Wednesday, June 21, 2017

Adam Smith and Spontaneous Order: Capitalism, Sympathy and Community

Spontaneous order is basically the idea that a system can order itself in a logical and agreeable way without any planning and work to implement a plan. It has been used to describe how capitalism should operate if left free from intervention. The spontaneous order of Smith's invisible hand does have an element of divine providence or guidance in it; it is not completely without planning or implementation. He writes in Theory of Moral Sentiments that, "The administration of the great system of the universe, however, the care of the universal happiness of all rational and sensible beings, is the business of God and not of man.” So to talk of the invisible hand and just distribution of wealth as being merely spontaneous order is not exactly accurate. But at the same time order in Smith’s economy does not come completely from some law of nature or divine providence. It comes mostly from the fact that he sees humans as moral creatures that have habits and somewhat predictable ways of thinking, acting and making decisions. Humans for him are sympathetic, communal and concerned with family by nature.

His first book was a book of moral philosophy. He was trained and worked as a moral philosopher and professor. (It is important to realize that at that time there was no such thing as economics as a separate field of study, not as we know it.) The idea of what a human is and how a human should act that he lays out in that book, The Theory of Moral Sentiments, is the individual economic actor that is operating in his more famous book The Wealth of Nations.

He starts Moral Sentiments by talking about sympathy:

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it."

This is a central part of human nature for Smith and is something that should be kept in mind when dealing with his economic thoughts and theories. Man is not an isolated individual that has no feeling or connection for the people around him. Smith’s economic actor, as a human being, is sympathetic by nature. The spontaneous order of a capitalistic society that is supposed to keep there from being extreme poverty and inequality comes about because people act in ways that take others into account by their very nature as human beings. The order that Smith saw was not the result of deliberate planning, but it was not by pure accident either. The order is a result of what the system is made up of. It is similar to how chemists can expect certain things to happen because they know the characteristics of the elements that make up the materials they are dealing with.

He may have been wrong about human nature being inherently sympathetic and concerned with family, community, etc. And, so far as that is not human nature, the invisible hand will not function as predicted and there will be no agreeable order that emerges from the uncoordinated individual actions of the many (unless God does so in his administration of the universe). In other words, if people are not sympathetic, the order that spontaneously arises from individual actions will not be one that is acceptable, desirable or logical.

I am skeptical of any set idea of human nature. I think for Smith to assume that “this sentiment [of sympathy], like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it,” is not realistic. This is not because I think humans are inherently bad, selfish or individualistic. I think humans have a capability to feel sympathy and to be affected by those around them and have feelings for those around them, but that is just a capability. That capability needs to be cultivated into a tendency to actually do so.

In so far as people do not grow up in an environment that nurtures that capability, they will not have that sentiment in reality. I think this is why capitalism’s invisible hand, and the spontaneous order that arises from a capitalistic system, work differently (or not work at all) depending on the culture, society or era they function in. I think this is also why Marxist communism, or any sort of communism or strong socialism, can easily fail. If the people are not of the right temperament and moral convictions, the theory will not work out in practice not matter what or how good the theory is. And the temperament of the people is a result not of nature but of culture and upbringing more than anything else.

Smith assumes that people will have sympathy and that they have a duty to work on “the care of his own happiness, of that of his family, his friends, his country.” If they do, his system will likely work quite well. Marx assumes many things as well, one of them being that people will not be ruled by laziness and, like Smith, narrow selfishness. The system needs a certain type of people to make it work.

Something that is related to the spontaneous order and invisible hand of Smith is his ideas of government intervention or participation in the economy. This is an area where there is a lot of misunderstanding and misrepresentation of Smith’s own writings and thoughts. He did not say that government participation in the economy was bad or should be completely ruled-out, just that it should be as minimal as necessary. I think that should obviously be read as meaning as minimal as necessary to make things work: most notably the invisible hand and an acceptable social and economic order. If they don't work because people are not living up to his standard of what a human is (by nature), then something should be done. When what comes about spontaneously is not see as an acceptable, desirable or logical order, then order may need to be planned and implemented. I am not sure that means that the government has to step in, but that is an option. If people do not have the sympathy and concern for family, community and nation that Smith saw as more or less natural, his system will not function as he predicted. What can the government do and what can others do?

One things is to widen the idea of self-interest back to something that Smith would recognize. Self-interest for conservative economists is not what it is for conservative ideologues or even the average person when they think about it in relation to economics. Milton Friedman wrote in his book Free To Choose that a:

"broad meaning… must be attached to the concept of 'self-interest.' Narrow preoccupation with the economic market has led to a narrow interpretation of self-interest as myopic selfishness, as exclusive concern with immediate material rewards. Economics has been berated for allegedly drawing far-reaching conclusions from a wholly unrealistic 'economic man' who is little more than a calculating machine, responding only to monetary stimuli. That is a great mistake. Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue."

If taken to heart, that would do a lot to change the way people act in the economy. How can the government help implement that way of thinking, or valuing? It has a role, but the society as a whole does as well. And the values that this change moves to are something far more in line with Smith than the values we have now.

There is an element of spontaneous order in Smith’s capitalism, but it comes as much from morality as chance (or even divine providence). This morality is centered around a human nature that is sympathetic and concerned with others. If human nature is not that way, then we can’t expect there to be an ordered outcome from capitalism. I am not convinced there is any set human nature at all, so I think we need to pay attention to the culture and temperament of people and try to align that with the economic system we want, and try to adjust that system to the people as well. Smith was never against government intervention; he just thought it was to be avoided when possible. If the system is not working, then something needs to be done to make it work, and that may necessitate government action. But I am not sure that should be our primary approach at this point; I think a first step in making capitalism more effective is to promote something Smith likely took for granted and that we have mostly forgotten: a broader and not exclusively monetary conception of self-interest.

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