Getting Adam Smith Right

by Don Boudreaux on December 18, 2022

in Adam Smith, Books, Complexity & Emergence, Myths and Fallacies, Philosophy of Freedom

Here’s a letter to the Wall Street Journal:

Editor:

Barton Swaim, in his review of Glory Liu’s book on interpretations of Adam Smith, gets one important thing wrong (“‘Adam Smith’s America’ Review: Wealth of a Nation,” Dec. 17). Fortunately, correcting this error further strengthens Mr. Swaim’s solid case that Smith did indeed, contrary to Ms. Liu’s argument, support free markets as unwaveringly as did F.A. Hayek and Milton Friedman.

Mr. Swaim mistakenly describes Smith’s 1759 The Theory of Moral Sentiments as a work that “isn’t very good.” It is in fact a great and profound work. In it, Smith explained the role that our moral sentiments – involving that which we today call “empathy” – play in governing conduct in familial and other small group settings. Smith’s focus in his 1776 Wealth of Nations was wider. In this latter book, Smith explained how multitudes of strangers can be motivated to cooperate productively with each other in order to produce streams of output that improve the standard of living of the masses.

While the moral sentiments that are the subject of the earlier book do not disappear when individuals deal with strangers, these sentiments alone are too weak to incite and guide countless strangers to cooperate productively. Instead, such extensive cooperation can be achieved only within free markets in which competitively set prices and wages channel producers’ self-interest towards satisfying consumer demands. Markets prompt producers to act in ways that benefit strangers as if producers are motivated in their dealings with strangers by many of the same moral sentiments that lead them to treat their family, friends, and neighbors with generosity and kindness. And because the number of strangers who can be served by impersonal market forces isn’t limited as is the number of individuals for whom someone can experience deep personal empathy or concern, the size of the market in which strangers productively cooperate can indeed be global.

A corollary of this insight – one that Smith made explicit many times – is that government officials cannot hope to have enough knowledge to intervene in ways that improve the outcome of markets that are coordinated, not by personal knowledge and sympathies, but by prices and wages. This same Smithian recognition of the limits of the knowledge of politicians and bureaucrats is at the heart of the case for free markets made by Hayek, Friedman, and other modern champions – such as Ronald Coase, Deirdre McCloskey, and Richard Epstein – of classical liberalism. Were Smith still alive, he would undoubtedly be proud, despite Ms. Liu’s claim, to be ranked in this august company.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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