Tag Archives: Adam Smith

Course video 1: Smith’s Theory of Moral Sentiments

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Lynne Kiesling

For the past few months I’ve been working with some talented and creative folks at Northwestern University Academic Technologies to produce some videos for use in my History of Economic Thought course. Over the next few weeks I’ll be releasing them here, and they will be available on my Vimeo page. Please distribute them widely (they have Creative Commons attribution + non-commercial licensing)! Please also leave comments, questions, suggestions, related readings, etc. so we can extend the learning environment far and wide.

Adam Smith: Theory of Moral Sentiments from Lynne Kiesling on Vimeo.

In The Theory of Moral Sentiments, Adam Smith asserts that humans have an innate interest in the fortunes of other people and desire for sympathy with others. Humans are complex individuals in Smith’s theory – rightly motivated by self-interest, but also by the innate sociability and desire for sympathy from and with others that he observed empirically. Sympathy, which Smith defined broadly as fellow-feeling with the situations (not just the emotions) of others, forms the foundation of our moral judgment.

I’m intrigued by Smith’s concept of sympathy. Smith’s model of sympathy is a process of coordination between the self and others. The Smithian sympathetic process has three essential characteristics: sympathy as a synthesis of empathy with judgment based on reason, a spectatorial/external perspective on one’s own behavior and the behavior of others, and an innate capacity for imagination that enables individuals to place themselves in the situations of others. This sympathetic process leads to coordination of expressions and actions across individuals, resulting in harmony and social order. That’s an important sense in which TMS forms the philosophical and psychological foundations of Smith’s later works, especially the Wealth of Nations.

Another subject in TMS that undergirds WON and later work in economics is Smith’s discussion of justice and beneficence. Smith argues that (commutative, or negative) justice is necessary in order to have a peaceable and productive society, while beneficence is nice but not essential. From this argument he concludes that provision for the enforcement of commutative justice is a proper role of government, an argument he will pick up in Book V of WON.

I discuss both of these subjects in the video.

Adam Smith opposes “shock therapy” for developing and transitioning economies

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Michael Giberson

“Get the prices right!” was the rallying cry of some economists in the aftermath of the break up of the Soviet Union. Don’t plan the transition, stop planning and let markets sort it out. Similar advice goes out to developing economies around the world. Don’t ease your way to liberalization, throw open the gates!

In a paper just published in The European Journal of the History of Economic Thought, Maria Pia Paganelli considers what advice Adam Smith might offer: “Economies in Transition and in Development: a Possible Warning from Adam Smith.” (Alternate link). Here is a hint, Smith wouldn’t focus on “getting the prices right.”

Paganelli writes (and I’m skipping a lot of good stuff to get directly to the Smithian advice, so do read the whole thing):

Smith offers one explicit policy prescription: avoid rent-seeking, if you can.

The legislature, were it possible that its deliberations could be always directed, not by the clamourous importunity of partial interests, but by an extensive view of the general good, ought upon this very account, perhaps, to be particularly careful neither to establish any new monopolies of this kind, nor to extend further those which are already established. Every such regulation introduces some degree of real disorder into the constitution of the state, which it will be difficult afterwards to cure without occasioning another disorder. (WN IV.ii.44: 471–2)

Smith’s advice sounds like some contemporary advice. Acemoglu (2008) claims, in fact, that:

Every policy intervention creates winners and losers. The winners not only gain economically, but also become politically powerful. These politically powerful groups can then become a barrier against further progress. This is well illustrated by the experience of import substitution, which supported nascent industrial groups in many developing economies. In most cases, the subsidized conglomerates were highly inefficient and became a formidable obstacle to further reform.

His advice: ‘Refrain from policies that will create new and potentially dangerous political constituencies’ (p. 5).

But how can it be possible to refrain? How can it be possible for the legislature to not be directed by ‘the clamourous importunity of partial interests’? Smith appeals to the legislator, claiming that he should not fall for the flattery of the self-interested merchants but should preserve the natural system of liberty out of reverence toward its beauty. But our civic spirit is generally weak (TMS IV.1.11). So how can it be strengthened? Additionally, if a ‘regular administration of justice’ is needed for commerce to flourish, how do we get this ‘justice of government’, which is so deeply missing in most transitioning and developing countries?

One can infer at least two suggestions from Smith’s work. One is to avoid situations that may generate rent-seeking opportunities, as we just saw. The other is to develop a strong sense of moral respect for rules, for institutions and for the public good. Both of these prescriptions collapse into only one: the gradual introduction of commerce. A gradual opening of the large wealth offered by international trade restrains rent-seeking opportunities and is likely to develop sound institutions and a strong moral sense that leads to respect for them. Smith indeed tells us that a just set of institutions and a public spirit do not come from any human wisdom, plan or design. They are not something that can be imposed from above or from the outside. They are something that comes, gradually, with commerce. Only commerce, when very gradually introduced, can ignite what no army or wisdom is able to start (WN III.iv.10: 418, WN V.i.g. 24–25: 803).

Smith claims indeed that it is from the gradual introduction of commerce that we generate both a strong set of institutions and the conditions that develop a strong moral sense, which would be fertile ground for prosperity.

Adam Smith and mirror neurons paper published

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Lynne Kiesling

I mentioned a while ago my working paper on the neuroscience research on mirror neurons and its relevance for Adam Smith’s theory of sympathy developed in The Theory of Moral Sentiments (1759). After revision and some extremely helpful referee guidance, the paper has been published in The Review of Austrian Economics:

Mirror neuron research and Adam Smith’s concept of sympathy: Three points of correspondence

In The Theory of Moral Sentiments, Adam Smith asserts that humans have an innate interest in the fortunes of other people and desire for sympathy with others. In Smith’s theory, sympathy is an imperfectly reflected combination of emotion and judgment when one observes someone (the agent) in a particular situation, and imagines being that person in that situation. That imagination produces a degree of interconnectedness among individuals. Recent neuroscience research on mirror neurons provides evidence consistent with Smith’s assertion, suggesting that humans have an innate capability to understand the mental states of others at a neural level. A mirror neuron fires both when an agent acts and when an agent observes that action being performed by another; the name derives from the “mirroring” of the action in the brain of the observer. This neural network and the capabilities arising from it have three points of correspondence with important aspects of the Smithian sympathetic process: an agent’s situation as a stimulus or connection between two similar but separate agents, an external perspective on the actions of others, and an innate imaginative capacity that enables an observer to imagine herself as the agent, in the agent’s situation. Both this sympathetic process and the mirror neuron system predispose individuals toward coordination of the expression of their emotions and of their actions. In Smith’s model this decentralized coordination leads to the emergence of social order, bolstered and reinforced by the emergence and evolution of informal and formal institutions grounded in the sympathetic process. Social order grounded in this sympathetic process relies on a sense of interconnectedness and on shared meanings of actions, and the mirror neuron system predisposes humans toward such interconnection.

If you are not a subscriber and would like to read the paper, the manuscript version is available on my SSRN page.

Adam Smith symposium: Smith as virtue theorist?

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Lynne Kiesling

Increasingly I agree with Deirdre McCloskey that over the past 120 or so years economics has moved further away from incorporation of the importance of the Bourgeois Virtues into our analyses of economic decision-making and economic growth. Indeed, I claim that ignoring the effects of virtue on individual decision-making is one of the factors underlying the static, obsolete, and counter-productive aspects of economic regulation (and am in the process of molding that into a coherent argument and analysis). That’s one of the reasons why I enjoy reading Adam Smith so much; as a polymath he synthesizes moral philosophy, psychology, and political economy. I also enjoy reading the works of several Smith scholars, some of whom I have the pleasure of knowing personally and whose work I have found incredibly useful in working on my recent paper on mirror neuron neuroscience and Adam Smith’s concept of sympathy.

The Art of Theory, a new “political philosophy quarterly” founded and edited by a group of graduate students (how cool is that?), contains an excellent roundtable discussion of Adam Smith and the Character of Virtue, a wonderful and thought-provoking book from Smith scholar and political theorist Ryan Hanley. Ryan’s lead essay for the roundtable is an excerpt from the book, and it presents his analysis of Smith as a virtue theorist who saw the benefits of commercial society (“its capacity to maximize opulence and freedom and especially its capacity to maximize the opulence and freedom available to the poorest and weakest”), but recognized its darker consequences (“the propensity of commercial society to induce and exacerbate such psychological ills as restlessness, anxiety, inauthenticity, duplicity, mediocrity, alienation, and indifference to others”). The essay also delves into analyses and comparisons that engage the philosophy literature (Aristotelian conceptions of virtue, republicanism, civic virtue, etc.) in ways with which I have little experience. Still, even if you are not a Smith scholar or a philosopher, I think the essay will provoke your thoughts and challenge your preconceptions about Smith and his ideas.

The roundtable essays touch on a range of aspects of the main argument. In particular I recommend the essay from Fonna Forman-Barzilai; her recent book Adam Smith and the Circles of Sympathy was one of the most valuable secondary resources I used in working on my Smith/mirror neuron paper. Fonna’s commentary on Ryan’s lead essay focuses on some aspects of Smith’s overall project that she wants to make sure don’t get overlooked in Ryan’s focus on Smith as virtue theorist (and in particular his focus on the Section VI that Smith added to Theory of Moral Sentiments when he revised it shortly before his death in 1790). I think if you are new to Smith, or at least new to Theory of Moral Sentiments, her essay will give you some insights to think about.

My recommendation: Read Theory of Moral Sentiments, McCloskey’s Bourgeois Virtues, and this roundtable as companion pieces to develop your ideas about the roles that virtue and morality can, do, and should play in our economic decision-making and in the social institutions that shape and structure our interactions in civil society. Even if you’re not an academic or not an economist, if you are interested in social systems more generally you are likely to find things here that will interest you and provide a lot of learning. That’s been my experience at least!

New working paper: Mirror neurons, Adam Smith, and sympathy

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Lynne Kiesling

Mirror neurons have captivated my attention for the past year. Think about the last time you were out walking around and smiling, and you noticed that others who saw you started smiling themselves (this happens to me all the time, is that strange?). Even that simple unconscious mimicry is triggered by our brain’s mirror neuron network. So, too, is your reaction when you watch someone drink a beer; even if you do not drink it yourself but only observe someone who is taking a drink, the same neural network activates in both your brain and in the brain of the person you are observing. Those are mirror neurons in action.

The mirror neuron system is a highly distributed, complex neural network, located in several regions of the brain and differentially active depending on the nature of the action undertaken or observed. Although networked across different areas, mirror neurons are concentrated in the premotor cortex, an area in the brainʼs frontal lobe that uses sensory information to plan, choose, and implement motor action. Most of this systemʼs activity is not conscious, and occurs without our having a sense of developing the abilities to perform actions effortlessly. Neuroscientists studying mirror neurons think that the mirror neuron system is part of what enables us to understand the actions of others and what creates a sense of interconnectedness and shared meaning, even between people who are complete strangers.

How is this research relevant to economics? What interesting economics questions can be illuminated by incorporating an understanding of the mirror system? I’ve been thinking about these broad questions for the past year, and have been working on two projects addressing aspects of them. At a very broad, evolutionary level, reading the neuroscience and the philosophy of mind literature arising from the mirror neuron work indicates that the mirror system is a neural framework for the evolution of anonymous coordination and cooperation — that is, cooperation even among strangers. This question is of great interest to those (economic historians, experimental economists, cognitive psychologists) studying the origins and foundations of impersonal exchange. Impersonal exchange relies on trust being embodied in social institutions (in contrast, for example, to direct personal relationships and trust in personal exchange). Is it possible that the mirror system is a neural framework for the social institutions that enable impersonal exchange?

My answer is yes. More specifically, in The Theory of Moral Sentiments in 1759 Adam Smith put forward a related argument, that humans innately desire the sympathy of others, desire aspects of interpersonal harmony, and therefore also want to behave in ways that will deserve such sympathy in return. This innate desire for sympathy leads to decentralized coordination and ultimately to the (formal and informal) social institutions of civil society, including institutions that enable cooperation and impersonal exchange. I think Smith’s articulation of the sympathetic process in Moral Sentiments is one of the most profound contributions to our analyses of human action and social institutions. But what do mirror neurons have to do with the Smithian sympathetic process?

That is the question I tackle in my new working paper, Mirroring and the Sympathetic Process: Some Implications of Mirror Neuron Research for Sympathy and Institutions in Adam Smith:

In The Theory of Moral Sentiments, Adam Smith asserts that humans have an innate interest in the fortunes of other people and desire for sympathy with others. Recent neuroscience research on mirror neurons has now provided evidence consistent with Smith’s assertion, suggesting that humans have an innate capability to understand the mental states of others at a neural level. This capability provides an important foundation for the Smithian sympathetic process, which has three components: sympathy as a synthesis of empathy with reason-based judgment, an external spectatorial perspective on the actions of others (and one’s own actions), and an innate imaginative capacity that enables an observer to imagine herself in the situation of the agent. This sympathetic process, and the neural framework that the mirror system appears to provide for it, predisposes individuals toward coordination of the expression of their emotions and of their actions. In Smith’s model this decentralized coordination leads to the emergence of social order, bolstered and reinforced by the emergence and evolution of informal and formal institutions grounded in the sympathetic process. This paper presents an argument that a sense of interconnectedness and the shared meaning of actions are essential foundations for the Smithian sympathetic process and the resulting decentralized coordination and emergent social order. The mirror neuron system appears to provide a neural framework for those capabilities.

In the paper I provide a survey of the mirror neuron literature, focusing on the neuroscience evidence and on the implications of mirror neuron evidence for the human philosophy of mind/theory of mind. The really striking and meaningful connection between Smith’s argument and the mirror neuron evidence is the extent to which the mirror system seems to enable imagination, which is crucial for achieving fellow-feeling with another person and his/her situation. Both the mirror neuron literature and Smith emphasize the impassable cognitive gap between one person and another, and that for two people to have a shared understanding of actions that would enable cooperation and social coordination, imagination is essential since we can’t get fully into the consciousness of another person.

The economic relevance of the mirror neuron research goes beyond the “see, Smith was right back in 1759, even without the neuroscience!” A neural framework that predisposes us to have shared meaning of actions is going to reduce cognitive barriers to coordination and cooperation, and I think a natural extension of that simple observation is that it makes it (at least somewhat) easier to find focal-point social institutions.

I don’t expand on this point in the paper, but I do also think there is a dark side to this neural framework for coordination and focal points — not all focal points are going to be as social beneficial and value creating as those that enable decentralized coordination and exchange in civil society. Bandwagon effects, or even coordination on agreement to behave in ways that harm some people (such as discrimination) are entirely possible under this framework. So I wouldn’t characterize the mirror system as the neural root of all possible social happiness, but would rather suggest thinking about it as a neural framework that enables us to form shared meanings of actions, and therefore to coordinate in ways that are mutually beneficial. Other ideas and factors (such as merit, leadership, vision, persuasion) must also come into play to create socially beneficial decentralized coordination. Our neural foundations provide but one part of the story.

Bump: Adam Smith and the “Man of System”

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Lynne Kiesling

I can always tell when I’m giving a midterm exam in my History of Economic Thought course; my old post on Adam Smith and the “man of system” starts showing up with more hits! Given the nature of public policy, politics, and regulation right now, and the fact that I see the “man of system” almost everywhere I look in those areas, perhaps now is a good time to repost it:

One of the most interesting threads that ran throughout the discussion [at a Liberty Fund Adam Smith seminar --ed.] was the dimensions of Smith’s reference to the “man of system” in Theory of Moral Sentiments (paragraph VI.II.42):

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

Smith captures a lot of very nice ideas in this passage. The idea that the “man of system” would be so enamored of his own system that he would impose it on others without much regard for their preferences or, to use the phrase of one of the participants, for their moral autonomy, continues to be a powerful criticism of interventionist approaches to government. To put it in my girl-next-door vernacular, how arrogant are you to think that you should impose your system on me?

In addition to the arrogance and conceit, Smith’s passage points to a particular type of knowledge problem (or “epistemological problem”, as one participant referred to it): “in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it”. Every individual has his/her own preferences, own view of the good life, own objective function. The “man of system” cannot know, cannot experience the wants, the needs, the social context in which each individual makes choices (individual and collective choices). To the extent that the imposed system creates an environment that does not honor the knowledge problem, it makes both the individual and society worse off. The “man of system” approach to institutional choice is not consistent with that epistemological constraint. Is this an argument for representative government, even with they “tyranny of the majority” problem?

The chess-board metaphor raises the fallacy that our social institutions are so directed and so instrumentalist that they can point us to a specific, shared goal. In chess the objective is shared (and is zero-sum, actually, which points to another interesting aspect of Smith’s writing …), but in human life with the variety and individuality of human action and human knowledge, can we really be said to have a shared social objective? The best shared goal I can imagine toward which we can strive is to be free and responsible people living together in civil society, but that’s an objective at an abstract and meta level, not a directed objective as is implied in the chess metaphor.

One very interesting conversation we had throughout the week relating to this passage revolved around this concept of “system”. In some way, Smith was himself a man of system; Theory of Moral Sentiments laid out a framework for a moral system, Wealth of Nations laid out a framework for an economic system, his essay on astronomy and his essay on the formation of languages both highlight and rely on the importance of system, and systematic analysis. But I think this is a different understanding of the word “system”, and I think a lot hinges on what kind of obligations the system imposes on others.

Note in particular the following part of the passage:

He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it.

This “man of system” can enact his system over the objections of others. In the moral system/economic system/scientific system of Smith’s analyses, though, one cannot compel participation unless it’s mutually agreeable. In other words, in these systems there is no force, no compulsion, no obligation on an individual to follow against his/her will. An interesting twist on this comes in the account of scientific analysis, because you are not obligated to agree, but as research advances and evidence mounts for a particular theory, it becomes the predominant theory (until disproven and replaced by a better theory, that is).

Perhaps it’s instructive to compare this “man of system” to the man of humanity and benevolence, as Smith did (paragraph VI.II.41):

The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.

Sadly, I fear that too many of our officials and their advisers are men of system, not Smith’s men of humanity and benevolence, who “will respect the established powers even of individuals, …”

Anniversary: Smith’s Theory of Moral Sentiments

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Lynne Kiesling

I am on a plane all day today, flying to England for a few days of holiday before proceeding to Stockholm for the Mont Pelerin Society annual meeting. My main activity for the flight is to work on my course prep for my new freshman seminar this fall, entitled “Adam Smith and the Scottish Enlightenment”. I have a pretty good idea of the schedule, now I just have to plan each class … which means I’ll be spending most of the flight with Smith’s Theory of Moral Sentiments.

2009 is the 250th anniversary of the publication of TOMS, which I count as one of the most influential works in the social science canon. It truly is impossible to think about questions of how individuals live together in civil society without making great use of Smith’s insights in this work. If you haven’t read TOMS yet, now is a good time, particularly in light of what has happened in the past year and the current federal policy debates surrounding climate change legislation and health care legislation. Much of that policy direction does not draw on Smith’s insights in TOMS, to our great detriment.

At The Technology Liberation Front, Adam Thierer has an outstanding post reflecting on the 250th anniversary of TOMS and the great relevance of Smith’s ideas today. He even excerpts the wonderful “man of system” passage from TOMS, which is even more relevant and urgent to consider today than it was when I wrote these earlier KP posts on the “man of system”.

P.J. O’Rourke’s Adam Smith column

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Lynne Kiesling

I hope you’ve all seen P.J. O’Rourke’s Financial Times column from last week on what Adam Smith would have to say about our current economic and financial events. Adam Smith was one of the most astute observes of human nature ever, and applied those insights well to analyses of incentives and political institutions. Our political “leaders” would do well to remember his insights, as O’Rourke applies them:

The idea that The Wealth of Nations puts forth for creating prosperity is more complex. It involves all the baffling intricacies of human liberty. Smith proposed that everyone be free – free of bondage and of political, economic and regulatory oppression (Smith’s principle of “self-interest”), free in choice of employment (Smith’s principle of “division of labour”), and free to own and exchange the products of that labour (Smith’s principle of “free trade”). “Little else is requisite to carry a state to the highest degree of opulence,” Smith told a learned society in Edinburgh (with what degree of sarcasm we can imagine), “but peace, easy taxes and a tolerable administration of justice.”

How then would Adam Smith fix the present mess? Sorry, but it is fixed already. The answer to a decline in the value of speculative assets is to pay less for them. Job done.

We could pump the banks full of our national treasure. But Smith said: “To attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils.” [440]

We could send in the experts to manage our bail-out. But Smith said: “I have never known much good done by those who affect to trade for the public good.” [456]

And we could nationalise our economies. But Smith said: “The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary”. [818] Or chairman of General Motors.

I’m teaching History of Economic Thought this quarter, and part of my pitch to my students for the benefits of the class was that it would give them broader insights into current events and into what constitutes sensible policy recommendations. O’Rourke’s column illustrated that point perfectly. (Note that the bracketed numbers are page references.)

While we’re at it, here are some P.J. O’Rourke quotes that are also relevant to our current flurry of government activity:

When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.

The mystery of government is not how Washington works but how to make it stop.