Amartya Sen: The Economist Manifesto

This is by Amartya Sen (several additional ideas are developed in the full essay, e.g. Smith's belief "that there are good ethical and practical grounds for encouraging motives other than self-interest"):

The economist manifesto, by Amartya Sen, Commentary, New Statesman: The 18th-century philosopher Adam Smith wasn’t the free-market fundamentalist he is thought to have been. It’s time we realized the relevance of his ideas to today’s financial crisis.

The Theory of Moral Sentiments, Adam Smith's first book, was published in early 1759. Smith, then a young professor at the University of Glasgow, had some understandable anxiety about the public reception of the book, which was based on his quite progressive lectures. On 12 April, Smith heard from his friend David Hume in London about how the book was doing. If Smith was, Hume told him, prepared for "the worst", then he must now be given "the melancholy news" that unfortunately "the public seem disposed to applaud [your book] extremely". ... After its immediate success, Moral Sentiments went into something of an eclipse from the beginning of the 19th century... The neglect of Moral Sentiments, which lasted through the 19th and 20th centuries, has had ... rather unfortunate effects. ...

... The nature of the present economic crisis illustrates very clearly the need for departures from unmitigated and unrestrained self-seeking in order to have a decent society. Even John McCain ... complained constantly in his campaign speeches of "the greed of Wall Street". Smith had a diagnosis for this: he called such promoters of excessive risk in search of profits "prodigals and projectors" - which, by the way, is quite a good description of many of the entrepreneurs of credit swap insurances and sub-prime mortgages in the recent past.

The term "projector" is used by Smith not in the neutral sense of "one who forms a project", but in the pejorative sense, apparently common from 1616..., meaning, among other things, "a promoter of bubble companies; a speculator; a cheat". Indeed, Jonathan Swift's unflattering portrait of "projectors" in Gulliver's Travels, published in 1726 (50 years before The Wealth of Nations), corresponds closely to what Smith seems to have had in mind. Relying entirely on an unregulated market economy can result in a dire predicament in which, as Smith writes, "a great part of the capital of the country" is "kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it".

The spirited attempt to see Smith as an advocate of pure capitalism, with complete reliance on the market mechanism guided by pure profit motive, is altogether misconceived. ...

... One of the striking features of Smith's personality is his inclination to be as inclusive as possible, not only locally but also globally. He does acknowledge that we may have special obligations to our neighbors, but the reach of our concern must ultimately transcend that confinement. ... There is something quite remarkable in the ease with which Smith rides over barriers of class, gender, race and nationality to see human beings with a presumed equality of potential, and without any innate difference in talents and abilities.

He emphasized the class-related neglect of human talents through the lack of education and the unimaginative nature of the work that many members of the working classes are forced to do by economic circumstances. Class divisions, Smith argued, reflect this inequality of opportunity, rather than indicating differences of inborn talents and abilities. ...

The global reach of Smith's moral and political reasoning is quite a distinctive feature of his thought, but it is strongly supplemented by his belief that all human beings are born with similar potential and, most importantly for policymaking, that the inequalities in the world reflect socially generated, rather than natural, disparities.

There is a vision here that has a remarkably current ring. The continuing global relevance of Smith's ideas is quite astonishing, and it is a tribute to the power of his mind that this global vision is so forcefully presented by someone who, a quarter of a millennium ago, lived most of his life in considerable seclusion in a tiny coastal Scottish town. Smith's analyses and explorations are of critical importance for any society in the world in which issues of morals, politics and economics receive attention. The Theory of Moral Sentiments is a global manifesto of profound significance to the interdependent world in which we live.