Adam Smith, the American Founding and the Political Problem of Wealth

This is part one of a two-part series. Find part two here.

Concerns about increasing inequality have led both scholars and popular audiences to muse about the potential rise of an oligarchy, where a small number of people rule, or plutocracy, where that small number is the rule of the wealthy, in America. That this has been a concern of American political thought since the eighteenth century and is not original to the American experiment in self-governance is less recognized. Many Scottish Enlightenment thinkers, including Adam Smith, shared these concerns. The fact that Smith influenced the American founders is becoming increasingly acknowledged along with the role of the Scottish Enlightenment thinkers’ influence on the founders more generally. For example, though many have argued it was David Hume’s ideas that influenced James Madison, scholars have begun to recognize that Madison likely borrowed his idea for the extended republic in Federalist 10 from Smith’s ideas about how to reduce the influence of religious sects on politics by multiplying them (WN V.i.g.8, Fleischacker 2002). Scholars have also recognized Smith’s influence on James Wilson’s ideas of jurisprudence via Lord Kames who heard Smith’s Lectures on Jurisprudence in Edinburgh between 1748-1750 (McLean 2015, Fleischacker 2002). Furthermore, Smith’s ideas are in the background of Alexander Hamilton’s calls for industrialization against Thomas Jefferson’s argument for an agrarian republic in the Report on Manufactures and Reports on Public Credit. Scholars have recognized, however, that Hamilton either misunderstood Smith’s message in An Inquiry into the Nature and Causes of the Wealth of Nations (Wealth of Nations) or was content to adapt Smith's ideas to his own purposes. The frequency of Smith’s use on college syllabi in the founding period and in libraries and bookstores across the colonies has also been tracked (Lutz 1984, Lundberg and May 1976). It has less often been noted, however, that Smith’s theory about the problematic effects of wealth on our moral sentiments also factored heavily into founding ideas. Luke Mayville (2016) has recently developed the argument that John Adams feared the advent of oligarchy in America and that Smith was one of the main sources for his Discourses on Davila (see also Liu 2022, 62-66). Scholars have focused on the connection between Smith’s warnings about the moral psychology of wealth and some of the founders’ concern with the problematic persistence of an aristocratic mindset in America.

However, Smith does not only warn about wealth and its dangers from the perspective of moral psychology in his The Theory of Moral Sentiments (TMS). Smith is also concerned about the political economy of the rich in his Wealth of Nations. The role of the richest is not a common theme in Smith scholarship. In the popular imagination, Smith has a reputation for condoning the greedy acquisition of vast amounts of wealth without concern for others. Smith scholars have debated his views on inequality (Rasmussen 2016, Boucoyannis 2013) and corruption (Hill 2006, Gallagher 1998), but few have focused directly on the role of the rich in Smith’s thought.

This essay develops a fuller picture of Smith’s account of the problems of wealth from social relations, individual virtue, and political economic institutions. It connects Smith’s insights to similar concerns in various writings of the American founders, suggesting that for both, the dangers of wealth are both moral psychological and political economic. This essay focuses on comparing Smith's theory of wealth to that of many of the American founders to paint a picture of the long tradition of thought on the potential problems and solutions of disparate wealth in the Western and American traditions. The essay argues that for Smith, and most of the founders, the moral psychological problem of wealth is not something that can be resolved, and so each suggest institutional solutions to the problem. Smith, in particular, focuses on political economic solutions or institutions to address the potential downfalls of a permanent wealthy class.

Smith’s account of the rich is primarily two-fold. He asserts 1) that wealth presents a danger to the health of our moral sentiments based on his theory of our natural propensity for sympathy and its role in grounding social relations; 2) that wealth can circumvent institutions of freedom that allow individuals to follow their natural predisposition to better their condition through exchange and connect to others in society beyond immediate family and friends.

First, in Theory of Moral Sentiments, Smith develops an account of our propensity to sympathize with the rich and ignore the poor (TMS I.iii.2.1), based on a wider propensity to sympathize with joy rather than sorrow and a desire to order the world around us (TMS I.iii.2.1, IV.i.4). Smith explains sympathy as the propensity to try and enter into the feelings of others by imagining how we would feel if presented with the same situation. Smith explains sympathy as “fellow-feeling with any passion whatever” (TMS I.i.1.5). We can’t help but feel with others and to try and make sense of their perspective on the world as well as our own. Then, we determine whether their feelings are appropriate given the context of their situation and exercise moral judgment about the rightness or wrongness of their behavior. Smith recognizes that this is an imperfect system of rendering others’ experiences known to us as well as ordering moral relationships. One problem is that our ability to enter into the feelings of others is always limited by our own perspective—we “judge of your sight by my sight, of your ear by my ear” (TMS i.i.3.10). In a similar vein, we are prone to self-deceit where we prefer ourselves and justify our own behavior. Self-deceit “is the source of half the disorders of human life” (TMS III.4.6).

Finally, and of most interest for this essay, our moral judgments are corrupted by our preference for the wealthy. Smith puts it, “This disposition to admire, and almost to worship, the rich and powerful, and to despise or, at least, to neglect persons of poor and mean condition, though necessary to both establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments” (TMS I.iii.3.1). This corruption occurs because we desire to be like the rich and “we are eager to assist them in completing a system of happiness that approaches so near to perfection” and these desires cause us to excuse or overlook their bad behavior (TMS I.iii.2.3). In this way, though “the man of rank and distinction…is observed by all the world” he is not subject to the same sympathetic scrutiny as others in society (TMS I.iii.2.1). We are also willing to give up real moral benefits to try and be like the rich and achieve the sympathetic notice we perceive them as receiving. Smith says of the poor man’s son, for example: “Through the whole of his life he pursues the idea of a certain artificial and elegant repose which he may never arrive at, for which he sacrifices a real tranquility that is at all times in his power, and which, if in the extremity of old age he should at last attain to it, he will find to be in no respect preferable to that humble security and contentment which he had abandoned for it” (TMS IV.i.8). In addition to wanting the affection of our peers, we also think that the things the rich can afford will make our life more ordered and lead to our contentment: “We are then charmed with the beauty of that accommodation which reigns in the palaces and economy of the great; and admire how every thing is adapted to promote their ease” (TMS IV.i.9).

Another way that wealth and greatness perverts our moral sensibilities is by changing our calculation of what is virtuous. Smith explains how this happens in at least two ways. First, most people must behave virtuously to become wealthy. Individuals will not keep doing business with those who are untrustworthy, dishonest, or deliver subpar or late products. Unfortunately, this is not true of the rich. They are able to get and maintain wealth without following the rules of politeness:

Smith explains here the second reason why wealth and greatness pervert our moral sensibilities. We begin to think that virtue is signified by appearance rather than action. This is particularly problematic for obtaining virtuous leaders. Smith explains, “The external graces, the frivolous accomplishments of that impertinent and foolish thing called a man of fashion, are commonly more admired than the solid and masculine virtues of a warrior, a statesman, a philosopher, or a legislator” (TMS I.iii.3.6). For Smith, our desire for the order we think wealth brings leads us to want to preserve the system of rank and distinction (TMS I.iii.2.2) and not to think critically about the behavior of the wealthiest, though we continue to be very critical of the poorest in society (TMS I.iii.2.5). This disposition corrupts the system by which Smith thinks we form relationships with others in society and come to understand what behavior is moral and immoral. Smith’s discussion of the problem in Theory of Moral Sentiments is mostly diagnostic. His analysis of the fictional story of the poor man’s son does point out the ways in which we individually ought to resist these desires, but he also ends the story arguing “It is well that nature imposes upon us in this manner” because “this deception…keeps in continual motion the industry of mankind” (TMS IV.i.10). Importantly, however, in Wealth of Nations, Smith does propose policy solutions to mitigate this moral psychological problem through political economic means.

Though one goal of Smith’s Wealth of Nations is to teach leaders how to acquire wealth, as indicated by its title, he devotes equal attention to the dangers to free institutions of wealth joining with political power. Thus, while Theory of Moral Sentiments focuses on diagnosing the moral psychological problem of our love of wealth, Wealth of Nations focuses on institutional means to mitigate potential negative side effects of this disposition. Wealth of Nations begins with an explanation of the division of labor, but quickly explains that the division of labor is based on our propensity to truck, barter, and exchange (WN I.ii.1). This propensity leads individuals to pursue the best ways of using the resources at their disposal to better their condition (WN IV.v.b.43). Smith thinks this is the natural course of behavior that orders society, but individuals will also use resources at their disposal to develop unfair advantages over their peers, what Smith often calls “a monopoly against their countrymen” (e.g. WN IV.ii.1). In a letter to Andreas Holt, Commissioner of the Danish Board of Trade and Economy, Smith describes Wealth of Nations as a “very violent attack…upon the whole commercial system of Great Britain” (CAS, 250). As much as the work attempts to describe Smith’s ideal institutions based on allowing people to pursue their desires through trade with their peers, he also explains how this propensity is often corrupted by policies that allow individuals to use power to better their condition. This argument builds on Smith’s insight in Theory of Moral Sentiments that spectators will tolerate competition but will not tolerate individuals who “justle, or throw down” competitors because this “is a violation of fair play” (TMS II.ii.2.1).

Smith argues that the wealthy can gain the ear of government officials and influence them to favor policy preferences that help the wealthy garner additional wealth. He writes, “Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters” (WN I.x.c.61). Manufacturers of linen “extort[ing] from the legislature bounties upon the exportation of their own linen, high duties upon the importation of all foreign linen, and a total prohibition of the home consumption of some sorts of French linen” (WN IV.viii.4). Additionally, industrialists can collude with the legislature whereas workers have very little success protesting to achieve higher wages. Masters “call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, laborers, and journeymen” and the workmen achieve nothing except “the punishment or ruin of the ringleaders” (WN I.viii.14).

The wealthy also have the ability to purchase things that give them an advantage against those who have to labor for subsistence. Smith points out several, but an important one is education. While the poorest are “unfit to judge” (WN I.xi.p.9), because they do not have an occasion to exercise this faculty, the wealthiest can pursue the best education if they choose.

Finally, Smith notes that the policy of mercantilism encourages violence to pursue wealth at the expense of others. Smith’s key example is “the plundering of the defenceless natives” that takes place during colonization (WN IV.vii.a.16). The colonizers driven by lust for gold ignore the humanity of those they encounter. Smith further explains, “upon all these different occasions it was, not the wisdom and policy, but the disorder and injustice of the European governments, which peopled and cultivated America” (WN IV.vii.b.61).

Smith does note that maintaining the behaviors and practices of aristocrats such as primogeniture—the custom or law that the first born inherits the estate— and entail—laws of inheritance that keep property within one family—are “absurd” in the modern age because they prevent all the children of a family from being able to participate equally in society (WN III.ii.6). He also argues that maintaining the elite practice of sending children to boarding school actually harms their moral development because the home is the place one learns to practice sympathy (TMS VI.ii.1.10).

Smith offers institutional solutions to mitigate the undue influence of the wealthiest as well as raise the capabilities of the poorest. He notes that wealth need not equal power with the proper institutional protections: “Wealth, as Mr. Hobbes says, is power. But the person who either acquires, or succeeds to a great fortune, does not necessarily acquire or succeed to any political power, either civil or military, His fortune may, perhaps, afford him the means of acquiring both, but the mere possession of that fortune does not necessarily convey to him either. The power which that possession immediately and directly conveys to him, is the power of purchasing” (WN I.v.3). Wealth only properly gives individuals the power to purchase goods. The first institutional solution Smith promotes is what he refers to as the system of “natural justice and liberty” which is a system of free trade framed by rule of law provided by the sovereign (WN IV.ix.51). To be clear, this isn’t a strictly laissez-faire system with no government interference, but Smith’s aim is to allow individuals, as much as possible, to pursue their “own interest his own way” (WN IV.ix.51). Smith also intends to show that free trade brings more wealth than the system of cronyism that mercantilism, an economic policy often associated with empire that pursues balance of trade and the stockpiling of bullion, promotes. Smith notes that allowing free trade also reduces the power of the old aristocracy by giving them new ways to spend their money on “trinkets and baubles” rather than maintaining a vast estate and thereby limiting the liberties of those forced to run it (WN III.iv.10).

Smith also offers suggestions on policies that will require the rich to bear more of the social burden, akin to progressive taxation. He suggests that the rich should assume more of the cost for public services that are essential for commerce and that they utilize more than the poor. For example, he notes that their luxury carriages are heavy, cause more wear and tear to roads and bridges, and so they should be taxed at a higher rate so that “the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor” (WN V.i.d.5). He also suggests taxing rent on houses because the rich will be disproportionately affected as they seek bigger houses in high demand areas while the poor choose whatever they can afford just to subsist. Smith says such a progressive tax is justified because “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion” (WN V.ii.e.6).

Smith’s most important set of institutional policies bolster the least advantaged. The system of free trade allows for an expanded division of labor, by which Smith means dividing tasks in the production of a good into several “distinct operations” (WN I.i.3), that offers employment opportunities to the poorest so that they no longer need to depend on an apprentice’s education (controlled by elites: the masters of the guilds) or being wealthy (WN I.i.3). The division of labor also increases the standard of living for the poorest such that necessities, like a woolen coat, are accessible and affordable. He also suggests that the government provide an education for the least advantaged so that they will be able to “form just judgment” to participate in government as citizens and in the system of sympathy and morality (WN V.i.f.50). Finally, he specifically argues against policies that disadvantage the poor and aims to show the benefit to employers of paying their workers above subsistence. First, he argues against the Settlement Act of the Poor Law which unfairly targeted the poor by preventing them from following the market for labor, submitting them to arbitrary government power, and forcing them to undergo extra public scrutiny worsening the already present propensity to look down upon the poor (WN I.x.c.45-59; (TMS I.iii.2.1). Second, Smith argues that industrialists should pay workers more than subsistence because “no society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable” (WN I.viii.36-45).

For Smith, the problem of the rich is both moral psychological and political economic. While the propensities based on our sympathy can never be completely overcome and the inequality that comes from the commercial system will never be eradicated, Smith does think institutional policies can mitigate the potential for the rich to use their power against the rest of society.

This is part one of a two-part series. Find part two here.

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