Adam Smith’s Economic Theory: The Role of Virtue
The scope of work created by Adam Smith has provided a significant theoretical basis for the discussion of important economic, philosophical, and ethical issues. Despite the fact that the philosopher lived and worked almost three centuries ago, his ideas remain relevant to the modern scholarship. Indeed, the economic theory developed by Adam Smith is exposed to being interpreted under different angles in its connection to other ethical ideas introduced by the philosopher. One such idea is the role of virtue and morality in the world of economy, which has been discussed by such scholars as McCloskey (2008), Montes (2003), Pack (1997), Paganelli (2010), Schliesser (2016), and others. The researchers extensively study the two main works by Smith, including The theory of moral sentiments and An inquiry into the nature and causes of the wealth of nations. The debate that has evolved in the literature concerns the ambiguity of the role of virtue in the economic world. The paper will argue that Paganelli’s (2010) interpretation of the beneficial role of morality in creating commercial societies is the most relevant because it justifies the prospects for human moral growth through economic interaction.
It is essential to start with the statement that academic circles long perceived Adam Smith as an outstanding economist and philosopher. Being viewed as the work by “an economist in the modern, anti-ethical sense,” Adam Smith’s ideas were analyzed separately with most attention paid to the non-moral side of economics (McCloskey, 2008, p. 43). His achievements and ideas as an ethicist were mostly omitted with a priority set on the philosopher’s explanation of the economic forces and laws of economic development. As McCloskey (2008) explains, such a selective interpretation of the philosopher’s theories was determined by the historical reality of Britain of that time. To ensure the obedience of the British public and pursue the leading role of British authorities in the world of political economy, the moral side of Smith’s considerations was intentionally neglected (McCloskey, 2008). However, in my opinion, the role of ethics is crucial for the understanding of people’s interaction within the economic system, as well as the interpretation of Adam Smith’s economic theory.
Regardless of the type of sphere, in which people are engaged, a human is a central figure that is exposed to external influences, as well as causes such influences. People actively interact through the means of price negotiation, goods exchange, and governance. Therefore, by cultivating virtues, people can reach others and establish mutually profitable commercial relations that form the modern version of the civilized world (Paganelli, 2010). Nonetheless, the overall selfishness of the nature of commercial societies where people’s actions are driven by the desire to accumulate wealth implies the diminished role of morality and virtues. When discussed separately from other works, Adam Smith’s An inquiry into the nature and causes of the wealth of nations emerges as a teaching of egotistic accumulation of prosperity with no regard to ethics.
As explained by McCloskey (2008) and Montes (2003), particular states intentionally cultivated a one-sided materialistic interpretation of Smith’s theory to cultivate their interests. They omitted the connection of the political economy with moral sentiments to preserve government-controlled economic systems, as it was done in Germany and Britain. It is justified by the fact that the presence of any ambiguity that the ethical discourse might attribute to the economic debates might diminish the power of government. A society where free commerce with other countries is prohibited should not be presented with the validation of such a form of economic relations (Montes, 2003). That is why Smith’s theory of political economy was interpreted in isolation from ethical considerations. Overall, the philosopher was primarily famous as a materialistic one that “preached the gospel of individual interest and free competition” (Montes, 2003, p. 68). Such long-term isolation of Smith’s ideas from each other has led to the obscured perception of his philosophy as a whole.
When scholars studying the legacy of Adam Smith started to interpret the philosopher’s ideas through the lens of the diversity of his works, there emerged some ambiguity in the interpretation of the basic concepts. Indeed, such notions as justice and resentment, self-interest and sympathy, virtue, and self-command are sometimes claimed to be inconsistently presented in The theory of moral sentiments and An inquiry into the nature and causes of the wealth of nations (Pack, 1997).
Indeed, the first work concentrates on morality and the role of virtue in the creation of interpersonal relationships imposed by the very nature of humans as social beings (Montes, 2003). From this perspective, although people are led by self-interest, they need to practice justice, self-command, and the virtue of empathy to succeed as the constituents of social structure. However, the work on the wealth of nations takes a distinctive position and proclaims self-interest as the leading force of commercial society. Such significant inconsistencies in relation to the notion and role of virtue in the economy have led to the emergence of the so-called Adam Smith problem (Montes, 2003). The resolution of this debate is prioritized by many scholars who present their validations of the consistency of Smith’s ideas throughout his legacy.
Indeed, researchers claim that Smith’s scope of literature resembles a system of interrelated ideas, which comprise a philosophical world, where the notions and claims preserve their relevance throughout different literary works written by the author (Paganelli, 2010; Schliesser, 2016). As a response to claims of inconsistency, Schliesser (2016) refers to the primary source and emphasizes that Smith’s initial field of work is moral philosophy. Therefore, it is relevant to the search for moral teachings in all of his works. According to Schliesser (2016), the philosopher himself stated that The theory of moral sentiments must be read and studied within the framework of his other books, including The wealth of nations. Such an approach justifies that Smith intended to include the study of morality into the scholarship of the economy with an aim to explain the nature of human relations within a commercial societal system.
Within this framework, the main idea of The theory of moral sentiments when viewed in connection with The wealth of nations is that any type of societal interactions must be aligned with morality and striving for virtue. As Schliesser (2016) explains, there exist specific moral and psychological requirements that derive directly from the social nature of humans. Therefore, to succeed in any type of enterprise, a person needs to abide by those requirements to suffice “the harmony of society” and flourish “the civilized law and government” (Schliesser, 2016, p. 34). Thus, ethical considerations are crucial in the establishment of economic relations in the civilized world that develops in terms of morality.
In an attempt to explain what place, according to Smith, morality takes in the creation of commercial societies, Pack (1997) provides a broad and analytical interpretation of the combination of the two Smith’s works. The most interesting, and probably the most relevant to the current argument consideration is the one concerning prudence and self-interest as virtues. This perspective seems the most appropriate within the context of the discussion because it provides an explicit explanation of the fact that self-interest and sympathy cannot be opposed if they are viewed from Smith’s angle. Pack (1997) refers to Smith and claims that self-interest and prudence are genuine virtues that, from the point of view of ethics, are crucial for the harmonious life of a person in a society. Prudence, in Adam Smith’s opinion, is a real virtue that comprises a person’s ability to “care of the health, of the fortune, of the rank, and reputation” (Pack, 1997, p. 132). These abilities are inevitable in the conditions of social existence and cannot be eliminated for the sake of altruism and empathy.
Moreover, under the circumstance of the ubiquity of prudence in the economy, the force that equalizes self-interest is self-command. According to Pack’s (1997) interpretation of Smith’s ideas, self-command is the ability of a person to restrain the passions and limit appetites by preserving the virtues of grace, delicacy, and modesty. Thus, the combination of such qualities enables people to pursue both self-interest and societal development in all its manifestations, including economy, governance, and politics. In general, enduring economic challenges and establishing commercial relations, people tend to facilitate continuous moral growth.
The validation of virtue’s significance in the economy presented by Pack (1997) is reasonable and very convincing. However, it lacks the extensive application of these justifications to the concept of commercial society. I consider that only when discussed within the framework of commerce, the theory of virtues might be proved to be valid throughout the whole scope of literature created by Adam Smith. While the discussed authors tend to present general implications of morality and virtue to commerce, Paganelli (2010) most explicitly argues that Adam Smith’s ideas about virtues support not only the existence but also the development of commercial societies.
According to Paganelli (2010), commerce as a form of economic relations provides more opportunities for humans to demonstrate their innate social nature. Such a point of view seems to be the most relevant in the conditions of contemporary economic globalization. Therefore, Paganelli’s interpretation of Smith’s ideas sounds the most compelling for modernity. As the author claims, “commerce breaks the boundaries of small and closed communities,” thus establishing more open ways of communication and better opportunities to find those who have similar views (Paganelli (2010, p. 425). The researcher connects the two works by Adam Smith into a unified discussion of the importance of moral growth in the conditions of evolving commerce.
The most compelling argument presented by Paganelli (2010) is the one that openly addresses the core of the Adam Smith problem and defends commercialization as the concept closely connected with virtue. Opposing to those who claim that commerce is harmful to moral development and social cooperation by cultivating greed, the researcher integrates The theory of moral sentiments and The wealth of nations into one solid theory of morality of commerce. Smith extensively validated the role of moral growth and striving for virtue as the leading forces of the civilized development of societies. At the same time, commerce as an opportunity to establish connections between people and ensure their virtues of self-interest, prudence, and sympathy, is also a way to civilized existence (Paganelli, 2010).
When discussing the role of distance, Paganelli (2010) brings light onto the weakness of the distinction between virtue and commercialization. Indeed, the distance between people and societies exists only if they are not cultivating commercial relations. As it has been stated, commerce eliminates boundaries and makes people closer; thus they can practice sympathy and perform their moral, social roles (Paganelli, 2010). Within this framework, moral growth is impossible in the conditions of separate economies. Therefore, the two notions, morality and commercialization, are inherently unified and constitute a stable system by mutually strengthening each other.
In conclusion, the contribution of Adam Smith’s works in the field of philosophy, economy, and ethics is difficult to overestimate. Despite the overall distinction between the three disciplines, the philosopher managed to create a solid system of ideas that comprise his well-balanced perspective on the role of morality and virtue in economic relations. Many scholars have spent a significant amount of time and effort arguing that the cultivation of materialism and self-interest in The wealth of nations is inconsistent with the discussion of sympathy and other altruistic virtues in The theory of moral sentiments. However, Paganelli (2010) managed to validate the unity of the notions of morality and commercialization through the intertwined interpretation of the two works.
- McCloskey, D. (2008). Adam Smith, the last of the former virtue ethicists. History of Political Economy, 40(1), 43-71.
- Montes, L. (2003). Das Adam Smith problem: Its origins, the stages of the current debate, and one implication for our understanding of sympathy. Journal of the History of Economic Thought, 25, 63-90.
- Pack, S. J. (1997). Adam Smith on the virtues: A partial resolution of the Adam Smith problem. Journal of the History of Economic Thought, 19(1), 127-140.
- Paganelli, M. P. (2010). The moralizing role of distance in Adam Smith: The theory of moral sentiments as possible praise of commerce. History of Political Economy, 42(3), 425-441.
- Schliesser, E. (2016). The theory of moral sentiments. In R. P. Hanley (Ed.), Adam Smith: his life, thought, and legacy (pp. 33-48). Princeton, NJ: Princeton University Press.