Adam Smith, human betterment, and his erroneous indentification with self-interested human action

Abstract

In this essay I discuss the proposition that Adam Smith has been widely misinterpreted as asserting in his second book, The Wealth of Nations, that emergent modern economies are driven by the strictly selfish motives of their human inhabitants. The propositions articulated in his first book, The Theory of Moral Sentiments, which offered a theory of society, extended seamlessly into his second book, and continued to be part of his theory of economy. In both works, he distinguished the universal state of being self-interested from actions taken in one's self-interest, and modeled people as creating and following rules of propriety that enabled them to better get along with their neighbors. This distinction explains why, in his second book, he refers to people following their “own interest” in their “own way” explicitly avoiding any suggestion that people pursued only their strictly selfish interests in the process of wealth creation. That cautionary effort failed, although Smith continues to be a spectacularly successful theorist of society and economy, especially of interest to scholars in behavioral and experimental economics.