Adam Smith rarely gets mentioned without someone bringing up the invisible hand. It’s a pity, really, because there was a great deal more to him than that.
I’ve been listening to Jesse Norman’s biography of Smith and found myself becoming increasingly fond of the man. He was observant, generous, curious about almost everything, and fascinated by the peculiar ways human beings behave. I suspect he would have been good company, which isn’t necessarily what one expects from the author of The Wealth of Nations. By the end of the book, I was quite sorry not to have met him.
Smith was born in Kirkcaldy, Scotland, in 1723, a few months after his father’s death. His mother, Margaret Douglas, raised him and remained a central figure in his life. He was a rather delicate child, although evidently a precocious one, and went off to Glasgow University at fourteen. He eventually became a professor, travelled extensively in Europe, and developed friendships with some of the most interesting thinkers of the Scottish Enlightenment. David Hume was a particularly close friend.
He also gave away a remarkable amount of money, apparently with considerable determination that nobody should find out about it. Friends who tried to establish the extent of his generosity had difficulty identifying the recipients. That little detail tells us quite a lot about Smith, particularly when we turn to his first great book.
Being Loved—and Being Lovely
Before he wrote about markets and prosperity, Smith wrote about people. His Theory of Moral Sentiments, published in 1759, explored how we judge one another, why we care about other people’s opinions, and how we decide whether our own behaviour is acceptable.
We all have an extraordinary capacity to explain away our shortcomings. We know precisely what provoked us, why our response was perfectly understandable, and how badly the other person behaved. We can also spend an impressive amount of time replaying conversations, usually improving our own contributions considerably.
To counter this tendency, Smith proposed an impartial spectator: an imagined observer who could consider our behaviour without being quite so sympathetic to our excuses. Rather than simply asking whether other people approve of us, we might ask whether we deserve that approval.
He expressed a distinction that particularly appealed to me: “Man naturally desires, not only to be loved, but to be lovely.” There’s quite a gulf between the two. Being loved depends, at least partly, on how others see us. Being lovely requires something more demanding: becoming worthy of their affection and esteem, whether or not anyone happens to notice.
Sympathy, generosity and concern for others were, in Smith’s view, genuine parts of human nature, alongside ambition and self-interest. He was interested in how living among other people helped us develop our conscience and become better judges of our own behaviour.
And he seems to have made a genuine effort to live by the principles he examined. His quiet generosity suggests a man more interested in being worthy of esteem than in collecting it.
Self-Interest Is Not a Moral Failing
One of the things that struck me most about Smith was how comfortably he held together two ideas that we often treat as opposites.
We tend to regard self-interest either as evidence of selfishness, something to be disguised or apologized for, or as a perfectly adequate justification for looking after ourselves regardless of the consequences for anyone else. Smith would have recognized the problem with both positions.
Pursuing our own interests is perfectly reasonable. The question is how we go about it, and what consideration we give to others along the way. Smith’s impartial spectator offers a useful test: would a fair-minded observer consider our behaviour reasonable, including its consequences for those around us?
Smith understood that cooperation often succeeds precisely because both parties benefit. He saw no contradiction between self-interest and decency, nor did he mistake generosity for weakness. I suspect that’s part of what made him so appealing to me. He wasn’t asking us to choose between being practical and being good.
What a Pin Factory Can Tell Us
In 1776, Smith published An Inquiry into the Nature and Causes of the Wealth of Nations. I’ve always liked the full title. He wanted to understand why some societies prospered while others struggled, and he began by looking at what people actually did.
Take his famous pin factory. Smith described how making a pin could be divided into a series of tasks: drawing out the wire, straightening it, cutting it, sharpening it, and attaching the head. By specializing, a small group of workers could produce vastly more pins than if each had attempted the entire process.
The implications extended well beyond manufacturing. Consider a loaf of bread. The baker doesn’t grow the wheat, mill the flour, build the oven, or manufacture the tools. Yet all those activities come together to produce something we purchase without a second thought. Smith was fascinated by the extraordinary cooperation that makes such everyday transactions possible.
Having spent thirty years in the investment business, I found myself smiling at his approach. Economics was often presented to us as a rather tidy discipline, while the markets themselves were full of people behaving in thoroughly untidy ways. Smith, writing two centuries earlier, had already recognized that ambition, imitation, judgement, and the desire for approval were inseparable from economic behaviour. I couldn’t help wondering how economics had managed to become so detached from psychology.
But Smith also recognized the drawbacks of specialization. A worker spending a lifetime performing a handful of repetitive tasks might become extraordinarily productive while losing opportunities to think, learn, and exercise judgement. It was one reason he considered education so important.
He could appreciate the enormous benefits of greater productivity without overlooking the people responsible for it. The author of The Theory of Moral Sentiments was very much present in The Wealth of Nations.
A Healthy Suspicion of Special Privileges
Smith understood perfectly well that people generally pursue their own interests, and he didn’t regard this as a moral failing. He was considerably less enthusiastic about merchants who sought government protection from their competitors. Grant a business an exclusive privilege, restrict imports, or make it difficult for newcomers to enter a market, and the beneficiaries may become very wealthy without offering customers anything better. Today we call this rent-seeking, and the behaviour is hardly confined to the eighteenth century. Technology companies, professional associations, and established industries can still be remarkably inventive when explaining why competition should be restricted in their particular circumstances.
Smith brought similar scrutiny to inherited property, questioning arrangements such as primogeniture and entail. The first favoured the eldest son, while the second restricted what successive owners could do with an estate, helping keep great properties intact across generations. These arrangements made sense to families concerned with preserving their position, but Smith wondered whether they encouraged land to be used productively and what consequences they had for everyone else.
When wandering through a magnificent library or admiring a Capability Brown landscape, I find myself thinking as much about the economics of the estate as its architecture and beauty. Where did the wealth come from? How was the property maintained across generations? What did that continuity make possible, and what obligations came with it? Smith adds another dimension to those questions, particularly his interest in whether arrangements that once served a useful purpose continued to do so as circumstances changed. None of this diminishes my enjoyment of a beautiful country house. Quite the contrary. It makes the visit infinitely more interesting.
Roads, Harbours, and Other Useful Things
Smith paid considerable attention to the practical arrangements that allow societies to function. Roads, bridges, canals, harbours, courts, and schools helped people trade, travel, settle disputes, and improve their circumstances. He recognized an important role for government in providing public works and institutions that private enterprise could not be expected to supply adequately.
This is where his thinking overlaps rather nicely with my interest in the Hidden Frameworks of history. A canal isn’t simply an attractive place for an afternoon walk, although I’m always happy to find one. It once transformed the economics of moving goods, just as a bridge might bring a new market within reach or a reliable system of weights and measures make trade between strangers easier. Such improvements could change everyday life in ways their builders never anticipated.
Back to Edinburgh
In 1778, Smith settled at Panmure House, just off Edinburgh’s Canongate, with his mother and cousin Janet Douglas. Friends and fellow thinkers were frequent visitors, and he continued revising his books. That same year, he became a Commissioner of Customs for Scotland. The great advocate of freer trade was now helping administer the customs system. Life has a way of making practical demands on even the most accomplished theorists.
Smith remained close to his friends, particularly the chemist Joseph Black and the geologist James Hutton, who became his literary executors. Shortly before his death in 1790, he instructed them to destroy much of his unfinished work. They protested, understandably, but Smith was adamant, and only selected manuscripts were spared.
What a loss! I would dearly love to know what else had occupied him. But his insistence was characteristic of a man who had spent a lifetime revisiting his ideas, reconsidering his arguments, and trying to get things right. He evidently wasn’t prepared to leave unfinished work for others to interpret as his considered opinion.
The more I learned about Smith, the more I liked him. He was intellectually formidable without appearing particularly impressed by himself, generous without making a performance of it, and endlessly curious about human behaviour. He understood the power of self-interest without mistaking it for the whole of human nature.
It’s a pity that a man who spent so much time thinking about sympathy, conscience, friendship, and cooperation has been largely reduced to the invisible hand. There was so much more to him.
The next time I’m in Edinburgh, I’ll look at his statue on the Royal Mile rather differently. And I shall still wish I could have invited him to dinner.
