Jesse Norman talks to Nick Spencer and Katherine Ajibade about markets, morality and his new book ‘Adam Smith: What He Thought, and Why it Matters’ 01/08/2018

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Adam Smith is one of the few economists known outside the world of economics. A founding father of the discipline and a luminary of the Scottish Enlightenment, he is best known as an icon of, and intellectual foundation for, the neoliberalism that rose to dominance two generations ago.

A new book by Tory MP Jesse Norman – Adam Smith: What He Thought and Why It Matters – explores the man and his idea and shows his thought to have been rather more subtle and sophisticated – and a good deal less ‘liberal’ – than is popularly believed. 

Nick Spencer and Katherine Ajibade talked to Jesse Norman in his office in Westminster about Adam Smith, markets and morality. 

People sometimes talk about the need to rescue Christ from the Christians. That wouldn’t be a bad way to describe what you are doing for Smith, would it? You’re rescuing Smith from the people who have misinterpreted him. 

Yes, I think that’s very interesting. The thing about Smith is that he is by far the most influential economist who ever lived. So when you start to get these culture wars about markets, inequality and capitalism, the temptation from both sides is to try to co–opt Smith in one way or another. 

So from the Left’s point of view, he is sometimes seen as a market fundamentalist and the father of capitalism, defender of inequality and greed, and from the Right’s point of view he is a laissez–fairelibertarian who has delivered us from the evils of socialism. What I want to say is that those caricatures may be useful to people but they bear no resemblance to the real Smith. 

The Wealth of Nationscould not have been published before The Theory of Moral Sentiments, could it? To understand Smith properly you need to understand how his economics embedded in his ethical approach. 

I don’t think it is surprising that the books appeared in the order they did. In fact, we know that many of the key ideas in The Wealth of Nationswere in his mind in the 1750s before he wrote The Theory of Moral Sentimentsand many of the key ideas in The Wealth of Nationsare not original to Smith. One of the things Smith does is to gather up these examples and summarise them.

He puts markets at the centre of political economy – and it is political economy not economics; economics is a separate thing – but markets themselves rely on norms and trust and institutional features and those norms come from Smith’s account of moral sentiments. So the two books, far from being two separate entities, are part of a much wider whole.  

Is one of the key messages, then, that any attempts to disembed economics from political processes and wider social and cultural norms are doomed to failure? 

Yes, but we must be clear that when we say ‘doomed to failure’ we don’t mean that they can’t be beneficial. Economics works by making simplifying assumptions, which helps to build models that then have testable consequences or interesting insights. That is a very valuable activity in many ways. What’s not valuable is pretending that economics as an activity or the economy as an entity is separate from society or politics and the question of how society is to be governed. As soon as you make that equation, you’re making a blunder and potentially a very expensive and painful one.  

You’re at risk of dehumanising people by treating them not as ends as themselves but within a wider calculable system.

There’s always that danger in seeing an individual as an economic agent. That’s not a mistake that Smith makes. You get that starting in the 19thcentury and I have a chapter which describes how this happens. Smith thinks very differently and has a very rich conception of the human being. Of course, he thinks that there should be an aspect of the economy that focuses on satisfying people’s needs – that’s what political economy exists to do. However, he doesn’t think of individuals in that very narrow way. 

The difference in Smith’s very dynamic conception is that lots of the things that go in to the ‘too hard’ categories of economics are natural parts of how he sees human beings. The questions of how individuals form preferences, and whether those preferences are consistent every time, and whether those preferences are related and whether they are related to other peoples’ preferences… all these things he regards as the natural dynamism of an evolving economy.

So Smith has a much rich and livelier understanding of people rather than pulling apart…

Yes, that’s true. He does not divide people according to their economic interests. At no point does he say that man is purely activated by self–interests. Rather, human beings do have a natural inclination to truck, barter and exchange with each other and to better their own condition and that of their families and friends – which is very different than saying humans are greedy and self–interested.  

Would you say then a reason as to why Smith has been hijacked (if that’s not too strong a term) was a deliberate reaction against socialism? 

We have to distinguish the way in which someone is used and, of course, what they say. In the 1970s, there was a lot of concern that western economies were falling into a sludgy socialism and so the desire to liberalise and to energise by liberalising was quite widespread. So at that point, Smith looks like a very useful resource. In the 1770s when he wrote The Wealth of Nations, markets were in many cases under regulations from the church, state, guilds and the like so a liberalising instinct was inevitably going to be an equalising time and to have welfare benefits. 

We are currently living in a time that is operating to a very Smithian system and where markets and governments have co–evolved in a way in which he describes Book 3 of TheWealth of Nations, the classic part, and his unpublished lectures on jurisprudence. As they have co–evolved, the role of the state has been to guarantee the legitimacy of the system by pulling back on crony capitalism. The pathologies of capitalism – which result from rent extraction, asymmetries of information and power in markets – those pathologies, and the wider separation of corporate behaviour from the public interest, are absolutely things that Smith is very tough on in The Wealth of Nations. Part of my book is to remind people of that. 

So it’s a perfectly legitimate reading of Smith that goes on from 1970 onwards but it’s only half a reading.  

I wouldn’t say it’s legitimate because it doesn’t go deep enough into Smith to give an accurate picture. To think Smith is a laissez–faire economist is to make a mistake and I feel quite strongly about this. There are legitimate and different interpretations amongst people who have read Smith closely, but it would be like saying Smith is a socialist, which is not true. 

Smith says incredibly interesting things that someone on the left can identify with and become interested about. For example, he talks about ‘alienation’ defined according to the Marxists’ understanding of alienation, which talks about the importance of when people are doing repetitive labour (through the division of labour). That is a really important part of it and he didn’t just mean men. He meant men and women as there were plenty of women working in Scotland at the time. 

And Smith is certainly not a defender of inequality. There is a fabulous moment where he says that rules are so in favour of the masters at the moment, i.e. the employers, that whenever you see a piece of legislation in support of the workers, it should be supported in order to level the playing field. Those ideas can be quarried by people whatever their politics. 

Let us move on to what I think is one of the most interesting aspect of Smith and the book, which is a repeated emphasis on trust, social norms and mutual moral and social obligations. These are absolutely central to an understanding of Smith and an understanding of a functional economy. The question is how are those norms generated?   

Smith does not think moral and social norms are created by God or by any other extra natural force. His is not a system that has a religious premise and it doesn’t make any religious assumptions, which is a very important part of it. His theory of norms is an entirely naturalistic theory of norms. 

He pulls this off by getting an ought from an is, and the way he does it is by saying humans naturally desire to not only be loved but to be lovely. So they act in ways that are designed to procure love and esteem from people around them, and that good behaviour – and sometimes it can be bad behaviour the procures love and esteem, for example gang culture – but that behaviour and the rewards that come from people acting favourably towards it are what come from social moral norms. 

Once a norm has become established, by this descriptive process it becomes morally compelling to people. If you walk into a world in which no one drops litter, and you have dropped litter and then watch people pick it up and put it into a bin, you will come to understand not to drop litter. An ought not to drop litter comes in from people not dropping litter and that is the Smithian move. 

That is a very interesting move but.. if I were being theological here – 

Do!

– I would drop a word like ‘sin’ in. Smith talks about how communities, societies and institutions will develop these moral norms through natural reciprocity, that desire to love and to be lovely. A desire for respect. But any dispassionate assessment of human nature shows that humans also have a desire for vengeance or sometimes have a desire for superiority over others. Do his moral norms not rely on norms always being beneficial? You mentioned gang culture there, didn’t you?

Smith thinks that people have a natural instinct to admire the rich and the powerful. And he worries about that because he thinks that is corrupting to human nature and human interaction and he thinks it causes people to despise the weak and the powerless which he also hates. But his analysis of human nature is sufficiently brilliant to realise that some of those accumulative and competitive instincts also sit behind market competition and the desire to love and be lovely. And so he tells a much more complicated and rich story about the interaction between human interests, emotions and passions then this conventional picture. 

The overwhelming result is in commercial society those passions become mediated by the human instinct to exchange. And the philosophical core of the argument –and I am delighted I can get to the philosophical core with Theos in a way I can’t with other organisations – is this idea of exchange between people. It is set out inThe Wealth of Nationsand it is market exchange but, of course, it is also the exchange of regard and esteem in The Theory of Moral Sentiments and in his writings on rhetoric and in his early lectures it is the exchange of linguistic norms. 

So you have this running theme of the civilising effects of human exchange and it’s that which keeps people from social misbehaviour and it is this that underwrites the laws. The laws themselves rest on – it’s a very Humean point – a fundamental basis of social concept – 

And custom –

And custom and consent and it is that cultural embedding that people often underestimate when they just think of Smith as a series of markets. 

What you’re suggesting is that a Smithian understanding of communication and the normal processes of reciprocity will kind of balance themselves. But we know that does not necessarily happen. We know that people with power exercise it over and against others, and believe themselves in zero sum games rather than in communication, which shouldn’t be a zero sum game. 

Irrespective of how positively you view human nature, you need some form of government to prevent forms of exchange and communication from veering off and becoming a monopolistic or externalising costs or exacerbating inequalities. You still need a firm governmental hand – which Smith would of course support – but you also need moral reservoirs, places of moral regeneration, within society on which you can draw to shape these norms. 

Yes, that is very interesting and it is still an open question for scholarly readers of Smith as to whether ultimately his moral worldview can be entirely severed from a Christian ethos and I am not persuaded that it can. 

Is he not just a deist?

Well I am not a fan is ‘isms’ so I am not going to say what he is or isn’t. He is a sceptic about many aspects of church organisation and he does not talk about god as active in present terms but rather as the creator or the great architect. 

But the deep question about values and whether they can be severed from a Christian orientation is a scholarly point and my view on this is that it probably can’t, as he set it up. One of the differences between him and Hume was that Hume was comfortable with an entirely naturalistic worldview, a view from which ulterior sources of value had been entirely purged. And that didn’t make Hume an atheist, contrary to what people said. I don’t think he was an atheist, as I don’t think Smith was an atheist. 

Smith is very sceptical about utopian schemes and the individual instinct to put one’s own mind ahead of the collective wisdom, either disembodied of a market or within an evolved society. He thinks this is very true about governments as well as politicians (he’s very rude about politicians unless they really show themselves to be statesmen by virtue of their instinct and principles.) 

A classic example would be Scottish universities and Scottish borough schools, which would have been regarded by Smith and his contemporaries as enormous reservoirs not merely of wisdom but of moral value. And of course, he very much believes in the value of education and that fits into the wider theme of the Scottish enlightenment. 

This is something that makes the Scottish Enlightenment different from the French Enlightenment, by the way. It’s an improving society based on institutions and of course, that includes the market. That is in a way a source of what, I think, is a deep, small ‘c’ conservativism. Smith is not a player in contemporary politics, and as I’ve said, he can be mined by people from across the political spectrum. There are small ‘c’ conservatives towards the left and there are small ‘c’ conservatives to the right – I think Smith is one of those people, and you can see it in his hatred of utopian solutions and his worry about individual ego and his lack of support for any radical schemes of his day. But you can also see it in his belief in institutions. One of the nice definitions of a conservative is someone who thinks institutions are wiser than individuals – he would have certainly subscribed to that view. 

What are the proper limits to markets then? You can have a very pro–market view – understandably – because you’re in favour of breaking up the guilds and all the other kinds of institutions that hold society back. But at the same time, there are institutions on which markets themselves depend, and of course, one of the most pertinent critiques (with Michael Sandel being the most obvious example of this) is that unless you are clear where the market can and can’t intrude, you will end up dissolving all the institutions on which a functioning society depends. 

Yes, there are different ways of thinking about markets and I talk a lot about Michael Sandel in the book and his ideas. The worry that commerce had a tendency to undermine society is absolutely available in the 18thcentury. It’s a very powerful theme and there are many people who write on it, and Smith is aware of this. 

So we might say some of the limits might relate to institutions and Sandel talks about the commercialisation of public space or state schools and these things are unimaginable in Smith’s time, but you can imagine that there would be institutions that he would say are at odds with a commercialising spirits. 

A classic example would be slavery. Slavery was an example of the commercialisation of its most grievous kind, of human beings for chattel uses, and Smith fascinatingly is a vigorous critic of slavery. He does this on moral grounds – stating this is not what markets should be doing and there should be no trade in human beings – but also on economic grounds as this is a bad way to organise the economy because you don’t get the best out of people. That is fantastic because these ideas came about 25 years before the anti–slavery movement really gets going. So that is a classic example of an area where Smith in his own time would say this market simply shouldn’t exist. 

So you need a substantive notion of what the public good is in the first instance. 

Well that’s over stating it. You don’t. You just need to be able to say that something is engaged with the public good or subserves the public good. You don’t have to have a rich theory of the public good to know that slavery is wrong. 

But then you get other questions regarding certain goods that the state provides today and whether they would be better provided by the market or not. So health provision, is that fundamentally a public good? Or transport provision? 

I think you’re running two things together, if I may say so. Something can be a public good and better provided by a private mechanism funded by the public or funded by the private sector. Or it can be a public good, funded a public person, and delivered by a public person. All those are perfectly proper alternatives so the scope for political discussion remains. 

Are there public goods that on principle would de–bar the market? 

This is a modern argument rather than a Smithian discussion and it’s a parlour game to ask what Smith would think. But he certainly would think that there are limits to where it would be a bad idea, all things considered, for either the state to dominate the provision or markets to dominate the provision. 

He’d prefer a mixed economy? 

Well my point is I don’t think it’s a doctrinaire matter. The thing about Smith is as well as being a theorist, he’s also a very particular analyst. So if you read The Wealth of Nations, you’ll get an analysis of the corn market and the market for labour. These are different things and he doesn’t think all markets have exactly the same fundamental mechanisms and he’s prepared to be very detail–orientated and specific about this. And that fits the point I’m making, which is you have to ask ‘what is this market doing and is it working?’ 

The interview was conducted on 4 July in Westminster. Adam Smith: What He Thought and Why It Matters is available from Allen Lane.