I’m very glad I read this. I mainly knew of Smith that he wrote The Wealth of Nations and a rarely read book called The Theory of Moral Sentiments; that he explained how productive a division of labor can be; that he was a very good friend of David Hume; and that he is viewed as a champion of “the free market”, especially by libertarians and so-called “conservatives” (who sometimes wear Adam Smith ties around their right-wing necks). The most important thing I learned about Smith was that he wasn’t a libertarian at all. He understood that a market economy cannot work properly without government regulation. He also knew that economic decisions cannot be divorced from politics or morality.
I’ll quote from the book’s last chapter, “Why It Matters”:
How can the benefits of markets be safeguarded and extended, and their ill-effects contained?… We need a new master-narrative for our times. We need better frameworks of public understanding, better explanations … through which we can come to terms with these issues. But to create them, we must return to the dawn of our economic modernity and to Adam Smith himself. Not to Smith the caricature one-note libertarian alternately celebrated by his partisans and denounced by his detractors, but to what Smith actually thought, across all his writings, from ethics to jurisprudence to political economy…
The real Smith was not an intellectual turncoat who switched from altruism in The Theory of Moral Sentiments to egoism in The Wealth of Nations. He was not a market fundamentalist, an economic libertarian, or in that strong sense a laissez-faire economist. He was not an advocate of selfishness, … the creator of homo economicus or the founder of predatory capitalism… He is rightly called the father of economics, conceptually because he was the first to put markets squarely at the center of economic thought, and practically because there are few if any economists … who do not stand in his intellectual debt….But his political economy ranges far wider that economics alone, and he could with equal justice be considered one of the founding father of sociology….
For many people, Smith’s political economy will always hold center stage; both as a model of economic analysis and for his specific insights into human behavior, markets, trade, specialization and the division of labor, taxation and the negative effect of subsidies, bounties and protection. Others will admire his moral egalitarianism, his feeling for the underdog, his belief in the importance of dignity and respectability to people’s status and sense of self, the way he minimizes inequality within his “natural system of liberty”, his devastating attack on crony capitalism, his … theory of human development, his historical analysis of the supersession of feudalism by commerce and his extremely subtle exploration and defense of commercial society… Still others will recognize the foundational importance of his theory of moral and social norms….
We have a president who ignores moral and social norms, whose greed is without limit and who fully embraces crony capitalism. But he’s a Republican, so most people would say he’s following in Adam Smith’s footsteps. That does Smith a disservice. The truth is that a progressive Democrat like Senator Elizabeth Warren is much closer to Smith. She believes in capitalism but understands that the government has a crucial role in making sure markets work for the benefit of society as a whole. That is pure Adam Smith.