Assessment on "Adam Smith's Wealth of Nations"

Assessment 15 pages (5429 words) Sources: 1

[EXCERPT] . . . .

Adam Smith Wealth of Nations

In his classic text on political economy, an Inquiry into the Nature and Causes of the Wealth of Nations, eighteenth-century Scottish philosopher-economist Adam Smith deftly lays the foundation for contemporary discourse concerning ethical issues in business; modern scholars characterize the scholarly work as one "which [argues] that a nation's wealth is maximized by permitting individuals to pursue their own interests, rather than through political intervention to secure some notion of the common good" (Oakley, 1997, p. 383). Smith largely focuses on topics such as the division of labor, self-interest as the main principle of economics, national wealth as represented by production capacity rather than by stocks of gold (introducing in a rough form the concept of gross national product), free markets, a theory of real price, a theory of rent, and not least, the principles of the market forces:

"The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour." (Smith, 1776).

Adam Smith describes free market as "an obvious and simple system of natural liberty" (Smith, 1776). In short, he reveals the theoretical basis of the economic system known today as capitalism.

Smith is generally known as the founder of the modern school of political economy, particularly with his celebrated Wealth of Nations, published in 1776. Those theorists who support free market economics have conferred on Smith the honor of being the founder of their discipline. Yet despite his special status in the history of economic thought it is not generally recognized that Smith was a philosopher by vocation and published in the areas of moral philosophy and jurisprudence. The reason is that economic theory has undergone a radical epistemological transformation ever since the days of Smith, now considered a political economist whose theories were founded not only on the facts of human economic life but also on the value judgments that yielded optimal economic decision making thereon.

Smith's liberalism was qualified by his commitment to a moral world-view. Contemporary scholarly fixations with the psychological judgments on which the Wealth of Nations is frequently-based have not merely given Smith's economic analysis renewed prominence but have also attracted attention and made familiar Smith's classic statement:

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens. Even a beggar does not depend upon it entirely" (Smith, 1776, pg. 19).

Smith expounds two seemingly contradictory but ultimately empirical observations about economic man:

"[the] division of labour [sic], from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another" (Smith, 1776).

He accepts that greed and other desires were an aspect of human nature, but be does not conclude that the satisfaction of the desires should become the high point of human endeavor or the governing principle of public life. The foundation of Smith's society was legal constraint on excessive self-love, and not self-love itself. "Self-interest" was barely mentioned in the Wealth of Nations, but there are frequent references to both self-love and self-interest in the Theory of Moral Sentiments, where the two terms were given seemingly incongruous meanings. Smith did not regard self-love as the foundation of society; or in modern words the capitalist system was not originally meant to be built on greed.

Given that Smith's approach to economics was much influenced by his previous work in moral philosophy developed in Theory of Moral Sentiments, it would be instructive to note in what moral context Smith formulated the key ideas in the Wealth of Nations. He had previously established himself as not only a brilliant economist but as a moral philosopher deeply concerned with the human element:

"Are you in earnest resolved never to barter your liberty for the lordly servitude of a court, but to live free, fearless, and independent? [Then…never] enter the place from whence so few have been able to return; never come within the circle of ambition; nor ever bring yourself into comparison with those masters of the earth who have already engrossed the attention of half mankind before you" (Smith, 1759).

The tension between the altruistic and egoistic mode of human behavior is often exemplified by references to Adam Smith. In the Wealth of Nations, Smith emphasizes the notion that we cannot expect people to help each other out of sheer good will: where help is given, selfish motives lurk behind it (Smith, 1776). Nonetheless, he begins the Theory of Moral Sentiments with a touching testimony to altruism:

"There are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it" (Smith, 1759).

Building on the Theory of Moral Sentiments, Smith, at the University of Glasgow in 1762, stated in Lecture 16 of his Lectures on Rhetoric that:

".. It is with the misfortunes of others that we most commonly as well as most deeply sympathise [sic]. -- a Historian who related a battle and the effects attending, if he was no way interested would naturally dwell more on the misery and lamentations of the vanquished than on the triumph and exultations of the Victors" (Smith, 1762).

This principle springs from Smith with his principle of human nature. According to Smith, humans are motivated by two traits: self-love and benevolence. And the bridge between both sentiments is determined by the human psychological characteristic of sympathy. Adam Smith's earlier work laid great emphasis on the spirit of benevolence. It argued, seemingly paradoxically, at least at first glance, that the well-spring of benevolence is self-love, combined with man's capacity of sympathy with his fellows:

"How selfish soever [sic] man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it" (Smith, 1759).

The ultimate goal in all of this is human happiness, which is a quasi-Aristotelian balance between tranquility and enjoyment. It should be noted that Smith's idea of human happiness is not founded on some principle of utilitarianism, which later came to dominate post-classical economic theory.

In Wealth of Nations, Smith recommends a free enterprise system based on the argument that free interactions among self-seeking individuals may lead to opulence. However, in the Theory of Moral Sentiment, Smith suggests the possibility that the manner of moral judgment, namely sympathy, may reduce individual differences among people in society (Smith, 1759). There are passages, however, in Wealth of Nations that indicate that the attempt to locate sympathy in the treatise may not be excessively unfounded. Advocating "[addressing] ourselves to their humanity," Smith develops the idea in the afore-mentioned quote:

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages" (Smith, 1776, p. 119).

The preceding quote says very little about modus operandi of an individual; instead, it merely informs us about the preponderant motives in the market places. In addition to underlining the selfish motives in trade, this passage drives home the fact that modern conveniences and plenty that people enjoy are obtained from trade, and it is human propensity to trade that it is behind the division of labor:

"As it is by treaty, by barter, and by purchase, that we obtain from one another the greater part of those mutual good offices which we stand in need of, so it is this same trucking disposition which originally gives occasion to the division of labour" (Smith, 1776).

Again he emphasizes self-love, but with a twist: it is the needs of commerce that mediate, explaining:

"Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour [sic], and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to… READ MORE

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