The problem with inequality, according to Adam Smith

The allure of extreme wealth can contort human sympathies, causing the public to admire the wealthy and shun the poor.

by DENNIS C. RASMUSSEN JUN 9, 2016,http://www.theatlantic.com/business/archive/2016/06/the-problem-with-inequality-according-to-adam-smith/486071/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TheAtlantic+(The+Atlantic+-+Master+Feed)#utm_sguid=112502,b9855a9e-c34b-0f00-f665-80a0c498b2b7

One of the more memorable statements of Barack Obama’s presidency thus far has been his claim, in a high-profile December 2013 speech, that great and growing economic inequality is “the defining challenge of our time.” In making his case Obama appealed to the authority of a seemingly unlikely ally: Adam Smith, the purported founding father of laissez-faire capitalism, who is widely thought to have advocated unbridled greed and selfishness in the name of allowing the invisible hand of the market to work its magic.

Many a scholar has made a career, in recent decades, by pointing out that this view of Smith is a gross caricature. It has often been noted, for instance, that Smith never once used the term “laissez-faire” or even the term “capitalism,” and that his two books—The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776)—are full of passages lamenting the potential moral, social, and political ills of what he called “commercial society.”

It is also indisputable that the alleviation of poverty was one of Smith’s central concerns, the common caricature notwithstanding. Even a cursory reading of The Wealth of Nations should make this point abundantly clear. Smith states, explicitly and repeatedly, that the true measure of a nation’s wealth is not the size of its king’s treasury or the holdings of an affluent few but rather the wages of “the laboring poor.” In a passage that Obama quoted in his speech, Smith declares that it is a matter of simple “equity” that “they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.”

Yet there remains a broad consensus, even among scholars of the period, that Smith was concerned by poverty but not by economic inequality itself. According to this view, Smith hoped to ensure that all members of society could satisfy their basic needs, but he was untroubled by relative differences in income and wealth. As long as everyone has food on their tables, clothes on their backs, and a roof over their heads, the thinking goes, it does not matter if some have far more than others. Indeed, it is often claimed that Smith saw economic inequality as a manifestly good thing.

Such a reading is not entirely unwarranted. Like many of his self-proclaimed followers in the 20th century, Smith did suggest that the great wealth of the few generally benefits the rest of society, at least in material terms and over the long run. In some cases, their luxuries trickle down in an almost literal sense: “The houses, the furniture, the clothing of the rich, in a little time, become useful to the inferior and middling ranks of people,” Smith writes, offering the examples of the family seat of the Duke of Somerset, which had been turned into an inn on the Bath Road, and the marriage bed of James I, which in Smith’s time served as “the ornament of an alehouse at Dunfermline.” More broadly, he claims that the conspicuous consumption of the rich encourages productivity and provides employment for many. So a degree of economic inequality does have its advantages, in Smith’s view.

Those who encounter Smith’s writings for the first time are usually surprised to learn that he insisted that money can’t buy happiness.

What has received little attention, even by those who approach Smith’s thought from the contemporary left, is that he also identified some deep problems with economic inequality. The concerns that he voiced are, as I recently wrote in an article for the American Political Science Review, interestingly different from those that dominate contemporary discourse. When people worry about inequality today, they generally worry that it inhibits economic growth, prevents social mobility, impairs democracy, or runs afoul of some standard of fairness. These are the problems that Obama identified in his speech, and the ones that have been highlighted by academics ranging from Thomas Piketty to Joseph Stiglitz to Robert Putnam.

None of these problems, however, were Smith’s chief concern—that economic inequality distorts people’s sympathies, leading them to admire and emulate the very rich and to neglect and even scorn the poor. Smith used the term “sympathy” in a somewhat technical sense to denote the process of imaginatively projecting oneself into the situation of another person, or of putting oneself into another’s shoes. Smith’s “sympathy” is thus akin to the contemporary use of the word “empathy.” And he claimed that, due to a quirk of human nature, people generally find it easier to sympathize with joy than with sorrow, or at least with what they perceive to be joy and sorrow.

As a result, Smith held, people sympathize more fully and readily with the rich than the poor: “the rich man glories in his riches, because … they naturally draw upon him the attention of the world,” while “the poor man goes out and comes in unheeded, and when in the midst of a crowd is in the same obscurity as if shut up in his own hovel.” Not only are people far more likely to notice the rich than the poor, according to Smith, but they are also far more likely to approve of them, to admire them, and to emulate them; indeed, he devoted an entire chapter of The Theory of Moral Sentiments to demonstrating that this is the case.

What’s more, Smith saw this distortion of people’s sympathies as having profound consequences: It undermines both morality and happiness. First, morality. Smith saw the widespread admiration of the rich as morally problematic because he did not believe that the rich in fact tend to be terribly admirable people. On the contrary, he portrayed the “superior stations” of society as suffused with “vice and folly,” “presumption and vanity,” “flattery and falsehood,” “proud ambition and ostentatious avidity.” In Smith’s view, the reason why the rich generally do not behave admirably is, ironically, that they are widely admired anyway (on account of their wealth). In other words, the rich are not somehow innately vicious people. Rather, their affluence puts them in a position in which they do not have to behave morally in order to earn the esteem of others, most of whom are dazzled and enchanted by their riches.

Thus, it is precisely the presence of economic inequality, and the distortion of people’s sympathies that attends it, that allows—perhaps even encourages—the rich to spurn the most basic standards of moral conduct. Smith goes so far as to proclaim that the “disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition” is “the great and most universal cause of the corruption of our moral sentiments.”

Smith also believed that the tendency to sympathize with the rich more easily than the poor makes people less happy. As I am reminded every year by my students, those who encounter Smith’s writings for the first time are usually quite surprised to learn that he associated happiness with tranquility—a lack of internal discord—and insisted not only that money can’t buy happiness but also that the pursuit of riches generally detracts from one’s happiness. He speaks, for instance, of “all that leisure, all that ease, all that careless security, which are forfeited forever” when one attains great wealth, and of “all that toil, all that anxiety, all those mortifications which must be undergone” in the pursuit of it. Happiness consists largely of tranquility, and there is little tranquility to be found in a life of toiling and striving to keep up with the Joneses.

Why, then, do the vast majority of people spend the vast majority of their lives longing for and pursuing wealth? Smith saw it as obvious that people do not work so hard in order “to supply the necessities of nature”—that is, to obtain food, clothing, and shelter—because “the wages of the meanest laborer can afford them.” Rather, they want great wealth because of the attention it brings them: “It is the vanity, not the ease, or the pleasure, which interests us.” In other words, it is the fact that people sympathize more easily with the rich that leads them to want to become rich themselves, and to (wrongly) assume that the rich must be supremely happy. “When we consider the condition of the great, in those delusive colors in which the imagination is apt to paint it, it seems to be almost the abstract idea of a perfect and happy state,” he writes.

All of this said, it is not entirely obvious that the inhabitants of today’s commercial societies admire the rich as uncritically as Smith expected they would. It is true that on the political right the wealthy are often lauded as innovators and job creators. Indeed, personal wealth is the main (perhaps sole) qualification of the presumptive Republican presidential nominee. On the other hand, there is a tendency on the political left to regard the rich as greedy, rapacious one-percenters, and many on the right join in the left’s suspicion of the rich, often inspired by communitarian or religious impulses. It is doubtful that many hedge-fund managers suffer from a surfeit of uncritical approval.

Still, much of Smith’s analysis rings true today. The amount of media coverage of the lives and lifestyles of the rich and famous should suffice to confirm that even if people in today’s commercial societies do not always admire the wealthy, they do generally sympathize with them in Smith’s sense of the term—that is, people tend to put themselves in the wealthy’s shoes—far more than they do with other people. Further, even if people do not always admire the wealthy either as individuals or as a group, there is little question that they are disposed to admire and pursue wealth itself with every bit of the fervor and doggedness that Smith expected. Finally, the other half of the distortion of people’s sympathies that he describes—the tendency to unduly ignore the poor—is very much still present.

It is perhaps predictable that history’s most famous theorist of commercial society would have something to add to contemporary debates about economic inequality. Given his reputation, however, it is striking that Smith had more profound and original things to say in opposition to inequality than in its defense.