The Economics of the Good
Adam Smith, Ethics and the Character of Virtue
The call to act for the common good can be heard from all political quarters. All can agree that the common good is desirable. But what is it? And, more importantly, who are its agents and within what institutional context? To bring about the common good requires certain kinds of agents and certain kinds of actions, within a certain social and ethical habitus enabling such agency. In the prevailing economic ideology since Adam Smith's The Wealth of Nations, the presumption has been that the interplay of individual agents pursuing their self-interest serves to bring about the common good, an unintended consequence through the invisible hand of the market. There has also been a scepticism towards the very visible hand of political projects which attempt to engineer the common good from above via the state, the suspicion being that particular interests smuggle their self-interested activity into the public realm through ideological claims to be serving the public interest.
Are there any other ways of constituting the common good?
We need alternatives. Individualist economics has not only rendered the common good something indirect, the unintended product of self-interest - which more often than not is a mutual self-cancellation bringing collective nullity, even ruin - or something remote and abstract, available only through a dubious political engineering via the state. Social atomism and political centralisation are twin products of the same social relations. These relations deprive us of the ability to govern our existence by true ends, subjecting us to the illogic of collective action, making actions which serve to bring about long-term collective destruction quite rational from the perspective of the short-term in which agents act. The capital system is by definition an anarchy of production: a planless, endless, nihilistic system of production for the sake of production, driven by the pursuit of accumulation for the sake of further accumulation, to the detriment of all other parts and activities that together comprise a truly fulfilled existence. The capital system has driven the greatest accumulation of material quantity that the world has ever seen. In its own terms, it has been an immensely successful system, generating and distributing wealth amongst the greatest number of people than every other world economic system put together. That is something that needs to be pondered at length as we make demands for a new economic system. There are reasons why the capital system survives, and those reasons include its popularity – the involvement/complicity of individuals in its everyday operation - at least as much as the ‘dull compulsion’ of any exploitative economic force. It inspires a commitment that alternatives cannot, in their embryonic form, do not command. Given the choice between the capital system that, for all of its flaws, ‘works’, and the vagaries of a new economic system that critics say is necessary, desirable even, but which is barely visible on the horizon, the greater numbers will choose the capital system. There is, then, substantial work to be done on transitions and implementations, establishing viable economic mechanisms able to command the support of increasing numbers and induce them to lend their time, talent and effort to its functioning. Without that expansion of alternative economic practices and arrangements, the capital system will remain the only game in town. So long as we have a town left. For the capital system is not only the greatest growth machine that the world has ever seen, it is also the greatest heat machine, warming the planet, transgressing planetary boundaries, eating up the world's resources, and driving the biosphere over the cliff to collapse. It seems redundant to add possible extinction to that list. Most will die and those that don’t will wish that they had. I’m not interested in gloomy meandering and hand-wringing, which all too often expresses the very the subjectivist mindset that has brought us to this collapse. To constantly inform us of the end of nature and pronounce the end of the world is narcissistic. If the (human) world is ending, for certain, then make your peace. All material life is finite. Death should not be a surprise. Or did you think your machine gods really were the passport to eternal life? Where once the wilful autonomous subject invested the world with value and sought by technological conquest to bring about heaven on earth, now we plainly see the sovereign lords ruling over a vast land of nothing. The machine gods have failed us. And the response still isn’t humility, but a converse hybris in which the castrated and impotent subject endlessly howls doom and disaster, as if anyone or anything should give a damn about men-who-would-be-gods being stripped down to size. A curse on such narcissistic whiners! There are better ways to make peace with the world.
The fatal flaw of the modern capital system is its systematic separations of individual and social good, private self-interest and public interest, short-term and long-term, all the constituents of capital’s illogic of collective action. The presumption is that the pursuit of self-interest on the part of individuals is the ‘most effectual’ means of ensuring the public interest. Mandeville, in a semi-satirical, but wholly serious, phrase described this in terms of 'private vices' generating 'public virtues.' In such a mindset, the common good ceases to be something that is the central organising purpose of society, something directly pursued through social relationships or public actions. Instead, it becomes something unconscious, indirect, an unconscious, unintended consequence.
We see now that this approach is generating not the common good at all but the common bad, in the form of climate change and global warming, the unintended consequence of incremental, uncoordinated actions on the part of untramelled economic activity on the part of self-interested agents.
A figure worth revisiting in this context is Adam Smith. Smith’s claim was that the invisible hand of the market would automatically serve to bring about ‘universal opulence which extends itself to the lowest ranks of the people’ as ‘a general plenty diffuses itself through all the different ranks of the society’. Defenders of the system would claim that this has been achieved, and will continue to be achieved if we keep the market free from artificial interference, intervention and regulation. Critics could point to state intervention to ensure a more equitable distribution of goods, but the basic engine of material plenty, so it is claimed, has been capital’s growth economy. We now live in the most divided societies in history, in terms of the disparities in income within and between nations. Yet defenders will still argue that this inequality is in the context of a general rising of material living standards, with greater numbers receiving higher incomes, and commanding a greater number of material goods, than any previous period in history.
There is, however, a greater concern – collective action and the common good. We have now come to appreciate the extent to which the public interest involves more the production and consumption of goods and more than the distribution of income. A fulfilled and happy life involves qualitative concerns at least as much as quantitative measures. And it certainly includes the ecological conditions of the good life. In these respects, the idea of economic individualism as the means to bring about the public interest unconsciously and indirectly – ignoring the common good as an end in itself, by which we order society - not only turns things the wrong way around, it is socially and ecologically suicidal. The capital system’s planless anarchy of production now stands revealed as bringing about not the common good but the common bad of climate change and global warming and all manner of other ecological ills. We can no longer believe in the god of the market. The ‘invisible hand’ is generating deleterious and destructive unintended consequences that will put an end to civilization if we do not create the collective mechanisms and institutions that check them, and social relations that put an end to them. From moral, scientific and democratic quarters, from the Pope and other religious leaders, to climate scientists and the world’s main scientific bodies, to popular social movements all over the world, appeal is being made to put the common good before particular interests.
But here is the problem – to whom and to what is this appeal made? Who or what is equipped to act on such a demand? To people? They are locked within socially structured relations and patterns of behaviour that compels them to put immediate individual self-interest before all other considerations, to earn money, to survive, to keep a roof over their heads. To governments? Government power is secondary and derivative, and depends upon resources generated through facilitating the process of private accumulation. To business? Economic agents must ensure the self-expansion of monetary values – profits – or face collapse. Companies don’t make profits, go out of business, make people unemployed, who lose income and everything that depends on it, blame and vote out governments… Where does responsibility for something so general as the common good lie? Whether we define this common good in terms of social justice, equality, material well-being or planetary health, detached from the social relations, social practices and social forms that give it content, it is remote and abstract, and unavailable.
In an inherently planless and anarchic economic system in which no common or public body is in control, driving the social and environmental world to crises of ever greater scale, we are desperate for a plan for the common good. Problems of climate change and global warming, deforestation, ocean acidification, the poisoning of the water tables, the melting of the icecaps, the extinction of species, require environmental planning and regulation, yet the capital system is by definition an anarchy of production that is inimical to such control.
I shall examine this question and outline a theory of dynamic environmental regulation, something which recognizes the fundamentally active and changing nature of environmental issues. That is, I see the question as complex and requiring much more than the legislative and regulatory approach of previous environmental management. A planful approach to the environment comes from within that environment, not from the top-down approach of the state, which is merely the flip-side to the bottom up anarchy of capitalist production. And that implies profound social transformation and a new economy that takes us beyond the false and alienating dualisms of the state and market, central planning and economic anarchy. The planning comes from within the sphere of economic agents and their activities.
Economic agents within the capital system do not intend to bring about common social and ecological bads, any more than they directly pursue the common good. They are in the grip of a systemic imperative to pursue the immediate self-interest. The critical decisions that lead to activities that impact upon the social and natural environment, decisions about what is produced, who produces it, where it is produced, at what price and in what quantity, are not in government hands, still less the hands of the people who elect these governments. These decisions are in private hands, and these hands are tied by the systemic imperative to accumulate capital, generate profits. Thus, when these business imperative collides with the democratic will of the people and the health and well-being of the planetary ecology, then the principal economic agents, in global financial centres, in the TNCs, have no choice but to serve the former to the detriment of the latter. For all of the appeals to the common good being made from all directions, the principal economic agents themselves must necessarily make decisions which are socially, morally and ecologically wrong but systemically right. We are living in the era of systematic self-destruction. This has occurred throughout the history of the capital system. Instead of an internal principle of democratic self-limitation, with human beings choosing to be governed by ends they have set themselves, democratic will has been overridden, with capitalist imperatives being pursued over the heads of the people. When business and democratic imperatives have collided here, business has won out. The social impacts have often been bad, the common bads born by the victims of unemployed, the poor, the broken communities. Now, the strain can no longer be simply put on some. The impact on the environment is such that all people will be badly affected. When business and ecological imperatives collide, economic agents will still systematically choose the former, for they have no choice but to accumulate. Without accumulation, there is no economic system. We have no choice but to take the common good back into our hands, and abandon capitalist anarchy for a planful economy. The capital system now has the technological power, the global reach and the immediate incentive to lay waste to the planetary ecology, and the choice to do otherwise is in the hands of no-one. Failure to transform the global economy effectively means leaving our fate, and the fate of life on earth, to an anarchic economic system in which the principal agents systematically make the socially and ecologically wrong decisions. Failure to address the logic of collective action in institutional terms by creating social arrangements and relations directly committed to the common good will ensure that we will continue on the road to collective social and ecological suicide. Instead of forms of the common life that bring individuals together in a public life, practicing mutual aid and committed to the common good, there will be a mutually assured suicide ensured through the continuing separation of people in their private lives, and the separation of private life from the public realm.
These are moral, as well as institutional, questions. Human beings do not necessarily appreciate what is in their own interest, neither individually nor collectively in a group or in society as a whole. If the moral law comes from within, then so do the demons which plague human existence. Human beings require an education, something which draws out their best innate qualities, but also a purification. It is in this respect that I refer to the relative moral independence of the human species with respect to the natural world. For the conservative mind (Kinneging), human beings are ‘inclined to evil.’ That is different from saying that human beings are doomed to evil, but it is still a strong statement with political, institutional and moral implications. The fallen nature of human beings leads to a political and moral order which is concerned to impose and keep the peace. I would state the point more generously, and in a much more balanced way, and say that human beings are born with a range of natural inclinations, and that human passions, appetites and desires point to a range of things, both good and evil. I tend to go with the Thomist view that evil is the privation of good, and that the stronger inclination is towards good rather than evil. It is the failure to ensure the flourishing of healthy potentials for the good that results in evil. That said, whichever view we take here, the means of ensuring order in the soul remains the same. The nature of human beings is such that there will always be the fight between the forces of order and disorder in the soul is always a struggle between good and evil, making the acquisition of virtue an urgent matter both for each individual and for society as a whole. There is no need to mystify what is meant by virtue here by presenting it as a reactionary recover of classical and Christian truths denied by modernity. The virtues are qualities for successful living. This should be read alongside contemporary calls for ‘sustainable’ living in light of ecological constraints. Virtue is also a form of self-constraint or self-restraint, something that individuals impose upon themselves from within as a matter of the right character rather than have it imposed from without in the form of institutional and legal force, economic necessity, or ecological limits. Such self-restraint is integral to a functioning political and social order. And developing such internal restraint is part of what acquiring the virtues is about. Plato argued for the philosopher-ruler is human beings are to live wisely and well. In light of the argument presented here, individual virtue or self-rule is a condition of political and social self-rule. Modern capitalism hates the idea of inhibitions, limitations and restraints and rejects the need for such things as a threat to its own endless accumulation of material quantities and its concomitant hedonistic treadmill of consumption. Such a system scorns the idea of ‘inner conscience’ and ‘self-control,’ identifying freedom with a release from all such inhibitions, internal and external. We get this ‘freedom from’ repressive and restrictive orders and controls taught in economics, culture and ethics. The paradox is that such freedom from constraint produces the greatest constraint of all, the external constraint that political-legal force, bureaucratic control, economic necessity and ecological degradation places upon all. Hence, I make the case that ‘rational freedom’ - affirming the unity of each individual with all individuals through rational restraint, an internal moral and social restraint - is the key to true freedom as a relational freedom, a dimension of that freedom and not merely a condition of it. The key act of modern rationalism has been to conceal or distort the problematic truth that individual liberty, freeing human desires, appetites and passions, brings about consequences of external collective force that serve to inhibit freedom. But the idea that liberty is about self-interested desire measured by the expansion of money and power is pervasive. We see it in Machiavelli's Prince: ‘It is a thing truly natural and ordinary to desire to acquire’ (The Prince, Ch. 3) and ‘One can say this generally of men: that they are ungrateful, fickle, hypocrites and dissemblers, evaders of dangers, lovers of gain’ (Ch. 17).
Adam Smith writes of the ‘natural propensity to truck, barter, and trade.’
'This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.'
Smith The Wealth of Nations, Book I, Chapter 2
Let’s look at these things together. Machiavelli writes of the love of gain, Hobbes of the expansion of power, Smith of trade.
Murray Rothbard argues that Smith is wrong here: ‘Smith unfortunately shifts the main focus from mutual benefit to an alleged irrational and innate “propensity to truck, barter and exchange,” as if human beings were lemmings determined by forces external to their own chosen purposes.’ (An Austrian Perspective on the History of Economic Thought, vol I p 442).
I have given reasons enough to show the extent to which human behavior in the modern age is constrained by forces external to our own chosen purposes. But that’s not the key point here. Smith’s view here implies that human beings obtain a natural satisfaction from the mere act of trade. If that was the case, human beings would be happy to trade things of equal value over and again. The pleasure lies in ‘gain’ and ‘power’ rather than in equal exchange. The claim then becomes that human beings have a ‘natural propensity’ to seek perceived advantage. This can come through trade, it can come in other areas.
Human beings exhibit a trait known as the endowment effect, which the behavioural economist Dan Ariely describes thus:
Simply put, the endowment effect shows that we value the things we own more than identical products that we don’t own. This causes a mismatch between buyers and sellers, where buyers are often willing to spend less than the seller deems an acceptable price.
Modernity is not just a dualistic world, it is an inverted world, splitting up the things that should be joined and putting the separated terms the wrong way round – object before subject, means before ends, economics before ethics, state before citizen/demos, price before value. Through increased knowledge of efficient causality, the moderns, in various ways, in science, politics and economics, have turned reason into an instrumental and calculating rationality in the service of the passions, delivering effectual truths that are their own end and validation. The proper order of soul and society is thereby reversed.
Nowhere is this made more clear than in the philosophy of Thomas Hobbes. In Leviathan, (Part I: “Of Man”, Chapters 10–16), Hobbes sets out a view of power which establishes the dominant view in the modern world. Hobbes defined power as ‘a man’s . . . present means, to obtain some future apparent good’. Power is thus the ability to secure well-being or personal advantage. Hobbes distinguishes two kinds of power.
Power, defined as ‘a man’s . . . present means, to obtain some future apparent good,’ is divided into two kinds:
natural power, derived from internal or innate abilities of the body and mind, such as intellectual eloquence, physical strength, prudence, wit, and artistic ability.
Instrumental power, derived from the acquired faculties and advantages of friends, money, or reputation, the sole purpose of which is merely to acquire more power. Hobbes this refers to the ‘perpetual and restless desire for power’ as a fundamental quality shared by all humans.
All of which begs the question of where the possibility for order comes from. For Hobbes, with one’s power comes the fear of another’s power and this fear acts as a counterbalance to the appetite for power possessed by all, this constraint checking individuals from constantly struggling to obtain power. It is only the fear of death and bodily harm which causes human beings to seek peace. Hobbes saw not a quest for peace on earth, only a quest for power that ceases only in death. This quest for power was an attempt by individuals to gain command over others’ power, appropriating this power of others and using it to personal ends. Individuals are thus engaged in a game to add the power of others to their own arsenal. The power a person has is relative to the power of others. Those who have less power than others are effectively powerless in their company. The result is an endless power struggle between individuals, each seeking to command the power of others and thereby expand their own power.
Hobbes thus states that human beings buy the compliance of others.
‘The value or worth of a man is, as of all other things, his Price; that is to say, so much as would be given for the use of his Power.’
Hobbes understood that there are some individuals who, never having enough power, are constantly seeking to use others instead of cooperating and living in harmony with them. Hobbes thought this a dysfunction. His view rests upon the belief that the mutual arresting of power would be sufficient to ensure peace. Hobbes’ contended that most individuals would find ‘sufficient power’ to be adequate and would therefore tend to strike a balance in their lives. Instead of an endless escalation of self-aggrandisement and conflict, individuals would seek to share power with others and co-operate.
'that a man be willing when others are so too, as farre-forth as for Peace and defence of himselfe he shall think it necessary, to lay down the right to all things; and be contented with so much liberty against other men, as he would allow other men against himselfe.'
Ultimately, the civil peace is ensured by individuals agreeing to cede their power to a central authority which has sufficient strength as to be able to employ its power over against recalcitrant individuals without fear of being effectively opposed. For Hobbes, this central state, the ‘Leviathan’, is an elected monarch looking after the commonwealth.
We may, however, have good grounds for doubting whether external constraints could ever be strong enough to restrain such self-interested, self-maximising individuals, ensuring that they are kept within boundaries. This will be the argument I make with respect to the contract theories upon which the abstraction of the modern state is based. The ‘rational freedom’ I argue for understands subjective will in terms of an intersubjectivity that secures the unity of the freedom of each individual and the freedom of all individuals. This view criticises the atomistic model of freedom as a self-aggrandising pursuit of power that ends in a mutual self-cancellation (Marx Grundrisse 1973:163/6). Marx exposes the ‘absurdity’ of the liberal view that competition is ‘the absolute mode of existence of free individuality’ when it is not individuals who are set free by competition but capital. Personal freedom is thus circumscribed within an objective unfreedom, the freedom of each being pursued within conditions which ensure the objective dependency of all upon the ‘external necessity’ of the capital system (Gr 1973:649/51). ‘Under free competition, the immanent laws of capitalist production confront the individual capitalist as a coercive force external to him’ (Marx Capital l 1976:381).
The process in which the individual emerges destroys relations of personal dependence only by making mutual relations or intercourse external to all individuals. This entails the impersonal dependence of all upon alien powers. The individual
'lives in the political community, where he regards himself as a communal being, and in civil society, where he is active as a private individual, regards other men as means, debases himself to a means and becomes a plaything of alien powers.'
On the Jewish Question 1975:220
Herein lies the source of the inversion and impersonalism which characterises the modern social order.
This commentary on Machiavelli, Hobbes, Smith and Marx identifies the central problem of modernity, the way that its key processes split the things that should be joined, generating political and social systems that have lost touch with right order, right reason and right behaviour. In mastering efficient causality, the moderns have put reason in the service of appetites and desires. Instead of constraining the passions, educating and canalising them to the good, reason has lost its substantive concern and have instead become an instrumental, calculating reason generating effectual truths whose production is their own proof. The world has been split within and its proper order has come to be inverted. In order to escape the implications of this inversion for practical life, the problematic nature of the soul is occluded and the difference between good and evil is neutered. It is at this point that the clear difference between virtues and vices is obscured, with the balance of modern opinion tending to Mandeville’s view that private vices generate public virtues. The ‘realist’ approach to ethics in the modern age is merely the uncritical reflection of a demoralised terrain, with a denial of the existence of good and evil, with effects and consequences recognised as the only true reality, with a denial that they are evil. In an age when inhibitions are considered repressions, it becomes difficult to see the connection of the passions with the vices, and impossible to identify (self)-restraint with virtue.
Tomas Sedlacek is good on demonstrating the ethical positions that are essential to grounding a good economics. He's good on Adam Smith, for instance, showing how the supposed apostle of the free market emphasises that, to function efficiently, the economy needs to be set within strong social institutions and moral fabric.
‘The issue of good and evil was dominant in classical debates, yet today it is almost heretical to even talk about it. I further argue that the popular reading of Adam Smith is a misunderstanding. I argue that his contribution to economics is much broader than just the concept of the invisible hand of the market and the birth of the egoistic, self-centered homo economicus, although Smith never used that term. I argue that his most influential contribution to economics was ethical.’
Precisely. As Smith well knew, economics can only work in the context of a social and moral matrix. In the mid-nineteenth century, German scholars drew attention to Das Adam Smith Problem, highlighting what they perceived to be an inconsistency between the ‘sympathetic’ conception of human behaviour that Smith affirmed in his Theory of Moral Sentiments from 1759, and the ‘selfish’ conception to be found in his Wealth of Nations from 1776. This apparent contradiction in Smith is based upon a misunderstanding, but it was the beginning of a recovery of the moral philosophical underpinnings of Smith’s work in economics. The ‘Adam Smith Problem’, I would argue, is a problem at the heart of the capitalist system and the free markets and trade that Smith sought to justify. In other words, whilst there is no doubt that Smith held ethics and economics together on the basis of social sympathies, the capitalist system has proven acidic when it comes to ethics, reducing all things to monetary ties and calculation. The capital system is parasitic upon that social and moral capital and dissipates it whilst being incapable of replacing it.
We know our story, a story of social and environmental justice, and it's a good story. The good life is within our reach. We need to build bridges and networks, form ourselves into clusters of cooperators, and go on from there to build the institutions that check, constrain and finally exclude the free-riders - transforming social relations so that the free-riders lose from such exclusion. At the moment, the free riders are so powerful that they can act without fear of sanction. They are powerful enough to dispense with the constraint of morality. They have no need of a socially binding ethic. Society is left unmoored.
I will argue that concerted institutional action above through effective governance plus (ecological) self-socialisation from below together make for the integral society, an eco-public which possesses active social content. And this is based on an overarching ethical-institutional framework, not an empty and abstract universal, but a universal possessing real substance.
Economics, ethics and ecology go together. They have been rent asunder in an economic system that subordinates all things to the process of private accumulation.
Sedlacek writes on the economics of the good life. We need it, we need to work for it, and work effectively. We need the relations which allow us to work for others when we work for ourselves. Because there is another story being told on the planet. We will never have a common good when the common ground is diminishing under our feet. We need to engage in a commoning that marginalises and excludes free riders, or creates sanctions and incentives enough to encourage them into cooperation.
With respect to virtue ethics, business is a legitimate and worthwhile vocation, but only if it places the concern with money-making within service to the common good and involves activities which enhance rather than inhibit human flourishing.
To quote the words of Vocation of the Business Leader: A Reflection
'Business leaders are called to engage the contemporary economic and financial world in light of the principles of human dignity and the common good. This reflection offers business leaders, members of their institutions, and various stakeholders a set of practical principles that can guide them in their service of the common good. Among these principles, we recall the principle of meeting the needs of the world with goods which are truly good and which truly serve without forgetting, in a spirit of solidarity, the needs of the poor and the vulnerable; the principle of organising work within enterprises in a manner which is respectful of human dignity; the principle of subsidiarity, which fosters a spirit of initiative and increases the competence of the employees —considered “co-entrepreneurs”; and, finally, the principle of the sustainable creation of wealth and its just distribution among the various stakeholders.'
We need an economy that produces goods that are truly good and services that truly serve. And which produces men and women whose character expresses their innate human dignity. Ultimately, the ‘true’ purpose of economic activity derives from a common purpose of life in society, and the ethical purpose of living a good life. This goes far beyond systemic imperatives and personal traits to examine the whole life.
Under the capital system, the view has grown that the overriding purpose of business is make money, make profits, to the neglect of social and ethical considerations. Private vices make for public virtues, the common good following indirectly from the pursuit of private self-interest. In business, the emphasis has been upon maximizing shareholder returns whilst, in turn, discounting the interests of other stakeholders such as workers, suppliers, distributors, consumers, society and the natural world. The presumption has been that the pursuit of private interest through a market free of impediments to its proper operation would suffice to produce the greater good of all these other interests, indirectly rather than as a matter of deliberate design.
However, if a private equity firm is maximizing its short-term profit by loading up companies with debt, saddling future generations with debt, offloading costs to society, building upon ecological debt, then assertions of a greater good are plainly a cover for private aggrandizement. If companies can wrack up record profits whilst begrudging its workforce a living wage, avoiding taxes, rejecting social and environmental standards and protections as inimical to business, then such business defeats the very purpose of economic activity.
Profit-making, then, cannot be the sole purpose of business. And private self-interest cannot be the sole motivating principle of the market economy. In Caritas in Veritate, Pope Benedict XVI expresses the basic principles of Catholic Social Thought:
'The Church's social doctrine holds that authentically human social relationships of friendship, solidarity and reciprocity can also be conducted within economic activity, and not only outside it or “after” it. The economic sphere is neither ethically neutral, nor inherently inhuman and opposed to society. It is part and parcel of human activity and precisely because it is human, it must be structured and governed in an ethical manner.
The great challenge before us, accentuated by the problems of development in this global era and made even more urgent by the economic and financial crisis, is to demonstrate, in thinking and behaviour, not only that traditional principles of social ethics like transparency, honesty and responsibility cannot be ignored or attenuated, but also that in commercial relationships the principle of gratuitousness and the logic of gift as an expression of fraternity can and must find their place within normal economic activity. This is a human demand at the present time, but it is also demanded by economic logic. It is a demand both of charity and of truth.'
'But the social doctrine of the Church has unceasingly highlighted the importance of distributive justice and social justice for the market economy, not only because it belongs within a broader social and political context, but also because of the wider network of relations within which it operates. In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods it cannot provide the social cohesion that it requires in order to function well. Without internal forms of solidarity and mutual trust, the market cannot fulfill its proper economic function.' (§35)
How far is thus understanding from Adam Smith, the supposed founder of modern free market economics, and who gives his name to ‘free market’ think tanks the world over? Actually, Smith is closer to Caritas in Veritate than he is to the way that today’s free trade proselytizers understand his moral and economic thought. Neoliberal economics is not merely a religion, an act of faith, it is bad religion, a bogus religion of false idols; it faith without reason.
Smith has a deep and clear understanding of the relation of economics and ethics, being concerned to set economics within a social, institutional and ethical matrix. Smith is rarely credited for his social and ethical understanding, possibly because so much of that aspect of his thought was taken for granted in his day, with the accent falling on his radical and new proposals. Whatever the reason, the Smith that is known to us through the business pages is a caricature of the real Adam Smith. The popular understanding of Smith isn’t Smith at all. The idea that private vices produce public virtues is Mandeville’s cynical satirical view that was anathema to Smith the moral philosopher. Smith in The Wealth of Nations did write this: 'It is not from the benevolence of the butcher, brewer or baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love.' But there is a danger in forming general conclusions from selective quoting.
Smith is commonly understood to have argued that the pursuit of private self-interest through the invisible hand of the free market, untrammelled by government interference, as being sufficient to drive the economy to produce the general good. This view is expressed in Book IV Chapter ii of the Wealth of Nations:
As every individual … endeavours as much as he can, both to employ his capital in the support of domestick industry, and so to direct that industry that its produce maybe of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it … [B]y directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention (Smith, 1776, 456].
However, things are not so simple. Smith was far from being an apologist of selfish behaviour and far from being an uncritical advocate of unfettered markets. As I wrote in The Coming Ecological Revolution:
The term ‘invisible hand’ appears just once in The Wealth of Nations and it doesn’t refer to the beneficent effect of free markets at all. Smith’s ‘invisible hand’ is the guiding force that makes Scottish investors behave parochially, preferring to put their money into the Scottish economy rather than investing abroad. Far from justifying global free trade, Smith’s argument is in favour of localism. Investment in the local economy means that both investors and the local community in which they invest get a return; since the investors live in this community, the investors enjoy the economic stimulus too. This is indeed the ‘invisible hand’ yielding a beneficial yet unintended consequence of investors' selfish motives. But it is only achieved on account of investors’ preference for domestic over international investment. This is nothing like the ‘free’ markets and ‘free’ trade that those who (mis)quote Smith advocate. On the contrary, this is an argument for scale and balance, ties of community and solidarity which gives investors an identification with the community in which they invest.
A closer reading of Smith’s work, both Theory of Moral Sentiments and Wealth of Nations, beyond selective quotations, indicates that he had a much more sophisticated understanding of human beings, social existence and the general good than the simple view that assumes that individuals are driven solely by self-interest and that the economy produces the greater good of all when freed from governmental and moral interference (see Sen, 1986). That view makes no sense of Smith’s emphasis on ethics, trust relations and public goods. Smith did argue that self-interest has a strong influence on people’s behaviour. But no serious thinker had ever missed so obvious a truth. Smith’s main achievement was ethical as well as economic, it was to bring ethics and economics together rather than to assert one over the other. Smith saw the hopelessness of opposing virtue to self-interest. Instead, he did something much more profound – he sought to canalise self-interest in productive ways for the greater good. Smith emphasised trust relations, ‘rules of conduct’, moral codes as all influencing the behaviour of individuals in a positive manner for society.
Those general rules of conduct, when they have been fixed in our mind by habitual reflection, are of great use in correcting misrepresentations of self-love concerning what is fit and proper to be done in our particular situation.
Smith, 1759, 160
At the heart of this conception is an understanding of social sympathy as the bedrock of human relations and society. Such is the basis of solidarity.
A careful reading also shows that the argument that the pursuit of self-interest on the part of individuals serves indirectly to produce the common good does not express Smith’s true meaning either. Smith’s view is nuanced, drawing attention to the many connecting principles of the economy and the way that these produce order through the operation of the invisible hand. Whilst this did not reflect the conscious purpose and decree of government, Smith did consider it to reflect the planning and handiwork of the Deity as designer (see Evensky, 1993). There is much more than private self-interest and free markets going on in Smith’s philosophy. Smith considered that ‘humanity, justice, generosity, and public spirit, are the qualities most useful to others’ (Smith, 1759, 190). Whilst self-interest is useful in driving activity in the right direction in certain situations, these public virtues are useful in other situations. There is no basis in Smith for reducing economic activity and public life to private self-interest. Indeed, Smith himself expressed doubts about the role of self-interested activity producing the general good through the invisible hand. In the “Additions and Corrections to the Wealth of Nations, published in 1784, he expressed concerns over the ways in which the mercantile system was distorting commercial society. How different is this from Marx’s critical analysis of the tendencies to the centralisation and concentration of capital as a result of the necessary operation of the ‘laws of motion’ of the capital economy?
In his revision of the Theory of Moral Sentiments in 1789, Smith added ‘a compleat new sixth part containing a practical system of Morality, under the title of the Character of Virtue’ (Smith, 1976a, 319-20).
So let us set this ‘Adam Smith Problem’ straight: Adam Smith was a virtue theorist, a man who believed in the essential public dimension of life, in social sympathy and solidarity. The Adam Smith Problem is a problem not of any split between ethics and economics in Smith’s understanding, but a problem as to whether we can have economics and ethics together in a capital system that reduces to the bottom line as a result of internal systemic pressure to accumulate.
In the revision to the Theory of Moral Sentiments, Smith describes society as something composed of a layered web of communities. These communities possess particular interests which conflict with each other and which may diverge from the common good. The challenge of public order is how we may canalise these divergent interests so as to avoid the implosion of society through the creation of destructive factions. Smith thus enjoins all people to place the well-being of society as a whole above that of their own factions. He places particular emphasis upon the role of statesmen in coming to construct a moral order through the actions they take and examples they set to others (Evensky, 1993, 2005). Smith, in fine, had seen the dangers that his views on self-interest and the invisible hand could easily be misconstrued and sought to distinguish his view from that popularised by Mandeville to the effect that private vice/greed is conducive to public virtue/good. This was not Smith’s view. For Smith, virtue serves as ‘the fine polish to the wheels of society’ while vice is ‘like the vile rust, which makes them jar and grate upon one another.’ (Smith, 1789, 244) Individual greed is a vice that could never serve as the basis of social good. Instead, it encouraged the fragmentation of society into divergent interests and factions bringing about the subsequent loss of the public good that all individuals need for their true well-being. As Evensky argues, for Smith ‘ethics is the hero – not self-interest or greed – for it is ethics that defend the social intercourse from the Hobbesian chaos.’ (Evensky, 1993, 204). In fine, Adam Smith the economist, moral philosopher and virtue theorist would be in agreement with the fundamental principles of Caritas in Veritate.
The pertinent, or impertinent, question here is whether the private market economy, subject to systemic accumulative dynamic, has overwhelmed the public infrastructure, moral codes and social ties which Smith made a condition of economic activity leading to the general good. That would be my understanding. In other words, Smith joins all those over the ages who, to this day, can be found calling for a ‘responsible’ or ‘ethical’ capitalism. Is such a thing possible? Such a notion expresses a belief that the capital system, an anarchy of production which is based upon the competition of capitals and an accumulative dynamic, can be made a public domain based upon a conscious, governable order.
These observations highlight the fundamental deficiencies of the libertarian position. The libertarian defence of limited government and free markets is incompatible with the virtue position in that it is corrosive of layer of communities, social supports and public connections that serve to constrain the operation of ‘the economy’ within social and ethical parameters. Libertarians baldly assert self-interest as a virtue, on the assumption that its pursuit leads to more effective and efficient outcomes for society as a whole. As we have seen, that assertion is contentious, and is based on a misreading of Smith. But maybe the libertarians are right about the capital economy and it is Smith that is wrong in his belief that this economy can be responsible and ethical?
For those who hold to a view of economics as a branch of ethics, telos, virtue with purpose, is always central, the starting point and the end point. Economics can never be an end in itself. The goals and activities of the economy are geared to the support and sustenance of the good life, characterised by human flourishing and well-being. The virtuous economy is an economy of communion, joined together by the warm and affective bonds of reciprocity. This is an economy of both solidarity and autonomy, not of either alone, the former linked only by the institutional force of state and law, the latter by the transitory forces of the invisible hand. True virtue in social and economic life is all about strengthening internal, personal force as against external, impersonal coercion.
We need, however, to be wary of the dangers of moralising when it comes to discussions of virtue and self-interest. I commented above on Adam Smith’s revision of the Theory of the Moral Sentiments. Here, Smith calls upon all people to look beyond their particular interests and look after the well-being of society as a whole. This call upon people to subordinate their immediate self-interest to the common good has been many times in history. The problem is that such a moral appeal is no more than an impotent moralising in the absence of the appropriate social relations and identities to make it effective. Frankly, appeals to moral restraint, virtue and the common good possess as much chance of succeeding in an economic system organised around accumulative imperatives as the urging of chastity in a brothel.
The problem with seeing virtue in personal terms alone is that the problems we face are social and systemic in nature. The principal agency of economic activity in the capital system is not the individual but capital, capital as a social relation and as an accumulative dynamic. Further, the wages systems renders workers within the system dependent upon the continued health and growth of the system as a condition of their own security. This does not preclude a moral appeal. It does make such an appeal unlikely to succeed if it involves a sacrifice of self-interest, a sacrifice which, in terms of prevailing notions of rationality, is highly irrational. Moral appeals to the common good are doomed to failure since they presuppose a social identity which does not exist, a social identity in which individual and social good coincide. When forced to choose between living virtuously but poorly and insecurely in terms of basic needs outside of the system or less virtuously but richer and securely in terms of basic needs, in the main individuals will opt to remain inside the cage, be it iron or gilded. In The Class Struggles in France, Marx writes of lulling the proletarian lion to sleep. Even the lion gets used to the bars on its cage.
How do we get out of this? First of all, we get out of the brothel and come to understand that the economic system is only giving us back, in diluted and ersatz form, what it has deprived us of in the first place. And it is giving it us back at an exorbitant price, a price that neither we nor the natural environment can afford. In a competitive society, we are pitted against each other as rivals and enemies, and set on a treadmill of a never-ending pursuit, possession and consumption of scarce resources. We need to penetrate the illusion of choice in front of us as having only the semblance of freedom, not the reality. We need to create a social identity that means that we work for others when we work for ourselves, a social identity in which the individual good and the social good coincide. Within these social relations we are freed from pressures to keep expanding our power and control of resources, lest we fall behind others. In such social relations we come to take the common good back within our reach, and delineate it in terms of the common humanity we share with each other. The acquisition of more and more material goods, the obsession with more, bigger, faster and better, are not life's true telos at all, they are characteristics of economic imperatives that have been elevated into being ends in themselves. In crucial respect, the capital system, which has succeeded beyond the wildest dreams of its early exponents, Smith, Ricardo, Malthus, in delivering material quantities, reveals its spiritual and human emptiness.
And, frankly, we have known this since ‘his satanic free trade majesty’ John Stuart Mill saw the light and advocated our transition to the stationary state. Mill acknowledges ‘the economical progress of society’ in terms of capital’s population and the productive arts. ‘But in contemplating any progressive movement, not in its nature unlimited, the mind is not satisfied with merely tracing the laws of the movement; it cannot but ask the further question of what goal? Towards what ultimate point is society tending by its industrial progress?’ (Mill 1985:111).
What is life’s telos, and how does such purpose work through the economic means and mechanisms of the good society?
‘It is scarcely necessary to remark that a stationary conclusion of capital and population implies no stationary state of human improvement’ (Mill 1985:116).
Mill’s proposals for limits integrate an aesthetic and an ecological purpose with the anthropological purpose. Mill states that there is not much satisfaction in contemplating the world in which there is nothing left to the spontaneous activity of nature.
'With every rood of land brought into cultivation, which is capable of growing food for human beings; every flowery waste or natural pasture ploughed up, all quadrupeds or birds which are not domesticated for man’s use exterminated as his rivals for food, every hedgerow or superfluous tree rooted out, and scarcely a place left where a wild shrub or flower could grow without being eradicated as a weed in the name of improved agriculture. If the earth must lose that great portion of its pleasantness which it owes to things that the unlimited increase in wealth and population would extirpate from it, for the mere purpose of enabling it to support a larger, but not a better or happier population, I sincerely hope, for the sake of posterity, that they will be content to be stationary, long before the necessity compels them to it.'
Mill 1985:116
I’ll end with a couple of articles by David Brin.
By David Brin
The irony of faith in blind markets
‘When Adam Smith gets over-simplified into a religious caricature, what you get is “faith in blind markets”—or FIBM—a dogma that proclaims the state should have no role in guiding economic affairs, in picking winners of losers, or interfering in the maneuvers or behavior of capitalists. Like many caricatures, it is based on some core wisdom. As Robb points out, the failure of Leninism shows how state meddling can become addictive, excessive, meddlesome and unwise. There is no way that 100,000 civil servants, no matter how well-educated, trained, experienced, honest and well-intentioned, can have enough information, insight or modeling clarity to replace the market’s hundreds of millions of knowing players. Guided Allocation of Resources (GAR) has at least four millennia of failures to answer for.
But in rejecting one set of knowledge-limited meddlers—100,000 civil servants—libertarians and conservatives seem bent on ignoring market manipulation by 5,000 or so aristocratic golf buddies, who appoint each other to company boards in order to vote each other titanic “compensation packages” while trading insider information and conspiring together to eliminate competition. Lords who are not subject to inherent limits, like each bureaucrat must face, or rules of disclosure or accountability. Lords who (whether it is legal or not) collude and share the same delusions.
Um… in what way is this kind of market “blind”? True, you have gelded the civil servants who Smith praised as a counter-balancing force against oligarchy. But the 5,000 golf buddies—despite their free market rhetoric—aren’t doing FIBM at all! They reverting to GAR. To guided allocation, only in much smaller numbers, operating according to oligarchic principles of ferocious self-interest that go back at least to Nineveh.
If you want to explore this further, including how the notions of “allocation” and “faith in blind markets” get weirdly reversed, and how Smith and Hayek are betrayed by the people who tout them the most, see my article: Guided Allocation vs. Markets: An Ancient Struggle.
Hence, at last, the supreme irony. Those who claim most-fervent dedication to the guiding principle of our Enlightenment: competition, reciprocal accountability and enterprise—our neighbors who call themselves conservative or libertarian—have been talked into conflating that principle with something entirely different. Idolatry of private wealth, sacred and limitless. A dogmatic-religious devotion that reaches its culmination in the hypnotic cantos of Ayn Rand. Or in the Norquist pledge to cut taxes on the rich under all circumstances—during war or peace, in fat years or lean—without limit and despite the failure of any Supply Side predictions ever, ever, ever coming true.
An idolatry that leads, inevitably to the ruination of all competition and restoration of the traditional human social order that ruled our ancestors going back to cuneiform tablets — Feudalism.’