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Morals and Markets

ADAM SMITH is not exactly a biographer’s dream. An intensely private man, he seemed to go out of his way to leave no trail for future chroniclers. His correspondence is dry and workmanlike, with few personal details or revealing moments. He made sure his private notes and unpublished works-in-progress were burned before his death. Having lived unmarried with his mother for most of his life, he left behind very few intimates who could relate his story for posterity. And yet Smith was more than a profoundly important figure in the history of moral philosophy, economics, and liberal political thought; he was also, in his eccentric way, a quite charismatic man.

This perplexing combination of challenges has meant that Smith has had too few biographers, and that most of them have fallen into one of two traps—the purely intellectual biography, in which the man is merely the vehicle for his ideas, and the purely contextual biography in which the man is just a representative of his time and place. The best modern studies of Smith—Joseph Crospey’s Polity and Economy, and Jerry Muller’s Adam Smith in His Time and Ours—fall respectively into these two camps. Like so much that has been written about Smith, they make the reader yearn for something more.

With this superb new book, Nicholas Phillipson has answered that yearning at last. He has done it by leaning toward both traps at different times, but never quite falling into either. There is, as Phillipson acknowledges at the outset, no getting around the fact that Smith’s ideas are almost all we have of him. But through meticulous research, a masterful command of the philosophical debates of the age, and a fine grasp of the particulars of Scottish life in Smith’s era, he manages to shadow out the man himself—decisively demolishing some longstanding myths popular on both the left and the right, and, without straining to be relevant, nonetheless showing us a thinker with a great deal to offer our own troubled time.

Phillipson leans toward a contextual biography in the early chapters of the book, which are as much about Scotland as they are about the youthful Adam Smith himself—about whom, to be fair, scant little is reliably known. A historian at the University of Edinburgh and among the world’s leading scholars of the Scottish Enlightenment, Phillipson is uniquely well suited to making sense of that period, and through a mix of detective work and informed conjecture he pieces together an altogether plausible story of how Smith’s early education shaped his later views.

There are times when Phillipson’s conjectures go too far. An entire chapter is devoted to a series of lectures on jurisprudence that we do not actually know whether Smith delivered. Phillipson assumes he did, and builds too much on the assumption. He later argues that Smith's moral philosophy—and especially his The Theory of Moral Sentiments—was decisively shaped in response to Rousseau, rather than (as most Smith scholars argue) as an expression of a kind of modern stoicism. But Rousseau is never mentioned in Smith’s great masterwork of ethics, while the case for a modified stoicism is everywhere apparent, and frequently explicit.

Once he enters Smith’s most productive (and most public) period, Phillipson’s analysis is brilliant and clarifying. He demonstrates decisively the coherence and immense ambition of Smith’s life-long project—the development of an overarching system for the study of social life—of which his individual works were elements. By so doing, Phillipson effectively puts to rest the longstanding argument that the economics of The Wealth of Nations was inconsistent with the moral theory that Smith had laid out in The Theory of Moral Sentiments, a view that dominated the study of Smith until well into the twentieth century, and that continues to shape the way he is understood.

Smith’s economics, Phillipson argues, was a function of precisely his understanding of morality—an understanding of man as a profoundly social creature whose capacity for sympathy and desire for approval made it possible to civilize him through the inculcation of “moderate virtues” like prudence, restraint, industry, frugality, sobriety, honesty, civility, and above all “self command” or discipline. These low bourgeois virtues were nothing to sneer at, Smith believed. They were the essence of a functioning liberal society. And the market, in turn, was an institution crucial to the effort to inculcate such virtues. It could both yield immense prosperity and encourage discipline and the moderate virtues by making self-command (which is essential to keeping a job, satisfying customers, and beating out the competition) a means of bettering our condition.

The compatibility and continuity of Smith’s two great works suggests that there was not—as left-leaning admirers of Smith ever since Thomas Paine have suggested—a hidden revolutionary morality in the The Wealth of Nations. The insistence on such a veiled radical agenda (which can be found in many contemporary studies of Smith, most recently Iain McLean’s book Adam Smith, Radical and Egalitarian) has kept too many readers of Smith from taking his moral philosophy seriously.

But the same continuity also means that many libertarian readers of Smith are wrong to believe that his economics is his morality, or that an unregulated market exhausts his idea of an ethical society. In fact, Smith’s market is highly regulated. Far from a pseudo-natural phenomenon best left to its own equilibrium, it is a social institution constructed by policymakers with very particular moral ambitions.

The nature of those ambitions speaks directly to the problems bedeviling our own capitalist economy—indeed Smith’s arguments are more relevant today than at any time since Smith’s own age. For most of its history, capitalism was locked in conflict with various forms of collectivism, and above all with socialism and communism. That conflict is for the most part over now, and what remains in the developed world is an argument about what sort of capitalism we want. And as Phillipson powerfully brings out, Adam Smith’s capitalism is a very particular type.

Smith, after all, did not offer up his economics in opposition to collectivism, which did not really emerge until the subsequent century. His adversary was mercantilism—by which each of the European powers set market rules that served the interests of a few large domestic manufacturers and trading companies working closely with the government. Mercantilism thus put economic policy in the service of the national interest, in order to advance the nation’s trading position. Smith believed this was counterproductive. Instead, he argued, legislators should govern the market in the interest of the common consumer. This was his key economic insight. As he put it:

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer.

By turning the logic of mercantilist economics on its head and establishing a market designed for the good of the common citizen, Smith believed governments could both unleash immense productivity and wealth and create economic institutions that encouraged discipline, moderation, and order in an open society. This would mean drawing a clear distinction between “pro-market” economic policy and “pro-business” economic policy, and Smith believed there were few threats to the moral order of a liberal society greater than the entanglement of the government with the nation’s largest producers.

That distinction has been lost in our time. In recent decades, the federal government has too often sought to advance the nation’s economic interests by tying itself to our largest corporations. What the left derides as crony capitalism and the right derides as state capitalism has been the policy of Republican and Democratic administrations alike, particularly since the economic crisis of 2008. The Bush administration’s bailouts of large Wall Street firms and the joint Bush-Obama bailouts of the nation’s largest automakers were the epitome of such entanglement. And the Obama administration’s economic reforms—empowering the largest health insurers over smaller competitors in last year’s health-care reform and the largest financial companies over smaller competitors in last year’s financial regulation reform—have taken this approach to new heights.

It was no surprise that those large insurers and financial firms supported those reforms, even though they increased the government’s power over the companies’ operations. As Smith understood, the wealthy and powerful will always look for exemptions from the rigors of competition. Though he was a champion of free markets, Smith was no fan of big business. Large merchants and principals of “joint stock companies” (or corporations), Smith wrote, are “an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” And they are more than happy to use the government as their instrument.

As Phillipson ably shows, Smith feared the moral consequences of such entanglement between legislators and large corporations even more than the economic consequences. We have failed to take heed of these consequences in our time because we have forgotten the moral underpinnings of our economic system. Phillipson has expertly reminded us of the moral character of our way of life, and he shows why neither the right nor the left can truly lay claim to the father of capitalism.

Yuval Levin is the editor of National Affairs magazine and a fellow at the Ethics and Public Policy Center.