In a previous post, I explained that most of the confusion in Smith’s works, such as his stand on capitalism, arises because he did not define nor explain self-interest, private ownership, and why a person should have the right to the proceeds or profits of one’s own work.
One of the biggest effects of capitalism is to give outside owners the right to the work of others (as if feeding from them), which violates the concept of economic justice, which Smith never explained fully. He just said that “It is but equity that those who feed, clothe and lodge the the people, should have such a share of the produce of their own labour*” and “The establishment of a government gave security to industry that it shall enjoy the fruits of its own labour; It is the only encouragement industry requires” without explaining why.
* This is currently not observed, since wages are measured in nominal terms, such as $10/hour. In Smith's system, wages are measured in real value, such as 2.5 big Macs/hour, equating wages with food. This system was later objected to by Malthus who said that it would worsen famines, neglecting the fact that Smith said such a system will only be enforced during normalcy and not during disasters.
He did not bother to explain these in detail because they have been already explained by other authors and it would be better to simply point the reader to them:
- “This scheme is explained fully by Mr. du Verney in his Examination of the Political Reflections upon Commerce and Finances of Mr. du Tot that I shall not give any account of them.“ (On the Mississippi Scheme)
- “Mun’s book, England’s Treasure in Foreign Trade, became a fundamental maxim in the political economy of England and all commercial countries.” (On the Maxims of Mercantile System)
- “David Hume has answered most deeply, clearly, and elegantly, and with eloquence, why utility pleases.” (On Utility, from Simple TMS Book 4, Chap. 1)
In other words, Smith is like saying, “I won’t explain their works, you must read them yourself! Don’t be lazy.*”
* Smith gives one clear instance of academic laziness causing mistakes in prices, which in turn contributed to the wrong economic policies being implemented: "Secondly, they were misled by the careless transcription of ancient statutes by lazy copiers and by the legislature." (Simple WN, Book 1, Chap 11)
By reading both The Wealth of Nations and The Theory of Moral Sentiments, one author stands out as the one consistently admired by Smith — David Hume, as if he was pointing the reader to Hume in both works, aside from Quesnay (WN) and Hutcheson (TMS). True enough, if you read Books 2 and 3 of Hume’s Treatise of Human Nature, you will see the origin of Smith’s ideas on sentiments, sympathy, justice, and even division of labour*.
* In contrast, Cannan wrongly attributes Smith’s division of labour to Mandeville. This error is proven by the fact that Smith said that (1) Mandeville’s philosophy was wrong (Licentious Systems) and (2) the purpose of Mandeville’s divison of labour is utility for the self, whereas Hume’s is for existence and society. I assume Cannan saw the same words ‘division of labour’ from both Smith and Mandeville and made the connection without going into their subtle differences. This common human infirmity to readily connect things was fully explained by Hume. It can also be seen more recently in Samuelson’s wrong interpretation of Smith’s invisible hand (he probably just saw the words ‘self-interest’ and made his own connection). Sophists capitalize on this infirmity by using connections to make absurd philosophies, that may make sense on the surface, but have no foundation, such as Objectivism and laissez faire.
There is so much similarity between Smith and Hume, that I would go as far to say that The Theory of Moral Sentiments and The Wealth of Nations have their base in Hume. This implies that an expert on Smith’s works must know something about Hume’s major works.
|Division of Labour||“The division of labour causes an increase in the productivity, skill, and judgement of people in society.” (Simple WN, Book1, Chap. 1)||“When every person labours apart only for himself, his force is too small to execute any considerable work. His labour is employed in supplying all his different necessities. He never attains a perfection in any particular art. His force and success are not at all times equal. The least failure in either of these must be attended with inevitable ruin and misery. Society remedies these three inconveniences. By the conjunction of forces, our power is augmented. By the partition of employments, our ability increases.” (Simple Treatise, Book 3, Part 2, Sec 2)|
|Proper Social Distribution of Wealth||“The landlord is obliged to distribute the rest among those who nicely prepare that little which he himself uses, those who fit up the palace where this little is consumed, those who provide and keep in order all the baubles and trinkets employed in the economy of greatness.” (Simple TMS, Part 4, Chap. 1)||“A rich man lies under a moral obligation to communicate a share of his superfluities to those in necessity.” (Part 2, Sec 1)|
|Social, Regulated Self-interest||“But those exertions of the natural liberty of a few individuals which might endanger the security of the whole society, should be restrained by the laws of all governments, of the most free as well as of the most despotical.” (Book 2, Chap 2)||“Only self-interest is capable of controlling self-interest through a change in its direction. This change must happen on the smallest reflection, since self-interest is better satisfied by restraining it than by letting it free. We acquire possessions better in a society than in the solitary and forlorn condition.” (Part 2, Sec 2)|
|Declining Profits is Good and Natural for Society||“When profit diminishes, merchants complain that trade decays, though this reduction is the natural effect of its prosperity, or of more stock being employed in it than before.” (Simple WN, Book1, Chap 9)||“An extensive commerce, by producing large stocks, diminishes both interest and profits..as low profits arise from the encrease of commerce and industry, they serve in their turn to its farther encrease, by rendering the commodities cheaper, encouraging the consumption, and heightening the industry” (Essays, Part 2, Essay 4 Of Interest)|
|Moral Sentiments from Symapthy||“The virtues of prudence, justice, and beneficence only produce the most agreeable effects. These effects are originally recommend them to the actor and afterwards to the impartial spectator.” (Simple TMS, Part 6)||“Here is a man skilled in business. An esteem for him immediately arises in me. The qualities that please me are all useful to him. The person is a stranger. I am not interested in him. His happiness does not concern me more than the happiness of every other human. That is, it affects me only by sympathy. From sympathy, I enter so deeply into his happiness whenever I discover it, whether as a cause or effect.” (Simple Treatise, Book 3)|
It is so easy to see that these ideas have been overturned by Economics and laissez faire, which say that excess is good for society, profits must keep on increasing, and government must never restrain private interests. Wrong, ‘vulgar’ ideas such as these crop up all the time and should be expected, but there should always be wiser humans to counter them so that they won’t take root in the minds of the majority. For example, Hume countered the prevalent dogmatic Christian beliefs while Smith countered mercantile beliefs and self-interested philosophies. Why is our generation lacking the same wise people to counter ultra-rational beliefs* such as Utilitarianism, Liberalism, and Objectivism? If the Smith and Hume academics successfully countered laissez faire from the 1990’s, would the 2008 Financial Crisis, which wiped out billions in value and is the genesis of the current Eurozone crisis, be less severe or not happen at all? Must it take another huge economic crisis for wiser philosophers to come up and counter ultra-rationalism, just as a meat lover must suffer from a stroke before listening to a doctor who comes up and advises him to cut down on meat?
.* Smith and Hume point to the heart or feeling as the basis or morality and not the brain or intellect, whereas rationalists focus solely on the brain or intellect, disregarding feeling. By disregarding feelings, rationalism allows only one feeling to exist — the feeling of the self or ego, as without ego one does not exist. Thus, by denying feeling, rationalists unknowingly breed selfishness and end up working against society and themselves in the end.
By vilifying ultra-rationalism and objectivism, I do not to disregard their value, since everything exists for a reason. Those philosophies are useful in backward societies that have no reason, such as in ultra-religious countries that oppress their own people. But they are usually harmful in modern societies that are already too intellectual or rational, which need more heart instead. Thus, an ideal human philosophy should balance heart and brain, with the heart first and brain immediately afterwards, as what is observed naturally.