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, (1992)