Revisiting the “father of capitalism”

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0:00:58 Capitalism can feel all-encompassing.
0:01:02 The free market, the division of labor,
0:01:04 the mysterious, invisible hand.
0:01:08 If you live in a capitalist society long enough,
0:01:12 you stop seeing this system for what it is.
0:01:13 An invention.
0:01:18 And one that sprung out of a very different context.
0:01:29 Adam Smith was an 18th century Scottish philosopher
0:01:33 and he wrote the landmark 1776 book The Wealth of Nations,
0:01:35 which you’ve almost certainly heard of.
0:01:39 But this work was a lot more nuanced
0:01:42 than the sloganized tropes that you might know from it.
0:01:46 At the heart of Smith’s capitalist vision
0:01:49 was his criticism of a different system, mercantilism,
0:01:52 which felt like the all-encompassing
0:01:54 economic system of his day.
0:01:57 (gentle music)
0:02:03 In fact, Smith, the so-called father of capitalism,
0:02:07 really thought of himself as a moral philosopher first.
0:02:09 And he thought of his 1759 book,
0:02:13 Theory of Moral Sentiments, as his real magnum opus.
0:02:16 So why do we remember Adam Smith
0:02:18 as some kind of capitalist champion?
0:02:24 I’m Sean Elling and this is The Grey Area.
0:02:39 My guest today is Glory Lu.
0:02:41 She’s a lecturer at Harvard
0:02:43 and the author of Adam Smith’s America,
0:02:45 how a Scottish philosopher became
0:02:47 an icon of American capitalism.
0:02:52 Lu tells the story behind the story of Smith.
0:02:56 Her book is, of course, about Smith’s ideas,
0:02:59 but it’s really about how his legacy has been used
0:03:02 and abused in America for all kinds of political
0:03:04 and ideological reasons.
0:03:06 Her work is part of a broader effort
0:03:10 to revisit Smith in light of all this revisionism.
0:03:14 I didn’t realize how much I actually dug Smith
0:03:18 until I read Lu’s book back in January of 2023,
0:03:21 which is when we originally dropped this episode.
0:03:23 But we had a great conversation
0:03:25 and I wanted to share it with you again.
0:03:30 Glory Lu, welcome to the show.
0:03:32 – Thanks so much for having me.
0:03:35 – Okay, Adam Smith, let’s talk about him.
0:03:37 – What do you want to know?
0:03:40 – Okay, so Adam Smith cast a very large shadow
0:03:43 in our intellectual history
0:03:48 and so many people think they know what he was about,
0:03:50 the father of capitalism.
0:03:53 But I assume you wrote this book,
0:03:54 in part because you think the reality
0:03:58 is a little more complicated than that,
0:04:01 than the story we have of Smith, is that fair?
0:04:03 – That’s totally fair.
0:04:06 As a political theorist and intellectual historian,
0:04:09 I know Smith as this Scottish Enlightenment figure
0:04:11 who wrote a book on moral philosophy,
0:04:13 who had planned a book on law and government,
0:04:15 who had also written about the arts,
0:04:17 has an essay on the history of astronomy,
0:04:20 and he also happened to write The Wealth of Nations,
0:04:22 which was published in 1776, right?
0:04:24 That very fateful year that we associate
0:04:25 with the American Revolution.
0:04:28 But Smith is so much more than being the father
0:04:30 of free market economics.
0:04:33 And I was really bothered by this gap
0:04:38 between the popular caricatures of Smith on the one hand
0:04:41 and the reality, like you said, is way more complicated.
0:04:44 And there are two ways to go about solving that puzzle.
0:04:47 One is to say, I’m gonna myth bust.
0:04:50 I’m going to show people who the real Adam Smith is.
0:04:53 And this is what people in my field do
0:04:55 as Smith scholars and political theory
0:04:57 and in history and many other fields
0:04:58 as they try to recover.
0:05:01 What they consider is a really authentic view
0:05:04 of Adam Smith and what his original intentions were.
0:05:07 But then the other version of how to kind of explain
0:05:11 that gap is to tell a history of why do we got the Smith
0:05:12 that we got?
0:05:14 And that’s what I decided to do in this book
0:05:16 ’cause that hadn’t been done yet.
0:05:19 – Was there something about Smith, his ideas or his life
0:05:22 that appealed to you very early on?
0:05:25 Or did you decide to study him and write this book
0:05:29 because you thought that all the competing interpretations
0:05:31 of him revealed something important
0:05:35 and maybe overlooked about the American story?
0:05:37 – So I was actually drawn to Smith
0:05:39 because of the recent scholarship.
0:05:41 And when I say recent, I mean kind of circa
0:05:45 when I was in graduate school, you know, 2010
0:05:48 as a master’s student and then starting my PhD in 2012.
0:05:50 And the scholarship on Smith at that point
0:05:54 had really done this remarkable recovery of Smith
0:05:58 as this, we’ll call it a moral critic of capitalism.
0:06:01 They’re really looking at Smith’s ideas about poverty
0:06:04 and Smith’s ideas about inequality.
0:06:09 Smith on kind of the political economy of progressive ideas.
0:06:13 And I was really drawn to that because I think
0:06:16 maybe it’s obvious in the book, but I don’t know if it is
0:06:18 but like my own personal politics drew me
0:06:20 to those kinds of ideas, right?
0:06:22 Like what does the father of capitalism have to say
0:06:25 about why inequality might or might not be a problem?
0:06:27 Or what does the father of capitalism say about poverty
0:06:29 and what kind of problem it is?
0:06:32 So I was really drawn to Smith because I thought
0:06:34 that he might be a resource for thinking
0:06:36 about these kinds of problems in our own times.
0:06:37 And I was really surprised to learn
0:06:40 that there was just a very different side of Smith
0:06:43 that I had not learned when I was an undergrad.
0:06:48 But I also got the sense that these readings of Smith
0:06:52 as a kind of reworked progressive thinker
0:06:56 who cared deeply about moral corruption
0:06:59 and what commercial society does to our morals
0:07:03 also seemed a bit too contemporary.
0:07:04 There was something that really struck me as like
0:07:09 this is really so lively, like is that the right Smith
0:07:10 was my question.
0:07:12 And I thought, oh, you know, of course he’s not
0:07:13 just the Chicago style economist,
0:07:16 but is he a social Democrat is kind of the blunt way
0:07:17 to put it.
0:07:19 And because I was so puzzled by these like
0:07:22 dueling visions of Smith, I think that’s why I decided
0:07:24 to kind of go back to the drawing board and say,
0:07:27 well, how did we get these different versions of Smith?
0:07:29 And why do they do so much work for us?
0:07:30 We will get there.
0:07:34 I do want to help establish a kind of picture
0:07:36 of what he was actually about in the minds of listeners
0:07:39 before we get to maybe, you know, how he was distorted.
0:07:39 – Yeah, yeah.
0:07:44 – He’s clearly best known, perhaps not justly,
0:07:46 but he is best known for the wealth of nations,
0:07:48 his big opus on political economy,
0:07:51 which interestingly enough came out in 1776.
0:07:53 I also didn’t know that.
0:07:56 What did he think he was doing in that book?
0:07:57 What was his project?
0:08:02 So Smith is trying to inform the world.
0:08:07 And for him, that means the world of people in power
0:08:09 and people with access to power and people who are
0:08:12 in a position to be thinking about national wealth.
0:08:16 He’s trying to inform that world about a new way
0:08:18 of thinking about political economy.
0:08:21 And I’m going to break that term down.
0:08:24 For Smith, political economy is part of the branch
0:08:28 of the science of the legislature or statesmanship.
0:08:31 It really is about kind of the craft of doing politics
0:08:33 and about statecraft.
0:08:35 And you have to understand where national wealth comes from,
0:08:38 how it’s produced, how it flows,
0:08:41 different interest groups competing for power,
0:08:43 managing national banks,
0:08:47 what to do when there’s a kind of coinage crisis.
0:08:51 These are all issues of national importance of Smith’s time.
0:08:54 And so what he does in the wealth of nations is say,
0:08:58 look, right now there’s this dominant view
0:09:02 in the mercantile system that national wealth is measured
0:09:04 in gold and silver coin, right?
0:09:06 How much coin can the country hoard?
0:09:08 And that counts as national wealth.
0:09:10 And on that view of things,
0:09:13 you want to export more than you import.
0:09:18 And to do that, companies need to kind of lobby the government
0:09:23 for these exclusive privileges in order to get monopolistic
0:09:26 or really, really, really competitive advantages
0:09:31 to dominate a market so that they can bring back gold
0:09:34 and silver and also make sure
0:09:36 that they don’t have any competition.
0:09:37 That’s the mercantile system.
0:09:40 That’s the world Smith is living in.
0:09:43 And I think one of the best examples of that inaction
0:09:45 is the British East India Company, right?
0:09:48 Probably the most notorious corporate power,
0:09:51 if you want to call it that, during Smith’s time.
0:09:55 And you mentioned 1776, the Boston Tea Party,
0:09:58 those are chests of tea
0:10:00 that are from the British East India Company
0:10:04 because they had recently gotten this monopoly privilege
0:10:07 for kind of tea growing and harvesting in India.
0:10:11 So in Smith’s time, this idea of national wealth
0:10:14 is one that he thinks is really distorted.
0:10:16 And he opens the wealth of nations
0:10:18 by trying to show people that national wealth
0:10:22 actually comes from the product of human labor.
0:10:26 And he starts off with these incredible illustrations
0:10:29 of really ordinary objects and how they’re produced
0:10:31 and how the division of labor,
0:10:34 like actual humans doing actual work,
0:10:36 is the source of national wealth.
0:10:38 And once you reorient yourself
0:10:41 towards that view of national wealth,
0:10:43 the questions about how to manage it
0:10:45 and how to build a state and how to govern it
0:10:49 in a way that is productive as well as fair
0:10:53 and doesn’t allow one class of wealthy elite
0:10:55 to oppress the other,
0:10:57 that’s what he’s trying to get people to realize.
0:11:00 – I do think the way a lot of people judge still
0:11:02 the success of an economy is by looking at
0:11:05 how much profit it creates or how much wealth it creates.
0:11:09 But that does not seem to be the central metric for a Smith.
0:11:11 I mean, did he think it was more important
0:11:15 to maximize profit or human welfare?
0:11:18 Now I know a conservative might hear that question
0:11:21 and say that’s a false choice, right?
0:11:23 That perhaps maximizing profits is ultimately
0:11:25 the most reliable way to maximize human welfare.
0:11:26 I would disagree with that,
0:11:29 but I don’t wanna go too far into the weeds on that.
0:11:31 We’ll just stick to Smith and what he believed here.
0:11:34 – So for Smith, a good measure of national wealth
0:11:37 was how readily available, how plentiful,
0:11:40 and how cheap and how accessible basic necessities are.
0:11:44 So he really cared about whether you have enough food
0:11:45 to live on and to survive.
0:11:48 Not just survive, but actually live a meaningful life.
0:11:52 And he also says that there are certain kinds of goods
0:11:54 that we might consider superfluous
0:11:57 or maybe more than basic, like a linen shirt.
0:12:00 But he says that if in our society,
0:12:02 a person who doesn’t have a linen shirt
0:12:04 cannot go about in public life
0:12:06 without facing shame and ridicule,
0:12:07 that’s a basic necessity.
0:12:11 And people should be able to access these basic necessities
0:12:12 cheaply and plentifully.
0:12:15 And that, when the kind of lowest members of society
0:12:19 have cheap and ready and plentiful access to basic goods
0:12:21 so that they not only can survive,
0:12:24 but also live in public life without fear of shame
0:12:28 or ridicule, that is when a nation is prosperous.
0:12:31 – So I guess it is to Smith’s credit,
0:12:32 at least in my estimation,
0:12:34 that he thought it was a mistake
0:12:36 to measure national wealth just in money, right?
0:12:39 That you should look at the productive power of labor.
0:12:41 And if I’m hearing it correctly,
0:12:42 I didn’t misunderstand him, right?
0:12:44 The way I read that was the quality of life
0:12:46 for the people who make up a society
0:12:48 is really the ultimate measure,
0:12:51 not necessarily just how much money they have.
0:12:52 – Yeah, yeah.
0:12:56 So this conception of economics that we have today
0:12:59 is very different than what Smith is doing.
0:13:02 Political economy is about actual human beings.
0:13:05 And what he does so well in “The Wealth of Nations”
0:13:08 is show that political economy first starts
0:13:10 with economic life.
0:13:13 Like how do people actually experience exchange
0:13:14 and the benefits of exchange?
0:13:17 How do people actually reap the benefits
0:13:18 of the division of labor?
0:13:20 He’s talking about real humans with real jobs
0:13:22 and real tangible outcomes.
0:13:25 And it also talks about political economy
0:13:29 as kind of the rules and institutions that we build
0:13:32 that shape an economy that meets these needs.
0:13:35 So it’s not just this kind of abstract science
0:13:37 of wealth creation or profit maximization.
0:13:39 Far from that, if you look at the structure
0:13:41 of “The Wealth of Nations,”
0:13:45 it’s very different than your classic textbook
0:13:48 in “Intruder Micro- or Macro-Economics” today.
0:13:50 It’s deeply historical.
0:13:52 It’s very polemical at times.
0:13:56 And it’s very tangible and very human.
0:13:59 (gentle music)
0:14:08 – Coming up after the break,
0:14:12 Glory and I discussed Smith’s views on human nature
0:14:16 and how they influenced his ideas about capitalism.
0:14:18 (gentle music)
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0:18:02 – Can we understand the wealth of nations,
0:18:02 his most famous book,
0:18:06 without understanding his first book,
0:18:07 “The Theory of Moral Sentiments,”
0:18:11 which I think was published in 1759?
0:18:13 – I’m gonna give a hot take answer
0:18:17 as somebody who is a professional Smith scholar,
0:18:18 I guess in some sense.
0:18:21 So I’m gonna say yes and no.
0:18:24 – Let’s start with the no answer.
0:18:27 I think you will not understand Smith as a thinker
0:18:29 unless you read the theory of moral sentiments
0:18:32 and the wealth of nations together.
0:18:33 And if you wanna go the extra mile,
0:18:36 reading his essay on the history of astronomy,
0:18:38 which is the kind of intellectual history
0:18:41 of modern science and the lectures on jurisprudence
0:18:44 to understand how he thought about doing politics
0:18:46 and the nature of politics.
0:18:48 You just will miss out so much
0:18:51 on what makes Smith a distinctive thinker,
0:18:53 spanning all these realms of human life,
0:18:58 from morality to political economy to political science.
0:19:00 Can you read the wealth of nations
0:19:03 without reading the theory of moral sentiments?
0:19:05 I think you can.
0:19:07 Are you gonna miss out on some of the richness
0:19:08 and the textual interconnections
0:19:10 between the theory of moral sentiments
0:19:11 and the wealth of nations?
0:19:15 Yes, but, and this is where maybe I’m gonna diverge
0:19:17 from some of my colleagues,
0:19:19 the wealth of nations and the theory of moral sentiments
0:19:22 are asking two distinct questions.
0:19:24 That doesn’t mean they’re not related in some capacity,
0:19:27 but they are two distinct questions, right?
0:19:29 In the wealth of nations, he’s asking,
0:19:31 what makes some nations wealthy
0:19:33 and what makes other nations poor?
0:19:36 What are the kind of foundational behaviors
0:19:40 and institutions that make up economic life?
0:19:42 That’s a very distinct set of questions
0:19:44 from the ones he’s trying to answer
0:19:45 in the theory of moral sentiments,
0:19:49 which is about what are the origins of morality?
0:19:53 Are human beings by nature selfish or altruistic
0:19:57 and is morality grounded in reason or in sentiment?
0:20:00 Now, I’m far from somebody who’s going to say
0:20:02 the books are totally unrelated.
0:20:04 There’s an Adam Smith problem.
0:20:06 He changes mind that is not at all what I’m saying,
0:20:07 but what I am saying is that
0:20:09 if you are interested in Smith’s answer
0:20:12 to the questions he outlines in the wealth of nations,
0:20:14 you can read the wealth of nations
0:20:17 and you’ll have a kind of rich answer,
0:20:19 even within that one book.
0:20:23 But you’re gonna miss out on kind of the wealth of ideas
0:20:25 from the rest of Smith’s corpus
0:20:26 if you think that that’s the only thing
0:20:29 that defines Adam Smith as a thinker.
0:20:33 – Why was the concept of sympathy so important
0:20:35 to Smith’s moral philosophy?
0:20:36 And how might that intersect
0:20:40 with the way he thought about a healthy capitalist economy?
0:20:43 – Sympathy is the linchpin of Smith’s moral theory.
0:20:46 So sympathy is the mechanism
0:20:49 by which we try to understand other people,
0:20:53 see their motivations and see ourselves through them.
0:20:58 So if I want to understand what you’re going through,
0:21:00 I am kind of imaginatively projecting myself
0:21:01 into your position, right?
0:21:03 I’m putting myself in your shoes.
0:21:07 And that mechanism, that sympathetic mechanism
0:21:08 is a sentimental one.
0:21:10 It’s kind of based in our sentiments
0:21:12 rather than our capacity for reason.
0:21:15 And that’s what enables us to make these moral judgments,
0:21:18 these evaluations about my motivations,
0:21:20 about my behavior and my actions.
0:21:22 And that’s absolutely critical for Smith.
0:21:25 How might that relate to the wealth of nations, right?
0:21:27 So this is where I’m complicating my answer
0:21:29 to your last question,
0:21:31 which is that human behavior
0:21:34 is not just one motivation or another.
0:21:39 We are not always motivated by sympathy.
0:21:43 We’re also not always motivated by self-interest,
0:21:46 where these kind of complex
0:21:49 but reasonably stable creatures, we’re curious.
0:21:51 We want to know what motivates other people.
0:21:54 We want our behavior to be approved by others,
0:21:58 which is why I’m not going to just like walk into your store
0:22:00 if you’re a candy shop owner
0:22:03 and steal a bunch of candy,
0:22:06 because I know that that would be disapproved, right?
0:22:08 And then I would be that woman that is known
0:22:11 for robbing a candy store.
0:22:13 At the same time, you can also see
0:22:17 that you don’t want me to get away with that behavior either,
0:22:19 not only because it’s not the right thing to do
0:22:20 from the standpoint of morality,
0:22:25 but because maybe there is some long-term reason
0:22:27 grounded in your own self-interest,
0:22:29 why you don’t want to be seen as the shop
0:22:31 that kind of condones theft.
0:22:33 And that might be appealing to your self-interest.
0:22:36 All of that is to say that Smith thinks
0:22:39 that human nature is a collection
0:22:44 of these like very stable and very predictable motivations.
0:22:49 Sympathy, a desire to be seen by others
0:22:52 and to be known and approved of by others,
0:22:55 as well as our interest in preserving ourselves
0:22:57 and fulfilling our own self-interest.
0:22:58 And those things go together, right?
0:23:00 It’s like, because I know through sympathy
0:23:03 that you also care about yourself,
0:23:05 that’s what makes self-interest work.
0:23:07 It’s delimited in that sense.
0:23:09 – Well, I think this is part of what I like about him.
0:23:13 He doesn’t seem to think that human beings
0:23:16 are inherently good or inherently bad
0:23:20 or inherently anything, by that you mean fix in some way.
0:23:24 To say that we’re motivated by self-interest is not,
0:23:28 not to say that we’re motivated by self-interest exclusively,
0:23:29 but there are a lot of people who take it that way
0:23:32 and he does not seem to believe that.
0:23:33 – And also to be super clear,
0:23:35 to say that we’re motivated by self-interest
0:23:39 is not at all saying that we’re motivated by greed.
0:23:40 – Yes, I’m so glad that you said that
0:23:44 because you know, one of the problems for me is that
0:23:48 people will declare that such and such is true
0:23:51 about human nature, you know, that we’re selfish, say.
0:23:56 And then they’ll point to the success of capitalism
0:23:58 as evidence of that selfish nature.
0:24:01 Now, I won’t say that capitalism is entirely
0:24:03 like wrong about human beings,
0:24:08 but I would say that we build systems that cultivate
0:24:10 and incentivize certain impulses,
0:24:12 and then we look back and conclude
0:24:15 that those impulses pre-existed those systems.
0:24:17 I bet they’re just like natural laws or something.
0:24:20 There’s a more complicated feedback loop going on, you know?
0:24:25 – Yeah, and I think Smith is very keenly aware
0:24:26 of that tendency.
0:24:28 I often say to students, you know,
0:24:30 when you’re reading the wealth of nations
0:24:33 and also reading the theory of moral sentiments,
0:24:36 notice where Smith sort of like hedges
0:24:38 or where he’s about to give a warning.
0:24:42 Also be really, really aware that when you think
0:24:44 he’s stating his position,
0:24:48 he may in fact be reconstructing somebody else’s position
0:24:51 only to subvert it in the next sentence.
0:24:55 So Smith is one of these incredibly balanced,
0:24:58 careful thinkers who really wants to understand
0:25:01 the contingencies of institutions that we create
0:25:05 and to not take that as like the end all be all
0:25:06 for all time.
0:25:08 And I think that’s why he spends so much time,
0:25:10 if you read book three and book four
0:25:12 and book five of the wealth of nations,
0:25:17 there’s like really in the weeds history of modern Europe
0:25:22 and also like central Asia of different taxation regimes
0:25:26 in, I can’t remember, you know, like 17th century France
0:25:31 or different feudal property rights regimes
0:25:33 because he’s so thoughtful about
0:25:36 why did this make sense for these people at that time?
0:25:40 And now what does that say about our assumptions
0:25:41 about human behavior?
0:25:43 What does that say about our assumptions
0:25:45 about what guarantees liberty?
0:25:47 He’s very, very careful.
0:25:51 – This is a good segue into what Americans have done
0:25:54 to Smith, how we’ve interpreted him.
0:25:58 I don’t think you say this explicitly in the book,
0:26:02 but do you think American interpreters over the years
0:26:06 have bastardized Smith or weaponized him in ways
0:26:11 that might make him unrecognizable to himself
0:26:15 if he were alive today, which he most certainly is not.
0:26:17 – I certainly think that Americans have weaponized Smith
0:26:21 and that trend of weaponization stretches back
0:26:24 much farther than I think people realize.
0:26:29 Smith had already become this mascot, if you will,
0:26:32 like a political mascot for free trade.
0:26:33 When I say free trade, I really mean like
0:26:37 free international trade in the mid 19th century.
0:26:40 So that process of kind of like sloganizing,
0:26:44 canonizing, weaponizing has a very, very long history.
0:26:46 And that’s part of what I try to show in my book
0:26:47 is that there is this trend,
0:26:50 there is this tendency to want to weaponize Smith
0:26:52 for different political positions
0:26:55 because Smith is seen as so valuable,
0:26:58 has like lending intellectual legitimacy to arguments
0:27:00 or saying something about that political position
0:27:02 that matters.
0:27:05 Would that be unrecognizable to Smith?
0:27:08 I think in some senses, yes, certainly.
0:27:13 I think the kind of like conventional libertarian,
0:27:16 free market fundamentalist view of Smith
0:27:18 would be pretty unrecognizable.
0:27:22 But I think he’d be like, well, I did say something
0:27:23 sort of along those lines,
0:27:25 but that was not at all what I was intending to say.
0:27:29 So I can see where you got that idea from.
0:27:33 But that was in a chapter about like investing
0:27:35 in foreign versus domestic industry.
0:27:38 So that’s interesting.
0:27:40 And then I think there would be other cases
0:27:44 where he might recognize the kernel of truth,
0:27:47 certainly the kind of sloganizing around free trade.
0:27:49 Like Smith was an advocate for free trade,
0:27:53 but he also thought that there were certain circumstances,
0:27:56 infant industry protection or the priorities
0:27:59 of national defense were more important
0:28:01 than liberalizing trade.
0:28:05 So I think that Smith would be more upset
0:28:07 that people didn’t read him as carefully
0:28:09 and take him as seriously,
0:28:11 that they didn’t think the way he did.
0:28:13 I think he’d be more upset about that
0:28:16 than he would be about being weaponized.
0:28:20 The fact that we think of Smith as an economist first
0:28:24 or even primarily and not as a moral philosopher
0:28:26 or even a psychologist in some ways
0:28:29 is already a sign that we haven’t taken him seriously
0:28:32 or that we’ve misunderstood his real project
0:28:34 or his broader project.
0:28:35 – Yeah, absolutely.
0:28:39 Nicholas Phillipson, one of the great biographers of Smith
0:28:42 and fantastic scholar of the Scottish Enlightenment
0:28:45 writes that the like title page of The Wealth of Nations
0:28:47 or it says the book title and then the name of the author,
0:28:51 Smith is listed as professor of moral philosophy.
0:28:56 He’s not listed as the father of economics, Adam Smith.
0:28:59 He’s recognized in his time as a moral philosopher.
0:29:02 You know, it’s worth noting that moral philosophy is closer
0:29:05 to kind of what we might call psychology today.
0:29:07 And I think that it is important to remember
0:29:11 moral philosophy is distinct from natural philosophy,
0:29:14 like natural sciences versus human sciences.
0:29:15 So that’s what the moral denotes,
0:29:18 rather than kind of ethical.
0:29:20 Ethics certainly is part of moral philosophy,
0:29:23 but moral really just means kind of the world of the human
0:29:26 as opposed to the world of the physical nature.
0:29:29 And yes, I do think that Smith saw the project
0:29:33 in The Wealth of Nations to kind of systematically study
0:29:37 through observation and then taking these specific examples
0:29:38 and generalizing outward,
0:29:41 very much in the same vein that he did his moral philosophy
0:29:44 to start with human experience,
0:29:47 to kind of document the moral phenomenology
0:29:49 of all the different ways in which we experience moral
0:29:51 encounters and moral judgment,
0:29:53 and then to draw up principles from there.
0:29:55 That is the scientific enterprise
0:29:57 and we don’t see those things connected today,
0:29:59 but Smith certainly did in his time.
0:30:01 – So when you say, as you do in the book,
0:30:05 that Smith’s reception in America is a story about,
0:30:08 quote, the politics of political economy.
0:30:10 What does that mean?
0:30:12 – I think that phrase means two things for me.
0:30:15 First, I’m really insistent that when we think
0:30:20 about political economy as a field of inquiry,
0:30:23 economics as a field of inquiry,
0:30:28 we need to think about it as not a kind of transcendental,
0:30:32 a historical mode of inquiry,
0:30:35 but the very ideas that like central precepts
0:30:40 and axioms of economics are always product of
0:30:45 their political and historical and cultural circumstances.
0:30:46 So that’s the first thing,
0:30:49 is that economics is historically contingent.
0:30:54 The language of political economy as it was being invented,
0:30:57 the very field, the idea that political economy
0:31:01 was a science is a product of a moment in history.
0:31:03 So that’s one way of understanding it, yeah.
0:31:05 – I mean, I would say everything is.
0:31:07 I mean, I don’t think economics is exceptional,
0:31:09 or economics is exceptional in that sense.
0:31:11 – I think that I want to agree,
0:31:13 and I think you’d be surprised
0:31:15 that the number of people who wouldn’t agree with that.
0:31:18 So that’s one thing that I wanted to say.
0:31:21 The second thing that I mean,
0:31:24 when I say the politics of political economy,
0:31:28 is that political economy is a language of authority.
0:31:30 It has power, politics is about power.
0:31:33 It’s not just about policy making or agenda setting,
0:31:35 but it’s about ideology craft.
0:31:38 And that’s the level of the kind of the politics
0:31:39 of political economy that I’m interested in.
0:31:44 Like why does this style of thinking have so much power?
0:31:47 And as a result of that, or as part of that,
0:31:50 like why does thinking of Smith as an economist
0:31:52 have so much power?
0:31:57 – The Chicago School of Economics plays a big role
0:31:59 in the story as it should.
0:32:00 And I really want to talk about that,
0:32:02 but I should ask first,
0:32:03 what is the Chicago School
0:32:05 for whom that doesn’t mean anything?
0:32:08 And how did they popularize or hijack perhaps,
0:32:13 if that’s not too strong a word, Adam Smith’s legacy?
0:32:18 – So I would say in the most generic terms,
0:32:23 the Chicago School of Economics stands for
0:32:27 a brand of economics that is very free market oriented
0:32:31 and associated with the politics of free enterprise,
0:32:36 deregulation within the economics discipline.
0:32:39 The Chicago School is more than
0:32:43 and certainly not limited to a certain politics
0:32:45 or an ideology, it’s a methodology.
0:32:47 And it’s the methodology of price theory
0:32:51 that prices explain allocation.
0:32:54 Everything can kind of be understood through prices.
0:32:57 And I should also say that the Chicago School
0:33:00 is never really just one thing.
0:33:02 It develops over time,
0:33:05 it spans different generations of thinkers
0:33:08 from the Great Depression and onward.
0:33:10 And it’s quite heterogeneous at the beginning,
0:33:13 but it becomes the Chicago School.
0:33:15 I think as we recognize it today,
0:33:19 associated with that kind of brand of free market economics,
0:33:21 I would say by the ’60s and ’70s.
0:33:22 – I was gonna say,
0:33:24 I feel like there’s a boogeyman term that’s hovering
0:33:25 and I just want to say it.
0:33:26 – Yeah, neoliberalism.
0:33:30 – Yes, people might know the name Milton Friedman, right?
0:33:31 So these are like sort of the apostles
0:33:34 of what kind of became neoliberalism, is that right?
0:33:37 – Yes, that is what many people believe.
0:33:42 I hesitate to say like, yes, absolutely that’s right,
0:33:43 because it’s controversial.
0:33:45 I think maybe that’s what I’m trying to say.
0:33:48 Yes, and that’s very controversial, right?
0:33:51 ‘Cause neoliberalism is this boogeyman term.
0:33:53 It means a lot of different things,
0:33:56 but I think one very strong condense about neoliberalism
0:34:01 is just this idea that like markets can be used everywhere
0:34:04 for all kinds of social and political problems.
0:34:07 And that version of neoliberalism has,
0:34:09 as one of its origin points,
0:34:13 the University of Chicago beginning in like 1946.
0:34:16 – Was there something in the ether
0:34:17 at that moment in American history
0:34:22 that made Smith the perfect patron saint of capitalism,
0:34:24 or is it just an accident of history
0:34:26 that a particular group of people
0:34:27 at a particular moment in time said,
0:34:29 yeah, this is the dude, this is the guy,
0:34:31 he’s gonna be the face?
0:34:33 – There was something in the ether.
0:34:35 Two of big things happen.
0:34:37 So first is the Great Depression.
0:34:39 This is a cataclysmic event.
0:34:41 It is not a good look to be defending
0:34:45 free market capitalism after the Great Depression.
0:34:46 After the Great Depression,
0:34:48 most economists in America
0:34:51 were a very, very different kind of schools of thought,
0:34:53 have a kind of plurality of political positions,
0:34:56 but for the most part, after the Great Depression,
0:34:58 nobody’s saying, you know what we need more of?
0:35:01 Free markets and unregulated capitalism.
0:35:02 The Great Depression really kind of
0:35:04 gets people to reorient and say like,
0:35:06 maybe we should think about managing things
0:35:09 a little bit more scientifically here.
0:35:13 And that’s why you get the rise of Keynesian managerialism.
0:35:16 But then the second thing is the Cold War
0:35:19 and this kind of fear of central planning,
0:35:21 central planning in many forms,
0:35:25 not just Soviet style command economy,
0:35:28 but this governance by experts
0:35:30 starts to look a little shady
0:35:33 in the wake of the Cold War and in those years.
0:35:36 So those two things combined
0:35:39 make Chicago a really, really interesting place to study,
0:35:41 among other schools of thought,
0:35:45 but they become a locus in American economics
0:35:49 for reviving the tenets of classical liberalism,
0:35:52 but really focusing on the economic side of things.
0:35:55 So like how can we create and sustain a free society
0:35:58 on the principles of classical liberalism
0:36:03 in the shadow of both awareness about defending free markets
0:36:04 that’s hung over from the Great Depression,
0:36:09 but also a real fear of centralized planning,
0:36:10 on the other hand.
0:36:12 And so Chicago becomes like this epicenter
0:36:14 in the United States for people
0:36:16 who are pretty sympathetic to free markets,
0:36:19 but want to do so really sensitively,
0:36:23 but also with the authority of being economists.
0:36:25 So that’s what Chicago has going for them.
0:36:29 They are building a brand of kind of free market advocacy
0:36:33 that has a scientific mooring in their language of economics
0:36:36 while also to have this political project in mind.
0:36:40 That’s why Smith becomes such an important figure for them
0:36:43 because he has the like authoritative cachet
0:36:45 as the father of economics,
0:36:47 but he can also be kind of like politically appropriate
0:36:50 in the way that they want him to be.
0:36:53 – Yeah, well, boy, it really does seem like a lot of people
0:36:55 prefer to read their Smith like they read the Bible,
0:36:57 which is to say, you know, a la carte.
0:37:00 They plug out what they like and just ignore the rest
0:37:02 and you know, yadda yadda yadda.
0:37:12 What did Smith mean when he coined his most popular phrase,
0:37:14 the invisible hand?
0:37:16 And how should we think of it today?
0:37:19 That’s coming up after one more quick break.
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0:38:49 (upbeat music)
0:38:59 – What did Smith actually mean by the,
0:39:00 this is the phrase, everyone will know,
0:39:02 even if they don’t know where it came from.
0:39:05 What did Smith actually mean by the invisible hand?
0:39:08 Because the Chicago school was very effective
0:39:13 at cementing this belief that the invisible hand
0:39:16 of the market is this omnipotent
0:39:18 and infinitely wise thing.
0:39:22 And therefore that any bad societal outcomes
0:39:24 are always the fault of the state.
0:39:27 They’re always the fault of the state intervening
0:39:27 in the market.
0:39:32 And it’s never, never the fault of the unfettered market.
0:39:38 – So I think the most general explanation
0:39:40 for what the invisible hand means for Smith
0:39:45 is this idea that individuals can promote
0:39:48 the public good or there can be socially beneficial
0:39:52 consequences of individual actions
0:39:54 without intention or direction.
0:39:57 That’s probably the most general understanding
0:39:59 of what the invisible hand stands for.
0:40:01 – Which seems right and wise.
0:40:02 I wouldn’t disagree with that.
0:40:05 – Sure, not many people disagree with that statement
0:40:08 that oftentimes my individual actions
0:40:09 will have spillover effects.
0:40:12 And sometimes they can without my intention
0:40:15 or direction have socially beneficial consequences.
0:40:17 Of course that means that things can also have
0:40:20 socially harmful consequences as well, right?
0:40:23 Now, Smith doesn’t exactly outline that use,
0:40:24 but I just wanted to kind of point out
0:40:27 that there are unintended consequences
0:40:29 to individual actions.
0:40:31 Smith uses the phrase the invisible hand three times,
0:40:33 once in the theory of moral sentiments,
0:40:35 once in the wealth of nations,
0:40:37 and once in his essay on the history of astronomy.
0:40:39 – That’s remarkable, only three times.
0:40:40 – Only three times.
0:40:42 – Given the primacy of that phrase, right?
0:40:44 How important it is in this course.
0:40:46 That he barely even used it.
0:40:47 It wasn’t important to him.
0:40:49 – No, it’s a kind of passing remark.
0:40:51 And the other thing to realize
0:40:53 is that in the wealth of nations where he’s using it,
0:40:56 he’s talking about how individuals make decisions
0:40:58 on where to invest their capital.
0:41:02 Do I invest my capital domestically
0:41:04 or in a foreign nation?
0:41:06 And Smith says, well, like people tend to prefer
0:41:08 to invest closer to home
0:41:11 because they have a better sense of the laws
0:41:14 and the norms and kind of a sense of trust
0:41:16 in their own local environment.
0:41:18 So he invests closer to home
0:41:20 and one of the unintended effects of that
0:41:22 is that maybe that ends up generating
0:41:26 a lot more productivity in the home market.
0:41:29 So Smith is actually using that phrase to illustrate
0:41:32 like how people think through their decisions
0:41:34 of foreign investment,
0:41:36 preferring domestic industry to foreign industry.
0:41:39 He ends up promoting this phenomenon
0:41:41 that was no part of his intention.
0:41:44 Okay, so that’s a pretty like bland idea, right?
0:41:46 As you said, it’s like, that seems fine.
0:41:48 What did the Chicago school do with it?
0:41:50 Or kind of more specifically,
0:41:51 what did Milton Friedman do with it?
0:41:55 Milton Friedman calls the invisible hand
0:41:58 the insight that created scientific economics.
0:42:00 I’m probably not quoting that directly,
0:42:02 but he says, you know, this is Smith’s key insight.
0:42:05 This is Smith’s flash of genius.
0:42:10 And what Friedman does is kind of reinvent
0:42:14 the invisible hand as the miracle of free markets.
0:42:17 This is how free markets work.
0:42:20 And what’s really genius about what Friedman does
0:42:23 is that it has both a kind of scientific component.
0:42:25 He uses price theory to really back this up.
0:42:27 This is the magic of the price mechanism.
0:42:31 So there is this sheen of scientific objectivity.
0:42:32 This must be true.
0:42:34 But then it also becomes a political statement
0:42:36 that because this is how the price mechanism works,
0:42:39 because this is how the miracle of free markets work,
0:42:44 we should prefer free markets to government intervention.
0:42:47 Only markets can really enshrine
0:42:49 and protect individual economic freedom,
0:42:51 not the government.
0:42:52 So that’s how the invisible hand
0:42:54 really becomes politicized, right?
0:42:57 It becomes to stand for the virtues of the free market
0:42:59 and the vices of government,
0:43:02 rather than just this kind of social theory
0:43:04 of unintended consequences.
0:43:06 – You know, again, I’m no Smith scholar,
0:43:08 but the idea that the market
0:43:13 is some kind of unerring divine force
0:43:17 does not seem to be even close to what Smith believed,
0:43:20 but it’s perhaps a testament to Friedman’s brilliance
0:43:24 and rhetorical genius that he was able to make that case.
0:43:25 And there’s just no question,
0:43:26 whatever you think about Milton Friedman,
0:43:28 that he was very smart and gifted.
0:43:31 – He was really gifted at that rhetorical power.
0:43:34 He found a phrase, he found an explanation
0:43:38 and he found an image that worked really, really well.
0:43:39 And it’s all over “Free to Choose,”
0:43:43 you know, both the written book as well as the TV show.
0:43:46 He uses it in all the columns that he writes.
0:43:47 And it really worked, you know,
0:43:50 “Free to Choose,” he wanted to call it the invisible hand.
0:43:51 – Yeah.
0:43:54 Backing away from Friedman’s Smith,
0:43:56 I wanna ask you about Smith’s Smith.
0:43:57 – Yeah.
0:43:59 – I wanna ask you about Smith himself.
0:44:01 What he believed, I mean, did Smith think
0:44:06 that the pursuit of wealth degraded us as individuals?
0:44:09 Did he see money as a corruptive force?
0:44:11 Not necessarily like an always
0:44:13 and everywhere terrible evil thing,
0:44:16 but did he see wealth and money as a corruptive force?
0:44:20 The way that many critics or skeptics of capitalism do.
0:44:22 – It’s a really good question.
0:44:24 I’m gonna try and answer it in a kind of,
0:44:28 hopefully as non-obnoxious of a way as possible.
0:44:30 – Oh, no, give me the obnoxious.
0:44:32 – So it’s a really good question.
0:44:36 Smith did not see wealth as inherently corrupting.
0:44:38 He doesn’t think that merely pursuing wealth
0:44:43 is both morally degrading and degrading in other ways.
0:44:48 He did see wealth as a new form of political authority.
0:44:50 So this is where things get interesting.
0:44:52 So in the wealth of nations,
0:44:54 as well as in the noctures on jurisprudence,
0:44:56 Smith says that political authority
0:44:58 comes from four different sources.
0:44:59 Distant age is passed.
0:45:04 People chose their chieftains and their leaders based on age.
0:45:06 The most senior person would be the leader of the tribe
0:45:07 or the clan.
0:45:10 Maybe they chose their leader based on physical
0:45:12 or kind of mental capabilities.
0:45:14 People with the biggest brains
0:45:15 or people who are the strongest.
0:45:19 So capacities, age, these are sources of authority.
0:45:21 What’s interesting about the modern era
0:45:25 is that two new sources of political authority emerge.
0:45:28 Wealth and birth or family.
0:45:32 And wealth is a particularly interesting source
0:45:33 of political authority
0:45:37 because it’s not like physical, right?
0:45:40 It’s not attached to you as a person.
0:45:43 And especially in kind of advanced societies.
0:45:45 He says in the kind of advanced age
0:45:48 or in like civilized and opulent countries.
0:45:52 Wealth has the potential to be a very like insidious
0:45:53 source of power.
0:45:54 And that’s where I think,
0:45:57 if you wanna use the term corruption,
0:45:59 this is where I think we can start to think
0:46:00 about using that term.
0:46:01 I don’t wanna go straight down that road
0:46:03 and just say like, wealth becomes a source of corruption.
0:46:05 But he says that these advanced societies
0:46:07 become very prone to corruption
0:46:09 because wealth becomes a new source of power.
0:46:11 And it allows people who are previously
0:46:14 political outsiders to suddenly become insiders.
0:46:17 And this is kind of the foundation of his critique
0:46:18 of the British East India Company.
0:46:22 You have this elite company of wealthy merchants
0:46:24 whose claim to power is the fact
0:46:26 that they are wealthy merchants
0:46:31 and they work with lawmakers to bend the law
0:46:33 to rig markets in their favor.
0:46:36 And that is kind of where the connection between wealth.
0:46:39 And I would say that’s a form of political corruption
0:46:43 that Smith was very worried about in modern societies.
0:46:49 – I think of capitalism not just as an economic system.
0:46:52 I think of it as a morality really and to itself.
0:46:54 Or it becomes a morality
0:46:59 without any serious ethical or spiritual counterbalances.
0:47:01 I mean, ultimately it is a form of life
0:47:04 in which consumerism and material self-interest
0:47:06 are the highest pursuits.
0:47:09 And Smith, again, unless I am misappropriating him
0:47:11 as some of the people we’ve talked about have,
0:47:15 he seemed to get that that is true,
0:47:19 which is why he thought a healthy moral culture
0:47:21 was perhaps a precondition
0:47:24 for a healthy productive capitalist economy.
0:47:28 – I think that’s a really, really common interpretation
0:47:30 of Smith and this kind of connection
0:47:33 between the theory of moral sentiments, right?
0:47:35 Does it provide the kind of moral foundation
0:47:37 for the commercial flourishing
0:47:39 that he outlines in The Wealth of Nations?
0:47:42 And again, because I gave you that timeline of like,
0:47:43 here at The Theory of Moral Sentiments,
0:47:44 here at The Wealth of Nations,
0:47:46 he goes back to The Theory of Moral Sentiments.
0:47:49 And that alone gives us reason
0:47:51 to believe that like Smith cared deeply
0:47:54 about both the moral consequences
0:47:56 of the kind of transformations
0:47:58 that he was seeing at the socio-economic level
0:48:02 to kind of go back to the moral work that he was working on.
0:48:04 Now, again, I might be in the minority here,
0:48:07 but I don’t think that The Theory of Moral Sentiments
0:48:09 is like the moral template for capitalism.
0:48:10 I don’t think that.
0:48:13 And maybe I’m not really in the minority here,
0:48:15 but I think because that temptation
0:48:18 to read The Theory of Moral Sentiments,
0:48:19 especially that chapter,
0:48:21 the one that I just got like the universal corruption
0:48:23 of our moral sentiments coming from this tendency
0:48:26 to admire wealth and to neglect the poor,
0:48:28 I think because that has just attracted so much attention
0:48:30 and it just seems so unavoidable
0:48:33 to want to think that Smith is speaking to us right now,
0:48:34 but we have to remember at the end of the day,
0:48:37 like Smith is writing a work of 18th century
0:48:40 moral sentimentalism and he’s like responding to Hume
0:48:42 and he’s responding to Mandaville.
0:48:44 He’s not writing The Theory of Moral Sentiments to say,
0:48:47 and you know, and these are my ethics of capitalism.
0:48:50 That said, and this goes back to one of the earlier questions
0:48:51 that you asked me,
0:48:54 there is a relationship between the two books.
0:48:58 And I think it’s how Smith observed the human world.
0:49:02 – Yeah, you know, I think if you approach Smith
0:49:03 honestly and openly,
0:49:06 you just have to accept that there are many sides of him.
0:49:08 And I don’t think that makes himself contradictory.
0:49:11 I think it makes him complicated, you know,
0:49:14 like a Nietzsche, a friend of the show.
0:49:18 You know, his complexity leads him vulnerable
0:49:20 to a lot of different interpretations.
0:49:21 And I guess in the end,
0:49:24 when I was reading your book and just listening to you now,
0:49:26 I wonder how much faith he had in people.
0:49:27 A lot of libertarians, for instance,
0:49:30 who just accept that people are greedy and selfish
0:49:34 and we need a society that makes use of those drives.
0:49:37 But part of the appeal of Smith to me,
0:49:40 or at least the version of Smith I’m getting from you,
0:49:42 is that that just doesn’t seem to be how he looked
0:49:45 at the world or people, that maybe I’m just projecting.
0:49:49 – I think it’s really hard to say
0:49:51 whether Smith would be really optimistic
0:49:56 or really pessimistic about our current situation, right?
0:49:57 You know, on the one hand,
0:50:02 he might say, hey, where are the forms of state capture
0:50:06 whereby elite interest groups might be trying to kind of like
0:50:09 take control of the economy in ways that are
0:50:12 disproportionately benefiting the wealthy and privileged
0:50:14 at the expense of the poor.
0:50:18 But was he optimistic that we could change that?
0:50:19 I don’t know.
0:50:21 That’s what put Smith in the gray area
0:50:23 as this podcast is called.
0:50:27 He also didn’t have much faith in politicians
0:50:28 to do the right thing.
0:50:30 That doesn’t make him a libertarian,
0:50:35 but he was very skeptical of ordinary politicians
0:50:39 to kind of like not get swayed by the wrong ideas
0:50:42 or not become victims of their own ideology
0:50:44 and own ideas of like how things should run.
0:50:48 He was deeply skeptical of certain forms
0:50:49 of concentrated power.
0:50:51 So like on the one hand, he’s saying,
0:50:53 here’s how you can see the problem differently.
0:50:54 And once you see the problem,
0:50:56 you’ll be able to maybe fix it.
0:50:59 But on the other hand, he’s like, oh, I’m not so sure.
0:51:01 People aren’t so great at this all the time.
0:51:05 – You said, you know, the show is called the gray area.
0:51:09 And it’s really not a performative shtick for me.
0:51:12 Like I really sincerely value uncertainty and doubt
0:51:16 as deeply underrated intellectual virtues.
0:51:18 You know, like the world is so complicated
0:51:20 and no one really has their arms around it.
0:51:22 And Smith strikes me as someone
0:51:24 with a lot of intellectual integrity
0:51:28 and not just a really brilliant ideologue
0:51:31 looking to make the world fit into his conceptual box.
0:51:33 And I think a lot of people who have made use of him
0:51:35 have done precisely that.
0:51:36 And I hope if nothing else,
0:51:39 we may have poked a few holes in that.
0:51:40 Certainly your book does.
0:51:43 And I hope people read it for that reason and many others.
0:51:44 – Well, thanks.
0:51:46 That’s a great pitch for my book.
0:51:51 – Okay, the book is again, Adam Smith’s America.
0:51:53 How a Scottish philosopher became
0:51:55 an icon of American capitalism.
0:51:56 Glory Lou, this is great.
0:51:58 Thanks so much for coming in and having this chat with me.
0:52:00 – Thanks again for having me, Sean.
0:52:03 (upbeat music)
0:52:13 – All right, tell me what you think of that episode.
0:52:14 Did you like Adam Smith?
0:52:16 You want some more Adam Smith?
0:52:18 Did we talk enough Adam Smith?
0:52:18 Let me know.
0:52:22 You can drop us a line at the gray area at vox.com.
0:52:24 I read those emails, please keep them coming.
0:52:26 And if you don’t have time for all that,
0:52:28 just rate, review, subscribe.
0:52:31 This episode was originally produced
0:52:33 by Eric Janikis and A.M. Hall
0:52:35 and engineered by Patrick Boyd.
0:52:38 The gray area is edited by Jorge Just
0:52:41 and Alex Overington wrote our theme music.
0:52:44 New episodes dropped Mondays, listen and subscribe.
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0:52:57 (upbeat music)
0:52:59 you
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