It’s much more fashionable to attack Adam Smith these days than to read him. Yes, he favored economic liberalism, which wasn’t exactly in style in his time. Nor is it in ours. History remembers him as cold and calculating. But in real life, he was neither.
There are two main drivers behind Smithian liberalism, neither of them cold or calculating. One is that man is a social animal. The foundation of Smith’s moral theory is the impartial spectator theory. People figure out the right thing to do by asking themselves if an impartial third party would approve of their actions. Empathy — thinking of others and feeling for them — is at the very heart of Smithian morality.
Take trade, for example. Smith is well known for being an ardent free trader. But why? Because trade is an inherently peaceful act. It is moral.
If you have something I want, I’m not going to hit you over the head and steal it. No impartial spectator would approve of that. Instead, I’ll trade it to you for something you value even more. Everyone wins.
If you don’t think you’ll gain from the exchange, then nobody can force you to make it. And no one will trade with you unless you treat them with civility and dignity. Trade is much more moral than the alternative.
These are not the thoughts of a selfish, atomistic, cold-blooded economist. And yet this warmth is the very stuff of economics. We liberals (in the correct sense of the word) get a bad rap.
The second driver of Smith’s brand of market capitalism is compassion for the poor. Liberalism properly understood — free markets, free trade, free migration, etc. — creates more wealth more quickly than any other economic system. And not just for the top one percent, as in other systems.
In Smith’s time, the average person worldwide made around $3 per day. In richer countries like England or the Netherlands, it was something like $5 a day. Today, in countries that have embraced liberalism, you can make $100 a day and consider yourself middle class. That’s a 30-fold increase, and arguably the most significant development in human history since the Agricultural Revolution. Prosperity is no longer a privilege for the few. Everyone can share in it now. Deirdre McCloskey calls this the Great Fact.
Meanwhile, countries that have rejected liberalism are still struggling to escape the $3 trap. Rejecting liberalism means forcing the poor to miss out on the Great Fact.
Smith favored liberalism because it is not only moral, it makes life better for the poor. On that second point, Yeshiva University economics professor James Otteson has more (click here if the video below doesn’t work):