Three centuries and still no jam today

Adam Smith, Daniel Hannan and Mrs Thatcher


My friend Robert has sent me an article by Daniel Hannan (Brexit for the thinking man Hannan) called ‘From Adam Smith onwards classical liberals have known that capitalism makes people less selfish”. You could have fooled me.  It comes with a photograph pf Mrs Thatcher looking (it seems to me but I’m doubtless biased) pretty smug, sitting next to President Reagan, ditto.  Underneath, it says ‘Mrs Thatcher liked to pray to Adam Smith’ (Ugh!).   At least Hannan has understood that before all else Adam Smith was a humanist,  but he has fallen for the complete misinterpretation of the great humanist with which capitalists justify the extraordinary unfair world produced by capitalism (wealth will trickle down, three centuries and we’re still waiting for the promised torrent of jam today).   Smith wasn’t an economist at all.  He was a professor of ethics in Glasgow University.  He gave a lecture course in four parts, the first three of which were published by him in book form, but the last, which was to be about law wasn’t and we don’t even have his notes.  According to Hannan, his recent biographer, Jesse Norman, has made a good attempt to re-produce what would have been in that fourth section,  and I look forward to reading it with great interest.  It was the second part, published under the title The Theory of Moral Sentiments, that holds the key to Smith’s thinking.  Note that sentiments.  It’s all about human feeling.  His big idea is sympathy.  By that he doesn’t mean feeling sorry for somebody, he means entering their minds and understanding them.  He thinks we are born selfish but we become moral through belonging to a human community. If I cut my thumb, he says, to me it is the worst pain in the world.  But the bystanders, as he calls those surrounding beings who

are going to make me into a moral person, feel sorry for my pain but it is clear to them that people starving to death in China is worse. Because I am a social being, and naturally wish to be part of a community, I come to be influenced by them and enter into their minds and I too begin to realise that, sore as my thumb is, other people are suffering more.  When I was a child, he says, it was obvious to me that that same thumb was bigger than a distant mountain.  But when I learn about perspective I not only realise that it isn’t, it never even occurs to me that it might be.  So it is with the moral life.  Virtue is a habit of mind only practised by social beings.


He was in serious dispute with his predecessor in the chair at Glasgow, Francis Hutcheson,  about benevolence.  Hutcheson thought it was a special impulse to generosity infused into the mind by the divinity on special occasions.  You see a picture of a starving child in Yemen and God inspires you to give something to Children in Need.  But most actions in your daily life are morally neutral.  Smith disagreed.  It is precisely through the actions of our ordinary daily lives that we learn to be benevolent.  He had imbibed from the French enlightenment the idea that we don’t need a God to tell us how to behave, we find moral principles in our own nature.  This is especially true about trade, because it is trade that brings us into contact with our fellow beings more than anything else.  The Wealth of Nations wasn’t meant to be about how to get rich, but how to put into practice the moral principles laid down in the second book. The most important thing to realise about Adam Smith, although, hardly any of his supposed admirers do, is that he was a Stoic.  How many capitalists know that?  The Stoics believed that there was a natural equlibrium and order, but it was dependent on human virtue.  Humans are part of nature and it is because all the parts of nature are so interwoven that  nature depends upon them.  It is because humans are so often immoral that this moral equilibrium in nature is so often obscured.


Nothing has been more misunderstood than the celebrated sentence in the first chapter of The Wealth.  ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.’  But read on (few do) ‘We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages’. Seen in the light of Smith’s moral teaching and his Stoicism the chapter reads quite differently.  We ‘address them’, we ‘talk to them’.   ‘To offer a man a shilling is a form of conversation’ he says.  We converse with these greedy and selfish and as yet unenlightened butchers and bakers on our Edinburgh doorsteps.  We don’t say with Francis Hutcheson ‘hey have you given any money to Oxfam this week?’ We let nature do what it does. They are selfish when they start delivering their goods to us, of course they are.  ‘Wherever several traders are gathered together’ he says, ‘you will find them plotting to defraud the public’. But we get to know them. Through our intercourse with each other we both, both of us, begin to develop ‘the soft and amiable virtue of humanity’.  We both, both of us, begin to become ‘the man within the breast’.  ‘This self-deceit, this fatal weakness of mankind, is the source of half the disorders of mankind.  If we saw ourselves in the light in which others see us if they knew all, a reformation would generally be unavoidable’.  To begin with, the butcher and baker are only interested in our money. But in time ‘the publick admiration which attends upon such abilities is part of their reward’.  The primary form of wealth, he tells us, is not financial but the respect of other people.  ‘The desire of becoming the proper objects of this respect, of deserving and obtaining this credit and rank among our equals, is, perhaps, the strongest of all our desires, and our anxiety to obtain the advantages of fortune is accordingly much more excited and irritated by this desire, than by that of supplying all the necessities and conveniences of the body…’.    We become humane not through the infusion of a special virtue of benevolence from a god but through encountering each other and conversing with each other on the normal occasions of life, and most especially through trading with each other, for it is in making things and exchanging them for the other things that we need that our humanity comes most often into contact with ‘the soft and amiable humanity’ of others, thus fostering and enriching our own.


The economists of the early nineteenth century, Ricardo and Say, completely misunderstood Smith’s equilibrium and so it has been since.   They took it not to be a product of human virtue but as equilibrium in the Newtonian sense.   Supply and demand will come into equilibrium inevitably and mechanically, just as the motions of the planets are nothing to do with human behaviour.  It was the exact opposite of what Smith meant.  The only capitalist who has understood Smith whom I have come across is George Soros.  He realised that economic equilibrium is a product not of mechanical but human action.  When the FTSE begins to fall, panic buying sets in as people rush to get out of a stock that is failing.  When it begins to rise panic buying sets in to take advantage of rising stocks. Soros realised that these herd movements don’t bring markets into equlibrium but, on the contrary, take them further away from it.  He made his fortune by betting against the crowd.  Most famously, he caused Black Wednesday by buying sterling heavily and then selling it all at once.  The panickers took the signal and began to sell too.  Major’s Government spent a fortune shoring up sterling but finally had to give in and the pound fell like a stone.  When it was at the bottom Soros bought.  Again, the panickers took the signal and sterling began to rise.  When it had risen as far as he judged it was going to Soros sold and so made a fortune.


Beware romantics in politics.  Tony Blair thought he could bring tyrants down and bring liberal democracy to the Middle East (I doubt if George Bush was such a fool) and Mrs Thatcher thought she could establish a property-owning democracy, full of the small investors that would have pleased Smith so much.  But how many of those who bought a few shares in railways and telephones had not sold out to the big corporations within five years?  It is the big faceless corporations that rule the world today with a mechanical inhumanity that is the very opposite of Smith’s humanism.  Hands, even invisible ones, belong only to individual human beings, not to huge conglomerates. He thought workers should be paid a decent wage that would support a family not in accordance with the movements of the markets but out of ‘human decency’.  He thought there should be state education as in Scotland ‘where every porter can read and write’.  He would have been horrified at the inhumanity of women working ten hours a day and not even allowed to go to the toilet in Bangladesh for less than a dollar.  Mrs Thatcher was always lecturing us about moderation and prudence and her Dad’s shop in Grantham but then she  unleashed forces that erupted in the unbridled greed of the late eighties.  How can she have fooled herself so much?  Modern dehumanised,  out of control,  monstrously greedy modern capitalism has got away with it because it has hidden behind this complete misinterpretation of Adam Smith.   But there are fools everywhere who are taken in by it, not least Daniel Hannan.    ‘Wherever several traders are gathered together you will find them plotting to defraud the public’.


I am NOT a socialist. I just think that no economic system works at all well and the best we can do is a muddled compromise,  much in fact what we have had in the UK since 1945. But misled by Mrs Thatcher, people like Liam Fox and Jacob Rees-Mogg want to bring it down.  No good, only misery for the multitude, will come.  ‘Wherever several traders are gathered together you will find them plotting to defraud the public’.










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