Views of Adam Smith Concerning Economics - Assignment Example

Adam smith is widely renowned as the father of modern economics and he was a philosopher of morality. Since his era, economics has been viewed to be more of a science. However, in the theory of economics critical ethical issues are always evident. The major question, though, has often been whether the entire society’s interest would be realised in the pursuit of personal greed. His reasoning was that if two individuals are totally informed about their decisions’ consequences and they opted to enter an exchange, then this exchange leaves them better off. Smith also invented the “invisible hand” metaphor saying that people are induced by markets to act for the good of all like they are in the guide of an authority that is higher. This study is aimed at analysing Adam smith’s views and will seek to comprehensively answer the questions, “What is Adam Smiths’ view of economics and morality? And how does this compare with modern economics?” (Costanza and International Society for Ecological Economics, 1997 pp 23, 24) The father of modern economics, Adam Smith, has made writings which are so impacting. His “invisible hand” arguments are applied today to define many types of phenomena, like degradation of the environment and the scientific progress. Mathematicians of the modern day study the aspect of “invisible hand” in the game theory. This is a class of mathematics dealing with strategies as well as payoffs. Smith was also known for his religious nature where he viewed his concept of the “invisible hand” as the way the universe is administered by God where people’s utility is maximised. Some structures have however, to be in place for this concept to efficiently function. For instance; moral norms have to be highly adhered to, rights to property have to be strong, and misrepresentation and theft have also to be prohibited for moral norms to be seen to be upheld. But according to him, despite the issue of theft being a vice, theft by a poor person from a rich individual leads to overall happiness. Smith viewed the universe to be working according to the following description; The presence of a deity that is benevolent and who governs the globe with an aim of maximising the happiness of humans, so as to achieve this he created people and put in the a nature that results to their acting in this way, the globe is perfect and there is equity in happiness to all, even if God created humans to be happy, they still believe that with more wealth they would be happier and lastly, that this belief is a nice thing since it ends up making people struggle for more wealth. Adam Smith also said that there is the necessity of moral norms to ensure that it works. For these to proceed in exchange, enforceability must be there for contracts, individuals have to have perfect information access about commodities and finally, there must be the holding of the rule of law. In the modern world the term “Invisible hand” is taken to imply a general thing. Through the process of the invisible hand, an outcome occurs in a way that is decentralised and where there is no prior agreement of the parties involved. Also, this process is not premeditated and therefore, does not happen intentionally. Parties have aims that are not coordinated and the invisible hand process can occur even without their knowledge (thus, the expression invisible). The invisible hand concept is usually assumed to apply in a free market setting. Consumers in this market as per the assumptions of Smith go for the lowest prices and the entrepreneurs’ aim is at maximising profits. The industry ensures that products maximising the consumer’s utility are produced to the market and thus increasing the well-being of individuals. (Joyce, 2001) According to Stapleford, Adam Smith wrote in the ‘Wealth of Nations’ book that every person seeks to always achieve the highest advantageous employment given any capital in his/her command. He/she has in mind his/her own advantage rather than that of the society, but in this pursuit naturally achieves the most advantageous society’s employment. He (Adam smith) argued that it is through the invisible hand that the person achieves the result. Therefore, through the pursuit of self interest the person promotes the society’s more effectively than the case would be if the person intended at promoting the society’s first. This Smith’s view serves in the initialising of two essential economic principles. Firstly, that there can be expectation that individuals will act based on their self- interest and secondly, that people in the process of pursuing self interest increase the society’s well-being. Here, Smith’s perspective was that people would invest their capital in a local industry rather than a foreign market. He also further says that he had not witnessed people succeeding in an aim of promoting the public well-being first. While commenting on ordinary commerce’s conduct, he argued that individuals carrying out similar trades rarely meet each other. However, the conversation results into a conspiracy negatively impacting the public. On the compensation of employees, his observation is that employers are always wanting, continually and in a uniform combination, to keep wages of work constant (that is not to go beyond the actual rate) Smith also noted that the manufacturers of Britain have often applied high duties to prevent the foreign commodities’ importation as well as to obtain an almost monopoly against their citizens. When the costs of a specific commodity increase, suppliers keep this a secret so that high profits do not trigger entry and lead to the fall of these prices below or equal to the natural price. (Stapleford, 2002 pp 31-33) Adam Smith, in his works, stressed upon the passions that make people moral, make people perfect and provide order. The fellow feeling together with approval or disapproval by spectators results people to forming ideas of human perfection and justice. According to him, as Elvey and others write, human perfection refers to doing things that are benevolent to other people, while justice implies not hurting the other individual. In the process, people, therefore, act in a manner that upholds these standards. To make this simpler to understand, it means that by a process that is sub-rationally sympathetic people are directed to social behaviour as opposed to anti-social behaviour, to behaviour that’s just as opposed to unjust, and to benevolent as opposed to selfish behaviour. Punishment is not justified by the failure to act in a benevolent manner. However, since there is failure to act in a justly manner, this can and must lead to punishment. Since unjust and anti-social behaviours happen from now and then, the actions must be punished. Resentment has a tendency of leading to punishment so as to achieve order. Smith’s views as concerns morality were controversial, though. These are as viewed from the book ‘Theory of Moral Sentiments’ and the ‘Wealth of Nations’. The ‘Theory of Moral Sentiments’ book is based upon benevolence and sympathy and the ‘Wealth of Nations’, on the other hand, is based self-love, self –interest, or egoism. There’s incompatibility in the arguments as brought across in the two books. This is shown by the two contradicting quotations from them. The argument of the ‘Theory of Moral Sentiments’ says that even if that man may be seen as selfish, there are natural principles in his interest that are aimed at benefiting other and bring their happiness of necessity to him, despite the fact that the only pleasure derived from this is the seeing of it. The ‘Wealth of nations’ contrasts the argument by the ‘Theory of Moral Sentiments’ where it is written that human expect their supper not from the butchers’ benevolence, or the brewers’ or even the bakers’ but from their upholding of self interest. In turn, humans address themselves to their love for self as opposed to their humanity and also never refer to their (Humans) necessities but humans’ advantages. (James Alvey and Jim Alvey, 2003 p 40, 41) Smith’s views were contributed to by studies of modern anthropology. He said that pacific manufacturing commercially doesn’t make any difference. He continued to argue that the WWI and WWII were conflicts between industrial societies. For most modern societies, the aspect of industrialisation increased the capacity to insert pain, rather than the doing away with the fighting incentive. Adam Smith had a message directed to global political economists of the coming era of manufacture. As per his suggestions the industrialised societies would have related to each other in a peaceful way if they had known how uneconomically aggressive the conflict would have turned out. He also realised Britain and France, in the year 1776, were biggest enemies to each other. The enemity as per his words would have emanated from the fact that they were moving from an agricultural stage to a manufacturing stage and would thus be faced with passions that were irrational. In both the dimensions the societal progress morally and socially would be the key. Adam smith had an aim of discovering the foundations, socially, of morality in individuals that are rational. Thus, armies and trade trigger societies from dependency upon services and a persistent scenario of global war to an apt thing, a society full of enjoyment of natural freedom as well as the expectations of peace. (Jones, 2001 p 1409) On the issue of morality, smith portrays in his works that absence of prejudice and realism are so important to him. His view on people is that they are not better than they are and he shows people is that humans act on purpose and decide for themselves. The book theory of Moral Sentiments, he writes that people are naturally created with the capacity to understand feelings and share with others. He also adds that humans were created with a capacity of empathy which he refers to as ‘sympathy.’ Therefore, in spite of man being perceived as selfish there are natural principles in which he/her is interested in and that are for the good of others despite not benefiting directly from this other than just watching others enjoy. Smith’s depiction is that all people aim at pleasing other people naturally. Nature taught man to derive pleasure from favourable acts and pain from acts that are not favourable. While pursuing this, humans make sure that they are judged positively. They do this while depending upon fictions better known to him as conscience Adam smith, in his authored works, is not so much interested in reason. He is rather interested in sentiments or feelings as what originates knowledge about morality. Through the subsequent reaction by other people, men can tell or recognise what is good as well as virtuous. This is by the reciprocity others give or deny. Due to this, humans are required to have the capacity of sympathy and imagination. People need to put themselves in other people’s shoes in this regard. Imagination sets in where one must imagine how the other person would view them but not by putting others in oneself position. The fact that ‘impartial spectators’ exist according to Smith, in collaboration with the sympathy derived from nature, helps the continual process of feedback between different persons and within the self (Between ‘egoism and ‘super egoism’). Moral views are thus generated from the process of feedback together with categorical imperatives besides other norms, which are of necessity to the society. Through the same process ambition is generated socially and supported as well. The differences in moral views, as per the arguments by Adam Smith, intensify based to proximity. Thus, the further away another person is from the rest psychologically or physically, the less they care for each other. The inborn self-interest makes people look after themselves first. (Horn, 2009) Adam smith is believed to have developed the concept of modern economics where he assumed that people are highly self-interested and later on working out the resulting case of the assumption in the economic view. In his works ‘the Nature and the causes of the wealth of nations’, he sacrificed three chapters for the purposes of the government and at the same time maintained the moralistic model. Since the time of Aristotle and Plato, Political Science as a subject was seen as just producing the policies that are morally correct. However, there was not a single formal theory on how government functions outside the ethical and moral foundations. From the 19th through the 20th century, the economists of then had an assumption that people are basically concerned with self-interest and also showed the consequences of the assumption. During the same time period political science had an assumption that actors of politics are solely concerned with issues of public interest. (Tullock, et al 2002 p 4) The point of view of Adam Smith psychologically in the Theory of Moral Sentiments highly resembles the ‘dual-process’. The frameworks of ‘dual–process’ were developed by several psychologists like 1996’s Sloman, 1992’s Epstein and Kirkpatrick among others. Most recently this has been upheld by modern behavioral economists as shown by detailed observations and data on behavioral by Bisin and Benhabib in 2004, Rangel and Bernheim also of 2004 besides others. This Adam smiths’ work also serves as a prelude to many insights like willpower, lost aversion and fairness concept. The insights of will power, loss aversion and fairness concept have been points of interest in modern behavioral economic. Under loss aversion, the works of Tversky and Kahneman which were carried out in 1979 portrayed the regularity while choosing and this has been labeled “loss aversion”. Adam Smith showed a lot of awareness when it comes to loss aversion, like a phenomenon of experiment: where Adam smith says that pain is present in all situations other than those of the correspondent and opposite pleasure. He also triggered attention of modern Economists towards opportunity costs’ under-weighing relatively to costs outlays from pocket. Smith also noted the breach of right of property through robbery and theft are big crimes more than breach of contract that lead to states of disappointed. The most recent research according to Ashraf and others has evidenced this as human behaviour supports the views. On the insight of fairness, despite Smith’s perspective on Altruism, his argument was that other motivation served in civilising such as fairness. To this, Smith said that naturally it is put in humans that terrors deserving punishment, ill-desert’s consciousness, are the big safe-guards of mankind’s association, to stop the violent, protect the weak and persecute the guilty. This was seen as the originator of the virtue of justice. Like the loss-aversion’s case, research that is most recent argues that inborn concerns for fairness go further from people to other primates. (Ashraf, et al, 2005) Despite the view that Adam Smith’s works still are of essence up to today, others may have a different argument. For instance, Brown writes that Adam Smith’s is a lost legacy. He says that most of today’s scholarly economists would just not go by Smiths works. As a matter of fact they would only dismiss him as a ‘literally economists’ this is due to scenarios like where arguments by smith are only applicable in the 18th century such as in the ‘Wealth of Nations book.’ As per the 18th century standards he had much to offer scientifically as well as practically. However, the natural order interventions have been overlapped by modern approaches that change the whole environment. (Brown 2008 p 216) A philosophical analysis carried out on smith’s works concludes that he was more of a ‘moral egalitarian’ as opposed to other views. He depicted that people are of moral worth that is equal. This egalitarian decision is based on four of his authored works in the wealth of Nations and the Theory of Moral Sentiments. One of them is the theorem of the ‘invisible hand’ the other one is his discussions on justice, the third is the endorsement of the differences between wealth and rank as being useful and natural. The last one is where he says that he would wish to trade order and peace of society for inequality. These mentioned works are the reasons for the moral approval by Smiths of Leissez faire way of economy. His way of coming up with moral judgments result to a society’s normative theory where people ascribe to predicating good to a specific state of society and this provides humans with a principle of grading of justice. This allows them to conclude that an outcome is apt than another, through this Smith is so close to the modern notion of ‘equal opportunity for welfare’ (Braham, 2006) Therefore, as one concludes based on the findings one can see the views of Adam Smith concerning economics and Morality as well as how the two relate with each other. Also, the views of Smith are seen to be opposed and supported as well by the modern economists. This is while trying to answer the study questions, “What is Adam Smiths’ view of economics and morality? And how does this compare with modern economics?” Reference list: Alvey, James E. and Alvey, Jim. (2003). Adam Smith, Optimist Or Pessimist?: A New Problem Concerning The Teleological Basis Of Commercial Society. Ashgate Publishing, Ltd. Edition: illustrated. pp 40, 41. Ashraf, et al. (2005). Adam Smith, Behavioral Economist. Retrieved May 11, 2009 http://74.125.95.132/search?q=cache:gX_q7gV1EQIJ:sds.hss.cmu.edu/media/pdf s/loewenstein/AdamSmith.pdf+adam+smith%27s+views+on+economics+and+m orality+and+how+they+contrast+with+modern+economics&cd=84&hl=en&ct=cl nk&gl=ke Braham, Matthew. (2006). Adam Smith’s Concept of Social Justice. Retrieved May 11, 2009 http://74.125.95.132/search?q=cache:jkz3lPBL5YsJ:www.capabilityapproach.co m/pubs/6_3_Braham.pdf+adam+smith%27s+view+on+economics+and+morality +in+contrast+with+modern+economics&cd=60&hl=en&ct=clnk&gl=ke Brown, Vivienne. (2008). Adam Smith Review Volume III. Routledge. p 216. Costanza, Robert and International Society for Ecological Economics. (1997). An Introduction To Ecological Economics. CRC Press, Edition: illustrated. pp 23, 24. Horn, Karen. (2009). Why Adam Smith Still Matters. Retrieved May 11, 2009 http://www.standpointmag.co.uk/node/1069/full Jones, R. J. Barry. (2001). Routledge Encyclopedia Of International Political Economy: Entries P-Z. Taylor & Francis. Edition: illustrated. p 1409. Joyce Helen. (2001). Adam Smith and the Invisible Hand. Retrieved May 11, 2009 http://plus.maths.org/issue14/features/smith/ Stapleford, John E. (2002). Bulls, Bears & Golden Calves: Applying Christian Ethics in Economics. InterVarsity Press, Edition: illustrated. pp 31-33. Tullock, Gordon, et al. (2002). Government Failure: A Primer In Public Choice. Cato Institute.Edition: 2. p 4. Read More