Revisiting the “father of capitalism”

Summary

This episode of The Gray Area with Sean Illing features Glory Liu, author of Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism. The conversation delves into the gap between the popular caricature of Adam Smith as the ‘father of capitalism’ and the more nuanced reality of his work as a moral philosopher and critic of the mercantile system of his time.

Liu explains that Smith’s project in The Wealth of Nations was to redefine national wealth not as the hoarding of gold and silver, but as the productive power of labor and the widespread availability of basic necessities. He was critiquing the mercantile system, exemplified by entities like the British East India Company, which used state-granted monopolies to rig markets. For Smith, a nation’s prosperity was measured by the quality of life of its lowest members and their ability to participate in public life without shame.

The discussion covers the relationship between Smith’s two major works: The Theory of Moral Sentiments and The Wealth of Nations. While they ask distinct questions—one about the origins of morality and the other about the sources of national wealth—they are connected by Smith’s observational method and his complex view of human nature. Sympathy, the mechanism of imaginatively projecting oneself into another’s position, is central to his moral theory and delimits pure self-interest in economic life.

A significant portion of the episode traces the history of Smith’s reception in America, particularly how the Chicago School of Economics, led by figures like Milton Friedman, reinvented Smith in the mid-20th century. In the wake of the Great Depression and during the Cold War, they weaponized concepts like the ‘invisible hand’—a phrase Smith used only three times—to champion free markets and demonize government intervention, cementing Smith’s legacy as a libertarian icon. Liu argues this process of sloganizing and canonizing has a long history, stretching back to the 19th century.

Ultimately, the conversation presents Smith as a careful, balanced thinker wary of concentrated power—whether in the hands of mercantile elites or the state—whose intellectual integrity and embrace of complexity have been obscured by later political appropriations.

Recommendations

Books

Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism — Glory Liu’s book, which is the subject of the episode. It tells the history of how Adam Smith’s legacy has been interpreted, used, and weaponized in the United States for various political and ideological reasons.
The Wealth of Nations — Adam Smith’s 1776 landmark book on political economy. The episode discusses its true purpose as a critique of mercantilism and a redefinition of national wealth based on labor and human welfare, not gold.
The Theory of Moral Sentiments — Adam Smith’s 1759 book, which he considered his magnum opus. The episode explores its focus on sympathy as the linchpin of moral judgment and its complex relationship with his economic work.

People

Milton Friedman — A leading figure of the Chicago School of Economics. The episode discusses how he rhetorically genius transformed Smith’s ‘invisible hand’ into a slogan for free-market fundamentalism and limited government.
Nicholas Phillipson — A biographer of Adam Smith and scholar of the Scottish Enlightenment mentioned by Glory Liu. He noted that Smith was listed as ‘Professor of Moral Philosophy’ on the title page of The Wealth of Nations.

Topic Timeline

00:03:14 — Introducing Adam Smith’s complicated legacy — Host Sean Illing introduces guest Glory Liu and her book, which explores the gap between the popular caricature of Adam Smith as the ‘father of capitalism’ and the more nuanced reality of his work. Liu explains her motivation for writing the book was to trace the history of how Americans have interpreted and weaponized Smith’s ideas for political purposes, rather than simply myth-busting.
00:07:44 — Smith’s true project in The Wealth of Nations — Glory Liu outlines what Adam Smith was actually trying to do in The Wealth of Nations. He was writing for people in power to inform them of a new way of thinking about political economy, which he saw as a branch of statesmanship. His goal was to critique the mercantile system, which measured national wealth in gold and silver, and to reorient thinking towards the productive power of labor as the true source of a nation’s prosperity.
00:10:54 — Smith’s metric for national prosperity — Sean Illing asks if Smith was more focused on maximizing profit or human welfare. Liu clarifies that for Smith, national wealth was measured by how cheaply, plentifully, and readily available basic necessities were to the lowest members of society. If they could not only survive but participate in public life without fear of shame or ridicule, the nation was prosperous. This was a human-centric, not money-centric, view of economics.
00:17:11 — The relationship between Smith’s two major books — The discussion turns to the connection between The Theory of Moral Sentiments and The Wealth of Nations. Liu gives a nuanced answer: while you can understand Smith’s economic arguments by reading Wealth of Nations alone, you miss the richness of his thought if you don’t read them together. The books ask distinct questions—one about morality, the other about political economy—but are linked by Smith’s method of observing human behavior.
00:19:40 — Sympathy and human nature in Smith’s thought — Liu explains the central role of ‘sympathy’ in Smith’s moral philosophy. It is the sentimental mechanism by which we imaginatively project ourselves into another’s position to understand their motivations. This capacity for sympathy, alongside a desire for social approval and self-interest, forms Smith’s complex but stable view of human nature. He did not see humans as inherently greedy or purely self-interested.
00:25:14 — The American weaponization of Adam Smith — Sean Illing asks if American interpreters have bastardized Smith. Liu confirms that Americans have long weaponized him, a process that dates back to the mid-19th century when he became a mascot for free trade. She suggests Smith might be more upset that people don’t read him carefully or think with his nuance, rather than simply about being used for political ends.
00:30:58 — The Chicago School’s hijacking of Smith’s legacy — The conversation focuses on the role of the Chicago School of Economics in popularizing a specific version of Adam Smith. Liu describes the Chicago School as a brand of free-market economics that gained prominence after the Great Depression and during the Cold War. They revived classical liberalism with a scientific sheen, using Smith’s authority as the ‘father of economics’ to lend legitimacy to their political project of deregulation and market fundamentalism.
00:39:14 — The true meaning of the ‘invisible hand’ — Sean Illing asks about Smith’s most famous phrase. Liu reveals Smith only used ‘the invisible hand’ three times across all his works. In The Wealth of Nations, it was a passing remark about how individuals preferring to invest domestically can have unintended beneficial consequences. Milton Friedman and the Chicago School transformed this into ‘the miracle of free markets,’ a politicized concept used to argue against government intervention.
00:44:29 — Smith’s view on wealth and corruption — Illing asks if Smith saw wealth as corrupting. Liu explains that Smith did not see wealth as inherently morally degrading, but he did identify it as a new and potent source of political authority in modern societies. This could become insidious, as seen in his critique of the British East India Company, where wealthy merchants bent laws to rig markets—a form of political corruption he warned against.
00:47:44 — Capitalism as morality and Smith’s final thoughts — Sean Illing reflects that capitalism becomes a morality of its own, centered on consumerism. He asks if Smith believed a healthy moral culture was a precondition for a healthy capitalist economy. Liu cautions against seeing The Theory of Moral Sentiments as a direct moral template for capitalism, but affirms Smith cared deeply about the moral consequences of economic change. The episode concludes by placing Smith in the ‘gray area’—a thinker skeptical of concentrated power and ideological certainty, whose complexity has been obscured by later interpretations.

Episode Info

Podcast: The Gray Area with Sean Illing
Author: Vox
Category: Society & Culture Philosophy News Politics News Commentary
Published: 2024-08-19T09:00:00Z
Duration: 00:55:03

References

URL PocketCasts: https://pocketcasts.com/podcast/1d3ce9a0-ae3d-0133-2e33-6dc413d6d41d/episode/76407c61-d0cb-44e7-a2a6-294034b668b4/
Episode UUID: 76407c61-d0cb-44e7-a2a6-294034b668b4

Podcast Info

Name: The Gray Area with Sean Illing
Type: episodic
Site: https://www.vox.com/vox-conversations-podcast
UUID: 1d3ce9a0-ae3d-0133-2e33-6dc413d6d41d

Transcript

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[00:00:40] Capitalism can feel all-encompassing.

[00:00:44] The free market, the division of labor, the mysterious invisible hand.

[00:00:50] If you live in a capitalist society long enough,

[00:00:53] you stop seeing this system for what it is.

[00:00:57] An invention.

[00:00:59] And one that sprung out of a very different context.

[00:01:10] Adam Smith was an 18th century Scottish philosopher,

[00:01:14] and he wrote the landmark 1776 book, The Wealth of Nations,

[00:01:18] which you’ve almost certainly heard of.

[00:01:21] But this work was a lot more nuanced than the sloganized tropes

[00:01:26] that you might know from it.

[00:01:29] At the heart of Smith’s capitalist vision was his criticism of a different system,

[00:01:34] mercantilism, which felt like the all-encompassing economic system of his day.

[00:01:44] In fact, Smith, the so-called father of capitalism,

[00:01:49] really thought of himself as a moral philosopher first.

[00:01:52] And he thought of his 1759 book, Theory of Moral Sentiments,

[00:01:56] as his real magnum opus.

[00:01:59] So why do we remember Adam Smith as some kind of capitalist champion?

[00:02:06] I’m Sean Elling, and this is The Gray Area.

[00:02:22] My guest today is Glory Liu.

[00:02:24] She’s a lecturer at…

[00:02:26] Harvard, and the author of Adam Smith’s America,

[00:02:29] How a Scottish Philosopher Became an Icon of American Capitalism.

[00:02:34] Liu tells the story behind the story of Smith.

[00:02:38] Her book is, of course, about Smith’s ideas,

[00:02:42] but it’s really about how his legacy has been used and abused in America

[00:02:47] for all kinds of political and ideological reasons.

[00:02:51] Her work is part of a broader scholarly effort

[00:02:55] to revisit Smith in light of all this revisionism.

[00:03:00] To be honest, I didn’t realize how much I actually dug Smith until I read her book.

[00:03:04] And I wanted to invite her on to talk about him

[00:03:07] and how he should be remembered today.

[00:03:14] Glory Liu, welcome to the show.

[00:03:16] Thanks so much for having me.

[00:03:17] Okay, Adam Smith.

[00:03:19] Let’s talk about him.

[00:03:20] What do you want to know?

[00:03:22] Okay, so Adam Smith cast a very large…

[00:03:25] a very large shadow in our intellectual history.

[00:03:29] And so many people think they know what he was about,

[00:03:33] you know, the father of capitalism.

[00:03:35] But I assume you wrote this book in part because you think the reality

[00:03:40] is a little more complicated than that,

[00:03:43] than the story we have of Smith.

[00:03:46] Is that fair?

[00:03:47] That’s totally fair.

[00:03:48] As a political theorist and intellectual historian,

[00:03:50] I know Smith as this Scottish Enlightenment figure

[00:03:54] who wrote a book on moral philosophy,

[00:03:55] who had planned a book on law and government,

[00:03:58] who had also written about the arts,

[00:04:01] has an essay on the history of astronomy,

[00:04:03] and he also happened to write The Wealth of Nations,

[00:04:05] which was published in 1776, right?

[00:04:07] That very fateful year that we associate with the American Revolution.

[00:04:10] But Smith is so much more than being the father of free market economics.

[00:04:15] And I was really bothered by this gap

[00:04:19] between the popular caricatures of Smith, on the one hand,

[00:04:23] and the reality, like you said,

[00:04:25] is way more complicated.

[00:04:27] And there are two ways to go about solving that puzzle.

[00:04:29] One is to say, I’m going to myth bust.

[00:04:32] I’m going to show people who the real Adam Smith is.

[00:04:36] And this is what people in my field do as Smith scholars

[00:04:39] in political theory and in history and many other fields

[00:04:42] is they try to recover what they consider

[00:04:44] is a really authentic view of Adam Smith

[00:04:47] and what his original intentions were.

[00:04:49] But then the other version of how to kind of explain that gap

[00:04:53] is to tell a history.

[00:04:55] Of why do we got the Smith that we got?

[00:04:57] And that’s what I decided to do in this book

[00:04:59] because that hadn’t been done yet.

[00:05:01] Was there something about Smith,

[00:05:03] you know, his ideas or his life that appealed to you very early on?

[00:05:07] Or did you decide to study him and write this book

[00:05:10] because you thought that all the competing interpretations of him

[00:05:14] revealed something important

[00:05:17] and maybe overlooked about the American story?

[00:05:20] So I was actually drawn to Smith because of the recent scholarship.

[00:05:24] And when I say,

[00:05:25] I mean kind of circa when I was in graduate school,

[00:05:29] you know, 2010 as a master’s student

[00:05:31] and then starting my PhD in 2012.

[00:05:33] And the scholarship on Smith at that point

[00:05:35] had really done this remarkable recovery of Smith as this,

[00:05:40] we’ll call it a moral critic of capitalism.

[00:05:44] They’re really looking at Smith’s ideas about poverty

[00:05:47] and Smith’s ideas about inequality.

[00:05:50] Smith on kind of the political economy of progressive ideas.

[00:05:55] And I was really drawn to that

[00:05:57] because I think maybe it’s obvious in the book,

[00:06:00] but I don’t know if it is,

[00:06:01] but like my own personal politics drew me to those kinds of ideas, right?

[00:06:05] Like what does the father of capitalism have to say

[00:06:07] about why inequality might or might not be a problem?

[00:06:10] Or what does the father of capitalism say about poverty

[00:06:12] and what kind of problem it is?

[00:06:15] So I was really drawn to Smith

[00:06:16] because I thought that he might be a resource

[00:06:18] for thinking about these kinds of problems in our own times.

[00:06:21] And I was really surprised to learn

[00:06:23] that there was just a very different side of him.

[00:06:25] There was a different side of Smith

[00:06:25] that I had not learned when I was an undergrad.

[00:06:28] But I also got the sense that these readings of Smith

[00:06:34] as a kind of reworked progressive thinker

[00:06:38] who cared deeply about moral corruption

[00:06:41] and what commercial society does to our morals

[00:06:44] also seemed a bit too contemporary.

[00:06:48] There was something that really struck me as like,

[00:06:50] this is really so lively.

[00:06:52] Like, is that the right Smith?

[00:06:54] Was my,

[00:06:55] And I thought, oh, you know,

[00:06:57] of course he’s not just the Chicago-style economist,

[00:06:59] but is he a social Democrat is kind of the blunt way to put it.

[00:07:02] And because I was so puzzled

[00:07:04] by these like dueling visions of Smith,

[00:07:06] I think that’s why I decided to kind of go back

[00:07:08] to the drawing board and say,

[00:07:10] well, how did we get these different versions of Smith?

[00:07:12] And why do they do so much work for us?

[00:07:14] We will get there.

[00:07:15] I do want to help establish a kind of picture

[00:07:19] of what he was actually about in the minds of listeners

[00:07:21] before we get to maybe, you know, how he was distorted.

[00:07:24] Yeah.

[00:07:25] He’s clearly best known, perhaps not justly,

[00:07:28] but he is best known for The Wealth of Nations,

[00:07:31] his big opus on political economy,

[00:07:34] which interestingly enough came out in 1776.

[00:07:37] I also didn’t know that.

[00:07:38] What did he think he was doing in that book?

[00:07:41] What was his project?

[00:07:44] So Smith is trying to inform the world.

[00:07:48] And for him, that means the world of people in power

[00:07:52] and people with access to power

[00:07:54] and people who are in power.

[00:07:54] People who are in a position

[00:07:55] to be thinking about national wealth.

[00:07:57] He’s trying to inform that world

[00:07:59] about a new way of thinking about political economy.

[00:08:04] And I’m going to break that term down.

[00:08:06] For Smith, political economy is part of the branch

[00:08:10] of the science of the legislator or statesmanship.

[00:08:13] It really is about kind of the craft of doing politics

[00:08:16] and about statecraft.

[00:08:18] And you have to understand where national wealth comes from,

[00:08:21] how it’s produced, how it flows,

[00:08:23] different interests,

[00:08:24] groups competing for power,

[00:08:26] managing national banks,

[00:08:29] what to do when there’s a kind of coinage crisis.

[00:08:33] These are all issues of national importance of Smith’s time.

[00:08:37] And so what he does in The Wealth of Nations is say,

[00:08:39] look, right now there’s this dominant view

[00:08:43] in the mercantile system

[00:08:45] that national wealth is measured in gold and silver coin, right?

[00:08:49] How much coin can the country hoard?

[00:08:52] And that counts as national wealth.

[00:08:53] And on that,

[00:08:54] in that view of things,

[00:08:55] you want to export more than you import.

[00:08:59] And to do that,

[00:09:00] companies need to kind of lobby the government

[00:09:03] for these exclusive privileges

[00:09:05] in order to get monopolistic

[00:09:08] or, you know, really, really, really competitive advantages

[00:09:11] to dominate a market

[00:09:13] so that they can bring back gold and silver

[00:09:17] and also make sure that they don’t have any competition.

[00:09:21] That’s the mercantile system.

[00:09:23] That’s the world Smith is living.

[00:09:24] And I think one of the best examples of that in action

[00:09:29] is the British East India Company, right?

[00:09:31] Probably the most notorious corporate power,

[00:09:34] if you want to call it that,

[00:09:35] during Smith’s time.

[00:09:36] And you mentioned 1776.

[00:09:39] The Boston Tea Party,

[00:09:41] those are chests of tea

[00:09:42] that are from the British East India Company

[00:09:46] because they had recently gotten this monopoly privilege

[00:09:49] for kind of tea growing and harvesting in India.

[00:09:52] So in Smith’s time,

[00:09:54] this idea of national wealth

[00:09:56] is one that he thinks is really distorted.

[00:09:59] And he opens the wealth of nations

[00:10:01] by trying to show people

[00:10:03] that national wealth actually comes

[00:10:04] from the product of human labor.

[00:10:07] And he starts off with these incredible illustrations

[00:10:10] of really ordinary objects

[00:10:13] and how they’re produced

[00:10:14] and how the division of labor,

[00:10:16] like actual humans doing actual work,

[00:10:19] is the source of national wealth.

[00:10:21] And once you reorient yourself

[00:10:23] towards that,

[00:10:24] that view of national wealth,

[00:10:26] the questions about how to manage it

[00:10:28] and how to build a state

[00:10:29] and how to govern it

[00:10:31] in a way that is productive

[00:10:33] as well as fair

[00:10:35] and doesn’t allow one class of wealthy elite

[00:10:38] to oppress the other,

[00:10:40] that’s what he’s trying to get people to realize.

[00:10:43] I do think the way a lot of people judge,

[00:10:45] still,

[00:10:45] the success of an economy

[00:10:47] is by looking at how much profit it creates

[00:10:50] or how much wealth it creates.

[00:10:51] But that does not seem to be the central metric for Smith.

[00:10:54] Mm-hmm.

[00:10:54] I mean, did he think it was more important

[00:10:56] to maximize profit or human welfare?

[00:11:00] Now, I know a conservative might hear that question

[00:11:03] and say that’s a false choice, right?

[00:11:06] That perhaps maximizing profits

[00:11:08] is ultimately the most reliable way

[00:11:09] to maximize human welfare.

[00:11:11] I would disagree with that,

[00:11:12] but I don’t want to go too far into the weeds on that.

[00:11:14] We’ll just stick to Smith and what he believed here.

[00:11:16] So for Smith,

[00:11:17] a good measure of national wealth

[00:11:19] was how readily available,

[00:11:21] how plentiful,

[00:11:22] and how cheap and how accessible,

[00:11:24] basic necessities are.

[00:11:26] So he really cared about

[00:11:27] whether you have enough food

[00:11:29] to live on and to survive.

[00:11:31] Not just survive,

[00:11:32] but actually live a meaningful life.

[00:11:34] And he also says that

[00:11:35] there are certain kinds of goods

[00:11:37] that we might consider superfluous

[00:11:39] or maybe more than basic,

[00:11:41] like a linen shirt.

[00:11:42] But he says that if in our society,

[00:11:45] a person who doesn’t have a linen shirt

[00:11:47] cannot go about in public life

[00:11:49] without facing shame and ridicule,

[00:11:51] that’s a basic necessity.

[00:11:52] And people should be

[00:11:54] able to access these basic necessities

[00:11:56] cheaply and plentifully.

[00:11:57] And that,

[00:11:58] when the kind of lowest members of society

[00:12:00] have cheap and ready and plentiful access

[00:12:03] to basic goods

[00:12:04] so that they not only can survive,

[00:12:07] but also live in public life

[00:12:09] without fear of shame or ridicule,

[00:12:11] that is when a nation is prosperous.

[00:12:14] So I guess it is to Smith’s credit,

[00:12:16] at least in my estimation,

[00:12:17] that he thought

[00:12:18] it was a mistake to measure national wealth

[00:12:20] just in money, right?

[00:12:21] That you should look at

[00:12:22] the productive power

[00:12:23] of labor.

[00:12:24] And if I’m hearing you correctly,

[00:12:26] I didn’t misunderstand him, right?

[00:12:27] The way I read that was

[00:12:28] the quality of life

[00:12:30] of the people who make up a society

[00:12:31] is really the ultimate measure,

[00:12:33] not necessarily just how much money they have.

[00:12:36] Yeah, yeah.

[00:12:37] So this conception of economics

[00:12:39] that we have today

[00:12:40] is very different

[00:12:42] than what Smith is doing.

[00:12:45] Political economy is about

[00:12:46] actual human beings.

[00:12:47] And what he does so well

[00:12:49] in The Wealth of Nations

[00:12:50] is show that political economy,

[00:12:52] first starts with economic life.

[00:12:55] Like, how do people actually experience exchange

[00:12:58] and the benefits of exchange?

[00:13:00] How do people actually

[00:13:01] reap the benefits of the division of labor?

[00:13:03] He’s talking about real humans

[00:13:05] with real jobs

[00:13:06] and real tangible outcomes.

[00:13:08] And it also talks about political economy

[00:13:10] as kind of the rules and institutions

[00:13:12] that we build

[00:13:14] that shape an economy

[00:13:15] that meets these needs.

[00:13:17] So it’s not just this kind of abstract science

[00:13:20] of wealth creation

[00:13:21] or profit maximization.

[00:13:22] Far from that.

[00:13:24] If you look at the structure

[00:13:24] of The Wealth of Nations,

[00:13:26] it’s very different than

[00:13:28] your classic textbook

[00:13:30] in Intro to Micro or Macroeconomics today.

[00:13:33] It’s deeply historical.

[00:13:35] It’s very polemical at times.

[00:13:38] And it’s very tangible

[00:13:40] and very human.

[00:13:52] Coming up after the break,

[00:13:54] Glory and I discuss Smith’s views

[00:13:56] on human nature

[00:13:57] and how they influenced his ideas

[00:13:59] about capitalism.

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[00:16:52] Can we understand

[00:16:59] the Wealth of Nations,

[00:17:01] his most famous book,

[00:17:02] without understanding

[00:17:03] his first book,

[00:17:05] The Theory of Moral Sentiments,

[00:17:06] which I think was published

[00:17:08] in 1759?

[00:17:11] I’m going to give

[00:17:11] a hot take answer

[00:17:12] as somebody who is

[00:17:14] a professional Smith scholar,

[00:17:16] I guess in some sense.

[00:17:17] So I’m going to say

[00:17:18] yes and no.

[00:17:20] Ooh.

[00:17:21] Let’s start with

[00:17:21] a no answer.

[00:17:23] I think you will not

[00:17:24] understand Smith

[00:17:25] as a thinker

[00:17:26] unless you read

[00:17:27] The Theory of Moral Sentiments

[00:17:28] and The Wealth of Nations

[00:17:30] together.

[00:17:31] And if you want to go

[00:17:32] the extra mile

[00:17:33] reading his essay

[00:17:34] on the history of astronomy,

[00:17:35] which is a kind of

[00:17:36] intellectual history

[00:17:37] of modern science,

[00:17:38] and the lectures

[00:17:39] on jurisprudence

[00:17:40] to understand

[00:17:41] how he thought

[00:17:42] about doing politics

[00:17:43] and the nature of politics,

[00:17:45] you just will miss out

[00:17:46] so much

[00:17:47] on what makes Smith

[00:17:48] a distinctive thinker,

[00:17:50] spanning all these

[00:17:51] realms of human life,

[00:17:53] from morality

[00:17:53] to political economy

[00:17:55] to political science.

[00:17:57] Can you read

[00:17:58] The Wealth of Nations

[00:17:59] without reading

[00:18:00] The Theory of Moral Sentiments?

[00:18:02] I think you can.

[00:18:04] Are you going to miss out

[00:18:05] on some of the richness

[00:18:06] and the textual interconnections

[00:18:07] between The Theory of Moral Sentiments

[00:18:09] and The Wealth of Nations?

[00:18:10] Yes.

[00:18:11] But,

[00:18:12] and this is where maybe,

[00:18:13] like,

[00:18:13] I’m going to diverge

[00:18:14] from some of my colleagues,

[00:18:16] The Wealth of Nations

[00:18:17] and The Theory of Moral Sentiments

[00:18:18] are asking

[00:18:19] two distinct questions

[00:18:21] that doesn’t,

[00:18:21] they’re not related

[00:18:23] in some capacity,

[00:18:24] but they are

[00:18:24] two distinct questions,

[00:18:26] right?

[00:18:26] In The Wealth of Nations,

[00:18:27] he’s asking

[00:18:28] what makes some nations wealthy

[00:18:30] and what makes

[00:18:31] other nations poor?

[00:18:32] What are the kind of

[00:18:33] foundational

[00:18:33] behaviors

[00:18:35] and institutions

[00:18:36] that make up

[00:18:37] economic life?

[00:18:39] That’s a very distinct

[00:18:40] set of questions

[00:18:41] from the ones

[00:18:42] he’s trying to answer

[00:18:43] in The Theory of Moral Sentiments,

[00:18:44] which is about

[00:18:45] what are the origins

[00:18:47] of morality?

[00:18:48] Are human beings

[00:18:49] by nature

[00:18:50] selfish

[00:18:51] or altruistic?

[00:18:51] And is morality

[00:18:53] grounded in reason

[00:18:54] or in sentiment?

[00:18:56] Now,

[00:18:57] I’m far from

[00:18:58] somebody who’s going to say

[00:18:59] the books are

[00:19:00] totally unrelated,

[00:19:01] there’s an Adam Smith problem,

[00:19:03] he changed his mind,

[00:19:04] that is not at all

[00:19:05] what I’m saying.

[00:19:05] But what I am saying

[00:19:06] is that

[00:19:06] if you are interested

[00:19:08] in Smith’s answer

[00:19:08] to the questions

[00:19:09] he outlines

[00:19:10] in The Wealth of Nations,

[00:19:11] you can read

[00:19:12] The Wealth of Nations

[00:19:13] and you’ll have

[00:19:14] a kind of

[00:19:15] rich answer

[00:19:16] even within that one book.

[00:19:18] But you are going to

[00:19:19] miss out on

[00:19:20] kind of

[00:19:20] the wealth of ideas

[00:19:21] from the rest

[00:19:23] of Smith’s corpus

[00:19:24] if you think that

[00:19:25] that’s the only thing

[00:19:26] that defines Adam Smith

[00:19:27] as a thinker.

[00:19:28] Why was the concept

[00:19:29] of sympathy

[00:19:30] so important

[00:19:32] to Smith’s

[00:19:33] moral philosophy

[00:19:34] and how might that

[00:19:35] intersect with

[00:19:36] the way he thought about

[00:19:36] a healthy

[00:19:38] capitalist economy?

[00:19:40] Sympathy is the

[00:19:41] linchpin of

[00:19:41] Smith’s moral theory.

[00:19:42] So sympathy

[00:19:43] is the mechanism

[00:19:44] by which we try

[00:19:46] to understand

[00:19:47] other people,

[00:19:48] see their motivations,

[00:19:50] and see ourselves

[00:19:51] through them.

[00:19:52] So if I want

[00:19:53] to understand

[00:19:54] what you’re going through,

[00:19:57] I am kind of

[00:19:58] imaginatively projecting

[00:19:59] myself into your position,

[00:20:01] right?

[00:20:01] I’m putting myself

[00:20:01] in your shoes.

[00:20:03] And that mechanism,

[00:20:04] that sympathetic mechanism,

[00:20:06] is a sentimental one.

[00:20:07] It’s kind of based

[00:20:08] on our sentiments

[00:20:09] rather than our

[00:20:10] capacity for reason.

[00:20:11] And that’s what enables us

[00:20:13] to make these

[00:20:13] moral judgments,

[00:20:15] these evaluations

[00:20:15] about my motivations,

[00:20:17] about my behavior,

[00:20:18] and my actions.

[00:20:19] And that’s absolutely

[00:20:20] critical for Smith.

[00:20:22] How might that relate

[00:20:23] to the wealth of nations?

[00:20:24] Right, so this is where

[00:20:25] I’m complicating my answer

[00:20:26] to your last question,

[00:20:28] which is that

[00:20:29] human behavior

[00:20:30] is not just

[00:20:31] one motivation

[00:20:33] or another.

[00:20:34] We are not

[00:20:34] always

[00:20:36] motivated

[00:20:36] by

[00:20:37] sympathy.

[00:20:38] We’re also not

[00:20:39] always

[00:20:40] motivated by

[00:20:41] self-interest.

[00:20:42] We’re these kind of

[00:20:43] complex

[00:20:44] but reasonably

[00:20:46] stable

[00:20:47] creatures.

[00:20:47] We’re curious.

[00:20:49] We want to know

[00:20:49] what motivates other people.

[00:20:51] We want our

[00:20:51] behavior to be

[00:20:52] approved by others,

[00:20:53] which is why I’m not

[00:20:54] going to just like

[00:20:55] walk into your store

[00:20:57] if you’re a candy shop

[00:20:58] owner

[00:20:59] and steal a bunch

[00:21:00] of candy

[00:21:01] because I know

[00:21:03] that that would

[00:21:03] be disapproved, right?

[00:21:05] And then I would be

[00:21:06] that woman

[00:21:06] that is known

[00:21:08] for, you know,

[00:21:08] robbing a candy store.

[00:21:10] At the same time,

[00:21:11] you can also see

[00:21:12] that you don’t want

[00:21:14] me to get away

[00:21:14] with that behavior

[00:21:15] either.

[00:21:16] Not only because

[00:21:17] it’s not the right thing

[00:21:18] to do from the standpoint

[00:21:19] of morality,

[00:21:19] but because maybe

[00:21:20] there is some

[00:21:21] long-term reason

[00:21:24] grounded in your own

[00:21:25] self-interest

[00:21:26] why you don’t want

[00:21:27] to be seen as the shop

[00:21:28] that kind of condones

[00:21:29] theft.

[00:21:30] And that might be

[00:21:31] appealing to your

[00:21:32] self-interest.

[00:21:32] All of that is to say

[00:21:34] that Smith thinks

[00:21:35] that human nature

[00:21:37] is a collection

[00:21:38] of these, like,

[00:21:40] very stable

[00:21:41] and very predictable

[00:21:43] motivations.

[00:21:45] Sympathy,

[00:21:46] a desire to be seen

[00:21:47] by others

[00:21:48] and to be known

[00:21:49] and approved of

[00:21:50] by others.

[00:21:51] And, you know,

[00:21:51] as well as

[00:21:52] our interest

[00:21:53] in preserving ourselves

[00:21:54] and fulfilling

[00:21:55] our own self-interest.

[00:21:56] And those things

[00:21:56] go together, right?

[00:21:57] It’s like,

[00:21:58] because I know

[00:21:59] through sympathy

[00:22:00] that you also care

[00:22:01] about yourself,

[00:22:02] that’s what makes

[00:22:03] self-interest work.

[00:22:04] It’s delimited

[00:22:05] in that sense.

[00:22:07] Well, I think this is

[00:22:07] part of what I like

[00:22:08] about him.

[00:22:09] He doesn’t seem

[00:22:10] to think that

[00:22:11] human beings

[00:22:12] are inherently good

[00:22:13] or inherently bad

[00:22:15] or inherently

[00:22:16] anything.

[00:22:17] If by that you mean

[00:22:18] fixed in some way.

[00:22:19] Yeah.

[00:22:19] To say that we’re

[00:22:20] motivated

[00:22:21] by self-interest

[00:22:22] is not,

[00:22:23] not to say

[00:22:24] that we’re motivated

[00:22:25] by self-interest

[00:22:26] exclusively.

[00:22:27] But there are a lot

[00:22:27] of people who take it

[00:22:28] that way.

[00:22:29] And he does not

[00:22:29] seem to believe that.

[00:22:31] And also to be super clear,

[00:22:33] to say that we’re

[00:22:33] motivated by self-interest

[00:22:34] is not at all saying

[00:22:36] that we’re motivated

[00:22:36] by greed.

[00:22:38] Yes.

[00:22:38] I’m so glad that you said that

[00:22:40] because, you know,

[00:22:40] one of the problems for me

[00:22:41] is that

[00:22:42] people will declare

[00:22:44] that

[00:22:45] such and such

[00:22:46] is true

[00:22:47] about human nature,

[00:22:48] you know,

[00:22:49] that we’re selfish,

[00:22:49] say.

[00:22:50] And then they’ll point

[00:22:52] to the success

[00:22:53] of capitalism

[00:22:55] as evidence

[00:22:56] of that selfish nature.

[00:22:58] Now, I won’t say

[00:22:58] that capitalism

[00:22:59] is entirely

[00:23:00] wrong

[00:23:01] about human beings,

[00:23:03] but I would say

[00:23:04] that we

[00:23:05] build systems

[00:23:06] that cultivate

[00:23:07] and incentivize

[00:23:09] certain impulses

[00:23:10] and then we look back

[00:23:11] and conclude

[00:23:11] that those impulses

[00:23:12] pre-existed those systems

[00:23:14] or that they’re just like

[00:23:15] natural laws or something.

[00:23:16] There’s a more complicated

[00:23:17] feedback loop going on,

[00:23:19] you know?

[00:23:19] Yeah.

[00:23:20] And I think Smith

[00:23:21] is very keenly aware

[00:23:24] of that tendency.

[00:23:25] I often say to students,

[00:23:27] you know,

[00:23:27] when you’re reading

[00:23:28] The Wealth of Nations

[00:23:29] and also reading

[00:23:30] The Theory of Moral Sentiments,

[00:23:32] notice where Smith

[00:23:34] sort of like hedges

[00:23:35] or where he’s about

[00:23:36] to give a warning.

[00:23:38] Also be really,

[00:23:39] really aware

[00:23:40] that when you think

[00:23:42] he’s stating his position,

[00:23:44] he may in fact

[00:23:45] be reconstructing

[00:23:46] somebody else’s position

[00:23:47] only to subvert it

[00:23:49] in the next sentence.

[00:23:50] So Smith is one of these

[00:23:52] incredibly balanced,

[00:23:54] careful thinkers

[00:23:55] who really wants

[00:23:56] to understand

[00:23:57] the contingencies

[00:23:58] of institutions

[00:23:59] that we create

[00:24:01] and to not take that

[00:24:02] as like the end-all,

[00:24:04] be-all for all time.

[00:24:05] And I think that’s why

[00:24:06] he spends so much time,

[00:24:07] if you read book three

[00:24:08] and book four

[00:24:09] and book five

[00:24:10] of The Wealth of Nations,

[00:24:11] there’s this like

[00:24:12] really in-the-weeds history

[00:24:15] of modern Europe

[00:24:16] and also like Central Asia

[00:24:19] of different countries.

[00:24:20] Different taxation regimes

[00:24:21] in, I can’t remember,

[00:24:24] you know, like 17th century France

[00:24:25] or different feudal

[00:24:28] property rights regimes

[00:24:30] because he’s so thoughtful

[00:24:32] about why did this make sense

[00:24:33] for these people at that time?

[00:24:35] And now what does that say

[00:24:37] about our assumptions

[00:24:39] about human behavior?

[00:24:41] What does that say

[00:24:41] about our assumptions

[00:24:42] about what guarantees liberty?

[00:24:44] He’s very, very careful.

[00:24:47] This is a good segue

[00:24:48] into what Americans,

[00:24:50] have done to Smith,

[00:24:52] how we’ve interpreted him.

[00:24:53] I don’t think you say this

[00:24:57] explicitly in the book,

[00:24:58] but do you think

[00:24:59] American interpreters

[00:25:01] over the years

[00:25:01] have bastardized Smith

[00:25:03] or weaponized him in ways

[00:25:05] that might make him

[00:25:07] unrecognizable to himself

[00:25:09] if he were alive today,

[00:25:11] which he most certainly is not?

[00:25:14] I certainly think that Americans

[00:25:15] have weaponized Smith

[00:25:16] and that trend of weaponization

[00:25:19] stretches,

[00:25:20] goes back much farther

[00:25:22] than I think people realize.

[00:25:24] Smith had already become

[00:25:26] this mascot, if you will,

[00:25:28] like a political mascot

[00:25:30] for free trade.

[00:25:31] When I say free trade,

[00:25:32] I really mean like

[00:25:32] free international trade

[00:25:34] in the mid-19th century.

[00:25:37] So that process of kind of like

[00:25:38] sloganizing, canonizing, weaponizing

[00:25:42] has a very, very long history.

[00:25:43] And that’s part of what I try

[00:25:45] to show in my book

[00:25:45] is that there is this trend,

[00:25:47] there is this tendency

[00:25:48] to want to weaponize Smith,

[00:25:50] for different political positions,

[00:25:52] because Smith is seen as so valuable

[00:25:54] as like lending intellectual legitimacy

[00:25:56] to arguments or saying something

[00:25:58] about that political position

[00:25:59] that matters.

[00:26:01] Would that be unrecognizable to Smith?

[00:26:04] I think in some senses, yes, certainly.

[00:26:08] I think the kind of like

[00:26:10] conventional libertarian,

[00:26:13] free market fundamentalist view of Smith

[00:26:16] would be pretty unrecognizable,

[00:26:18] but I think he’d be like,

[00:26:19] well, I,

[00:26:20] I did say something

[00:26:21] sort of along those lines,

[00:26:22] but that was not at all

[00:26:23] what I was intending to say.

[00:26:25] So I can see where you got that idea from.

[00:26:28] But that was in a chapter about like

[00:26:31] investing in foreign versus domestic industry.

[00:26:35] So that’s interesting.

[00:26:37] And then I think there would be other cases

[00:26:39] where he might recognize

[00:26:41] the kernel of truth.

[00:26:43] Certainly the kind of

[00:26:44] sloganizing around free trade,

[00:26:46] Smith was an advocate for free trade,

[00:26:48] but he also

[00:26:49] thought that there were

[00:26:51] certain circumstances,

[00:26:52] infant industry protection

[00:26:54] or the priorities of national defense

[00:26:56] were more important

[00:26:58] than liberalizing trade.

[00:27:00] So I think that Smith

[00:27:02] would be more upset

[00:27:03] that people didn’t read him as carefully

[00:27:06] and take him as seriously,

[00:27:08] that they didn’t think the way he did.

[00:27:10] I think he’d be more upset about that

[00:27:12] than he would be about being weaponized.

[00:27:15] The fact that we think of Smith

[00:27:17] as an economist,

[00:27:19] first, or even primarily,

[00:27:21] and not as a moral philosopher

[00:27:23] or even a psychologist in some ways,

[00:27:25] is already a sign that

[00:27:27] we haven’t taken him seriously

[00:27:28] or that we’ve misunderstood

[00:27:30] his real project

[00:27:31] or his broader project.

[00:27:33] Yeah, absolutely.

[00:27:35] Nicholas Philipson,

[00:27:36] one of the great biographers of Smith

[00:27:38] and fantastic scholar

[00:27:40] of the Scottish Enlightenment,

[00:27:41] writes that the title page

[00:27:43] of The Wealth of Nations,

[00:27:44] where it says the book title

[00:27:45] and then the name of the author,

[00:27:47] Smith is listed as,

[00:27:48] Professor of Moral Philosophy.

[00:27:50] He’s not listed as

[00:27:52] the father of economics, Adam Smith.

[00:27:55] He’s recognized in his time

[00:27:57] as a moral philosopher.

[00:27:58] You know, it’s worth noting

[00:27:59] that moral philosophy is closer

[00:28:01] to kind of what we might call

[00:28:02] psychology today.

[00:28:04] And I think that it is

[00:28:05] important to remember

[00:28:06] moral philosophy is distinct

[00:28:09] from natural philosophy,

[00:28:10] like natural sciences

[00:28:11] versus human sciences.

[00:28:13] So that’s what the moral denotes

[00:28:14] rather than kind of ethical.

[00:28:17] Ethics certainly is part,

[00:28:18] of moral philosophy,

[00:28:19] but moral really just means

[00:28:20] kind of the world of the human

[00:28:22] as opposed to the world

[00:28:23] of the physical nature.

[00:28:25] And yes, I do think that

[00:28:26] Smith saw the project

[00:28:28] in The Wealth of Nations

[00:28:29] to kind of systematically study

[00:28:32] through observation

[00:28:33] and then taking these specific examples

[00:28:36] and generalizing outward

[00:28:37] very much in the same vein

[00:28:39] that he did his moral philosophy

[00:28:40] to start with human experience,

[00:28:43] to kind of document

[00:28:44] the moral phenomenology

[00:28:46] of all the different ways

[00:28:47] in which we experience

[00:28:48] moral encounters

[00:28:49] and moral judgment

[00:28:50] and then to draw up principles

[00:28:51] from there.

[00:28:52] That is the scientific enterprise

[00:28:54] and we don’t see those things

[00:28:55] connected today,

[00:28:56] but Smith certainly did

[00:28:57] in his time.

[00:28:58] So when you say,

[00:28:59] as you do in the book,

[00:29:00] that Smith’s reception

[00:29:02] in America

[00:29:03] is a story about,

[00:29:04] quote,

[00:29:05] the politics of political economy,

[00:29:08] what does that mean?

[00:29:09] I think that phrase

[00:29:10] means two things for me.

[00:29:11] First, I’m really insistent

[00:29:14] that when we think about

[00:29:15] political economy

[00:29:16] as a field of study,

[00:29:18] as a field of inquiry,

[00:29:19] economics as a field of inquiry,

[00:29:21] we need to think about it

[00:29:24] as not a kind of transcendental,

[00:29:28] ahistorical mode of inquiry,

[00:29:31] but the very ideas

[00:29:32] that like central precepts

[00:29:35] and axioms of economics

[00:29:37] are always products

[00:29:39] of their political

[00:29:41] and historical

[00:29:42] and cultural circumstances.

[00:29:44] So that’s the first thing

[00:29:45] is that economics

[00:29:46] is historically contingent.

[00:29:49] The language of political economy

[00:29:51] as it was being invented,

[00:29:53] the very field,

[00:29:55] the idea that political economy

[00:29:56] was a science

[00:29:57] is a product of

[00:29:59] a moment in history.

[00:30:00] So that’s one way

[00:30:01] of understanding it, yeah.

[00:30:03] I mean, I would say everything is.

[00:30:04] I don’t think economy

[00:30:05] is exceptional

[00:30:06] or economics is exceptional

[00:30:07] in that sense.

[00:30:08] I think that

[00:30:09] I want to agree

[00:30:10] and I think you’d be surprised

[00:30:12] at the number of people

[00:30:13] who wouldn’t agree with that.

[00:30:15] So that’s one thing

[00:30:16] that I wanted to say.

[00:30:17] The second thing

[00:30:19] that I mean

[00:30:19] when I say

[00:30:21] the politics

[00:30:22] of political economy

[00:30:23] is that political economy

[00:30:25] is a language of authority.

[00:30:27] It has power.

[00:30:28] Politics is about power.

[00:30:30] It’s not just about

[00:30:31] policymaking

[00:30:32] or agenda setting,

[00:30:33] but it’s about ideology craft.

[00:30:35] And that’s the level

[00:30:36] of the kind of the politics

[00:30:37] of political economy

[00:30:37] that I’m interested in.

[00:30:38] Like, why does this

[00:30:40] style of thinking

[00:30:41] have so much power?

[00:30:43] And as a result of that

[00:30:45] or as part of that,

[00:30:46] like,

[00:30:46] why does thinking of Smith

[00:30:48] as an economist

[00:30:49] have so much power?

[00:30:52] The Chicago School

[00:30:53] of Economics

[00:30:55] plays a big role

[00:30:56] in this story,

[00:30:57] as it should.

[00:30:58] And I really want to talk about that.

[00:30:59] But I should ask first,

[00:31:01] what is the Chicago School

[00:31:02] for whom that doesn’t mean anything?

[00:31:04] And how did they popularize

[00:31:06] or hijack, perhaps,

[00:31:07] if that’s not too strong a word,

[00:31:10] Adam Smith’s legacy?

[00:31:12] So I would say

[00:31:13] in the most generic

[00:31:16] terms,

[00:31:18] the Chicago School of Economics

[00:31:19] stands for

[00:31:21] a brand of economics

[00:31:23] that is very free market oriented

[00:31:25] and associated with the politics

[00:31:28] of free enterprise,

[00:31:30] deregulation.

[00:31:32] Within the economics discipline,

[00:31:36] the Chicago School

[00:31:37] is more than

[00:31:38] and certainly not limited

[00:31:40] to a certain politics

[00:31:42] or an ideology.

[00:31:43] It’s a methodology.

[00:31:44] And it’s the methodology

[00:31:45] of price theory.

[00:31:46] That prices explain allocation.

[00:31:50] Everything can kind of be understood

[00:31:51] through prices.

[00:31:53] And I should also say

[00:31:55] that the Chicago School

[00:31:56] is never really just one thing.

[00:31:59] It develops over time.

[00:32:02] It spans different generations

[00:32:03] of thinkers

[00:32:04] from the Great Depression

[00:32:05] and onward.

[00:32:06] And it’s quite heterogeneous

[00:32:08] at the beginning.

[00:32:09] But it becomes

[00:32:10] the Chicago School,

[00:32:12] I think, as we recognize it today,

[00:32:14] associated with that kind of brand

[00:32:16] of free market economics,

[00:32:18] I would say by the 60s and 70s.

[00:32:20] I was going to say,

[00:32:21] I feel like there’s a boogeyman term

[00:32:22] that’s hovering

[00:32:23] and I just want to say it.

[00:32:24] Yeah, neoliberalism.

[00:32:26] Yes.

[00:32:27] People might know the name

[00:32:28] Milton Friedman, right?

[00:32:29] So these are like sort of the apostles

[00:32:30] of what kind of became

[00:32:32] neoliberalism.

[00:32:33] Is that right?

[00:32:34] Yes.

[00:32:34] That is what many people believe.

[00:32:37] I hesitate to say like,

[00:32:39] yes, absolutely.

[00:32:40] That’s right.

[00:32:41] Because it’s controversial.

[00:32:42] I think maybe that’s

[00:32:43] what I’m trying to say.

[00:32:44] Yes.

[00:32:44] And that’s very controversial.

[00:32:46] Controversial, right?

[00:32:47] Because neoliberalism

[00:32:48] is this boogeyman term.

[00:32:50] It means a lot of different things.

[00:32:52] But I think one very strong

[00:32:54] condense about neoliberalism

[00:32:55] is just this idea that like

[00:32:57] markets can be used everywhere

[00:33:00] for all kinds of social

[00:33:02] and political problems.

[00:33:03] And that version of neoliberalism

[00:33:06] has as one of its origin points,

[00:33:09] the University of Chicago

[00:33:10] beginning in like 1946.

[00:33:12] Was there something in the ether

[00:33:14] at that moment?

[00:33:16] No.

[00:33:16] In American history

[00:33:16] that made Smith

[00:33:18] the perfect patron saint

[00:33:20] of capitalism?

[00:33:22] Or is it just an accident

[00:33:23] of history that a particular

[00:33:24] group of people

[00:33:25] at a particular moment in time

[00:33:26] said, yeah, this is the dude.

[00:33:28] This is the guy.

[00:33:29] He’s going to be the face.

[00:33:30] There was something in the ether.

[00:33:32] Two big things happen.

[00:33:34] So first is the Great Depression.

[00:33:36] This is a cataclysmic event.

[00:33:38] It is not a good look

[00:33:40] to be defending free market capitalism

[00:33:42] after the Great Depression.

[00:33:44] After the Great Depression,

[00:33:45] most economists in America

[00:33:47] were a very, very different

[00:33:49] kind of schools of thought,

[00:33:50] have a kind of plurality

[00:33:51] of political positions.

[00:33:53] But for the most part,

[00:33:54] after the Great Depression,

[00:33:55] nobody’s saying, you know what?

[00:33:57] We need more of free markets

[00:33:58] and unregulated capitalism.

[00:34:00] The Great Depression really kind of

[00:34:01] gets people to reorient and say like,

[00:34:03] maybe we should think about

[00:34:05] managing things a little bit

[00:34:06] more scientifically here.

[00:34:08] And that’s why you get the rise

[00:34:10] of Keynesian managerialism.

[00:34:12] But then the second thing

[00:34:14] is the Cold War.

[00:34:15] And this kind of fear

[00:34:16] of central planning,

[00:34:19] central planning in many forms,

[00:34:20] not just Soviet-style command economy,

[00:34:24] but this governance by experts

[00:34:27] starts to look a little shady

[00:34:29] in the wake of the Cold War

[00:34:31] and in those years.

[00:34:32] So those two things combined

[00:34:35] make Chicago a really,

[00:34:37] really interesting place to study,

[00:34:38] among other schools of thought.

[00:34:40] But they become a locus

[00:34:41] in American economics

[00:34:43] for reviving,

[00:34:45] the tenets of classical liberalism,

[00:34:48] but really focusing

[00:34:49] on the economic side of things.

[00:34:51] So like, how can we create

[00:34:52] and sustain a free society

[00:34:54] on the principles

[00:34:55] of classical liberalism

[00:34:57] in the shadow of both

[00:34:59] a wariness about defending free markets

[00:35:02] that’s hung over

[00:35:03] from the Great Depression,

[00:35:04] but also a real fear

[00:35:06] of centralized planning,

[00:35:08] on the other hand.

[00:35:09] And so Chicago becomes like

[00:35:11] this epicenter in the United States

[00:35:13] for people who are pretty sympathetic

[00:35:15] to free markets,

[00:35:15] but want to do so really sensitively,

[00:35:17] but also with the authority

[00:35:20] of being economists.

[00:35:22] So that’s what Chicago

[00:35:24] has going for them.

[00:35:25] They are building a brand

[00:35:26] of kind of free market advocacy

[00:35:28] that has a scientific mooring

[00:35:30] in their language of economics,

[00:35:32] while also have this

[00:35:33] political project in mind.

[00:35:35] That’s why Smith becomes

[00:35:37] such an important figure for them,

[00:35:39] because he has the like,

[00:35:40] authoritative cachet

[00:35:42] as the father of economics.

[00:35:44] But he,

[00:35:45] he can also be kind of like

[00:35:45] politically appropriate

[00:35:46] in the way that they want him to be.

[00:35:49] Yeah, well, boy,

[00:35:50] it really does seem like

[00:35:51] a lot of people

[00:35:51] prefer to read their Smith

[00:35:53] like they read the Bible,

[00:35:55] which is to say, you know,

[00:35:56] a la carte.

[00:35:56] They pluck out what they like

[00:35:58] and just ignore the rest

[00:36:00] and, you know, yada, yada, yada.

[00:36:09] What did Smith mean

[00:36:10] when he coined his most popular phrase,

[00:36:13] the invisible hand?

[00:36:15] And how should we think of it today?

[00:36:18] That’s coming up

[00:36:19] after one more quick break.

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[00:39:14] What did Smith actually mean

[00:39:17] by the, this is the phrase

[00:39:19] everyone will know,

[00:39:20] even if they don’t know

[00:39:21] where it came from.

[00:39:22] What did Smith actually mean

[00:39:23] by the invisible hand?

[00:39:24] Because the Chicago school

[00:39:26] was very effective

[00:39:28] at cementing this belief

[00:39:30] that the invisible hand

[00:39:32] of the market

[00:39:33] is this omnipotent

[00:39:35] and infinitely wise thing.

[00:39:37] And therefore,

[00:39:38] that any bad societal outcomes

[00:39:41] are always the fault of the state.

[00:39:44] They’re always the fault

[00:39:45] of the state intervening

[00:39:46] in the market.

[00:39:47] And it’s never, never

[00:39:49] the fault of the unfettered market.

[00:39:54] So I think the most general

[00:39:56] explanation for what

[00:39:58] the invisible hand means

[00:39:59] for Smith

[00:40:00] is this idea that

[00:40:01] individuals can promote

[00:40:04] the public good

[00:40:06] or there can be

[00:40:07] socially beneficial consequences

[00:40:09] of individual actions

[00:40:11] without intention or direction.

[00:40:13] That’s probably

[00:40:14] the most general understanding

[00:40:17] of what the invisible hand stands for.

[00:40:19] Which seems right and wise.

[00:40:20] I wouldn’t disagree with that.

[00:40:22] Sure.

[00:40:22] Not many people disagree

[00:40:24] with that statement

[00:40:25] that oftentimes

[00:40:25] my individual actions

[00:40:27] will have spillover effects.

[00:40:29] And sometimes they can,

[00:40:30] without my intention or direction,

[00:40:32] have socially beneficial consequences.

[00:40:34] Of course, that means

[00:40:35] that things can also have

[00:40:36] socially harmful consequences

[00:40:38] as well, right?

[00:40:40] Now, Smith doesn’t

[00:40:41] exactly outline that use,

[00:40:43] but he does say that

[00:40:43] but I just wanted to kind of

[00:40:44] point out that, like,

[00:40:45] there are unintended consequences

[00:40:46] to individual actions.

[00:40:48] Smith uses the phrase

[00:40:49] the invisible hand three times.

[00:40:51] Once in the theory

[00:40:51] of moral sentiments,

[00:40:53] once in The Wealth of Nations,

[00:40:55] and once in his essay

[00:40:55] on the history of astronomy.

[00:40:57] That’s remarkable.

[00:40:58] Only three times.

[00:40:59] Only three times.

[00:41:00] Given the primacy

[00:41:01] of that phrase, right?

[00:41:02] How important it is

[00:41:03] in the discourse

[00:41:04] that he barely even used it.

[00:41:05] It wasn’t important to him.

[00:41:07] No, it’s a kind of

[00:41:08] passing remark.

[00:41:09] And the other thing to realize

[00:41:10] is that in The Wealth of Nations,

[00:41:11] where he’s using it,

[00:41:12] he’s talking about

[00:41:13] how individuals

[00:41:14] make decisions

[00:41:15] on where to invest

[00:41:17] their capital.

[00:41:18] Do I invest my capital

[00:41:19] domestically

[00:41:21] or in a foreign nation?

[00:41:23] And Smith says,

[00:41:24] well, like,

[00:41:25] people tend to prefer

[00:41:26] to invest closer to home

[00:41:27] because they have

[00:41:28] a better sense of

[00:41:29] the laws

[00:41:30] and the norms

[00:41:31] and kind of a sense of

[00:41:33] trust

[00:41:34] in their own

[00:41:35] local environment.

[00:41:36] So,

[00:41:37] he invests closer to home

[00:41:38] and one of the unintended

[00:41:39] effects of that

[00:41:40] is that maybe that

[00:41:40] ends up generating

[00:41:41] a lot more

[00:41:43] productivity

[00:41:43] in the home market.

[00:41:46] So, Smith is actually

[00:41:47] using that phrase

[00:41:48] to illustrate, like,

[00:41:49] how people think

[00:41:50] through their decisions

[00:41:51] of foreign investment.

[00:41:53] Preferring domestic industry

[00:41:55] to foreign industry,

[00:41:56] he ends up promoting

[00:41:57] this phenomenon

[00:41:58] that was no part

[00:41:59] of his intention.

[00:42:00] Okay, so that’s a pretty,

[00:42:01] like, bland idea, right?

[00:42:03] As you said, it’s like,

[00:42:04] that seems fine.

[00:42:06] What did the Chicago School

[00:42:07] do with it?

[00:42:08] Or kind of more specifically,

[00:42:09] what did Milton Friedman

[00:42:10] do with it?

[00:42:11] Milton Friedman

[00:42:12] calls it the Chicago School of Business.

[00:42:12] He calls the invisible hand

[00:42:14] the insight that created

[00:42:16] scientific economics.

[00:42:18] I’m probably not quoting

[00:42:18] that directly,

[00:42:19] but he says, you know,

[00:42:20] this is Smith’s key insight.

[00:42:22] This is Smith’s

[00:42:23] flash of genius.

[00:42:24] And what Friedman does

[00:42:27] is kind of reinvent

[00:42:28] the invisible hand

[00:42:31] as the miracle

[00:42:32] of free markets.

[00:42:34] This is how free markets work.

[00:42:36] And what’s really genius

[00:42:38] about what Friedman does

[00:42:40] is that it has both

[00:42:40] a kind of scientific component,

[00:42:42] he uses price theory

[00:42:43] to really back this up.

[00:42:45] This is the magic

[00:42:45] of the price mechanism.

[00:42:47] So there is this

[00:42:48] sheen of scientific objectivity.

[00:42:50] This must be true.

[00:42:51] But then it also becomes

[00:42:52] a political statement

[00:42:53] that because this is how

[00:42:55] the price mechanism works,

[00:42:56] because this is how

[00:42:57] the miracle of free markets work,

[00:42:59] we should prefer

[00:43:00] free markets

[00:43:02] to government intervention.

[00:43:04] Only markets can really enshrine

[00:43:06] and protect individual

[00:43:08] economic freedom,

[00:43:09] not the government.

[00:43:10] So that’s how the

[00:43:11] invisible hand works.

[00:43:12] It really becomes politicized,

[00:43:13] right?

[00:43:14] It becomes to stand for

[00:43:15] the virtues of the free market

[00:43:17] and the vices of government

[00:43:18] rather than just this kind of

[00:43:20] social theory

[00:43:21] of unintended consequences.

[00:43:24] You know, again,

[00:43:24] I’m no Smith scholar,

[00:43:25] but the idea that

[00:43:27] the market is some kind of

[00:43:29] unerring divine force

[00:43:32] does not seem to be even close

[00:43:35] to what Smith believed.

[00:43:36] But, you know,

[00:43:37] it’s perhaps a testament

[00:43:38] to Friedman’s brilliance

[00:43:40] and rhetorical genius

[00:43:41] that he was able to

[00:43:42] to make that case.

[00:43:43] And there’s just no question,

[00:43:44] whatever you think about

[00:43:45] Milton Friedman,

[00:43:46] that he was very smart and gifted.

[00:43:47] He was really gifted

[00:43:49] at that rhetorical power.

[00:43:51] He found a phrase,

[00:43:52] he found an explanation,

[00:43:53] and he found an image

[00:43:54] that worked really, really well.

[00:43:57] And it’s all over Free to Choose,

[00:43:59] you know, both the written book

[00:44:00] as well as the TV show.

[00:44:02] He uses it in all the columns

[00:44:04] that he writes.

[00:44:05] And it really worked.

[00:44:07] You know, Free to Choose,

[00:44:08] he wanted to call it

[00:44:09] the invisible hand.

[00:44:10] Yeah.

[00:44:11] Backing away

[00:44:12] from Friedman’s Smith,

[00:44:13] I want to ask you

[00:44:14] about Smith’s Smith.

[00:44:16] I want to ask you

[00:44:17] about Smith himself

[00:44:18] and what he believed.

[00:44:19] I mean, did Smith think

[00:44:21] that the pursuit of wealth

[00:44:22] degraded us as individuals?

[00:44:25] Did he see money

[00:44:26] as a corruptive force?

[00:44:29] Not necessarily like

[00:44:30] an always and everywhere

[00:44:31] terrible, evil thing,

[00:44:32] but did he see wealth and money

[00:44:34] as a corruptive force

[00:44:35] the way that many critics

[00:44:36] or skeptics of capitalism do?

[00:44:40] It’s a really good question.

[00:44:42] I’m going to try and answer it

[00:44:43] in a kind of hopefully

[00:44:45] as non-obnoxious of a way

[00:44:46] as possible.

[00:44:47] Oh, no, give me the obnoxious.

[00:44:49] So it’s a really good question.

[00:44:51] Smith did not see wealth

[00:44:53] as inherently corrupting.

[00:44:55] He doesn’t think that

[00:44:56] merely pursuing wealth

[00:44:58] is both morally degrading

[00:45:00] and degrading in other ways.

[00:45:03] He did see wealth

[00:45:04] as a new form

[00:45:06] of political authority.

[00:45:08] So this is where

[00:45:09] things get interesting.

[00:45:10] So in The Wealth of Nations,

[00:45:11] it’s a new form of political authority.

[00:45:11] It’s a new form of political authority.

[00:45:12] As well as in

[00:45:12] The Noctures on Jurisprudence,

[00:45:13] Smith says that

[00:45:14] political authority

[00:45:15] comes from four different sources.

[00:45:17] Distant ages past,

[00:45:19] people chose their chieftains

[00:45:21] and their leaders based on age.

[00:45:23] The most senior person

[00:45:24] would be the leader of the tribe

[00:45:26] or the clan.

[00:45:27] Maybe they chose their leader

[00:45:28] based on physical

[00:45:29] or kind of mental capabilities.

[00:45:32] People with the biggest brains

[00:45:33] or people who are the strongest.

[00:45:35] So capacities, age,

[00:45:36] these are sources of authority.

[00:45:38] What’s interesting about the modern era

[00:45:40] is that

[00:45:41] two new sources

[00:45:42] of political authority emerge.

[00:45:45] Wealth

[00:45:45] and birth or family.

[00:45:48] And wealth

[00:45:49] is a particularly interesting source

[00:45:51] of political authority

[00:45:53] because it’s not like physical, right?

[00:45:56] It’s not attached to you as a person.

[00:46:00] And especially in kind of

[00:46:01] advanced societies,

[00:46:03] he says in the kind of advanced age

[00:46:05] or in like civilized

[00:46:06] and opulent countries,

[00:46:08] wealth has the potential

[00:46:09] to be a very like insidious,

[00:46:11] source of power.

[00:46:13] And that’s where I think

[00:46:14] if you want to use the term corruption,

[00:46:16] this is where I think we can start

[00:46:18] to think about using that term.

[00:46:19] I don’t want to go straight down that road

[00:46:21] and just say like,

[00:46:22] wealth becomes a source of corruption.

[00:46:23] But he says that these advanced societies

[00:46:24] become very prone to corruption

[00:46:26] because wealth becomes a new source of power.

[00:46:29] And it allows people

[00:46:30] who are previously political outsiders

[00:46:32] to suddenly become insiders.

[00:46:34] And this is kind of the foundation

[00:46:35] of his critique

[00:46:36] of the British East India Company.

[00:46:38] You have this elite company

[00:46:39] of wealthy merchants,

[00:46:41] whose claim to power

[00:46:44] is the fact that they are wealthy merchants.

[00:46:46] And they work with lawmakers

[00:46:48] to bend the law

[00:46:50] to rig markets in their favor.

[00:46:53] And that is kind of where

[00:46:55] the connection between wealth,

[00:46:56] and I would say that’s a form

[00:46:57] of political corruption

[00:46:58] that Smith was very worried about

[00:47:00] in modern societies.

[00:47:04] I think of capitalism

[00:47:05] not just as an economic system.

[00:47:09] I think of it as a morality, really,

[00:47:11] and to its own.

[00:47:11] Or it becomes a morality

[00:47:14] without any serious ethical

[00:47:16] or spiritual counterbalances.

[00:47:19] I mean, ultimately,

[00:47:20] it is a form of life

[00:47:21] in which consumerism

[00:47:22] and material self-interest

[00:47:24] are the highest pursuits.

[00:47:26] And Smith, again,

[00:47:27] unless I am misappropriating him,

[00:47:29] as some of the people

[00:47:30] we’ve talked about have,

[00:47:31] he seemed to get that that is true,

[00:47:35] which is why he thought

[00:47:35] a healthy moral culture

[00:47:38] was perhaps a precondition

[00:47:40] for a healthy,

[00:47:41] productive capitalist economy.

[00:47:44] I think that’s a really,

[00:47:46] really common interpretation

[00:47:47] of Smith and this kind of connection

[00:47:50] between the theory

[00:47:51] of moral sentiments, right?

[00:47:52] Does it provide the kind of

[00:47:53] moral foundation

[00:47:54] for the commercial flourishing

[00:47:57] that he outlines

[00:47:57] in The Wealth of Nations?

[00:47:59] And again, because I gave you

[00:48:01] that timeline of like,

[00:48:02] here at The Theory of Moral Sentiments,

[00:48:03] here at The Wealth of Nations,

[00:48:04] he goes back to the theory

[00:48:05] of moral sentiments.

[00:48:06] And that alone gives us reason

[00:48:09] to believe that like Smith

[00:48:10] cared deeply about

[00:48:11] both the moral consequences

[00:48:13] of the kind of transformations

[00:48:15] that he was seeing

[00:48:16] at the socioeconomic level

[00:48:17] to kind of go back

[00:48:19] to the moral work

[00:48:20] that he was working on.

[00:48:22] Now, again, I might be

[00:48:22] in the minority here,

[00:48:24] but I don’t think

[00:48:25] that The Theory of Moral Sentiments

[00:48:26] is like the moral template

[00:48:28] for capitalism.

[00:48:29] I don’t think that.

[00:48:30] And maybe I’m not really

[00:48:31] in the minority here,

[00:48:32] but I think because that temptation

[00:48:34] to read The Theory of Moral Sentiments,

[00:48:37] especially that chapter,

[00:48:39] the one that I just got,

[00:48:40] like the universal caption

[00:48:41] of our moral sentiment,

[00:48:41] is coming from this tendency

[00:48:43] to admire wealth

[00:48:44] and to neglect the poor.

[00:48:45] I think because that has just

[00:48:47] attracted so much attention

[00:48:48] and it just seems so unavoidable

[00:48:50] to want to think that Smith

[00:48:51] is speaking to us right now.

[00:48:52] But we have to remember

[00:48:53] at the end of the day,

[00:48:54] like Smith is writing a work

[00:48:56] of 18th century moral sentimentalism

[00:48:58] and he’s like responding to Hume

[00:48:59] and he’s responding to Mandeville.

[00:49:01] He’s not writing The Theory

[00:49:03] of Moral Sentiments to say,

[00:49:04] and these are my ethics of capitalism.

[00:49:06] That said,

[00:49:08] and this goes back

[00:49:09] to one of the earlier questions

[00:49:10] that you asked me,

[00:49:10] there is a relationship

[00:49:12] between the two books.

[00:49:13] And I think it’s how Smith

[00:49:15] observed the human world.

[00:49:18] Yeah, you know, I think

[00:49:19] if you approach Smith

[00:49:21] honestly and openly,

[00:49:23] you just have to accept

[00:49:24] that there are many sides of him.

[00:49:25] And I don’t think

[00:49:26] that makes himself contradictory.

[00:49:28] I think it makes him complicated,

[00:49:30] you know, like a Nietzsche,

[00:49:32] a friend of the show.

[00:49:34] You know, his complexity

[00:49:36] leaves him vulnerable

[00:49:37] to a lot of different interpretations.

[00:49:39] And I guess in the end,

[00:49:41] when I was reading your book

[00:49:42] and just listening to you now,

[00:49:43] I wonder how much faith

[00:49:44] he had in people.

[00:49:45] A lot of libertarians,

[00:49:47] for instance,

[00:49:47] we just accept that people

[00:49:48] are greedy and selfish

[00:49:49] and we need a society

[00:49:50] that makes use of those drives.

[00:49:53] But part of the appeal of Smith to me,

[00:49:56] or at least the version of Smith

[00:49:58] I’m getting from you,

[00:49:59] is that that just doesn’t seem

[00:50:00] to be how he looked

[00:50:01] at the world or people.

[00:50:03] But maybe I’m just projecting.

[00:50:06] I think it’s really hard to say

[00:50:09] whether Smith’s

[00:50:09] would be really optimistic

[00:50:11] or really pessimistic

[00:50:12] about our current situation, right?

[00:50:15] How would he look at America

[00:50:17] in January of 2023?

[00:50:19] On the one hand, he might say,

[00:50:22] hey, where are the forms

[00:50:24] of state capture

[00:50:26] whereby elite interest groups

[00:50:27] might be trying to kind of like

[00:50:29] take control of the economy

[00:50:31] in ways that are

[00:50:32] disproportionately benefiting

[00:50:34] the wealthy and privileged

[00:50:36] at the expense of the poor.

[00:50:38] But was he optimistic?

[00:50:39] That we could change that?

[00:50:42] I don’t know.

[00:50:42] That’s what puts Smith

[00:50:44] in the gray area,

[00:50:45] as this podcast is called.

[00:50:47] He also didn’t have much faith

[00:50:50] in politicians to do the right thing.

[00:50:51] That doesn’t make him a libertarian,

[00:50:54] but he was very skeptical

[00:50:55] of ordinary politicians

[00:50:57] to kind of like not get swayed

[00:51:01] by the wrong ideas

[00:51:02] or not become victims

[00:51:04] of their own ideology

[00:51:05] and own ideas of like

[00:51:07] how things should run.

[00:51:08] He was deeply,

[00:51:09] deeply skeptical

[00:51:10] of certain forms

[00:51:12] of concentrated power.

[00:51:13] So like on the one hand,

[00:51:14] he’s saying,

[00:51:15] here’s how you can see

[00:51:16] the problem differently.

[00:51:17] And once you see the problem,

[00:51:18] you’ll be able to maybe fix it.

[00:51:20] But on the other hand,

[00:51:21] he’s like, oh, I’m not so sure.

[00:51:22] People aren’t so great

[00:51:24] at this all the time.

[00:51:26] You said, you know,

[00:51:27] the show is called The Gray Area

[00:51:29] and it’s really not

[00:51:30] a performative shtick for me.

[00:51:32] Like I really sincerely value

[00:51:34] uncertainty and doubt

[00:51:36] as deeply underrated intellectual.

[00:51:39] Virtues, you know,

[00:51:40] like the world is so complicated

[00:51:41] and no one really has

[00:51:42] their arms around it.

[00:51:43] And Smith strikes me as someone

[00:51:45] with a lot of intellectual integrity

[00:51:48] and not just a really brilliant

[00:51:50] ideologue looking to make the world fit

[00:51:53] into his conceptual box.

[00:51:55] I think a lot of people

[00:51:56] who have made use of him

[00:51:56] have done precisely that.

[00:51:59] And I hope if nothing else,

[00:52:00] we may have poked

[00:52:01] a few holes in that.

[00:52:02] Certainly your book does.

[00:52:03] And I hope people

[00:52:04] read it for that reason

[00:52:06] and many others.

[00:52:07] Well, thanks.

[00:52:07] That’s a great pitch for my book.

[00:52:09] OK, the book is, again,

[00:52:13] Adam Smith’s America,

[00:52:14] How a Scottish Philosopher

[00:52:15] Became an Icon of American Capitalism.

[00:52:19] Glory Liu, this is great.

[00:52:20] Thanks so much for coming in

[00:52:21] and having this chat with me.

[00:52:22] Thanks again for having me, Sean.

[00:52:38] Eric Janikas is

[00:52:39] our producer.

[00:52:40] Amy Drozdowska is our editor.

[00:52:42] Patrick Boyd engineered this episode.

[00:52:45] Alex Overington wrote our theme music.

[00:52:47] And A.M. Hall is the boss.

[00:52:52] So I really enjoyed this episode.

[00:52:54] Glory was terrific.

[00:52:55] And, you know, for me,

[00:52:57] I had a fairly decent idea

[00:52:59] of what Smith was about.

[00:53:00] I was aware of his first book,

[00:53:02] Theory of Moral Sentiments,

[00:53:03] but I was less aware

[00:53:05] of the history of Smith

[00:53:07] interpretations in this country.

[00:53:09] And that was a history

[00:53:11] I just didn’t know that much about.

[00:53:12] And Glory did a great job

[00:53:13] of laying it out.

[00:53:15] As always,

[00:53:16] let us know what you think

[00:53:17] about this one.

[00:53:18] Drop us a line at

[00:53:19] thegrayareaatvox.com.

[00:53:22] We really do read all of the notes.

[00:53:24] And if you appreciated this episode,

[00:53:26] please share it with your friends

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[00:53:31] It all helps.

[00:53:32] New episodes drop

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[00:53:39] We’ll see you next time.

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