Adam Smith (Virtue Ethics) Against Jeremy Bentham(Utilitarian Ethics): Two Completely Different, Conflicting Types of Capitalism Result From Their Distinct Ethical and Economic Positions

Abstract

Adam Smith's ethical concerns and recommendations for behavior, based on a rock-solid foundation of Aristotelian Virtue Ethics, leads to a completely different, conflicting type of capitalism then that advocated by Jeremy Bentham's egoistic, act utilitarianism, which forms foundation for Benthamite Utilitarian ethics. The ethical and economic divide separating Bentham and Smith is so wide that no compromise or synthesis is possible regarding their two systems. Both Bentham and Smith recognized this. Bentham's two 1787 books, Defence of Usury and The Principles of Morals and Legislation, represent a direct, but subtle, attack on Adam Smith. Smith responded to Bentham's attack on The Theory of Moral Sentiments by spending all of his energy over last three years of his life strengthening and revising his The Theory of Moral Sentiments in order to strengthen Part 6 of that book in order to withstand, counter and repel Bentham's attack. Bentham, always conniving, devious, cunning, sly, and tricky master of intrigue that resulted from his lifelong commitment and service to British East India Company, on surface would always compliment Adam Smith as one who was the father of political economy, a great master, and a writer of consummate genius. Bentham's attacks on Smith's foundation of virtue ethics, which was based on impartial spectator and role of sympathy, take place in chapter 2 on pp.8-25 of The Principles of Morals and Legislation. Bentham cleverly misrepresents Smith's emphasis on sympathy by criticizing all systems based on sentiments relating to sympathy and antipathy. Smith's system has nothing to do with antipathy. At end of chapter 2 in The Principles of Morals and Legislation, Bentham makes it clear that no other concept except utility, can ever serve as foundation for ethics. Bentham's attack on Wealth of Nations takes place in his Defence of Usury, where Bentham attempts to challenge Smith's demonstration that major cause of macro instability, bubbles, deflation, and inflation is economic power of some members of upper-income class that Smith described as prodigals, projectors, and imprudent risk takers. The prodigals, projectors, and imprudent risk takers, such as John Law, British East India Company, and Bentham himself, were able to obtain bank loans in order to carry out their speculative plans involving financial manipulation of land or real estate. Smith's analysis of Ayr bank collapse in 1772 showed how massive loans made by bank directors to British East India Company connected individuals for land speculation led to a four-year depression in Scotland. Smith thus separated prudent, sober, middle class merchants and tradesmen, who produced and consumed physical goods and services, from upper-class speculators and financial manipulators associated with British East India Company, by far most powerful economic force in world in 17th and 18th centuries, whose get rich quick schemes were purely speculative and involved financial manipulation. The prodigals, projectors, and imprudent risk takers thus represented an internal, endogenous threat to macroeconomy. This directly conflicted with Bentham's pendulum model, based on constant oscillations (negative feedback) between happiness and unhappiness that only allowed for exogenous, external threats to macroeconomy, as well as creating havoc with Bentham's representation of all consumers as utility (preferences, tastes) maximizing individuals and all producers as profit (capital, labor technology, entrepreneurship) maximizing individuals. Smith, as he did with Sir James Steuart, effectively refutes Bentham's attack on sentiments-impartial spectator-sympathy approach without mentioning Bentham by name. The real advocate of Invisible Hand-self adjusting, pendulum model is Bentham and not Smith. G Kennedy has forcefully demonstrated that an Invisible Hand economy can't have any prodigals, projectors, and imprudent risk takers in it or it will break down at macro level. The existence of such individuals simply means that there is an internal, endogenous impact, which generates positive feedback that moves economy farther away from any optimal equilibrium over time. All other writers on Adam Smith have mistakenly followed Jevons, Sedgwick, and Viner in foisting a pendulum model on Smith that Smith entirely rejected. Any claim that Smith's system of ethics and economics is based on an Invisible Hand, resulting in a self-correcting, self-adjusting pendulum model, where market prices and wages automatically convert private greed into a social macroeconomic optimum for all participants, has badly confused Smith with Bentham.