Capitalism's disappointed father

Adam Smith is considered the 'father of capitalism', but what would he have thought of the credit crunch?

Ahead of a conference at Glasgow University to mark the 250th anniversary of Smith's book, "Theory of Moral Sentiments", a leading academic argues that Smith would have been "a disappointed father" at how modern capitalism has worked.

Professor Christopher Berry is deputy dean of the faculty of law, business and social sciences at Glasgow University.

---

Adam Smith is one of those thinkers whose work is name-checked more than it is read; Freud, Marx and Darwin are others who come to mind.

In a seemingly perverse way, the current financial climate of the credit crunch and crisis of capitalism, which has led to some revival in Marx, has also drawn attention to Smith's legacy.

The Adam Smith of popular repute is the 'father of capitalism', the advocate of 'market forces', the enemy of government regulation and believer in something called the 'invisible hand' to produce optimum economic outcomes.

Yet, if we actually read Smith then these attributions can be seen to be gross simplifications.

The economic crisis has seen banks bailed out with public money

If asked what would Smith have made of 'securitised loan packages', 'toxic debts', and the like, then his answer would certainly have been that these practices were contrary to what he tried to teach.

Smith was first and foremost a teacher. He was Professor of Logic and then a year later, in 1752, he was Professor of Moral Philosophy, at the University of Glasgow, where he had been a student.

He held the post until he swapped the academic life in 1764 to be a personal tutor; an arrangement that gave him the financial security to become an independent scholar.

All his work is deeply steeped in moral philosophy and it is this all-pervading concern that would make him critical of the way the contemporary economy has been run.

If he is the 'father of capitalism' he would be a disappointed parent.

He wrote two great books and the seeds of both were sown in his Glasgow professorial years.

Moral standpoint

The "Theory of Moral Sentiments" appeared in 1759 and drew on his lectures. It went through six editions in his lifetime and the final one, containing extensive revisions appeared in the year of his death (1790).

What the simple fact of this chronology tells us is that Smith's commitment to the moral point of view endured alongside and beyond the publication of his second great book, "An Inquiry into the Nature and Causes of the Wealth of Nations", published in 1776.

Although by that date Smith had left Glasgow, we know, from student notes that have survived, that he had already considered many of its leading themes in his Glasgow classrooms.

In the "Moral Sentiments" Smith treats moral philosophy not as outlining a set of rationally or Divine ordained prescriptions but as capturing the interaction of human feelings, emotions or sentiments in the real settings of human life.

For Smith the current crisis demonstrates not the intrinsic faults of the system but what happens when its moral dimension is removed or neglected. Professor Christopher Berry

In many ways it is a book of social and moral psychology and sociology. This means we should understand how individuals and societies function not in separate compartments but as parts of a complex whole.

Indeed one of the key themes of the book is an opposition to the view that all morality or virtue is reducible to self-interest, as if individuals operated in isolation only concerned with their own particular well-being.

His opening sentence declares that everyday human experience proves that false.

He writes: "How selfish so ever a man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others, and render their happiness necessary to him, though he derive nothing from it except the pleasure of seeing it."

Our morality is founded on certain truths about human nature. Everyone is capable of sympathy, or fellow-feeling, and that ability enables us to imagine what we would feel if we were in the situation of another and, once we have made that imaginative move, we can then judge whether those feelings are appropriate.

When Smith came to write the "Wealth of Nations" he made it clear that the 'wealth' lay in the well-being of the people.

'Mental virtues'

This covered not only their material prosperity but also their moral welfare.

On these grounds, he thought to be in poverty is to be in a miserable condition and also that to be condemned to repetitive limited tasks (like sharpening pins several thousand times a day) damaged our "social" and "mental virtues".

Smith never separated what we call economic behaviour from the moral context within which it takes place.

His alertness to the broad moral frame means he is far from excluding government from interfering in the 'market'.

The economic crisis has led to a Marx "revival", according to Professor Berry

So, those pinmakers deserve public intervention (via education) to offset the damage done to them by their employment.

He had a lot to say about banks and again he assessed their conduct not narrowly but broadly.

With striking aptness, he wrote in the "Wealth of Nations" that while regulations might restrict the liberty of bankers to do they as they will, this was fully justified - just as the obligation to build party walls to stop the spread of fire curtails the freedom of builders.

Smith of course is not Marx - he does think the system of liberty preferable - but Marx's famous critique of capitalism because it alienates workers from living a satisfying life is an echo of the criticisms that Smith - capitalism's champion - had already made.

If the crisis of capitalism prompts a return to Marx as its greatest critic then it should also prompt us to do more than name-check the thinker most associated with the celebration of capitalism.

For Smith the current crisis demonstrates not the intrinsic faults of the system but what happens when its moral dimension is removed or neglected.

The "Smith in Glasgow '09" conference takes place at Glasgow University from 31 March to 2 April.