The Adam Smith Problem Revisited: A Methodological Resolution
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Sigmund Wagner-Tsukamoto
Abstract
The Adam Smith problem refers to a claimed inconsistency between the Theory of Moral Sentiments and the Wealth of Nations, regarding the portrayal of human nature in these two books. Previous research predominantly resolved the claimed inconsistency by uncovering virtuous, less selfish character traits in the Wealth of Nations. This article voices caution. I acknowledge – on methodological grounds – fundamental differences regarding the portrayal of human nature in Smith’s behavioral ethics, i.e. the Theory of Moral Sentiments, as compared with Smith’s economic research. The key argument is that Smith’s two books address different research problems and hence do not, need not and cannot adopt the same view of human nature – for methodological reasons, so my argument. Adam Smith scholarship overlooked that Smith himself in considerable degrees understood “economic man” as a heuristic abstraction. I connect to the philosophies of science of Imre Lakatos and Karl Popper.
This paper was published, in an earlier version, under the same title by the same author, as a Research & Working Paper of the School of Management/University of Leicester, 2011, accessible through the LRA (Leicester Research Archive).
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- 1
Similarly, I would disagree with what Dupuy (2006, 104) calls the “Hobbesian trap that makes all passions a matter of selfishness.” As Buchanan (1975, 1987a, 1991), for example, sets out, the “Hobbesian jungle” is an analytic – pre-empirical, heuristic – construct too, methodologically comparable to the idea of the homo economicus (see also Wagner-Tsukamoto 2003, 1, 2010).
- 2
Clearly, Popper’s methodology of “falsicationism” does not target the rationality principle but empirical phenomena. Falsicationism, however, is methodologically informed and undergirded – empirically unquestioned – by the rationality principle. Lakatos, as I set out in Section 3.2, would analyze the rationality principle as a pre-empirical “research heuristic.”
- 3
In contrast to research on “human society,” as Popper (1985, 359) put this, research on the human being as such, be it of a psychological, anthropological or behavioral philosophical nature, needs to empirically animate a model of the “psyche” in theory building and subject it to empirical research. Although even this type of behavioral research into actual human nature requires some kind of “empty principles” on human nature as methodological postulates (see Wagner-Tsukamoto 2003, chap. 3). Popper differentiates competing kinds of “rationality principles,” understood as methods, in this respect, contrasting research on human society, on the one hand, with Freudian psychology, on the other (Popper 1985, 359, 363–4). This has implications for our understanding of the Adam Smith problem too. For instance, Dupuy’s (2006, 121, 2004, 278) conceptualization of self-interest in relation to a morphogenetic principle is likely to reflect heuristic, methodological postulates of anthropological research rather than economic research which draws on the model of economic man, as it is conventionally understood, in the tradition of Buchanan, Becker, Friedman or Machlup, to name a few.
- 4
Buchanan’s (1975) heuristic starting point for the analysis of the status quo of society is here the “natural distribution state”: the Hobbesian “war of all,” in which interactions among homo economici have escalated. In this regard, Smith gets close to Buchanan. A statement like the following underlines this: “Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity. The capricious ambition of kings and ministers has not, during the present and the preceding century, been more fatal to the repose of Europe, than the impertinent jealousy of merchants and manufacturers. The violence and injustice of rulers of mankind is an ancient evil. For which, I am afraid the nature of human affairs can scarce admit of a remedy” (Smith, 493). This is an extraordinary statement in which Smith meets modern constitutional economics in the vein of Buchanan (1975) – a research tradition that can be linked to ancient texts on society too (Wagner-Tsukamoto 2009a, 2010, 2013). This statement of Smith should not be read as a positive statement about human nature that somehow reconciled TMS and WN. I contest here Skinner (1979, 104) when he suggests that the WN’s concept of the “nature of the social bond” built on the TMS. Rather, the above statement reflects a normative approach (“ought”) about societal organization, driving a methodological break between TMS and WN. Smith’s normative starting point is here: “Commerce ought naturally to be, among nations, as among individuals, a bond of union and friendship” (emphasis added). In this regard, Macfie (1959, 212, 218–19) uncovers in the TMS “man’s natural love of society” as the “social cement” of society and a sympathy-based, social theory of society (similarly Skinner 1979, 104). If such a “natural” situation indeed prevailed, we have no institutional economic or political economic problem of organizing society and interactions in society, through economic means. We have no economic governance problem, generally speaking. In this situation, to speak with Buchanan’s (1975, 117) constitutional economics, one could possibly even argue that anarchy in its pure form should prevail as societal interaction mode. However, both Buchanan and Smith seem to be skeptical: Buchanan (1975, 117) outlines that in the case that conflict arises (e.g. property rights are somehow contested), pure anarchy as organizational mode fails and then either societal governance through a moral precepts approach is needed to sort out problems of conflict or alternatively (as Buchanan favors) societal governance through constitutional economic contract is the way forward. In the latter case, contested claims of interacting agents, which give rise to conflict, are resolved through (economic) rule structures of the state (and for this purpose, as Buchanan so clearly stressed, the homo economicus and ideas on destructive anarchy are applied as heuristic research methods). Can we find parallels to Smith’s WN? As noted, the above statement is a normative one: Smith talks about a “bond of union and friendship” (in the WN) and “man’s natural love of society” (in the TMS): They reflect, in Smith’s normative thinking, an ideal mode for organizing societal activity. However, these statements already imply that “pure anarchy” as societal organization mode failed, in Smith’s conception too, since otherwise governance through a “bond of union and friendship” and “natural love” would not be needed. When referring to “union and friendship” and “man’s natural love of society,” Smith seemingly talks about what Buchanan called the “moral precepts” approach for governing society. Also, in the subsequent concluding part of the quotation, Smith explicitly raises conflict as a source and as a problem of societal organization: “Commerce … has become the most fertile source of discord and animosity.” Smith meets here Buchanan’s world of (self-)destructive anarchy as starting point of analyzing societal ordering. The Hobbesian “war of all” is invoked, as Buchanan makes explicit (see also footnote 1 above). In this situation, is Smith hanging on to a model of friendly, virtuous, sympathy-based human nature (methodologically and/or theoretically/empirically) for analyzing and resolving “discord and animosity” among nations? This is not the case, as outlined throughout my article with regard to Smith’s approach of organizing economic activity, institutional governance that affects international trade and institutional governance of society in general. Rather, his approach is essentially “economic” (grounded in the homo economicus). Poignantly put, Smith says in the above statement that the sympathy-based approach (of friendship, etc.) of the TMS is not applicable for questions of governance of society, as he discussed it in the WN. Especially when “friendship” and “natural love” have broken down (“discord,” “animosity”), as met by Smith’s conceptualization of the societal status quo of the mercantilist trade system, Smith’s economic approach, the WN, succeeds.
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Miller (1993, 24), for example, here complains that much Old Testament theology has been dismayed by the greedy and unfair character of Jacob – who so closely resembles the model of economic man, I would like to add. Such aspects of Jacob’s character may have to be read in heuristic perspective in the first place (Wagner-Tsukamoto 2009a, 2010, 2013).
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At other times, Rothschild (2001, 2) states that Smith was interested in restoring freedom to economic policy and that he linked the invisible hand to institutional reform (Rothschild 2001, 148–9).
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As noted, economics, in the classical understanding of Smith, is normatively geared toward the wealth of nations. It is not about wealth creation for an individual nation and even less so for a small group of people or even a single individual. Mandeville spoke of “public good”; Buchanan or Williamson referred to this normative issue as “mutual gains.” From here, economics’ image of human nature and moral status as a social science has to be deduced (Buchanan 1975, 36, 170–1, 1976, 271–7; see also Homann 1997, 1999; Wagner-Tsukamoto 2003, chap. 8, 2012; Heyne 2008). Clearly, economics has a distinctive, ethical understanding of “mutuality,” albeit a conceptually different one as compared with other scientific traditions, such as communitarianism (e.g. Etzioni 1988; or similarly Riha 1990, 58–9). It is clearly inaccurate to argue that economics in the tradition of Smith lacked a concept of mutuality or reciprocity or sociability, as Etzioni or Riha and others suggested. Some even diagnosed a “paradoxical simultaneity of ... conflict and community [mutuality, social reciprocity] in individual interests” for the WN (Werhane 1991, 167; see also Gramm 1980, 128). In economics, conventionally and classically understood, the normative vision of mutual gains steers self-interested agents to handle and resolve a claimed “paradoxical simultaneity of … conflict and community” and this is channeled and organized through economic institutions and economic constitutions, as Smith was already aware of and as it was so fundamentally clarified by Buchanan and Williamson. Social, moral-behavioral constraints on self-interests as such are not needed to achieve this goal, as erroneously proposed by Gramm (1980, 129) and many other behavioral economists and socio-economists. In addition, many further ethical ideals can be attributed to economics. They can be derived by looking at the particular features that set out market interactions in a market economy, such as “invisible,” non-interfering democratic rulers over capital exchange, self-organizing social exchange, the motivational and cognitive autonomy of the individual, tolerance of value pluralism and the growth of knowledge and enlightenment (see chap. 8 of Wagner-Tsukamoto 2003; also Wagner-Tsukamoto 2009a, 2010, 2012). Behavioral critics frequently overlook such ethical features, as they were already clearly reckoned with by Smith in the WN.
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In the History of Astronomy (EPS), he touched on this issue. Smith’s philosophy of science could have made more explicit at this point that “different” sciences began to use very different – heuristic – principles to account for “rules and phenomena.”
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I question in this regard suggestions that Smith based both TMS and WN on the Newtonian method. Skinner (1979, 38), for example, acknowledges in this regard that the TMS is grounded in an empiricist principle: “a propensity natural to all men”; or similarly, Skinner (1979, 35) refers to the “imagination of psychological needs” as foundations of Smith’s inquiry in the TMS. Such conceptualizations share, from a methodological point of view, very little with a heuristic, pre-empirical reading of the organization of science and philosophy, as this article set out by drawing on Popper and Lakatos. In order to argue that the TMS was also grounded in the Newtonian method a constructive philosophical principle on human nature (human anthropology) needs to be set out – pre-empirically, heuristically. Such a principle then could methodologically instruct a theory of virtuous, sympathy-based human nature for the TMS (which then can also be empirically examined and “tested”). More recent moral philosophy has set out explicitly such heuristic statements, before moving on to theoretically and empirically examine and conceptualize “true” human nature (e.g. Nietzsche 1903, or Gehlen 1962; for a review, see Wagner-Tsukamoto 2003). For instance, Nietzsche speaks of the human being as the “not yet determined animal,” or Gehlen talks of “the human being who self-identifies and self-determines itself.”
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Smith’s criticism of Mandeville in the TMS may have been invited for a good reason: Mandeville phrased many of his arguments on self-interest, and selfish, vain behavior in rather empiricist, behavioral, non-heuristic terms. Mandeville, in this respect, provoked a behavioral, empiricist moral philosophy, as followed by Smith in the TMS. Only in the WN did Smith begin to methodologically “see through” this issue. Nevertheless, Smith’s sharp criticism of Mandeville in the TMS is indicative that at this point in time he did neither follow the principle-based approach of the Newtonian method for the TMS nor did he project the Newtonian method to Mandeville’s application of ideas on self-interest in the Fable of the Bees. If Smith had applied the Newtonian method already then he should have seen through Mandeville’s comparatively naïve empiricism for formulating ideas on self-interest. Only much later, for instance Smith (1776/1976, 25), he made explicitly clear that self-interest was not to be empirically explored but was an unquestioned principle (for the purpose of the WN, as set out by its specific research questions and research problems). This thesis has been discussed throughout this article with regard to Smith’s conceptual approach in the WN.
©2013 by Walter de Gruyter Berlin / Boston
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- The Adam Smith Problem Revisited: A Methodological Resolution
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Articles in the same Issue
- Frontmatter
- Austrian Perspectives on the Euro. (Articles selected by Antoine Gentier)
- In Defense of the Euro: An Austrian Perspective (With a Critique of the Errors of the ECB and the Interventionism of Brussels)
- 3 Comments on “An Austrian Defense of the Euro”
- The Euro as a Proxy for the Classical Gold Standard? Government Debt Financing and Political Commitment in Historical Perspective
- Articles
- The Adam Smith Problem Revisited: A Methodological Resolution
- The Explanation of the Subprime Crisis According to the Austrian School: A Defense and Illustration
