2. POLITICAL ECONOMY AND MORAL SENTIMENTS

Adam Smith had a double role in the British Enlight-enment, as moral philosopher and as political economist. It used to be thought that the two Smiths were incongruent—“Das Adam Smith Problem,” the Germans called it. Much recent scholarship has been devoted to solving that problem. ¹ Yet it was not a problem for contemporaries, who saw nothing anomalous or contradictory in his two great works, The Theory of Moral Sentiments published in 1759 and An Inquiry into the Nature and Causes of the Wealth of Nations in 1776.

The Wealth of Nations was not, in fact, as late a book as the publication date suggests. Some of the leading ideas of both books were the subjects of Smith’s lectures as professor of logic and then of moral philosophy at the University of Glasgow in the early 1750s. In 1755, Smith delivered a short paper to a local society outlining some of the leading ideas of the Wealth of Nations; as if to stake out his claim of priority, he pointed out that he had expressed them in lectures at Edinburgh even before taking up his position at Glasgow.² He worked on the actual text of the book for many years, to the despair of some of his friends, who regretted the delay and feared that its bulk would discourage readers. When it was finally published, David Hume consoled Smith that while it required too close a reading to become quickly popular, it would, by its “depth and solidity and acuteness” as well as its “curious facts,” eventually capture the public attention.³ The publisher was no more optimistic. The first edition, in two volumes and over a thousand pages, consisted of five hundred copies selling for the standard price of £1 16s., for which Smith received the grand sum of £300—this for the author of the well-known and highly regarded Theory of Moral Sentiments, which had appeared in a new edition only two years earlier. Those five hundred copies sold out in six months, a second edition was published two years later, and three others followed in the dozen years before Smith’s death in 1790. The book was translated during his lifetime into French, German, Italian, Danish, and Spanish, and received the imprimatur of success in the form of a lengthy abridgement. Some of the most eminent men of the time, across the political spectrum, declared themselves his disciple: Edmund Burke and Thomas Paine, Edward Gibbon and Richard Price, William Pitt and Lord North.

The success of the Wealth of Nations did not at all detract from the importance or the message of Moral Sentiments. Having reviewed the first glowingly when it appeared, Burke was as admiring of the second a quarter of a century later. The appreciative memoir of Smith by Dugald Stewart, written three years after his death, devoted twenty-six pages to the early book and only seventeen to the later one.¹¹ Later commentators on Smith, focusing on the Wealth of Nations, often saw little of Moral Sentiments in it—or of any moral philosophy. Indeed, some have read the second book as a refutation, in effect, of the first, interpreting the Wealth of Nations as an attempt to de-moralize political economy and divorce it from any moral content. John Ruskin was more intemperate than most when he inveighed against that “half-bred and half-witted Scotchman” who deliberately perpetrated the blasphemy, “Thou shalt hate the Lord thy God, damn His laws, and covet thy neighbor’s goods.”⁵ A century later, the historian E. P. Thompson made the point less dramatically when he contrasted the older “moral economy” with Smith’s new political economy, which was “disinfested of intrusive moral imperatives”—not, Thompson hastened to add, because Smith was personally immoral or unconcerned with the public good, but because that was the objective consequence of his doctrine.⁶

The economist Joseph Schumpeter, on the other hand, complained not that Smith de-moralized political economy but rather that he failed to do so. Smith, he said, was so steeped in the moral tradition derived from scholasticism and natural law that he could not conceive of economics per se, a discipline divorced from ethics and politics.⁷ The point is well taken, although not necessarily in criticism. So far from having its origins in medieval philosophy, Smith’s economics reflected the eminently modern philosophy that he and his contemporaries were propounding under the name of “moral philosophy.”

Nor was Smith’s political-cum-moral economy meant to elevate or exalt the business class (not yet named “capitalists”) whom some critics have presumed to be its principal beneficiaries. On the contrary, the spirited rhetoric of the Wealth of Nations is almost always directed against that class. Of the three “orders” in society—landlords, laborers, and merchant-manufacturers—Smith saw the first two as acting in accord with the interests of the public; only the last tended to be at variance with the public interest.

The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.⁸

Our merchants and master-manufacturers complain much of the bad effects of high wages. . . . They say nothing concerning the bad effects of high profits. . . . They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.⁹

Merchants and manufacturers—the phrase appeared repeatedly and often invidiously. To further their own interests at the expense of “the poor and the indigent,” they engaged in “clamour and sophistry,” “impertinent jealousy,” “mean rapacity,” “mean and malignant expedients,” “sneaking arts,” “interested sophistry,” and “interested falsehood.” ¹⁰ There are, surely, enough “intrusive moral imperatives” in the Wealth of Nations to satisfy a moralist like Thompson and to distress a non-moralist like Schumpeter.

These invectives may seem to be at odds with Smith’s famous dictum: “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.”¹¹ This principle was based on the assumption that the butcher, brewer, and baker—and laborer as well—operated in a “system of natural liberty,”¹² a free market that allowed for the exchange of goods and services to the mutual benefit of all the partners in that exchange. It was the mercantile system, which sought to direct the economy in the interests of national wealth and power, that encouraged men to “conspire,” “deceive,” and “oppress” each other. The free market, to be sure, did not entirely eliminate such temptations. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Although it was impossible, Smith added, to prevent such meetings by any law consistent with liberty and justice, the free market made it more difficult to engage in such pernicious activities.

Shortly before that memorable pronouncement about the “benevolence of the butcher, the brewer, or the baker,” Smith had observed that in civilized society, “man has almost constant occasion for the help of his brethren.” The question was whether to obtain that help from “benevolence only” or from “self-love.”¹³ It was the “system of natural liberty,” and only that system, that made self-love (or self-interest) conducive to the general interest. Self-interest, as Smith understood it, was not as lofty as benevolence, but in the marketplace at least it was more reliable and practical—and moral as well.

Hovering over self-interest was the ubiquitous “invisible hand,” which ensured that individual interests worked together for the general good. This metaphor, so often associated with the Wealth of Nations, appeared earlier, in almost the same wording and to much the same effect, in Moral Sentiments. In both books, it was the good of society, and most notably of the poor, that was advanced by the unintended consequences of individual actions. In the earlier book, it was the distribution of the necessities of life that was facilitated by the invisible hand; in the later one, the maximization of the revenues of society.¹⁴ The metaphor has been criticized for giving too much latitude to the individual, for sanctioning whatever anyone might choose to do, regardless of the consequences for others. But it also had the opposite effect of shifting the weight of the argument from the individual to society by making private interests serve the public good.

The metaphor has also been given a teleological interpretation, as if some benevolent agent was active in bringing about that desirable end. Smith meant it to be a truly invisible hand, indeed, not really a hand at all. This was the genius of the system of natural liberty. Without outside intervention and without his own conscious knowledge, each individual was “led by an invisible hand to promote an end which was no part of his intention.” Moreover, by pursuing his own interest in this fashion, “he frequently promotes that of society more effectually than when he really intends to promote it.”¹⁵

Smith’s “invisible hand” may be reminiscent of Hegel’s “cunning of reason.”¹² Yet it was profoundly different, precisely because Hegel’s doctrine was teleological. For Hegel, the ends that were unwittingly furthered by the exercise of individual wills and interests were those of a providential History and a transcendent Reason. Smith’s “general interest” was also significantly different from Rousseau’s “general will.” The latter was something more and other than the sum of individual interests, whereas Smith’s general interest was simply the totality of interests of all the people who constituted society.

Perhaps the most novel aspect of the Wealth of Nations was the idea of nation itself. The title referred not to the nation as the mercantilist understood it—the nation-state whose wealth was the measure of its strength vis-à-vis other states—but to the people comprising the nation. And people not in the then familiar political sense of those who had an active part in the polity, but in the social sense of those living and working in society, the vast majority of whom, Smith pointed out, were in the “lower ranks.” It was their well-being, their “wealth,” that would be promoted by a “progressive” political economy, for only such a free economy could bring about a “universal opulence which extends itself to the lowest ranks of the people . . . a general plenty [which] diffuses itself through all the different ranks of society.” ¹⁶ To those who complained that if the poor shared in the “general plenty,” they would no longer be content with their lot in life, Smith put the question: “Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or an inconveniency to the society?” His answer was unequivocal:

Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of the people should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.¹⁷

Smith’s opposition to mercantilism is generally read as a criticism of government regulation and a defense of a policy of laissez-faire.¹³ It was that, and much more as well. Mercantilism not only inhibited a progressive economy by interfering with the natural processes of the market. It was also, Smith charged, unjustly biased against workers because it set maximum rather than minimum wages, thus benefiting merchants and manufacturers at the expense of the workers. Mercantilism also promoted the prevailing view that low wages were both natural and necessary: natural because the poor would not work except out of dire need, and necessary in order to maintain a favorable balance of trade. As Arthur Young memorably put it: “Every one but an idiot knows that the lower classes must be kept poor, or they will never be industrious.”¹⁸ Young admitted that excessively low wages would be counterproductive. “Two shillings and sixpence a day will undoubtedly tempt some to work, who would not touch a tool for one shilling.”¹⁹ But he intended this as an argument for subsistence wages, not high wages.

Smith was not the first to question the desirability of low wages, but he was the first to defy the received wisdom by taking a positive view of high wages and offering a systematic rationale for them. And he did so because he had confidence that the laboring poor were worthy of such wages and would respond favorably to them.

The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition and of ending his days perhaps in ease and plenty animates him to exert that strength to the utmost. Where wages are high, we shall always find the workmen more active, diligent, and expeditious, than where they are low.²⁰

Smith’s benign view of the poor extended to the indigent as well as to the laboring poor. England was the first country—and for a long time the only country—to have a public, secular, national (although locally administered) system of poor relief. Unlike some of his successors—Thomas Malthus, most notably—Smith had no quarrel with poor relief as such. What he did oppose, and vigorously, were the settlement laws establishing residency requirements for the poor, which not only limited their mobility and opportunities for improvement, but also deprived them of the liberty enjoyed by other Englishmen.²¹ In the same spirit, he supported proportional taxation and taxes on luxuries rather than necessities, so that “the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor.”²²

All of this was a corollary of Smith’s conception of a “progressive economy.” Because high wages were the result of increasing wealth and at the same time the cause of increasing population, only in an expanding economy, where the demand for labor kept abreast of the supply, could real wages remain high. The division of labor was crucial for the same reason, because it resulted in greater industrial productivity and a flourishing economy, thus making it possible for wealth to extend to the “lowest ranks of the people.”²³ In effect, Smith refuted in advance Malthus’s theory that the growth of population inevitably resulted in the “misery and vice” of the lower classes. A free market, Smith argued, combined with the division of labor would permit the economy to expand, absorbing the higher wages and increased population, and bringing with it not misery and vice for the common man but a “plentiful subsistence” and the comfortable hope of “bettering his condition.” ²⁴

Smith’s optimism failed him at one point. Toward the end of the Wealth of Nations, in what has come to be known as the “alienation” passage, he described the effects of the division of labor on a man who spent his life performing a few simple operations, with no opportunity to “exert his understanding” or “exercise his invention.”

He naturally loses, therefore, the habit of such exertions, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any general, noble, or tender sentiments, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging; and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigor and perseverance, in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues.²⁵

This was a damning indictment—all the more because these were the laboring poor whom Smith had earlier lauded and for whom he had held out such high promise. It was also in patent contradiction to the central theme of the book. The first three chapters are on the division of labor, and the opening sentence of the first reads: “The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour.”²⁶ Yet toward the end of the book, that skill, dexterity, and judgment—and much else—seem to be belied by that same division of labor.

One explanation for this apparent contradiction may be found in the final sentence of that passage: “But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.”²⁷ It was to forestall this dire condition that Smith went on to propose a state-administered, state-supported, state-enforced system of education that was remarkable for its time. He called upon the government to establish in every district a school where children, including those “bred to the lowest occupation,” would be instructed in reading, writing, and arithmetic. The burden of the cost of this system would be borne by the state, although parents would be charged a fee so modest that even the common laborer could afford it. The schools themselves would not be compulsory (there were already pauper schools and varieties of private schools), but some form of schooling would be, and to ensure a proper level of instruction, Smith suggested that an examination in the three R’s be required before anyone could enter a guild or set up in a trade.²⁸

Marxists have made much of this “alienation” passage, without attending to Smith’s proposal for mitigating that problem. Marx himself, however, in Capital, after quoting Smith on the deleterious effects of the division of labor, did refer to that proposal, which “commends education of the people by the state, but prudently, and in homoeopathic doses.”²⁹ Marx’s own idea of a proper educational reform might strike a modern reader as not so much prudent or homoeopathic as primitive and regressive. Writing almost a century after Smith, and only a few years before the Forster Act of 1870 established the principle of free, compulsory public education, Marx took as his model for educational reform the Factory Act of 1864, which permitted children under the age of fourteen to work only if they spent part of the day at schools provided by the employer. He criticized that measure as “paltry,” but he was taken with the idea of combining education with work. Although factory children received only half the education of regular day students, he accepted the claim of the factory inspectors that they learned “quite as much and often more” as day-school children. He himself proposed an education that was heavily weighted toward work. “When the working class comes into power, as inevitably it must, technical instruction, both theoretical and practical, will take its proper place in the working class schools.” Such technical instruction (vocational schooling, we would now call it) would make workers fit for a “variety of labors, ready to face any change of production,” thus solving the problems of excessive specialization and redundancy inherent in the division of labor.³⁰

This concept of education was no passing thought on Marx’s part. Almost twenty years earlier, in The Communist Manifesto, he had derided the “bourgeois claptrap” about education, proposing, as an intermediate step on the road to communism, free education with the proviso: “combination of education with industrial production.” ³¹ One is reminded of Hannah Arendt’s observation that no thinker ever reduced man to an animal laborans as totally as Marx did. Locke, she pointed out, made of labor the source of property; Smith made of labor the source of wealth; Marx made of labor the very essence of man.³²

If Marx’s solution to the problem of alienation was very different from Smith’s (Smith did not at all link education with work), his concept of the problem itself was very different. This has been obscured by later Marxists who have interpreted this passage in the Wealth of Nations as exposing a fatal flaw in capitalism. For Smith, it was not capitalism that was flawed but the division of labor inherent in modern industry itself. Ironically, this was close to the position of the “early Marx,” for whom alienation arose in the earliest stages of society, with the separation of man from physical nature and the division of labor in the family. The “mature Marx,” on the other hand, abandoning that metaphysical idea of alienation, located the problem in capitalism—the divorce of workers from the means of production. Communism, however, did not solve that problem because it was as much dependent upon industrialism, hence upon the division of labor, as capitalism itself.

Apart from the belated appearance of this pessimistic theme, the tone of the Wealth of Nations, like that of the Theory of Moral Sentiments, was notably optimistic.³³ Industrialism and commerce were not only the instruments for material improvement—a “universal opulence” or “general plenty” extending to the “lowest ranks of the people.”³⁴ They were also the means by which men could exercise their natural desire for “betterment.” “Prodigality,” the “passion for present enjoyment,” was sometimes the occasional by-product of industry and commerce; but the more common and constant effect was the desire to save and improve one’s condition.

The principle which prompts to save is the desire of bettering our condition, a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till we go into the grave. . . . The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite of both the extravagance of government and of the greatest errors of administration.³⁵

“The system of natural liberty,” which was the most effective stimulant of commerce, also promoted a spirit of liberty in general. In a seminal work on Smith, Joseph Cropsey has made freedom—not only economic freedom but freedom in all its aspects—the prime principle of Smith’s political economy. “Commerce generates freedom and civilization,” Cropsey observes, “and at the same time free institutions are indispensable to the preservation of commerce.” Most people might be inclined to defend a commercial civilization not out of love of freedom but simply out of love for monetary gain. But for Smith, it was the love of freedom that had priority. He “advocated capitalism for the sake of freedom”—not only economic freedom but civil and religious freedom as well.³⁶

Smith himself gave credit to Hume for calling attention to yet another beneficent aspect of commerce. “Commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbors and of servile dependency upon their superiors.” Hume, Smith said, was the only writer to have taken notice of this least observed but by far most important effect of commerce: its civilizing, moderating, and pacifying effect on peoples and societies. ³⁷

Beyond material improvement, beyond even liberty, security, and tranquility, perhaps the most remarkable aspect of Smith’s political economy was its implicitly democratic character— democratic not in a political sense but in a natural, human sense. This emerges again and again in the course of his book, in the passage on commerce, for example, in the almost passing observation on its salutary effect in reducing the “servile dependency” of men upon their superiors, or the argument against the Settlement Laws because they deprived the poor of the liberty of movement enjoyed by the rich. Smith used the conventional words to describe what we would now call the “working classes”: “lower ranks,” “lower classes,” or, simply, “the poor.” But it was the functional, rather than the hierarchic, order of classes that concerned him. He defined the classes not by their social rank—upper, middle, and lower— but by the source of their income: rent, wages, and profit. In his scheme, wage earners, or laborers, constituted not the third order, as was customary at the time (and still is in general discourse), but the second order, taking precedence over merchants and manufacturers, who were the third order.³⁸ The laborer was a full partner in the economic enterprise, indeed, the most important partner, in the sense that labor was the source of value. Moreover, labor, like rent and profit, was a “patrimony,” a form of property entitled to the same consideration as any other kind of property.

The patrimony which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of his hand; and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour is a plain violation of this most sacred property.³⁹

Democratic, too, was the concept of human nature implicit as much in Smith’s political economy as in his theory of moral sentiments. The celebrated passage about the natural “propensity” to trade appears early in the book, where the division of labor is said to depend upon “a certain propensity in human nature . . . the propensity to truck, barter, and exchange one thing for another.”⁴⁰ Smith refused to speculate about the origin of that propensity—whether it was innate in human nature, or, as he thought more probable, a consequence of the faculties of reason and speech. In either case, this elemental trait, “common to all men,” was the lynchpin of a progressive economy, just as the moral sentiments common to all men were the basis for a good and just society. It was these modest attributes that made the laborer a fully moral being, capable and desirous of bettering himself and his family, of exercising his interests, passions, and virtues, and of enjoying the liberty that was his right as a free individual and a responsible member of society. No enlightened despot, not even an enlightened philosopher or legislator, was required to activate these qualities or to harmonize them for the general good.

This idea of a common human nature, of the natural propensities and sentiments of all men, inspired an even more remarkable testament of democratic faith.

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. . . . By nature a philosopher is not in genius and disposition half so different from a street porter, as a mastiff is from a greyhound, or a greyhound from a spaniel, or this last from a shepherd’s dog.⁴¹

Even today this is a bold assertion of the priority of nurture over nature, an affirmation of the natural equality of all people—not, to be sure, political, economic, or social equality, but a basic equality of human nature. A philosopher not so very different from a street porter! This does not have quite the ring of that “self-evident” truth, “All men are created equal.” Yet it does seem providential that the Wealth of Nations (although written long before) should have been published only months before the American Declaration of Independence. For its time and place, without the provocation of revolution or radical discontent, Smith’s statement is memorable, all the more because it came from one of England’s most eminent philosophers. It is striking that Britain’s other eminent philosopher at the time, and Smith’s best friend, had made much the same observation. “How nearly equal,” Hume observed, “all men are in their bodily force, and even in their mental power and faculties, till cultivated by education.” ⁴²

It is also striking to find the most distinguished philosopher of the preceding century, who is generally assumed to be the father of the British Enlightenment, taking exactly the opposite position. John Locke did not presume to explain the enormous difference, as he saw it, in men’s capacity to understand and reason, but he did not hesitate to “affirm that there is a greater distance between some men and others in this respect than between some men and some beasts.”⁴³ This assertion of the natural inequality of men stands in dramatic contrast to the pronouncements of Smith and Hume, who made a point of minimizing the natural differences, and thus the natural inequality, of men.

By the same token, the British moral philosophers stand in sharp contrast to the French philosophes. One cannot imagine Voltaire or Diderot (or even Rousseau) likening himself to a street porter. When Helvétius was bold enough to claim that circumstance, education, and interest accounted for differences in “l’esprit,” Diderot rebuked him. “He has not seen the insurmountable barrier that separates a man destined by nature for a given function, from a man who only brings to that function industry, interest and attention.”⁴⁴ “Destined by nature for a given function”—Diderot might have been rebuking Smith as well.