Morality and economics

Economics in its etymology means society’s rules and regulations. Adam Smith, who is famously known as the father of economics, considered that there is a high correlation between ethics and economic behavior. In fact, Smith used ethical analysis to study the market since he believed that both of them are functional systems promoting human welfare. Theory of moral sentiments was the first book written by Smith in which he examined the human behavior in a novelistic way relying on morality and virtue. He put away all calculations to look deep into human nature in an attempt to set the commercial game’s rules, the rules that once followed will generate a well-functioning society. Russ Roberts, a popular explicator of economic thought, considered that Smith’s very first book is a pursuit of happiness where he raises moral questions such as: “why do we do nice things given that we’re self-interested? What motivates us to do good things for other people? Then the related question is: what makes us happy? What brings us satisfaction” Roberts continues by concluding that Adam Smith considered the pursuit of wealth corrosive and destructive. We might accept this conclusion since the actions undertaken through the hunt for money sometimes clash with the norms of society especially if we were to believe in the saying: “all is fair in love and war” but in the other hand it is unfair to focus only on this point and disregard all the other ideas interpreted in the moral sentiments book.

Many economists tempt to compare between the Moral Sentiments and the Wealth of nations and consider that these two books have contrasting ideas about public life especially when it comes to business dealings but the truth is that his idea is pretty straightforward, he assumes that human beings are motivated solely by self-interest. This motive, according to Smith, constitutes the basis not only of human behavior but also of the “market and the limitation of government action in economic affairs” as stated R.H. Coase. In other words, I think that Adam Smith’s view of man is conformable with his economic views where each person acts according to his interests and benefits. Perhaps, the major difference is that in the Theory of moral sentiments he deals more lengthily with human psychology and deepens into morals. One famous sentence that lead to controversies is “we should seek or strive to love and be lovely”, it was interpreted by Russ Roberts who claims that by convention people aim to be loved and grab others attention. In their nature, people seek respect, honor and admiration but also they want to earn this respect, they want to be lovely. To be so, people need to reshape their own personality, they need to follow a new set of rules driven by virtue and empathy. This implies that some actions performed in our business dealings won’t be tolerated anymore; here emerges the clash between the human psychology examined in the moral sentiments and the economic behavior dissected in the Wealth of Nations. But, what we often miss is that even if our economic behavior opposes to the virtues, it doesn’t mean that it is illegal. We should be able to distinguish between “legal” and “ethical”. Most frequently everything that is ethical is also legal but the opposite is not true. Some actions aren’t illegal in their essence but it is our conscience that stops us from performing them for the fact that these actions are unethical and can cause potential harm to the society. In this way, psychology and economy complete each other in order to reach society’s welfare. In this context, Adam Smith referred to an entertaining character called “the impartial spectator”. This third player constitutes the judge, our internal judge who assesses our behavior and categorize our actions and thoughts as good or bad. Whenever we feel the dissatisfaction of that spectator, we tend to modify our actions. So, it is all about internal relief. Smith justifies what I mentioned earlier by the hypothetical example of the collapsing of the Great empire of China and the reaction of a person who has no relationship with the people involved in this catastrophe. In this context, he introduces a new psychological term “affection” to prove his idea about self-interest. That person, who is completely external to the incident showed little concern only to verify that affection and sympathy fades as the relationship gets broader. However, this same person showed the willingness to lose his little finger if it would save the life of millions which approves with Smith idea where people seek to be lovely. But, what Adam Smith misses is that this person agreed to sacrifice a small thing that wouldn’t affect his survival in a major way. What if he had to let go his four limbs for the sake of saving the people of China? To do such a big compromise is to disregard his self- interest, it is the peak of Maslow’s hierarchy where only a person who reached self-actualization would be able to suffer the loss of his limbs to save people he knows nothing about them. In fact, R.H. Coase did mention this point but didn’t consider that it affects Smith’s idea deeply.

Smith seems to be a very virtuous man, throughout his book: theory of moral sentiments, he talks about many virtues. Three of them were given a big importance: justice, prudence and benevolence. Reward and punishment derive from justice. In order to reach a well-functioning society justice should be applied and people should abide by the rules in return. So, people are measured by their behavior and actions. Smith had a singular definition of action, he considered that actions are not only what we produce but what we attempt to produce also. Based on this, he believed that people should be judged based on both their behavior and intentions. In my opinion, it makes no sense to go into people’s thoughts when judging a concrete outcome   because at the end of the day what really affects our surrounding is the way we conduct ourselves. When it comes to prudence, it is all about being efficient and selective in your choices. It goes beyond the personal life to reach not only the social by also the commercial life. Here again, we notice the correlation between human nature and economics. The latter is all about a choice where we have to select the most efficient option among other possibilities available when dealing with scarce resources. The third virtue that took a lot of Smith’s attention is benevolence. It is with no doubt the oldest among the three qualities but also the most important one that our whole discussion rotates around it. Benevolence is all about being good at people and helpful. To be benevolent is to be a social activist and offer help to people and definitely not being a bystander. Emotionally, it is very hard to be a benevolent person because it requires action and sometimes sacrifice. Moreover, any discovery of a selfish motive or a self-interest as Smith calls it, destroys the whole notion of merit or praiseworthiness. This last rule makes the application of benevolence a very difficult task not only on the humanitarian level but also on the economical level since “the habits of economy, industry, discretion, attention and application of thought, are generally supposed to be cultivated from self-interested motives” as stated R.H. Coase. Also Adam Smith considered benevolence as an act that goes beyond the powers of men.

To sum up, and here allow me to quote R.H. Coase “the picture which Adam Smith paints of human behavior is not edifying. Man is not without finer feelings; he is indulgent to children, tolerant of parents, kind to friends. But once this is said, it is also true that he is dominated by self-love, lives in a world of self-delusion, is conceited, envious, malicious, quarrelsome and resentful”.  Back in 1759, Adam Smith struggled to explain this natural harmony so he had to believe in a God who created all of it, a God who is the Great Architect of the universe. That was way before Darwin’s theory about natural selection took over. Now, we describe the harmony in human nature as a result of natural selection, “the particular combination of psychological characteristics that lead to survival”. Adam Smith did realize that there was an alternative explanation but didn’t succeed in defining it in the correct terms. However, this fact doesn’t reduce the value of Smith’s findings that are still somehow able to explain many modernist social phenomenon since we all agree on the importance of our instincts while dealing with daily bearings.


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