Self-interest, Sympathy and the Invisible Hand: From Adam Smith to Market Liberalism

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Adam Smith rejected Mandeville’s invisible-hand doctrine of ‘private vices, publick benefits’. In The Theory of Moral Sentiments his model of the ‘impartial spectator’ is driven by not by sympathy for other people, but by their approbation. Approbation needs to be authenticated, and in Smith’s model authentication relies on innate virtue, which is unrealistic. An alternative model of ‘regard’ is applied, which makes use of signalling and is more pragmatic. Modern versions of the invisible hand in rational choice theory and neo-liberalism are shown to be radical departures from the ethical legacy of Enlightenment and utilitarian economics, and are inconsistent with Adam Smith’s own position.

Posted for comments on 6 Sep 2012, 10:55 am.

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  • This article constitutes an interesting, important and timely contribution to our understanding of how economists interpreted the market mechanism since Adam Smith. There are nevertheless several parts of the article where the interpretation of Adam Smith provided is unclear. I will focus on those parts in this comment, and not on the many other aspects of the article which I found clear and very helpful.

    The author starts the article by saying, quite correctly, that “Adam Smith rejected Mandeville’s invisible-hand doctrine of ‘private vices, publick benefits’”. In fact there are few moments in the TMS where Smith makes such a harsh critique as in the critique of Mandeville we find the TMS. However, the author continues and writes:

    “In The Theory of Moral Sentiments his model of the ‘impartial spectator’ is driven by not by sympathy for other people, but by their approbation. Approbation needs to be authenticated, and in Smith’s model authentication relies on innate virtue, which is unrealistic. An alternative model of ‘regard’ is applied, which makes use of signalling and is more pragmatic. Modern versions of the invisible hand in rational choice theory and neo-liberalism are shown to be radical departures from the ethical legacy of Enlightenment and utilitarian economics, and are inconsistent with Adam Smith’s own position.”

    Rational choice theory and neo-liberalism are indeed radical departures from the ethical legacy of Enlightenment and utilitarian economics, and are certainly inconsistent with Adam Smith’s own position. But to say that Smith’s model of the “impartial spectator” is driven by approbation, rather than by sympathy, is misleading because for Smith sympathy is the basis for other moral sentiments, including approbation. Sympathy, for Smith, seems to be not just a benevolent feeling towards others, but rather the ability to place ourselves in the situation of other people (it seems to include, or maybe even consist in, what we today call “empathy”). For Smith, when we observe the action of another person, there are three aspects to take into account: what we feel by imaging ourselves in the situation of the other person, the feeling that the other person appears to be experiencing, and a third feeling that emerges from the consonance or dissonance between the two previous feelings. Smith stresses how approbation depends upon the coincidence between the two previous feelings that generates this third feeling, and notes how approbation depends upon a “sympathy or correspondence” of feelings (see, for example, Part I, Chapter 3, of TMS). Thus, to present the argument of this article in terms of an opposition between sympathy and approbation is misleading, since for Smith the latter presupposes the former.

    This opposition that the author establishes between sympathy and approbation seems to spring from the fact that the author does not see Smith’s notion of sympathy as being the ability to place ourselves in the situation of other people. Thus the author writes:

    “I argue here that what matters in Smith’s conception of sympathy is not our sympathy for others. Rather, it is the sympathy of others for ourselves. This motivation reconciles selfishness and sympathy and is altogether more credible.”

    However, if sympathy is also a cognitive capability essential to understand the situation of other people, clearly both our sympathy for others, and the sympathy of others for ourselves, is essential. When both exist we have what Smith calls “mutual sympathy”. But the starting point of Smith’s analysis is our sympathy for others, since when starting his discussion Smith is obviously starting his study from his own cognitive framework, as any philosopher does, rather than from someone else’s. The author seems again to be taking sympathy to be a feeling of benevolence towards others, rather than the ability to put ourselves in the situation of another person. Indeed, this is confirmed when the author writes:

    “Smith opens his first book, The Theory of Moral Sentiments, by invoking our capacity for ‘sympathy’: ‘How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others.’ In this passage, ‘sympathy’ is independent of, and as real, as selfishness. These generous opening words impart a benign aura to the book. But the claim is a little puzzling. How soever attractive such innate benevolence might be, it is not entirely credible as a prime motivator.”

    Here the author is clearly equating sympathy with benevolence, which is a misunderstanding of Smith’s position on sympathy as the ability to place ourselves in the situation of other people. In fact, the point that the author is making on benevolence is clear enough for Smith, who writes:

    “Benevolence may, perhaps, be the sole principle of action in the Deity, and there are several, not improbable, arguments which tend to persuade us that it is so. It is not easy to conceive what other motive an independent and all-perfect Being, who stands in need of nothing external, and whose happiness is complete in himself, can act from. But whatever may be the case with the Deity, so imperfect a creature as man, the support of whose existence requires so many things external to him, must often act from many other motives. The condition of human nature were peculiarly hard, if those affections, which, by the very nature of our being, ought frequently to influence our conduct, could upon no occasion appear virtuous, or deserve esteem and commendation from any body.” (Smith 2002: 360)

    Here Smith is criticising the Cambridge Platonists, who (like Hutcheson later) focused on benevolence, while Smith focuses on propriety of action, when providing a moral theory. Smith is clearly aware of the point made by the author in the article. In fact, for Smith the key virtue for the existence of society was justice, not benevolence. Thus Smith writes:

    “Beneficence […] is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficience; but the prevalence of injustice must utterly destroy it… [Beneficence] is the ornament which embellishes, not the foundation which supports the building, and which is, therefore, sufficient to recommend, but by no means necessary to impose. Justice, on the contrary, is the main pillar that upholds the whole edifice.” (Smith 2002: 101)

    Thus, Smith agrees with the point made by the author. But he does not equate benevolence with sympathy, like the author does. This identification between the two is again clear when the author writes:

    “The primacy of sympathy is more believable, however, if what really matters is not our sympathy for others, but the sympathy of others for ourselves: ‘nothing pleases us more than to observe in other men a fellow-feeling with all the emotions of our own breast.’ Note that ‘nothing pleases us more’. The motivational primacy of other people’s sympathy is meant here literally.”

    However, when Smith writes “fellow-feeling” he means again the coincidence of feelings that presupposes sympathy, understood not as benevolence, but as the ability to feel what the other person is feeling.

    Also, I could not understand why the following quote from Smith is meant to illustrate the point that the author makes before writing it:

    “What are the advantages which we propose by that great purpose of human life which we call bettering our condition? To be observed, to be attended to, to be taken notice of with sympathy, complacency, and approbation, are all the advantages which we can propose to derive from it. It is the vanity, not the ease, or the pleasure, which interests us.”

    The author also writes:

    “For Smith, ethical obligation does not mean self-denial: it is grounded in the
    pursuit of personal benefit, in ‘reflected self-interest.’ Ethical norms have consequently evolved as part of human nature. This is also consistent with recent experimental findings, which have a shown that the commitment to fairness is widespread, but falls short of being universal. For Smith, sympathy is an objective of self-interest.”

    I cannot see why this is the case, and certainly this would have to be further explained. Compare for example with Amartya Sen (1987), who reaches the opposite conclusion based on Smith (through Sen’s notion of “commitment”).

    The author also writes:

    “How to square the doctrines of laisser-faire and ‘natural liberty’ with those of moral obligation that seem to coexist in Smith, and even more so, how to square the difference between Smith and Mandeville? My response is that much of the time we do not have to choose. The invisible hand applies where markets are impersonal and competitive, and where they trade in uniform commodities. In contrast, the impartial spectator’s ethical norms apply whenever exchange is mediated by personal relations. Approbation may be valued highly, but impersonal markets cannot supply it.”

    The author seems to establish here a dichotomy between the cases where the invisible hand applies, and the cases where it doesn’t. But the issue would, at best, be a matter of degree, since for Smith no market can be totally impersonal, there must always be some degree of trust. The author indeed notes this when writing in the next page:

    “In advanced societies, people have deliberately avoided impersonal markets for most of their satisfactions. Even within markets, a good deal of exchange involves interpersonal interaction, e.g. in marketing, hospitality, and personal services. The share of services has come to dominate output in western developed societies, and services typically require interpersonal interactions and trust. Teachers, doctors, lawyers, waiters, hairdressers, salespeople and financial managers too, all owe the client a duty of care. Hence, both Mandeville and Smith can be right at the same time, in different sectors and activities. The challenge for policy is not to get the invisible hand to displace the impartial spectator, or vice versa, but to identify the appropriate sphere and scope for each. As the relative share of commodity production declines in advanced societies the impartial spectator’s duty of care only gains in importance.”

    I also believe that the author should be more careful when referring to the invisible hand, since whenever Smith mentions it, it seems to be something that prevents a tendency or mechanism from manifesting itself, rather than the natural and automatic unfolding of a mechanism, as it is usually interpreted. This is of course a controversial topic, but it is central to the article. In TMS, Smith notes how the limits of the stomach prevent the landlord from eating too much, and thus it is as if an invisible hand leads him to distribute food to those who work for him. Smith also notes in WN how the pursuit of security prevents the businessman from supporting foreign industry instead of domestic industry, and then notes that it is as if an invisible hand leads them to such an outcome. These are cases where something prevents a given tendency or mechanism from manifesting itself, rather than being an automatic mechanism as it is usually interpreted.

    Even Smith’s reference to the invisible hand of Jupiter in the History of Astronomy must be interpreted in light of Smith’s admiration for Newton’s conception of the natural sciences, but taking into account how Newton was interpreted in the Scottish Enlightenment, which is different from the way in which Newton was interpreted in the European continent. Newtonianism was interpreted in the European continent in Cartesian terms, leading to a distortion of Newton’s conception which made it conform to the Cartesian and Leibnizian approach. But while Leibniz did see the Universe as an automatic machine, for Newton Nature and the Universe are always open to the providential intervention of God.

    The Scottish Enlightenment, of which Smith was a part, did understand Newton more correctly than in the distorted way in which Newton was received in the European continent. And thus even in the History of Astronomy the intervention of a divine “invisible hand” would thus refer again to an intervention that interferes with an underlying tendency or mechanism, rather than being the mechanism itself. The invisible hand of Jupiter is an irregularity that interferes with the regular functioning of Nature, rather than being the regular functioning of Nature. The author seems however to be interpreting Newton following the dominant interpretation that emerged in the European continent. Thus the author writes:

    “Smith’s ‘System of Natural Liberty’ is appropriate to competitive markets, which can discipline market traders. Analytically, however, invisible hand statements take the form of causal propositions: action A leads to result B – they imply a mechanism at work. But Smith did not try to show how it worked, except, as above, by anecdote, example, or assertion. The invisible hand itself is alchemy–a felicitous phrase but without any Newtonian clockwork behind it.”

    But Newton himself would not subscribe to the clockwork metaphor, as Leibniz and many continental philosophers, scientists and mathematicians would. The Universe, and Nature, are like a mechanical clock for Descartes and Leibniz, but not for Newton.

    Of course, this is an issue that is still open to discussion, and I do not wish to impose my own perspective of Newton and Smith on the author. I do however think that the author should at least point out the existence of these problems to address, especially because his article intends to go against the conventional interpretation of Smith, including the notion of the invisible hand.

    The point of this article is to highlight the role that Smith’s notion of approbation can play in our understanding of the economy, while going beyond the usual interpretation of Smith, and of his conception of human action and of the invisible hand. I think this is a very important project. But I think that in order to succeed in such a project, the author must provide a clearer explanation of Smith’s notion of sympathy, which is the central notion of the TMS, and is essential to understand approbation too. By opposing approbation and sympathy, as the author does, it becomes very difficult to sustain the main claim of the article, since approbation is being separated from the notion that grounds it, and indeed grounds Smith’s whole moral theory: sympathy.

    Finally, the author must put page numbers in the citations made in the paper, and number the pages of the article.


    Sen, A. (1987), On Ethics and Economics, Oxford and New York, Basil Blackwell.

    Smith, A. (2002), Theory of Moral Sentiments, Cambridge, Cambridge University Press (edited by Knud Haakonssen)

  • Stuart Holland says:

    Avner Offer has made lifetime contributions to challenging market myths. His critiques of rational choice theory have been devastating. With others from Macfie through to Rothschild and Sen, he has recovered the Adam Smith of Moral Sentiments. In his 1997 paper Between the gift and the market: the economy of regard, if without reference to Titmuss, he enhanced what Titmuss earlier had evidenced as the ‘gift relationship’. In his more recent paper A warrant for pain he has demonstrated that Titmuss’ warnings that markets in health would be both socially exclusive and more costly than universal provision have been thoroughly justified.

    Avner also has submitted that what he deems as ‘regard’ provides a powerful incentive for trust, and recognises, as did Adam Smith, that trust is efficient. It reduces the ‘transaction costs’ of monitoring, surveillance and enforcing compliance. This, again, is highly relevant to the limits of alleged New Public Management, whether in health or education. Such as the misrepresentation of Hume by Julian Legrand, who took one sentence from a paper by Hume, and chose to claim that the Thatcher government:

    ‘took to heart David Hume’s dictum that social and economic organisations ought to be organised on the assumption that everyone who worked within them was a ‘knave’: that is, out to pursue their own self-interest above all else’ (Legrand, 1997a, p 337).

    LeGrand then presumed to endorse this in a paper on ‘Knights, knaves or pawns: human behaviour and social policy’, which was published the same year in The Journal of Social Policy (Legrand, 1997b), asking:

    ‘Wasn’t the reality of the old welfare state one of professionals and other workers more concerned with their own needs than those of their clients? And, if so, isn’t a quasi-market a good way to channel that self-interest and make it work towards the public good?’ (Legrand, ibid, p. 338).

    But what LeGrand claims was such a reality was what he presumed it to be, displacing Hume’s 1739 warnings that what we ‘deem to be realities’ is influenced by our personal and professional dispositions. What he then referred to in claiming Hume in support of his own view was not Hume’s main writings on human understanding (Hume, 1740, 1751), but an essay on the British parliament of his time (Hume, 1753). In it, ‘knights of the shires’ could well be deemed knaves on a range of grounds including being elected in rotten boroughs with next to no constituents, restricting the vote only a twentieth of the male population, opposing any electoral reform, and acting exclusively in their self-interest as landowners by maintaining the Corn Laws against whose protection David Ricardo in the early 19th century was to inveigh.

    LeGrand thereby displaced Hume’s central claim that it was people’s values, beliefs and disposition to ‘benevolence’ that enabled the well functioning of a society rather than Hobbes’ selfish hypothesis. Yet he also did not delve deep since Hume in the second paragraph of the first page of his essay, having commented in the first that there were self-interested knights and knaves in parliament then immediately remarked that:

    ‘It is, therefore, a just political maxim, that every man must be supposed a knave: Though at the same time, it appears somewhat strange, that a maxim should be true in politics, which is false in fact’.

    This is not easy to miss if one has enough scholarship to read two pages rather than cite only one part of one page of a paper by Hume out of context. It is in the second paragraph of the first page that Hume immediately qualified it. But this is more than a footnote in intellectual history, LeGrand for several years was a member of the advisory team to Tony Blair on health sector reforms in the British Cabinet Office, and centrally influential in introducing dysfunctional ‘quasi-markets’ into the NHS. Insistence on such market criteria not only alienated health professionals at all levels from consultants to nurses to ancillary staff. The need to monitor them by new levels of supervisory management then nearly trebled administrative costs as a share of total costs (Pollock, 2004; Leys & Player, 2011).

    Avner also has illustrated that regard for others typically is not for a market transaction. There is widespread reluctance to use money as a gift. Some goods are devalued if paid for in cash. Regard promotes sociability, and sociability facilitates cooperation. He has forcefully argued that this answers one of the alleged dilemmas of game theory in economics. It breaks the deadlock of the prisoner’s dilemma with a norm of first-mover cooperation since face-to-face interaction, even very brief, tends to incline participants towards more cooperative strategies.

    As he also has stressed, this not only is not admitted by game theory in economics which took off when the US military funded universities to research it through the RAND Corporation. It is denied by it, since the premise of game theory was that an adversary would not cooperate. He also has demonstrated that key dimensions of the gift relationship, as in charitable giving, are readily enough measured even if not normally recognised as such.

    With very high regard for Avner, I therefore have misgivings in differing from him on his central claims in this recent paper on Self-interest, Sympathy and the Invisible Hand and in doing so would not wish to devalue the major contributions that he has made to human understanding in his other work. Yet his paper may inhibit rather than enhance understanding of Adam Smith and may displace the later Wittgenstein’s stress on the importance of understanding meanings in context.

    Avner puts his case in terms of the question whether Smith’s notion of the invisible hand can be reconciled with his ethical ‘motive’ of sympathy and posits that what matters in Smith’s conception of sympathy in the Theory of Moral Sentiments ‘is not our sympathy for others rather than sympathy of others for ourselves’, claiming also that; “This motivation reconciles selfishness and sympathy and is altogether more credible”.

    But this is open to question on several grounds, some of which I share with Nuno Martins in his own comment on Avner’s paper. The first is that, unlike the once and only passing reference to an invisible hand some four hundred pages into The Wealth of Nations, in a parenthesis within a paragraph of a chapter in which he allowed a preference for domestic rather than foreign manufactures (Smith, 1776, IV), The Theory of Moral Sentiments is explicitly premised, even in the titles of its first two chapters on sympathy, i.e. Of Sympathy and Of the Pleasure of Mutual Sympathy. Smith’s opening line is:

    ‘How selfish so ever 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 but the pleasure of seeing it’ (Smith, 1759, Part 1, Section I, p. 3)

    It therefore is difficult to accept Avner’s claim that what matters in Smith’s conception of sympathy in the Theory of Moral Sentiments is sympathy of others for us rather than our own disposition to sympathy, or empathy, towards others. It also is notable that, in the title and substance of the second chapter of The Theory of Moral Sentiments, Smith accents pleasure rather than either ‘motivation’, which Avner suggests, or a moral principle. This is consistent with Smith’s claim that moral principles cannot be derived from reason, rather than that:

    ‘It is by finding, in a vast variety of instances, that one tenor of conduct constantly pleases in a certain manner, and that another constantly displeases the mind, that we form the general rules of morality’ (Smith, 1759, p, 470).

    There remains an issue on whether Smith’s stress on sympathy in his Moral Sentiments is compatible with his claim in The Wealth of Nations that brewers bakers and butchers are in business, not benevolence (Smith, 1776). Yet this also needs understanding in context. In his Moral Sentiments, Smith had claimed that a ‘disposition to admire the rich and the great, and to despise or neglect persons of poor and mean condition’ (Smith, ibid, p. 84), was both a denial of benevolence, and a corruption of moral sentiments. There also is the context of the influence on him, and his high regard for, Hume.

    In his Enquiry Concerning the Principles of Morals Hume explicitly countered what he identified as Hobbes’ ‘selfish hypothesis’ as ‘contrary both to common feeling and to our most unprejudiced notions’ (Hume, 1751, p. 298). He argued that, however prominent considerations of self-interest may be, we value benevolence in others, even when their benevolence is not, and never may be, directed toward us. In this regard he influenced Smith’s Theory of Moral Sentiments and the central role within it of his concept of sympathy, in claiming that ‘benevolence’ was a manifestation of ‘natural’ or ‘social sympathy’ (Hume, ibid). His grounds for this was not a claim to ‘natural rights’ such a made by Rousseau. Rather, Hume based it on a ‘feeling for humanity’ and valuing it in others.

    For Hume and Smith, therefore, trust, benevolence and sympathy tend to promote the welfare of society. As in Smith claiming that:

    ‘He is not a citizen who is not disposed to respect the laws and to obey the civil magistrate; and he certainly is not a good citizen who does not wish to promote, by every means in his power, the welfare of the whole society of his fellow-citizens’. Adam Smith. The Theory of Moral Sentiments, 1759, Part VI, Section II).

    Put simply, Smith was recognising that in terms of what Maslow later stressed as the basic need for survival that there was self interest in the market domain from selling something at a price that would enable survival or wellbeing for oneself and a family. Both Hume and Smith also recognised that whether we are disposed to benevolence or sympathy for others depends on economic, social and political context. If a politics or economy is dysfunctional, societies may become so and reduce human needs to self-interest merely in survival. As in the English Civil War from which Hobbes, at the time adviser in France to the Crown Prince who on the Restoration would become Chares II, derived his principle of self-interest or self-regard, which ‘Hobbesian hypothesis’ Hume directly challenged as a general principle of human behaviour.

    The distinction between self-regard and benevolence or sympathy also can be well informed with reference to Maslow’s hierarchy of needs. A common presumption is that Maslow’s first level of survival needs self interest, and may imply aggression, not only in primitive societies. As illustrated by the statement of Cromwell after Charles I had repeatedly breached agreements to share power that, if need be, he would “cut off his head and the Crown upon it”. Or by an unemployed man in a recent television programme on the Eurozone crisis in Portugal who shocked his interviewer by responding to the question what he would do if the crisis were not resolved by replying ‘If I cannot put food on the table for my children I shall kill’.

    Yet, however understandable such a reaction may be, survival does not only depend on self interest, or aggression. Darwin demonstrated that natural selection is not only biological but that cooperative groups are better equipped for survival. There also may be complementarity rather than conflict in market and social domains. In the market domain self-interest implies needing to charge something in exchange that at least covers costs. But not only so, as Avner has well illustrated in demonstrating that exchange also involves a range of other human and social values, including mutual regard.

    While there also is a contradiction of the Hobbesian self hypothesis in charitable giving and philanthropy. Many who have made fortunes have decided not only to transfer only a limited share of them to their children, but to invest the bulk of them in charitable foundations, dating from Carnegie and Ford through to Bill and Melinda Gates. Motives clearly are involved including the motive to overcome the finite nature of life itself by endowing a fund or foundation that may transcend mortality. But not only so. Giving may be a disposition both to create and then also enhance life both for others and oneself, without any conscious calculation of the costs or benefits of doing so in economic terms.

    Avner has illustrated this well in his earlier paper on Between the gift and the market, evidencing that for Britain, in the 1980s, the cost in earnings forgone for an average woman with two children came to over £200,000 in 1990 prices, or some nearly half of her potential lifetime earnings without children. The direct costs of child raising added another £50,000 or so, taking the total to a quarter of a million which, at the time, in the UK, would have purchased a substantial family home or made a massive contribution to an individual’s investment in a personal pension fund. This is corroborated by more recent evidence which indicates that charitable giving in the US alone exceeds more than total official development assistance by the OECD countries.

    One of the contexts in which Avner has sought to extend his concept of regard is in Smith’s concept of an impartial spectator, with the presumption that this concerns regard for oneself. Yet even this does not work so well as Smith’s. For example, one of the cases that Smith cites in his Moral Sentiments is of a man striking a child and first presuming that this was a rebuke which could be justified. But then, if he continued beating the child in a manner that might do harm, bystanders remonstrating or seeking to restrain him, and by visible rather than invisible hands, which is less a case of Avner’s concern with regard for oneself than of what Sen has claimed to be a sense, of justice, and of Smith’s concept of sympathy.

    These observations have not sought to diminish the major contributions that Avner has made. But they do suggest that even his own earlier and major contributions to what he has deemed the philosophy of regard are consistent with and need little qualification of Smith on sympathy and mutual sympathy. Yet if this comment may encourage others to consider Avner’s earlier work, and his devastating critique of the maximisation of welfare through self interest mistakenly derived by others such as Milton Friedman from Smith’s once only metaphor of an invisible hand in The Wealth of Nations, it may both fulsomely recognise this yet also have been useful.


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