(It is essential to a humane capitalism for each person to) "...humble the arrogance of his self-love, and bring it down to something which other men can go along with (Smith, 1759/1790, Moral Sentiments, loc 1714-1727)."
Other Blog posts herein have been exploring What Comes Next regarding the best kind of Capitalism, especially given the fact that The New Deal Order which was started in 1930 and worked quite well through the 1960s was dismantled by 1980. Starting in about 1970, it was being replaced by The Neoliberal Order which crashed in 2008, and came to an end in 2020. Reverberations of the failure of The Neoliberal Order are still being displayed: Remnants of The Neoliberal Order led to another banking crisis in 2023. The Neoliberal Order also led to political chaos especially displayed during the 2016-2022 period, and is still ongoing. So, What Comes Next?
Will Rogers is making clear what happens from applying a distortion of Adam Smith as supporting unfettered Markets and minimal Government. The distortion produced the 1930s. The true Adam Smith made gains in the period of 1930-1980, with good balance in Market & Government (peaking in the mid-1950s) well into the 1960s. Smith was again distorted, starting in about 1970, with full distortion in play by the early 1980s. And, again like it had in the 1930s, the same distortion led to the political economic chaos demonstrated in 2008, political chaos starting in 2016, with continuing economic, political, and legal chaos now into the 2020s.
The recent book by Liu (2022) titled Adam Smith's America: How a Scottish Philosopher Became an Icon of American Capitalism suggests we might look to What Comes Next by looking to what Adam Smith tried to teach, and, few have listened, or understood. Liu (2022), using a frame of political science, explains how the brief periods in American history when the two books by Adam Smith, one on the Wealth of Nations (Smith 1776/1789) and the other on Moral Sentiments (Smith 1759/1790) were integrated, gave periods when the political economy did quite well. In contrast, whenever Smith was distorted, toward a frame dominated by either the Wealth of Nations or the Moral Sentiments, the political economy did poorly.
The quote at the top of the Blog makes clear Smith saw the two books Wealth of Nations & Moral Sentiments as a coherent, fully integrated set of propositions. The humane capitalism that Smith envisioned required the primal arrogance of self-interest (driving theWealth of Nations) to be tempered by that which the other could go along with as represented in the shared other-interest (representing the Moral Sentiments). A well functioning political economy had to work to help each person in seeking own-interest, composed of a joint self & other-interest, Wealth & Sentiments, Market & Community:Government, each essential to the other.
Liu (2022) traces the 250-year history of how Smith was for brief periods well-represented in American Capitalism, and, most of the time was distorted. Importantly, the US founders were reading both of Smiths’ books, and actually integrated the two books quite well at the outset. Both books were published by the time of the 1776 Declaration of Independence, were in play at the end of the Revolutionary War, and were a major force in influencing the US Constitution and how the Government was formed. The Market evolved in the early period within that context. The integrated take on the Wealth of Nations & Moral Sentiments, put in place in the founding, and, again during The New Deal Order from 1930-1980 (as Liu also documents, but also see Gerstle 2022, reviewed in the other Blog considering What Comes Next) worked quite well in a viable Market & Government.
Unfortunately, what the founders put in place, and what was represented in The New Deal Order, has been dismantled. It was taken apart at various times during the 250 year history of American Capitalism, the most dramatic being that which led to the crash in 1929. It was recently dismantled again, during The Neoliberal Order in the period of 1970- 2020, with recovery from that Order still not realized (more bank crashes in 2023, and continuing political chaos). So, looking ahead, how would an integrated Adam Smith lead to a better version, in helping give content to What Comes Next, something that would lead to economic efficiency, political stability, and happiness?
Liu (2022) provides a detailed account of the who, what, when, and where of how Adam Smith, over the past 250 years, has been mainly distorted for the self-interest based advantage of narrowly framed other-interest. The details are laid out in 7-Chapters plus an Epilogue, covering 346 pages, with lots of citations and references in support.
Each Chapter is highlighted here in turn, with a link to a 30+ page, journal styled Paper at the end where the Reader can go find more detail. Both this Blog post and the Paper use Dual Interest Theory and Metaeconomics (see Lynne 2020) to give analytical content familiar to an economist (especially Behavioral and Metaeconomists) to help make sense of the political economic history detailed by Liu (2022). And, naturally, it is best to go read Liu (2022) directly.
The Best Book Extant and Whence He is Called Its Founder point to how Adam Smith’s books greatly influenced the US founders. American Capitalism got off to a good start, seeing the key role of seeing and finding a good balance in the joint self (greed driven) & other (moral sentiments tempering the arrogance of greed) -interest, good balance in Market & Government.
It did not last long before Adam Smith was distorted and framed as The Apostle of Free Trade. Moral Philosopher Smith, who was an abolitionist, was captured by the Southern States and turned into implicitly supporting slavery, in that unfettered free trade made slavery extremely profitable. Smith was then placed In the Vanguard of the New School which worked to separate out Smith as unfettered free trader by moving away from Smith as moral philosopher.
Yet, some resisted, as explained in Economics Must be Political Economy, an unsuccessful attempt at bringing the moral sentiments back into substantive play. It was ultimately unsuccessful as the ego-based self-interest of the Econ was given full play. Yet, The New Deal Order that saw Humans with the need for balance in self & other-interest, not just Econs pursuing self-interest, which started in 1930, worked well for a quite long period, peaking in the mid-1950s (see Upswing Blog). Unfortunately, only a few pieces survive to the current time, like social security, medicare, and small remnants of the civil rights and voting rights act. The attack on The New Deal, however, is relentless, and Smith continues to be misrepresented and otherwise distorted (see earlier Blog which explores the Rise and Fall of both The New Deal Order and The Neoliberal Order).
Alive and Well and Living in Chicago explains how Smith became completely distorted in both the Chicago School (and the Public Choice Theory School in Virginia). People were reduced to ego-driven seekers of only self-interest, every person framed as an Econ, a consumer (no longer citizens or citizen politicians with shared other-interest) maximizing ego-based self-interest. The Possessive Individualism Blog also speaks to that problem [pointing to fixing it by finding balance in a joint Scroogism (Wealth of Nations) & Socialism (Moral Sentiments)]. Possessive Individualism --- consumers and politicians maximizing ego-based self-interest without ethical (empathy-based) reflection --- has led to economic inefficiency, political chaos, and a great deal of unhappiness.
In Turning Smith Back to the Present, Liu (2022) points to how Adam Smith has seen a revival of sorts, in Smith as Moral Philosopher relevant to both the Ideology of the Right and the Ideology of the Left: “Smith as a moral theorist of capitalism … has become a convenient ideological holding pen for beliefs on opposite sides of the political spectrum, with those on the ‘Right’ appealing to Smith in order to defend conservative moral sensibilities, and those on the ‘Left’ appealing to Smith in order to defend a view of capitalism that also promoted social justice. Both sides have found common ground in the idea that Smith’s vision of capitalism was and is defensible on moral bases.” Social justice is a key part of progressive sensibilities, mainly on the Left.
Metaeconomics (again, see Lynne 2020) easily handles the point in a powerful analytical system, as the moral sensibilities, whether on the Right or the Left, fit into the notion of the shared other-interest, that which works to temper the self-interest. One just needs to empirically pursue the matter of which other-interest, or some combination of other-interest drawing on both Right & Left, works best --- based on sufficient reason built on a foundation of facts (scientific-method sourced) & ethics (that which reasoned people can go along with).
The Epilogue brings it all together. As Liu (2022) says it, in thinking about What Comes Next, “We find ourselves caught within conceptual ambiguity and have become captive to what Angus Burgin has identified as a ‘familiar linguistic paradox:’ the ambiguity, slipperiness, and under-specificity of the meaning of Smith’s politics, his moral economy, and his defense of capitalism have inspired endless contestation and frustration, but those very qualities are also what enable Smith to be so readily adopted, used, and weaponized.”
Metaeconomics works to help in thinking about What Comes Next by moving beyond such ambiguity, slipperiness, and under-specificity through seeing that the real Smith fully recognized the dual nature of Humans. Smith anticipated the empirical findings in Behavioral and Neuroeconomics Science that support said the characterization of humans having a dual (and joint) nature. And, Dual Interest Theory, while building on that science (and ethics), provides a powerful abstraction. It is an abstraction on par with the power of the Single Interest Theory abstraction in mainstream (Micro)economics.
Dual Interest Theory works to provide a tight analytical system suitable to examining Smithian observations and propositions using widely accepted economic reasoning and empirical techniques. Dual Interest Theory also lends itself to mathematical expression, in Mathematical Metaeconomics (see Lynne 2006ab and the Appendix in Lynne 2020). It seems Adam Smith would have been a MetaEcon, and clearly not an Econ (and, click here for the details, a journal styled paper).
References
Liu, Glory M. 2022. Adam Smith's America: How a Scottish Philosopher Became an Icon of American Capitalism. Princeton, NJ: Princeton University Press.
Lynne, Gary D. 2006a. "On the Economics of Subselves: Toward a Metaeconomics." In Handbook of Contemporary Behavioral Economics, edited by M. Altman, 99-122. New York: M.E. Sharpe.
Lynne, Gary D. 2006b. "Toward a Dual Motive Metaeconomic Theory." Journal of Socio-Economics 35: 634 – 651.