Adam Smith was nothing short of a radical, according to Glenn Hubbard, Columbia Business School dean emeritus and the School's Russell L. Carson Professor of Finance and Economics.
This intriguing perspective took center stage during a dynamic discussion with Tano Santos, the Robert Heilbrunn Professor of Asset Management and Finance, at a Future of Capitalism @TheHub Speaker Series event held this fall.
Co-sponsored by the Adam Smith Society, the event, titled Adam Smith's 300th Birthday: Thoughts for Business Leaders, delved into a comparative analysis of Smith's groundbreaking works, The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776).
“Smith's radical idea was to take on the economic order of his day,” said Hubbard. Smith suggested for the first time that “the wealth — and the health — of a nation was its ability to fund the consumption of average people, not the sovereign.”
Smith argued that ordinary people pursuing their own — rather than a monarch's or state's — interests would result in a more productive society. “The reason [we] have food, shelter is precisely because the butcher, the baker are thinking of their interests, and they are willing to supply those services in exchange for a fair price,” explained Santos.
This exchange of products and services leading to economic growth is one of the main tenets in The Wealth of Nations. However, Santos said Smith understood human relations beyond the scope of mere financial transaction, a side of Smith that's more explicit in The Theory of Moral Sentiments. “When you read The Wealth of Nations,” he said, “it pays to read The Theory of Moral Sentiments next to it.”
A counterbalance to The Wealth of Nations, The Theory of Moral Sentiments deals with human connection. It argues for building a society beyond market transactions based on empathy and respect. This more humane side of Smith lays the foundation for an environment that promotes healthy competition among all members of society, an idea somewhat lost in some contemporary interpretations of Smith.
Neoliberal political economists, for example, have contributed to Smith's image as the patron saint of “anything-goes capitalism” by forsaking his more compassionate side. “For Smith, the notion of laissez-faire really is misplaced,” Hubbard said. In contemporary terms, “Smith believed in the state's vital role in providing public goods such as defense, infrastructure, the court system, and education."
Technology as Economic Disruptor
The professors posited that the emphasis on laissez-faire economics has fueled the vertiginous advent of technology, resulting in market disruptions and public backlash. Hubbard and Santos agreed that automation today is the most forceful economic driver of our time, as was machine technology in Smith's day.
“By far the bigger disruptor of the steel industry was the advent of new steel-making technologies,” said Hubbard. The difference between our era and Smith's is the speed of change. In the 21st century, technologies can affect entire economies and have immediate impact.
Artificial intelligence is a prime example. ChatGPT has become ubiquitous, finding applications in areas ranging from the supply chain to the arts to education. “What if ChatGPT could teach Modern Political Economy?” Santos mused.
Trade and the Free Market
AI has certainly had an impact on trade, an area the professors see as in flux. “Are free markets dead?” Hubbard asked, making reference to a recent headline in The Economist.
“When it comes to these matters, countries always go one way,” Santos said, citing recent protectionist policies between the United States and China regarding the production of semiconductors. According to Adam Smith, Santos said, national security is too important to let the market adjudicate these decisions.
Santos cited the1786 Eden Treaty between Great Britain and France, which aimed to reduce tariffs on goods between both countries. The agreement, which heavily favored Great Britain, was a direct intervention of the free market. “Smith was very much on top of that,” he said.
Another Radical Idea: Human Empathy
Smith was also very much aligned with human empathy, something Santos considers to be his little-known “radicalism.” The Theory of Moral Sentiment, Santos argued, “is about how we connect as people and build a society beyond economic transactions based on mutual empathy and respect for each other. The Theory of Moral Sentiments is about that other layer of human interactions.”
Smith knew that prosperity is the result of mutual empathy and respect, but we've lost track of this, Santos said. “We've been living through the revenge of politics over the last few years,” he noted. Omitting empathy from the Smith equation has left the United States vulnerable to economic peril. But Santos suggested Smith's insights still “give you a framework to think about the issues,” and likely will for another 300 years.
