Welcome to The Deep Dive, the show where we take
the sources you provide, run them through that
academic filter, and give you the essential and,
yeah, sometimes surprising insights you need
to be truly well -informed. And today, we are
really opening up the archives. We are. We're
looking at a man whose name is, I mean, it's
an icon. He's often revered, often misunderstood,
and almost always tied to the modern global economy.
Adam Smith. That is the perfect way to frame
it. I mean, for most people, when you hear Adam
Smith, your brain immediately goes to the invisible
hand or the wealth of nations. Right. And he
was, you know, a pioneering Scottish economist
and philosopher. He was active during that amazing
period of Scottish Enlightenment, living from
1723 to 1790. And people call him the father
of economics. They do. the father of economics,
sometimes the father of capitalism, and rightly
so in many ways. But the sources we have here,
they really emphasize something much more holistic,
something I think is crucial and goes way beyond
a simple economic blueprint. Smith was a philosopher
first. He was a product of that intellectual
explosion, the Scottish Enlightenment. And his
work wasn't just about money. It was about the
fundamental nature of humanity, of morality,
and of justice. Absolutely. What he did was,
for its time, truly radical. He built this comprehensive
system that just moved away entirely from the
older. often theological explanations for why
wealth and power were distributed the way they
were. Explanations based on divine will, you
mean? Exactly. Divine will, a mandated social
hierarchy. Smith said no. He proposed that wealth
and social order could be understood through
rational, observable forces. It was all a complex
interplay of natural, political, social, and
economic factors. He just fundamentally believed
the world was a system you could analyze and
organize through reason. So our mission today
is to get way beyond the textbook soundbites,
beyond the political simplifications. We're going
to do a deep dive comparing his two classic foundational
works, which, you know, you really have to read
them together. You absolutely do. The Theory
of Moral Sentiments from 1759 and then his Economic
Masterwork. An Inquiry into the Nature and Causes
of the Wealth of Nations from 1776. We need to
reconstruct that unified vision he had. Right.
The cohesive philosophy of human nature, morality.
and economic prosperity that Smith was actually
trying to build. Because if you only read The
Wealth of Nations, you're only getting half the
man. You're getting half the picture. It's the
two -sided Adam Smith that really holds the key
to his legacy. So I think we should start by
unpacking the man himself, you know. His formative
years, because his early life gave him all the
evidence for his later theories. Okay, let's
do it. Let's unpack this and dive into the philosopher's
formative years. Because his biography, it offers
some incredible clues about his worldview. born
in a small port town kirkcaldy in scotland and
tragedy struck him really early on his father
who was a customs controller and a senior lawyer
he died before adam was even born so he was raised
entirely by his mother margaret douglas and their
bond by all accounts was just incredibly strong
he actually lived with her until she died in
1784. and right at the start of his life we get
this This incredibly bizarre anecdote. It sounds
like something pulled straight out of an 18th
century novel. I know, it's amazing. When he
was only three years old, Adam Smith was actually
abducted by a passing band of Romani. It's an
astonishing detail. The primary biography we
have, written by John Ray, it says that the family
immediately sent out scouts. They tracked the
group for miles down the road into a place called
Leslie Wood, and they eventually found the woman
who had taken him. And the story goes that as
soon as she saw the rescuers coming, she just
threw the child down and ran off into the woods.
It's such a striking image, isn't it? A sort
of fleeting moment of pure, unpredictable chaos
right before a lifetime that would be dedicated
to imposing systematic order on the world. A
very poetic way to put it. Happily, he was returned
to his mother and his academic life began pretty
soon after. He went to the Burr School of Kirkcaldy,
which was, you know, a really high quality school
for the time. He learned all the classics, Latin,
math, history, writing. And his intellectual
path really started to take shape when he got
to the University of Glasgow at just 14 years
old. So young. Right. And this is where he started
studying moral philosophy under this hugely influential
figure, Francis Hutchison. And that period in
Glasgow, it clearly shaped the entire ethical
foundation of his thought. It's where he developed
his passion for reason, for civilian liberties,
for free speech. Hutchison was a massive influence.
He was really promoting the idea that public
benevolence not just self -interest, was the
true source of morality. But this is where it
gets really interesting for me. The profound
contrast he felt when he moved south to Oxford.
Oh, yeah. In 1740, Smith got a really prestigious
scholarship, the Snell Exhibition, and it sent
him to Balliol College at Oxford for postgraduate
studies. And he absolutely hated it. He was deeply,
deeply disappointed. He saw the intellectual
environment as just, well, stifling, vastly inferior
to the vibrant academic world he had just left
in Glasgow. And he didn't pull any punches about
it later on. He criticizes Oxford directly in
The Wealth of Nations, dedicating a whole passage
to the institutional decay he saw there. And
he blamed it on the endowments. That's the key
technical insight. The colleges had so much money
from these rich endowments that the professors'
income was completely independent of their performance.
It didn't matter if they were good teachers or
if any students showed up. Exactly. Smith wrote
that the greater part of the public professors
there had, for many years, given up altogether
even the pretense of teaching. That is just a
scorching indictment. And it gives you an early
look into his core economic thinking, doesn't
it? He saw firsthand what happens when incentive
structures are fundamentally broken. Right. When
your security and your income are guaranteed
no matter what, the effort just plummets. That
observation right there in Oxford, it laid the
groundwork for his later theories on competition
and accountability. On top of that. The officials
at Oxford weren't exactly encouraging radical
new ideas. I mean, we have that specific account
of them finding Smith reading a copy of David
Hume's A Treatise of Human Nature. Hume was viewed
with deep suspicion by the conservative English
establishment at the time, a dangerous thinker.
So imagine the scene. They reportedly confiscate
the book, one of the most important philosophical
works of the century, and they punish Smith severely
just for reading it. It just shows you the restrictive,
dogmatic environment he felt trapped in. Now,
while his time there was unhappy, he did make
great use of the Boyd Lane Library. He basically
taught himself several subjects through intense,
self -directed reading. But the intellectual
repression was just too much. He left in 1746,
before his scholarship was even done. Contemporaries
said he was suffering from what was likely a
severe nervous breakdown. Brought on by the stress
and, you know, that intellectual vacuum. But
he returns to Scotland and thankfully he moves
into what he later called the happiest and most
honorable period of his life, his career as a
teacher. In 1748, he starts giving these incredibly
successful public lectures at the University
of Edinburgh. And these lectures were really
diverse. He covered rhetoric. literary criticism,
and most importantly, something he called the
progress of opulence. Ah, so this is where it
starts. This is where it starts. It was in these
lectures that he first began to lay out his economic
philosophy, what he termed the obvious and simple
system of natural liberty. The idea that wealth
arises naturally when people are allowed to pursue
their own interests, as long as they stay within
the bounds of justice. And around 1750, a crucial
collaboration begins. He finally meets David
Hume. the very writer whose book got him in so
much trouble at Oxford. They formed this intellectual
and personal bond that really became the defining
friendship of Smith's life. They just shared
an understanding of human nature and reason.
Hume became his greatest friend and his intellectual
sounding board. Smith then spent 13 years as
this highly regarded professor of moral philosophy
back at Glasgow, basically embodying the complete
opposite of the lazy professionals he'd complained
about at Oxford. And this professional diligence,
this systematic approach, it stands in such a
fascinating contrast to his personal life. The
stories. The stories are amazing. We have so
many accounts of him being absolutely comically
absent -minded, a true genius, just lost in his
own thoughts. Known for a peculiar way of speaking
and walking and for smiling and talking to companions
that no one else could see. The anecdotes are
fantastic. They really paint a picture of a mind
just constantly operating on another level. You
have the famous story of him giving a tour of
a tanning factory. He's intensely discussing
free trade, so engrossed in his own theory that
he just absentmindedly walks right into a huge
tanning pit. And had to be rescued. It's just...
It's perfect. And the domestic ones are just
as good. There's the story of him making tea
and instead of sugar, he puts bread and butter
into the teapot. Brings the whole thing. Drinks
this terrible concoction and then declares it
to be. The worst cup of tea he had ever had,
just completely disconnected from the physical
world. But the best one, for me, has to be the
time he walked out of his house in his nightgown,
totally lost in thought, and ended up walking
15 miles out of town. It was the sound of church
bells that finally snapped him out of it. He
realized he was miles from home, still in his
sleepwear. The genius lost in his own systems.
And this pattern of intense focus and personal
detachment, it really defined his life. He never
married. As we said, he lived with his mother
until she died. And it all culminates in his
final instructions before his own death in 1790.
He had this powerful desire to control his intellectual
legacy. He told his literary executors, the famous
chemist Joseph Black and the geologist James
Hutton, to destroy all of his unpublished material.
Everything. All his notes, his correspondence,
anything not deemed immediately fit for publication,
just destroy it. And that intentional destruction
is why so few of his personal papers survive.
Smith, the ultimate system builder, he intentionally
purged his own personal history. He wanted to
make sure that his published work would stand
as his only legacy. We're left with the system,
not the man's intimate thoughts. Which means
everything we know about his core philosophy
has to come from those two great published works.
And that brings us directly to the first one.
The moral compass he built. Yes. Let's move to
part two and talk about the theory of moral sentiments,
published in 1759. I mean, if you want to understand
the wealth of nations, you absolutely have to
start here. This work is so critical. It establishes
the philosophical, the psychological, the ethical
foundation for everything that comes after it.
It's often forgotten now, you know, overshadowed
by the fame of his later work. But Smith himself
thought it was his best work, right? He's widely
believed to have considered moral sentiments
superior to his economic writings. And crucially,
He kept revising it. Six editions, adding and
refining his arguments right up until his death
in 1790. He really saw it as his defining statement
on human nature. And the core question he's tackling
here is just so fundamental. How do we humans,
who start life as, you know, blank slates without
some kind of divinely implanted moral code, how
do we form moral judgments? How do we develop
a conscience and become social beings? That is
the radical departure. He wasn't relying on a
preordained religious sense of right and wrong,
which is the traditional answer. His approach
was observational. It was behavioral, rooted
entirely in human interaction. So how does it
work? Smith proposed that morality arises dynamically
from our interactive social relationships. And
the essential mechanism, the glue that holds
society together, is what he called sympathy.
And we really need to clarify that term for a
modern listener. When Smith used the word sympathy,
it wasn't what we mean today, like pity or feeling
sorry for someone. Not at all. In the 18th century,
it was much closer to what we now call empathy.
Right. The ability to recognize and share or
at least mentally reconstruct the feelings of
another person. Precisely. For Smith, morality
isn't innate. It's socially constructed through
this constant dynamic search for what he called
the mutual sympathy of sentiments. So we're always
watching other people. Always. We observe others
judging us. We look at their faces, their reactions
to what we do. And we instinctively try to adjust
our behavior so that we can achieve that mutual
feeling of understanding and approval. We want
our emotions to resonate with the people around
us. And this process of constantly calibrating
our actions based on social feedback, this leads
directly to his monumental concept of the impartial
spectator. It's basically the mechanism of conscience.
How does that inner moral judge develop? It's
a process of internalization. By constantly observing
and anticipating how other people are going to
judge our actions, and by seeking their approval
and avoiding their disapproval, we're forced
to step outside of ourselves. To see ourselves
as others see us. Exactly. And over time, this
external pressure leads us to develop an internalized
set of habits and principles and rules of conduct.
That is the impartial spectator. It becomes the
internalized voice of conscience, that neutral,
objective judge we carry inside us, monitoring
our private thoughts. in our public actions.
So we end up modifying our behavior not just
to please the people in the room, but to please
this internalized, idealized standard, which
kind of represents the objective view of society.
And that self -control is absolutely key. The
whole point of seeking the impartial spectator's
approval is that it forces us to sacrifice immediate,
selfish gratification. It demands that we exercise
self -command and self -control to keep our passions
within socially acceptable limits. So that ethical
framework of self -command is the bedrock. It's
the bedrock upon which a stable commercial society
can later be built. Without it, you just have
chaos. Okay, that brings us to the famous tension.
If the impartial spectator is supposed to give
us this framework for moral behavior and self
-command, then where does that leave the intense
focus on self -interest that he talks about later
in The Wealth of Nations? Ah, yes, the infamous
Adam Smith problem. This is where it historically
came from, right? It is. The Adam Smith problem
was this. historical conflict that earlier scholars
saw. How could the same man write one book centered
on sympathy and what seems like altruistic behavior
and then 17 years later publish another book
all about self -interest and private gain? They
looked contradictory, like he'd had some kind
of intellectual shift or even a moral failing.
Was he an idealist who became a cynical economist?
Well, modern scholarship has largely, and I'd
say decisively, dismissed that conflict. So it's
not a problem anymore. It's not a problem. The
consensus now is that the two works aren't rivals
at all. They're completely complementary parts
of a single unified system. The theory of moral
sentiments provides the necessary psychological
and moral framework. It defines the ethical rules
and the limits of acceptable human behavior.
It sets up the rules of the game. Exactly. And
then The Wealth of Nations describes how the
game is actually played within those morally
bounded rules. The Wealth of Nations applies
the specific necessary virtue of prudence to
the private sphere of the economy. Prudence,
for Smith, is the virtue of self -care, rational
self -management, looking after your family and
your future. It's the lowest of the virtues,
but it's still necessary. It's the foundation
of economic action. And he had a plan for a third
book, right, to complete the system. He did.
He intended for this unified system to culminate
in a planned third major work that would have
been about the virtue of justice and public law.
So you see the progression. from internal morality
to private economic action to the rules of public
order. One scholar in our sources argues that
both books are actually, and I quote, Newtonian
in their methodology. That sounds very technical.
What does that mean? It's a really compelling
analogy that connects Smith back to the scientific
revolution. Think about it. Newton applied empirical
observation and system building to understand
the forces of nature, like gravity and motion.
Smith applied that same observation -based, system
-building approach of natural science to human
social phenomena. to morality, to economics,
to law. He was trying to identify the universal,
predictable forces at work in human society,
just like gravity is a universal force in physics.
So things like market competition or our desire
for mutual sympathy, he treated those like predictable
social laws. Precisely. He argues that just as
markets develop spontaneously, driven by rational
incentives, a similar kind of market... dynamic,
governs how our morality develops. People are
constantly testing and adjusting their moral
sentiments in a social marketplace, seeking that
mutual sympathy. It's a kind of continuous market
for social approval. And that internal check,
that need for approval, it prevents the purely
self -interested person from just becoming a
social monster. That is the key takeaway for
you, the listener. The desire for moral approval
in his first book, TMS, actually functions as
the internal restraint on the pure, unbridled
self -interest he talks about later. It ensures
that when people pursue their economic game in
WN, they're still operating within the bounds
set by their conscience and the need for social
acceptance. So morality is the necessary precondition
for a functioning, prosperous market economy.
In short, in TMS, sympathy is the moral faculty
that restrains self -interest. In WN, competition
is the economic faculty that restrains self -interest.
The two systems are completely interwoven. With
that moral foundation established, let's turn
our attention to the text that truly made his
name famous around the world, The Wealth of Nations.
Let's do it. So The Wealth of Nations, published
in 1776, is often called the foundational text
of modern capitalism. It's a landmark. But before
Smith even wrote it, he spent this critical period
touring Europe, which profoundly refined his
economic thinking. Yes, the path to this book
was paved with a massive career change. In 1764,
Smith resigned his professorship, a job he loved,
for a highly lucrative tutoring position. An
offer he couldn't refuse. He was hired to tutor
the stepson of the Chancellor of the Exchequer,
a young man named Henry Scott, the Duke of Buccleuch.
And the terms were stunning for the era. 300
pounds a year plus all expenses and a guaranteed
300 pounds a year pension for life. That was
roughly double his professorial income. It's
the ultimate market success story for the future
champion of free markets. You could say that.
And that tutoring job took him across the continent.
He spent time in Toulouse, then moved on to Geneva,
where he famously met the philosophical titan
Voltaire. Later, in Paris, he met another radical
intellectual, Benjamin Franklin. But his time
in Paris was probably the most crucial for the
book, right? I would say so. In Paris, he encountered
the Physiocrats, a radical French school of thought
founded by François Quesnay. This group was advocating
for what they saw as the natural laws of economics.
Their motto was the essence of early deregulation.
Laissez faire et laissez passer. Le monde va
de lui -même. Let do and let pass. The world
goes on by itself. The ultimate expression of
laissez -faire economics, born in France. Exactly.
And Smith was hugely impressed by their work.
He concluded that physiocracy was perhaps the
nearest approximation to the truth in political
economy published so far. They shared this core
opposition to the dominant policy of the time,
which was mercantilism. OK, we need to slow down
and define this opposition because this is the
intellectual battleground of the wealth of nations.
What exactly was mercantilism? Mercantilism was
the reigning economic strategy across Europe.
The goal was simple. Maximize the nation's supply
of hard currency, specifically gold and silver.
So policy was all about getting a massive trade
surplus. Right. Minimize imports with high tariffs,
maximize exports, often relying on government
monopolies and colonial extraction. A state's
power was literally measured by the gold in its
vault. Smith saw this as a suffocating and ultimately
self -defeating policy. And the physiocrats challenged
this by arguing that wealth came not from hoarding
gold, but from the productive capacity of the
land. That's right. But Smith made the crucial
intellectual leap that really established classical
economics. He went beyond the physiocrat's land
-centric view. Smith focused squarely on labor.
Ah, that's the key distinction. That is it. The
source of national wealth for Smith was the annual
produce of its labor, not the amount of gold
a nation possessed, nor just its agricultural
output. This reframing laid the absolute bedrock
for classical economic theory. the labor theory
of value. And this insight must have been immediately
compelling. The success of The Wealth of Nations
when it came out in 1776 was huge. It sold out
its first edition in just six months. It was
a sensation. Now, if we look at the classical
perspective of the book central program, it's
not really about some abstract invisible hand.
It's about something much more mechanistic and
observable. That's right. Classical economists
correctly argue that Smith laid out his entire
tangible program in the first few sentences of
book one. National wealth, he says, depends on
two things. First, the skill, dexterity, and
judgment of labor. That's productivity. And second,
the proportion of useful labor. So minimizing
workers in unproductive sectors, though he was
careful to acknowledge that the work of the sovereign
and the army was definitely useful. And his solution
for maximizing that first factor? Productivity,
the engine of economic growth, that is the famous
division of labor. This is the core operating
system of his economic model. It is the central
dynamic. Smith argued powerfully that deepening
the division of labor breaking production down
into specialized repetitive tasks leads to immense
gains. In three ways, right? In three ways. increased
dexterity, saving time you'd lose switching between
tasks, and critically, fueling innovation as
workers and engineers focus on just one specific
process. And this innovation translates into
vast compounding productivity increases. Exactly,
which leads to greater output, which means lower
prices, and consequently, an increasing standard
of living for everyone. Smith coined the term
universal opulence for all ranks of society.
He argued that the poorest worker in a free commercial
society lives better than an African king commanding
thousands of subjects in a noncommercial system.
That's the continuous growth machine he envisioned.
Specialized labor leads to lower prices, which
extends markets, which allows for more specialization,
which drives more innovation. It's a continuous
cycle of rising prosperity for all. And his famous
pin factory example, where one worker doing 18
separate operations is way less productive than
10 workers specializing in one operation each.
That's the classic anecdote that cemented the
idea in history. It showed the sheer power of
organization. a raw effort. Okay, this brings
us to the famous phrase that is now synonymous
with Smith, the invisible hand. It's often portrayed
as his central thesis, but as we noted, it only
appears once in The Wealth of Nations. It does.
The neoclassical school of economics, which came
much later and focused heavily on mathematical
models of supply and demand, they seized on this
single phrase and elevated it to define Smith's
entire philosophy. They emphasize the idea that
individuals pursuing their own gain are unintentionally
led by an invisible hand to promote an end which
was no part of his intention, meaning promoting
the public interest. And this is perfectly captured
in that famous line about self -interest. It
is not from the benevolence of the butcher or
the brewer or the baker that we expect our dinner,
but from their regard to their own interest.
We address ourselves not to their humanity, but
to their self -love. Right. And it's not a moral
endorsement. It's a pragmatic observation about
motivation. The system works because we are reliably
self -interested. And it's so easy for modern
readers to stop right there and assume Smith
was just a dogmatic champion of self -interest
above all else. But that ignores his first book,
and it ignores what is maybe the most surprising
detail for modern advocates of pure, unregulated
free markets. What's that? This point is absolutely
crucial for understanding the complete Smith.
He was deeply wary of the self -interested nature
of merchants when that interest led them to coordinate
or collude. His suspicion wasn't just a passing
comment. It was structural. He warned about it
again and again. He explicitly and repeatedly
warned of businessmen's inherent tendency to
form a conspiracy against the public or in some
other contrivance to raise prices. He saw their
natural tendency to form cabals or monopolies,
to fix the highest price which can be squeezed
out of the buyers. That's a stark recognition
that the pursuit of gain, when it's unchecked,
quickly turns predatory. And this deep skepticism
translates into a powerful, almost suspicious
warning directed at the government. Smith states
clearly that any proposed law or regulation that
comes from manufacturers and merchants. Yes.
Not always to be listened to with great precaution
and not never be adopted till after having been
long and carefully examined, not only with the
most scrupulous, but with the most suspicious
attention. That is incredible. He is telling
the government, in no uncertain terms, to distrust
any political advice coming from the business
community because their interests are almost
certainly contrary to the public interest. He
wasn't afraid of markets, but he was profoundly
suspicious of the people running them, especially
when they were seeking government privilege or
political favors to distort competition. So the
pursuit of wealth is only socially beneficial
in his system when it's strictly checked. Strictly
checked by the external force of competition
in the market and by the internal force of the
impartial spectator in the social sphere. You
remove those checks and the very self -interest
he described becomes a public threat. It becomes
a conspiracy. This makes the question of government
intervention the next logical step. If he had
such deep suspicions, how limited did he actually
think the government should be? Let's move to
part four to explore Smith's very complex views
on government, justice, and empire. Okay. For
a man who is so frequently portrayed as the ultimate
champion of laissez -faire and minimal government,
Adam Smith actually spent a ton of time detailing
the necessary and substantial duties of the state.
The political caricature of Smith is just as
simplistic as the economic one. It seems so.
Absolutely. The modern, often dogmatic idea of
Smith advocating for this tiny, passive night
watchman state that just stands by. It's a serious
misreading of book fee of the wealth of nations.
That whole book is about the revenue of the sovereign
and the necessary expenses of the Commonwealth.
And he outlines four specific duties the government
must fulfill. These aren't suggestions. They're
mandates. They are mandates. And the first duty
is the simplest. The state has to protect the
society from external violence and invasion.
National defense. That's the prerequisite for
everything else. Right. Without security, you
have no commerce. The second duty is arguably
the most crucial for making a commercial society
work. That is the exact administration of justice.
This means establishing and funding an independent
court system that can enforce property rights
and uphold contracts. Without guaranteed justice,
economic activity just grinds to a halt. The
third duty is maybe the one that's most often
overlooked by his modern fans, yet it's a huge
portion of public spending in any modern state.
Public works and institutions. This is where
Smith's pragmatism really shines. He mandated
that the government must provide public works
and institutions of such a nature that the profit
could never repay the expense to any individual.
So the government has to step in where the private
profit motive fails to meet a widespread public
need. Exactly. The obvious examples are the critical
infrastructure for trade roads, bridges, canals,
harbors. Smith reasoned that private companies
might build a profitable road near a big city,
but they would never build and maintain the massive
network needed to knit a whole nation together.
The public benefit is just too great, so it requires
public funding. And he also included public funding
for things that build up human capital, right?
Absolutely. He argued for partial public subsidies
for elementary education. He recognized that
the intense specialization from the division
of labor, while great for productivity, could
make workers as stupid and ignorant as it is
possible for a human creature to become. Wow.
So the state has a duty to counteract that intellectual
atrophy through public education, promoting basic
literacy and understanding. And he had a preference
for how these things were managed. He did. He
argued they're always better maintained by a
local or provincial revenue under local administration.
He favored decentralized control where local
citizens have a direct stake in oversight. Okay.
And finally, the fourth duty. Upholding the dignity
of the chief magistrate, the monarch, or chief
executive. Basically, making sure the head of
state is provided for in a style that commands
respect and maintains political stability. So
given these four vast, expensive duties, defense,
justice, infrastructure, the state itself, Smith
needed a robust, fair way to collect revenue.
This is where his four famous maxims of taxation
come in. Still cited today. Equality, certainty,
convenience, and economy. And the maximum of
equality is probably the most debated. Smith
argued that people must contribute in proportion
to their respective abilities. And our sources
show he went even beyond simple proportionality.
He actually suggested a progressive tax structure.
He did. He stated it very clearly. It is not
very unreasonable that the rich should contribute
to the public expense, not only in proportion
to their revenue, but something more in that
proportion. Why? What was his justification for
the rich contributing more? His reasoning was
rooted in the very nature of civil government.
The wealthy benefit disproportionately from the
state's protection. The entire apparatus of justice,
police, defense, it's largely there to protect
accumulated property. A poor person has little
to lose, but a rich person needs the state to
secure their largest fates and financial holdings.
Exactly. Since they receive the greatest protective
benefit from the government, they should pay
a higher rate for that protection. It's a pragmatic
argument. And this brings us to a really critical,
almost radical insight of Smith's that underpins
his whole justification for government. The link
between property, inequality and the necessity
of the state. He saw the societal costs of commercial
society with unflinching clarity. He knew that
the very system that creates that universal opulence
also generates massive inequality. It's the tradeoff.
And he links the need for a strong government
directly to that inequality. He does. He wrote,
wherever there is great property. there is great
inequality. For one very rich man, there must
be at least 500 poor. 500 poor for every one
rich man. That is a staggering ratio. And he
wasn't afraid to state the conclusion. He concluded
with a quote that is often minimized or ignored
by those who champion him as a purely libertarian
thinker. He said that civil government, so far
as it is instituted for the security of property,
is in reality instituted for the defense of the
rich against the poor. or of those who have some
property against those who have none at all.
That is a profoundly critical perspective. It
sounds almost Marxist. He's viewing the state
not just as a neutral protector of liberty, but
as an institution required to manage the social
conflict that comes from property inequality.
It shows his vision wasn't utopian. He recognized
the inherent tensions, and he justified a strong,
well -funded government as a pragmatic response
to these perpetual realities. And beyond divested
policies, Smith also held these surprisingly
egalitarian views on empire, colonialism, and
social hierarchy. He was explicitly anti -empire
and against hierarchy. He fundamentally challenged
the belief that colonies were necessary for British
prosperity, calling the whole imperial project
financially ruinous. So what did he propose for
the American colonies crisis? He proposed two
pragmatic solutions. First, grant them immediate
independence, but maintain a friendly relationship
based on free trade and maybe a military alliance.
He thought the cost of defending the colonies
far outweighed the benefit. He has a second option.
An imperial federation that would grant full
political rights, including significant parliamentary
representation, to the colonists. Either way,
Smith demanded full equality or full separation.
He just fundamentally opposed the... unequal
structure of empire. And this opposition extended
to human equality in general. Absolutely. He
was a vocal opponent of slavery. He refused to
accept that other cultures, like in China or
India, were inferior to Europe. And his egalitarian
streak was reflected in his views on common labor
and knowledge. What did he say about that? He
famously believed that a common street porter
was not intellectually inferior to a philosopher.
The only difference was the degree of habit and
education afforded to each person. He cautioned
against the idea that sophisticated science is
inherently superior to common sense, a deep respect
for practical expertise. So finally, let's look
at his posthumous legacy and how the interpretation
of him has shifted, which brings us back to why
he's so controversial today. Well, the Bicentennial
of the Wealth of Nations in 1976 was a massive
catalyst. Academic interest surged, and critically,
scholars started seriously reading the theory
of moral sentiments again. It was only then that
he was really reappraised, not just as an economist,
but as the founder of both moral philosophy and
economics, recognizing the unified nature of
his system. But his legacy is still highly ambiguous,
isn't it? It's often used politically to support
viewpoints he explicitly cautioned against. He's
been celebrated by free market titans like Alan
Greenspan and Milton Friedman. Yet, when you
actually engage with the nuance of his work,
especially Book V, the picture changes significantly.
The economist Herbert Stein once argued that
the qualifications Smith included could actually
justify a wide range of modern institutions.
Like what? Institutions like the Food and Drug
Administration, public utilities commissions,
or even mandatory employer health benefits, things
that ensure the basic security of the labor force.
So those who cite Smith to champion dogmatic
laissez -faire are often misrepresenting his
full qualified vision. They are. Smith was skeptical
of unnecessary government intervention, yes.
because it often came at the behest of self -interested
merchants seeking special privilege. But he was
pragmatically prepared to accept or propose interventions
when he judged their net effect would be beneficial.
It's clear, then, that Adam Smith's true genius
isn't in providing simple rules like less government.
It's in articulating this complex system where
human psychology, morality, economic incentives,
and government structures are all necessary and
often competing parts of a successful society.
He refused to explain wealth by divine will.
He insisted his two books form a single, unified
philosophy where morality guides economic action.
And his advocacy for free markets was constantly
balanced by that deep suspicion of business interests
and a clear, pragmatic mandate for government
to provide public works, education, and defense.
That is the complete Adam Smith. So to wrap up
this deep dive, we want to leave you with one
final thought, something for you to mull over
that really touches on the tension Smith saw
between the employer and the worker, a tension
that is still central to economic policy today.
Smith recognized a fundamental structural inequality
between employers and laborers, one that dictates
the balance of power in the market. You put it
very starkly. A landlord, a farmer, a master
manufacturer, a merchant, though they did not
employ a single workman. could generally live
a year or two upon the stocks which they've already
acquired. But the workers, many workmen could
not subsist a week. Few could subsist a month
and scarce any a year without employment. That
is the essence of labor precarity. The worker
has to accept work immediately, but the employer
can wait months for a better deal. So if the
essence of Smith's philosophy is that constant
search for mutual sympathy while pursuing self
-interest, how much government intervention,
how much structure like minimum wages or safety
nets is truly necessary to ensure that the impartial
spectator, that internal moral guide, can actually
protect the most vulnerable workers from the
immediate existential necessity created by the
self -interested master? The market system delivers
unparalleled growth. but his structure inherently
disadvantages those with the least economic leverage.
Smith acknowledged that. Understanding where
the purely moral duty of the impartial spectator
ends and where the protective arm of the justice
system must begin to restore some degree of bargaining
equality. That remains the central challenge
for modern economies that are guided by his principles.
That is a powerful note to end on. Thank you
for joining us for this deep dive into the true
unified legacy of Adam Smith. We hope you feel
better informed and maybe a little more suspicious
of anyone who tells you Smith was simple until
next time.