We owe Adam Smith an apology

Today, June 5, we celebrate the 300th anniversary of the birth of the father of modern economics. The University of Glasgow professor Adam Smith is more associated with free markets and national wealth than moral values. His two seminal works, “The Theory of Moral Sentiments” (1759) and “The Wealth of Nations” (1776) appear to diverge in subject matter: morality versus self-interest. But a deeper reading reveals that the two works complement rather than contradict. Viewing Smith’s ideas through the narrow lens of modern economics as selfishness versus altruism not only oversimplifies his profound reflections but also diminishes his significance as a font for business ethics. In the 21st century, we need to move beyond the narrow perspectives into a holistic assessment of this quintessential moral philosopher of commercial society.

A common misunderstanding of Smith’s ideas lies in the narrow interpretation of “self-interest” as synonymous with profit. Smith did not advocate a single-minded pursuit of profit but rather believed that individuals, in pursuing their own self-interest, would unintentionally contribute to the greater social good of society. His “invisible hand” is the systemic unintended consequence of individual action, not as an external force, but as an inner morality within each person that aligns with their human nature.

It is crucial to recognize that his analogy of the “invisible hand,” which many economists simply identify as the invisible hand of the market, is actually not just outside of individuals but within them. Smith first used the term in his writing on astronomy to explain natural phenomena. In “The Theory of Moral Sentiments,” he employs this metaphor to describe the inner or impartial observer within each of us, guiding our moral sentiments. What is invisible is the outcome of one’s own inner nature manifested in outer self-order.

However, the concepts of the “invisible hand” and “self-interest” are nearly always generalized as “laissez-faire” beyond Smith’s original uses. This limited understanding of Smith’s economics arises from selectively focusing on specific lines from “The Wealth of Nations” and his singular reference to the invisible hand, without considering their broader context within Smith’s methodology and concerns. These isolated excerpts are then interpreted as justifying free markets and minimal government. Such simplification presents Smith as reducing all motivations to self-interest and regarding all self-interest as the vice of selfishness. Consequently, Smith is erroneously depicted as endorsing not just amoral economics but an anti-moral one, as if the selfish utility-maximizing concept of homo economicus prevalent in contemporary orthodox economic theory can fully explain human complexity.

Such current interpretations are misinterpretations of his noble work. By mistakenly equating self-interest with profit maximization and viewing the invisible hand as an external force, the economic system has become massively imbalanced, preventing individuals from maximizing their true self-interest and resulting in collective peril. Beyond a certain point, accumulating more profit or money does not enhance the quality of life. Instead, the relentless pursuit of accumulation often leads to misery.

Smith recognized this truth and understood that when one disregards the inner guidance of the impartial spectator or the invisible hand, they find themselves trapped in unhappiness and anxiety. Acting in accordance with propriety meant heeding one’s intuition. As Smith puts it in “The Theory of Moral Sentiments,” from the observation of this propriety arose the happiness and the glory, from the neglect of it, the misery and disgrace of human nature. We cannot maximize our happiness by just maximizing wealth, as high rates of anxiety and depression in rich societies plus growing social inequality and climate injustices testify. We need moral sentiments to bind humanity.

Thus, three centuries later, Smith’s writing, principles, and reasoning remain eternal. His ideas of the invisible hand and maximizing self-interest, when properly understood, offer valuable insights into the relationship between individuals and society. The true essence of Smith’s economic reasoning and the concept of the invisible hand is not about the pursuit of profit at all costs but rather about the importance of balancing self-interest with a wider perspective and recognizing the interdependence of individuals and society. These ideas are not conduits for individualistic greed, insatiable desires, or envy, but instead offer a way toward a more compassionate and informed society — something the world desperately needs.

—ASIA NEWS NETWORK

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Andrew Sheng is chairperson and Sneha Poddar is an associate research fellow at George Town Institute of Open and Advanced Studies.

The Philippine Daily Inquirer is a member of the Asia News Network, an alliance of 22 media titles in the region.