Adam Smith (Virtue Ethics) Against Jeremy Bentham (Utilitarian Ethics): Two Completely Different, Conflicting Types of Capitalism Result From Their Distinct Ethical and Economic Positions
23 Pages Posted: 4 Mar 2019
Date Written: February 12, 2019
Adam Smith's ethical concerns and recommendations for behavior, based on a rock-solid foundation of Aristotelian Virtue Ethics, leads to a completely different, conflicting type of capitalism then that advocated by Jeremy Bentham's egoistic, act utilitarianism, which forms the foundation for Benthamite Utilitarian ethics.
The ethical and economic divide separating Bentham and Smith is so wide that no compromise or synthesis is possible regarding their two systems. Both Bentham and Smith recognized this. Bentham's two 1787 books, Defence of Usury and The Principles of Morals and Legislation, represent a direct, but subtle, attack on Adam Smith. Smith responded to Bentham's attack on The Theory of Moral Sentiments by spending all of his energy over the last three years of his life strengthening and revising his The Theory of Moral Sentiments in order to strengthen Part 6 of that book in order to withstand, counter and repel Bentham's attack. Bentham, always the conniving, devious, cunning, sly, and tricky master of intrigue that resulted from his lifelong commitment and service to the British East India Company, on the surface would always compliment Adam Smith as one who was the "the father of political economy," a "great master," and a "writer of consummate genius."
Bentham's attacks on Smith's foundation of virtue ethics, which was based on the impartial spectator and the role of sympathy, take place in chapter 2 on pp.8-25 of The Principles of Morals and Legislation. Bentham cleverly misrepresents Smith's emphasis on sympathy by criticizing all systems based on sentiments relating to sympathy and antipathy. Smith's system has nothing to do with antipathy. At the end of chapter 2 in The Principles of Morals and Legislation, Bentham makes it clear that no other concept except utility, can ever serve as the foundation for ethics.
Bentham's attack on the Wealth of Nations takes place in his Defence of Usury, where Bentham attempts to challenge Smith's demonstration that the major cause of macro instability, bubbles, deflation, and inflation is the economic power of some members of the upper-income class that Smith described as prodigals, projectors, and imprudent risk takers. The prodigals, projectors, and imprudent risk takers, such as John Law, the British East India Company, and Bentham himself, were able to obtain bank loans in order to carry out their speculative plans involving financial manipulation of land or real estate.
Smith's analysis of the Ayr bank collapse in 1772 showed how massive loans made by the bank directors to British East India Company connected individuals for land speculation led to a four-year depression in Scotland. Smith thus separated the prudent, "sober", middle class merchants and tradesmen, who produced and consumed physical goods and services, from the upper-class speculators and financial manipulators associated with the British East India Company, by far the most powerful economic force in the world in the 17th and 18th centuries, whose get rich quick schemes were purely speculative and involved financial manipulation. The prodigals, projectors, and imprudent risk takers thus represented an internal, endogenous threat to the macroeconomy.
This directly conflicted with Bentham's pendulum model, based on constant oscillations (negative feedback) between "happiness" and "unhappiness" that only allowed for exogenous, external threats to the macroeconomy, as well as creating havoc with Bentham's representation of all consumers as utility (preferences, tastes) maximizing individuals and all producers as profit (capital, labor technology, entrepreneurship) maximizing individuals.
Smith, as he did with Sir James Steuart, effectively refutes Bentham's attack on the sentiments-impartial spectator-sympathy approach without mentioning Bentham by name. The real advocate of the Invisible Hand-self adjusting, pendulum model is Bentham and not Smith. G Kennedy has forcefully demonstrated that an Invisible Hand economy can't have any prodigals, projectors, and imprudent risk takers in it or it will break down at the macro level. The existence of such individuals simply means that there is an internal, endogenous impact, which generates positive feedback that moves the economy farther away from any optimal equilibrium over time. All other writers on Adam Smith have mistakenly followed Jevons, Sedgwick, and Viner in foisting a pendulum model on Smith that Smith entirely rejected. Any claim that Smith's system of ethics and economics is based on an Invisible Hand, resulting in a self-correcting, self-adjusting pendulum model, where market prices and wages automatically convert private greed into a social macroeconomic optimum for all participants, has badly confused Smith with Bentham.
Keywords: Smith, Virtue Ethics, Benthamite Utilitarianism, Aristotle, Money, Banking, Prodigals, Imprudent Risk Taker, Projectors
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation