Human Morality & Ethics According to Adam Smith

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  • 0:00 Adam Smith
  • 1:01 Philosophy and Economics
  • 3:09 The Invisible Hand
  • 5:57 Lesson Summary
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Lesson Transcript
Instructor: Christopher Muscato

Chris has a master's degree in history and teaches at the University of Northern Colorado.

Adam Smith was an economist with some interesting ideas about morality and ethics. Explore his theories, and test your understanding about moral economic systems with a brief quiz.

Adam Smith

'The Invisible Hand' - how's that for a great superhero name? Here comes the Invisible Hand! Well, before we meet this great new hero, we need to meet his mild-mannered alter ego. This is Adam Smith, 18th-century Scottish economist and philosopher. Smith is most often remembered for his book entitled The Wealth of Nations, which outlined several aspects of modern economic theory and included a philosophical lesson on humanity. Adam Smith is responsible for many of our modern philosophical economic theories including, yes, the invisible hand. So that's Adam Smith, economist and philosopher by day, and by night- also an economist and philosopher. But one with some pretty important ideas. How's that for a superhero?

Philosophy & Economics

In our modern world, we often separate business and ethics. It's just business, we say, as if economic decisions have no moral implications. Well, that wasn't the case with Adam Smith. Smith studied economic systems and very often tied them back to morality, which was a very 18th century thing to do. You see, England and Scotland in the 18th century were in the middle of the Enlightenment, an intellectual movement of individual reason and logic that generated things like the scientific method, the social contract, and ideas about freedom and liberty so powerful they led to the American and French Revolutions. In this world, scientists and philosophers often searched for universal truths, and Smith was no exception.

So how did Smith manage to tie all of these Enlightenment ideas into philosophy and economics? Simply put, he sought to promote economic systems that fit within the natural laws, or universal moral truths determined by nature. Some things are right, some things are wrong, and Smith believed that in order for economic systems to be moral, they should complement natural laws. He also believed that moral economic systems were naturally stronger, and therefore, produced more revenue. So which system was most moral and fit best with the universal laws of nature? The free market, in which there is as little government intervention as possible. Consumers and vendors direct the economy, and the government stays out. Smith had a term for this: laissez-faire, which pretty much just means hands off. So a laissez-faire system is free from government intervention, and Smith believed that this market of competition and individual choice best reflected the universal natural laws. So therefore, it was the most moral economic system.

The Invisible Hand

So that was Adam Smith's philosophy on economic systems, but he didn't stop there. Smith was also interested in personal ethics, mostly because at the end of the day, an economic system is composed of individual people. Plus, like I said, the Enlightenment was really focused on the power of the individual. So Smith looked to the individual person as the basis for morality. According to him, humans are generally motivated by their own self-interest. Since self-interest fosters a competitive free market economy, self-interest is therefore moral. So any action that is motivated by self-interest is a moral action. This sounds somewhat shallow, but actually there's more to it. You see, self-interest does not mean being selfish. Adam Smith noted that being interested in other people is most often in your own best interest since it increases your social value, which in turn can increase your economic opportunities.

And with that, we finally get to the invisible hand. According to Smith, when the people in a society all act on their own self-interests, the total outcome is positive. People may do something out of self-interest, but at the end of the day, that action will benefit all of society, so he described them as being guided by an invisible hand. So the invisible hand is a metaphor to describe the unintentional social benefits that come from individual actions.

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