jerry Evensky [*]

This piece outlines Adam Smith's moral philosophical vision. It traces the central role he ascribed to civic ethics as an antidote to the incentives for rent-seeking and thus as a key element in the successful development of a constructive, cohesive liberal society. The case is made that standard neoclassical analysis, as represented by the work of Gary Becker, identifies no such antidote and thus cannot model the constructive liberal case. The best modern work on the issue is that of Amartya Sen and of James Buchanan. Sen's work and its relation to Smith's vision are examined.

1. Introduction

   Adam Smith's intention was to leave a legacy. He wanted to leave a philosophical contribution that would serve humankind. He didn't imagine that he had discovered "truth." He understood that his work was not the last word on his subject. He simply hoped to enhance our understanding of what makes humankind function most constructively, and thereby to contribute to the constructive development of humankind.

   In every generation since his death in 1790, Smith's disciples in economic thought have paid homage to him for the legacy he left. But sadly for Smith he's been studied more often than not as an economist, and not as the moral philosopher he was. In doing so his disciples in economics have lost sight of an essential dimension of his moral philosophical vision--of his legacy. My objective here is to highlight that lost dimension of Smith's legacy and to make the case that retrieving this lost legacy can enrich our modem analysis.

   In a larger sense my purpose is to demonstrate, with Smith as an example, that the history of economic thought is not just an antiquarian exercise in which antique works of folks long dead are studied as one might study 19th century steam engines--great innovations in a march toward progress that has passed them by. Rather, the work of our predecessors offers a rich source of alternative ways of thinking about the human condition, and exploring these alternative visions can inform our current thinking on the subject. [1] The plan of this work is as follows.

   Section 2 explores Adam Smith's work. His view of philosophy, his story of the evolution of natural philosophy, and his distinction between natural and moral philosophy are reviewed. With this frame in place the central story of his moral philosophy, the evolution of the human condition from the rude state to the first ages of liberal society, is presented. The focus of that presentation will be on Smith's vision of how institutions and individuals evolve, and how their evolution makes possible the development of the civic ethics necessary for the emergence of constructive liberal society. This ethical dimension of his story lies at the heart of Smith's thinking. This essential role of civic ethics in a constructive liberal society is the lost legacy of Smith's moral philosophy that warrants our attention. [2]

   Smith believed that the human condition is unique in nature because the nexus of human reason and human frailty [3] puts humankind in a peculiar and problematic position. Our reason gives us dominion over the earth and the constructive capacity to develop our natural resources into wealth far beyond our requirements for survival. But, that reason, when wedded to frailty, also sets the stage for destructive interpersonal conflict as we each seek to capture a larger share of the human bounty for ourselves. This dilemma was brought into focus by the moral philosophers of the first ages of liberal society who, including Smith, struggled with the "cohesion question": If the productive potential of liberal society derives from individuals' freedom to pursue their own interests (the Physiocrats' "laissez-faire"), how can such a society avoid a Hobbesian war of all against all? In modem terms: How does a liberal society avoid degenerating into a rent-seeking society? (Buchanan, Tollison, and Tullock 1980) What cohes ive force can hold liberal society together so that its potential--a good, secure life for each individual and the greatest possible wealth for the nation--can be realized? [4] Smith's belief in the possibility of constructive liberal society derived from his assumption that humans are capable of a multiplicity of motives including, if properly nurtured, justice.

   Section 3 makes the case that in standard neoclassical analysis, constructive liberal society is theoretically impossible. Using Gary Becker's work as representative of the most expansive claims for the economic approach [5] and allowing Becker all of his assumptions including the standard economic assumption on human nature that we are constrained utility-maximizing beings, Homo economicus, it is demonstrated that there is no cohesive force in such a theory sufficient to hold society together in the face of the destructive power of rent-seeking.

   Two modem commentators who are richly addressing this "cohesion question" are Amartya Sen and James Buchanan. The theme of Sen's work is presented. Building on James Buchanan's "Constitutional Economics," [6] Sen identifies a solution to Arrow's impossibility dilemma. That solution lies in relaxing the Homo economicus assumption and returning to Smith's conception of human nature as encompassing a multiplicity of motives--especially the capacity for ethical behavior.

   Scope and method are interdependent. If we follow Sen and adopt a more Smithian assumption on the nature of being to expand the scope of our analysis, this may have implications for our method. Section 3 ends with some reflections on this issue.

   In the concluding section 4, I return to Smith. Having highlighted that ethical dimension of his legacy that has been long lost, I note another that is worthy of reflection: his perspective on the role of a social philosopher in exploring the possibilities of human progress.

2. Adam Smith's Work

   On the Practice of Natural Philosophy

   Adam Smith took as a matter of faith that there is an order in nature and that the connecting principles of that natural order are the product of the design of a Deity. [7] In this grand spectacle, this "the theatre of nature" that the Deity produced, we humans are like an audience in an opera house (Smith 1980, (hereafter HA), pp. 42-3). As we watch nature's play unfold we wonder at the spectacle, we are surprised by scenes we have never before seen or anticipated, and we admire the beauty of what passes before us. But unlike the audience at a grand theater of London or Paris where after the show we might be allowed backstage to see the "machinery of the opera-house" that made such a grand spectacle possible; we are not "admitted behind the scenes" of nature's grand spectacle (HA, pp. 42-3). Thus, while our senses allow us to experience the face of nature, we have no access to the invisible principles that give things their nature or that order the connections among these things. For Smith, then, philosophi cal inquiry is not about Truth: "What is the Deity's design?"; it is about imagination: "What do we conceive that design to be?".

   The casual observer of everyday events is generally satisfied with a story that allows the custom of connection to stand as an explanation of any regularly observed chain of events. Smith cites for example the "common artizans; such as dyers, brewers, [or] distillers" who daily watch their art unfold without ever wondering at the invisible chain of events that must link the sequence they observe. These constant but casual observers "cannot conceive what occasion there is for any connecting events to unite those appearances, which seem to [them] ... to succeed each other very naturally." (HA, p. 44) It is only the more studied eye that wonders at what seems so common a sequence and feels that there must be missing links in the common explanation of events derived from casual empiricism. This studied eye that sees wonder in all things is the eye of a philosopher.

   [A] philosopher ... [spends] his whole life in the study of the connecting principles of nature ... which, to more careless observers, seem very strictly conjoined....

   Philosophy is the science of the connecting principles of nature ... Philosophy, by representing the invisible chains which bind together all these disjointed objects, endeavours to introduce order into this chaos of jarring and discordant appearances.... (HA, pp. 45-6)

   For Smith the practice of philosophy is an art of storytelling, and thus the first requisite for success in philosophy is developing a persuasive story. A key to persuasiveness is familiarity. In his essay "The Principles Which Lead and Direct Philosophical Enquiries; Illustrated by the History of Astronomy," as Smith invites the reader to follow that history with him he notes that the systems he will present in his history are those that have gained "reputation and renown to their authors ... [and] no system, how well soever in other respects supported, has ever been able to gain any general credit on the world, whose connecting principles were not such as were familiar to all mankind." (HA, pp. 46)

   Because familiarity relates to what we observe (or believe we observe), successful philosophical practice must be based on and relate back to observation. The more closely a system designed to represent nature reflects what we observe on the face of nature, the more plausible it seems. Plausibility in turn increases the perceived probability that a system represents the real but invisible chains that link the events of nature.

   Smith writes for example that "the system of concentric Spheres, the first regular system of Astronomy, ... [t]hough rude and inartificial ... gained the belief of mankind by its plausibility." (HA, pp. 55-6) But not only was that system plausible, "it [also] attracted their [(mankind's)] wonder and admiration; sentiments that still more confirmed their belief, by the novelty and beauty of that view of nature which it presented...