Copyright Project Syndicate
CAMBRIDGE – With the 250th anniversary of The Wealth of Nations approaching next year, the world is gearing up to honor Adam Smith. But which Smith should be recognized? The hard-nosed “founding father” of modern economics, or the philosopher who wrote The Theory of Moral Sentiments? Scholars have wrestled with this question, a riddle known as “Das Adam Smith Problem,” for centuries, because it concerns not just dualities within Smith’s thought, but also our own uneasy relationship with morality and markets. The “problem” was first formulated in late-19th-century Germany, where economists of the historical school, including Wilhelm Hasbach and August Oncken, saw a glaring contradiction between the compassionate, sympathy-driven moral psychology of Smith’s first book and the self-interested calculus of his second. To them, the sentimental Scot of 1759 was irreconcilable with the architect of capitalism of 1776. This contradiction suited the intellectual temper of the time. As industrial capitalism took hold, economics was busily reinventing itself as a “science” detached from ethics, while philosophy and theology were left to fret over the moral wreckage. Das Adam Smith Problem thus became a projection of modernity’s own split personality: one half was absorbed by mechanism and efficiency, the other by conscience and community. Yet the German historicists were wrong, or at least incomplete. Later readers – from Jacob Viner, a founder of the Chicago school of economics, in the 1920s, to the editors of the “Glasgow Edition” of Smith’s works in the 1970s (who saw only a “pseudo-problem based on ignorance and misunderstanding”) – showed that the two books shared a philosophical spine. Far from renouncing his earlier moral philosophy, the later Smith had extended it to the economic sphere. The “invisible hand” was never meant as an ode to greed; it was a metaphor for the way that social benefits can arise from individual human motives (or “passions”), provided that institutions channel them appropriately. As Smith’s contemporary and friend David Hume observed, the scaffolding of social order rests on a fragile blend of self-love and sympathy. Smith’s own answer to the human predicament was not to abolish self-interest but to channel it through habits of virtue, civic trust, and the judgment of an imagined “impartial spectator.” Markets, in this vision, were not moral vacuums but extensions of moral life. The misunderstanding endures because modern economics, in its quest for predictive precision, amputated Smith’s psychology. In the 20th century, as models grew more mathematical, “economic man” was stripped of sentiment and context. The Enlightenment’s nuanced moral agent was replaced by a stick figure of rational calculation. It was the Nobel laureate economist Amartya Sen who brought the original debate back to the fore. “The so-called Adam Smith Problem,” he wrote, “is largely of our own making.” For Sen, Smith’s idea of self-interest was never naked greed, but a sentiment woven into the fabric of social life – one disciplined by prudence, justice, and benevolence. The contradiction, Sen suggests, lies not in Smith, but in our own impoverished reading of him. It is we who have elevated greed as a virtue. Recent scholarship has added to this insight. The Boston University philosopher Charles Griswold portrays Smith as a philosopher of virtue, while the Harvard University economic historian Emma Rothschild has restored his Enlightenment humanism. Together, they show that the division between the moral and the economic is a historical artifact – one that we urgently need to dispense with. With the fissure between morality and markets emerging as the central fault line of our age, this task has become more pressing than ever. From the 2008 financial crisis and the rise of populism to the planetary emergency of climate change and misaligned AI, what further evidence do we need that our economy is unmoored from ethics? Why are we still clinging faithfully to the idea of a global economy that will by some alchemy turn financial self-interest into the common good? Revisiting Smith through the lens of Das Adam Smith Problem reveals a thinker who might guide us out of this impasse. Far from preaching laissez-faire to the exclusion of all else, Smith was preoccupied with moral education and institutional design. He warned that commerce, if not accompanied by civic virtue, would corrupt “moral sentiments.” He anticipated the distortions of inequality and the dangers of what we would now call “regulatory capture.” Smith’s answer was neither state socialism nor unbridled markets, but something subtler: a moral economy grounded in sympathy and the pursuit of human flourishing. In that sense, he stands closer to Aristotle’s virtue ethics, or even to modern behavioral and cooperative economics, than to the mechanistic utilitarianism often attributed to him. The irony is that in our rush to claim Smith as the father of modern economics, we have exiled the Smith that might redeem that discipline. We have failed to recognize his two key works as complementary elements of a unified, albeit unfinished, “science of man.” By solving Das Adam Smith Problem, we would also close the rift between efficiency and empathy that is undermining our entire civilization. The problem lies not in Smith, but in our own society. If 18th-century thinkers identified it, we must resolve it, not by resurrecting markets or morals alone, but by reviving the dialogue between them. Smith began that exchange, and we have yet to finish it.
