Having offered one quote from Adam Smith's 'Theory of Moral Sentiments' of 1759 yesterday I thought another might be in order:
When the happiness or misery of others depends in any respect upon our conduct, we dare not, as self—love might suggest to us, prefer the interest of one to that of many. The man within immediately calls to us, that we value ourselves too much and other people too little, and that, by doing so, we render ourselves the proper object of the contempt and indignation of our brethren.
This comes from Part III, Chapter III itself entitled 'Of the influence and authority of conscience'.
This opinion from Smith does, I think, set this further opinion from him, from the Wealth of Nations (1776, Book I, Chapter II) in context:
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.
This is, of course, always used as justification for the benefits to arise from self interest, but in fact its own context makes it clear just how we should view this, and clearly links the matter to the first quote I offer:
But 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, and shew 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 do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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.
Smith was quite clear: our own self interest had to be very clearly put in the context of concern for others. It's odd how some have forgotten that.
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Absolutely Richard
As in the case of Marx, people read and absorb very little. Communist Manifaeto in his case and bits of vol 1 of Wealth of Nations. Moral Sentiments is a superior book and leads to the conclusion that you cannot have just prices in economic exchange without moral sentiment between the contracting parties. Similarly you cannot have free markets and capitalism as the latter leads to the big firm and big state
best wishes
Leslie
Leslie
That seems so obviously true, then and now
Amazing it is never noted, taught or apparently understood by most economists
Richard
Do you think that anyone at The Adam Smith Institute have read any of this, or are they as Labour is to Nu Labour?
They have read it – and on Twitter say I have no clue what I am writing about and that these quotes are fundamental evidence of support for ‘free enterprise’
Oops got that the wrong way round I mean as Nu Labour is to Labour!!
I am more in favour of Karl Marx’s belief that capitalism can never work, that its contradictions will always see it lurch from crisis to crisis and that capitalism has to be replaced.
For a long time it looked as though Marx was wrong
The evidence in his favour is growing
The problem is designing the replacement
Thanks for this, Richard. I’ve just looked up on the web, and find to my disappointment that the “Theory of Moral Sentiments” was published in 1759, a full 7 years before “The Wealth of Nations”, as I had previously imagined that the former book was written as a corrective to the latter.
However, it does seem to me that Adam Smith had his earlier writings well before him when he wrote “The Wealth of Nations”, because, (quite contrary to a contributor to to your earlier post, who said that ” Well we can all quote Adam Smith………”, and then proceeded to quote “Individual Ambition Serves the Common Good”, charging you with the fault laid against religious people, of picking out the quotes that buttress your case, and avoiding those that oppose it), it is abundantly clear that Adam Smith profoundly mistrusted businessmen, and was unwilling to see them ruling the roost, as his famous quote about businessmen getting together in a conspiracy against the public interest, and also in the matter of employment rights i.e
“Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.” Chapter x, Part II, p. 168
(Visit http://en.wikiquote.org/wiki/Adam_Smith for more choice examples)
It seems to me that this is because Smith understood that economics divorced from human concerns and people was always going to go wrong, and that economics (“Wealth of Nations”), must always be subservient to, and defined by, human needs and behaviours (“Theory of Moral Sentiments”).
Of course, as you have often observed in this Blog, “modern” (actually, very old-fashioned) economics has done the exact opposite, and tried to transform it into a mathematical project and discipline. Mathematics is a wonderful tool for exploring the physical cosmos, and can be used to posit the behaviour of matter at the event horizon and at the singularity in a black hole, and to make predictions about the cosmos that are later experimentally demonstrated to be correct, but that is because we are talking about matter that is constrained by the physical laws of creation.
People, alas – or thank goodness, depending on your take on humanity! – are not mere matter, and behave irrationally and well as rationally, and any economics that seeks to treat people like inert (and subservient!) components of a physical system is bound to be defective. Adam Smith understood this, it seems to me, and hence sided with those without power, as opposed to those with power. Socialist is probably a step too far in describing this belief system, but it seems to me that he certainly was not on the side of the big guns.
Socialists was a bit tongue in cheek, I admit
But he was not on the side of the big guns. Of that we can be sure
reminds me of an amazing article i read (‘Capitalism: A Ghost Story’ by Arundhati Roy) that points out how societies leading figures are captured and remodeled to fit with elite ideals. short extract RE Martin Luther King Jr:
“Martin Luther King Jr made the forbidden connections between Capitalism, Imperialism, Racism and the Vietnam War. As a result, after he was assassinated, even his memory became a toxic threat to public order. Foundations and Corporations worked hard to remodel his legacy to fit a market-friendly format. The Martin Luther King Junior Centre for Non-Violent Social Change, with an operational grant of $2 million, was set up by, among others, the Ford Motor Company, General Motors, Mobil, Western Electric, Procter & Gamble, US Steel and Monsanto. The Center maintains the King Library and Archives of the Civil Rights Movement. Among the many programmes the King Center runs have been projects that “work closely with the United States Department of Defense, the Armed Forces Chaplains Board and others”. It co-sponsored the Martin Luther King Jr Lecture Series called ‘The Free Enterprise System: An Agent for Non-violent Social Change’. Amen.”
full article here:
http://www.outlookindia.com/article/Capitalism-A-Ghost-Story/280234
Adam Smith also showed his socialist credentials in the desire for a redistributive Land and rent tax:
“A more equal land-tax, a more equal tax upon the rent of houses, and such alterations in the present system of customs and excise as those which have been mentioned in the foregoing chapter might, perhaps, without increasing the burden of the greater part of the people, but only distributing the weight of it more equally upon the whole, produce a considerable augmentation of revenue.”
If Thatcher and her heir had really understood Adam Smith, the rent seekers would never have had tax cuts, or given public assets to monopolise for economic rent. Smith thought rent seeking and monopolies a burden on a real free market, which we do not have today.
I thought this worth sharing although the credit should really go to Michael Hudson’s blog!
The Theory of Moral Sentiments (TMS) is truly a manifesto for sustainability, as Wealth is for capitalism, TMS offers an entirely different invisible hand:
“The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining.
The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements.
They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of society, and afford means to the multiplication of the species.”
I really must re-read it
It is many years since I did
Isn’t that quote little more than a version of the trickle-down theory?
“they divide with the poor the produce of all their improvements”.
Sounds like a more sophisticated version of “greed is good” (rapacity is a better word!).
Smith was of his time and a genius in it. I’m not sure we can say this perspective has relevance today.
It’s a fascinating book…the 250th anniversary edition was printed in 2009 by Penguin Classics. Fascinating read.
Talking of Adam Smith, what are people’s thoughts on the Real Bills Doctrine, where essentially money was backed one to one with commodities?
It was supposedly disproved by the quantity of money theorists, but the money supply was fully backed.
Could this form of money work today?
No! It could not
We need credit
Thus is where the likes of Ann Pettifor and I disagree with Positive Money
Suggesting all money must be state created would crash the economy
On the other hand limited state regulation and no attempt to recover the benefit of money creation from banks is also wrong
Richard-why do you think positive money’s proposals eliminate credit?
The credit will come from banks but will be fully underwritten so that things like housing bubbles could not happen.
It would eliminate credit for the Wrong things.
Of course, Positive Money’s proposals INCLUDE sovereign money creation FOR banks to lend on to business and could stem the appalling decline in support for SME’s
In fact , isn’t this what we had when our vile Government created 12 billion for help to buy (bubble) scheme? It was sovereign money creation for the wrong purpose.
Here’s quote from the website (Positive Money):
“The key point is that the system is flexible, rather than rigid. It is able to adapt to the changing needs of businesses, households, and the economy at large. As a result in a full reserve/ sovereign money system there need never be a lack of credit for businesses, or a shortage of money for the real economy.
Indeed, this system is likely to be more appropriate to the needs of the economy than the existing system. The existing system, in which banks create money, created far too much money in the run up to the crisis, and far too little in the aftermath.
Simon
I refer to what Ann has to say
http://www.primeeconomics.org/?p=2629
Richard
Richard-give the banks and inch…………..
The Australians seemed to have it right. The government issued national credit and kept the private banks honest. This was before they allowed the national bank to be dismantled, even though it was very successful.
We certainly need a system that either redistributes the interest of banks back into society or else enough public services created to put money into circulation that is taken out by private bank interest.
I am divided as to whether making banks hold a 100% reserve is a bad thing or not.
Of course, the ideal solution would be to totally nationalise the banks. When another crisis hits (when, not if) we may have little choice.
Re recovering the benefit of money creation: how to go about this? Perhaps limiting bank profit and the rest is redistributed? Of course, the banks will whinge, but I think I could just about live with that. 🙂
We would be up in arms if a private monopoly had hold of 97% of the gas, water or electricity markets, so it seems to me rather ludicrous to allow private monopolies to have captured almost 100% of the money supply.
Time to nationalise the money supply?
“We would be up in arms if a private monopoly had hold of 97% of the gas, water or electricity markets ”
Withe energy cartel it’s probably 100%!
I can see that Anne Pettifor is worried that if the central bank created the money and sold it or loaned it to banks credit would be limited and cause deflation. But is this not making and assumption? Positive Money do not advocate commodity money – they call it fiat money which does not create debt. In his treatise on money John Maynard Keynes called this “money proper” -which we know as cash. He stated bank money was created as a debt.
It would be better if bank money was taxed at a proper rate, but this tax is on the profits or the interest. The principal of the loan is destroyed when the loan is repaid, so if houses are heavily inflated, and/or they stop lending during busts, the banks always cause deflation. This also crashes the economy as we can see.
I do not feel expert enough to argue with Anne Pettifor or Positive money about this. But it seems to me that if the banks are creating 97% of the money as debt the debt will keep growing exponentially due to compound interest and cause stagnation, because people are spending so much on debt service and not enough in the shops. Even heavy taxes would not cure the whole problem as it does not cure the problem of the wealth extraction on the inflated principle of the mortgage loan which gets destroyed – but would help a of course.
I think we need government to create 30% – 50% of the money to cover their own spending, for research and development and to help small businesses. If people could earn positive government money they could pay their debts without causing debt deflation. This would deflate debt and inflate the real economy.Banks should be restricted severely with mortgage lending and be forced to lend to businesses. Too much credit creation causes dangerous positive feedback. Government positive money would add negative feedback if it was controlled correctly.
.
I have real problems with fiat money – as does Ann
The reality is that credit money is always going to be created – it’s not just banks who can do it. We all can in principle
So the need is to regulate it. Trying to bar it will make that harder
It’s not so much, as I see it anyway, that fiat money is the problem, but fiat money created almost of 100% as a debt.
Potatoes could be money as long as people could use them to exchange for goods and services or have to use them to pay taxes with.
For about 5 centuries, money was essentially bits of wood. The monarch simply created the currency and pre-paid for goods and services. They circulated as money and came back on the form of taxes.
The government could pay for the running its own services and 55% or so of the banks could be put into public ownership and the interest earned from loans goes to the public purse and is redistributed back into the real economy rather than bank shareholders pockets.
Although it is rather late in the day to post a comment on this entry (both literally and metaphorically) I have just read a passage in Samuel Fleischacker’s commentary ‘On Adam Smith’s Wealth of Nations’ which seems so apposite that it seems necessary to refer it to you. Here Fleischacker is commenting on Smith’s views on the basis of human sentiment as discussed in the ‘Theory of the Moral Sentiments ‘ —
‘…. Smith has a far more deeply social conception of the self than did his predecessors [Hutcheson and Hume] ….. for Smith all of our feelings, self interested and benevolent, are constituted by a process of socialisation. Smith conceives of humanity as less capable of solipsism that Hume does, less capable of the thoroughgoing egotism than Hume, in his famous discussion of the ‘sensible knave’, found so difficult to refute. At the same time, Smith reconciles his social conception of the self with a respect for the absolute importance of each individual, and the capacity of each individual for independent choice. Ethical self transformation is inspired and guided by social pressures but ultimately carried out by the individual for him- or her- self: the “impartial spectator” [the judging self] begins as a product and expression of society, but becomes, once internalised, a source of moral evaluation by which the individual can stand apart from, and indeed criticise, his or her society. Individually free action and the social construction of the self are compatible, for Smith, even dependent on each other.’
[Fleischacker, section 10, page 49].
It’s a view
Amongst many