Explore the Book
Chapter by chapter summary of the book.
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Chapter 1
What is Political Economy?
The discipline we know today as “economics” began as “political economy” in the eighteenth century. The early political economists, including Adam Smith and David Hume, wanted to adapt a Newtonian scientific methodology to the study of human behavior and human society, for two principal and connected purposes: first, to discover, from history and empirical observation, regular patterns of behavior that could be systematized and therefore explained and understood; and second, to use those discovered patterns as empirical bases from which to make recommendations about institutional reform. They reasoned that if we could understand how human social institutions work, then perhaps we can understand what the moral, political, economic, and cultural institutions are that conduce to human prosperity—and, of course, which do not.
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Chapter 2
Sympathy, moral sentiments, and the impartial spectator
Adam Smith’s first book was The Theory of Moral Sentiments (TMS), first published in 1759. It went through six editions in his lifetime, all of them revised by him, with the sixth and final edition coming out shortly before he died in 1790. TMS is based on lectures Smith had been giving regularly at the University of Glasgow beginning in 1752. TMS quickly established Smith as a leading moral philosopher, both in Britain and on the European continent, and for the rest of Smith’s life—and for some time afterwards—it was one of the single most influential books of moral philosophy. The great philosopher Immanuel Kant (1724–1804), for example, was deeply influenced by Smith’s TMS. He went so far as to call Smith his “Liebling,” or “favorite.” Why did TMS have such a pronounced effect?
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Chapter 3
The solitary islander and moral objectivity
We saw in the previous chapter that Smith believes our moral sentiments develop over time by an almost evolutionary process that depends on interactions with others. There are two other important elements of Smith’s argument that will fill out his account of the origins of human morality.
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Chapter 4
Justice and beneficence
In his 1759 Theory of Moral Sentiments, Adam Smith divides moral virtue into two broad categories: “justice” and “beneficence.” Smith describes “justice” as a “negative” virtue, meaning that to fulfill it we must merely refrain from injuring others. By contrast, “beneficence” is a “positive” virtue, meaning that to fulfill it we must engage in positive action to improve others’ situations. Beneficence includes for Smith things like charity, generosity, and friendship, things that inspire gratitude in the beneficiaries of our actions. Justice, on the other hand, requires that we do not harm or injure others; if we breach justice, then we inspire resentment in those we hurt.
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Chapter 5
The marketplace of morality
As we saw in Chapter 1, Adam Smith was first and foremost a moral philosopher. In his Theory of Moral Sentiments, he wanted to understand how human beings come to have the moral sentiments they do, and how they form the moral judgments they do. We saw in the previous three chapters that Smith described a process by which individuals develop moral sentiments over time, through interaction with others, and based on the experiences they have watching others judge and perceiving being judged themselves. In the Introduction, I raised the historical and scholarly issue known as the “Adam Smith Problem,” which alleges a rift between the account of morality Smith gives in TMS, on the one hand, and the seemingly different account of political economy Smith gives in his Wealth of Nations, on the other. Can the two accounts be reconciled? I argued in Chapter 1 that both accounts could be reconciled by a proper understanding of Smith’s “political economy” project. In this chapter, let me lay out how the projects of Smith’s two books go together.
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Chapter 6
The division of labor
Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations was published on March 9, 1776. It had been in the works for over a decade, and Smith—who was by now the celebrated author of the highly acclaimed 1759 Theory of Moral Sentiments—found himself the object of a great deal of anticipation. Th e leading thinkers of the day knew Smith had been working on a magnum opus, and they had heard hints and suggestions about what might be in it. But he had been working on it so long that the anticipation had grown to worrying heights, since those who had been so impressed by TMS began to worry that its author could not equal his accomplishment in his first book.
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Chapter 7
Smithian political economy
We saw in the previous chapter that Smith believed the key to increasing prosperity was the division of labor. He argued that specialization would lead to increasing production, which leads to decreasing prices, which in turn leads to increasing standards of living. We also saw that he thought this story of prosperity could ensue only in a “well-governed society,” which for him is one that, whatever else is the case, has “an exact administration of justice.” In Chapter 10, we will look more specifically at the role Smith believes the government should play in society. But can we say a bit more about how Smith thinks prosperity is generated? What, for him, are the causes of the wealth of nations?
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Chapter 8
The invisible hand
As we saw in the previous chapter, Adam Smith’s political economy is based on a chain of three arguments. The first we called the Economizer Argument, or the claim that each person naturally seeks out the most economical use of the resources available to him to achieve his goals, whatever they are. Whatever one’s goals, one wants to achieve them as efficiently as possible. Smith’s claim is that no one needs to tell us to do this: we are psychologically constructed, as it were, to do so already. The second argument is the Local Knowledge Argument, which has a couple of steps. First is the claim that people tend to know their own goals and purposes, as well as opportunities and available resources, better than others. Next is the claim that in order to use resources wisely, decisions about how to use them must be based on this knowledge of people’s goals, purposes, opportunities, and resources
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Chapter 9
Self-interest, equality, and respect
In the last two chapters we saw that, according to Adam Smith, in a “well-governed society” (which for him meant one that protects his “sacred” “3 Ps” of person, property, and promise) each of us would naturally seek out ways to achieve our own ends by becoming “mutually the servants of one another” and thereby would benefit others even as we seek to benefit ourselves. According to Smith, the task of the political economist is to conduct empirical, historical investigations to discover what the policies and institutions are that would enable “universal opulence” and “general plenty.”
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Chapter 10
The role of government
One might be surprised to learn that Adam Smith did not advocate or rely on a theory of natural law or natural rights. He had read his John Locke (1632–1704), of course, and the surviving students’ notes from the lectures on jurisprudence he gave at the University of Glasgow—Smith’s own lecture notes do not survive—record that Smith extensively discussed Locke’s theory of natural law and natural rights. But when it came to Smith’s own discussion of and justification for the proper role of government in human life, natural law and natural rights play no role. Similarly, Smith gave us no overt theory of property, let alone private property. So unlike Locke—and the American founding fathers, many of whom read Smith—Smith does not argue that the government’s job is to protect our natural rights to “life, liberty, and estate” (Locke) or to protect our “unalienable rights” to “life, liberty, and the pursuit of happiness” (Jefferson in the Declaration of Independence).
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Chapter 11
Government interventions in the economy?
We saw in the previous chapter that Smith argues for a negative, defense only (or NDO) conception of justice, which seems to entail that the government’s primary, perhaps only, job is to protect us against invasion of what he articulates in TMS as our “3 Ps”: our persons, our property, or our voluntary promises (TMS: 84). That is consistent with the first two duties of government he articulates in WN, namely, protection from foreign invasion and protection from domestic invasion. But note what Smith argues is the third and final duty of government: “the duty of erecting and maintaining certain publick works and certain publick institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society” (WN: 687–8). Has Smith here opened the door to a more interventionist government than his NDO conception of justice seemed to entail?
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Chapter 12
Final assessment
We have now come to the conclusion of the main elements of Adam Smith’s thought. We have covered everything from who he was, to what his conception of the nature and purpose political economy is, to his moral theory, to the role he thinks the desire for mutual sympathy of sentiments plays in the development of our moral standards, to the connection between his Theory of Moral Sentiments and Wealth of Nations, to his explanation of what wealth is and what its causes are, to his conception of and distinction between justice and beneficence, and to the role he believes government should play in our lives. What remains? We have yet to off er a final assessment of Smith’s work and importance.
