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Title: Adam Smith Reconciled
Date: 09-Feb-2010
Category: Opinion Essays
Source/Author: Stephen B. Young, Global Executive Director, Caux Round Table
Description: One of the great issues in consideration of capitalism are the comments by Adam Smith that rest the system on individual self-interest. Smith has often been taken to task for this ego-centric approach to economic power and opportunity. But is this accusation fair?

One of the great issues in consideration of capitalism are the comments by Adam Smith that rest the system on individual self-interest. Smith has often been taken to task for this ego-centric approach to economic power and opportunity. But is this accusation fair?
 
Adam Smith wrote two important books – The Theory of the Moral Sentiments and An Inquiry into the Origins and Causes of the Wealth of Nations. Moral Sentiments stands for the proposition that listening to our moral sense, exercising our capacity for sympathy for others, and listening to an inner source of wisdom is the proper standard for human conduct. Wealth of Nations, on the other hand, is often portrayed as a work that elevates self regard as the proper norm for our interactions and that proudly grounds capitalism on self-seeking of profitable advantage. How, it is often asked, can the two approaches of Smith be reconciled?
 
Was Smith devoted to ethical regard for others or to a crass self-interest as the engine of social justice? If self-regard is sufficient, who needs moral sentiments? But if moral sentiments are to be our guide, then how can capitalism be legitimated? Can there ever be, in my terms, a moral capitalism?
 
In 1762 and 1763 Smith gave a series of lectures at the University of Glasgow on jurisprudence and did so again in the 1763-1764 session of the university. These lectures were given during the time between publication of The Theory of the Moral Sentiments (1759) and Wealth of Nations (1776). In his lectures on jurisprudence, Smith drew upon his thinking on moral sentiments and used arguments that would appear later in Wealth of Nations. His arguments in presenting an overview of jurisprudence, therefore, provide us with his thinking on links between humanity’s moral sense and the foundation of capitalist enterprise.
 
 
In the first instance, Smith uses his thinking on morality to justify rights of private property. He does not rest entitlement to property on self-interest or powers of dominion but on the power of sympathy. Smith seeks to justify, for example, rights of property acquired by possession of an object. He argues that an impartial spectator seeing one possessing an object – say an apple picked wild from a tree –would sympathize with the holder if another sought to grab the apple out of his or her hands. That sympathy, that emotional force on the part of an outsider, creates grounds says Smith for awarding rights of use to the possessor. The basis for property here, then, is a social context, a moral presence transcending individual willfulness.
 
Smith writes: “The cause of this sympathy or concurrence betwixt the spectator and the possessor is, that he enters into his thoughts and concurs in his opinion that he may form a reasonable expectation of using the fruit or whatever it is in the manner he pleases.” (p. 17) Protecting that reasonable expectation of enjoyment is the basis for recognition of property rights over the object.  The expectation is made reasonable not because of the possessor’s will but only because another with an independent will was in agreement. Two minds, not just one, are needed to create a social fact of property.
 
In his earlier explanation of moral sentiments, Smith pointed to this capacity for sympathy as resting at the origin of our faculty to be moral and social, to engage with others on their terms as well as on our own.
 
As soon as Smith grounds his concept of an exclusive right to enjoyment and resulting use of material advantages on “reasonable expectations” of decision-making with respect to the property so claimed, he sets up a standard of restraint for capitalism. Where others have reasonable expectations, we may infer, we accordingly have no claim to expropriation of their prospects for use and enjoyment. Just as if I pick the apple from the tree and you can’t legitimately take it away from my use and enjoyment, if my company interferes with your expectations of clean air and water or your expectations of continued employment then some consideration of placing limitations on my company’s action would correctly arise.
 
Such limitations are most often set by law, but given Smith’s formulation of the underlying right, they may also receive endorsement from a moral sense of propriety in restraining self-seeking. Oppression and exploitation are not consistent with the use and enjoyment by others of their reasonable expectations. The objective spectator would not feel sympathy with such highhanded acts of unilateral self-satisfaction.
 
 
“Occupation seems to be well founded when the spectator can go along with my possession of the object, and approve me when I defend my possession by force.” (p.459)
Similarly, Smith relies on the impartial judgment of a spectator to provide legitimacy to rights of property acquired by long periods of unchallenged possession: “For in the same manner as the spectator can enter into the expectations of the first occupant that he will have the use of the thing occupied, and think he is injured by those who would wrest it from him; in the same manner, the right of prescription is derived from the opinion of the spectator that the possessor of a long standing has a just expectation that he may use what has been thus possessed.” (p.32)
 
Third, in his discussion of contract and the exchange of property rights by mutual agreement, Smith grounds the obligation to perform contractual promises on the dependence of the promisee and resulting expectations of performance on the words of the promisor. “The expectation and dependence of the promittee that he shall obtain what was promised is here altogether reasonable and such as an impartial spectator would readily go along with …” (p.87) 
 
Property rights set up by contract – which comprise most of the rights bought and sold in financial capitalism – stocks, bonds, loans, options and other derivatives, intellectual property protections, etc. – flow from inclinations to “produce a reasonable expectation” says Smith. That formation of expectations in the minds of others such that the impartial spectator would sympathize with any desire to have them fulfilled grounds ideal capitalist undertakings in a process of mutuality and reciprocal engagement.
 
Later in his lectures, when he advances notions to be made famous in Wealth of Nations, Smith builds on this moral understanding of property. The trade, barter or exchange of property rights writes Smith in his lecture of Tuesday, March 29, 1763, on the police power of the state, is the foundation for the division of labor among different persons and trades and so gives rise under principles of free market capitalism to new forms of production and the wealth of nations. But trade, barter and exchange, Smith points out, are a species of “persuasion” where objective analysis of the wants, needs, values, preferences of others must guide our actions. Oppression and unilateral imposition of our will in such transactions converts them from free exchanges to acts of mere willful power. Property, understood as Smith does is perverted when principles of open persuasion are avoided or ignored in our commercial exchanges.
 
Such persuasion is an art of moral consequence for it demands a more objective consideration – the deployment of sympathy in the management of human relations - and so extends our will towards that of the perspective of that hypothetical neutral spectator who evaluates all affairs.
“Men continually standing in need of help of the assistance of others, must fall upon some means to procure their help. These he does not merely by coaxing and courting; he does not expect it unless he can turn it to your advantage or make it appear so. Mere love is not sufficient for it, till he applies in some way to your self-love. A bargain does this in the easiest manner. When you apply to a brewer or a butcher for beer or for beef you do not explain to him how much you stand in need of these, but how much it would be your interest to allow you to have them for a certain price.” You do not address his humanity but his self-love.” (p.348)
 
An appeal to self-interest in an act of persuasion is not a unilateral assertion of one’s own self-interest; successful persuasion is not unilateral and genuine bargaining is not oppression. Of course in life, many seek to avoid persuasion encumbered by the necessity of taking into account the needs and perspectives of others and prefer to take advantage of inequalities of power and resources, and the desperate needs or foolish inclinations of others. Under these conditions of exploitation, the quality of the exchange morphs into something disreputable and amoral, though not for that reason becoming inefficacious.
 
Smith, it seems, did not rely on selfish greed as the provocateur of capitalism and free market wealth-creation. He placed our seeking self-advantage in a communal, social and so moralized context. With his use of an impartial spectator as the judge of entitlement to property, he provided capitalism with an ideal standard. The closer we get to actually living by that ideal, the closer we get to the most enlightened form of free market undertakings.
 
And, most importantly, the closer we collectively can approximate that ideal standard, the more we can depend on our expectations of future use and enjoyment and the more we can subordinate our aspirations to dependency upon others, building up the quantum of trust and reliance in our culture and society.
 
 
 


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