VIII
THE ADAM SMITH PROBLEM, as it came to be called in Germany nearly a century after Adam Smith’s death, was a German-language version of the earlier French discussion of the relationship between positive and negative liberty on the one side and between work and the right to work on the other. As was the case in the French discussion, the problem centred on the rival claims of individualism versus altruism under conditions of what, by then, was called, unequivocally, capitalism. The problem was encapsulated by the apparent discrepancy between the moral theory that Smith had set out in his Theory of Moral Sentiments of 1759 and the market theory set out in the Wealth of Nations in 1776. According to Smith’s later critics, the basis of the moral theory was sympathy, while the basis of the market theory was self-interest. The Adam Smith Problem was whether—or how—the one could be reconciled with the other. The problem was first highlighted by the Swiss-German historian August Oncken in an article entitled “The Consistency of Adam Smith” that was published in 1897. It was followed, a year later, by the article in which Oncken gave the problem its official name as “Das Adam Smith–Problem.”1
As Oncken explained in the earlier article, it had not been his aim to create the problem because it had already been given its existence, if not its name, in a number of earlier, mainly German-language, commentaries on Smith’s work. These commentaries were largely the work of the German Kathedersozialisten (socialist academics) Bruno Hildebrand, Karl Knies, and Lujo Brentano, whose publications appeared after 1848 chiefly with the aim of giving political economy the kind of moral and social foundations that Smith seemed initially to have recognised but then seemed to have abandoned. In this respect, the publications of the Kathedersozialisten paralleled the earlier French discussions of socialism, capitalism, and the right to work because, like them, they highlighted the role of the state in responding to market failures and in using its legal, fiscal, or financial powers to correct economic and social injustice. There was, therefore, a substantial overlap between the ideas of the German Kathedersozialisten and those of Louis Blanc, and a corresponding emphasis on state finance as an important part of any potential solution to the problem of capitalism. One effect of this late nineteenth-century preoccupation with socialism, the social question, and the right to work was that, by the end of the century, Smith’s examination of the relationship of the division of labour to commercial society had been incorporated into a somewhat different examination of the relationship of capitalism to the state.
Oncken’s formulation of the Adam Smith Problem has dominated discussions of the relationship between Smith’s moral theory and his political economy from the late nineteenth century into the early twenty-first century.2 Over time, it has grown in scale and scope to encompass the broader subject of Smith’s concept of justice and the question of whether his theory was an anticipation of the theory of justice developed by the late twentieth-century Harvard philosopher John Rawls or, instead, was an echo of the earlier set of distinctions made in the seventeenth century by the founder of modern natural jurisprudence, Hugo Grotius, between perfect and imperfect rights and, by extension, between strict justice and a range of more flexible and less binding moral obligations associated with utility, expediency, and virtue.3 To his contemporaries, however, Smith’s theory amounted to a more complicated system that was designed to show how perfect and imperfect rights could be combined with both justice and expediency. This was how Smith’s system was described by the philosopher Dugald Stewart in his Account of the Life and Writings of Adam Smith, a memoir that was published in 1793, two years after Smith’s death. According to Stewart, quoting the recollections of Smith’s former, and then most famous, student John Millar, Smith’s treatment of the subject of justice in his Glasgow University lectures on moral philosophy “followed the plan that seems to be suggested by Montesquieu; endeavouring to trace the gradual progress of jurisprudence, both public and private, from the rudest to the most refined ages, and to point out the effects of those arts which contribute to subsistence and to the accumulation of property, in producing correspondent improvements or alterations in law and government.” Smith’s aim, Stewart added, had been to publish this account of the development of laws and government, but his death in 1791 had meant that only the last part of the course, centred on “those political regulations which are founded, not upon the principle of justice, but that of expediency, and which are calculated to increase the riches, the power and the prosperity of a state,” had seen the light of day.4
The published part of Smith’s system, or the part “founded, not upon the principle of justice, but that of expediency,” was the Wealth of Nations. The unpublished part was foreshadowed in the conclusion to the sixth edition of the Theory of Moral Sentiments, published in 1790. The problem was to try to work out how the two parts were connected. An initial indication of what the connection could have been began to appear a generation later in 1831 in a work entitled A General View of the Progress of Ethical Philosophy that was published by another Scottish philosopher and political theorist named Sir James Mackintosh. Mackintosh (who died the following year) was a member of the group of early nineteenth-century Swiss and French moral, political, and economic theorists associated with Benjamin Constant and Germaine de Staël that has come to be known as the Coppet group. He had in fact known Constant since the time when they were both students at the University of Edinburgh in the 1780s; he also became the brother-in-law of Constant’s close friend, the Franco-Swiss political economist Jean Charles Léonard Simonde de Sismondi, when they each married one of the three Allen sisters (the third sister married one of Josiah Wedgwood’s sons) towards the end of the eighteenth century. Through Mackintosh, the distinction between negative and positive liberty that was one of the hallmarks of the thought of the Coppet group came to be associated with Smith’s distinction between expediency and justice.
Mackintosh made a point in his General View of the Progress of Ethical Philosophy of highlighting the dualism of Smith’s system. Previous moral theorists, he wrote, had not been sufficiently clear in differentiating between what he called “two perfectly distinct subjects: 1. The nature of the distinction between right and wrong in human conduct, and 2. The nature of those feelings with which right and wrong are contemplated by human beings.”5 Although they were both connected to the subject of justice, the first distinction was rational and analytical, while the second was emotional and relied on feelings of approval or disapproval. The emotional distinction, Mackintosh continued, gesturing towards Smith, had been called the “theory of moral sentiments,” while the rational distinction between right and wrong involved examining the criteria of morality themselves. It was important, Mackintosh emphasised, to understand the difference between the two types of evaluation. Without this difference, it was easy to conflate justice with expediency by asserting, as the Anglican theologian and philosopher William Paley had done, that the principle of a moral sense was opposed to the principle of utility, as if the two principles referred to the same object. A moral sense, however, was something that approved of what was right and condemned what was wrong because it could identify something about the qualities of an action. The concept of utility, on the other hand, was a claim about the consequences of an action rather than about whether the action itself was right or wrong. “As these affirmations relate to different subjects,” Mackintosh concluded, “they cannot be opposed to each other any more than the solidity of earth is inconsistent with the fluidity of water and a very little reflection will show it to be easily conceivable that they may both be true.”6 People could, spontaneously, approve or disapprove of certain actions on the basis of their feelings, but they could also use their reason to claim that the consequences of those actions were compatible or incompatible with general happiness or well-being.
There was, in short, no Adam Smith Problem because the theory of justice outlined in The Theory of Moral Sentiments could coexist readily with the theory of expediency underlying the Wealth of Nations. This, however, still left the problem of trying to work out how Smith thought that they actually could coexist without collapsing into each other. One attempt to do so was published a few years after Mackintosh’s General View of the Progress of Ethical Philosophy. This was a book by another Scottish lawyer, this time named James Reddie, entitled Inquiries Elementary and Historical in the Science of Law that was first published in 1840 and then in a much larger second edition in 1847. The later version of the book had two main features. The first was its endorsement of Mackintosh’s description of Smith’s system as a combination of justice and expediency. The second feature of the book was Reddie’s claim that Smith’s theory of justice was the same as Immanuel Kant’s. In both respects, Reddie drew out the implications of Smith’s dualism. Justice, he argued, would sometimes have to trump expediency. Most of the time, however, expediency would be enough.
Reddie’s description singled out two aspects of Smith’s theory of justice. The first was the difference between justice and the other virtues. While the other virtues were usually recognised as virtues because of their freely chosen and voluntary character (liberality at gunpoint, for example, is usually described as robbery), the same voluntary character did not apply to justice. Justice, Smith had emphasised, was the only virtue that would retain its character even if it was backed up by force, usually in the form of the power and authority of the state. This was why justice was not quite the same as the other virtues. Although it could be an attribute of a person or a quality of an individual, it could also be as readily described as the quality of a relationship or the property of a system. Justice, in short, had as much to do with the rule of law and the concept of a legal system as with the actions and behaviour of individuals, peoples, or nations. This, in the second place, meant that justice could be associated with two, radically different, types of evaluation. One set of evaluations applied to human actions and the feelings of approbation or disapprobation involved in assessments of their possible causes, motives, or effects. Another set of evaluations, however, applied to human behaviour and the more rational range of assessments of the various possible consequences of different types of behaviour. Smith’s use of the distinction, one that Reddie echoed, was a variation on the old Roman and Ciceronian distinction between the honestum, or honourable, and the utile, or useful.7 Human actions could be subject to either type of evaluation, and this in turn meant that the evaluations themselves would differ. One would centre on justice itself, but the other would centre on consequences and the related concepts of expediency or utility. To Reddie, the most obvious example of how the distinction could work was in a market society. Here, face-to-face transactions did not usually have to occur. But there would still be rules and procedures, and their violation could still have consequences. In this case, however, the consequences would not necessarily be backed up by legal sanctions because questions of utility could apply to commercial relationships that stretched beyond the boundaries of any single state or legal system. The concept of justice was, in short, something that was likely to exist in several different ways. It could exist with or without a state and could be associated either with what was honourable or with what was useful. It was a product of rules but was also a product of judgement.
Reddie was not slow to point out the implications of this interpretation of Smith’s system. “Indeed, in one vast department of human affairs,” he wrote, “the principle of general expediency is the chief and almost the only moral criterion to which recourse can be had. In the complex details of political arrangement, in the intercourse of nations, the moral feeling which serves as a rule of conduct to the individual, although not silent, speaks with a comparatively feeble voice. We are led by a sort of moral impulse to perform the various duties of private life, but this guide in a great measure deserts us when we investigate the legislative, executive, judicial and economical establishments of civil society or the reciprocal transactions of independent states.”8 The theory of utility (or expediency) was not an alternative to a virtue-oriented theory of justice. They were instead different aspects of the same thing, and, as Reddie pointed out, both, in their different ways and in their different settings, were true. “While,” he wrote, “with an Epicurus, a Hume or a Bentham,” we can calculate pains and pleasures, we could also “with a Plato, a Marcus Aurelius, or a Seneca, with a Fénelon, a Shaftesbury, a Smith or a Brown” show “an ardent love and admiration of that incorruptible integrity, that disinterested and generous beneficence, that devoted and enlightened patriotism which are maintained and pursued solely as the right and becoming exercise by man of the powers delegated to him by his all-perfect creator.”9 The two were complementary, not incompatible.
Law, Reddie wrote in the second edition of his book, could be considered as a branch of morality that was centred on the virtue of justice. But if this was the case, law was a rather special branch of morality because its precepts operated “under the marked distinction (which Dr Adam Smith, it is believed, first pointed out in this country) that its rules are susceptible of enforcement, whereas compulsion is quite inconsistent with and even repugnant to the nature of the other virtues and would be destructive of their moral value.”10 In this respect, the law was not concerned with human arrangements and institutions as these were usually understood in rational or moral terms, but was concerned instead with humans “as sentient beings, dependent for their subsistence, clothing and shelter on their labour and on the produce of the earth, natural and industrial.” In this sense, the law was a body of rules arising from “circumstances, necessity or urgent general expediency” and for “the safety, security and welfare of each individual and for the prosperity of the whole of these individuals united into one community.” It relied for its enforcement on “the united strength of the community concentrated in the state or government,” and this collective capacity was, in turn, put into effect “not so much by appealing to moral sentiment and the benevolent feelings of our nature as by operating, directly or indirectly, corporeally and mentally, upon the selfish feelings and the regard which every individual has for his own safety and welfare.”11 On these terms, the law existed to safeguard human choice.
Here, alongside Smith, Reddie now signalled Immanuel Kant as the prime source of this identification of the law with expediency. This view of law “as separate and distinct from, and independent of, morality,” he wrote, “seems in modern times to have been first prominently brought forward by the German philosopher Kant, though perhaps it is only a more full development of the necessitas or ratio juris of the Roman Law.”12 This further identification of Kant with Roman law also had the effect of bringing Kant’s moral and political thought into alignment with the thought of the early nineteenth-century German law professor Friedrich Carl von Savigny and the German historical school of law. As August Oncken was later to point out, it also helped to explain the hostility of the German Kathedersozialisten and the German historical school of economics towards the thought of both Kant and Smith. As Reddie emphasised, particularly in the second edition of his book, much of his own legal thinking owed a great deal to Savigny. This applied as much to Savigny’s use of Kant as it did to the substance of Savigny’s own legal thought. Both could be aligned with Smith and his distinction between justice as compulsory and binding and expediency as voluntary and discretionary. Together, as both Smith and Kant had shown, the two parts of the system made it possible for the power of the state to offset the power of the market.
To explain what Smith, Kant, and Savigny had in common, Reddie quoted a long passage from the first volume of Savigny’s System of Modern Roman Law in which the German law professor had described the law as something that established “an invisible line of demarcation” which enabled each individual to enjoy “a secure and free space” as the basis of their dealings with others. The image revealed both the connection and the difference between the law and morality. “Law,” Savigny wrote, “is subservient to morality, not because it accomplishes its precepts, but because its power secures to every individual the exercise and exhibition of his free will.”13 It was, therefore, a kind of carapace that allowed morality to function in much the same sense as it did with Kant’s concept of autonomy, where autonomy was something that could coexist with a powerful royal sovereign. This, Savigny continued, meant that there was no contradiction if the continued existence of the law maintained “the immoral exercise” of a right that had been previously recognised as an actual right because, he explained, “the existence of law is a consequence of the imperfection of our condition: not an accidental historical imperfection, but such an one as is inseparably connected with the present stage of our existence.” This idea too was very compatible with Kant’s historical vision. Old laws might secure obsolete rights, but, to Savigny, obsolete rights could be allowed to fall away without further legislative coercion.
From this perspective, the law functioned as a kind of protective shield that covered individual and social development. It was consequently more than a simple remedy for injustice and more than a weapon to be used to right a wrong. As Savigny had emphasised, those who opted for this latter approach to the law and its functions “hazard a negative” because the implication of their claim was that if wrongs were righted and injustice eliminated, then the state and its laws would no longer be necessary. “To them,” Savigny wrote, “the state appears as a necessary weapon of defence which might itself disappear or be dispensed with as superfluous under the presupposition of an extended or enlarged sense or feeling of right, or justice, or moral duty. Instead of that, the state, according to our view, would in that case, exhibit itself only the more noble and powerful.”14 The state, from this point of view, was not really responsible for supplying the content of justice but was responsible instead for ensuring that its content would be upheld. It was a surprisingly Kantian rendition of the relationship between the law and freedom. Reddie endorsed them both not only because the two characterisations of the law underpinned the difference between the law and morality but also because both of the characterisations made by Savigny and Kant made it clear that there was no further form of human association lying beyond the state. There was, therefore, no reason or need to expect the law to be replaced by morality itself or even, as Savigny had written, to reinforce the law by providing moral instruction. Instead, the law existed to provide the background conditions in which justice could coexist with expediency.
The dual quality of Smith’s theory of justice, with its emphasis on both sides of the Ciceronian categories of the honestum and the utile, was part of a much larger family of late eighteenth-century discussions of the relationship between justice and utility, legality and morality, or duty and virtue. One side of this binary divide was compulsory, while the other was discretionary. The real Adam Smith Problem was not so much whether one side of the divide was selfish while the other was altruistic, but whether there was some mechanism that could ensure that both sides of the divide would work together without interfering with or undermining their respective purposes and capacities. The same problem, it is worth noting, also applied to the thought of both Jean-Jacques Rousseau and Immanuel Kant. For Rousseau the problem began with his distinction between the general will, which applied to all, and the will of all, which applied to the many smaller groups and partial associations to be found in any relatively complicated society. Recognising the difference, and subordinating the particularity of individual wills to the generality of the general will, called for a measure of self-abnegation, and this, Rousseau emphasised in his Social Contract, was the reason why every political society called for a measure of virtue, even though the political society in question was not a republic and did not have to rely on the type of underlying principle of virtue that Montesquieu had associated with both aristocratic and democratic forms of republican government. “That,” Rousseau wrote in book 3, chapter 4 of his book, after listing all the requirements that a democracy would have to meet to be viable, “is why a famous author named virtue as the principle of a republic. For all these conditions could not exist without virtue. But, because he failed to make the necessary distinctions, this noble genius did not see that since the sovereign authority is everywhere the same, the same principle ought to apply to every well-constituted state, albeit to a greater or lesser degree according to the forming of government.”15
Rousseau’s invocation of virtue pointed, however, towards two different outcomes. In one guise, virtue could mean freedom of choice and an ability to subordinate present inclinations and preferences to a future or higher purpose. In this guise, virtue implied Kant’s concept of autonomy and the freedom to choose one’s own goals. In another guise, however, virtue could mean patriotic public service and a willingness to subordinate self-interest to the public interest. In this guise, virtue implied Robespierre’s concept of republican morality and the primacy of the common good. But, if Rousseau’s thought pointed prospectively towards either Kant or Robespierre, Kant’s thought could also point retrospectively towards either Rousseau or Robespierre. Here, the problem was to identify a mechanism that could maintain the stability and durability of the distinction that Kant made between public law and private law. To Kant, public law had no content of its own because its content was supplied largely by private law. Public law on Kant’s terms existed to maintain the legality and legitimacy of private law. At most, therefore, its content was more like a constitutional provision than any more substantive legislation. Again, however, it was not clear how to prevent the respective provisions of the public law–private law divide from overriding or undermining each other. In the light of these problems, what Oncken called the Adam Smith Problem was more generic than specific. Although, as his readers from Millar to Stewart and from Mackintosh to Reddie were careful to emphasise, Smith’s system was designed to be compatible with justice as well as expediency, or with the honourable as well as the useful, it was not clear how it was possible to maintain a stable balance between the market and the state because it was not clear how to identify the means to articulate and keep together the moral and material dimensions of the two parts of a single economic and political system.