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Adam Smith & “Virtue Ethics”

Vulgar views of Adam Smith suggest that he is an unqualified supporter of laissez faire capitalism. That isn’t true even in his Wealth of Nations where, for example, Smith provides a rationale for the existence of public goods based on the fixed costs of supplying infrastructure.  More modern writers have recognised Smith’s criticisms of commercialism and are now beginning to recognise his articulation of ethics to combat these imperfections.

From 400 BC to 1790 AD the moral universe in Europe was described in terms of Seven Primary Virtues that could be recombined into hundreds of lesser ones. These were derived from Plato, Aristotle and channelled into Christianity by Saint Thomas Aquinas. They comprised the four cardinal (or “pagan”) virtues of courage, justice, temperance and prudence and the three “theological” virtues of faith, hope and love (for God and other humans).  These comprised a good philosophical psychology since they promoted human flourishing and a positive psychology of healthy people (McCloskey, 2006).  A vice then is a notable lack of one or more of these virtues.   Clearly lacking a single virtue, for example, courage could make life miserably fearful.  Thus they need to be possessed as a package.  Moreover, temperance is particularly important – there must be balance in respecting these virtues and the right virtues need to be employed on the right occasion.

Other commonly recognized virtues do not necessarily have lower status but they are built on these main virtues. For example:


Courage + Prudence -> Enterprise

Temperance + Justice -> Humility

Temperance + Prudence -> Thrift.


McCloskey (2008) claimed that Adam Smith was the last of the early Virtue Ethicists a controversial position that was, however, recently supported by Hanley (2009), who saw Smith as providing, in The Theory of Moral Sentiments (1790, Part VI), a moral philosophy that helped to resolve the ethical problems of capitalism. Smith was an ethical philosopher and, to both Hanley and McCloskey, he was seen as opposed to utilitarianism – the idea that what is good causes pleasure. Smith in fact wrote:

“that system…which makes virtue consist in prudence only, while it gives the highest encouragement to the habits of caution, vigilance, sobriety, and judicious moderation, seems to degrade equally both the amiable and respectable virtues, and to strip the former of their beauty and the latter of all their grandeur” (TMS, p. 307).

Smith used the word “prudence” in the sense of “optimizing advantage” and endorsed this virtue although he saw it as only one virtue. Pure self-interest when pursued in isolation from the other virtues such as courage, temperance, justice, and benevolence leads to poor capitalist outcomes.  Smith particularly emphasised the four pagan virtues and one of the religious virtues, love (or benevolence).

Smith believed that his main contribution to ethics was his theory of the “Impartial Spectator” – “reason, principle, conscience, the inhabitant of the beat, the man within, the great judge and arbiter of our conduct” (TMS, p. 137). Agents then determine their ethical behaviour on the basis of an internal moral debate with the Impartial Spectator.

To Hanley (2009) Smith approved of commercial society because it maximized freedom and wealth particularly among the most disadvantaged. But Smith was fully aware of capitalism’s faults and particularly its ability to exacerbate negative psychological attributes such as anxiety, mediocrity, alienation and indifference to others.  To deal with the latter problems Smith claimed that a sound virtue-based ethics was required. He therefore sought a “practical system of morality” that, he argued, could be developed in 3 stages.  First was the need to establish prudence to ameliorate anxiety and restlessness although doing this increased mediocrity and led to excessive individualism.  These latter attributes could be addressed by developing the greatest of the classical virtues magnanimity (a loftiness of spirit that enables one to bear trouble calmly, to disdain meanness and pettiness and to display a noble generosity) but magnanimity exacerbated excessive self-preference and indifference to others.  These attributes were in turn addressed by developing the beneficence which finally achieved the goal of creating created wise and virtuous people.

This has relevance today since it endorses the value of free markets but these need to be combined with good ethics.  The same sentiment is expressed by McCloskey (2009).



A. Smith, The Theory of Moral Sentiments,  (eds D. Raphael & A. Macfie) Liberty Fund , Indianapolis,  6th edition (originally published 1790).

A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations,  Methuan & Co, London, 5th edition, 1904 (originally published 1776).

R. Hanley, Adam Smith and the Character of Virtue, Cambridge University Press, Cambridge, 2009.

D. McCloskey, “Adam Smith. The Last of the Former Virtue Ethicists”, History of Political Economy, 40, 1, 43-71.

D. McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce, University of Chicago Press, Chicago,

6 comments to Adam Smith & “Virtue Ethics”

  • Jim Rose

    see for a long list of the state actions and services that adam smith supported.

    in the same vain, Richard Epstein wrote an essay titled Hayekian socialism.

  • Harry – I think most of this is right in itself, but like much of what is written on Smith by trying to put him into contemporary debates obscures what was important about him at the time, and perhaps still is important now.

    This is that a market society could encourage virtues such as industriousness, frugality, punctuality and probity (list from Hirschman’s Rival View of Market Society) and that good intentions were not required for good outcomes (butcher, baker etc).

    I don’t think anyone seriously disputes that market societies require ethical frameworks, even if economists in general (though there are numerous exceptions, McCloskey among them) have not make this central to their work. The argument since before Smith is that market societies undermine their own ethical foundations and so ultimately become dysfunctional.

    Though clearly Smith was not a laissez-faire economist, I would still put him on the optimists side of this debate. And while it is not hard to find examples of unethical business practices, at a whole of society levels it is hard to say that market societies have been worse than either what went before them or their contemporary alternatives.

  • Jim Rose

    Andrew, if you think no one seriously disputes that market societies require ethical frameworks, look at the work of Peter Leeson on pirates, organise crime and other lawless societies.

    His paper on the law and economics of soccer hooligans in the 1980s is priceless:
    • Soccer hooligans had many rules to stop fights getting out of hand and potentially lethal: you could use any weapon within reach at a fight but could not bring a knife. People who pull others off when it went too far. rival gang members could just lay down and submit and escape a hiding.

    • Gang members wore uniforms distinctive at a distance so that each other rather than civilians were not targeted.

    • Membership was after 3-6 month probationary periods that screened out nutters

    • Promotion to leadership positions went to those with cooler heads.

    • Fights would stop to let women and children passed through and then resume.


    Pirate ships had constitutions with separation of powers etc. the most popular pirate constitution was the Jamaica rules.

    His paper on the laws of the lawless Anglo-Scottish borderlands in the 1600s is equally instructive. To regulate inter-group banditry and prevent it from degenerating into chaos, border inhabitants developed a decentralized system of cross-border criminal law called the Leges Marchiarum.

    The economics of Hatfield and McCoy feuds is too easy. The possibility of a feud deters attacks. Anthony Quinn said this in Laurence of Arabia to explain why he and his teenage son could move so easily among his tribal enemies and chase them off a water well. They did not want to provoke a ten-year feud with his tribe by harming him.

  • Jim – I’m not sure why these examples of criminals self-regulating contradict my point.

  • Jim Rose

    thanks Andrew, Order can emerge in societies even populated by both a-moral people and the Hatfield and McCoy who are trying to survive peacefully without a police force.

    The industrial revolution prospered in Europe because of the division of power among the European princes.

    Western Europe comprised a system of divided and competing powers and jurisdictions; kingdoms, principalities, city-states, ecclesiastical domains, and other political entities. Exit was easy as was the threat of invasion by a more prosperous rival whose prince did not act as a predatory state to his own tax base.

    The political struggles that brought down English mercantilism to usher in modern economic growth were animated significantly by the desire for continued independence of small states requiring sustained prosperity.

    The industrial revolution of started on the periphery: in England and united Dutch provinces, both under threat of invasion.

    Depending on the surrounding institutions, people can behave well such as in 19th century England where there was the rule of law, and very badly such as in their colonies.

    From 1885 until 1908 Leopold II was not only King of Belgium but the personal owner of the Congo Free State.

    In Belgium he improved living conditions acting as as a constitutional monarch; in the Congo he established a brutal tyranny. In Belgium, he required broad support from the general public but in the Congo he only needed a very small group of supporters.

  • Jim – I still don’t think we are in any obvious major disagreement. I do think self-interest is a major motivator, and that mutual self-interest can ensure many aspects of co-operation. But I don’t think it can deal fully with the many other relationships in society, and there is much to be said for the ‘virtues’ that Harry writes about. The major claim of many critics of markets is that they believe that a calculating self-interest will spread to all realms of social life. It never has in a market society; morality remains more situational than that. Ironically it has in socialist societies, where the destruction of trust and severe material scarcity created an amoral culture.

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