Introduction

Adam Smith, as the founder of a new science, has received a lot of harsh criticism but an even greater number of fervent supporters. Much has been attributed to his book “The Wealth of Nations” from the slaughter of the Jews, government backed wars, to cancer and natural disasters. In most of these cases Adam Smith has been misrepresented. Many people claim that Adam Smith is a proponent of greedy, all or nothing, crony capitalism. He was a proponent of free markets and free people but was never a supporter of crony capitalism. Crony capitalism is an environment which allows business to succeed, not for the risks they take, but rather from the political favors granted to the business class. That stands in contrast to how his harshest critics describe him. Indeed, Smith’s core moral philosophy was the following: By chasing happiness and peace of mind individuals seek wealth in a moral framework of trust, empathy, and social outcome.

Peace of Mind is happiness

The biggest moral foundation of capitalism from Saving Adam Smith was that wealth is not happiness, but peace of mind is happiness. Yet, not all agree with this theory as shown by Carol saying, “I didn’t think capitalism had a moral element… listen how they (businesses) scream if you ask them to give up some of their gains when things go right!”1 Adam Smith admitted that by saying “people would try to abuse the market system for their personal gain”1 but he tempers this by saying “economic freedom cannot well survive without morals, especially at the top.”1 Adam Smith recognized that greed and the desire for personal wealth may over power our natural instincts to treat each other well. But, he also described checks and balances on the greed problem, namely, moral checks and balances. These moral checks and balances include seeking peace of mind, the desire for positive self-image, social acceptance,

Adam Smith thinks that only a fool would pursue profits and wealth over peace of mind. We see this clearly in his ‘Parable of the Poor Man’s Son’ which says that there is a poor man who has a lot of ambition. He begins to look around the world and finds that his current situation isn’t to his liking. He decides to attempt to get great wealth for himself too. As he goes on his quest for greater wealth he begins to wear down his body, falsely flatter people he despises, and fills his mind with painful memories of his quest. Upon reaching his goal he realizes that wealth and goods provide no real utility expect to the body. However, those riches cannot soothe his mind. He has wasted his time and his body in pursuit of something, ultimately, meaningless. As Smith says, “The stumbling block to happiness lay in his mind, not in his luxuries.”2

But wealth can make people better off

Indeed, Smith realized that wealth is not the end all goal. But saw enough to recognize that some wealth can make a person better off. He realized that abject poverty and starvation is not the best environment to obtain happiness. However, he notes that wealth doesn’t always benefit us as greatly as we think it will. That theory is further backed up by modern studies. One study showed that around $75,000 is the best yearly income to improve your daily satisfaction, “As people earn more money, their day-to-day happiness rises. Until you hit $75,000. After that, it is just more stuff, with no gain in happiness.”3 However, giving people more money does make their overall life satisfaction rise as people “who earned $160,000 a year, for instance, reported more overall satisfaction than people earning $120,000, and so on.”3 Smith was right that your daily happiness is only improved so much. But he under estimated how wealth can transform your life satisfaction. While peace of mind may reside in peace of mind, overall life satisfaction seems to be tied, in part, to wealth.

Smith and Trust

Smith, as quoted above, said that people might abuse the system for their own personal gain – but that flies in the face of trying to maintain their peace of mind and overall happiness. According to Smith one of the moral foundations that keeps the market system afloat is trust. Otherwise, regulation and the costs of monitoring transactions would become so massive, no trade would occur. And one of the naturally occurring constraints on untrustworthy actions is “self-image.”4 According to Adam Smith if a person could scam people out of money they would not because “To do so might make him lose something he cherishes most of all, namely, his own self-image.”4 But he recognizes that enough fools exist that it might not be the only check on scam and deceitful transactions – government needs to play a role. Ultimately, trust is a facet of how much people’s reputation is on the line. The more skin they have in the game, they less likely they are to commit fraud and scams.

Humans can feel each other

Another check on rampant greed, scams, and frauds is an ability that is unique to humans, the ability for empathy. Empathy is the greatest key to peace of mind and the foundation of all moral conduct. But lets first focus on empathy being a key to peace of mind.

First, empathy is the key to peace of mind, it the ability to feel another person’s emotions. One of empathy’s unique features is that it allows us to be social creatures because we seek acceptance. And the desire for acceptance and approval is a deciding force on our actions. As we internally judge our actions with how they align with our group’s motives, rules, and expectations we slowly tune our innate empathy towards an acceptable social outcome, giving utility to either individuals or society. And by aligning our actions with the current acceptable moral system individuals gain acceptance from the group and increase our peace of mind. Smith states, “(humans) appear to derive a beauty from this utility (promoting a socially acceptable outcome).”5 And in promoting socially acceptable outcomes, like being productive members of society, individuals benefit others through their efforts to obtain peace of mind. But empathy allows us to do far more than obtain happiness and be productive members of society, it allows us to judge ourselves.

Second, empathy allows us to make decisions and judge ourselves based on how they impact someone else. If the resulting reaction of our peers is positive, then we might continue that action in the future. But if it’s negative, we might reconsider our actions. That is the underlying check in the free market system. Combined with the desire for happiness and peace of mind we seek to reduce harm to our “self-image” to increase our happiness. And by promoting a positive “self-image” with empathy underlying individuals’ moral code, they are less likely to seek profits over people. That, to Adam Smith, is the moral foundation of capitalism.

Conclusion

The moral foundation of capitalism is built upon a few things, but namely empathy. But empathy alone is not enough foundation to build a free market economy on, the moral foundation needs self-interest, trust, and positive social outcome. Self-interest allows people to seek happiness and wealth. But empathy provides a check on greed, scams, and frauds by making individuals desire not only wealth, but peace of mind. And any reasonable person won’t damage their peace of mind by scamming people because they can feel how their actions impact others. Trust, then, is a by-product of humans pursuing happiness. In addition, happiness is not fully acquired from wealth only, it’s acquired from peace of mind. And since wealth has diminishing marginal utility then ultimately happiness must come from something other than wealth. Happiness comes from peace of mind which is a function of minor wealth, empathy, social acceptance, and trust. Finally, by chasing happiness individuals seek wealth and productivity in a moral framework of trust, empathy, and social outcome. Seeking excess wealth will never lead to peace of mind, only regrets. Thus, Adam Smith has created the foundations for capitalism based upon human desires or self-interest with checks and balances provided by empathy, trust, social outcome, and a desire for peace of mind.

Works cited:

1 Wight, Jonathan B., and Jonathan B. Wight. "Chapter 5." In Saving Adam Smith: A Tale of

Wealth, Transformation, and Virtue, 53. Upper Saddle River, NJ: Prentice Hall, 2002.

2 Wight, Jonathan B., and Jonathan B. Wight. "Chapter 9." In Saving Adam Smith: A Tale of

Wealth, Transformation, and Virtue, 91. Upper Saddle River, NJ: Prentice Hall, 2002.

3 Frank, Robert. "The Perfect Salary for Happiness: $75,000." The Wall Street Journal. September 07, 2010. Accessed May 05, 2018. https://blogs.wsj.com/wealth/2010/09/07/the-perfect-salary-for-happiness-75000-a-year/.

4 Wight, Jonathan B., and Jonathan B. Wight. "Chapter 22." In Saving Adam Smith: A Tale of

Wealth, Transformation, and Virtue, 225. Upper Saddle River, NJ: Prentice Hall, 2002.

5 Smith, Adam. The Theory of Moral Sentiments. New Rochelle, NY: Arlington House, 1969.