Dhanada K. Mishra, Hong Kong, 8 February 2023

Next year will be 300 years since a man named Adam Smith was born in Scotland. He is most well known for his famous work – The Wealth of Nations or, more fully, An Inquiry into the Nature and Causes of the Wealth of Nations. It has been the veritable bible of the proponents of so-called free market economics, which has created unprecedented prosperity according to its proponents while also bringing the planet to the edge of catastrophe if you believe his critics. Either way, he is not a man that can be ignored; interestingly, he is not a man that his most ardent admirers and proponents of his most well-known ideas make him out to be. In this article, we will examine his lesser-known first book titled The Theory of Moral Sentiments and show that if Adam Smith were alive today, he would be aghast to know what has been going on in his name and how it has brought us to the current precipice of extinction due to the climate crisis!

Adam Smith was born in a small port town called Kirkcaldy on the east coast of Scotland. His father, who worked as a customs agent, died shortly before his birth. Adam never married and was close to his mother until her last days. He was known as an easygoing person with lots of friends, yet much like an absent-minded professor. He is also regarded by many as the father of economics and the founder of capitalism. He has influenced political leaders from the founders of the American Revolution, such as James Madson, Thomas Jefferson etc., to modern leaders like Margaret Thatcher and Ronald Reagan. He went to the University of Glasgow, where he studied under a forward-thinking philosopher named Francis Hutcheson. This would start Smith on a lifetime of study, teaching, and writing in philosophy, theology, astronomy, ethics, jurisprudence — and political economy. Later he moved to Oxford, where he was deeply influenced by the work of David Hume – one of the greatest British philosophers of all time.

These decades following the union of Scotland with England in 1707, forming Great Britain, were the age of enlightenment for Scotland. During this period, it went from being one of the backward regions of Europe to one of the most advanced in many fields. Adam Smith was greatly influenced by this churn and observed the impact of fast-growing trade and commerce as Scotland accessed the British colonies that brought wealth.

In 1951 he was appointed as a professor of moral philosophy at his alma mater – the University of Glasgow. His first book, The Theory of Moral Sentiments, was published in 1759 based on his lecture notes. In the book, Smith argues that the proper balance between self-interest and benevolence is the key to a harmonious society and that moral sentiments result from our natural feelings and thoughts as social beings. Smith further states that ethical behaviour should be guided by justice, fairness, and impartiality principles. The key to a flourishing society is to ensure that all members have the same opportunity to pursue their ambitions. The book was deeply influenced by David Hume’s thoughts expressed in his books, such as the Treatise on Human Nature. Immanuel Kant later presented a similar concept when he wrote that humans have an innate moral sense. Both Smith and Kant believed that our moral sense is innate, internalised at birth and universal. They also argued that it is distinct from our moral reasoning and independent of our right and wrong ideas.

The Theory of Moral Sentiments provided the underpinnings for his magnum opus, which took another 17 years to publish – The Wealth of Nations. According to Smith, our moral sense helps us navigate the relationships between ourselves and others. It alerts us to dangers, rewards us for socially desirable behaviour and enforces social conventions regulating human behaviour. Ultimately, it leads to better outcomes for society as a whole. When we were children, most of us learned what was right and wrong by instinct. We learned these morals through trial and error: sometimes, we got rewards for good behaviour and punishments for bad behaviour. This internalised moral sense helped us decide the best way to behave in social situations. Our moral sense keeps us safe and promotes societal cohesion. Empathy is our natural response to the suffering of others- including fellow humans – which drives us to help them overcome their difficulties when necessary.

According to Smith scholars such as Prof Craig Smith (no relation to Adam Smith) at the Adam Smith School of Business at the University of Glasgow, “Of the two books, The Theory of Moral Sentiments is the more interesting, the richer, in many ways, the more innovative of the two. What he does in The Wealth of Nations is radical, but he’s not the first to try to do that. He’s not the first person to try and write a moral philosophy, but he is the first person, I think, to try and understand the reality of what it is to make a moral judgement.”

The Wealth of Nations was published in two volumes of over 1000 pages on 9 March 1776 during the Scottish Enlightenment and the Scottish Agricultural Revolution. It influenced several others, such as Karl Marx, governments, and organisations, to date, setting the terms for economic debate and discussion. The book offers one of the world’s first collected descriptions of what builds nations’ wealth and is today a fundamental work in classical economics. By reflecting upon the economics at the beginning of the Industrial Revolution, the book touches upon such broad topics as the division of labour, productivity, and free markets.

There were five editions of the book during Adam Smith’s lifetime and many afterwards. His work has been less read but used more by misinterpretations than otherwise. One of the most egregious examples is that of the Chicago School of Economics, which famously popularised the concept of the ‘invisible hand’ as explained by the Nobel prize-winning economist Milton Friedman, “In the economic market, people who intend to serve only their private interests are led by an invisible hand to serve public interests that it was no part of their intention to promote.” A significant criticism of the American adoption of Smith’s ideas through the Chicago school’s interpretation was that they picked a few of his key ideas and made it whole of his thought! Some feel it is more like making a caricature of the man and his work to suit politically expedient motives.

Interestingly around the mid-eighteenth century, when Adam Smith was writing his books, The British East India Company had just established its rule over the British Indian colony and controlled 50% of global trade. Around this time, millions died in the Great Bengal Famine, and Smith was agitated by the reports of the dreadful event. Writing in The Wealth of Nations, Smith identified the lack of regulations on the company as the major reason. In his critique, he says, “part of the problem here is it can’t be regulated because it’s so big, and it has all these independent relationships with Indian government officials that should be part of British state diplomacy. And it has this internal conflict of interest between its commercial and political imperatives. This will lead to state capture where the British government ends up doing bad things for Britain to help the company.”

It shows his concern about how the governance in the colonies will corrupt the British government and society. After the famine, the British government got more involved in the oversight of the company. By the 19th century, the East India Company’s trading monopolies had been curtailed. After the Sepoy Mutiny of 1857, the company was nationalised, and its activities wound down. As fate would have it, in 2005, the Indian businessman Sanjiv Mehta bought the rights to the name, and he turned it into a consumer brand focused on luxury foods!

Economic historian Robert Heilbroner once wrote: “No economist’s name is more frequently invoked than that of Adam Smith, and no economist’s works are less frequently read.” Smith remains relevant even today because his two seminal works address some of the fundamental questions we have tried to answer and continue to ponder, e.g., What are the origins of morality? Are we selfish, or are we benevolent? How do you understand the forces of national wealth? What makes a nation happy and productive? The best tribute to Adam Smith on the tricentenary of his birth is to read him afresh and search for those timeless questions he so eagerly and meticulously tried to answer in his lifetime.