US Congress Minority Leader Nancy Pelosi at a conference at the Brookings Institution lectured her audience of policy wonks. She chided slavish followers of Adam Smith’s Wealth of Nations (1776) who had never bothered to read his other book The Theory of Moral Sentiments (1759) which covers the rest of his description of human behavior: our altruistic impulses to help each other and our communities. Hillary Clinton and Elizabeth Warren take note!
How did Adam Smith’s earlier book get deep-sixed while his focus on competitive human behavior in markets became capitalism’s gospel of individual profit-maximizing? Clearly Smith’s Wealth of Nations appealed to the animal spirits and ego needs of budding businesses, early swashbuckling stock markets, traders and merchant venturers exploring new lands for resources. Smith’s iconic image of an “invisible hand” convinced these early capitalists that their self-interest and gains also benefited society. Politicians and newspapers fell under this powerful imagery, since it seemed consistent with the scientific discoveries of Isaac Newton and his clockwork universe. Capital accumulation and great wealth became the sign of moral virtue as Max Weber wrote in The Protestant Ethic and the Spirit of Capitalism (1930). Francis Bacon, Newton and other scientists laid the groundwork for the triumph of Rene Descartes’ individualism and instrumental rationality. Materialism, reductionism and technological determinism won the day, as I explored in The Politics of the Solar Age (1981, 1988).
Fast forward to today’s testosterone-fueled traders, confirmed in cheek swabs by John Coates in The Hour Between Dog and Wolf (2012) and by Wall Street’s “market –makers” who thus justify their bets against their own clients. Seemingly, markets based on individual competitive accumulation now impose their logic over even the most democratically elected governments. Since 2008’s financial crises, logic ascribed to Adam Smith won out over social concerns in the imposition of austerity in Greece and other European countries.
The confrontations launched by the Occupy movements have now surfaced in Greece with rejection of laissez faire market dominance in the Syriza party’s victory. The debate over “facing up to inequality” now rages in Europe and the USA, buttressed by the “99% versus the 1%” slogan of Occupiers and Thomas Picketty’s best-seller Capitalism in the 21st Century (2014).
Will Adam Smith rise to become a new ally as his Theory of Moral Sentiments is rediscovered by Kim Ann Curtin in Transforming Wall Street (forthcoming March 2015) and in How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness (2014) by Russ Roberts?
This wholesale re-think is also reinforced by the similar re-evaluation of Charles Darwin by my fellow researchers in The Darwin Project (www.thedarwinproject.com). Psychologist David Loye in Darwin’s Lost Theory of Love (2000) showed that Darwin held that humanity’s success was based on our genius for bonding and community. Darwin did not invent the phrase “survival of the fittest” but instead explained not individual but rather species natural selection. Seemingly Darwin was hijacked by Victorian elites in Britain who justified their power and wealth by this poisonous phrase to promote their acquisitive philosophy and demonizing of the poor: Social Darwinism. In fact, “survival of the fittest” was coined by Herbert Spencer in The Economist in 1864 for which the editors finally apologized in 2005, as I note in Ethical Markets: Growing the Green Economy (2006).
As we open our eyes to this literary history, we marvel that our Western societies misinterpreted for so long their two most revered scholars – Adam Smith and Charles Darwin. Brain science now confirms their true understanding of human nature, as in Donald Pfaff’s The Altruistic Brain (2015) and Does Altruism Exist (2015) by David Sloan Wilson. Their research is further corroborated by Harvard psychologist Steven Pinker in The Better Angels of Our Nature (2011) and Professor Lynn Stout of Cornell University Law School in her Cultivating Conscience: How Good Laws Make Good People (2010), whose The Shareholder Value Myth (2012) exposed Milton Friedman and the Chicago School’s error: buying a share of stock does not secure ownership of the company, but rather of a legal contract as a stakeholder. Here’s hoping all these misunderstandings of our economy are fully aired in upcoming debates and elections in Europe, the USA and at the G20.