There seems to be a dissonance between the major works of economist and philosopher Adam Smith that scholars have, fittingly, called the “Adam Smith Problem.”
Is there an inconsistency between the roles of sympathy and benevolence described in his work The Theory of Moral Sentiments (TMS), and the role played by self-interest in The Wealth of Nations (WON)?
The market, with its invisible hand, is a depersonalized and anonymous commercial society. The context of TMS, however, is one of face-to-face intimacy.
But there is in fact a coherent bridge that synthesizes these contexts, writes economist Steven Horowitz in this piece for Adam Smith Works. (Tragically, Horowitz has recently passed away. He was a dedicated teacher and economic communicator, and you can find tributes to his life and work here and here.)
The rules and institutions of the market make possible the emergence of prices and profits. This is information that provides us public knowledge about the underlying human choosers in the system, and allows us to learn and adjust to what others want, Horowitz explains. This process of gain and loss and mutual adjustment parallels the world of personal interactions that Smith describes in TMS, but enables it at scale, extending it to the larger world of a market system.
“TMS provides an explanation for how humans regulate and mutually adjust their behavior to produce a world of ethical and moral progress, while WON, as extended by later thinkers like Hayek, offers an explanation for how humans regulate and mutually adjust their behavior among anonymous others to produce a world of material progress. It is these feedback, mutual adjustment, and spontaneous ordering processes that constitute the often invisible bridge that unites Smith’s two great works, and thereby describe his coherent vision for both the intimate and anonymous orders.”
