Who's Afraid of Adam Smith?: How the Market Got Its Soul

by Peter J. Dougherty

"Peter Dougherty does the near-impossible in this brilliant book . . . [he] makes economics engaging and accessible." --Professor Larry J. Sabato, University of Virginia
In this spirited and timely book, Peter Dougherty shows how economists are drawing on Adam Smith's civic writings to illuminate how the market creates not only fiscal capital, but "social capital." Dougherty demonstrates how Smith's ideas are currently experiencing a renaissance. He then explores several impressive initiatives to demonstrate what today's theoretical and practicing economists are accomplishing in the spirit of Adam Smith's moral sentiments: the institutional reform of transitional and developing economies; the financing of new technological, medical, and educational initiatives; and the economic revival of cities. Capitalism pervades every aspect of our daily life. Peter Dougherty now offers a fascinating peek at its hidden soul.

Genres: Economics

240 pages, Paperback

First published August 16, 2002

Reviews

[Riku Sayuj]

Capitalism: The Civilizing Project

Smith keynoted his broad attitude toward a civilized market society by insisting:

“He is certainly not a good citizen who does not wish to promote, by every means of his power, the welfare of the whole society of his fellow citizens.”

The author argues that there is much more to Adam Smith than the Invisible Hand, an admiration for division of labour (pin factories!) and a blind faith in the power of markets. He had some big ideas about making a variety of essential noneconomic institutions work, as well — to promote what we would today call Social Capital, or Civic Capital.

He was, even as he was laying the groundwork for economics, also the hopeful designer of a grand cultural system built around the very civilizing institutions that we tend to look past when we think of the grinding economic machinery of capitalism.

In fact, it might even be argued that for Adam Smith, economics mattered so much primarily  because economic life is so intimately tied up with in the other spheres of living from which these cultural, political, and social institutions spring. Adam Smith fully realized their mutual dependence — a civilized society depended on “invested” participants, for which the market system was essential, which in turn depended on having sound civic institutions and relations of trust between individuals — institutions that could channel our self-interest into service of the common interest while curbing its more destructive elements. And thus, by merely imposing a market, we arrive at the civilized society we set out originally to create!  And of course, skillfully designed civic institutions happen to be in turn vital to economic progress as well. So they complement each other quite well, as developing countries who try to get by with only the economic institutions have been learning.

In short — Smith had puzzled out a progressive concept of society and retrofitted it with the incentive structures necessary to achieve a broadly humane vision. Skeptic Smith was not hopeful of arriving at human morality and a civilized society directly, so he took the roundabout route to reach there — via the market.

TL;DR:

The Invisible Hand of the markets provides the Motor. But the Moral Sentiments via the civic institutions and “moral fiber” provided the Compass. At least, that was the plan.

We need both of Smith’s great legacies if we are to construct a society that would match his ambitions. Economists study Wealth of Nations and ignore Moral Sentiments their own peril.

So Adam Smith’s ‘Moral Sentiments’ sets out his real intentions behind creating the market society — improving the moral fiber of society through making “every man a merchant” who is hampered by his own morality, needed for survival in a market ecosystem. Of course, capitalism has not quite proved to be as good at achieving its ends. Adam Smith could give an excuse that he could not have foreseen the inequality that Capitalism would foster and that he formulated the capitalist society as a Means towards an End — the end was the moral society that provided individual dignity and equality. If that End is not achieved, then the capitalist society and its much exalted ‘freedom’ will not be very satisfactory to its founder.