Adam Smith Is Still On Our Side

by Milo Clark

A Strategic Design Discussion Paper
"Thinking about Thinking about Community"

March 3, 2003


[Author's Note: In the mid-'90s, I wrote a series of papers "Thinking about Thinking about Community." One that first emerged in 1996 and is in Swans' archives was Adam Smith is on Our Side.

I think it is time to bring it back. It seems still good, although revised and updated primarily for readability.]

Adam Smith understood in context, grokked, says that the moral community, civil society, works best when local resources are converted locally by local people primarily for local use in ways which generate surpluses for local reinvestment.

Let's get straight about Adam Smith

With the importance attached to Adam Smith (1723-1790) as a founding father, if you will, of economics as a "science" (not accurate, by the way) and his imputed role in conceptualizing Capitalism, I think it is important to go back in time to get closer to source materials with which to evaluate his contributions and to keep in context the interpretations and extrapolations made of his works by subsequent authors and especially by politicians and polemicists. In this pursuit, I have re-read his central works, reviewed his principal biographers and, especially, opinions of his contemporaries.

"Radical," "Liberal," "Revolutionary"

In short, Adam Smith was a radical, a capital "L" Liberal, friend of David Hume, member of the Scottish Enlightenment and well-known to such as Rousseau and others who are credited with the ideas underlying both French and American Revolutions.

In his time, his main thesis on morals was neither popular nor especially well-known by British aristocracy or establishment.

Smith's thesis in his Theory of Moral Sentiments is that all our moral sentiments arise from sympathy, empathy or 'fellow-feeling' as he called it. The principle objects of our moral perceptions are the actions of others.

Our moral judgments of ourselves are applications to ourselves of decisions made about the conduct of others. In applying these judgments to ourselves, we acquire a sense of duty and a feeling of its paramount authority over all our other principles of action.

In this context, it is easier to see that Smith's work on political economy was, in part, an act of moral outrage at the mercantilism and industrial policies of European governments, especially British and French. Smith argued mostly from "wide and keen observation of social facts and his perpetual tendency to dwell on these and elicit their significance, instead of drawing conclusions from abstract principles." (Encyclopedia Britannica)

Let get straight on words, too

As words like "Conservative" and "Liberal" have lost context in the current political jargon, it is helpful to remember that they have roots both in etymology and practice at any given time.

"Liberal" proceeds from the Latin, "Liber," free, state of being free, freedom and "liberalis," that which befits a free person. Conservative comes from Latin, "Conseruare," to keep fully, to preserve and to protect. In it, there is a sense of service to that which has value. In Sanskrit, the root is "seva." Both "seva" and "service" are moral statements, which brings us back to Adam Smith and his Theory of Moral Philosophy.

In the upside down world of today's political doublespeak, an 18th century Scottish Conservative is a Radical, Liberal, Leftist, Activist. Now we have Adam Smith in context.


By way of background, Adam Smith began his academic preparation at the University of Glasgow, Scotland, in his 14th year, 1737. Except for six years at Oxford (1740-1746), he remained in Scotland, first in Kirkaldy for two years with his mother, then Edinburgh where he continued or began influential friendships which included David Hume.

At Oxford, rather than prepare for ordination as his family expected, he studied rhetoric and belle lettres. At Glasgow University, he was first appointed to the chair of Logic in 1751 and succeeded to the chair of Moral Philosophy in 1752 until he left in 1763.

He spent considerable time in pre-revolutionary France during 1764-1766 where he was evidently influenced by Physiocrats, followers of Jean Claude Marie Vincent de Gournay (1712-1759), whose motto was laissez faire, laissez passer which, for them, involved customs problems. They wanted open borders (in Europe) which, in mercantilist times, was heretical. Smith spent the balance of his life giving public lectures and writing. In 1778, he was appointed to the Board of Customs.

Moral philosophy

In his works on moral philosophy, within which he considered Inquiry into the Nature and Causes of the Wealth of Nations to be included, Smith concerned himself primarily with moral systems approached through the nature of morality and the motive of morality.

According to Schneider, "While in general he betrays his sympathy for an ethics of benevolence based on sentiment, he is clearly repudiating the attempt to reduce morality to any one trait or single motive. Especially,..., is he interested in the interrelations of justice, benevolence and prudence. Given man's sympathetic or social sentiments, he tries to prove that a sense of propriety, a sense of merit, a sense of benevolence, and a sense of prudence can be explained as natural growths of man's social consciousness or feeling, whereas justice cannot depend on our sense of justice but must find its embodiment objectively in law. (xix)"

Wealth of Nations

"Thus Wealth of Nations is not based, as some have maintained, on a psychology of self-interest, but on a theory of natural laws of prudence [dictates of right reason] or social art of self-command, which is not a theory of motivation at all, but a theory of moral judgment. For the psychology of propriety, benevolence, justice and prudence we must turn to the Theory of Moral Sentiments; for the 'natural law' or objective embodiment of these same virtues we must turn to jurisprudence and political economy. The two approaches complement each other. (xxii)"

Laissez faire, laissez passer

"The principle of laissez-faire as conceived by Adam Smith is, therefore, not primarily an attack on government or a reliance on the automatic workings of the divine government in which he believed, but a principle of individual independence within a context of civil society. 'Let's go!' 'Let us act for ourselves', is a better general maxim than a loyal subject's prayer for protection 'Guard us, help us, ye mighty'" This was the meaning which French merchants had given laissez faire and this was its meaning for Adam Smith.

Similarly, competition was conceived by him not as a type of struggle, but as a positive interest in 'improvement.' As a theory of polity, again civil society, this formula supplanted both the mercantilist reliance on money and the physiocratic reliance on resources. It was intended to free and stimulate enterprising adventurers or entrepreneurs. It is in this context, too, that Smith's theory of labor as the origin of value is to be interpreted.

By labor he meant productive labor; and by production he meant production of capital or wealth, that is, surpluses. It is important to keep in mind that the Wealth of Nations was conceived not as a treatise on national welfare or the greatest happiness, but merely of 'public opulence,' of economy in the Scottish sense: for Smith's theory of justice and benevolence we must turn elsewhere." (xxiii)"

Also of instruction

Also of instruction are Smith's comments on "the influence of commerce on manners," "Whenever commerce is introduced into any country, probity and punctuality always accompany it." (Lectures on Justice, Police, Revenue and Arms, Part II, paragraph 17).

For further clarity

For further clarity on links between the Wealth of Nations and Smith's works on moral philosophy, Glenn R. Morrow in The Ethical and Economic Theories of Adam Smith: A Study in the Social Philosophy of the 18th Century, according to Schneider, "...refutes the thesis that the psychology in the Wealth of Nations is inconsistent with the psychology in the Theory of Moral Sentiments. Smith may have been many things, but he was neither inconsistent nor latent schizophrenic.

Moral outrage at mercantilism

Smith's rhetorical or prose style, lucid for his time, is turgid for our time. Elsewhere, I have made the point that a strong part of Smith's motivation in writing the Wealth of Nations is moral outrage at mercantilism, the then [and now] prevalent form of international commerce. "Mercantilism" is a nicer word than colonialism or imperialism or globalism but to those on the short end, the effect is about the same.

For his model oikonomia (the Greek root of economy and meaning primarily management of the household), Smith envisioned the communities of his time with which he was familiar; Scottish, perhaps even English or French villages.

In those villages everyone knew everyone else. Trade was simple and bartering was common. Trades tended to follow families for generations running. Therefore one was, in later economic terms, likely to be a fully informed buyer and seller in an "economy" characterized by free choice among relative equals. This was probably even then a pastoral fantasy. And Smith's worldview, congruent in his time, was essentially pastoral. The "Industrial Revolution" was not yet.

Smith's French connections were strong. We know he was familiar with Rousseau's work both in France and England where Rousseau was a guest of David Hume from 1766 to 1770. 1766 is the year that Smith returned from France. David Hume and Smith were key figures in the so-called Scottish Enlightenment. Therefore, it is quite likely that Rousseau, Hume and Smith were together for more than social reasons.

Friend of Rousseau

Rousseau was champion of the "Natural Man." He maintained that humankind was essentially good and in the state of nature, equal. It was concepts of private property, introduction of organized economic processes such as agriculture, science, commerce and increasing separation of individuals from nature that corrupted societies. To offset these pernicious influences, people entered into a "Social Contract" to establish government and educational systems, to work together with civil society.

His influence on European thought was profound, not only through the subsequent French Revolution. Major influentials such as Kant, Goethe, Tolstoy and the American founding fathers, among others, picked up his themes and incorporated them into their work. Rousseau echoes throughout the American Declaration of Independence.

Adam Smith realized

Adam Smith, moral philosopher, to be a man of his times cannot be seen as a hard hearted, hard headed, survival-of-the-fittest, capital "C" Capitalist. All that is media hype and we have been sold on it.

Look at the clues: Sent to Oxford to take up the cloth, he rebelled and instead studied languages, politics, rhetoric and belle lettres. Back at Glasgow, he first upsets the hidebound academic rituals of teaching logic and then switches from the convergent, coldly constrained processes of logic to the warm and fuzzy divergent processes of moral philosophy.

He is sufficiently motivated by the radical ideas of the French Physiocrats to spend three years in France before returning to inner circles of the Scottish Enlightenment where he openly consorted with people and ideas underlying social change movements and then revolutions against established authority throughout Europe, in France and overseas in the British Colonies. It may testify to the temper of the times that he and his cohorts were not tried for high treason!

How it was back then

Widespread industrial development was still to come in Smith's time. The four points on which society was then based were church, military, government and commerce which were essentially controlled through a combination of aristocratic, military and merchant actions called "mercantilism."

For some, mercantilism is a nicer word than colonialism or imperialism or today's globalism -- whether political, economic or physical.

The nature of mercantilism is to import raw materials from the hustings, to prevent or to inhibit and prevent conversion, manufacturing or industrial development out there and to return finished goods for sale to the locals for cash thereby introducing the cash economy and all the pernicious consequences thereof.

These processes establish control of resources, restrict access (lock up the food in Quinn's terms), introduce a cash economy draining off surplus from local to distant receivers and undermine rural societies and indigenous cultures.

In this way the produce of the distant lands was bought at exploitive "prices" from plantations and mines worked by chattel or wage slaves and owned or controlled by distant mercantilists who realized value-added at each stage of processing and profit at the final stages of conversion. To make a commodity of a resource is to denigrate it.

Mercantilism in Smith's view was hardly a moral process as it notably lacked "fellow-feeling." Although one may acquire money as a mercantilist, one could not acquire merit or behave with propriety.

"Labour is the real measure..."

Smith believed that "...labour is the real measure of the exchangeable value of all commodities." (Encyclopedia Britannica). "Equal quantities of labour at all times and places, are of equal value to the labourer." "Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only." (Wealth of Nations)

I would guess that if I asked most present day Capital "C" Capitalist Conservatives to identify the author of those words, I would get Karl Marx more often than Adam Smith. What do you think?

A practical Scot above all

Read in the context of his times, the impression I get is that Smith was envisioning the village he knew so intimately as the base of political economy. In the village, every one knew everyone else. Every one knew the sources of materials and produce that went into what was made, offered for exchange, trade, barter or sale. They knew the practices and values which each maker incorporated into their work and products.

Under these conditions, everyone was indeed a fully informed buyer or seller and trade occurred as an exchange of labor in that I knew what it took to make what I offered and what I was willing to work to acquire what your work produced.

From that base of understanding, Smith worked outward in abstraction to "Rent. Wages and Profit," by which he meant quite different things than one might suppose from contemporary meaning of those words. Comments on those differences can be saved until another essay.

Service is non-productive labor

Given our current transition to a "service" and "knowledge-based" economy, Smith is very clear in differentiating between "productive" and "non-productive" labor. Productive labor results in products, tangible goods, which are value added or increased value of commodities., resources acknowledged as having value leading to value. There is a moral quality to it.

Non-productive labor renders services. Services may have utility although they are necessarily derivative thereto.

Productive laborers alone are employed out of capital; unproductive laborers, (as well as those who do not labor at all), are all maintained by revenue. Revenue is exclusively the product of productive labor. The only mode of increasing the annual produce of the land and labor is to increase either the number of productive laborers or the productive powers of those laborers.

Contemporary capital "L" Liberal economists are swinging back to Smith's concepts. We are slowly coming to realize that service is bought by productive labor, too. Unless somewhere a surplus is created through production, there is no revenue to pay for services.

Somewhere, somehow physical resources are converted and entered into distribution systems. Within distribution systems, value added by production of some sort is taken as transaction costs, margins or profit as each transaction or exchange records some application of productive efforts.

The abstractions now seemingly dominant remove the sense of productive processes involved so that today the ladders of abstraction called finance quite blind observers to the actualities underlying economic systems. No matter how abstracted, somewhere, somehow physical resources must be converted in ways which yield economic surplus from which to finance the succeeding steps of abstraction.

Quite literally, economics as taught in colleges and universities and practiced by economic savants is a grand illusion, a moral and ethical travesty.

"Nature labours along with man."

Furthermore, "In agriculture, Nature labors along with man." (Wealth of Nations) Therefore to degrade either Nature or man compromises the whole system. What more is there to say?

Personal freedom, Natural Rights

To quote the Britannica: "To sum up, it may be said that the Wealth of Nations certainly operated powerfully through the harmony of its critical sides with the tendencies of the half-century which followed its publication (1776) to the assertion of personal freedom and 'natural rights.' It discredited the economic policy of the past, and promoted the overthrow of institutions which had come down from earlier times, but were unsuited to modern society."

So much for Descartes and Newton, too

Being "scientific" was a fad of Smith's time. "Scientific" then meant a combination of Cartesian and Newtonian processes. Given the pernicious influence of Descartes' coldly reductionist and rationalist 'scientific' methods, I am delighted to learn that Adam Smith saw the links between Newtonian and Cartesian systems and characterized the Cartesian as 'fanciful,' "ingenious and elegant, tho' fallacious." (Letters to the Authors of the Edinburgh Review, paragraph 5)

Adam Smith is on our side

In Genesis, version one of the creation stories, the Judeo-Christian God may be against us who have room for otherkind, but Adam (Smith) is on our side. I'm glad to get that part straight.

To repeat: Adam Smith understood in context, grokked, says that the moral community, civil society, works best when local resources are converted locally by local people primarily for local use in ways which generate surpluses for local reinvestment.

· · · · · ·

General sources of Adam Smith's writings on Moral Philosophy

1.  Adam Smith's Moral and Political Philosophy, H. W. Schneider, Ed., Harper Torchbooks, New York, 1948.

2.  Adam Smith, Essays on Philosophical Subjects, W. P. D. Wightman and J. C. Bryce, editors, Clarendon Press, Oxford, 1980.

3.  Encyclopedia Britannica 1952 [chosen to avoid contemporary doublethink penetrating even EB].


Size Matters  (February 17, 2003)

Adam Smith is on Our Side  (Original essay published on May 14, 1996)


Milo Clark on Swans (with bio).

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Published March 3, 2003
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