Adam Smith, the American Founding and the Political Problem of Wealth, Part 2
July 26, 2024
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How do you make sure bad people do not end up in control of necessary institutions? How do you make sure that good people can rise to positions of leadership that require virtue? The American founders struggled and arguing and learned from each other as well as from thoughtful predecessors like Adam Smith.
![](/system/uploads/store/d718f6d8711cbe3d8200569cc0530e0a.png)
How do you make sure bad people do not end up in control of necessary institutions? How do you make sure that good people can rise to positions of leadership that require virtue? The American founders struggled and arguing and learned from each other as well as from thoughtful predecessors like Adam Smith.
This is part two of a two-part series. Find part one here.
The American Founding and the Problem of the Rich
There were two main debates amongst the American founders on wealth: 1) On whether after removing an artificial aristocracy by eliminating primogeniture and entail there is room for a natural or intellectual aristocracy to be chosen to lead democratic institutions and 2) On whether the institutions established by the new Constitution will necessarily be dominated by the wealthy to the exclusion of fair representation of the common person and their interests.
The American Founding and the Problem of the Rich
There were two main debates amongst the American founders on wealth: 1) On whether after removing an artificial aristocracy by eliminating primogeniture and entail there is room for a natural or intellectual aristocracy to be chosen to lead democratic institutions and 2) On whether the institutions established by the new Constitution will necessarily be dominated by the wealthy to the exclusion of fair representation of the common person and their interests.
A Virtuous Natural Aristocracy Versus a Corrupt Artificial Aristocracy?
The first debate about wealth can best be seen in the letters between Thomas Jefferson and John Adams reacting to Adams’ writings in Defence of The Constitutions of the Government of the United States (1787) and Discourses on Davila (1790) published early in the regime. In the first of these letters, Adams begins a debate on the idea of being well-born and the role of wealth in society based on his translation of a Greek text “The Advice of Theognis of Megara.” He argues that the concept of the “well-born” is one that philosophers and politicians alike cannot solve, and that “Wealth is another Monster to be Subdued.”1 He continues the debate by philosophizing in the next letter about what constitutes an aristocracy: “Now, my Friend, who are the αριστοι [aristocrats]? Philosophy may Answer ‘The Wise and Good.’ But the World, Mankind, have by their practice always answered, ‘the rich the beautiful and well born.’”2 Adams also argues for five pillars of aristocracy, defining them as “Beauty, Wealth, Birth, Genius and Virtues.”3 He worried that beauty would seem ridiculous to include, but, like Smith, argued that it often “prevails” over the other pillars in the esteem of mankind. For Adams and Smith, the moral psychology of wealth worship cannot be cured.
Jefferson’s response introduces the concept of the natural versus the artificial aristocracy:
“I agree with you that there is a natural aristocracy among men. The grounds of this are virtue & talents. Formerly bodily powers gave place among the aristoi. But since the invention of gunpowder has armed the weak as well as the strong with missile death, bodily strength, like beauty, good humor, politeness and other accomplishments, has become but an auxiliary ground of distinction. There is also an artificial aristocracy founded on wealth and birth, without either virtue or talents; for with these it would belong to the first class. The natural aristocracy I consider as the most precious gift of nature, for the instruction, the trusts, and government of society…May we not even say that that form of government is the best which provides the most effectually for a pure selection of these natural aristoi into the offices of government? The artificial aristocracy is a mischievous ingredient in government, and provision should be made to prevent its ascendancy.”4
Jefferson argues that he and Adams agree about the potential benefits of a natural aristocracy, but Adams does not seem to agree that there really is a distinction between natural and artificial aristocracy. Whereas Jefferson wants to encourage the natural aristocracy to have a formal role in government because of their virtues, Adams seeks to contain the wealthy in government wherever possible to prevent cronyism.
Adams’ letters echo the extended argument he makes in his Defence and Discourses for an institutional arrangement that will contain the aristocracy in the senate and would make the new republic a true balanced regime with fixed institutional positions for the classes. He explains how this institutional arrangement will reduce the danger of the wealthy and channel their energy and ambition toward the common good:
“The rich, the well-born, and the able, acquire an influence among the people that will soon be too much for simple honesty and plain sense, in a house of representatives. The most illustrious of them must, therefore, but separated from the mass, and placed by themselves in a senate; this is, to all honest and useful intents an ostracism. A member of the senate, of immense wealth, the most respected birth, and transcendent abilities has no influence in the nation, in comparison of what he would have in a single representative assembly. When a senate exists, the most powerful man in the state may be safely admitted into the house of representatives, because the people have it in their power to remove him into the senate as soon as his influence becomes dangerous. The senate becomes the great object of ambition; and the richest and the most sagacious wish to merit an advancement to it by services to the public in the house. When he has obtained the object of his wishes, you may still hope for the benefits of his exertions, without dreading his passions” (Works, vol. 4, 290-1).
Adams argues that the wealthy should be contained in a separate body so that society can make use of their talents while guarding against their ability to use their wealth to control government in other ways.
Jefferson disagrees with such a scheme, trusting the electorate to make their own decisions about who should lead them. He writes, “I think the best remedy is exactly that provided by all our constitutions, to leave to the citizens the free election and separation of the aristoi from the pseudo-aristoi, of the wheat from the chaff. In general they will elect the real good and wise. In some instances, wealth may corrupt, and birth blind them; but not in sufficient degree to endanger the society.”5 Jefferson instead worries that Adams’ scheme to separate the “pseudo-aristoi…to give them power in order to prevent them from doing mischief, is arming them for it, and increasing, instead of remedying, the evil.”6 Interestingly, Jefferson’s institutional position here is also that articulated by the Federalists against the Anti-Federalists’ concerns about representation. Hamilton, writes in Federalist 35: “It is said to be necessary that all classes of citizens should have some of their own number in the representative body in order that their feelings and interests may be the better understood and attended to. But we have seen that this will never happen under any arrangement that leaves the votes of the people free.” The Federalists and Jefferson trust the electorate to notice and reward the virtues of the natural aristocracy rather than their wealth alone. Adams supports his argument for the institutional solution because of the power wealth holds on the human psyche as he details in his Discourses, heavily inspired by Smith. As Adams argues, “For what reason, then, are any mortals averse to the situation of the farmer, mechanic, or laborer? Why do we tempt the seas and encompass the globe? Why do any men affront heaven and earth to accumulate wealth, which will forever be useless to them?…Because riches attract the attention, consideration; and congratulations of mankind” (Works, vol. 6, 237-238). Adams and Jefferson disagree about whether a form of aristocracy can be helpful to the new constitutional republic.
The Federalists Versus the Anti-Federalists on Cronyism and the New Constitution
The second debate can be seen occurring between the Federalists’ writings and what are now known as the Anti-Federalist writings. The Anti-Federalists’ main concern with wealth is that the new government will be entirely run by the well-born. Following the moral psychology argument we see in both Smith and Adams, Brutus7 explains why the Anti-Federalists believe only the wealthy will be elected in the proposed government:
“According to the common course of human affairs, the natural aristocracy of the country will be elected. Wealth always creates influence…they will always favor each other—it is their interest to combine—they will therefore constantly unite their efforts to procure men of their own rank to be elected…The great body of the yeomen of the country cannot expect any of their order in this assembly—the station will be too elevated for them to aspire to…The well born, and highest orders in life, as they term themselves, will be ignorant of the sentiments of the middling class of citizens, strangers to their ability, wants, and difficulties, and void of sympathy, and fellow feeling” (AF, 125-126).
Brutus finishes the argument stating why he is concerned about a lack of merchants and mechanics in the American government. For the Anti-Federalists, there are three problems with improper representation: the interests of non-elites will not be represented, the small number of representatives will result in corruption, and only average citizens have true virtue. First, they argue that the average person and their interests will not be represented in a government that relies on “ambition counteracting ambition” as James Madison puts it in Federalist 51. Melancton Smith cites John Adams on the mixed regime as support for the same position arguing: “in order to have a true and genuine representation, you must receive the middling class of people into your government” (AF, 345). Brutus explains the concept of representation that the Anti-Federalists aim for “The very term, representative, implies, that the person or body chosen for this purpose, should resemble those who appoint them” (AF, 124). For the Anti-Federalists, those in government should reflect their constituency. He continues, “The farmer, merchant, mechanic, and other various orders of people, ought to be represented according to their respective weight and numbers: and the representatives ought to be intimately acquainted with the wants, understand the interests of the several orders in the society, and feel a proper sense and becoming zeal to promote their prosperity” (AF, 125).
Another concern of the Anti-Federalists is that the small number of representatives automatically lends itself to cronyism and corruption. Brutus explains, “This branch [house of representatives] will not only be an imperfect representation, but there will be no security in so small a body, against bribery, and corruption…It will literally be a government in the hands of the few to oppress and plunder the many” (AF, 126). The Federal Farmer8 similarly worries about the propensity of the few to be corrupt in government positions and “combine” to act in their interests against the common people (AF 75-76).
Finally, the Anti-Federalists argue that the well-born lack character and only the average person who works hard for their resources can bring virtue to the government. This is the famous yeoman farmer idea. Melancton Smith argues, “The substantial yeomanry of the country are more temperate, of better morals and less ambition than the great” (AF, 341). Though Jefferson eventually comes around to the necessity of industry, in Notes on the State of Virginia (1785), he emphasizes this same association of the yeoman farmer with virtue saying “Those who labour in the earth are the chosen people of God, if ever he had a chosen people, whose breasts he has made his peculiar deposit for substantial and genuine virtue. It is the focus in which he keeps alive that sacred fire, which otherwise might escape from the face of the earth” (Query #19).
Though Jefferson argues for a natural aristocracy against Adams, along with the Anti-Federalists, he is quite concerned about the potential for an aristocracy of wealth to corrupt democracy in the new republic, especially through commercial institutions advocated for by Hamilton such as a national bank. Jefferson calls the concept of a national bank an exercise in giving subscribers a monopoly.9 Further, in a letter to John Wayles Eppes on November 6, 1813 in which Jefferson cites Wealth of Nations extensively, he argues against paper money and the role of banks in distributing it because it leads to speculation, prodigality, and debt. Finally, in a letter to John Taylor on May 28, 1816 he argues, "The system of banking...I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens.”
The Federalists, for their part, counter these arguments with support for the institutions of the new Constitution. For example, speaking about the House of Representatives, Madison argues in Federalist 55: “The improbability of such a mercenary and perfidious combination of the several members of government, standing on as different foundations as republican principles will well admit, and at the same time accountable to the society over which they are placed, ought alone to quiet this apprehension. But, fortunately, the Constitution has provided a still further safeguard. The members of the Congress are rendered ineligible to any civil offices that may be created, or of which the emoluments may be increased, during the term of their election.” In Federalist 64 on the power of the Senate, John Jay advances a similar belief in the checks of the Constitution preventing corruption in government:
“The good of the whole can only be promoted by advancing the good of each of the parts or members which compose the whole. It will not be in the power of the President and Senate to make any treaties by which they and their families and estates will not be equally bound and affected with the rest of the community; and, having no private interest distinct from that of the nation, they will be under no temptations to neglect the latter. As to corruption, the case is not supposable. He must either have been very unfortunate in his intercourse with the world, or possess a heart very susceptible of such impressions, who can think it probable that the President and two thirds of the Senate will ever be capable of such unworthy conduct. The idea is too gross and too invidious to be entertained. But in such a case, if it should ever happen the treaty so obtained from us would, like all other fraudulent contracts, be null and void by the laws of nations.”
In Federalist 70, Hamilton argues that the executive can be a guard against cronyism because “Energy in the executive is a leading character in the definition of good government…to the protection of property against those irregular and high-handed combinations which sometimes interrupt the ordinary course of justice; to the security of liberty against the enterprises and assaults of ambition, of faction, and of anarchy.” In Federalist 10, Madison notes that though those in government want to advocate their own interests because “Every shilling with which they overburden the inferior number is a shilling saved to their own pockets,” yet, the institutions of checks and balances and the extended republic will prevent corruption because “enlightened statesmen will not always be at the helm.” Hamilton similarly emphasizes the large size of the republic as a key check on cronyism: “In large districts, the corruption of the electors is much more difficult; combinations for the purposes of intrigue are less easily formed; factions and cabals are little known” (Elliott’s Debates, 256-7).
As mentioned above, the Federalists also rely on self-government, including a belief in the ability of the people to choose those who will govern them best. Hamilton explains, “Sir, if the people have it in their option to elect their most meritorious men, is this to be considered as an objection? Shall the Constitution oppose their wishes, and abridge their most invaluable privilege?…As riches increase and accumulate in few hands, as luxury prevails in society, virtue will be in a greater degree considered as only a graceful appendage of wealth, and the tendency of things will be to depart from the republican standard” (Elliott’s Debates, 256). Hamilton argues that an inevitable side effect of popular elections is that people will elect those who they think are more virtuous which is often those who are the wealthiest. For Hamilton, the new government gives the same opportunity for participation to rich and poor alike (Elliott’s Debates, 256).
However, the Federalists do recognize the potential problem of cronyism. In Federalist 62, Madison explains, “Another effect of public instability is the unreasonable advantage it gives to the sagacious, the enterprising, and the moneyed few over the industrious and uninformed mass of the people. Every new regulation concerning commerce or revenue, or in any manner affecting the value of the different species of property, presents a new harvest to those who watch the change and can trace its consequences; a harvest, reared not by themselves; but by the toils and cares of the great body of their fellow-citizens.” Similarly in Federalist 10, Madison notes: “But the most common and durable source of factions has been the various and unequal distribution of property…A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation and involves the spirit of party and faction in the necessary and ordinary operations of government.”
Though the Federalists have faith in the institutions established by the Constitution to limit the power of the rich, the Anti-Federalists think that the wealthy will dominate the new government.
Smith and the Founders Compared
The founding generation and Adam Smith all disagreed on the best way to prevent cronyism or the emergence of an oligarchy or plutocracy. John Adams favored an institutional solution whereby the aristocracy would be contained in a specific branch of government. Thomas Jefferson favored the popular vote as a way to check the power of the elite and elect the most virtuous people to office. Similarly, the Federalists trusted the vote of the average person as well as the institutions of separation of powers, checks and balances, and the extended republic they had put in place with the Constitution. The Anti-Federalists wanted to institute proportional representation to ensure a balance between the interests of the elite and the least advantaged. Smith for his part, favored institutional solutions that would primarily bolster the situation of the least-advantaged and limit the power of the wealthy to thwart the commercial system. Smith’s most important and emphasized solution was free trade. He thought it was both a political economic and moral psychological solution that would raise the living conditions of the least advantaged and provide the conditions for a free market where the wealthy could spend money on luxury goods—a desire that Smith thought was part of human nature—and thereby limit their ability to spend money on political power. He makes reference to it both in Theory of Moral Sentiments and in Wealth of Nations where he claims, even colony trade has some of the benefits of a system of trade more generally such as
“the liberty of exporting, duty free, almost all sorts of good which are the produce of domestic industry, portance, the unbounded liberty of transporting them from any one person of our own country to any other, without being obliged to give any account to any public office, without being liable to question or examination of any kind; but above all, that equal and impartial administration of justice which renders the rights of the meanest British subject respectable to the greatest, and which, by securing to every man the fruits of his own industry, gives the greatest and most effectual encouragement to every sort of industry” (WN IV.viii.c.54).
For Smith, the institutions of free trade create parity between the rich and the poor. He also thought the rich should be taxed at a higher rate than the poor, especially for use of public services for luxury habits that the poor would not use in the same proportions and that government could provide benefits for the poor that the market would not provide like education. Finally, Smith wanted to prevent collusion between the wealthiest and those with political power.
It should be noted that Smith does directly comment on the American colonies, particularly on the problem of an emerging aristocracy. He thought there was no hereditary or oppressive aristocracy in the colonies that would have “privileges by which he can be troublesome to his neighbors” (WN IV.vii.b.51). Instead, he emphasizes that the colonists, despite their complaints, do have representation in Parliament and “liberty…to manage their own affairs their own way…in every respect equal to that of their fellow-citizens at home” (WN IV.vii.b.51). For Smith it is only ambitious men in America that are causing disturbances with Great Britain such that they “rejected, therefore, the proposal of being taxed by parliamentary requisition, and like other high-spirited men, have rather chosen to draw the sword in defense of their own importance” (WN IV.vii.c.74).
Comparing some of the voices of the American founders with Smith’s writings goes beyond highlighting where influence was derived to compare their ideas about the problem of and potential solutions to inequality and the role of the wealthiest in society.
Endnotes
- John Adams to Thomas Jefferson, [ca. 14] August 1813, with postscript, 16 August 1813.↩
- John Adams to Thomas Jefferson, September 2, 1813.↩
- Ibid.↩
- Thomas Jefferson to John Adams, October 28, 1813.↩
- Ibid.↩
- Ibid.↩
- The pen name for an Anti-Federalist generally thought to have been Robert Yates of New York.↩
- A pen name for an Anti-Federalist generally thought to be Richard Henry Lee of Virginia.↩
- Opinion on the Constitutionality of the Bill for Establishing a National Bank, February 15, 1791.↩
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