0:36 Intro. [Recording date: June 15, 2011.] Adam Smith; start with something that as an amateur student of Smith, I find confusing at times, which is David Hume, famous philosopher. I took a number of philosophy classes in college, read some Hume; he was Smith's good friend. What do I need to know about Hume to understand Smith, and what do I need to know about Hume in general? He was very important and for a number of different reasons. Just in general, a couple of things you should know. He was one of the principals, alongside a few others, of the Scottish Enlightenment. That's this period in the 18th century in Scotland which was a period or really astonishing learning. The people at the forefront of almost every discipline of human inquiry were in Scotland during the 18th century. Hume was one of the central people there, and arguably--and I think this is true--the greatest and most brilliant philosopher ever in the English language. And that's saying a lot. Includes people like John Locke who had preceded him and all of the greats who come after that. One of the things about Hume that's interesting, maybe because he was as brilliant as he was--he never spent a whole lot of time on any one topic. He wrote one of the great works of philosophy as a young man, A Treatise of Human Nature; as he says: It fell dead-born from the presses. Nobody paid any attention; he said he couldn't even excite any enthusiasm from the zealots about it. He spent a little bit of time later in his life breaking it up into smaller pieces; rewrote them in ways he thought might be more palatable. And then he was the author of numerous essays, most of which are just absolutely brilliant, most still influential; and a multi-volume history of England. So, quite a bit of stuff from Hume. A couple of philosophical things you should know about Hume: he is generally regarded as a "skeptic." That's a little more complicated than you might think, but the general view of Hume is he was interested in and explored the limits of human cognition. He thought that it was often the case that people believed they were able to know things that they in fact weren't able to know. And that insight, he pursued in many different ways, in his essays and in his longer works, one of them with respect to what we now think of as the philosophy of science. One of his insights that we still pay a lot of attention to is a question about what we know about causality. When we see that x happens; and when x happens, y happens, do we perceive a cause? Hume thought: No, we don't perceive a cause. What we perceive is two events: one happens and another happens. What we now call correlation. So, suppose that every time you see x, then there's y. And suppose you've seen it a hundred times. Does it follow from that that the next time you see x, there must be y? And his answer is: No. Now, it may be true; but based on what we are able to perceive or observe in the world, we can't know with certainty that y will ensue the next time we see the x. So, this was a level of skepticism that he worked out in a way that other philosophers hadn't quite worked out. Now, Hume is not a fool. One of my favorite sayings of his is: Amidst all your philosophy, be still a man. So, even as a metaphysician, we want to know what exactly are the limits of human knowledge; but don't forget that when you leave your office, go have a beer and hang out with your friends, and you are still a human being. This skepticism about the limits of human knowledge affected a lot of his thinking. Hume, who was clearly the most brilliant philosopher of his time--and by the time he was middle-aged he was also the most famous intellectual in Scotland and one of the most famous in all of Britain, never had an academic job. He was put up for the Professor of Moral Philosophy at the U. of Glasgow, wanted to have the job, but was denied the job because he was a skeptic. And the view was at the time that you couldn't very well be a professor of moral philosophy unless you professed morality--moral philosophy; and you couldn't profess morality if you weren't a certain kind of Christian. And because Hume had expressed very skeptical ideas about what we can know about God and what we can know about the designer of the world, he was thought to be unfit to hold the position. So he never did hold the position, which was something of a disappointment to him. Hume was a lifelong bachelor. We have some evidence that he had interests in various ways; he may even have proposed to one person. There is a perhaps apocryphal story about him having proposed to a woman who said no because he was too fat. He was a bit of a rotund man. The world is maybe better for it, maybe worse. The ladies in France loved him, so he spent some time in France, and the fine ladies all liked to have him over for tea and they liked to listen to him speak in his funny accent and regale them with stories. As he apparently said: Everyone loves him but no one loves him. So, he's a bachelor. He came to know Smith when Smith came to Edinburgh in the 1750s. After Smith had received his education he returned to Edinburgh, started giving some lectures on what we think would eventually become the material of the Theory of Moral Sentiments (TMS), which was published for the first time in 1759. Smith and Hume got to know each other there, and during the time Smith was working on the Wealth of Nations (WN); and throughout their lives Smith and Hume were very close friends.

7:02 What's the intellectual influence that's relevant for Smith and Hume's thinking? How did Hume influence Smith's work, if at all? That's a matter of some scholarly dispute. But there probably are at least some ways in which Hume clearly influenced Smith. One of them is: Smith's first book was TMS, 1759. As many listeners know, we did a 6-part podcast series with Dan Klein, so if you have not read it, that's a place to start. Wonderful book. That book went through six editions in Smith's lifetime, each one receiving at least some changes, some of them fairly substantial changes. One of the changes, if you are looking for this sort of thing--as scholars do--is that you'll notice that in the 1st edition of TMS there is quite a lot more of what you think of as religious language. Now, some religious language persists throughout the editions. But in subsequent editions, Smith takes away some of the stronger language. So, in the 1st edition, there's a passage on atonement that sounds very much like something you might get from Calvin, where we're worms before God and even our best endeavors can't amount to anything before God and we need to be conscious of our littleness. There's some very robust language along those lines. Well, in later editions Smith got rid of that. There are other ways in which religious language in the early editions gets changed, altered. Perhaps due to Hume's influence. Well, that's the question. Was Smith changing his mind? Was he hearing the voice of Hume in his ear? That could very well be one way that there was some influence of Hume on Smith. What about his view of human nature? Smith has very particular ideas about our human nature, TMS is filled with it. So is WN. We're going to be talking about both those books in a minute. Is there any suggestion that Hume's vision of cognition or human nature generally, that Smith is on the same page? Yes, I think so. Quite a bit, in fact. One essay of Smith's that still exists that is less often read today is "A History of Astronomy"--Smith wrote an essay about where astronomy and some aspects of what we might think of as physical sciences came from. And there he gives an account of human cognition that could have been lifted right out of Hume. Especially our knowledge of causation and the limits and the dependence of what we know on our observations, the contents of the human mind and the way in which they are filled with our observations and experiences; and we can't know things we haven't previously perceived. All of that is right out of Hume. Quite a bit of that. But there's also--and this is maybe more relevant to the audience that we'll have--there are a number of similarities, we'll say, between Hume's views on what gives rise to things like rules about things like contracts, rules about property, rules about exchange, where those come from, what influences them. A lot of those insights that Hume had that were maybe not as systematic as later thinkers would work these out. You see a lot of those insights influencing Smith as well.

10:44 Smith in particular. Smith writes two books, one very famous, An Inquiry into the Nature and Causes of the Wealth of Nations (WN). His second book in stature and famous, which was his first book, is The Theory of Moral Sentiments (TMS), which as you mention was first published in 1759, revised six times, the last time in 1790 shortly before he died. So, TMS brackets the WN in a certain sense, both written before and after. A number of people have raised what has come to be called the Adam Smith problem. Caricature of the problem: The WN is about being self-interested and the TMS is about the virtues of being altruistic, benevolent, and respected by your peers. They seem to be written, you could argue, by two different people. They are written by the same person; no one has suggested that one of those books was ghost-written under Smith's name, which is the way some people kind of solve these kinds of problems with really old books. In this case, that's not a plausible story. They are both very well written. A lot of things Smith wrote, he was not the first person to write about the concepts he writes about; and yet his treatment survives and thrives partly because he is such a great stylist as a writer of English. So, he writes these two books that seem to be--one way you say--they are orthogonal to each other, or even contradictory in terms of their view of human nature. What's your take? Well, it is a big issue and for full disclosure, I myself have contributed to the discussion. People have been talking about this--in the 19th century it was German scholars who claimed to have found this problem; being very imaginative with their terms, they called it "das Adam Smith problem." As this issue came down to English-speaking scholars, end of the 19th century going into the 20th century, of course English scholars, being much more imaginative, called "the Adam Smith problem." The problem is how do these two books go together? One thing to think about is: Assume for a second that there is some kind of contradictory account of human nature or human motivation; if they are contradictory, that really speaks very poorly for Smith. He only published two books in his lifetime, just these two books. And he spent a lot of time on both of them. One book, the TMS, he was revising throughout most of his adult lifetime including all the way up until just shortly before he died. And the WN he also went through three editions and he made changes. So, he was revising the two books side by side. The first edition of the WN is 1776; the third edition was 1789. Wow. So, these were being revised by him at the same time. So, if they were contradictory, doesn't speak well for Smith. The Jekyll and Hyde Adam Smith. Different tartan plaid cape when he was writing each one. I think we can reject out of hand, or I reject out of hand, the idea that they are contradictory. That's not a very charitable interpretation of how to put the two books. That being said, there are some curiosities. For example, in the WN, which is the second one, he never refers to his first book. Fascinating. No reference at all to the only other book he wrote. Or vice versa. There's also no reference in the WN to many of the central concepts that he develops in the TMS, like the impartial spectator. In the TMS, the impartial spectator is the name Smith gives to a kind of heuristic device we can use for figuring out whether what we are thinking about doing is the thing we ought to do or not. We can ask ourselves: What would an impartial spectator think? The idea behind this is that--this is not behind a John Rawlesian veil of ignorance--this is someone who actually knows everything about us that we ourselves know, knows our situation fully, but has no stake in what we are about to do. And so, Smith thought: If you want to know whether you should do what you are thinking about doing, ask yourself, would such a person approve of what you are thinking about doing or not? That's actually a surprisingly powerful thing. He talks about it constantly in the book. Sometimes he calls it the man in the breast, the person you carry along inside you. He also calls it the vicegerent of God on earth, which is another interesting way of thinking about this. Like the angel on your shoulder. And he doesn't talk about the devil on your shoulder, by the way. He doesn't open up to the possibility that the impartial spectator could be cheering you on to do something not so nice. He presumes a certain benevolence about that impartial spectator. I think he thinks that if your moral sentiments have developed in a normal way, allowing for there to be exceptions for people at the extremes, the margins, then the impartial spectator will give you pretty good advice. Now that doesn't mean you'll always follow it; and in particular it doesn't mean you'll always ask for it. That's one of the central contributions Smith makes in TMS, this notion of the impartial spectator. He explains in great detail how the perspective of this impartial spectator develops over time, what the power of that perspective is. None of that is in the WN. That's curious. Imagine if you had only written two books in your career, in your life, and do you think you would refer to the first one in your second? I do already. I think I'm one of the chief sources of my citations, referring my own stuff later on. Common practice. All very curious. What some people have said is that this indicates there is some deep problem. Now, one way of thinking about the problem I think we can dismiss easily as well. The TMS does not say that human beings are altruistic and the WN says they are selfish--that's the caricatured view. What the WN discusses is certain kinds of human relations and the dynamics of certain kinds of human relations in specific social settings, in particular market settings. What the TMS discusses is a much broader range of human behavior that includes not just exchanges with strangers from faraway lands when, they are making woolen coats and things like that, but exchanges with friends, family, and people with whom we have intimate and familiar connections. It's a very different set of motivations and different set of proper and improper sentiments. So, in the TMS when Smith talks about one of the fundamental social desires he thinks all human beings have is the desire for mutual sympathy of sentiments, this is not saying he thinks that we should pity one another. He is now making a descriptive claim, thinking about human nature, that all of us genuinely desire to see our own sentiments, our own thoughts, feelings, judgments, whatever they are about the things we care about--we want to see those echoed in other people we care about. He thinks that's just a fact of human nature. So, the sympathy of sentiments you and I have--it's not that I feel sorry for you. Sympathy means more harmony. Harmony or concord--those are other words he uses. So, if you and I go to a lecture, and the lecturer is giving a talk and I lean over to you during the lecture and say: Boy, this guy's full of it. And you say: I actually think it's brilliant. Well, then we are not having a sympathy of sentiments. Then we are having an antipathy of sentiments. Or, to take an issue of morality, if somebody sitting in the front row takes a phone call and I say: Boy, that's rude. And you say: Well, come on, sometimes you have to call. That would be another example of where we would be unsympathetic with each other and I would have been unsympathetic with the caller's decision to take the call. This would prompt you [Russ] to have a negative judgment, disapprobation toward the person who took the call; and perhaps I wouldn't. But between you and me now, we are not enjoying a sympathy of sentiments.

19:49 So, in a case like that maybe it's relatively trivial, but Smith's view is that that's slightly uncomfortable. We don't like that feeling. We much prefer to have the feeling where we have generally the same views about things. Smith thinks this is a brute fact of human nature--we just desire this. The purpose that serves is it acts like a centripetal force in human society. It pulls us toward one another. We want to make community and have communities and associations with people who have roughly the same sentiments about things that we do. Beginning with this desire for mutual sympathy of sentiments and the fact that we all mutually desire it, this begins the process of creating communities for human beings. So, this is Smith's explanation and the mechanism he uses to explain the creation of human communities; and not just the creation but their dis-associations and their re-associations, the creation of new ones over time. Overlapping communities we may have with each other--I may be in three and you may be in two. Exactly. Or you may be in dozens and I may be in dozens of various different kinds. And he also says--one of my favorite and most provocative lines in the book: Man wants to be loved and to be lovely. We want the affection and respect of our peers and we want it to be earned. That's another reason that if you judge something in a particular way, the quality of it aesthetically or the morality of a judgment, I want you to like me, so I may find myself being drawn to your assessment in sympathy, a different kind of sympathy, so that we can form this community. Otherwise we've got this tension and discord. Right. The way this develops--and it really is a kind of evolutionary account for Smith--it develops in each individual over time. We are not born with moral sentiments. We are born as amoral creatures, he thinks; we just have desires and wants and that's it. But by the time we become adults, we are highly moralized; we have a very sophisticated set of moral sensibilities, and this process takes place over time in each person's lifetime with multiple, thousands, of interactions we have with other people. One of the things we will become aware of at some time in our development from childhood to adulthood is that we ourselves disapprove of others when they are phonies--when they are pretending to be something that they are not. We disapprove of lots of things, but that's one of the things we disapprove of. And that fact starts to figure into our creation of our own internal impartial spectator, our own internal conscience. So, when we become aware of ourselves, that we are doing that, receiving praise for something we don't really deserve, didn't really do, or we are being blamed for something, we realize that that's an uncomfortable thing. And that can act as a subtle, that feedback acts as a subtle incentive to align ourselves with the kind of behavior that we ourselves would approve in other people. One of the brilliant things about this, from my perspective, is that this mutual adjustment of moral sentiments, that people engage in as they create these communities in or act with one another, it's not designed. There is no person who is saying: Here's how you should behave and we are going to enforce it. This is a completely bottom up, emergent process for Smith. The commonalities, that we have certain features of human nature; we have scarce resources, limited knowledge, a desire for mutual sympathy of sentiments; there are some other facts that we have about common circumstances; and we can make some predictions about the kinds of associations people will make given their natures. But the development of moral sensibilities and the development of a systematized moral philosophy in an individual person and their conscience--that's something that is not centrally designed. That's not something that somebody from the top creates. So, there's no great moral law-giver, he thinks, who wrote all the moral rules that we need to follow and at some point we learn them, memorize them, and implement them. That's not how morality and etiquette rules work. In that sense he's very Hayekian, influenced Hayek in this kinds of social norms, traditions, that Hayek defends even though in individual cases they may not make sense to us. At the same time, Smith finds a divine source for the mechanism. He says the all-wise author of nature, I think he calls Him, put these urges in us to be liked and to be respected by others. The other comment I wanted to make is your remark about phoniness: he's very aware of the fact that we self-deceive and we don't want to be seen as phonies in our own eyes. We also may be blind to that. I think he says: If we saw how others saw us only for an instant, it would be too painful. Because we'd see that sometimes we are phony or pretentious or whatever. The other line I always remember is: Bold is the surgeon whose hand doesn't tremble when he operates on himself. Which he quotes as an aphorism of the day--it must have been well-known. So, even though we want to be authentic--we want to be loved and love-ly--we want to earn the respect of others, it's possible we sometimes deceive ourselves and don't fix the flaws that others see in us. Absolutely. So, we're also naturally partial, he says--we're partial to ourselves. We're partial to the people we love, to our family and friends; and we tend to take our own perspective over the perspective of others, and that's even in good faith. Even if we are trying to be objective, that's a natural part of our psychological makeup. For Smith, what this means is, as he says, intercourse with others--meaning communication in society with other people--is absolutely crucial for the proper and healthy development of moral sensibilities. Because other people won't be inclined to indulge you quite as much as you are. So, having regular exchange and experience with other people, seeing how they judge not only oneself but also others as well, is a necessary corrective to our own partiality. And other kinds of partialities. We see how people who don't have a particular stake in my life or how they judge me, how they judge my behavior. That's absolutely crucial. That's a deep part of the explanatory mechanism that Smith develops. You may remember that he has this thought experiment in the TMS about a solitary islander. He asks whether, if it were possible for a man to grow from childhood to adulthood without any interaction with another person, grew up on an island, never exchanged a word or thought with another human being. That's the Tarzan conceit. Robinson Crusoe, although Robinson Crusoe from birth. So, Smith asks: Would such a person have properly moral sensibilities? And Smith's answer is: No. What he might have is likes and dislikes--this tastes good to me, that doesn't taste good; I like this bird, flower more than others. Sunrise more than sunsets. But this was improper of me to have done? No. He would have no idea about that. And the reason for that, he thinks, or as Smith says, is he doesn't have the mirror that society gives to us of our own behavior. So, yes, we are partial to each other; but it's not just that we are partial. It's that interchange, talking with others, interacting with others, actually creates the process of a moral agency. We become moral agents when we interact with each other, and to the extent we are not doing that, we are diminished in our moral agency.

28:14 So, none of this is in the WN. Except there is a little bit of it--to my eye. A central part of the argument that I made in my book Adam Smith's Marketplace of Life is that I think that what Smith was getting at in the TMS was not just the particular explanation, very detailed and rich, sophisticated explanation of human moral psychology, but also what he was interested in was trying to account for large-scale human social institutions. Where did these rules come from and how is it that human beings can observe rules without being aware they are observing them? How is it that rules can change over time without anybody being in control of the process? No memo that goes out that says: Don't cut in line at the grocer. It just comes to be the way we behave. It's part and parcel of our lives. In fact, it's so much a part of our lives that we don't even notice it. One of his favorite examples that you may recall from the TMS is joke-telling. He says: Isn't it interesting that there are rules about jokes? There are rules about what jokes are appropriate, what jokes are inappropriate. And it's not just that there are rules; these rules are exquisitely sensitive to context. So, a joke that might be completely inappropriate in one context might be perfectly appropriate in another context. And every one of us knows immediately what that is. Without even really thinking about it, you can think of jokes that would be inappropriate and appropriate; and not just joke-telling, but laughing at jokes. There are rules about how long should you laugh, who should laugh, when somebody is laughing a little too long and you start to wonder about somebody. Where do all these rules come from? That little example of joke-telling and laughing he thinks is actually illustrative of much of human life. The same kinds of mechanisms involved there are involved in things like what's appropriate dress. How do you dress appropriately? Well, again, this is exquisitely sensitive to context. And if I asked you, if we wanted to sit down and I'm going to write down all the rules about appropriate dress, that would be extremely difficult to do. Maybe a completely fruitless task. On the other hand, in our everyday behavior, we just know. We have a sense of these things. Can it change over time? Yes; but at any given time are there rules? Yes. Can you change the rules all on your own? No. We all make the rules together through our interactions. I think this insight, that there can be a set of conventions, rules; a system of order that can arise and emerge from individual behavior even if none of the individuals involved intended to create a set or a larger, macro order of rules--that's really the central insight that he hit upon in investigating moral sensibilities. So, what I think what is going on is that Smith, in addition to just trying to understand that particular phenomenon of human moral judgment-making, what he discovered was a potential explanation, a model, that could help explain human social institutions of other kinds as well. And this is the same model that he brings to bear in trying to understand the human social institutions that we would now recognize as marketplace or economic institutions--exchange, property, prices. And that you see him developing and working on in the WN. So, in my view, and this is my argument, the two books are related on a very deep level. What Smith is trying to do is to understand humans' sociality. Human beings are intensely social creatures, and that instinct to form society is manifested in many different ways. Two of the big ones are moral communities on the one hand, and commercial, marketplace exchange communities on the other hand. And those two books are his attempts to understand those two very large areas of human life in terms of this same model, that I call a marketplace model. And by marketplace you explicitly do not mean a farmer's market or a place where people interact, bounce back and forth off each other, talk, exchange ideas, exchange sentiments, exchange dollars. There are a couple of elements. People have, first of all, their own desires and motivations, whatever they are. We don't have collective motivations or collective desires. You have yours, I have mine; they may overlap, but each of us has his or her own. We also act on the basis of what you might call local knowledge: you have your experience, skills, the opportunities available to you that you know about, your schedule of values and preferences; and I have mine. And sometimes those will intersect and coordinate; sometimes they don't. But we are each of us looking to satisfy our own desires, our own interests, our own goals, which are not just--I mean, they can be making money or profit, but that's certainly not the only thing they are. There are many other things. Love, happiness, friendship, beauty--all of those are part of the world of things that we are interested in. And we act in ways, we try to coordinate our behavior and community and cooperation with others so that we can have as much of these great things as we can. And in doing so, we hit upon patterns of behavior, upon conventions, upon methods of cooperation that help satisfy our mutual interests. And that's what I call a marketplace model. So, that kind of understanding of where these institutions and conventions can come from, as opposed from being written by the omniscient law-giver, not Solon or someone who wrote down all the laws and we just follow them. Or the committee. Or the Politburo. This is created and given rise to by the people who are talking with one another, exchanging with one another, communicating with one another without any centralized direction. And it's not necessary that there be any single, collective purpose that they all have. They have their individual purposes, but it leads them to form communities that are mutually enriching. So, calling it a marketplace model, there are some elements that you will see in marketplaces, with interchange and exchange, individual desires, people looking to satisfy it; and I think that's a powerful insight for trying to understand human social institutions generally.

34:57 So, that raises a couple of deep questions. One I want to just mention, which is that for me, when I teach Smith and when I talk about Smith, for me the invisible hand is that marketplace. Which is a little ironic, because Smith's explicit use of the term, which he only does once in each book, really doesn't capture anything close to the richness of what Smith saw, used, and it would have been nice if he'd done it a little more explicitly. His use of the term in the WN is that it's great that domestic investors tend to invest in their local economies rather than farther away because there's less certainty when they invest in foreign stuff, so they are led as if by an invisible hand to provide lots of local capital. In the TMS he says people's eyes are bigger than their stomachs; if they try to accumulate wealth it doesn't really make them any happier than they are; they can't consume all the stuff they acquire, but they are led by an invisible hand to create employment opportunities for other people. In each of those, if you asked me: What's the invisible hand? The answer would be that the similarity between those two examples is that in both cases a person provides some benefits to others that are not his intention. And that's certainly a part of what you are talking about when you are talking about this marketplace model, but of course it's so much richer. It's this web of interactions that we create with others, commercially and morally and spiritually and socially in all kinds of ways, that is to me is the much richer model of what we call the invisible hand. Even though Smith didn't call it that. Now, if you ask people--for people who never read either of those books and don't know Adam Smith--is there anything you can tell me about Adam Smith, it's invisible hand. That's the one thing they'll remember. Which is, as you say, a bit surprising given that he only uses the phrase once in each book. And it gets caricatured I think by most people as greed is good. Which is certainly not what he meant by the invisible hand when he explicitly said it or the implicit uses we are talking about. I agree. I will say that I think the idea--so the phrase only appears once in the WN, for example, but the idea is throughout the book. It's everywhere. If what you mean by that idea is that people can create macro order from micro intentions--that's everywhere. And that's really what I think is behind this, at the explanatory or scientific or sociological level, of what he's trying to do. That's the central insight, that people are able to create patterns of order without intending to create a pattern of order. What they are intending to do is to get along with one another. To cooperate, achieve these things we've been talking about. Or just get a good deal. So, farmers' markets are often part of human social life; they are just not the only part. But what Smith is I think discovering, and one of the reasons why the WN is justly regarded as one of the great works of the West, is because he is seeing just how pervasive this is in human life, this creation of community, association, patterns of order without intending to do so. This phrase, an invisible hand--people will disagree about if God is anywhere, so in the WN you have many fewer references to anything like religion. He has some not very nice things he says about organized religion. But it doesn't read as if it is written by a man who is infused with religious fervor. And people have wondered: Is there some religious notion behind this invisible hand? And people disagree about that. I think one of the things that is much clearer for Smith about this term, this idea, is that very often--not always; he knows about human history and that a lot of human history is not exactly a cakewalk; people aren't always nice to each other--but in many more cases than we appreciate, the kinds of conventions and associations and communities we generate all on our own are actually beneficial to us. They are beneficial to us in so many ways that we aren't even aware of it, and even if you pointed it out to people they still might not fully appreciate it. That gives it a kind of overall beneficent tendency, which even if you are not willing or interested to fully ascribe that ultimately to God's will, say this is God's design or something, it does tend it seems in Smith's mind toward satisfying human desires.

39:56 Now, it's a beautiful description of Smith's overarching worldview in both books. It doesn't quite answer the question though that we started with. I'm going to challenge you with that and a slightly harder question which I think you raised in your book Adam Smith's Marketplace of Life. The first question I want to raise is: That's nice, so both books have this overarching marketplace concept which is not the way you might traditionally use the word marketplace but is about emerging order, about things that are created without any one person's design; it's things about our desire to be interactive with each other and social and get along. So, why in the one book does he focus on self-interest and why in the other book does he focus on the richer model of human behavior? Why is there so little overlap in the two books, when you look at the model of the individual's motivation and behavior? It's a good question, and it's an essential question. So, in the WN he says it's not from the benevolence of the butcher, the brewer, the baker, but it's from their regard to their own interest. Famous quote. And probably true. But we don't get language quite like that in the TMS. So: why not? What's different? What's changed? In the TMS there is another element to the psychological profile of human nature that he develops that we haven't mentioned so far, and that is what I call the familiarity principle. What I mean by the familiarity principle is that Smith argues that the more familiar we are with another person--the more we know about another person, their hopes, dreams, aspirations, their peccadillos, the things about them that make them who they are--the more likely you are to have a natural, actual, real affection for them. You are more likely to be concerned about their welfare if you know more about them. Similarly, the less you know about a person, the less likely you are to be concerned about them. In the TMS sentiments, Smith talks about this principle as it relates and helps explain why we are willing to give our lives, even, for our children, our spouse. We are willing to sacrifice a lot, if not quite our lives, for our friends. Willing to risk our lives for country. And other things. Yes. But not for others. And there are some people who are total strangers to us--you are going to be very unlikely to be willing to sacrifice a lot for them except under extraordinary circumstances. So, this notion of the familiarity principle is what Smith employs to help explain that. Think about the way we interact with other people in marketplaces, in economics. Right at the beginning of the WN he's got this beautiful allegory about the woolen coat, where he says: Imagine the woolen coat that the meanest and lowest day laborer is wearing. Ask yourself: How many people had a hand in bringing all the materials that were necessary to create that coat together, so that this day laborer could wear it. He starts listing them for you. Read it again. He talks about the wool cutter and dyer, people in the sheep farm, the transport. Once you start running in your mind through all the people who had some hand in bringing this together, you realize we are not talking about 10 people or 100 people. Even in the 18th century already we were talking about thousands of people who had some hand in bringing together the materials, sewing it up, making sure it was available for that day laborer when he bought it, and now he can wear it. So, ask yourself this question: How many of those people know anything at all about each other? Almost none. They are almost all total strangers to one another. So, that model is what captures most of the dynamic interactions of what goes on in large-scale, commercial associations. Where there is a division of labor. Not tribal, local production. Exactly. And that's the difference. We're transitioning, in the 18th century, right under Smith's nose. What he's witnessing is a transition from very small, localized communities to larger scale communities that are interacting with others in far-flung places around the world. One of the challenges that's going to pose is that these people are strangers to us. Maybe not just strangers, maybe it's worse. Maybe we think they have the wrong religion, they are the wrong color, the wrong whatever it is. What's going to enable us to still cooperate with them in such a way that we can get that woolen coat for the day laborer? In situations like that, the familiarity principle tells us that our natural instinct will be: Don't ask yourself what would benefit them personally? Because that's the kind of relationship you have with your spouse, your friend, someone you know. When it's a stranger, it's a different kind of dynamic; a different set of motivations is involved. So, in the WN, what Smith thinks, is what we do is, in cases like that we respect what he calls the rules of justice, which are very simple: don't kill anybody, don't steal from anybody, and honor your promises, your contracts. Beyond that, all of our mutual interaction will pretty much be based on what will satisfy our individual interests. The beauty of those large-scale, far-flung cooperative ventures, these things called markets, is that even if people aren't acting with actual love towards each other--you love your children and your spouse, not the person you don't even know on the other side of the earth who is helping make your goods and services. In that case, both of us are acting in our own self-interest, what's going to give us the biggest return on our investments, and how can we get what we like. And the markets can coordinate that. They can channel that self-interest in such a way that I don't have to go conquer somebody, kill them to get what I want. You don't have to do any of that. All you have to do is want what you would like, cooperate with other people who are acting on their own local knowledge, on their own self-interest, and this can give rise to a much larger scale of cooperation and a much greater level of satisfying of human interests. So, the WN is about that kind of cooperation and that kind of large-scale satisfaction of human society. And that naturally will be based primarily, but not exclusively, on self-interest. So, I think that really explains the different tones and motivations of discussions of the two books. It's interesting that Hayek, in The Fatal Conceit, a quote we've mentioned a number of times on the program, is really a different way of saying this--it's interesting he doesn't reference Smith. He says, basically: We have to be schizophrenic. When we are dealing with our family and our friends, we act one way. We'd like to take that motivation into society at large, but that leads to tyranny, he says; and similarly, if we take the motivations of the strangers and interactions we have commercially and try to bring them into the family, we ruin our families. I think Smith is saying--not literally saying it, but it's the same point, which is: we obviously treat our friends and family very differently than we treat the butcher and the baker. Now, if it's a small town, the butcher and baker starts to become, we interact with them a lot; we learn a lot about their flaws. And then the relationship might change. Or if the butcher is your brother-in-law. He might advance me some money that he wouldn't do in a big city where he's not as confident and trusting that I'll pay it back. And more concerned that I'll pay it back.

48:18 That is one way to think about it. Now, there's a harder part to the Adam Smith problem, which I think I got from you and your book--though I may have read it more recently than you. When the it come out? 2002. I read it about three months ago. There's this other seeming inconsistency in Smith, which is related to what you called the Adam Smith problem, which is the following: In the TMS, he says in many places that the striving after wealth is a fool's game. That acquiring stuff, trying to get rich, the beggar in the sunshine can be just as happy as the rich man--he has a lot to say about the happiness literature that's 200 years down the road. And yet in the WN he talks about all the virtues of people trying to better themselves and how that leads to growth. Which is the fundamental focus of that book: Why is there growth? Modest as that was. One of the ironies of the book is he's on the cusp of the greatest explosion of the wealth of nations the world had ever known and that human history had ever seen. And he's talking about such a small incline when an enormous mountain is coming of growth. But he seems to be a little bit schizophrenic about whether the human desire for acquisition is healthy or unhealthy. And that may well have been an actual development in his thought. So, this passage about the beggar on the side of the road enjoying as much peace as the kings are fighting for. There's a certain romanticism that's going on there about what the life of a poor person really is like that we might forgive him for when he's writing as a young man. But here's one place where I will raise a criticism of Smith. I think it's a legitimate criticism to raise. In the TMS, he seems to equate happiness with a kind of tranquility. Serenity. Being content, not striving for more. Certainly not striving for celebrity and fame. Other kinds of pathologies that get involved there. But if your view of true human happiness is a kind of stoic, not quite apathy but tranquility, contentment, then that's going to make certain kinds of strivings look foolish to you. And there is a strain of that in the TMS. Thinking about what we can take from Smith today, I think something Smith might have gotten wrong. In the following way: tranquility in the sense of leisure, not really doing anything. If contemporary investigations into what makes people happy has told us anything reliable, it's that tranquility and leisure and doing nothing is not it. Those are poisonous to human happiness. People need to be doing things; not just anything, but things that have a purpose and that they can see what the purpose is; they are also good at it. There are many aspects of what can make a person happy, but tranquility probably is not it. At least understood in that sense--just leisure and not doing very much. Sunning yourself on the side of the road. That's not a happy life for most people. And probably for most of the beggars sunning themselves--if you asked them, they wouldn't have said: I want this, I don't want what other people have. So, that's probably something of a romantic flourish in Smith. But the other thing you asked about is this notion of deception; and that's something that's interesting in Smith. In the TMS he says--you remember this parable about the poor man's son: The poor man's son whom heaven in its anger has visited with ambition. He looks around the low and mean accommodations of his father's cottage and he says, well, this isn't good enough for me. I don't want to live in this cottage. I want to live in the big mansion that those people down the road live in. And so, Smith says: What does this young man do? Well, he spends years engaged in a lot of toil and labor trying to accumulate the means that enable him to have the house and lots of other stuff--gold, ear pickers, special devices for cutting your nails. "Conveniencies," Smith calls them. Gadgets, trinkets. So, Smith says, at the end of the parable: So, he spent all these years working and now lets suppose he's accumulated the means and bought for himself all these trinkets; and Smith asks: Does the utility that those things give him now, does that actually repay in an objective calculation all of the labor he put in to get them? And Smith says the answer is almost certainly not. And he calls this a deception: Nature deceives us in this way. Now, what's interesting is that Smith says, after he tells this story: But it's really a good thing that nature deceives us like this, because it's this ambition that has led to the building of temples and bridges. To civilization. People become more enamored, Smith thinks, really with the idea of creating big, new, interesting, innovative things than just strictly doing the cost-benefit analysis; and it's a good thing they don't. But it's hard to understand how Smith can feel that way, because he's just said that it's all dross. What's the big deal? And I guess the idea there is that there's a difference between an artificial heart and an iPad. An iPad's lovely but it's not as important as an artificial heart; but the urge to make both is coming from the same human place, I guess would be the argument. Yes; and I think if you thought that the true human happiness was in contentment, in tranquility, then all that striving would be just totally pointless. He says something quite similar to that explicitly in his parable about the king's favorite, when the favorite says to the king: What are you going to do--you do all this conquering stuff and have all these plans? And he finally says: When you've done all that? The king says: Then I can finally be able to sit around with some friends and have a good conversation over a bottle of wine. And what's stopping you from doing that right now? And the answer is: Nothing. So, why don't you just enjoy the bottle of wine and don't go through all the trouble? And the answer is: We like to do stuff. And that's something that I think Smith came to understand more than he did earlier on in his life. That a part of being happy for human beings--maybe not for other creatures--we need to be active and doing things. And there isn't probably going to come a time in many of our lives, at least not early in our lives, when we just stop and say: Okay, I've got enough; now I don't want anything else. That's just not part of human nature. So, even if it doesn't directly repay in some kind of cost-benefit analysis, tranquility probably isn't the important part of human happiness at least earlier in his life he thought it was.

56:00 Let me ask you a sociological question. The way I think of the TMS, these two worlds--the world of strangers vs. the world of intimates, friends or family--Smith swam in a certain set of Scottish circles, a very rarified bit of water. The great intellectuals of his day. Those were the people whose respect he wanted and earned, presumably with his achievements, insight, and his company. In 1776, 1759, 1790, that world is not a very typical world for the human race of its day. He was on the cusp of something that was going to become more common, which would be prosperity that would allow a middle class to emerge. It was just starting to emerge in Britain. How universal are those insights? In particular, one thing I think about--the impartial spectator. He was hanging out with some pretty decent people, so to be respected by them, you had to be a pretty decent person yourself. You could imagine a different set of impartial spectators who maybe would feel differently about what was the right thing to do. What are your thoughts on that? It's a real and deep question. Is there an objectivity to the moral standards that develop in the way Smith explains. He writes as if there is. There are a couple of things we can say on his behalf, I think, even today looking back a couple of centuries later. Some aspects of human nature seem to be relatively fixed. Even accepting the theory of evolution, evolution doesn't happen in periods of decades or hundreds of years. It happens over thousands and thousands of years. So, for all intents and purposes, human nature is probably pretty much the same in the 18th century as it is in the 21st century. And what are the things that matter? Here are a couple of claims Smith makes that you'd have to accept. We live in a world of scarce resources. We desire mutual sympathy of sentiments with people we care about. We tend to be more concerned about the people we know more about than the people we know less about. We have benevolence, but it's limited and we usually can be counted on to act in our own self-interest as we might understand it. You put those things together and you are going to be able to explain a lot of human social life in the 18th and 21st century. That's also going to explain why there will be quite a bit of overlap in moral codes that different communities will develop. Because it doesn't matter, whatever the geographical or climatological or other differences among communities, those things will be same for all of the humans in those communities. So there will be quite a bit of overlap. So, as a good bet, Smith would have argued, central aspects of our moral communities, like respecting the rules of justice--things like don't kill innocent people. Now we might disagree what counts as an innocent person. Central parts of our moral code like don't kill innocent people; don't steal from people unless you have special circumstances or cause--those things all communities are going to hit upon because you won't be able to have a community if people don't respect those rules with one another. That's not something Smith is going to deduce from first principles of reason. He's just looking at the kind of creatures we are and the kinds of rules that exist, and those sorts of rules are going to be fairly common. Throughout human history, even modern human history were we sometimes delude ourselves into thinking we've somehow advanced, with or without evolution we're somehow better than the people of the 1770s, say, there's racism, anti-Semitism. In the South in 1840, if you are a white person you earn the respect of your fellow planters by looking down on African slaves as subhuman. Similarly, in Germany and Poland of the 1930s, that's the way you might look at Jews. The other has somehow got a different set of rules. The other is I think in disrepute these days. It's socially unacceptable. Egalitarian right now, might change. Impartial spectator could lead to cruelty and abuse of folks who aren't like them--I don't know if they are people you are or aren't familiar with; I don't know how you would describe the relationship between a slave-owner and a slave. I don't know if that falls anywhere near the familiarity principle Smith was talking about. It's a real concern and an enduring part of human society. This goes back to this point we mentioned about Hayek and Smith. The way my friend, the economist Dave Rose puts it: We are a small-group species who are engaged in large-group interactions. That's one of the enduring problems of political philosophy. How do we put those two things together? Many of our instincts and impulses and our psychological instincts and impulses are to favor the people we know, the people in our group, and to disfavor and distrust the people outside that group; and that seems to be something that's very deep-seated in our psychological makeup, maybe part of an early part of our brains. That may be something that's enduring, something we just have to deal with; and it can lead to what we now or in an enlightened age think of as perversions of what we would like the impartial spectator actually to approve of. A simple way to say it is not all emergent orders are attractive. Having said that, one of the things that's remarkable about Smith: although he doesn't write that, to be fair to him, he's a remarkably unprejudiced person. He respected with extraordinary universality the dignity of individuals regardless of their national origins, which in his day was very rare. People would often put down a particular country's people as incapable or inadequate, people incapable of ruling their own lives. Right. And that was a justification brought forward for all kinds of imperialism. Near the beginning of the WN, Smith makes an extraordinary, nearly radical claim--we read it now and we don't think twice about it--but what he said was: The natural differences between the philosopher and the street porter aren't nearly as great as you might think. And much of it is owing to education and training more than anything natural. That would have been a shocking thing to say. In a society with as much class distinction as his, a radical statement. Distinctions that were perceived as being deeply natural and even intended by God; that these are clear categorical differences, for him to say that we are roughly the same by nature was really quite a claim to make. A very modern claim. So modern readers, the eye passes right over it. It's a difficult issue. I guess what I would say, bringing Smith's thought into the 21st century, the question would be: How do we deal with these divisions? What's the best way to deal with them? If it really is part and parcel of human nature that we divide the world into us-es and thems, and sometimes doing so can be beneficial--it can lead to competition that's friendly and good and all boats go up with the rising tide--other times it's not so beneficial and good and can lead in extreme circumstances to terrible behaviors: How do we address this? What's the best way to mitigate this and to steer more of the competitive behavior and the us-vs.-them into productive channels as opposed to unproductive channels? One way is to allow and even encourage more and more interaction on more and more levels with people who are different from us. That's what the commercial order does. It makes us all deeply dependent on one another. So, even if in your heart of hearts you really don't like people who have those views or beliefs or who look like that, you may come to see that you are actually dependent on them in certain ways. And they'll see the same about you. Now, will that get rid of animosities? No. We are fallen creatures, after all, and we are imperfect; and we shouldn't ever compare what we are proposing to perfection, because that's impossible. You have to think about what's the best among the actual alternatives. I think Smith today would say: Markets are imperfect; markets will always make mistakes and there will be these kinds of divisions. Rough dealing. But on the other hand, there are lots of incentives to mitigating and softening those edges and encouraging cooperation that is actually mutually beneficial, and discouraging interactions that are antagonistic or that are mutually disruptive.