On Thursday, March 12, Ross Levine & Sandra Peart joined Markus’ Academy for a conversation. Ross Levine is the Booth Derbas Family/Edward Lazear Senior Fellow at Stanford University’s Hoover Institution and a Research Associate at NBER. Sandra Peart is the Dean of the Jepson School of Leadership Studies & the E. Claiborne Robins Distinguished Professor in Leadership Studies at the University of Richmond.
Smith’s conception of human nature combines a propensity to truck, barter, and exchange with the social desire to be admired and praiseworthy
Admiration, status-seeking, and faction lead individuals to overvalue wealth and social rank relative to virtue and intelligence, distorting our moral sentiments
The invisible hand requires a framework of justice, competition, and well-governed institutions; mercantilist policies, monopolies, and state-sponsored privileges are its central enemies that corrupt markets and entrench power
Smith’s defense of liberty encompassed an opposition to slavery, a critique of empire and a support for education
Smith’s view of human nature combines a propensity to “truck, barter, and exchange” with imagination, speech, and reason, generating specialization, trade, and a drive to improve one’s condition
He drew a distinction between the desire for praise versus praiseworthiness. Beneath the wish to be admired lies a deeper wish to be admirable by an impartial spectator; Smith treats the confusion of these two aims as a major source of dissatisfaction and moral error
His story of the poor man’s son shows that ambition and the “deception” of wealth can simultaneously undermine individual tranquility while mobilizing creativity and innovation
Prosperity in Smith requires more than bare subsistence: flourishing entails higher and rising living standards, lower mortality, and the capacity to raise families successfully.
For Smith, “truck, barter, and exchange” is not just about hard work: there is a lot of creativity involved. Keynes perhaps missed this in his essay on the Economic Possibilities for our Grandchildren
In practice, admiration can focus too much on visible wealth and rank (observable) rather than virtue and intelligence (unobservable), corrupting moral sentiments and misaligning social esteem with genuine merit.
The tendency to admire the rich and powerful and neglect others is “the great and most universal cause of the corruption of our moral sentiments”
Progress for Smith is tied to the majority’s high and rising incomes (a “progressive” state), making median conditions more relevant than aggregate GDP per capita
Although he did not use the term “conspicuous consumption”, Smith was worried about “trinkets of frivolous utility” and how people often chase status through small, often useless luxuries
Smith only used the term “invisible hand” three times in his work, and not in the context we currently use it. Yet it captures his idea that cooperation can emerge without intent or benevolence through self-interest
However, to sustain this custom alone is not enough. It requires justice: clear rules enforceable by a governing body against coercion, fraud, and domination
Self-interest differs from selfishness or rapacity: self-interest can include concern for family and others, while greed undermines justice and turns markets into instruments of exploitation. Smith has often been misread as a hyper-individualist
Factions and special interests (mercantile lobbies, monopolists, guilds, established churches) can capture legislatures, secure privileges, and become systemic enemies of competition and the invisible hand. They can also distort our search for approval from the impartial spectator to the faction
Smith’s book is an attack against government-granted monopolies (e.g., East India Company) and as a result an attack against mercantilism and empire building
Property rights, especially in labor (the poor person’s “sacred patrimony”), are central, but especially with landowners Smith worries that concentrated economic power can lead to rentierism
At the same time Smith was very nuanced, allowing for very targeted and exceptional protection. For example, in his discussion of the Navigation Acts he prioritized defense over opulence
[53:30] Liberty, slavery and the American colonies
For Smith, liberty involves freedoms of occupation, religion, and family formation. He saw slavery as equal to death: “the most cruel violation of the most sacred rights of mankind”
At the same time, and despite the colonial exploitation, Smith saw more of these liberties in American colonies than in Britain.
He viewed empire and colonies as a drain on Britain, with Smith favoring either taxation with representation or separation combined with freer trade.
Smith shared the Physiocrats’ worries about powerful landowners. However, he disagreed with them in that he did not see land as uniquely productive, emphasizing labor productivity, innovation, and early notions of human capital accumulation
He supported education on the basis that extreme specialization can render workers “stupid and ignorant”
However, he was skeptical of state-endowed universities and insulated teachers, reflecting his broader hostility to monopolies; Smith proposed that students pay their teachers directly