The Soul of Adam Smith's Classical Liberalism

invisible hand impartial spectator james buchanan moral imagination gertrude himmelfarb

Maryann Keating for AdamSmithWorks

May 17, 2023

In 1987, critics — including some in his own Republican Party — viewed Vice President George Bush as a politician who lacked the ability to clearly articulate his fundamental beliefs and policies. A friend suggested that Bush go alone to Camp David for a few days to figure out where he wanted to take the country. ‘Oh,’ said Bush in clear exasperation, ‘the vision thing.’ Equally important is that Classical Liberals take time to figure out Adam Smith’s “Vision Thing.”

Smith’s vision is the foundation of Classical Liberalism. Different assumptions about human nature and how individuals relate to society as a whole underlie policy conflicts between socialists and classical liberals. Adam Smith, in The Theory of Moral Sentiments (TMS, 1790), tries to plumb the essence of human nature aside from the norms of his own and other cultures. An Inquiry into the Nature and Causes of the Wealth of Nations (WN, 1776) extends this analysis to aggregates, i.e. nations. Smith concludes that nations animated by individuals tending to their innate moral sensibilities foster societies best suited for wealth and personal wellbeing. Liberty brings about the good.

The policy stances of Classical Liberalism may be summarized as support for limited government, constitutional democracy, free trade, private property, the rule of law, open franchise, and federalism. However, the convictions underlying these policies are actually based on an integrated entity, which Nobel laureate James M. Buchanan calls the soul of classical liberalism, as developed by Adam Smith. Buchanan, in “The Soul of Classical Liberalism,” recommends that the integrated entity be stressed rather than the current emphasis on policy recommendations (The Independent Review, Summer 2000, 111-119).

Adam Smith developed a vision of a desirable and somewhat approachable order of human interactions. Policy principles for constructive reform follow from this vision. These principles contrast with those of utilitarian dreamers who seek to change human nature and control outcomes.

How do Classical Liberals go about presenting their position aside from treatises demonstrating comparative advantage and engineering efficiency? First, Classical Liberals might explain that Adam Smith’s system prioritizes the liberty to act in congruence with an individual’s natural sense of morality and societal norms. Secondly, they could describe how a nation granting people the liberty to pursue immeasurable personal goals increases the probability of attaining outcomes that increase individual and aggregate well-being.

“The Vision Thing”

In The Moral Imagination, historian Gertrude Himmelfarb selects fifteen brilliant and provocative thinkers to show how each retained a moral sensibility. It is not surprising that Adam Smith also employs the term “imagination” several times in TMS to describe the innate capacity of humans to anticipate future rewards and the feelings of others.

In her first chapter, “Adam Smith: Political Economist cum Moral Philosopher,” Himmelfarb notes that Smith’s “moral economy” is consistent with “the pre-industrial, pre-capitalist, Christian ideal based on the principles of equity and justice (Rowman & Littlefield, 2012, 3-20.). Unlike those who emphasize Smith’s writings on political economy and downplay or dismiss his work in moral philosophy, Himmelfarb lauds his contribution to our understanding of basic morality. She does this in spite of, or because of, it being steeped in the moral traditions derived from scholasticism and natural law. She notes that Smith could not conceive of a study of society divorced from other disciplines (7).

Smith’s analysis of human nature was undoubtedly influenced by others, but this does not suggest that what he identified in human nature is incorrect. For example, he reasoned that human persons, not merely the well-educated or those in power, have an innate moral sense based on their cognitive and emotional capacities. This internal compass permits them to assess their own and others behavior.

Endowed with personal cognitive, emotional, and imaginative capabilities, individuals harness those attributes to make sense of their lives and direct themselves toward achievable ends. Approaching internally defined aspirations provides personal satisfaction. In addition, essential to Smith’s vision of morality is the fact that, a person can imagine and respond to how others feel. Therefore, an increase in personal satisfaction is not necessarily a function of a decrease in the satisfaction of another. In fact, Smith proposed that there exists something about human nature that gains personal satisfaction from the approval of others.

Smith’s terms for persons’ moral capacity, “sentiment” or “sympathy,” refer neither to benevolence nor altruistic motivation; he speculates rather that it is an instinctual inborn cognitive ability to understand themselves and other persons, through imaginative identification. The faculty of sympathy enables moral judgment. Smith’s “impartial spectator” is each person’s interior arbiter, one that can be rejected or self-deceived (Christina McRorie. “Adam Smith Ethicist,” Journal of Religious Ethics, 2015, 674-696).

The impartial spectator in “The Theory of Moral Sentiment” judges not on religious belief in a final judgement, but rather on a desire to be well regarded by oneself and others. If, however, moral sentiment is similar to what is referred to as a “conscience,” it is in need of formation in dealing with others. As such, Smith expresses much concern in the Wealth of Nations for those isolated from the socialization of a local community.

An individual’s natural moral sensibility is enhanced through practice. Virtues such as prudence, temperance, industriousness, decency, and responsibility are not just compatible with Classical Liberalism; they reinforce modern liberal democracy and all personal interactions.

We can agree with Smith that common virtues and moral sensibility are within the capacity of ordinary people; yet, we might question their relative strength in explaining human behavior. It is relatively easy to agree that there is a strong incentive to avoid the self-loathing following failure in achieving personal goals. However, evidence may be needed to give weight to the importance Smith attributes to the discomfort and personal costs experienced on letting down those whose opinions we value.

Saccardo and Serra-Garcia conducted experiments on over 9,000 financial advisors confronted with a conflict of interest in offering clients products of lower quality yet paying them higher commissions. They found that a significant percentage of advisors were willing to temporarily blind themselves from potentially biasing information to ensure fair and moral behavior (“Enabling or Limiting Cognitive Flexibility? Evidence of Demand for Moral Commitment,” American Economic Review 2023, 113 (2), 396-429)

Anthropological studies also confirm an ethical sensibility, usually consistent with societal norms, that is fundamental to a person’s perception of themselves. It provides identity, meaning, and order. Can something so fundamental be underdeveloped or erased? In the WN, Smith writes that repetitive work can impede personal development. Is it possible that specialization, as well as other contemporary factors, dull the moral imagination not just of a few but a large number of residents?

Smith describes how particular virtues, such as generosity or industriousness, become embodied in the norms of certain nations and the behavior of its residents. The pressure to align one’s opinions even with those of a favored but misguided group is strong. However, Smith argues that basic universal morality can never long be perverted until the society in question self-destructs. For example, Smith condemns infanticide as a perversion of basic morality, even though it has been approved by whole cultures. Therefore, cultural variation in morals, emphasizing one virtue over another, is consistent with Classical Liberalism as long as this relativism remains within fairly narrow bounds (Samuel Fleischacker, “Adam Smith and Cultural Relativism”, Erasmus Journal for Philosophy and Economics, Autumn 2011, 20-41).

Suppose, however, that we live in a society where individuals experience little discomfort in offending the internal voice of the superego, representing authority. What if educational institutions define their role as freeing students from the values of parents and society’s norms? What if no expertise is recognized outside of that associated with professionals and authoritarian government? What if the cultural taboos of ordinary persons varies greatly from values of academics, the educated elite, and government officials?

The vision of Classical Liberalism cannot be approximated if individuals’ natural moral sensibility fails to identify with mutually agreed upon social norms; in such instances the rule of law breaks down. Nevertheless, if a Smithian moral sensibility is indeed innate, it may be worthwhile to validate individuals’ longing to seek internal and society’s approval.

Increasing the Wealth of a Nation Naturally

It is conceivable that Adam Smith’s findings on national wealth surprised him, a Professor of Moral Philosophy, as much as it does us, his readers.

Smith proposes that human persons have an innate moral compass judging whether their personal behavior is consistent with their own and others’ values. This assumes that deep down, individuals respect and share a few objective premises, regardless of religious beliefs and culture. In the Wealth of Nations, Smith concludes that nations characterized by liberty free individuals to make choices in line with both personal and mutually held norms.

In such nations, government officials exhibit restraint unless the rule of law is violated. Private decisions are protected. National outcomes are those resulting from people pursuing personal goals including, if you will, self-interest. A legitimate question follows, “Is Smith’s concept of natural moral sentiment strong enough to safeguard the public interest?”

There is no getting away from it; Classical Liberalism is to some extent highly individualistic; it favors individual freedom as long as individuals avoid behaviors resulting in negative externalities. However, Smith goes beyond this, he writes:

In civilized society, he [human persons] stands at all times in need of the cooperation and assistance of great multitudes…man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only (WN, Liberty Fund edition, 1982, 26).

Note the words “cooperation” and “only” in the above quote. By nature, individuals not only cooperate to truck, barter, and exchange, but form families, organizations, and nations along with their brethren. Smith acknowledged that reason is common to all human beings, but it was the virtues of benevolence and sympathy that bind people to each other. Not only does moral sentiment foster care for oneself and family, but the human capacity to identify lends itself to a variety of practical, ameliorative policies to relieve social problems (Juliana Geran Pilon, “The Primacy of Liberty.”) The initiative in free societies comes from below and not from officials attempting to change the nature of individuals or exercising their authority.

Both the Wealth of Nations and Moral Sentiments abound in examples of and support for benevolent activity; generally, they are designed with the goal of increasing the agency of individuals to successfully pursue their own interests. Does the “common good” then reduce to discrete calculated personal benefits?

We do not know if Adam Smith would have been amused, like American author Washington Irving, on learning that a local in 19th century Spain assigned a higher level of morality to one who stole to replace his stolen stock of contraband than to one who exclusively stole. What would he think about Sophocles’ Antigone defying civil authorities to perform burial rites for her brother? Smith probably would say that these are cases of individuals coming to terms with their innate moral sensibility. We might then question Smith as to the value of allowing individuals to have the liberty of acting on moral sentiments that are inconsistent, misguided, or costly to themselves and others.

Classical liberals do not ignore the need for collective security and military preparedness for the survival of a nation. Smith describes in detail what ancient Greece and Rome did to train and strengthen the capacity of residents for defense. On the other hand, at least once or twice, he employs the term “invisible hand” to describe a non-centrally directed process through which benefits for society result from independent personal decision-making.

The concept of the “invisible hand” is ridiculed by some as fanciful and believed by others to represent Divine Providence. It is neither. Rather, it is a natural process, that over time some countries have borne witness in augmenting the economic and general well-being of society as a whole. Smith writes:

In spite of their natural selfishness and rapacity, though they [the rich] mean only their own convenience, [and] though the sole end which they propose from the labors of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the product of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessities of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of society, and afford the means to the multiplication of the species (TMS, Liberty Fund edition, 1982, 184-185).

Classical Liberals wish not merely to expand national productivity to sustain a population but also to increase and distribute that output more equally than otherwise. Unfortunately, this is a very difficult message to convey and one well-connected elites in power may not believe or be willing to entertain. It may be in their interest to maintain their status through rent seeking political favors and/or controlling options for the less well-connected.

Consider Smith’s vision of a nation increasing its standard of living by freeing individuals animated to pursue their self-interest but guided by the approval of an impartial spectator. This is often interpreted incorrectly as reducing morality to utilitarian ends. Smith was too good a thinker not to consider the public and personal costs of his vision. He writes that effective public institutions for justice and defense are expensive; he also writes clearly about the personal costs of heeding one’s moral sentiment. He does not hesitate to point out the limits of depending on moral sentiment. He details, as well, the less desirable effects of the division of labor, commercial interests that combine to extort the public, and risks associated with the liberty to fail.

Few will minimize individuals’ strong incentives for personal gain and hence to operate rationally in their own self-interest. Nevertheless, perhaps Buchanan has a point in recommending that Classical Liberals emphasize the less dominant but still essential moral sensibility required for entering into personal, professional, and commercial contracts.

Conclusion

Is the current presentation of Classical Liberalism too often presented merely as fragments of an integrated vision? If so, reclaiming its soul could inspire a willingness to encourage and permit individuals to focus on and respond to an interior judge, even when biased in terms of personal aspirations and societal norms. If Classical Liberalism is reclaimed, dependency on government will be reduced; personal liberties, supported. Individuals will be inspired to create new commercial and other intermediate organizations. The priority given to private initiative would act as a constraint on government regulation and unrealistic goals in changing human nature. Failed states striving towards utopian socialism make a strong case for classical liberalism. It should not be so difficult to highlight nations in which the soul of Smith’s vision is still approximated.