True freedom

"Freedom means that in some measure we entrust our fate to forces we do not control; and this seems intolerable to those positivist / rationalist who believe that men can master his fate; as if civilization and reason itself were the fate of his making"
F.A. Hayek

Monday, October 1, 2012

The Tradition of Spontaneous Order

The Tradition of Spontaneous Order as a way of Understanding Social Phenomena and Social Sciences
The other view, which has slowly and gradually advanced since antiquity but for a time was almost entirely overwhelmed by the more glamorous constructivist view, was that orderliness of society which greatly increased the effectiveness of individual action was not due solely to institutions and practices which had been invented or designed for that purpose, but was largely due to a process described at first as ‘growth’ and later as ‘evolution’, a process in which practices which had first been adopted for other reasons, or even purely accidentally, were preserved because they enabled the group in which they had arisen to prevail over others.”
F.A. Hayek

The spontaneous order tradition is a part of the classical liberal tradition that emerged as a solid body of work during the Scottish Enlightenment. This branch of classical liberal ideas appeared basically with the intention to fight against normal conventions of the constructivist views and the successive abuse and expansion over the limitations of human reason. The constructivist views based on extreme rationalism were at the time (and continue to do so today) trying to expand their reach of action into very complex social areas in which human intellect and reason cannot arrive at. During the Enlightenment, the Scottish tradition saw this increasing over rationalization of social phenomena as a “misuse” and abuse of reason. They foresaw dangers of following that path, so they tried to create a body of intellectual work as a potentially fruitful response to the common rationalist view. It was thanks to this tradition and with the combined works of David Hume, Adam Smith, Carl Menger and Friedrich Hayek that nowadays we possess solid and comprehensive work helping us to increase our understanding of social orders and social sciences as well as have a more skeptical view about our intellect and the limits of human reason.

The glamorous constructivist view quoted above from Hayek’s passage is the line of thought that prevailed for centuries, and still largely does, over the “other view”, being the tradition of spontaneous order. What Hayek called the “constructivist rationalism”, expressed best through Rene Descartes’ works, is a systematic positivistic view of what humans can deliberately design through intellect and reason. While Descartes himself stayed away from utilizing his rationalist approach in the realm of social orders and moral arguments, his followers thereafter completed the rational process in those fields by pushing the old spontaneous order tradition as a way of understanding social and moral complex phenomena into oblivion.

Ever since Descartes and his rationalism, the idea of human reason evolved into what we now understand as “logical deduction from explicit premises”, or what Hayek defined as rational actions that are completely determined by “known and demonstrable truth”, very much aligned with the increasing empiricism of physical sciences in the eighteenth century. From then on it followed the inevitable conclusion of thinking that everything which man had achieved as a species in a civilization had been the direct product of his own conscious reasoning and planning through a systematic application of reason, design and scientific techniques. The rationale then follows: if there is any institution that was not designed through human intellect but yet is beneficial for society, it could just be a product of mere accident. With these positivistic views, morals, religion, laws, languages, writing, money and the market would be deliberately constructed and easily manipulated institutions. Unfortunately the belief that humans have achieved a high degree of mastering their physical and social surroundings through their own capacity of logical deduction is factually wrong and has led mankind to commit great atrocities based on reason, deduction and social engineering. This misuse of reason, applied unsuccessfully to the social sciences and its institutions, is a side-effect from the incredible success which physical sciences and the scientific method have gotten from the process of reason and induction from Descartes and his positivist methodology. Throughout centuries the inductive rationalistic methodology was mastered and so successfully applied to physical sciences for control, prediction and experimentation; this falsely led people to believe that the same methodology and principles could also be effectively applied to the social sciences to solve complex social human phenomena; thus social sciences began to import and apply the rationalistic methodologies all across the spectrum of human phenomena.

Looking back at this tradition’s evolution, we can see how far this glamorous view has come to exclude other forms of perceiving and understanding social order and changing the concept of how they arise as institutions which sustain and enlarge civilization. The “other view” that Hayek mentioned is an old tradition which has lost appeal in the last three centuries but yet is fundamentally important in preserving and understanding  social orders; this leads towards truly recognizing how social institutions arise from beyond the capacity of human design. This tradition also indirectly helps us to create a high level of skepticism and intellectual humbleness that could protect us from committing the same intellectual mistakes and the abuse of rationality that has characterized the last century. As Hayek understood it, returning to the old tradition of the spontaneous order is a return to the belief that most of our fundamental institutions of society are indispensable “for the successful pursuit of our conscious aims”. These institutions are the product of customs, habits and traditions that were neither invented nor designed and they arose spontaneously through evolution without a predefined social purpose but are yet fundamentally important to civilization’s preservation. These forms of order are created through a societal process of selection and evolution and are the tacit translation of the unintended efforts of trial and error of generations of individuals interacting with a high level of complexity.

It was not until the eighteenth century, specifically under what is now considered the Scottish Enlightenment, that thinkers such as Bernard Mandeville, David Hume and Adam Smith made a clear distinction between institutional forms. The Scots saw that there were various social institutional structures which are not included in the two previous categories defined centuries earlier by the Greeks: the Physei, meaning “by nature” and Nomo or Thesei, which Hayek roughly defined as “by deliberate decision”. It appeared to the Scottish philosophers that a third category should exist: a category compiled of a little bit of both, a special kind of institutional form which Adam Ferguson defined as “the result of human action but not of human design”. It was this category that caught most of the Scots’ attention and ended up providing incredibly valuable insights of the theory that encompasses social institutions and the social sciences.

Even before the Scottish Enlightenment they were several other minor contributions to this intellectual tradition; some Greek philosophers acknowledged the idea of spontaneous orders; in the Roman Empire, Cicero in particular, clearly understood that their legislative system was beyond what a single mind could have possible design; sixteenth century Spanish Jesuits addressed social problems in this fashion and worked with the idea of the “natural price” which, according to Luis Molina: “…results from the thing itself without regard to laws and decrees, but is dependent on many circumstances which alter it, such as the sentiments of man, their estimation of different uses, often even in consequences of whims and pleasures. But through time even if different intellectuals grasped the idea of spontaneous order, no one was able to do so quite like those during the Scottish Enlightenment. Using spontaneous order of social institutions as the bedrock of analysis, they were able to create an entire intellectual and philosophical inquiry of the complete society. In this essay I will try to show the contribution of three of the most important thinkers who contributed to this tradition’s evolution: Adam Smith, Carl Menger and Friedrich Hayek.

The Scottish Tradition and the Broader Concept of Order:

There seems to be only one solution to the problem: that the elite of mankind acquire a consciousness of the limitation of the human mind, at once simple and profound enough, humble and sublime enough, so that Western civilization will resign itself to its inevitable disadvantages.”
G. Ferrero

The idea of organization in this sense is a natural consequence of the discovery of the powers of the human intellect and specially of the general attitude of constructivist rationalism. It appeared for a long time as the only procedure by which an order serviceable to human purposes could be deliberately achieved, and it is indeed the intelligent and powerful method of achieving certain known and foreseeable results. But as its development is one of the greatest achievements of constructivism, so is the disregard of its limits one of its most serious defects. What it overlooks is that the growth of that mind which can direct an organization, and of the more comprehensive order within which organization function, rests on adaptations to the unforeseeable, and that the only possibility of transcending this capacity of individual minds is to rely on those super-personal ‘self-organizing’ forces which create spontaneous orders.”
F.A. Hayek

The liberal tradition that emerged from the Scottish Enlightenment differed substantially from the English and French ones. One of the key elements of distinction was that the Scottish tradition carried the old insights of the spontaneous orders then applied them in the social orders previously mentioned. They did not limit themselves to simply carrying the tradition but rather they were even more radical and used the spontaneous orders insights as the fundamental principle in their philosophical analysis of society. They were the first under this line of thought to actually construct a social, political and economic framework that changed the concept of a social order and gave birth to a new form of society: the commercial and merchant society of eighteenth century Britain. This gave special attention to commercial activities, individual exchanges and international trade as the engine of a coordination system promoting wealth. As professor Horwitz noticed, the Scottish Enlightenment can be seen as a dual research project: on one side it was a movement that sought to unveil and understand humanity and its social sciences such as history, moral philosophy and linguistics; on the other side it can also be seen as a project to advance political philosophy and political economy, although the latter could be seen as a product of the Scots larger inquiry into the realm of political philosophy.

Under this large project of social and political inquiry the Scottish tradition sought to deeply understand the relationships among an extensive network of unknown individuals and how these individuals related within a society with spontaneously arising social institutions. The Scottish tradition mainly analyzed the following social institutions: the legal system, moral system, market process and governmental institutions. Their main objective was not only to comprehend how these institutions interacted amongst themselves but also to define a clear framework and limits of their relationships to enhance and sustain social stability, coordination and prosperity.

The core distinction between the Scottish tradition and the English and French Enlightenments was their conception towards understanding social phenomena as complex evolutionary systems formed through human action- not human design. In order to more clearly understand these forms of complex institutions, we must start defining what we understand as order. Hayek in “Law, Legislation and Liberty” defined order as “a state of affairs in which a multiplicity of elements of various kinds are so related to each other that we may learn from our acquaintance with some spatial or temporal part of the whole to form correct expectations concerning the rest, or at least expectations which have a good chance of proving correct.From this idea, Hayek helped us to realize what spontaneous order is within society: “It is clear that every society must in this sense possess an order and that such an order will often exist without having been deliberately created. Therefore he is trying to create a wider conception of order that removes itself from the old classic “authoritarian” orthodox conception of what it is supposed to mean. The broader concept of order helps us to understand that if we want to achieve some sort of array in society, we must not rely on the old conception of command and obedience, which presupposes a hierarchical social structure. Rather we can rely on the idea of undesigned order, helping to create a less specific but broader goal of creating probable expectations about others’ behavior and actions. In Hayek’s words, “We depend for the effective pursuit of our aims clearly on the correspondence of the expectations concerning the actions of others on which our plans are based with they will really do. This matching of the intentions and expectations that determine the actions of different individuals is the form in which order manifests itself in social life.Then according to this tradition, societal order is not concerned in a predetermined defined relationship of means and ends but rather on the convergence of the largest quantities of social intentions and expectations that could help coordinate various and complex human actions. We can see that the scope of this unplanned societal array is less specific in what it would like to achieve but the extensive level of harmonization is appropriate for promoting a complex society.

As we have already seen, the classic conception of order is based on a form that presupposes an “authoritarian view”, deriving from the glamorous constructivist view first defined by Descartes. Under this conception, order in society can only be achieved through rational endogenous forces that shape the complex societal system at will. This belief does not conceive the possibility of any type of evolutionary endogenous form of order. Contrasting notoriously with the spontaneous order tradition- which conceives societal order as the aggregate product of human action but not of any specific exogenous human design- the constructivist view sees societal order as planned. They see it as a design imposed through a centralized “master plan” presuming that society can be guided toward a common defined path of prosperity with the correct “enlightened” people who could guide such a novel plan.

As Professor Barry shows, we must clearly establish the difference between this view of prosperity, known as the utilitarian view of prosperity, and the Scots’ idea of it. Under the first, public wealth and the common good can be achieved through rationality and planning in which our goal can be aggregated and defined. According to this view we can reach those goals only through the systematic use of planning and through the rational positivist application of physical science principles. The Scottish tradition sees prosperity quite differently; they perceive it as the unintended result of preserving, improving and not interfering with the holistic framework of the social institutions which assist human coordination. Therefore implicitly the Scots do not believe in a common social goal or a shared defined path that everyone must follow. They believe that everyone should follow their own frame of means and ends, based on collaboration and respect transmitted to us through the spontaneous orders of morality, laws and markets. However, Professor Barry understands that spontaneous orders go through an evolutionary process which may sometimes very well lead to dead ends. As a way to move away from those unwanted spontaneous forms and in order to preserve the beneficial ones, we must use the Humean idea of a posteriori rationality as a mental tool to discover which forms of orders are truly beneficial for our specific civilization and which are worth preserving.

We have clearly understood that there are orders not made explicitly by man in the positivistic rational sense and although we know they “exist”, there is clearly a problem in perceiving them. These forms of orders are not physically or tangibly there, thus not rooted within our external senses, so we have to perceive them a posteriori through our intellect and reason in order to grasp them. We cannot really see these forms of orders since they are available to us only through processes of mental reconstruction. As Hayek identified, we must describe these spontaneous orders as a form of abstract (not concrete) order. In regards to the abstractness, the Scottish tradition did in fact recognize the lack of visibility as a characteristic of these institutional forms coordinating society, more than 250 years before Hayek’s main distinction. The mere fact that Adam Smith called the market system of coordination and guidance as by an “invisible hand” clearly shows that the Scots had understood that there were forms of orders in society that cannot be physically perceived and also that those orders can only be “seen” or understood through mental abstractions.

The tradition of spontaneous orders expanded by the endeavor of the Scottish Enlightenment encompassed human traditions, customs, rules of conduct and social institutions such as the law, market, languages and money. According to the Scots all of these social human institutions were endogenously developed through individual human interaction and were clearly not the forms of orders that were deliberately created from a centralized authority. Throughout the history of civilizations, humans have understood and “discovered” these forms of orders and institutions when in reality they had already been used long before their acknowledgment and were tacitly incorporated into human society. Those orders that are beneficial for humans were adopted, preserved and carried through history only after we had acknowledged their relevance and social potentiality.

The tradition of the spontaneous order within the Scottish tradition was extremely correlated with the anti-rationalist tradition, mostly attributed to David Hume. He understood that human reason cannot be responsible for establishing a priori the moral and legal norms that are useful for the entire society. It is important to state however that Hume was not irrational; he simply believed that the use of reason applied to the spontaneous orders of society and in the moral sphere must be an a posteriori exercise for human rationality. This does not imply that we as human beings must adopt and take every set of rules that arise spontaneously as given, because that would in fact be a form of irrationality. But as thinking animals, we can use our reason in order to realize mental abstractions of institutions which are beneficial in society and are worth adopting and preserving. Also as Professor Barry established, there is an implicit tradition of the spontaneous order of the idea of an “ethical payoff”, meaning that mankind will enjoy benefits and prosperity as long as we cultivate and preserve the spontaneous and natural mechanisms of coordination; in addition, it presupposes a high level of skepticism towards the possibilities of intervention and institutional improvements.

Under the Scottish tradition’s conception of society, the prosperity or what Smith called “the wealth of a nation” comes as Professor Barry defined as a “special kind of accident”, meaning that it cannot be the specific end of a society in itself. Wealth and prosperity are sub-products and indirect consequences of the fact that we protect and preserve properly adapted social institutions which spontaneously arose. In other words, wealth is just a side-effect of preserving beneficial spontaneous orders. Using the Scottish tradition, the recipe in order to keep the prosperity of society is therefore not to seek prosperity itself as an end (since that would involve hierarchically coordinating society through a plan) but rather to focus on the core source of fundamental mechanisms enabling non-coercive human coordination and which help to converge the largest amount of predictable expectations in order to achieve individual ends.

As we mentioned earlier, the tradition was best developed by three intellectuals, increasing its insights and enriching it in order to keep it alive. Their contributions also prepared the tradition to be able to survive the avalanche of abuse of reason and positivism that the glamorous constructivist view has exercised in our modern society in almost every sphere of social sciences. Their three works encompass nearly the last three centuries of this tradition, starting with Adam Smith (1723-1790) in the eighteenth century, followed by Carl Menger (1840-1921) in the nineteenth century and finally with Friedrich Hayek (1899-1992) in the twentieth. The line of thought that these intellectuals formed was focused mainly on three larger categories. The first one being evolution: origins and formations of social institutions which particularly help humans to facilitate coordination and interaction through the distribution and dissemination of communication and heterogeneous knowledge. The second point of interest was the delimitation and understanding the limits of human reason and human design. They were particularly concerned with the abuse of reason and through their works they advocated this concern by showing that social phenomena and social sciences were too complex to be coordinated and modeled at will, in the sense intended by the rational constructivist project. Finally the last concern of this line of research had to do with the understanding of processes which could enhance or interfere with the propitious and natural development of social institutions, in particular government interventions’ reach of action and limitations in these forms of social orders.

Finally the core epistemological problem that these three thinkers were concerned with were to understand and clarify that there are indeed severe and fundamental limitations to what can be deliberately accomplished through human reason. Moreover it is exactly due to human limitations concerning a lack of specific knowledge and high complexity and indetermination that we must rely on and use alternative forms of coordination in order to solve the most fundamental problems of complex social coordination. Therefore it is necessary to rely on forms of social institutions outside of our rational understanding and control to be able to seek efficiency, coordination, social order and prosperity. With the use of spontaneous orders and with the acknowledgement of our rational limitations, we can understand social phenomena that possess the necessary intellectual humbleness that helps us overcome our own limitations and enhance social greatness.

In next week’s section we will separately see the main contributions and ideas of the most fundamental intellectuals of this tradition.

Thursday, September 6, 2012

All my previous essays on PDF

Through a little of internet searching, I realize that I can upload my essays on PDF and attach them to hiperlinks so people can actually download them, instead of reading them on my blog. I think this will enhance a lot of people to read them more extensively or whenever they want, specially if they will be using e-readers that support PDF.

So here are the PDF links of all of my previous essays:

1. Money as a form of spontaneous order (Carl Menger's theory):

2. The Cantillon Effect and Monetary policy:

3. Esperanto and languages as a form of spontanous order:

4. Classic liberalism and why this is not being conservative:

5. The EU crisis and the price mechanism:

6. Coordinated monetary policies and financial despotism:

7. Joseph A. Schumpeter and historical review:

8. Monetary morphine and the job market:

9. Adam Smith, an enlighten life:

Monday, September 3, 2012

Adam Smith, Part 2

Adam Smith’s civic ethics, sympathy, virtue and the impartial spectator:

“And hence it is, that to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety. As to love our neighbor as we love ourselves is the great law of Christianity, so it is the great precept of nature to love ourselves only as we love our neighbor, or what comes to the same thing, as our neighbor is capable of loving us.”
Adam Smith

As we notice from this quote, Smith’s ethic is based preponderantly on two systems: the philosophic system of the Stoics and the Christian system of virtues and values. The Christian attitude of benevolence towards our fellow man is fundamental according to Smith, as well as the Stoic virtues of self-command and self-love to guarantee a balanced human society. Smith followed the Stoics completely against Plato’s belief that a form of moral and intellectual hierarchy exists between men. Instead, Smith believed in an ideal of equality in mankind’s morality in the sense of old Christian tradition. Adam Smith firmly believed in the Stoic ethic of loving yourself only as you understand how to love your neighbor. In the TMS he proposed a system of equalitarian ethics; he stated that equal moral and social grounds are necessary to allow everyone to play a different societal role regardless of their hierarchy and social class.

He used this dual ethical system based on Christianity and Stoicism, for example in his self-love plus invisible hand analogy, in which he tries to create a form of reconciliation between individuals’ self-interests and the common good:

“Every single event ought to be regarded as making a necessary part of the plan of the universe, and, as tending to promote the general order and happiness of the whole: that the vices and follies of mankind, therefore, made as necessary a part of this plan as their wisdom or their virtue; and by that eternal art which educes good from ill, were made to tend equally to the prosperity and perfection of the great system of nature”.

Self-love belongs to a longer list of virtues and it remains so as long as it does not damage others. Smith established that there must be a common universal moral approbation which supports social morality and controls our actions. Smith thought a variety of moral feelings and sentiments were necessary for social approbation; therefore the philosophy of morality, according to Smith, could be called the “theory and diversity of shared moral sentiments”. We measure these different moral sentiments that emerge naturally through human interaction, then we measure those social sentiments  through the impartial spectator exercise (which, as a reminder, is a disinterested character not involved in the action from a moral perspective). This spectator is a very useful creation for Smith to explain the source of human nature and consciousness, which lies in the capacity of any human being to impartially judge their own actions. The impartial spectator is a form of impartial human consciousness created through the evolution of social interaction and traditions.

The first foundation of our moral sentiments towards judging our actions is the one based on observations in society. What we observe in other people’s actions in a social context shape our moral sentiments that are then redirected towards our own actions, in order to “impartially” judge them. Smith proposes a unique form of consciousness in which we do not only observe some other person being the spectator of our actions but rather proposes a mirror-image game in which we ask ourselves how we should morally feel if we were the spectator watching our actions being executed. Smith thought that this was the only way to gradually overcome human judgment’s partiality toward our own actions.  
Regarding virtue, according to Smith, there is more than one set of motivations; therefore Smith enriched Mandeville’s and Hutcheson’s views into a more complex system of virtue. According to Smith, virtue means a set of different things: first, in its most basic form it appears to represent the notion of “property”; secondly, going further into the level of virtue, there is the natural task of fulfilling one’s “private interest and happiness”; finally, the highest degree of virtue is seeking “happiness of others”. All of these levels represent a human in his “doing good” function. However Smith emphasized that these levels can be mixed, not necessarily standard or in a fixed order, and that humans can integrate all of these virtues in human action and apply them as he feels is correct in life. Then, in order to see what appears to be correct is when the impartial spectator comes to help us.  

The base of social contracts and human interactions are based on some sort of respect for a system of morality and ethics; according to Smith the only way to exercise any control of this morality in human action is through a form of human impartiality that can judge us and tame our animalistic instincts. This human impartiality comes from a form of humanistic personification of justice, fairness and social morality.  According to Smith, the relevant perspective in order to make a judgment upon human life is therefore  through the people living immersed in society; the original action will be analyzed and contemplated by a form of the impartial spectator.

Smith’s impartial spectator adopts the characteristic of “idealistic” human impartiality; it is society’s evolution and human interaction that gives birth to the source of the common “impartial” social morality, which establishes social rules which positively govern human action. Therefore the impartial spectator comes from social morality created by the society’s interaction and evolution (so as Hume predicted, outside the conclusions of our human individual reason). According to Smith, this is the best way to define and control people’s sentiments and their notion of justice; we have to analyze our sentiments at a “certain distance from us”. Smith was a pioneer in exploring the psychology of human action and its relationship between economics and society. In the TMS he created a system based on social acceptance and sympathy, he modeled human behavior through a mirror in which we judge ourselves, our sentiments and then our actions, and all of them in relation to how the spectator would feel under those circumstances. It is because we are immersed in society that we realize that our actions, which can make some fellow men miserable, can then make us miserable; likewise those actions which make others happy can also make us happy. Social evolution creates moral sentiments which we use and acknowledge by putting ourselves under the impartial spectator role, therefore developing our conscience and social self-control. 

This whole process of realizing how other human beings and parties not directly involved would feel about our individual actions helps us control our decisions and actions, considering the effects they would bring to the rest of society. The concern for others therefore comes from mutual sympathetic responses in society. What is enjoyable and makes us happy is due to the reinforcement of the conscience or impartial spectator, which guide our actions according to what it would consider proper. Hence society shapes common societal morals which in turn shape man’s actions. Playing by social rules brings approval and admiration; respecting social rules leads to stability and prosperity. Therefore there is no fundamental difference between the morality of a man in the TMS and in the WN; they are complementary moral sentiments. As an example, in the TMS Smith establishes:

“Nature when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his brethren. She taught him to feel pleasure in their favorable, and pain in their unfavorable regard. She remembered their approbation most flattering… for its own sake; and their disapprobation most notifying and most offensive”.

Therefore sympathy and the impartial spectator are two main concepts in Adam Smith’s moral theory. The impartial spectator helps our human intuitions by showing us social ethical judgment, not coming from of any powerful god judging us from above, but rather from an abstract form of our social selves.  The impartial spectator evaluates our actions by finding the common good of shared values of the parties involved, seen through a social values lens. As Professor D.D. Raphael stated, Smith’s philosophy aimed “to provide a satisfactory alternative to a priori accounts of conscience and morality”. Here Smith departs from Hume and Hutcheson towards a more sociological context, adding more human complexity, creating a more fallible system of evolutionary moral judgment.

People in real life situations will try to apply the impartial spectator to judge their actions; however there will always be forms of partiality since in real life the spectator possesses his own individual values which he will use in his assessment. Smith tries to help us be better social beings; he helped us to realize that in order to make a moral judgment of our own actions, we first need to include the other involved people’s perspectives and try to be as impartial as possible. Social sympathy towards fellow man therefore will enable people to be less biased in judging their actions creating better and purer forms of the impartial spectator, overall helping society to contain human actions which could damper others.   

Humans, according to Smith, have the need to use the impartial spectator because the necessity of societal approval and praise is inherent in human beings. This necessity pushes humans to seek a higher level of abstraction and imagination, allowing them to create a mental and moral distance between the impartial judge and the culprit. We pretend to be seen by another person through an abstract representation of another person. Adam Smith gave us one of his biggest contributions through the development of the Impartial Spectator Theory. As Raphael acknowledged, this was Smith’s enduring contribution to creating a theory of genetic evolution of individual conscience. This in essence lies in the social experience of being spectators ourselves of the conduct, customs and traditions of other actors in society, then knowing that others are spectators of our own actions as well. As Raphael stated, he helped us to understand “that both economic tendencies and common moral sentiments are products of nature”.

In conclusion Adam Smith was a moral philosopher with a solid theory of political economy which he presented in complete coherency and integration with his moral and ethical system. The real Smith saw the complexity of human behavior, standing completely away from the reductionist and basic form of a self-interested “homo economicus”. He showed that any human moral system is complex, social and evolutionary. He presented a very heterogeneous system of sentiments that explain this moral complexity in different dimensions: social, political, economic, all intertwined and interacting with each other. Adam Smith’s work and insights are fundamental to understanding the key element that ensures a healthy society, both in the spiritual and material spectrum. As Evensky noticed, society’s progress is a dual work and presents a symbiotic relationship and evolution between the foundations that direct society: people’s self-government and social institutions. As Evensky puts it, “Ultimately, the cohesiveness and constructiveness of a liberal order depends, according to Smith, not on institutional government but on self-government, on the ethical maturity of the citizenry”. Smiths highlighted the relevance of mature social ethic systems and the necessary conditions for a long-term, sustainable free society.

 A real world that requires moral, judicial and economical foundations for proper functioning is enriched by Smith’s works. His two books shed light like no other on the necessary foundations for any society’s prosperity. He helped us realize the deep positive interdependence among a strong set of social morals and economic prosperity. This intertwined relationship among social institutions make his work as relevant today as it was 250 years ago. It will probably be even more relevant in the future if we lose sight and conscience of the correctness and necessity of both justice and social ethics, which are the frameworks for a prosperous society.  

“To continue preaching Laissez-faire doctrine in the name of Adam Smith is to misrepresent the systematic nature of his work, it is to ignore the true genius of the philosopher from Kirkcaldy, Scotland and to condemn contemporary economics to a caricaturish prison of its own design.”
J. Weinstein

“Man, it has been said, has a natural love for society, and desires that the union of mankind should be preserved for its own sake, and thought he himself was to derive no benefit from it. The orderly and flourishing state of society is agreeable to him, and he takes delight in contemplating it. Its disorder and confusion, on the contrary, is the object of his aversion, and he is chagrined at whatever tends to produce it. He is sensible, too, that his own interest is connected with the prosperity of society, and that the happiness, perhaps the preservation of his existence, depends upon its preservation.”
Adam Smith 

Martin Leroch. Adam Smith’s Intuition Pump: the Impartial Spectator, 2004.
Amartya Sen.  Introduction of the 250th anniversary edition of The Theory of Moral Sentiments, Penguin Classics 250th anniversary edition, 2009.
Gavin Kennedy. Adam Smith and the Invisible Hand: from metaphor to myth, Economic Journal watch, Volume 6, number 2, 2009.
Jerry Evensky. Adam Smith’s Moral Philosophy, Cambridge University Press, 2001.
Jerry Evensky. Adam Smith’s “Theory of Moral Sentiments”: on morals and why they matter to a liberal society of free people and free markets, The Journal of Economic Perspective, Volume 19, number 3, 2005.
D.D. Raphael. The Impartial Spectator, Adam Smith’s Moral Philosophy, Oxford University Press, 2007.
Smith, Adam. [1759] The Theory of Moral Sentiments, Indianapolis: Liberty Fund, 1984.
Smith, Adam. [1776] An Inquiry into the Nature and Causes of the Wealth of Nations, Indianapolis: Liberty Fund, 1981.
Smith, Adam. [1759] The Theory of Moral Sentiments, Penguin Classics 250th anniversary edition, 1984.
Maria Pia Paganelli. The Moralizing Role of Distance in Adam Smith: the theory of moral sentiments as a possible praise of commerce, Yeshiva University, New York, 2008.

Adam Smith (1723-1790)

Monday, July 30, 2012

Adam Smith, the Professor from Kirkcaldy Part I

Adam Smith, the Professor from Kirkcaldy Part I
The Theory of Moral Sentiments, Moral Society and the Impartial Spectator 
Author: Pablo Paniagua
Editor: Victoria Finn

“Smith sought to do for moral philosophy what Isaac Newton had done for natural philosophy: to imagine and represent those invisible connecting principles that determine the course of nature. Newton's natural philosophical realm encompassed all in nature that envelopes humankind. Smith's moral philosophical realm was humankind.”
Jerry Evensky

Government authority emerges to establish order in society, but government is neither the original source of order nor the locus of control that establishes order in the ideal state. Order begins and ends with the individual citizen. In the beginning, a rude order is established by retribution based on a self-defined sense of justice. In the end, in the limit, a refined order is established by common acceptance of social norms, civic ethics, among citizens with self-command, the self-government, to enforce those norms about them-selves. Between this beginning and this end, in the course of humankind’s evolution from the rude state towards the ideal, the internal and external systems of governance-norms and positive laws respectively-share one another as systems of justice evolve.”
Jerry Evensky

Ambition, avarice, self-love, vanity, friendship, generosity, public spirit;
these passions mixed in various degrees, and distributed through society, have been from the beginning of the world and still are the source of all actions and enterprise which have ever been observed among”.
Adam Smith

Adam Smith, an enlightened life in the right place: Scotland:

Probably today in the Western World and also in several ex-Communist countries, everyone has heard about Adam Smith. The Scottish professor of Moral Philosophy is probably among the most cited, known and mentioned Economists in the world. However Adam Smith is also probably one of the least read and one of the most misrepresented, misunderstood and controversial figures in economic history. The misconceptions and controversy surrounding him are due to several poor one-sided interpretations of his work, attributed mostly to a narrow analysis of his political economic publication “An Inquiry into the Nature and Causes of the Wealth of Nations (WN). In order to better understand Adam Smith’s economic-social holistic framework and his final scope as an author, one must first understand his lesser known first book, “The Theory of Moral Sentiments (TMS). In this essay I will try to address Smith’s comprehensive view of society, the evolution of consciousness and human behavior through my interpretation of the TMS, mostly using the work of more recent scholars who have contributed to better understanding Smith’s Moral Theory; their novel analyses have situated Adam Smith in a higher and more humanitarian position, far beyond what had been imaginable three decades ago.
Adam Smith (June 5, 1723 – July 17, 1790), was born in the former small port named Kirkcaldy, in Fife, in northern Edinburgh. Surprisingly he did not study at the University of Edinburgh; his family instead decided to send him to Glasgow University. At the time Scotland was one of the most economical, enlightened and vigorous countries in the Western World; it had one of the highest literacy rates among Europeans countries and boasted 4 of the best universities in the world: Edinburgh, Glasgow, St. Andrews and Aberdeen. Meanwhile England had only 2 top universities: Oxford and Cambridge.
Smith’s Scotland was, fortunately for him, the place to be intellectually enlightened. The Acts of Union finalized in 1707 united England and Scotland under a single monarchy and parliament, creating an economic and trading integration between them. This union established a very important trade and commerce network in Northern Europe in the beginning of the XVIII Century. That permitted the Scottish and English to peacefully trade and export manufactured products to the rest of Europe. By the 1740s Glasgow and other Scottish ports were growing thanks to this trade union pact. Glasgow became the biggest transit port in which imported raw materials from America were packaged and manufactured then re-exported, principally to England and to a lesser degree to some other continental European countries.

Scotland was a very nurturing and fruitful place in the XVIII century. Glasgow was economically booming and intellectual and religious freedoms were rapidly expanding, the middle class was consistently growing in measure and wealth. Increased trade, cultural and intellectual effervescence formed the fertile soil for the Scottish Enlightenment to prosper; names like Francis Hutcheson (Irish) and David Hume were soon to appear in the intellectual spectrum. Hutcheson was a professor of Moral Philosophy at Glasgow University from 1730 to 1746, profoundly influencing and mentoring Adam Smith. Professor Hutcheson felt the necessity of creating a moral system which did not require relying on a deity or god as a source of superior moral entity and human self-control. He wanted establish a social moral framework that could be placed outside the religious orthodox system. David Hume following Hutcheson and added the reasoning skepticism to this moral system; finally Adam Smith followed and complemented what Hutcheson and Hume had started.     

After completing his degree in culturally booming Glasgow, Adam Smith moved to study at Oxford for six years, where (according to Smith) the educational quality was “deplorable”. Smith returned to Edinburgh in 1748 to give private lectures on ‘rhetoric and belles-lettres’, government and the history of science. He moved back to Glasgow as a professor of Logic in 1751 then the following year he took Hutcheson’s old chair of Moral Philosophy; during this appointment, he published his first book (the TMS) in 1759 at 36 years old. He resigned in 1764 when he had the opportunity to accompany a young aristocrat, the Duke of Buccleuch, to France where he met Voltaire, Quesnay and Turgot; he stayed in France until 1766. After this adventure, Smith spent the rest of his life moving between Kirkcaldy and Edinburgh. In 1776 he published the WN. At the end of his career, Smith was appointed as a Commissioner of Customs for Scotland. In 1787 he succeeded his friend Edmund Burke as Lord Rector of Glasgow University, where he diligently served for the rest of his life.

During his lifetime, Smith was mostly famous for the TMS rather than the WN. Unfortunately in the following centuries, specifically ever since the XIX Century, the TMS gradually fell into intellectual eclipse, creating solely a one-sided interpretation of his work. He was thereafter exclusively analyzed through the lens of his WN work in Political Economy rather than in a more aggregate perspective. This incomplete and predisposed analysis of Adam Smith was carried all the way through the XIX and the XX centuries, unfortunately bringing negative results in understanding his holistic system of necessary social institutions for a prosperous society. Smith was side-by-side with Hutcheson and Hume as the pioneers of human impartiality applied to Moral Ethics, but was surprisingly ignored in both Philosophy and Ethics. In addition, one of the biggest mistakes in understanding Smith’s philosophy was that most people interested in his work were chiefly economists. They mainly studied, read or quoted only the WN, creating a sort of philosophic dichotomy and disjunction of Smith’s dual works, generating a misinterpretation of the WN as well as its role within the bigger system. If the WN had been analyzed and read without acknowledging the first social moral framework already developed in the TMS, then the interpretation of WN would have been very limited and distorted, missing what Smith intended to convey through both books. As Amartya Sen wrote in his introduction in a later TMS version:

“The typical understanding of the WN has been constrained to the detriment of economics as a separate subject. The neglect applies, among other issues, to the appreciation of the demands of rationality, the need for recognizing the plurality of human motivations, the deep connection between social ethics and economics, and the co-dependent rather than free-standing role of institutions in general free markets in particular towards the functioning of the economy.”

Here Amartya Sen shed light on what Adam Smith really intended with his lifetime work. Smith had aimed at a bigger picture, trying also with a third publication on jurisprudence that he did not finish. He attempted to develop a coherent holistic social system with 3 fundamental spheres of human social interaction that reinforce each other and found a wealthy and stable society. According to Smith, these important spheres were: social traditions and moral rules, the organic institution of justice and common law and the self-interested actions of trade in the free-market process. If they could have understood his books as coherent parts of a larger, natural social evolutionary system, then they would have emerged as completely complementary; they show a very articulated system to understanding human social life in its entirety. Understanding the TMS and its deep philosophical relationship with the WN helps to better understand our human social interactions and the deep relationship between our moral social frameworks and the wealth of our nations. If Smith’s social system had been seen as a 3-legged chair which each leg reinforces the others in order to stand, his works would never have been considered disassociated with each other, nor considered Smith a “laissez-faire”, individualistic, or narrow-minded advocator. 

Even though to us this system appears quite complementary, there is extensive literature regarding this apparent dichotomy between his two books, extensively misrepresented in the so called “Adam Smith Problem”. This is the whimsical belief that there is a substantial inconsistence between the moral system presented in the TMS (linked predominantly with sympathy and benevolence) and the opposing one exposed in the WN (related to plain selfishness).  This is a completely flawed theory and neglects the fact that Smith mentions and analyzes different heterogeneous sets of motivations and values in each book, including benevolence, sympathy and self-love among the sentiments which conduct human action.

It appears that the advocators of blind selfishness and extreme individualism who gained momentum (especially in the U.S. since the end of the “free-love” era in the 60s)  believed to mostly be founded and inspired by Adam Smith’s work. This is demonstrates a colossal lack of understanding of Smith’s true philosophy and a meager investigation of his intentions. Therefore, in order to understand Smith’s philosophy and real relevance of the social moral framework of human life that created the foundations for a prosperous and wealthy society, we should analyze his Moral Philosophy to put an end to this copycat image of Smith once and for all. 

Adam Smith’s Moral Philosophy and its implications in the social system:

“The administration of the great system of the universe . . . the care of the universal happiness of all rational and sensible beings, is the business of God, and not of man. To man is allotted a much humbler department, but one much more suitable to the weakness of his powers, and to the narrowness of his comprehension-the care of his own happiness, of that of his family, his friends, his country.”
Adam Smith

Smith was a pioneer in XVIII century Moral Philosophy, particularly in incorporating a humane role of impartiality, the evolution of consciousness and an essence of common universality in human ethics. In the TMS, Smith laid the social moral framework for a pre and current capitalist society; it provides the proper social moral lens in order to properly read the WN with a more complex and rich ethic perspective. The WN help us to understand the motivation that pushes human action within the economic sphere. Both the TMS and WN provide a structure for human rationality, the plurality and subjectiveness of human motivations; they both also establish a deeper understanding of the symbiotic relationship between economic prosperity and social moral ethics that restrain our sentiments. Thanks to Smith, these were then seen as connected systems rather than separate entities. Adam Smith helped us to understand the social necessity of developing a moral humanity to hold and sustain social institutions together in order for economic market systems and justice to flourish.

As a result, the  two books are deeply correlated and inherently dependent on one another. It is a big mistake to consider them mutually and morally disconnected or the presence of any form of moral dichotomy between them. The mentioned “Adam Smith Problem” indicates a sort of superficial inconsistency between his works. This analysis conveys that in the TMS there is a marked global sense of “social prosperity” through a common social good, especially highlighted through sympathy towards other human beings and (as the analysis goes) presents a huge discrepancy with the WN, which promotes “selfishness” and individualistic behavior. The “Adam Smith Problem” is a huge misconception; he never intended to leave behind the perspective of sympathy and benevolence. In fact Smith considered the TMS as his finest achievement and worked on a 6th edition of the TMS just before he died. In both books readers can see that Smith mention various motivations and sentiments which explain different spheres of human action. Self-love is just one of the motivations, preponderantly the most important one, but Smith also extensively worked treating and exposing other fundamental social motivations from a moral system based on sympathy, which are fundamental for a prosperous society.

Indeed Smith refuted any form of selfishness and he even associated it with rapacity and human neglect for your fellow man. Mature self-love, according to Smith, is instead a vital part of human virtues and is a completely different thing than selfishness. Selfishness presupposes positioning oneself as the only concentration and preoccupation to the point to be chosen over others, even if it hampers them. Mature self-love on the other hand is care and attention to oneself while taking into account your interests as well as others’ interests; it involves a higher degree of human respect and social interaction. It’s a more socially harmonic term and involves care for the rest of society and respect for the fundamental traditions and rules of social morality.   

Smith believed that the self-love principle explained a consistent part of human interaction, although he specifically stated that it was not the only one. Self-love is particularly consistent in helping understand economic phenomena but Smith was well aware of further motivations regarding other social spheres; for example he begins: “How selfish so ever man maybe 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 derives nothing from it, except the pleasure of seeing it”.  Indeed Smith understood, as probably no one else at the time, that the whole foundation of a capitalist and free-market society is based on cooperation and respect, which in turn is deeply based on the fundamental structure of shared social ethics and human morality.

 According to Smith, self-love is a necessary and basic condition for spurring the division of labor and human creativity; however this sole motivation it is not sufficient enough to reassure long-term human self-discipline, social stability or a nation’s prosperity. Trust, mutual confidence, benevolence and reciprocal respect towards others create the base for voluntary cooperation, enhancing exchanges, trade and production and protection under a common law system of jurisprudence. Today Smith would surely ask those laissez-fare individualist fundamentalists: how can you base a society with the complexity of the current division of labor without benevolence, confidence and human-morality? Smith would agree with them that self-love pushes human nature to be involved in trade and production, but he complemented and enriched this notion with humanitarian, respectful, social morality that supports its foundation.

For Smith, the pursuit of self-interest appears to broadly explain the main driving force of economic activity and exchange. In his famous quote from the WN, Smith wrote: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not their humanity but to their self-love.” Contrarily, what is not usually quoted is something which Adam Smith mentioned earlier in the same chapter: “In civilized society, man stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.“ Unfortunately people misunderstand the famous quote and apply it to every single sphere of social human interaction, therefore cataloging Smith as the father of selfishness. Adam Smith in his most famous quote only addresses the necessity of self-love in order to explain economic activity and the exchanges executed in a market economy.   

Smith clearly understood the necessity of a healthy and well-functioning market economy based on individuals being free and following their self-interests. It does not mean that he didn’t belief in any other human social institution organically and spontaneously developed. In fact in his work, he clearly presupposes that social traditions, rules of social morality, as well as the common law are social institutions that evolve with society through individuals’ interactions and are the foundations which reassure prosperity. He warned us against how selfishness and the lack of civic ethics would undermine the liberal open society. Then, a question arises: how can we keep humanity away from rapacity and selfishness? Smith proposed the necessary moral institutions that could hold society together and control human selfishness. He helped us realize that the best way to address and channel individual human action based on self-interest is through a system of social ethics arising from spontaneous order, without any rational or planned design but rather from the evolution and formation of rules and traditions conforming to that moral social system. 

Controlling selfishness and rapacity, according to Smith, should not have to come from government control or state police; it must come from human self-control. Self-governing humans will be the pillar of a free civic ethic society, but how can we assess our sentiments and actions in order to possess a rightful measure of self-control? The answer that Smith provides relies on social sympathy and social approbation. Smith intended that sympathy in some way enables people to use their imagination and a higher degree of abstraction to put ourselves in the place of others. However, in another higher degree of abstraction and impartiality, Smith said we would detach our sentiments from that reflection by imagining a form of an abstract and impartial human being (an abstraction of ourselves) that would judge our actions and then feel sympathy or disapproval.   

Social sympathy is the only way in which we can measure how proper or improper our sentiments are and also of our eventual actions, analogously our sympathy is the measure in which we assess other people’s sentiments. If my feelings are aligned with others’ sentiments, we would be in a sympathetic relationship in regards to my actions and there would be a general social approbation of my actions. We, as social human beings, desire harmonious sentiments among us because according to Smith, social man naturally seeks social approbation and harmony in their sentiments.

Humans adjust their actions and feelings towards the correct measure of sentiments that will bring the desired sympathy from others, which is a natural human inclination. This desire of sympathy is seen as a common harmony among sentiments and actions that will eventually set the common social moral sentiments; as a result, it creates civil society’s boundaries and foundations of a spontaneous and evolutionary regulation of human sentiments and social traditions. Hence when a person has a set of sentiments, he will imagine an abstract human form which possesses impartiality towards our moral sentiments; this helps him to measure and understand the discrepancies between the human abstraction or impartial spectator. He then seeks to converge the moral sentiments in order to reach a level compatible with the impartial spectator allowing him to act and thereafter receive social sympathy and approval for his behavior. 

Evensky noticed that Smith clearly understood that a Libertarian open society needs a shared set of moral sentiments because these are the last remaining forms of control and justice. State police is not a free societies’ ultimate control. According to Evensky, the ultimate control should be a society’s shared moral sentiments: “A liberal society can only be constructive and sustainable to the degree that the hearts of the citizens embody a properly measured sentiment of justice and regulate themselves by that measure”.

Adam Smith clearly saw the necessity of a harmonious and stable moral society to create a healthy framework of human values supporting a market economy. As Amartya Sen stated in his introduction to the TMS, “Smith was both a proponent of plural social institutional structures and champion of social values that transcended the profit motive in principle as well as in actual reach”.  Indeed Smith understood that both the market system and economy are not only based on the narrow idea of selfishness but rather enormously depend on motives beyond just simple self-love; there is prudence, benevolence and other sentiments which sustain self-constraint for a better social outcome. One of Adam Smith’s most important contributions was his insight into the existence of a deep symbiotic relationship between social ethics, philosophy and economics; if it appropriately worked, it would ensure the social framework for a nation’s prosperity and wealth.
To be continued next week...