Updated Jan 2021 to add Socrates

Smith = Hume = Socrates Icon

August 15, 2015

People’s confusion regarding Smith’s works, such as his stand on capitalism, arises because he did not define nor explain self-interest, private ownership, and why a person should have the profits of one’s own work.

It is but equity that those who feed, clothe and lodge the the people, should have such a share* of the produce of their own labour

Capitalism violates the concept of profit-sharing by giving all the profits* to the investor or owner.

*Currently, the poor clearly do not get a share of the proceeds of their labor, since wages are measured in nominal terms, such as $10/hour. In Smith’s system, wages would be measured in real value, such as 2.5 big Macs/hour, equating wages with food. This system was later objected to by Malthus who said that it would worsen famines, neglecting the fact that Smith said such a system will only be enforced during normalcy and not during disasters.

However, this is not obvious to modern economists because Smith did not define these explicitly. Instead it was mixed up in his long explanations which made it hard to understand to shallow-minded readers. Worse, he simply referred the reader to other writers who explained those concepts in even more detail:

This scheme is explained fully by Mr. du Verney in his Examination of the Political Reflections upon Commerce and Finances of Mr. du Tot that I shall not give any account of them.
Mun’s book,England’s Treasure in Foreign Trade, became a fundamental maxim in the political economy of England and all commercial countries. On the Maxims of Mercantile System
David Hume has answered most deeply, clearly, and elegantly as to why utility pleases. On Utility, from Simple TMS Book 4, Chapter 1

In other words, Smith is like saying, “I won’t explain their works, you must read them yourself! Don’t be lazy.” Smith gives one clear instance of academic laziness causing mistakes in prices, which in turn contributed to the wrong economic policies being implemented:

They were misled by the careless transcription of ancient statutes by lazy copiers and by the legislature. Simple WN, Book 1, Chapter 11

The Influence of Hume

In both The Wealth of Nations and The Theory of Moral Sentiments, David Hume stands out as the one consistently admired by Smith, aside from Quesnay and Hutcheson. If you read Books 2 and 3 of Hume’s Treatise of Human Nature, you will see the origin of Smith’s ideas on sentiments, sympathy, justice, and even division of labour.

Other authors, such as Cannan, wrongly attributes Smith’s division of labour to Mandeville. This error is proven by the fact that Smith said that Mandeville’s philosophy was wrong and opposite of the one he was advancing. For example, the purpose of Mandeville’s divison of labour is utility for the self, whereas Hume’s is for existence and society. Cannan probably saw the same words ‘division of labour’ from both Smith and Mandeville and made the connection without going into their subtle differences. This mistake can also be seen more recently in Samuelson’s wrong interpretation of Smith’s invisible hand. He probably just saw the words ‘self-interest’ and made his own connection to ‘selfish-interest’. To Socrates, this is a technique used by sophists who connect seemingly similar words in order to craft absurd philosophies which might make sense on the surface, but actually have zero foundation. Examples of such sophistical philosophies are Objectivism and laissez faire.

There is so much similarity between Smith and Hume, that I would go as far to say that The Theory of Moral Sentiments and The Wealth of Nations have their base in Hume. This implies that an expert on Smith’s works must know something about Hume’s major works. Hume praised Plato’s works and so we can add Socrates, Plato’s guru, to the influences of Hume and Smith.

Idea Smith Hume Socrates
Division of Labour “The division of labour causes an increase in the productivity, skill, and judgement of people in society.” Simple Wealth of Nations, Book1, Chap. 1 “When every person labours apart only for himself, his force is too small to execute any considerable work. Society remedies these inconveniences. By the conjunction of forces, our power is augmented. By the partition of employments, our ability increases.” Simple Treatise, Book 3 Part 2, Section 2 ‘The division of labour which required the carpenter and the shoemaker and the rest of the citizens to be doing each his own business, and not another’s, was a shadow of justice." The Simple Republic by Plato
Proper Social Distribution of Wealth “The landlord is obliged to distribute the rest among those who nicely prepare that little which he himself uses, those who fit up the palace where this little is consumed, those who provide and keep in order all the baubles and trinkets employed in the economy of greatness.” Simple TMS, Part 4, Chapter 1 “A rich man lies under a moral obligation to communicate a share of his superfluities to those in necessity.” Simple Treatise, Part 2, Sec 1 “On the other hand, the men of business stoop as they walk. They pretend not to see those whom they have already ruined. They insert their sting—their money—into someone else who is not on his guard against them. They recover the parent sum many times over. And so they make drone and pauper to abound in the State. The evil blazes up like a fire. They will not extinguish it, either by restricting a man’s use of his own property nor by letting every one enter into voluntary contracts at his own risk.” The Simple Republic by Plato Book 9
Social, Regulated Self-interest “But those exertions of the natural liberty of a few individuals which might endanger the security of the whole society, should be restrained by the laws of all governments, of the most free as well as of the most despotical."Simple Wealth of Nations Book 2, Chap 2 “Only self-interest is capable of controlling self-interest through a change in its direction. This change must happen on the smallest reflection, since self-interest is better satisfied by restraining it than by letting it free. We acquire possessions better in a society than in the solitary and forlorn condition.” Simple Treatise, Part 2, Sec 2 “In the acquisition of wealth, there is a principle of order and harmony which he will also observe. He will not allow himself to be dazzled by the foolish applause of the world and heap up riches to his own infinite harm. He will look at the city which is within him. He will take heed that no disorder occur in it, such as might arise either from superfluity or from want. On this principle he will regulate his property and gain or spend according to his means” The Simple Republic by Plato Book 9
Declining Profits is Good and Natural for Society “When profit diminishes, merchants complain that trade decays, though this reduction is the natural effect of its prosperity, or of more stock being employed in it than before.” Simple Wealth of Nations Book 1, Chapter 9 “An extensive commerce, by producing large stocks, diminishes both interest and profits..as low profits arise from the encrease of commerce and industry, they serve in their turn to its farther encrease, by rendering the commodities cheaper, encouraging the consumption, and heightening the industry” Essays, Part 2, Essay 4 Of Interest “But there are two causes of the deterioration of the arts: Wealth and Poverty. When a potter becomes rich he will not think of you as much as before, grow more and more indolent and careless, and become a worse potter” The Simple Republic by Plato
Moral Sentiments from Sympathy The virtues of prudence, justice, and beneficence only produce the most agreeable effects. These effects are originally recommend them to the actor and afterwards to the impartial spectator.” Simple Theory of Moral Sentiment, Part 6 “Here is a man skilled in business. An esteem for him immediately arises in me. The qualities that please me are all useful to him. The person is a stranger. I am not interested in him. His happiness does not concern me more than the happiness of every other human. That is, it affects me only by sympathy. From sympathy, I enter so deeply into his happiness whenever I discover it, whether as a cause or effect.” Simple Treatise, Book 3 “There is unity where there is community of pleasures and pains, where all the citizens are glad or grieved on the same occasions of joy and sorrow. Where there is no common but only private feeling, a State is disorganized. This happens when half of the world is triumphing and the other is plunged in grief at the same events.” The Simple Republic by Plato Book5, Chapter 2

It is so easy to see that these ideas have been overturned by economists and free-marketers who say that excess is good for society, profits must keep on increasing, and government must never restrain private interests. Such shallow and popular ideas crop up all the time and should be expected. But there should always be wiser humans to counter them so that they won’t take root in the minds of the majority.

For example, Hume countered the prevalent dogmatic Christian beliefs, while Smith countered mercantile beliefs and self-interested philosophies.

The Modern Dark Ages began with the French Revolution

Why is our generation lacking the same wise people to counter ultra-rational beliefs* such as Utilitarianism, Liberalism, and Objectivism?

If the experts on Smith and Hume successfully countered laissez faire from the 1990’s, would the 2008 Financial Crisis happen?

Must it take another huge economic crisis for wiser philosophers to come up and counter ultra-rationalism, just as a meat lover must suffer from a stroke before listening to a doctor who comes up and advises him to cut down on meat?

*Smith and Hume point to the heart or feeling as the basis or morality and not the brain or intellect, whereas rationalists focus solely on the brain or intellect, disregarding feeling. By disregarding feelings, rationalism allows only one feeling to exist – the feeling of the self or ego, as without ego one does not exist. Thus, by denying feeling, rationalists unknowingly breed selfishness and end up working against society and themselves in the end.

Rationalism and objectivism are useful in backward societies that have no reason, such as in ultra-religious countries that oppress their own people. But they are usually harmful in modern societies that are already too intellectual or rational. Modern societies need more heart instead. Thus, an ideal human philosophy should balance heart and brain, with the heart first and brain immediately afterwards, as what is observed naturally.