Adam Smith and the moral economy we have lost

With the 25oth anniversary of The Wealth of Nations approaching next year, the world is gearing up to honour Adam Smith. But which Smith should be recognised? The hard-nosed “founding father” of modern economics, or the philosopher who wrote The Theory of Moral Sentiments? Scholars have wrestled with this question, a riddle known as “Das Adam Smith Problem,” for centuries, because it concerns not just dualities within Smith's thought, but also our own uneasy relationship with morality and markets.

- ANTARA HALDAR

The “problem” was first formulated in late-19th-century Germany, where economists of the historical school, including Wilhelm Hasbach and August Oncken, saw a glaring contradiction between the compassionate, sympathy-driven moral psychology of Smith’s first book and the self-interested calculus of his second. To them, the sentimental Scot of 1759 was irreconcilable with the architect of capitalism of 1776.

This contradiction suited the intellectual temper of the time. As industrial capitalism took hold, economics was busily reinventing itself as a “science” detached from ethics, while philosophy and theology were left to fret over the moral wreckage. Das Adam Smith Problem thus became a projection of modernity’s own split personality: One half was absorbed by mechanism and efficiency, the other by conscience and community.

Yet the German historicists were wrong, or at least incomplete. Later readers — from

Jacob Viner, a founder of the Chicago school of economics, in the 1920s, to the editors of the “Glasgow Edition” of Smith’s works in the 1970s — showed that the two books shared a philosophical spine. Far from renouncing his earlier moral philosophy, the later Smith had extended it to the economic sphere. The “invisible hand” was never meant as an ode to greed; it was a metaphor for the way that social benefits can arise from individual human motives (or “passions”), provided that institutions channel them appropriately.