Morality Precedes Wealth.

Adam Smith is revered as the champion of free markets.  His paramount work, Wealth of Nations, published in 1776, played an enormous role in the shaping of economic theory, changing the way the game is played forever.  People most often reference his metaphor of an “Invisible Hand” that he used to describe the manner in which the free market self regulates itself, constantly moving towards a state of equilibrium and progress.  Little known though, is that Smith actually had a book on ethics published in 1759, years before his milestone of economic theory.  This work was called The Theory of Moral Sentiments.  I write this essay because I don’t think that it was a coincidence that Smith wrote a volume on ethics before his work regarding wealth.  I have two goals for this post.  First, I want to provide a brief synopsis on Moral Sentiments.  Second, I want to defend the following claim I have formulated: In order for a society to thrive and reach the pinnacle of its potential, a certain level of morality must be achieved and maintained before wealth creation takes place.  But before I can delve into my claim, I must lay the groundwork of Smith’s tome on morality.  I believe in going straight to the words of those we are researching to gather the true nature of their arguments, so be warned, ample quotations lie ahead.

Moral Sentiments is divided into a few large sections, each dealing with various topics of ethics.  The first section Smith chips away at is entitled “The Propriety of Actions”.  Smith starts off by talking about sympathy; its causes and its effects.  He contends there are two main sources of sympathy: sympathy in relation to that which excites it and sympathy in relation to the end it produces.  In talking about how connections between people are created to facilitate sympathy, Smith says:

“I judge of your sight by my sight, of your ear by my ear, of your reason by my reason, of

your resentment by my resentment, of your love by my love.”

He contends there is no other way.

Smith then warns of the danger of ambition, claiming it to be a trap that can ensnare any unwatchful person.  He boldly states that if you love liberty over servitude and prefer to live:

“...free, fearless, and independent...Never enter the place from whence so few have been

able to return; never come within the circle of ambition; nor bring yourself into comparison

with those masters of the earth who have already engrossed the attention of half mankind

before you.”

After writing at length about sympathy, the next section is presented regarding “Merit and Demerit”.  In regards to the merit of self defense, Smith implores that:

“Among equals each individual is naturally, antecedent to the institution of civil

government, regarded as having a right both to defend himself from injuries, and to exact

a certain degree of punishment for those which have been done to him.” [Emphasis added]

I want it to be noted that Smith advocates the inherent right of self defense, a right not granted by civil governments, but by the inherent nature of existence.  On the opposite side of this coin though, lies the initiation of force and its demerit.  Smith decries:

“To disturb his [our neighbor’s] happiness merely because it stands in the way of our

own, to take from him what is of real use to him because it may be of equal or more use

to us...is what no impartial spectator can go along with.”

Smith then declares that justice is more important than beneficence within a society.  You cannot gain a benefit without a firm foundation of justice to right the wrongs of those who would distort the natural order of society.

In the following section, “Foundations of Judgments”, lies probably my favorite portion from the entire Theory of Moral Sentiments.  Smith talks about being in adversity and prosperity and provides some of the best advice I think myself to have read in a very long time.  He asks the reader: “Are you in adversity?”  He then urges the readers to surround themselves with people who do not know them, who are not informed of their ills, who do not have the knowledge necessary to sympathize with their plight.  This will sooner aid in drawing the persons out of their particular case of adversity than any other remedy, removing them from a downtrodden state of mind.  Smith then goes on to ask: “Are you in prosperity?”  In this case, Smith urges the reader to surround himself with those that are independent of him.  This way, the reader will be judged according strictly to his or her character and conduct, not by their fortune.  Smith then declares in a tone that is eerily applicable to today that the danger of factions is worse than that of hostile nations, a fact we come more to terms with each passing day.

This is an extremely brief overview of an exhaustive work, so as always, I urge you to check it out for yourself.  I did not intend for this to be a novel-length post, so naturally I could not include all of the intricacies of the work. But now that we have a basic understanding of Smith’s Theory of Moral Sentiments, we can move on to my claim.

As I wrote earlier, I do not believe it to be a coincidence that Moral Sentiments was published before Wealth of Nations.  I believe this to have been an intentional succession of ideas by Smith, culminating into a combined social theory, thus leading me to my own conclusion:

In order for a capitalistic, free market economy to thrive, to reach its full potential,

there must be an established justice system, but more importantly, a certain standard

of morality, something that cannot be enforced by law.

My main line of logic that leads to this claim is that, essentially, morality translates into trust.  When you have a society, the vast majority of which adhering to a standard moral and legal code, those who become so immoral as to lower themselves to the bottom most level of crime e.g. theft, murder, etc, are dealt with by the law.  Other immoralities such as falsehoods, manipulation, and the like, are things that cannot be punished by the law, generally not being sufficient circumstances to be considered crimes.  If one lies about how large their house is, or about their wealth in general, in order to try and impress someone, they are causing no harm to that individual they are trying to impress, therefore a falsehood of this nature is not punishable by law.  Quite the contrary, a lie of this sort ends up damaging the reputation and amiableness of the liar himself, merely repulsing the intended victim of their lie away from them.  The point of establishing these seemingly common sense concepts is to highlight the fact that general morality is not something that can be coerced into existence.  It must flow naturally from a society.  Also, my goal is to establish that without a strong sense of morality (morality here denoting general concepts of right and wrong, not different, subjective matters as dictated by certain religions or creeds), a free market cannot thrive.

Individuals participating in a free market presuppose a level of trust with those that they enter into business with and thrive on this trust.  This presupposition flows both from consumer to producer, producer to consumer.  A consumer trusts that the product that he or she is buying from the producer is of a certain expected quality.  A producer trusts that the consumer will make good on his or her promise to pay for the goods they intend to purchase.  For producers in this case, the profit motive essentially becomes the “trust motive”.  They are out to gain the consumers’ trust by providing an excellent, dependable product.  If they do not, they will not sell their goods or services, thus not making a profit.  It is in their best interests to provide the best possible service to their consumers so as to establish a meaningful, real mode of exchange.  This is essentially what advocates of free markets have always argued.  Government regulations are not necessary when it comes to enforcing strict dietary, sanitary, safety, etc standards.  Companies will do this naturally.  Why?  As I stated, trust turns into profit.

Now, suppose that a society was not moral on the whole.  Suppose almost every person lied about almost everything in their lives to almost everyone they encountered.  This kind of widespread immorality would make everyone wary of everyone else, reluctant to deal with others in any way. If people were overtly dishonest, manipulative, unafraid to trample those in their path for their gain, there would be no meaningful exchange.  A free market would suffocate in the lack of morality-rich air.  Individuals would be afraid to start a partnership or trade with anyone else due to one sole fact: they could not trust them.  

Let’s look at the perfect, real world example: Bernie Madoff.  Madoff’s wealth management business ended up being revealed to be a giant Ponzi scheme, essentially stealing billions and billions of dollars from his investors.  He took advantage of these investors (the consumers of his service) and their trust in him, totally abdicating morality from the equation.  The result?  The ruination of hundreds, perhaps thousands, of people’s lives.  All because one man threw morality out of the window.  This is an extreme case that, of course, was and is punishable by law.  But imagine a society with Madoff’s mindset.  It doesn’t even have to be a mindset of theft, merely one of accepting dishonesty as fair game.  Would that society thrive? Would that society benefit from all of the opportunities that the free market has to offer?  Of course not.  Smith says it best himself in Moral Sentiments:

“For one man to deprive another unjustly of any thing, or unjustly promote his own

advantage by the loss or disadvantage of another, is more contrary to nature, than

death, than poverty, than pain, than all the misfortunes that can affect him, either in his

body, or in his external circumstances.”

Ultimately, the point I have been trying to present is that without basic concepts of morality, i.e. honesty, integrity, pride in one’s work, etc, a society will not reach its utmost potential.  The lack of these virtues destroys any possibility of meaningful exchange, thus stifling growth and consequently innovation in the long run.  These concepts, though, cannot be legislated into being.  To force someone to be honest at the point of a gun does not bring about a genuine change of heart.  It brings about compliance that is not founded upon a logical line of cognition.  Critics of free market capitalism complain that within free markets, business owners ravage and plunder those they provide their services to.  What these critics fail to accept is the fact that people of this nature are not operating within the mentality of a capitalistic, free market society.  Those business owners will reap the contempt they’ve sown, whether it be through legal recourse, boycott by consumers, or some other method.  The most important thing critics of capitalism fail to accept, though, is the true nature of capitalism itself: peaceful, voluntary exchange; mutual trade to mutual benefit.  Until this concept is widely realized and accepted, we will be stuck with the ticking time bomb we operate under today: the mixed economy.

-Brad