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Adam Smith’s Marketplace of Life

Author(s):Otteson, James R.
Reviewer(s):Young, Jeffrey T.

Published by EH.NET (April 2004)

James R. Otteson, Adam Smith’s Marketplace of Life. Cambridge: Cambridge University Press, 2002. xiii + 338 pp. $26 (paperback), ISBN: 0-521-01656-8.

Reviewed for EH.NET by Jeffrey T. Young, Department of Economics, St. Lawrence University.

For too long Adam Smith has been viewed almost exclusively as the intellectual property of economists. Economists, I would guess, have written most of the secondary literature. His work has, of course, always been available to the philosophers, but since the publication of the Wealth of Nations there has been a feeling about that Smith was a first rate economist, but a second rate philosopher. The Wealth of Nations was foundational in economics for nearly one hundred years, as the great classical economists forged economic theory from its raw material. Such was not the case in philosophy, as the Theory of Moral Sentiments was little read. Even in recent years as the publication of the Glasgow Edition of Smith’s works has helped spark renewed interest, it has been primarily historians of economics who have taken up an interest in Smith’s philosophy. As might be expected, an over-riding concern has been to discover what a reading of the Theory of Moral Sentiments, along with the rest of his output, can tell us about the Wealth of Nations. There have been significant exceptions to this pattern, but book-length treatments of Smith’s body of thought taken as a whole written by professionally trained philosophers have only very recently begun to emerge. Charles Griswold’s, Adam Smith and the Virtues of Enlightenment (1999) led the way, and James R. Otteson’s book is a very welcome addition to what I hope is a growing interest in Smith among philosophers.

The author, an Associate Professor of Philosophy at the University of Alabama, reports that his initial encounter with the Theory of Moral Sentiments was an eye-opening experience. (p. ix) It was an interest in Hume that led him to Smith, and what he found there was a solution to Hume’s problem of how humans could non-rationally invent the virtue of justice, which exists solely for its social utility. This is the theory of unintended order, which is suggested in Hume, but is fully worked out in the Theory of Moral Sentiments. Furthermore, Smith extends the theory to economic life in the Wealth of Nations and to the formation of language. Indeed, Otteson claims Smith believes it explains the origin of all human institutions. Since the theory receives its most powerful and well known expression in economic theory, Otteson refers to it throughout as Smith’s “market place” model, hence the title of the book.

The book is based on the author’s doctoral dissertation plus three previously published articles. It consists of seven chapters, an introduction, and a conclusion. The first three chapters lay out the market place model as it appears in the Theory of Moral Sentiments. The next two chapters present and partially solve the Adam Smith Problem. The last two chapters respectively take up the issue of the objectivity and historical/cultural transcendence of Smith’s moral standards and the extension of the model to other aspects of social life: language, markets, and morals.

As might be expected, given the historical lack of interest among philosophers in the Theory of Moral Sentiments, a philosophical reading of the book today, can have a large marginal product. Such is the case with Otteson’s book. That Smith developed a theory of unintended order is hardly surprising. However, Otteson’s claim that it was the central insight that united all of Smith’s social theory and its roots in Hume’s problem of invoking utility as the explanation for according virtue to socially constructed rules of justice is not so well known. With philosophical precision, Otteson takes us through the intricacies of Smith’s use of the concept of sympathy and his explanation of moral judgment in the impartial spectator procedure. In this way he is able to convincingly argue that Smith’s theory shows how utility enhancing behavior and moral standards emerge out of a process in which no one could have the knowledge to foresee the connection between these values and the resulting social utility.

Having established the workings of the procedure which leads people to adopt socially useful moral standards, Otteson revisits the Adam Smith Problem and the question of whether Smith’s theory is meant to be purely descriptive or prescriptive. Otteson’s treatment is respectful, yet critical of the major modern writings on Smith. He shows that many of us have been too quick to dismiss the Adam Smith Problem. While it is true that the original statements of the problem may have arisen out of misunderstanding, he points out that there are real problems in reconciling the Theory of Moral Sentiments and the Wealth of Nations. Why, for example, does the Wealth of Nations make no mention whatsoever of the Theory of Moral Sentiments? Why is there no recognition of the principle Smithian virtues other than prudence in the Wealth of Nations? Where is the impartial spectator? Why is the desire to improve our condition viewed differently in the two books? Why is benevolence almost completely absent in the Wealth of Nations? In offering what he claims is a partial solution, Otteson shows the unifying element of the market place model. He is also able to show that the impartial spectator will approve of an agent approaching transactions with strangers out of a self-interested desire to better one’s condition, while expecting the same agent to act out of benevolence when dealing with family and close friends.

On the whole I found the book insightful and persuasive, but I would raise two objections before giving it a whole-hearted endorsement. First, I was perhaps previously disposed to find his argument persuasive, because I have been trying to say many of the same things for quite a few years, but none of my work appears in the book’s references. It is probably bad form to do this, but I think in this case there is some justification. Second, while I agree that the theory of unintended order is the central, unifying insight of Smith’s theory, it is not the whole story. There is also a line of argument, admittedly less well developed, that lays a foundation for selective intervention on the part of government. This is what we now call the theory of market failure in economics, which is present in Smith and can be seen in his according the government the duty of providing public works that have net social utility, but negative private utility. In the larger context, what is going on here is that Smith recognizes that at some point philosophical (or scientific) knowledge will develop to the point where governmental action can intentionally promote social utility, and that such action may be necessary to correct cases where private self-interested action fails to do so. This supports what economists have known for a long time: Smith was no doctrinaire advocate of laissez-faire policies. Otteson nowhere suggests that Smith was such an advocate, but such a conclusion would seem quite appropriate if there is no mention of the exceptions to the market model that Smith himself recognized and discussed.

Now for the whole-hearted endorsement. This is an excellent book. It raises, and offers answers to, all the “standard” questions about Smith. While it may not always be original, it is always insightful and provocative. This is also an extremely well written book. Otteson’s prose is clear, smoothly flowing, and engaging. His explication of Smith is masterly. It should be essential reading for Smith specialists, as well as the general historian of economics.

Jeffrey T. Young is the A. Barton Hepburn Professor of Economics at St. Lawrence University. His work in progress includes: “Unintended Order and Intervention: Adam Smith’s Theory of the Role of the State” and “The Humean Foundations of Adam Smith’s Theory of Property.”

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):18th Century