Adam Smith (1723-1790) may be the most misunderstood British thinker of the last 500 years—misunderstood not by intellectual historians but by journalists and the educated public. A case in point: Steven Pearlstein, a well-regarded business journalist, asserts that Smith argued that the “ ’invisible hand’ of the market . . . miraculously transforms individual greed into collective prosperity.” Smith said no such thing. There is one sentence in An Inquiry into the Nature and Causes of the Wealth of Nations (1776) about the invisible hand, but Smith never says it is a wonder-working formula for prosperity and civic harmony.
By “invisible hand,” Smith meant that people in commerce, who are driven by self-interest, frequently do more to promote the general welfare than people who work in what we would now call the nonprofit sector: A person “pursuing his own interest . . . frequently promotes that of the society more effectually than when he really intends to promote it.” By saying “frequently,” Smith qualifies his praise of commerce. And Smith never endorses greed. He says that commerce is not driven by benevolence: “It is not from the benevolence of the butcher, the brewer, or the baker,” he writes, “that we expect our dinner, but from their regard to their own interest.” It makes no sense to use the word greed to describe a seller’s interest in making a profit, or a buyer’s interest in getting the best price for a product or service.
Smith, however, did worry about greed. He deplored “the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind.” According to him, merchants and manufacturers often pursue their own interest by trying to curtail competition. Smith warned legislators that “the proposal of any new law or regulation of commerce” that comes from merchants or manufacturers “ought never to be adopted till after having been long and carefully examined.” The operations of the market, he wrote, are often obstructed by “the folly of human laws.”
In Adam Smith, Jonathan Conlin rightly argues that Smith’s notion of an “invisible hand” has been misunderstood, but he wrongly argues that “perhaps the greatest problem we have with Smith is this apparent neglect or sneering at politics.” (Who is this “we”?) Smith disliked many politicians, but did not sneer at the political vocation: The main point of The Wealth of Nations, which Smith intended to be a guidebook for legislators, is that a nation’s commerce can only flourish if disinterested legislators have “an extensive view of the general good.” In his Theory of Moral Sentiments (1759), Smith declared that “the greatest and noblest of all characters [is] that of the reformer and legislator of a great state.”
Smith did not think aristocrats, who generally were hostile to economic growth, made good legislators. “All for ourselves, and nothing for other people,” Smith wrote, “seems, in every age of the world, to have been the vile maxim of the masters of mankind.” Smith wished Parliament were composed of “natural aristocrats”—men who possess intelligence and self-command. Warning Parliament about the dangers of undermining America’s colonial assemblies, he said that “the stability and duration of every system of free government” depends on “the natural aristocracy of every country.” Smith did admire one such natural aristocrat, his friend Edmund Burke. Commenting on Burke’s Corn Law legislation, he said that “with all its imperfections . . . we may perhaps say of it what was said of the laws of Solon, that, though not the best in itself, it is the best which the interests, prejudices, and temper of the times would admit of.” (Like Burke, Smith criticized Britain’s mercantilist policies in the American colonies and in India.)
Journalists often call Smith an economist, but he saw himself as a political philosopher who weighed the costs and benefits of economic growth. He concluded that the benefits far outweigh the costs, but he did not ignore the costs. In civilized societies, by which he meant predominantly commercial societies, “all the nobler parts of the human character may be, in a great measure, obliterated and extinguished in the great body of the people.” Conlin tells us that “Smith puts last what we think should come first. He puts security and prosperity before justice and freedom.” But this is not accurate. Smith argues that security, prosperity, justice, and freedom are inextricably connected—and affected by commerce.
Smith worried that in 18th-century Britain, which had the freest press in Europe, liberty might lead to violent civil discord. The expansion of commerce, he argued, makes violent civil discord less likely. Commerce promotes “the public tranquility” because factions based on commercial interests are less likely to be violent than factions based on other differences: “Commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals.” In The Federalist, Hamilton and Madison make the same point.
Economic growth, Smith argued, also results in a more just society, for it enables the poor to better their condition. Smith despised the Poor Laws, which prevented the circulation of labor. He agreed with Samuel Johnson, who said that “to entail irreversible poverty upon generation after generation, only because the ancestor happened to be poor, is in itself cruel . . . and is wholly contrary to the maxims of a commercial nation.” (Smith was a member of Johnson’s famous club, but he didn’t like Johnson, whom he regarded as supremely eccentric. Dr. Johnson thought Smith was “as dull a dog as he had ever met with.”)
Although Smith disapproved of most attempts by government to regulate the economy, he was not anti-government. Government needs to mitigate some of the negative effects of the division of labor. The kind of work done by laborers in the new factory system, Smith wrote, tends to make them “stupid and ignorant.” Government also needs to promote the martial spirit, which suffers in commercial societies. Finally, government should support “publick diversions . . . to amuse and divert the people by painting, poetry, musick, [and] dancing” in order to dissipate “that melancholy and gloomy humor” that (in Smith’s view) is caused by religious fanaticism.
What would Adam Smith make of contemporary American legislators? Conlin implies that Smith would be appalled by “the mercantilist lobbying of government,” which has resulted in “vast ‘bounties’ enjoyed by agriculture and other privileged sectors . . . particularly in the United States, where it has corrupted the entire political system.” But this is hyperbole. In most countries, the agricultural sector benefits from protectionist measures, but these measures do not corrupt the entire political system. Smith would be disturbed by crony capitalism—the government’s distortion of the market by means of quotas, tariffs, subsidies, price supports, tax breaks, licenses, bailouts, and so on—and he would question the growth of regulation, which puts a heavy burden on small businesses because they don’t have the money to hire lawyers and accountants to comply with regulation. Smith was not against regulation, but he warned that “every . . . regulation introduces some degree of real disorder into the constitution of the state.”
Since Smith thought it was important for citizens to be industrious—idleness is debilitating and corrupting—he might argue that many contemporary government programs designed to help the poor are, in fact, counterproductive, impeding the circulation of labor, weakening the incentive to work. Smith might also worry that an increasing number of Americans have stopped looking for work. But Smith’s biggest concern, I suspect, would be the rise of big government—not so much because it retards economic growth but because it undermines respect for America’s political institutions. The more government intrudes in the market, he suggests, the more it incurs the resentment of some sectors of the population.
To hurt in any degree the interest of any one order of citizens, for no other purpose than to promote that of some other, is evidently contrary to that justice and equality of treatment which the sovereign owes to all the different orders of his subjects.
Is there a correlation between the growth of government and distrust of government? According to a Pew poll, in 1964, 77 percent of Americans said that they trust the government all or most of the time; by 2015, that number had dropped to 19 percent. Americans distrust government and disdain politicians, yet they expect more from government than they did a half-century ago. How can politicians enact legislation when compromise is regarded as a lack of integrity? “The good temper and moderation of contending factions,” Smith wrote, “seem to be the most essential circumstance in the public morals of a free people.” In his Adam Smith: An Enlightened Life (2010), Nicholas Phillipson wrote that in the last year of Smith’s life (he died one year after the fall of the Bastille), he worried that political life “was becoming increasingly factious and ideologically charged.”
A contemporary called Smith “the Newton of the science of politics.” But Smith also wanted to be the Newton of aesthetics: After finishing Wealth of Nations he worked for many years on a book about literature, dance, and music. But he never finished it. In the last year of his life, he was busy revising an essay on the history of astronomy. He thought that his best book was The Theory of Moral Sentiments (see “Smith’s Law” by P. J. O’Rourke, TWS, July 17, 2006) but was happy that The Wealth of Nations proved influential: It was praised in its day by the prime minister, William Pitt the younger, and Smith’s friend Edward Gibbon, who said that Adam Smith “had enlightened the world by the most profound and systematic treatise on the great objects of trade and revenue which had ever been published in an age or in any Country.”
Stephen Miller is the author, most recently, of Walking New York: Reflections of American Writers from Walt Whitman to Teju Cole.
This post originally appeared on Weekly Standard