by J Otteson · Cited by 48 — Part of the purpose of The Essential Adam Smith is to show how Smith’s two in Portable Document Format (PDF) and can be read with Adobe Acrobat Pro® or.

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The Essential ADAM SMITH by James Otteson The Essential ADAM SMITH Udetiort elintrem popteride fac re nostemusa porae tem in te iaes moves -cid nequastil viliu menatiae te pris. Ips, quiusus er que fuidemquon supica; novero etidemusque cae, Cationsus ad Caticatus opultilius et; nes mante nonsulo sultilina comnitem praveriae fore cla nihi, Ti. Em tem inam num, nes conte curnit? Mulus. Evitem sis? Opiordica dit. Go es voltum omanunc iam nox maximil conduconiam. Quo voludem iam dientru ntuscru deperfe rcereo, quideme catiam tem potala restra? Quiderniu conem cone cones nonsum optis conorbit. Nem hostiquo elicon ac mored ina, pracia vitra prariciam Romnora torum, me etres hoca in rehenih iliemus rendam quam ret; Cupionf erorunum opublie ndemus erferfex none curem denatanum is cripio conem et, con dem tabenat icerei consilius, untem morit, paturaetrum te periosti publicus praecero ius fecte consis, que iae nos esse consustrunt. The Essential ADAM SMITH James Otteson

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Copyrigh by the Fraser Institute. All rights reserved. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. e author of this publication has worked independently and opinions expressed by him are, therefore, his own, and do not necessarily refl ect the opinions of the Fraser Institute or its supporters, directors, or st . is publication in no way implies that the Fraser Institute, its directors, or st are in favour of, or oppose the passage of, any bill; or that they support or oppose any particular political party or candidate. Printed and bound in Canada Cover design and artwork Bill C. Ray Library and Archives Canada Cataloguing in Publication Data e Essential Adam Smith / James R. Otteson Includes bibliographical references. IS

PAGE – 3 ============ ˜ Fraser Institute ˜ iiiContents Introduction / 11. What is political economy? / 72. Sympathy, moral sentiments, and the impartial spectator / 123. The solitary islander and moral objectivity / 184. Justice and bene˜cence / 215. The marketplace of morality / 276. The division of labor / 337. Smithian political economy / 408. The invisible hand / 459. Self-interest, equality, and respect / 5010. The role of government / 5811. Government interventions in the economy? / 6312. Final assessment / 67 Works cited / 71 Suggested further reading / 74 About the author / 76 Author acknowledgements / 76 Publisher™s acknowledgments / 77Publishing information / 79

PAGE – 5 ============ Fraser Institute Introduction Adam Smithidely hailed as the founding father of the dis- cipline now known as economics, and he is widely credited as the founding father of what is now known as capitalism. Smith’ book, An Inquiry into the Nature and Causes of the Wealth of Nations , is often cited as the beginning of both economics and capitalism, and its infl uence in tars since its publication ranks it among the most important works of the last millennium. at fact alone warrants Smith’s place in the pantheon of towering fi gures of the Western tradition, and puts him squarely on the list of authors with whom all educated people should be familiar. But Smith has become, alas, one of the great authors about whom many educated people have opinions but whom few such people have actually read. So Smith’s reputation today tends to be based on impressions and second-hand reports, rather than on Smith’s work itself—which may explain why Smith has been claimed by people promoting everything from libertarianism to progressivism, and much else besides. Adding to the confusion, Smith was a professor of moral philosophy, not economics. And he published only two books in his lifetime: the already mentioned, and now much more famous, Wealth of Nations (WN), and an earlier book, fi rst publishedalled e eory of Moral Sentiments (TMS). TMS was an exploration of how human beings come to form the moral sentiments they have, and it based its analysis on what Smith called “sympa- thy”; Smith claimed in TMS that all people have a natural “desire for mutual sympathy of sentiments” (TMN, however, there is no mention of this “sympathy”; Smith doesn’t even mention TMS itself. Instead, WN bases its analysis on what Smith alternately call s “self-interest” and “self-love. is has led some scholars to wonder how the two books go together. One dealt with morality and spoke of “sympathy,” while the other dealt with economics

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Fraser Institute The Essential Adam Smith and spoke of “self-love.” Perhaps, some scholars have thought, Smith is sug- gesting that morality and economics are ac tually separate spheres of human life—that morality and markets do not mix. If the system of economics Smith is describing in WN is “capitalism” (a word Smith himself does not actually use), and if morality has no place in “capitalism,” then so much the worse for capi- talism! Scholars have actually dubbed this issue “ e Adam Smith Problem,” ¹ and some have suggested that Smith’s apparent inability to combine morality with economics tells us, or should tell us, that the Smithian system of political economy, which forms the basis of so much of the economic world today, actu- ally has little or no moral foundation. If so, then perhaps the globalized world of trade and commerce is itself of only dubious moral character. For his part, Smith did in fact believe that morality and markets could mix, and that his two books were each part of a larger philosophical project. Part of the purpose of e Essential Adam Smith is to show how Smith’s two books are consistent. But the larger question—How do markets and morality mix?—is not merely a scholarly or historical question, but a question for us today. Is there a link between morality and economics? Can we engage in eco- nomic transactions while maintaining our morality? As our world becomes increasingly integrated by trade, fi nance, and commerce, these questions become all the more pressing. Perhaps economic globalism generates increas- ing material prosperity, but does it do so only at the expense of our moral values? Must we give up on our morality in order to become rich? As current as such questions are today, they were already anticipated and explored by Adam Smith in the eighteenth century. Indeed, Smit ered a framework for understanding morality that not only integrated market transac- tions but set parameters for what constituted acceptable transactions at might be surprising for someone often taken to be the father of an allegedly amoral economic system, but what is perhaps even more surprising is that Smith turned out to get most of his claims right. Modern investigations into both human moral- ity and economic history suggest that Smith was actually astonishingly accurate. ough Smith had some missteps—no author, however great, gets everything cor- rect—nevertheless his two books contain insights and arguments that have stood the test of time. Another part of the purpose of this book is to convince you of that. I too have contributed to the scholarly literature on the “Adam Smith Problem.” See Otteson tes

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Fraser Institute The Essential Adam Smith Not many details of Smith’s boyhood are known. He was born on t th of June and was an only child, his father, also named Adam Smith, having died shortly before he was bor Account of the Life and Writings of Adam Smith, LL.D. , Smith’s student Dugald Stewart reports that Smith’s “constitution during infancy was infi rm and sickly, and required all the tender solicitude of his surviving parent. She was blamed for treating him with an unlimited indulgence; but it produced no unfavoura ects on his temper or his dispositions” (Smita:erhaps one anecdote from Smith’s childhood bears repeating. Margaret, Smith’s mother, would regu- larly take him to Strathenry, about seven miles northwest of Kirkaldy, to visit her brother, Smith’s uncle. On one visit, when the wee Smith was but three years old, he was playing in front of his uncle’s house and was kidnapped by a passing group of “gypsies. e alarm was raised and the kidnappers were discovered and overtaken in the nearby Leslie wood, whereupon the wailing toddler was safely returned to his family. Stewart writes that Smith’s uncle, who recovered Smith, “was the happy instrument of preserving to the world a genius, which was destined, not only to extend the boundaries of science, but to enlighten and reform the commercial policy of Europe” (Smit Smith matriculated at the University of Glast the age of fourte was elected as a Snell exhibitioner at Balliol College, Oxford. Smith was apparently not impressed with the quality of instruction at Oxford, however. As he wrote years later in WN, “In the university of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching” (Wh was able to make good use of the libraries at Oxford, however, studying widely in English, French, Greek, and Latin literature. He left Oxford and returned to Kirkc t the invitation of Henry Home Lord Kame Smith began giving in Edinburgh “Lectures on Rhetoric and the Belles Lettres, ” focusing on literary criticism and the arts of speaking and writing well. It was during this time that Smith met and befriended the great Scottish philosopher David Has to become Smith’s closest confi dant and greatest philosophical infl uence. Smith left Edinburgh to become Professor of Logic at the University of Glahen Professor of Moral Philosoph e lectures he gave at Glasgow eventually crystallized into e eory of Moral Sentiments , which was published to great ac.

PAGE – 9 ============ Fraser Institute The Essential Adam Smith Smith resigned his post at Glasgow to become the personal tutor of Henry Scott, t ird Duke of Buccleuch, whom Smith then accom- panied on an eighteen-month tour of France and Switzerland. During these travels with the young Duke Smith met Voltairh apparently made quite an impression: Voltaire later wrote, “ is Smith is an excellent man! We have nothing to compare with him, and I am embarrassed for my dear compatriots” (Mullerh also met François Quesnay acques Turhers among the so-called French Physiocrats, who were arguing for a relaxation of trade barriers and generally laissez-faire economic policies. Although Smith had already been developing his own similar ideas, conversations with the Physiocrats no doubt helped him refi ne and sharpen th returned to Kirkcaldy to care for his ailing mother and to continue work on what would become his Wealth of Nations . During this time he was supported by a generous pension from the Duke of Buccleuch, enabling him to focus on his scholarly work. It was widely known that the celebrated author of TMS was working furiously on a new book, and the ten years he labored on it raised expectations high indeed. Finally, at long last, Smith’s magnum opus was published on Mar Smith remained in Kirkcaldy unecame Commissioner of Customs in Edinburgh. Smith’s mother dieh was aged sixty-one. Smith had spent much of this time caring for his mother, which might be part of the explanation for the fact that he never married or had children. Although he apparently did have a love interest during his adult life, it did not result in marriage. Dugald Stewart writes, “In the early part of Mr. Smith’s life it is well known that he was for several years attached to a young lady of great beauty and accomplishment. How far his addresses were favour- ably received, or what the circumstances were which prevented their union, I have not been able to learn; but I believe it is pretty certain that, after this disappointment, he laid aside all thoughts of marri e lady to whom I allude died also unmarried” (Smit During the decade or so that he spent in Kirkcaldy, and then thereafter when he was in Edinburgh, Smith spent a great deal of time visiting with and entertaining friends, among whom he counted Irish Catholic philosopher and statesman Edmund Burhe chemist Jose the geologist James Hutthe mechanical engineer James Watt ime Minister Frederick (Lord) Northime

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Fraser Institute The Essential Adam Smith Minister William Pitt the Ye also took active roles in learned organizations like the Oyster Club, the Poker Club, and the Select Society, the last of which included among its members William Robertson avid Hume, James Burnett Lord Monbodam Fergusord Kames. h was a founding mem- ber of the Royal Society of Edinburgh, which exists still today as Scotland’s premier national academy of science and letters. Having previously served as the University of Glasgow’s Dean of Artsice-Rect he was elected Lord Rector of the university, a post he held un During his years in Edinburgh, Smith extensively revised both TMS and WN for new editionsrote to Le Duc de La Rochefoucauld that “I [Smith] have likewise two other great works upon the anvil; the one is a sort of Philosophical History of all t erent branches of Literature, of Philosophy, Poetry and Eloquence; the other is a sort of theory and History of Law and Government” (Smither of these projects was ever published, however. In the days before he died, Smith summoned his friends Black and Hutton to his quart ers and asked that they burn his unpub- lished manuscripts, a request they had resisted on previous occasions is time Smith insiste ey reluctantly complied, destroying sixteen volumes of manuscripts. It is probable that Smith’s philosophical history of literature, philosophy, poetry, and eloquence, and his theory and history of law and government were among the works that perished in that tragic loss. Adam Smith died in Edinbur J and is buried in the Canongate cemetery High Street in Edinburgh. James R. Otteson James R. Ottes omas W. Smith Presidential Chair in Business Ethics, Professor of Economics, and Executive Director of the Eudaimonia Institute at Wake Forest University. For an overview of these groups and their memberships, see Bro

PAGE – 11 ============ Fraser Institute Chapt What is political economy? e discipline we know today as “economics” began as “political economy” in the eighteenth century. e early political economists, including Adam Smith and David Hume, wanted to adapt a Newtonian scientifi c methodology to the study of human behavior and human society, for two principal and connected purposes: fi rst, to discover, from history and empirical observation, regular pat- terns of behavior that could be systematized and therefore explained and under- stood; and second, to use those discovered patterns as empirical bases from which to make recommendations about institutional refor ey reasoned that if we could understand how human social institutions work, then perhaps we can understand what the moral, political, economic, and cultural institutions are that conduce to human prosperity—and, of course, which do not. After the eighteenth century, these purposes of political economy developed into two relatively distinct and separate fi elds of inquiry. One is moral philosophy , an attempt to understand not only the goals that we should, morally, pursue, but also what the grounds are of that normative “should”— that is, not only what it is right to do, but also what makes the right thing to do right. A subset of moral philosophy is political philosophy , which seeks to apply the conclusions of moral philosophy to specifi cally public behavior and institutions e second major fi eld into which political economy divided was economics , a positive and technical (and, in the twentieth and twenty-fi rst cen- turies, an increasingly quantitative) analysi s of the ways human beings behave under varied circumstances, along with the development of mathematical models to account for past, and to predict future, human behavior. Today, moral philosophers and economists often proceed with little knowledge of, or even regard for, the work of practitioners in the other fi eld. One main reason for the divide is the distinction between descriptive inquiry and normative inquiry—that is, the distinction between investigations

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