“Total Exemption from Trouble and from Risk”: Adam Smith on the Time of the Subprime Mortgage Crisis

Abstract

Despite Adam Smith’s seemingly firm entrenchment within the liberal tradition, in Theory of Moral Sentiments, he forwards several positions that fundamentally challenge this understanding. Chief among them is his argument that society is necessarily prior to the individual and that our socio-political context therefore shapes our perception of future possibilities. Thus, rational deliberation is not an ahistorical and universal phenomenon, but one that is structured by the context in which it occurs. Moreover, in Wealth of Nations, Smith brings this understanding to bear on socioeconomic relationships, demonstrating how they shape a person’s temporal imagination, and consequently, their perception of self-interest. Far from adhering to a belief in the supremacy of rational self-interest, Smith actually helps us understand how different social contexts can engender profoundly irrational behavior. Using the 2008 subprime mortgage crisis as its primary case study, this article demonstrates that Smith’s analysis offers a novel and penetrating approach to analyzing fiscal crises, while offering a generative approach for developing mitigating interventions.