Adam Smith and the Limits of Government

This post is written by Candice DiLavore, a Values & Capitalism intern and graduate of Liberty University.

Adam Smith’s “The Wealth of Nations” is a foundational text for free market economics. His lesser known work, “The Theory of Moral Sentiments,” addresses a more personal sphere—it looks at the way people view each other and how they interact with each other. In his new book, “How Adam Smith Can Change Your Life,” Russ Roberts—a research fellow at Stanford University’s Hoover Institution—journeys through this lesser known work and discovers that, although Smith suggests that people are fundamentally self-interested, they are not fundamentally selfish.

Specialization is the cause and effect of prosperity, and trading is the way to maintain specialization. This “self-interest” typically leads to benefits for others (wealth, job creation, consumer goods, etc.). Smith was interested in how people actually behave, not how he wanted them to behave.

There is danger, Smith believed, in thinking that government leaders are capable of helping people figure out the best use for their skills. They are not omniscient and can steer people and their specializations in a direction that would not benefit society as a whole.

In “The Theory of Moral Sentiments,” Smith expressed great distain for what he called the man of system. This figure is a leader who is convinced that his way is the best way and society would be ideal if only his ideology was universally adopted. This man of system fails to acknowledge that there are natural forces at work in opposition to his plan that will likely lead to unintended consequences. Smith uses the example of a chessboard when describing the man of system:

He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and society must be at all times in the highest degree of disorder.

Legislation that tries to impose its will on the chess pieces—or human actors—will struggle to find success because, in its quest for utopia, it ignores the natural desires of those it is trying to regulate. Therefore, legislation has the potential to suffocate self-interest and unintentionally destroy the benefits self-interest creates for society. This means that more often than not, policy makers can make the world a better place by leaving it alone.

“Politics is not where life happens.”

“The Theory of Moral Sentiments” is a reminder that the greatest sphere of influence a person can impact is their personal sphere. The actions and attitudes a person brings to their personal sphere have a bigger impact on society than the political movements they engage in. Smith writes at length about virtue and striving for loveliness. Those are not things that can be legislated, but rather adopted voluntarily—which can cause a ripple effect. Roberts, in line with Smith’s work, highlights that “politics is not where life happens” (216). The affect the State has on the lives of its citizens is small—or at least should be—compared to the affect the citizens have on the lives of each other.

  • Dave C

    Very interesting that, we have all become the ‘man of system’ more than we realise because we describe ourselves as ‘capitalists’. Marx loved systems-thinking and coined the term capitalism, as the alternative ‘system’ to the socialist ‘system’. That is, by describing ourselves as ‘capitalists’ we are saying we operate within a system. Smith himself never used the term capitalist (according to Amartya Sen, Economics Nobel Laureate) but instead chose the term ‘market commerce’ – which denoted a market made up of trade-offs rather than a parsimonious ‘system’ such as capitalism. This has lots of implications: once you think you are stuck in a system…the moral obligation is that of the systems, not the individuals! Thanks for a great review,

  • Aleteia

    We live in ontologically organized systems, acknowledging it or not. Systems are dynamic and one gets stuck in a system only if that doesn’t function properly. Socialism is an example of a closed system, the bottom-up circulation of information and exchanges don’t function and that’s why it starts to work dysfunctional until collapses. It is like a body with no feed-back system.

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