Adam Smith revisited

We are all connected

Adam Smith, revered by many as the founder of our economic system, argued in his Theory of Moral Sentiments that people are guided in their decision-making by an “impartial observer”, a sort of “man within the breast”; something we might refer to more commonly today as a conscience. He wrote that our well-being is connected to the well-being of others:

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

He concludes that this sense of empathy and interconnectedness is universal:

“Of this kind is pity or compassion, the emotion we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrows of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous or the humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.”[1]

The Invisible Hand

While Smith first introduces the concept of the “invisible hand” in Theory of Moral Sentiments, it is most known from its appearance in his subsequent work, The Wealth of Nations[2]. But what is this “invisible hand” on which rests so much of our economic doctrine? In viewing Smith’s works as a whole, it becomes clear that the “invisible hand” is our moral sense of right and wrong – “the man within the breast” that regulates the pursuit of one’s own self-interest. As Adam Gopnik of The New Yorker puts it: “one can’t grasp the idea of the invisible hand without the balancing idea of the imaginary inner witness – those moral judges are what let the invisible hand act.”[3]

Adam Smith wrote:

“by acting according to the dictates of our moral faculties, we necessarily pursue the most effectual means for promoting the happiness of mankind.”[4]

So, in order for the economy to function as its founder intended it, we must need feedback to engage our moral faculties. Unfortunately, much of our economy operates to disconnect us from the consequences of our decisions. How then can we act “according to the dictates of our moral faculties” to promote “the happiness of mankind” when we are deprived of moral information?

Reinvigorating the Invisible Hand

Our proposal provides moral feedback in a way that a 10-cent price increase never could. In doing so, it reinvigorates the invisible hand in a way that is authentic to what we are as human beings. As Smith would put it, the label makes us “feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner.”[5] In practical terms, our idea has the potential to move us from whining about increases to the price of gas to demanding we stop endangering the health of our planet.

“The reason that the invisible hand often seems invisible is that it is often not there.” – Joseph Stiglitz, Nobel Prize-winning economist

NEXT: Failure of imagination…

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  1. Adam Smith. Theory of Moral Sentiments, A. Millar, London, 1759.
  2. Adam Smith. The Wealth of Nations, Methuen & Co., Ltd., London, 1776.
  3. Adam Gopnik, “Market Man: What did Adam Smith really believe?The New Yorker. October 18, 2010.
  4. Adam Smith. Theory of Moral Sentiments, A. Millar, London, 1759.
  5. Ibid.

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