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Adam Smith's Concept of the Social SystemAuthor(s): Edward W. CokerSource: Journal of Business Ethics, Vol. 9, No. 2 (Feb., 1990), pp. 139-142Published by: SpringerStable URL: http://www.jstor.org/stable/25072016.

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Adam Smith's Concept of the Social System Edward . Coker

ABSTRACT. This essay will postulate that Adam Smith'sview of society was formulated out of historical influencesfar broader than generally conceded by many commentatorsin economic thought. Smith's basic behavioral concepts ofsympathy and self-interest are significant contributions toeconomic thought as are his philosophy of human naturebeing based on liberty and freedom and not simply thecreation of wealth. The vectors of influence that convergedon Adam Smith were of varied and even contradictorynatures. Yet the result of this collision of philosophicalforces was clearly an event of significance in the history ofphilosophical and economic thought.

Adam Smith plays a unique role in the history ofsocial thought. His concepts of self-interest and theinvisible hand have been two of the most powerfulideas of the past two centuries. Ironically, it is themisunderstanding of these two ideas that havereceived litde attention in the literature and is thefocus of this essay.

Commentators on Adam Smith have relied solelyon the Wealth ofNations and have virtually ignoredSmith's earlier and profound work, the Theory ofMoral Sentiments, in giving expression to Smith's viewof the social system. This essay will offer the contrary view that Smith expected that his later workwould be interpreted in the context of the earlierwork in which he developed the whole man and

Edward W. Coker ispresently an Assistant Professor of BusinessAdministration at USM-Gulf Coast, teachingprimarily in thearea of economics andfinance. Dr. Coker has appearedon theprograms of theAmerican Economic Association, the SouthernEconomic Association and the Financial Management Association, both aspresenter and discussant ofpapers.His interest inbusiness ethics is reflected in his doctoral dissertation on the

writings ofAdam Smith.He isalsoamemberof theAssociationforSocial Economics and has participated on several panels sponsoredby that organization.

then abstracted the economic man from his earlierview.

Long before the eighteenth century, philosophershad speculated about the nature and sources ofwealth, with the theory prevailing that the stateplayed an indispensable role in the accumulation anddistribution of wealth. The most articulate and pervasive manifestation of this view was mercantilism.This theory fitted nicely with the prevailing nationalism of the day. But, the spirit of change in theEnlightenment could not accept this. The sociologyof the time was not neutral. Reform and change wereimplicit in virtually every intellectual discourse. It ismore than coincidental that Smith, Bentham, Paine,and Gibbon all published major works in 1776, a yearnoted for change.

Smith, whose main focus in the Wealth ofNationswas economic factors, could not have selected amore propitious time to construct this work. TheIndustrial Revolution was promulgating, and actually implementing, dramatic changes in society.

Henry Buckle (1871: 154) suggested nearly a centurylater that Smith's work swept away the innumerable absurdities of the later eighteenth century.Smith's insight into the division and specializationof labor was quickly accepted by the industrialists ofhis time. His example of the pin factory (Smith,Wealth ofNations, 1937) led Smith to conclude thatthe history of the world was inextricably intertwinedwith the concept in the earlier part of the Wealth ofNations. Yet, near the conclusion of Wealth of

Nations, Smith (1937, 734) observes that the manwhose whole life is spent in performing a few simpleoperations . . . generally becomes as stupid andignorant as it is possible for a human creature tobecome. In summary, Adam Smith advanced laissez

faire in his day because he rejected as immoral andinefficient the alliance between merchant princesand the state. But, at no time did Smith suggest thatthe free market system was without flaws. This is

Journal ofBusinessEthics 9:139-142,1990.O 1990Kluwer AcademicPublishers.Printed in theNetherlands.

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140 Edward W.Coker

where the constraints of the Theory ofMoral Sentiments become of great significance.Smith began, in the Theory ofMoral Sentiments, toinitially construct a closed system of society withsympathy and the impartial spectator acting assurrogates for the individual's social conscience. Inthe Theory ofMoral Sentiments, he postulated thatsociety, when considered in an abstract light, appearslike a machine producing many agreeable effects(Smith, 1853). But, as pointed out by a notedcommentator, Smith developed a later view that amechanical view of society was simply inadequate tothe process by which men develop moral rules andeconomic practices (McFie, 1959). (For Smith's eloquent rejection of the mechanical view, see pp.342?3 of the Theory ofMoral Sentiments.)

With this apparent change of heart, Smith seemsto be rejecting a social theory of an explicit natureand replacing it with an implicit theory based onsympathy and the impartial spectator (Recktenwald,1978). In this system, Smith, unlike his predecessors,Mandeville and Hutcheson, saw self-interest as an

ethically positive, driving force (Recktenwald, 1978).But if, and only if, surrounded by the appropriateinstitutions would this be true, namely sympathyand impartial spectator.Smith was much too astute a social commentatorto completely abandon the social system that hedeveloped in the TheoryofMoral Sentimentsinwhichman was under the sway of sympathy and theimpartial spectator. To the contrary, Smith hadactually created what he called self-love in theTheory ofMoral Sentiments, acknowledging such acharacteristic to be a part of the human personality.Yet, he did not envision the trait as all-consuming.Rather, it was to be tempered by prudence, sympathy, and benevolence.Smith's concepts of moral sentiments as essentialcomponents of the human personality are vital to aproper interpretation of the Wealth ofNations. In theTheory ofMoral Sentiments, Smith took the positionthat the whole man is inclusive of, but not limitedto, the economic man. Then, in the Wealth of

Nations, Smith abstracted the economic man fromhis social system of the Theory ofMoral Sentiments, notrejecting the system but using the system to temperman's economic behavior. In so doing, Smith placedthe individualism of the Wealth ofNations within thesocial system of the Theory of

Moral Sentiments.

Smith's economic man of Wealth of Nations isfurther constrained by the prudent man of theTheory ofMoral Sentiments. Prudence, sympathy, and adesire for the approbation of his fellow man all limitbehavior. This is the background within which selflove motivates individual initiative which is, in turn,guided by the invisible hand to promote the welfareof society. Thus, the economic man serves a constructive role because he is also an honorable man.

The invisible hand obviously requires commentsince itmay be the single most misunderstood ideain the Wealth ofNations. Many commentators, particularly in recent years, have lifted the notion out ofcontext from the Wealth ofNations and utilized it toexplain and justify self-serving economic behavior.This is a dangerous, almost intellectually suicidal,

misinterpretation of Smith. Again, Smith was abstracting human characteristics from the social systemenvisioned in the Theory ofMoral Sentiments. Theinvisible hand was Smith's technique for grantingman the means to survive. At no point did he suggestthat the invisible hand was to function outside his

previously-defined social system. Rather, it was anallegorical device for Smith to express his faith inman. He was confident that the prudent, economicman would consciously seek to better himself in afashion which would promote the welfare of society.Smith recognized that such a result could not beobtained from a purely benevolent man; thus, therole of self-love and the invisible hand must beevaluated within the context of his full analysis.

Further, self-love was balanced by other, morebenevolent motives. Such motives are present inboth the Theory ofMoral Sentiments and the Wealth ofNations. The Wealth of Nations was a brilliant,comprehensive commentary in that it defined theinstitutional structure of the time; something thatthe Theory ofMoral Sentiments did not attempt. Manyreaders of Smith have argued that the Wealth ofNations was an iconoclastic work that destroyedmercantilism and ushered in the Industrial Revolution. This may be so, but Smith, while accepting andeven advocating economic change, in no waychanged his view of man offered in the Theory ofMoral Sentiments. Smith, for lack of a better word,

was attacking the institutional structure of societyinWealth ofNations, not for the purpose of destroying but for altering it through economic forces.The reader may still be puzzled as to how Smith


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Adam Smith's Concept of theSocial System 141

would arrange for sympathy and the imparticalspectator to envelop but not stifle the individual'sexercise of legitimate self-love. Smith resolves thedilemma by offering benevolence as the trait whichgives rise to the manifestation of social passion. Sincethe individual is deeply involved in society, benevolence is the ultimate perfection of human nature(Smith, 1853). The sublimity of benevolence arisesfrom man's inclination to bestow benefits on others.

This trait, probably more than any other in Smith'ssystem, shows the extent towhich Smith had faith inhis fellow man. Smith felt at home in society andbelieved that most of his fellow men did also. This inno way suggests that Smith's interpretations of theinstitutions of society in Wealth of Nations waswithout criticism, but he was convinced, perhaps byhis own reasoning, that society's shortcomings couldbe overcome because the common man was basicallygood. He did not fear, as did De Tocqueville, the

tyranny of the majority (Lindgren, 1973, 53). Hewould likely have been appalled by the gloom ofMalthus, Ricardo, and Marx, particularly the latter.To Smith, there was no institutional structure that

could be created by man that would improve on thenatural system as he envisioned it.Smith's concept of the prudent man of the Theory

ofMoral Sentiments was his philosophical method ofcoping with the principal difficulty in social theory,the selfishness of the individual. Smith's prudent

man, exercising self-love in a judicious manner, fitsinto Smith's theory of society. The individual, evenin his narrowness and self-interest, can, and will,benefit society. The economic man, while clearlypresent in the Theory ofMoral Sentiments, was notfully developed in that work because the Theory ofMoral Sentiments did not attempt to explain theprincipal features of the economic process. In theTheory ofMoral Sentiments, Smith digressed on economic behavior, explaining why men pursue wealthand tracing economic activity to man's sense ofbeauty. Here it is argued by some that Smith mayhave abandoned sympathy and replaced it withutility. This interpretation is a case of the advocatesof the individualism thesis trying to draw Smith intoa school of thought that would be totally wrong.Even though Smith's economic man acts in his ownself-interest, he never fails to recognize that hisbehavior should have consequences for others whichare beneficial. However strong self-love is, it

can

never prevail over man's desire for social approbation (Grampp, 1948). With this position, it can beargued that Smith rejected unrestrained individualismand approached an organic view of society. But, thedenial of individualism does not lead, ipso acto, tothis conclusion. Rather, Smith was trying to retainthis characteristic, but in a positive context.To truly understand Smith's position regardingsociety as a whole requires consideration of threebasic points. First, Smith did not speak of society interms of group entities; second, all actions of menare governed by self-determined criteria; and third,in all actions individuals surrender neither autonomyor identity.Adam Smith held out an idealistic view of mankind that is unexcelled in social thought and isillustrated throughout both his great works. A

neglected theme in the Wealth ofNations is Smith'sattempt to define the details of the institutionalstructure which will best harmonize the individual'sself-interest with the broader interest of society(Rosenberg, 1960).PerhapsMydral (1959) summarized it best when he suggested that for Smith theworld is harmonious. Enlightened self-interest ulti

mately increases social happiness. Smith saw theprice system that was evolving during the IndustrialRevolution as a superior way of organizing lifeif, and only if, surrounded by the appropriateinstitutions.

Thus, the Wealth ofNations served a dual purpose.First, it provided a guide to the manner inwhich theprice system allocated resources in a free-marketeconomy. Secondly, and this is the major thrust ofthis essay, the Wealth ofNations was vitally concernedwith conditions which the price system wouldoperate effectively in a socially cohesive manner asdefined in the Theory ofMoral Sentiments.

Finally, Smith's introduction of the system in theHistory of Astronomy predated even the Theory ofMoral Sentiments. He suggested that the systems

approach arose out of those principles which leadand direct philosphical inquiries (Smith, 1967, l). Inusing this logic, Smith was able tomanifest his beliefthat economics was only one strand in the system.This approach, along with Smith's use of history,provided a commonality of analysis that allowedSmith to develop the broad constructionist viewthat he preferred (Reisman, 1976, 15). This seems toshow a

graspof the

interdependenceof economic


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142 Edward W. Cokerand social phenomena unparalleled since Smith'stime.

AppendixSmith's reliance on moral sentiments as prerequisites of anyworkable system of competition has often been lost sight ofand even denied by later generations of economists whopreferred to popularize Smith's reference to the invisiblehand as evidence of his glorification of selfishness. Nothingcould be further from the truth. It is unthinkable that amoral philosopher of the stature of Adam Smith, whopublished the Theory ofMoral Sentiments in 1759,would haveabandoned this conception of the moral laws governinghuman behavior in 1776 when he published the Wealth of

Nations, without makingsuch a

change explicit.It is,

therefore, read in conjunction with the earlier Theory ofMoral Sentiments in order to understand that Smith presupposes the existence of a natural moral law as a result ofwhich the prudent man was believed to be anxious toimprove himself only in fair ways, i.e., without doinginjustice to others (Kapp, 1950,28?29).

BibliographyBuckle, Henry. 1871,History ofCivilization inEngland, Vol. II

(D.Appleton & Co., New York).Grampp, William: 1948, 'Adam Smith and the Economic

Man', Journal ofPolitical Economy 56.

Kapp, William: 1956, The Social Costs of Private Enterprise(HarvardUniversity, Cambridge).

Lindgren, J. Ralph: 1973, The Social Philosophy ofAdam Smith(MartinusNijhoff, The Hague).

McFie, A L.: 1959, 'Adam Smith's Moral Sentiments asFoundation for His Wealth ofNations', Oxford EconomicPapers. New Series.

Myrdal, Gunnar. 1959, The Political Element in theDevelopmentof EconomicTheory (HarvardUniversity, Cambridge).

Recktenwald, Horst G: 1978, 'AnAdam Smith, Renaissanceanno 1976?The Bicentenary Output ? A Reappraisal ofHis Scholarship', Journal ofEconomicLiteratureXVI.Reisman, David: 1976, Adam Smith's Sociological Economics(Barnes andNoble, New York).

Rosenberg, Nathan: 1960, 'Some Institutional Aspects of theWealth ofNations', TheJournal ofPolitical Economy 68.Smith, Adam: 1967, 'History of Astronomy', in The Early

Writings of Adam Smith, ed. by J. Ralph Lindgren(AugustusM. Kelley, New York).

Smith, Adam: 1853, The Theory ofMoral Sentiments (HenryGBonn, London).Smit, Adam: 1937, The Wealth ofNations (Random House,New York).

University of Southern Mississippi,P.O. Box 850,Gautier, Mississippi,USA. 39553.
