Adam Smith and the Economy of the Passions

Jan Horst Keppler, Robert Chase

• Publisher: Routledge
• Year: 2010
• Print ISBN: 9780415569866
• eBook ISBN: 9781136942167
• Topic: Business
• Subtopic: Business General
• Index: Business

The fertility of Adam Smith's work stems from a paradoxical structure where the pursuit of economic self-interest and wealth accumulation serve wider social objectives. The incentive for this wealth accumulation comes from a desire for social recognition or "sympathy" – the need to recognise ourselves in our peers – which is the primary incentive for moderating and transforming our violent and egotistical passions. Adam Smith thus examines in detail the subliminal emotional structure underlying market behaviour.

This new book by Professor Jan Horst Keppler presents an Adam Smith for the 21st century, more sceptical, searching and daring than he has ever been portrayed before. Without disputing its benefits, Professor Keppler's original contribution explores the anarchic passions constantly threatening to destroy all social bounds, and how the overarching "desire for love" and social recognition provides the Smithian individual with the incentive to transform his unsocial passions into a desire for social advancement and economic wealth with the view to gaining the vital approbation of his peers. One of the most striking results of this new reading of Adam Smith is the latter's insistence on the primacy of exchange value over use value. In other words, the quest for wealth is exclusively driven by the value it represents in the eyes of others rather than by any value in individual use.

At a moment of crisis, where the link between "true" economic values and "virtual" financial values is more fragile than ever, Adam Smith's work is a profoundly contemporary reminder that in the absence of personal, ethical groundings our economic actions are only grounded in the game of mirrors we play with our peers. This book will be of interest to postgraduate students and researchers in the History of Economics, or indeed any reader with an interest in the psychological foundations of a market economy and its theoretical representations as developed by Adam Smith.

1
Introduction

Personal ethics and social morality

1.1 Reading Adam Smith

Do you know Adam Smith, the man, the myth, his work? Certainly somewhat, rather well perhaps. So the answer is ‘yes’. Adam Smith remains one of the most influential, the most commented on and even – and this is far from obvious – one of the most read authors in the history of economic thought and even the general history of ideas. Unfortunately, however, this effort often results in the citation of some well-known phrases, which, read out of context, provide more questions than answers.

Readers seeking to go beyond the fixed ideas, the standard opinions and the stock quotations will easily be disoriented by the complexities of a protean work characterised by strong internal tensions and an overabundant secondary literature, unified only by its desire to smooth and simplify this work. For want of being understood, Adam Smith fascinates, but the majority of commentators never feel the need to look into the sources of this fascination. This is unfortunate. The Adam Smith Problem, the allusion of a number of diligent nineteenth century academics to a major faultline in Smith’s work, is no longer fashionable.

Today, the vast majority of commentators on Adam Smith’s major works, The Theory of Moral Sentiments and The Wealth of Nations, seek to attribute to them one sense, one well-specified linear interpretation. Most of these contributions are diligent, well-informed and well-intentioned explorations of particular aspects of the work. They may consist of a careful historical or philosophical contextualisation, the recognition of an earlier source of a particular concept, or a classification of modern economic concepts contained, explicitly or implicitly, in Smith’s work. Such partial investigations sometimes lead to surprising results. Liberal and anti-liberal economists thus both find support for their positions in a dense and complex work. Neither group, of course, bothers much to search for a fuller truth in the texts beyond the confirmation of conventional positions, most of them well-known in advance.

However, one does not approach a work that has maintained its fascination for more than 200 years, with the intention of silencing it forever. On the contrary, it is necessary to understand the undiminished fertility of the tensions and the wide-ranging implications of the tenuous synthesis that characterise Adam Smith’s work. Each generation of scholars and policymakers needs to face these tensions and formulate the resulting synthesis anew to make it pertinent for their time. After all, with Adam Smith we stand both at the dawn of a new scientific discipline and at the beginning of the social organisation which is ours today. For a fuller understanding of Adam Smith, there is only one way: to trust the texts, in particular those of The Theory of Moral Sentiments and The Wealth of Nations. One needs to approach them with respect, certainly, but with eyes and ears open and with the least amount of prejudice possible.

Very few critics – one may think of David D. Raphael, Vivien Brown or even Jacob Viner – have had the courage to approach Adam Smith’s work with a mind sufficiently open to appreciate its heterogeneous elements and its contradictions, all of which contribute to the same radical project. That project is, of course, structured by the convergence of the individual and the general interest, of conscious human intentions and a universal plan of perhaps divine nature. The key issue is that most critics take this convergence as a given, as a hypothesis formulated a priori. They are thus satisfied by commenting on its implications, frequently from an entirely personal perspective. There are not many who have dared, with Adam Smith, to explore the origins of this very particular self-interest, which are hidden in a complex economy of the passions but perfectly elaborated in all their details.

Reading Adam Smith’s major works can reserve many a surprise for the amateur as well as for the professional of the history of thought: the apparent lack of any systematic organisation and its tight coherence, its restless and heterogeneous nature, the vast, eclectic and capricious erudition of its author, its pragmatism and its syncretism, its occasional aloofness and its passionate commitment, its literary gems and its set-piece formulas, its humour and its ruthless dedication to a contradictory project and its successful conclusion.

Additional pleasure is provided by Adam Smith’s English, which is elaborated with great care. This results from the great prudence with which Smith advances and the underlying tension that characterises his argument. This tension also shows up occasionally in a punctuation which is dense and little orthodox, even by the standards of his time. The organisation of Smith’s major works does not follow any discernible system. ‘Books’, ‘chapters’, ‘sections’, ‘parts’, ‘articles’, ‘introductions’ and ‘conclusions’ alternate without any systemic ambition. Their length and the number of textual hierarchies vary greatly according to the need of the specific argument being treated.

The work of Adam Smith resembles one of those fractal designs, where the same figure is repeated from the smallest to the largest scale, thus creating an image that is utterly devoid of any linear system and yet displays a profound coherence. This essay about the structure, the informational assumptions and the ethical aspirations of Adam Smith’s work draws the attention of the reader to its singularity and even strangeness, in order to better understand the ongoing fascination it exerts and to appreciate the lasting importance that it still has today. The objective is to allow us to regard the original texts with a fresh view. We propose a new reading of the work of Adam Smith

1.2 An economy of the passions in a double system of coordinates

Such a new reading requires clear indications in order to avoid being distracted either by the multiple secondary threads weaving themselves through the central narrative of the work or by the cacophony of voices surrounding it. To facilitate orientation, it is best to reveal the principal argument immediately. Without further ado, we will thus present, in the following, the central theses of this essay, foregoing the usual preliminaries concerning the general importance of the work and the respect we owe to the man, founder of a new discipline, which a more complete work would have required.¹

The Theory of Moral Sentiments, the first major work that Adam Smith published in 1759, relies on two different processes (which are, as we will show further below, orthogonal to each other) to generate normative rules of behaviour. Both of these processes will remain identifiable, although in different forms, in The Wealth of Nations. The first process is well known, even though its implications, in particular its implications for the working of a market economy, have not always been fully grasped. This is the ‘sympathy mechanism’, a self-reinforcing feedback process through which the individual seeks the recognition of his own feelings by his peers, as well as the identification of their feelings within himself. This process is ultimately founded on the need to feel liked and even loved. The phrase ‘humanity does not desire to be great, but to be beloved’ (Smith 1759 (III.5.8): 194) expresses perfectly this essential motivation of human behaviour according to Adam Smith.²

While the sympathy process is treated regularly in the secondary literature, with more or less precision, the second process capable of setting behavioural standards is evoked by commentators more sparingly. This second process is concerned with the development of a personal ethic, defined by the desire to do ‘good’ and to act in a just and virtuous manner. It relies heavily on individual introspection, structured around the notion of an abstract authority with divine characteristics – the ‘impartial spectator’. This figure of the impartial spectator is present in the work of Adam Smith under a multitude of designations, such as the ‘great judge’, ‘the Director of nature’, ‘the demigod within the breast’ and many others. This proliferation of the names of the impartial spectator will in itself be a theme for discussion further on.

To facilitate the representation of these two processes, one may associate the first process with a horizontal dimension referring to notions of equality, of the market and of lateral communication. One may associate the second process with a vertical dimension referring to notions of authority, of hierarchy and of communication between different levels. Inspite of certain attempts to link them and certain contact points, the two processes are essentially incompatible and are presented as such by the author of the Theory of Moral Sentiments. Each one of the two processes constructs a distinct set of rules capable of generating a system of coherent behaviour with clearly identified objectives. Adam Smith himself expresses the incompatibility of the two processes the following way:

In estimating our own merit, in judging of our own character and conduct, there are two different standards to which we naturally compare them. The one is the idea of exact propriety and perfection … The other is that degree of approximation to this idea which is commonly attained in the world, and in which the greater part of our friends, and companions, of our rivals and competitors, may have actually arrived at … The wise and virtuous man directs his principal attention to the first standard … It is the slow, gradual, and progressive work of the great demigod within the breast, the great judge and arbiter of conduct.

(Smith 1759 (VI.3.23–25): 291–92)

At the beginning of the book, he had already underlined in a more general manner:

To deserve, to acquire, and to enjoy the respect and admiration of mankind, are the great objects of ambition and emulation. Two different roads are presented to us, equally leading to the attainment of this so much desired object; the one by the study of wisdom and the practice of virtue; the other, by the acquisition of wealth and greatness.

(Smith 1759 (I.3.2): 73)

In both cases, Smith identifies as the force inciting individuals to follow one or the other of the two normative principles, the most intense of the human passions, that is ‘to be beloved’. The subject of the thus desired love is, however, very different in each case. In the first case, the subjects of love are the ‘others’, the equals, the friends, the peers, the competitors, the neighbours, in short society. In the second case, it is the figure of the ‘impartial spectator’. The desire to obtain the love, either of the ‘impartial spectator’ or of one’s peers, is sufficiently strong to ensure the control of all other passions, which are considered as violent and as incompatible with social life. ‘Self-control’ is thus, according to Smith, an indispensable and highly prized virtue for the establishment of any sociability.

Adam Smith’s entire project of exploring the forces that structure society begins with the question ‘How can one control the violent passions in order to render social life possible?’ Today, one would speak about ‘impulses’ rather than ‘passions’. The fundamental problem is that of an innate and inevitable violence manifesting itself already in childhood, a condition that has been referred to for the past 100 years as the Oedipus complex. Adam Smith refers explicitly to the unfortunate king of Thebes, distinguishing however between his responsibility and his culpability, declaring him responsible but not guilty given that his crime was committed unconsciously, a distinction that is, as we shall see, crucial for Smith’s concept of practical morality. One should not forget either that Adam Smith, the man, lost his father before birth and lived with his mother all his life, except for his last six years. The control of the passions was no anodyne subject for the professor of moral philosophy.

One needs to understand the parallel development of two competing mechanisms developing normative frameworks from the point of view that both serve to control the passions. In spite of their shared purpose, The Theory of Moral Sentiments shows that the two principles clash directly on the level of individual decision-making. At the end of The Theory of Moral Sentiments, two possible extensions thus present themselves. The first is a work on the auto-organisation of individuals culminating in a state whose normative justification is intrinsically linked to self-interested, individual decision-making based on the sympathy mechanism. The publication of The Wealth of Nations in 1776 masterfully realises this option. In Chapter 2 of this essay, ‘Sympathy, communication, exchange – the horizontal world’, we will analyse this first normative principle based on the sympathy mechanism in The Theory of Moral Sentiments and The Wealth of Nations. This, by the way, allows us to answer conclusively the question about the much discussed relationship between the two books: The Wealth of Nations constitutes a direct, but partial, extension of The Theory of Moral Sentiments.

We can only guess at the analogue development of the second option, although Adam Smith refers explicitly to it. At the end of The Theory of Moral Sentiments, he thus announces the forthcoming publication of a History of Natural Jurisprudence, which would explore a normative framework whose origins would be exogenous to the processes of individual decision-making by individuals. This announcement is maintained throughout all of the six editions published during his lifetime, even though Smith remarks in the foreword of the sixth edition of 1790, the year of his death, that the completion of this work is no longer on the agenda. Without disposing of the relevant textual evidence, we may legitimately suppose that this History of Natural Jurisprudence constitutes the second extension of The Theory of Moral Sentiments, the systematic development of a normative framework based not on the auto-organisation of individuals but on autonomous principles that, at the same time, are more universal and more personal, than the conventional decrees of society.

John Rae, Smith’s biographer, tells us that a handwritten version of this History of Natural Jurisprudence was burned, by Smith’s order, a few days before his death. In Chapter 3, ‘The Vertical World of the Impartial Spectator’, we will identify the principal characteristics of this second normative principle governed by the ‘impartial spectator’ and will explore its implications for the understanding of Adam Smith’s complete work. Although The Wealth of Nations mainly develops the first principle, it contains clearly identifiable traces of the second principle, particularly in the passages concerning the notion of ‘justice’, which is closely associated with the ‘impartial spectator’.

1.3 The horizontal principle: sympathy, exchange and the market

The Wealth of Nations provides us with a vision of a world built on a form of a shared rationality shaped by the sympathy mechanism. In Chapter 2, ‘Sympathy, communication, exchange – the horizontal world’ we will determine the nature of this rationality developed in The Theory of Moral Sentiments, where it is opposed to an individually defined ethic structured by the impartial spectator. We will see that this ‘rational sympathy’ is at the origin of the notion of a socially determined ‘self-interest’. This notion of a self-interest formatted by social processes (in the literal sense of shaping it into a specific form) is at the heart of Smith’s theory of society, and later, of the economy. It receives its logical coherence and theoretical tractability through the chronological separation of the process of preference formation, based on social processes, and the actions based on these preferences, which are individual.

The detailed rendering of these indivi...

Table of contents

• Routledge studies in the history of economics
• Contents
• 1 Introduction
• 2 Sympathy, communication, exchange
• 3 The vertical world of the impartial spectator
• 4 The paradoxical synthesis
• 5 Conclusion
• Notes
• Bibliography
• Index