Introduction
For most of the two centuries following his death, Adam Smith was known primarily for his contributions to economics. However, something happened around the bicentennial of the publication of An Inquiry into the Nature and Causes of the Wealth of Nations. Thanks to a resurgence of scholarly interest in Smith’s first book, The Theory of Moral Sentiments, he came to be seen, again and rightly, as first and foremost a moral philosopher.Footnote 1 Many subsequent studies note his particular concern with concepts of virtue and flourishing,Footnote 2 so that it has become common today to find Smith described as a virtue ethicist.Footnote 3
All of this is to be welcomed. But it also creates a problem, namely, how the theory of virtue developed in The Theory of Moral Sentiments comports with the economic world described in the Wealth of Nations. At this point, the problem becomes a Problem. For as Smith scholars know all too well, the question of how Smith’s two books go together has been with us for 150 years now, as the classic nineteenth-century German version of Das Adam Smith Problem has recently been reborn as a so-called “new Adam Smith Problem.”Footnote 4
Are we destined to be forever trapped by this problem? I don’t think so. For there is another largely unexplored route to Smith’s views on virtue in commercial society available to us. This route would focus on the treatment of virtue and human flourishing to be found in the Wealth of Nations itself. For in fact the Wealth of Nations contains a strikingly robust theory of the relationship between virtues and institutions, one centered on the question of how the incentive systems created by various institutional structures encourage or impede the moral development of both individuals and societies.
This essay documents this underappreciated approach and aims to demonstrate its ubiquity in the Wealth of Nations across several institutional contexts. Yet to say that this approach is underappreciated today is hardly to say that it has gone unnoticed. Smith’s understanding of the significance of institutions is systematically presented by Nathan Rosenberg in a classic article, and Jerry Muller’s important book further develops several of Rosenberg’s insights.Footnote 5 Rosenberg’s crucial contribution shows that Smith was not only interested in the “allocative efficiency” of market processes, but also “the ultimate impact, in terms of human action and its welfare consequences, of different kinds of institutional arrangements.”Footnote 6 More recently, others call attention to the specifically moral significance of Smithean institutions. Eric Schliesser emphasizes Smith’s “moral evaluation of social institutions,” noting especially how Smith evaluates these institutions in terms of their “positive impact on the common people.”Footnote 7 Christina McRorie recently notes the ways in which “moral contexts”—including “cultural, institutional, legal and commercial environments”—shape human beings in the Wealth of Nations, and specifically shape “our very character and capacities for acting and being.”Footnote 8 This represents an important trend, one on which I build in a specific way. Where McRorie largely focuses on Smith’s treatments of the morally detrimental effects of certain pernicious institutions, I want to focus on the obverse: Smith’s many examples of well-constructed institutions that incentivize the virtues characteristic of commercial society.Footnote 9
To this end, what follows particularly focuses on one of the most important virtues of commercial society, that of industry. Industry plays an important role in The Theory of Moral Sentiments itself. At times, Smith presents industry as an expression of the virtue of prudence (one of his four core virtues), associating it with work and effort that advances self-interest. At other times, he presents it as an expression of the virtue of self-command (another of the core virtues), associating it with patience, fortitude, and self-denial.Footnote 10 But industry plays a particularly important role in the Wealth of Nations, and here I focus on it in order to help advance three claims. First, Smith believes that the mark of a well-constructed institution is not just its capacity for utility maximization, but also its capacity to maximize moral development. Second, Smith locates the mechanism of well-constructed institutions that promote character development specifically in their capacity to incentivize self-interest in ways that are both economically and morally beneficial.Footnote 11 Third, well-designed Smithean institutions are in fact morally beneficial in two discrete ways: (1) by encouraging the character development of those who directly participate in them and (2) by being morally beneficial to those affected by their operations.
Economic institutions
Smith’s institutional analysis in the Wealth of Nations encompasses three types of institutions: economic and financial institutions (covering production, labor, and capital), political institutions (laws, courts, and the military), and social institutions (churches, schools, and theater). My analysis here is organized around these groupings and begins with Smith’s treatment of economic institutions.
Smith’s famous departure point in the Wealth of Nations is the remarkable increase in productivity made possible by the division of labor. It is appropriate that we begin here as well because Smith’s well-known discussions of various systems of production across different stages of society continually return to the unifying theme of his analysis of the moral effects of institutions: his insistence that “the understandings of the greater part of men are necessarily formed by their ordinary employments.”Footnote 12 For especially evident in his treatment of the moral effects of various systems of production is this insistence that both the ethical character and the intellectual virtues of human beings are principally shaped by the institutional context in which they live and work.
The most prominent and striking side of Smith’s analysis on this front concerns the ways in which labor conditions of modern manufacturing shape workers for the worse. Smith’s argument here is easily enough stated and concerns the odd double-edged sword of divided, specialized labor. Early in the Wealth of Nations, Smith emphasizes divided labor’s benefits: “[B]y reducing every man’s business to some one simple operation, and by making this operation the sole employment of his life,” specialization “necessarily increases very much the dexterity of the workman.”Footnote 13 Only much later does he turn to the other side of the equation, noting that these material gains are in fact bought at remarkable moral costs. Repetitive labor may increase dexterity and thus efficiency, but it also deprives the worker of opportunities to improve himself at the same time that it compels him to engage in mind-numbing repetitive tasks. The tragic result, Smith explains, is that the laborer’s “dexterity at his own particular trade” is necessarily “acquired at the expence of his intellectual, social, and martial virtues,” such that in time “all the nobler parts of the human character may be, in a great measure, obliterated and extinguished in the great body of the people.”Footnote 14
Herein, as several commentators note, lies Smith’s worry about the “almost entire corruption and degeneracy of the great body of the people” he fears may be endemic to a commercial society.Footnote 15 Here, too, as has also been noted, lies the motivation for Smith’s turn to universal schooling at state expense, in order to mitigate at least some of these corruptions, on the grounds that “in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.”Footnote 16 But while these pernicious moral effects of manufacturing are now well appreciated, less well appreciated is Smith’s insistence on the positive moral effects of other systems of production. Indeed, in examining the production systems characteristic of premodern societies Smith makes clear that the ordinary employments of workers in these systems provided the very sorts of stimuli to development that laborers in manufacturing-based economies lack. In particular, these systems offered a wide variety of challenges and opportunities that served to awaken and thereby develop the mind and character of the producer, a variety that stands in stark contrast to the “uniformity” of the experience of the manufacturer, who consequently could achieve nothing but a “drowsy stupidity.”Footnote 17
The fact that “in a rude society there is a good deal of variety in the occupations of every individual,” whereas there is “little variety” in modern manufacturing, is itself an organizing principle of Smith’s analysis of the stages of economic development in the Wealth of Nations. With specific reference to “the barbarous societies, as they are commonly called, of hunters, of shepherds, and even of husbandmen in that rude state of husbandry which precedes the improvement of manufactures,” Smith suggests “the varied occupations of every man oblige every man to exert his capacity, and to invent expedients for removing difficulties which are continually occurring.”Footnote 18 This is also and especially true of agricultural societies. In the first chapter of the Wealth of Nations, Smith emphasizes the degree to which farming necessarily admits of far less specialization and division of its labor than manufacturing.Footnote 19 Only later does he explain the moral significance of this, arguing that even as farmers are often written off as the “pattern of stupidity and ignorance,” the truth is that they are often possessed of a highly developed “judgment and discretion” as a result of their employments, which compel them “to consider a greater variety of objects.” Thus, where “[t]he man who works upon brass and iron, works with instruments and upon materials of which the temper is always the same, or very nearly the same,” those employed in husbandry and farming work “with instruments of which the health, strength, and temper, are very different upon different occasions.”Footnote 20 Aside from the many other ways in which farming and flourishing comport, here he praises premodern systems of production for the ways in which they stimulated virtuous development: the epitome of a society that “places the greater part of individuals in such situations as naturally form in them, without any attention of government, almost all the abilities and virtues which the state requires.”Footnote 21 And Smith elsewhere celebrates “the pleasures of a country life,” “the tranquillity of mind which it promises,” and “the independency which it really affords.”Footnote 22
These discussions of the moral effects of various systems of production all concern what we might call evolved institutions: institutions that emerged over extended time-horizons via the unconscious collective agency of numerous actors. Yet when Smith turns his attention to economic institutions that are the result of conscious design by specific individuals, he continues to focus on their moral effects. In particular, he continues to insist that these moral effects are often directly attributable to the specific ways in which the institutions are structured. One designed institution in which this is especially evident is the joint-stock company. In the Wealth of Nations, Smith tends to present the joint-stock company as an example of an especially pernicious type of monopoly. But he is notably perceptive in examining how their particular institutional structures serve to perpetuate certain vices.Footnote 23 The South Sea Company, for example, provides him with an example of how vice, taking the form of “folly, negligence, and profusion,” follows directly from poor institutional design, taking the form of the instability inherent in “an immense capital divided among an immense number of proprietors.”Footnote 24
Yet among the joint-stock companies, the worst offender by far in Smith’s eyes was the East India Company. Smith’s scathing critiques of its barbarity and its inefficiency are well documented.Footnote 25 But he also pointedly criticizes the East India Company for its moral effects, which he traces to its institutional structure. In this vein he concludes his extended excoriation of the East India Company’s depredations of India with the following observation:
I mean not, however, by any thing which I have here said, to throw any odious imputation upon the general character of the servants of the East India company, and much less upon that of any particular persons. It is the system of government, the situation in which they are placed, that I mean to censure; not the character of those who have acted in it. They acted as their situation naturally directed, and they who have clamoured the loudest against them would, probably, not have acted better themselves.Footnote 26
Here, Smith makes clear that it is “the system of government, the situation in which they are placed” that principally shapes the behavior of actors. Sometimes, this works to the good, of course. Smith even grants that “the councils of Madras and Calcutta have upon several occasions conducted themselves with a resolution and decisive wisdom which would have done honour to the senate of Rome in the best days of that republick.” In this case, the institution clearly made the man, and indeed for the better, with Smith insisting that it was “their situation alone” (that is, their participation in the council) that formed in them their “great qualities” and all their “abilities and virtues.” Yet Smith is also quick to note the fact that men are often shaped for the worse by such institutions, insisting that for every Madras or Calcutta council that inspired “actions of magnanimity,” countless others have prompted men “to exploits of somewhat a different nature.”Footnote 27
What then explains the difference between these? To help us understand this, Smith focuses his discussion of the East India Company on the way in which its structure incentivized a perverse form of self-interest. To this end he especially focuses on its procedures for election to its court of directors. As he notes, some proposed procedural reforms had been advanced in the hopes that they might render the directors “likely to act with more dignity and steadiness than they had usually done before.” But Smith for his part thinks the East India Company so structurally unsound that no piecemeal reforms could cure it. The key problem was that “the greater part of their members must always have too little interest in the prosperity of that empire, to give any serious attention to what may promote it.” Indeed rather than give the stockholders reasons to take an interest in India, the East India Company instead perversely incentivized its stockholders to buy stock merely so they could have a vote in the court of proprietors:
Provided he can enjoy this influence for a few years, and thereby provide for a certain number of his friends, he frequently cares little about the dividend; or even about the value of the stock upon which his vote is founded. About the prosperity of the great empire, in the government of which that vote gives him a share, he seldom cares at all. No other sovereigns ever were, or, from the nature of things, ever could be, so perfectly indifferent about the happiness or misery of their subjects, the improvement or waste of their dominions, the glory or disgrace of their administration; as, from irresistible moral causes, the greater part of the proprietors of such a mercantile company are, and necessarily must be.Footnote 28
For Smith, the East India Company thus stands as a classic example of an institution that incentivizes the self-interest of its direct participants in ways opposed to the interests of those principally affected by its operations.
This corruption of elites by the institutions in which they participate is of great concern for Smith, both for its immediate effects and for its less obvious effects. Among its more obvious effects is the way in which certain institutions facilitate the collaboration of elites. Smith particularly calls attention to the way merchant and manufacturing elites, when gathered together and animated by “that exclusive corporation spirit which prevails in them,” seek to leverage their power at the expense of consumers.Footnote 29 Smith recognizes that this elite corruption also has other deleterious consequences. Thus, in one of his most important reflections on the relationship of wealth to virtue, he observes:
The high rate of profit seems every where to destroy that parsimony which in other circumstances is natural to the character of the merchant. When profits are high, that sober virtue seems to be superfluous, and expensive luxury to suit better the affluence of his situation. But the owners of the great mercantile capitals are necessarily the leaders and conductors of the whole industry of every nation, and their example has a much greater influence upon the manners of the whole industrious part of it than that of any other order of men. If his employer is attentive and parsimonious, the workman is very likely to be so too; but if the master is dissolute and disorderly, the servant who shapes his work according to the pattern which his master prescribes to him, will shape his life too according to the example which he sets him.Footnote 30
Smith’s reflections are crucial for understanding how the virtues of commercial society may work against themselves, as the newly opulent abandon the virtues that helped them gain their opulence in the first place. But for our present purposes, the significance of the passage lies in the way it further shows how individual character is shaped by institutions. Here, the issue is one of shaping by example, with workers following the lead of their employers. Elsewhere, Smith explains that several institutions associated with the regulation of labor have a similar effect. On this front, Smith especially criticizes the institution of apprenticeship. For not only does apprenticeship do violence to the natural right of individuals to dispose of their property in their labor as they please, but it also tends to moral corruption.Footnote 31 On this front, Smith notes that “[t]he institution of long apprenticeships has no tendency to form young people to industry,” but quite the opposite: workers compelled to apprentice, he insists, “generally turn out very idle and worthless.” This is so, he argues, because the conditions of this institution fail to incentivize apprentices to improve themselves. Thus, where a journeyman who sells his wares directly to customers is “likely to be industrious, because he derives a benefit from every exertion of his industry,” an apprentice “is likely to be idle, and almost always is so, because he has no immediate interest to be otherwise.”Footnote 32 Apprenticeships are thus not only market-distorting insofar as they encourage a form of labor monopoly by guilds hoping to restrict competition, but are also morally distorting insofar as they incentivize laziness rather than industry.Footnote 33
Herein lies one of Smith’s arguments in favor of free markets in labor: markets naturally encourage cultivation of the very habits of industry that apprentices lack:
The pretence that corporations are necessary for the better government of the trade, is without any foundation. The real and effectual discipline which is exercised over a workman, is not that of his corporation, but that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence. An exclusive corporation necessarily weakens the force of this discipline.Footnote 34
Clearly, the market plays an educative moral function; competition, that is, not only produces better products, but also better characters. Smith develops a similar point in his critique of slavery. He was a prominent eighteenth-century critic of slavery and the slave trade, and in the Wealth of Nations, he tends to frame his argument in terms of economic inefficiency. But his argument also has a moral element, one which comes into relief when set next to his arguments against apprenticeships, as both arguments center on these institutions’ failures to engage self-interest. In depriving its victims of the right to own property in land or labor, slavery impedes industry: “A person who can acquire no property, can have no other interest but to eat as much, and to labour as little as possible,” Smith explains, noting further that “[w]hatever work he does beyond what is sufficient to purchase his own maintenance” can only be elicited by threat of “violence” and never “any interest of his own.”Footnote 35 The result is the incentivizing of ease, as a slave “who can acquire nothing but his own maintenance, consults his own ease by making the land produce as little as possible over and above that maintenance.”Footnote 36 So too slavery disincentivizes ingenuity, and indeed in much the same way that manufacturing labor does.Footnote 37 Slaves then lack industry and ingenuity for reasons that have nothing at all to do with their natural capacities and everything to do with the way in which slavery violates the natural interests of the individual.Footnote 38
Political institutions
Smith’s analysis of the moral effects of political institutions in the Wealth of Nations parallels his analysis of the moral effects of economic institutions. Just as poorly constructed political institutions can often have detrimental effects, well-constructed ones can often have positive moral effects. Here again, the difference between these comes down to the ways in which the institutions engage or fail to engage the natural interests of their participants.
This is perhaps most evident in Smith’s treatment of judicial institutions. Smith’s main discussion of the institutions of justice in the Wealth of Nations comes in book five’s analysis of the public funding for such institutions. As part of this analysis, he includes a history of the evolution of judicial institutions that begins with a comparative analysis of ancient institutions. “In the republicks of ancient Greece, particularly in Athens,” he claims, “the ordinary courts of justice consisted of numerous and, therefore, disorderly bodies of people, who frequently decided almost at random, or as clamor, faction and party spirit happened to determine.” He then contrasts Greece with Rome: “At Rome, on the contrary, the principal courts of justice consisted either of a single judge, or of a small number of judges, whose characters, especially as they deliberated always in publick, could not fail to be very much affected by any rash or unjust decision.” Here, Smith ties the superiority of the Roman courts over the Greek courts to their structural organization, insisting that the former owe their superiority precisely to the ways in which their structures incentivized morally salutary judicial behavior. For by rendering the judges of these courts accountable to the public eye (an idea that draws on the spectator theory of The Theory of Moral Sentiments) the Roman courts channeled the judges’ natural “anxiety to avoid blame” in ways beneficial to both the judges and the state, insofar as this concern for their reputation led the judges to attend “to practice and precedent,” rendering Roman law a “regular and orderly system.” The good character of the judges, Smith further argues, had a positive spillover effect on Roman society more generally: “The superiority of character in the Romans over that of the Greeks, so much remarked by Polybius and Dionysius of Halicarnassus, was probably more owing to the better constitution of their courts of justice, than to any of the circumstances to which those authors ascribe it.”Footnote 39
This orderly system, however, fell with the fall of Rome. Smith dedicates the third book of the Wealth of Nations to an account of the ways in which the fall of Rome shaped the progress of economic institutions throughout the feudal and early modern periods. His account in the fifth book of the progress of judicial institutions traces the same path and develops many similar themes. The most striking of these parallels concerns the ways in which the feudal judicial institutions that emerged in the wake of the collapse of Rome replicated the dependence inherent in the system of feudal economic production. In book three Smith famously argues that the direct dependence of the serfs on the largesse of the lords for their subsistence put them in a state of dependence tantamount to slavery. That state was only transcended by the emergence of a manufacturing and trading economy that broke these bonds of direct dependence, thereby rendering them “really free in our present sense of the word Freedom.”Footnote 40 This same dependence characterizes the feudal judicial institutions that emerged after Rome’s fall. As Smith explains, “[i]n those disorderly times, every great landlord was a sort of petty prince” and “[h]is tenants were his subjects”: “He was their judge, and in some respects their legislator in peace, and their leader in war.”Footnote 41 Smith’s point here is that the lord’s “judicial authority” comes from the fact that the lord was “the person, therefore, to whom all those who are too weak to defend themselves naturally look up for protection.”Footnote 42 Here judicial authority, like legislative and military authority, is legitimized by nothing but wealth and power.Footnote 43
Judicial authority so constituted could hardly but be abused, and Smith documents this abuse in detail in his profile of the lords who effectively exploited it to gain even more wealth. As he explains, the lord’s judicial authority, “far from being a cause of expence, was for a long time a source of revenue for him,” as “[t]he persons who applied to him for justice were always willing to pay for it, and a present never failed to accompany a petition.”Footnote 44 But a system in which “administration of justice was a considerable source of revenue” was necessarily ripe for abuse:
This scheme of making the administration of justice subservient to the purposes of revenue, could scarce fail to be productive of several very gross abuses. The person, who applied for justice with a large present in his hand, was likely to get something more than justice; while he, who applied for it with a small one, was likely to get something less. Justice too might frequently be delayed, in order that this present might be repeated. The amercement, besides, of the person complained of, might frequently suggest a very strong reason for finding him in the wrong, even when he had not really been so.Footnote 45
Here, Smith makes clear the full dangers of feudal judicial institutions. In failing to separate judicial power from executive power, the organization of such institutions incentivized the worst sorts of self-interest, leading to both corruption of the judges directly involved in the institution, and a maladministration of justice that affected all those subject to such an institution’s judgments.
Smith thus clearly saw that in such a system the administration of justice could not be anything other than “extremely corrupt,” and indeed “scarce admitted of any effectual remedy.”Footnote 46 In Smith’s eyes, the only possible cure lay in changes that “abolished altogether” the corrupt system of gift-giving. This conviction led him first to support the establishment of “[f]ixed salaries” capable of compensating judges for “the loss of whatever might have been their share of the antient emoluments of justice.”Footnote 47 It also led him to advocate the separation of judicial from executive power, on the grounds that “[w]hen the judicial is united to the executive power, it is scarce possible that justice should not frequently be sacrificed to, what is vulgarly called, politics.”Footnote 48
But Smith also goes further than merely celebrating the traditional constitutional guarantees of judicial independence. For he also, as in several other institutional contexts, calls attention to ways in which markets productively harness self-interest. On all of these fronts, Smith’s reasoning is based on a foundational core principle: “Publick services are never better performed than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in performing them.”Footnote 49 With regard to the institutions of justice, Smith thinks that both the public interest and interests of the individual judges would be best served by creating a competitive market model in which a court would only receive any fees due it after rendering its verdict. Smith even credits this principle with enabling Europe to break the cycle of corruption endemic to feudal judicial institutions, suggesting that “[t]he present admirable constitution of the courts of justice in England was, perhaps, originally in a great measure, formed by this emulation”—that is, the competition between courts—that “took place between their respective judges; each judge endeavouring to give, in his own court, the speediest and most effectual remedy, which the law would admit, for every sort of injustice.”Footnote 50 The lesson from all of this is clear: the individuals who directly administer judicial institutions and those who are subject to their determinations are both better off when such institutions are structured to channel self-interest in salutary ways.
A similar idea is found in Smith’s treatment of legislative institutions. In the Wealth of Nations, the most striking discussion in this vein is found in the treatment of the colonial assemblies of North America. Smith famously published the Wealth of Nations in 1776 as the colonial disturbances were coming to an initial head. This led him to treat in detail the history and possible future of various British mercantile regulations that played such a large part in the drive for colonial independence, but it also led him to examine with care the emerging institutions of self-governance in the colonies. His treatment of these, like his treatment of judicial institutions, focuses on ways in which these institutions served to channel various natural self-interests—in this case, the self-interested desire for status.
Smith lays out with great directness the fundamental psychological principle at work here: “Men desire to have some share in the management of publick affairs chiefly on account of the importance which it gives them.”Footnote 51 Political ambition, he thus explains, is an expression of the human desire for recognition, what The Theory of Moral Sentiments calls the desire “[t]o be observed, to be attended to.”Footnote 52 Smith is as aware as any of the potential for the desire for approbation to degenerate into lower and more vulgar forms of “vanity” and baseless desires for praise. But he also recognizes that when well-channeled, this same concern for status can be morally and politically beneficial, claiming here that “[u]pon the power which the greater part of the leading men, the natural aristocracy of every country, have of preserving or defending their respective importance, depends the stability and duration of every system of free government.”Footnote 53 So while the self-interested desire for status and recognition that fuels political ambition is often destructive, as Smith himself famously shows in his portrait of the “man of system,”Footnote 54 when properly managed it is the key to the perpetuation of “every system of free government.”
In what follows, Smith explains that the emerging colonial assemblies of the soon-to-be-independent states of North America were models of proper management on this front. “The leading men of America, like those of all other countries,” he explains, “desire to preserve their own importance.” Consequently, they naturally resent any form of legislative subordination that would render their authority—and hence their sense of self-importance—inferior to that of their counterparts in Britain. This explains why they not only think their assemblies “as equal in authority to the parliament of Great Britain,” but also why they are willing to die in their defense. In Smith’s words, were the representatives to the colonial assemblies “so far degraded as to become the humble ministers and executive officers of that parliament, the greater part of their own importance would be at an end.”Footnote 55 The assembly thus transformed a predilection for status and esteem into noble and ennobling virtues:
The persons who now govern the resolutions of that they call their continental congress, feel in themselves at this moment a degree of importance which, perhaps, the greatest subjects in Europe scarce feel. From shopkeepers, tradesmen, and attornies, they are become statesmen and legislators, and are employed in contriving a new form of government for an extensive empire, which, they flatter themselves, will become, and which, indeed, seems very likely to become, one of the greatest and most formidable that ever was in the world. Five hundred different people, perhaps, who in different ways act immediately under the continental congress; and five hundred thousand, perhaps, who act under those five hundred, all feel in the same manner a proportionable rise in their own importance. Almost every individual of the governing party in America, fills, at present in his own fancy, a station superior, not only to what he had ever filled before, but to what he had ever expected to fill; and unless some new object of ambition is presented either to him or to his leaders, if he has the ordinary spirit of a man, he will die in defence of that station.Footnote 56
The Continental Congress thus transformed esteem into the noble and signature Smithean virtues of patriotism and self-command, and not only for its members but also for those they represented.
Smith’s praise of the patriotism of the Continental Congress anticipates his later treatment of the moral effects of military institutions. In the Wealth of Nations he presents this in the course of his arguments for public funding of institutions of national defense. In so doing, Smith intervenes in the well-known eighteenth-century British debate over militias versus standing armies.Footnote 57 Yet his reasons for supporting the latter emerge not only from concerns traditionally associated with the militia-army debate, but also from his appreciation of the moral implications of various institutional structures.
Among the key issues here is one that goes back to Smith’s assessment of the effects of the division of labor on character. Above we noted Smith’s worry that repetitive work vitiates all the “intellectual, social, and martial virtues.” But here, Smith explains that the issue is not simply the mind-numbing effects of such routine, but also structural features of society intrinsic to “the progress of manufactures.”Footnote 58 Most importantly on this front, Smith notes that whereas agricultural societies are structured around natural seasonal cycles that allow farmers at set periods to leave the plow and engage in military training or campaigns, manufacture and trade have no such cycles. As a result, any time taken away from the bench or the shop necessarily results in a loss of revenue.Footnote 59 The basic fact that it is not in an artificer’s direct self-interest (narrowly understood) to take time away from work for public service leads Smith to insist that advanced societies, for the sake of their existential preservation, are compelled to establish professional armies.
However, Smith also recognizes that there are moral reasons beyond the obvious practical political reasons to create public armies. Early on, he notes that as a result of this attention to business and neglect of “military exercise,”Footnote 60 the citizens of a commercial society necessarily become “altogether unwarlike.” Later, he says that “in the progress of improvement the practice of military exercises, unless government takes proper pains to support it, goes gradually to decay, and, together with it, the martial spirit of the great body of the people.”Footnote 61 These are not just political but moral problems insofar as they pose obstacles to the realization of an individual’s full potential, thus Smith’s pointed insistence that one who has lost this martial spirit and is “incapable either of defending or of revenging himself,” quite simply and evidently lacks “one of the most essential parts of the character of a man,” and can only be regarded as “mutilated and deformed in his mind.” From not just the perspective of national defense, but also from that of human flourishing, the loss of martial spirit that results in mental mutilation is a tragedy insofar as “happiness and misery, which reside altogether in the mind,” necessarily depend on “the healthful or unhealthful, the mutilated or entire state of the mind.” It is thus precisely with a concern for human flourishing in mind that Smith insists that “[e]ven though the martial spirit of the people were of no use towards the defence of the society, yet to prevent that sort of mental mutilation, deformity and wretchedness, which cowardice necessarily involves in it, from spreading themselves through the great body of people, would still deserve the most serious attention of government.”Footnote 62
Social institutions
Smith’s treatment of social or civic institutions in the Wealth of Nations—including his treatments of religious, cultural, and educational institutions—further develops themes we traced above. Most notably, in treating these social institutions, Smith emphasizes the degree to which their salutary moral effects owe principally to the ways in which, when well-constituted, they effectively channel the self-interest of their participants.
This is especially evident in Smith’s treatment of religion. His most important treatment of it in the Wealth of Nations comes in his response to the argument for state establishment of religion advanced by his friend David Hume, “by far the most illustrious philosopher and historian of the present age.”Footnote 63 Smith’s intervention in this debate is not only a response to Hume, but also an extension of the views on institutional structure he develops in numerous places. Specifically, Smith here again argues for institutional arrangements that develop talents and virtues by incentivizing interests. He introduces this theme in his discussion of how those responsible for religious instruction can be paid. Either they may “depend altogether for their subsistence upon the voluntary contributions of their hearers” or “they may derive it from some other fund to which the law of their country may entitle them,” such as “an established salary or stipend.” Smith argues for the former, on the grounds that “[t]heir exertion, their zeal and industry, are likely to be much greater.”Footnote 64 Conversely, established salaries incentivize laziness, a point Smith drives home in comparing the “well-endowed clergy of the established church” to “the indolent, effeminate, and full fed nations of the southern parts of Asia” when they were “invaded by the active, hardy, and hungry Tartars of the North.”Footnote 65 Smith here thus principally frames the debate not in terms of output (that is, quality of religious instruction) but in terms of virtues and vices, industry and indolence.
As with judges competing for court fees, Smith thinks diligence and industry are only to be expected from the clergy when they are put in the position of having to compete for customers. In what follows he interestingly points to Catholicism for confirmation of this, a rare praise of Catholicism from one who otherwise considers the Catholic Church the enemy of “the liberty, reason, and happiness of mankind.”Footnote 66 Yet “[i]n the Church of Rome,” he explains, “the industry and zeal of the inferior clergy is kept more alive by the powerful motive of self-interest, than perhaps in any established protestant church.” Smith is quick to point out the dangers inherent in this arrangement; noting that the mendicant orders derive “a very considerable part of their subsistence from the voluntary oblations of the people,” Smith likens them to light infantry on the prowl: “no plunder, no pay.”Footnote 67 The key point, though, is that the clergy as here depicted are animated by the same principles as the judges described above and the teachers to whom we will soon turn, for in each case their excellence is incentivized by structuring their pay such that they depend directly on their customers.
Smith elsewhere notes a different kind of salutary moral effect from well-organized religion. Specifically, well-organized religions that keep a watchful eye on their members replicate the spectatorial mechanism presented in The Theory of Moral Sentiments as essential for norm-guided moral behavior. In the Wealth of Nations Smith tells the story of “[a] man of low condition” who moves from a “country village” to a “great city.” It is a move fraught with moral peril; where before, in his intimate community, his “conduct may be attended to,” in this new situation he has “a character to lose.” For here, “sunk in obscurity and darkness,” he is “observed and attended to by nobody,” and is consequently likely, Smith thinks, “to abandon himself to every sort of low profligacy and vice.” This was a real problem Smith would have been well aware of as a direct witness of the urbanization of the British population in the third quarter of the eighteenth century. But Smith also sees a solution to this problem, one that in fact comes from religion. For it is only when the one newly arrived in the city becomes a “member of a small religious sect” that he reacquires the “consideration” he left behind in his village, with his new “brother sectaries” becoming “interested to observe his conduct” and censure his conduct when it reflects poorly on their order. The result, Smith explains, is that “[i]n little religious sects, accordingly, the morals of the common people have been almost always remarkably regular and orderly; generally much more so than in the established church.”Footnote 68 Once again, Smith takes an institutional question and analyzes it in moral terms, showing how the sectarian’s self-interested desire for esteem, together with his brother sectarians’ self-interested desire to preserve the order’s reputation, work together to foster “regular and orderly” morals.
That said, Smith recognizes that institutionalized religion’s benefits come at a cost—indeed, multiple costs. One is the way in which it encourages dependence. We saw above how Smith blames institutions of feudal landholding and feudal justice for reifying the poor’s bonds of dependence. Yet he applies this same argument to the medieval Church, insisting that its distribution of its massive wealth in acts of direct charity served to create dependents on the clergy in ways similar to the serfs’ dependence on the lords prior to the advent of luxury consumption.Footnote 69
Another cost is more directly moral. However “orderly” they may be, the “morals of those little sects,” Smith claims, have also “frequently been rather disagreeably rigorous and unsocial.”Footnote 70 Here and elsewhere, Smith calls attention to the problem of religious enthusiasm and zealotry. Even in his discussion of the clergy and their pay, Smith explicitly associates “industry and zeal” to such an extent that in later editions of the Wealth of Nations, Smith changed the verb form that followed this locution from plural to singular, suggesting industry and zeal could be seen as one and the same.Footnote 71 Smith is troubled by this form of industry, and one of the most prominent features of his treatment of this perversion of industry by religion is the institutional and structural proposals he introduces to mitigate it. And mitigate it the state must, because while Smith believes that the clergy can “scarce ever be forced,” it is yet the case that “they may be managed,” and “the security of the sovereign, as well as the publick tranquillity” depend upon it.Footnote 72
Some of these proposals involve reorganizing the institutions of religion themselves. Most prominently, Smith argues (against Hume) for religious liberty on the grounds that a plurality of sects will create a market competition for believers that can mitigate religious enthusiasm and thus promote “philosophical good temper and moderation.”Footnote 73 Smith also considers other structural reforms, including ways in which various religions elect their leaders. On this front, he specifically contrasts certain sects with the Presbyterian church. In the former, the people are given the right of directly electing their own pastor, which Smith judges to “have been productive of nothing but disorder and confusion,” because the people are manipulated by the interested clergy, the “most factious and fanatical of the order.” The Presbyterian church uses a patronage system, a system of preference under which “[t]here is scarce perhaps to be found any where in Europe a more learned, decent, independent, and respectable set of men.”Footnote 74 But Smith also looks to institutions beyond religion to help mitigate institutionalized religion’s negative externalities. In these, especially in cultural and educational institutions, Smith finds a set of countervailing institutions capable of effectively channeling self-interest.
One of these countervailing institutions is the theater. Smith had a long and complex history with the theater going back to his days as a university administrator.Footnote 75 But in the Wealth of Nations, Smith defends the theater as a public work citizens can be legitimately taxed to support. On this front, he presents the theater as one of the two “very easy and effectual remedies” by which “the state might, without violence, correct whatever was unsocial or disagreeably rigorous in the morals of all the little sects into which the country was divided.” “[A]ll sorts of dramatic representations and exhibitions”—together with exhibitions of “painting, poetry, musick, and dancing”—he explains, “easily dissipate” the “melancholy and gloomy humour” that the zealous aspire to “work on.”Footnote 76 In substituting “gaiety and good humor” for this gloom, Smith foresees a positive role for public arts institutions in the promotion of individual and civic flourishing.
Yet while the theater has an important role to play in the public campaign against zealotry, the key role is to be played by educational institutions. Smith’s treatment of the school system serves as the capstone of both his discussion of religion and public works and of his treatment of institutions more generally. For indeed it is schools, more than any other institution, that shape the human being: a point made explicit in the opening pages of the Wealth of Nations, in Smith’s striking claim that “[t]he difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education.”Footnote 77
Educational institutions thus fittingly become in time the ones that, more than any others discussed in the Wealth of Nations, shape both those who participate in them directly (teachers) and those who receive their goods (students). On the former front, Smith argues, in ways that directly parallel his early discussions of the judges and the clergy, that the way in which teacher remuneration is structured is likely to shape both their performance and their characters. He first notes that the massive endowments of schools and universities have been as harmful to education as state establishment and church endowments had been to religion. Yet here again, he frames the question not just in terms of utility (“Have those publick endowments contributed in general to promote the end of their institution?”) but also in terms of virtue (“Have they contributed to encourage the diligence, and improve the abilities of the teachers?”).Footnote 78 To the second of these rhetorical questions Smith answers a resounding no; far from improving “diligence” they have incentivized laziness, insofar as they “have necessarily diminished more or less the necessity of application in the teachers.” As he had earlier in the case of apprenticeships, Smith traces this lassitude to the fact that “[t]heir subsistence, so far as it arises from their salaries, is evidently derived from a fund altogether independent of their success and reputation in their particular professions.”Footnote 79 This lassitude in turn is then made worse by a teacher’s participation in the “body corporate,” which encourages the faculty to “make a common cause, to be all very indulgent to one another, and every man to consent that his neighbour may neglect his duty, provided he himself is allowed to neglect his own,” a form of collective action that, like the corporations examined above, Smith takes as evidence of the basic truth that “it is in the interest of every man to live as much at his ease as he can.” Smith’s point is that where the teacher’s “salary constitutes the whole of the revenue which he derives from his office … his interest is, in this case, set as directly in opposition to his duty as it is possible to set it.”Footnote 80
Smith turns to market mechanisms once again to break this cycle and reincentivize self-interest in a way that is both utility-promoting and morally salutary. One way in which he creatively employs market mechanisms in education is to encourage greater consumer choice. Noting that contemporary students on scholarships and bursaries could not choose the school they would attend, Smith argues that “[w]ere the students upon such charitable foundations left free to chuse what college they liked best, such liberty might perhaps contribute to excite some emulation among different colleges,” whereas depriving them of choice and compelling them to attend specific institutions tends “very much to extinguish that emulation,” something he knew firsthand from his experience as a Snell Exhibitioner at Oxford, where he received notoriously terrible instruction.Footnote 81 Elsewhere, Smith celebrates ancient educational institutions for precisely this reason, as “the law neither forced any body to go to them, nor rewarded any body for having gone to them,” in contrast to modern institutions, in which “the diligence of publick teachers is more or less corrupted by the circumstances, which render them more or less independent of their success and reputation in their particular professions.”Footnote 82
In addition to calling for greater freedom for students to choose between schools, Smith also calls for greater freedom for students to choose their curriculum within their school. Here, he argues that when classes are not “voluntarily chosen by the student, but appointed by the head of the college,” this not only will “tend very much to extinguish all emulation among the different tutors of the same college, but to diminish very much in all of them the necessity of diligence and of attention to their respective pupils.” What is especially interesting about these different “incitements to diligence” is the fact that Smith defends these not simply as appeals to the teacher’s material self-interest but again to the teacher’s natural interest in esteem and “reputation.”Footnote 83 Aware that “rivalship and emulation” render excellence “an object of ambition, and frequently occasion the very greatest exertions,” Smith seeks to create a competitive market in reputation among teachers. Thus knowing that for the teacher “[r]eputation in his profession is still of some importance to him,” and that he cares for “the affection, gratitude, and favourable report of those who have attended upon his instructions,” Smith aims to use this to incentivize virtue, and specifically to incentivize “the abilities and diligence with which he discharges every part of his duty.”Footnote 84
Smith clearly recognizes that the characters of teachers could be corrupted or improved by poorly designed educational institutions, but so too the moral character of students. His comments on a common element of contemporary aristocratic education makes this clear. Despite (or perhaps because of) having himself served as a tutor to a young gentleman on a Grand Tour, Smith came to see it as a recipe for vice.Footnote 85 Far from being improved by the experience, the young gentleman, Smith insists, “commonly returns home more conceited, more unprincipled, more dissipated, and more incapable of any serious application either to study or to business, than he could well have become in so short a time, had he lived at home.” The reason for this owes largely to his being away from the watchful gaze of the spectator naturally most concerned for his moral development: “By travelling so very young, by spending in the most frivolous dissipation the most precious years of his life, at a distance from the inspection and controul of his parents and relations,” all of his useful habits are most “necessarily either weakened or effaced.”Footnote 86
In the end, the most significant way education molds character is by offsetting the mental mutilation that Smith already identifies as an effect of the division of labor. It is this that leads him to turn to education as the preeminent institution “necessary in order to prevent the almost entire corruption and degeneracy of the great body of the people.”Footnote 87 In so doing, Smith of course has a specifically utilitarian concern in mind: namely, the interest the state has in ensuring that its citizens, even and especially those who have been mentally mutilated by participation in the dominant system of production, are capable of withstanding the appeals of would-be tyrants and demagogues and others who might have an interest in exploiting a dulled capacity for judgment. But Smith recognizes that the ends of education are not merely utilitarian, thus his insistence that even “[t]hough the state was to derive no advantage from the instruction of the inferior ranks of people, it would still deserve its attention that they should not be altogether uninstructed.”Footnote 88 Here and elsewhere, Smith suggests that education is a good in and of itself, and his comments on the superiority of ancient moral philosophy to modern moral philosophy suggest why. What renders the ancients superior to the moderns here is precisely their focus on that “[w]herein consisted the happiness and perfection of a man,” concerns that modern moral philosophy has forgotten in the wake of the emergence of theology, Smith believes.Footnote 89 And while Smith is hardly so naïve as to think we could simply go back to the ancients, both his views on education and on the institutions of modern commercial society are consistently animated by a concern to promote not just utility, but also “happiness and perfection.”
Conclusion
My aim in this essay has been to show that Smith’s interest in virtue and the virtues extends beyond The Theory of Moral Sentiments—the centrality of virtue to which has long been appreciated—and in fact constitutes an important if underappreciated element of his presentation of the institutions of commercial society in the Wealth of Nations. This, I think, is important for two reasons. First, revisiting the Wealth of Nations from the perspective of virtue can cast new light on Smith’s conception of the role of virtue in modern commercial society. My own discussion here of virtue in the Wealth of Nations has largely focused on the specific virtue of industry, a virtue associated with both self-command and prudence. But Smith’s core virtues also include benevolence and justice, and I hope that in time others might take up the question of the possible role of these virtues in the institutional context of the Wealth of Nations.
Second, approaching the Wealth of Nations through the lens of virtue can shed new light not merely on how we understand Smith, but also on how we understand commercial society itself. Today, we often assume that participation in a market society is necessarily corrupting. Smith himself was profoundly aware of this corrupting potential, as we have seen, yet he also believes that when properly designed, the institutions of a market society have the potential to promote character development. Here ultimately lies his most important lesson on this front: namely, his suggestion that our participation in the ordinary institutions of commercial society is not necessarily character-degrading, but in fact has the potential to be character-developing.
Competing interests
The author declares none.
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