The Virtues of Prudence and Self-Command, not Jeremy Bentham’s Max U or the Invisible Hand of the Market, are Adam Smith’s Foundation for the Wealth of Nations
18 Pages Posted: 21 Aug 2019 Last revised: 2 Nov 2019
Date Written: August 18, 2019
The Theory of Moral Sentiments (1759; 1790) is the foundation for the Wealth of Nations(1776).Smith recognized, like all other major spiritual and moral teachers, that Prudence is the most important virtue because nothing can be accomplished without it being applied successfully first. The virtue of Prudence applies in all facets of life. However, there were individual philosophers who rejected virtue ethics. One such individual was Jeremy Bentham (another was Karl Marx). Bentham sought to replace Smith’s Virtue Ethics with his Principle of Maximizing Utility. Bentham argued that only his principle of maximizing utility could support the study of ethics.
Bentham attacked Smith’s Virtue Ethics approach in 1787 in the same fashion as J.Viner attacked Smith’s Virtue Ethics in 1927.
Both Bentham and Viner argued that
• Smith’s The Theory of Moral Sentiments (virtue ethics) is very flawed
• Smith’s support of interest rate control laws and skewing of bank credit to the sober people and away from the prodigals,imprudent risk takers, and projectors (Bentham was a strong supporter and employee all his life of the major projector company, the British East India Company, which started the American Revolutionary War) was very ill advised
• Smith’s analysis of the macroscopic impact that the prodigals, imprudent risk takers ,and projectors have on an economy,endangering the sober people, was incorrect because the prodigals, imprudent risk takers, and projectors were really just innovative entrepreneurs pursuing their own self interest
• Smith never actually made a single advance in the field of economics (political economy) in his lifetime as all of the parts of his theory were already available from other, earlier sources, which he failed to acknowledge properly and cite
Smith responded to Bentham’s two pronged attack in 1787 by rewriting major parts of the The Theory of Moral Sentiments so that its virtue ethics message would be fine tuned in order to target legislators and government officials, which would counter the utilitarian message of Bentham’s Defense of Usury and The Principles of Morals and Legislation. There was now a clear cut choice between two completely different ethical systems upon which to build capitalism.
Smith envisaged a completely different approach to capitalism than Bentham. Like the inhabitants of Augustine’s Earthly City and Heavenly City,there were two opposing groups, the middle class sober people, who practiced virtue ethics, and the upper class projectors, imprudent risk takers, and projectors, who practiced utilitarian ethics. The proper role of government was to use legislation, law and sanction to prevent the upper class projectors, imprudent risk takers, and projectors from damaging the middle class, sober people.
The Smith and Bentham views about the correct evolution of capitalism over time are as different as night and day.
A major confusion among economists, except G.Kennedy, since Smith’s death in 1790,is to confuse the operation and impacts of the virtue of prudence with the Invisible Hand. It is simply impossible for any Invisible Hand of the market to conceivably operate unless the sober people completely dominate the political, economic, social and institutional levers of power. Smith’s comments about the Invisible Hand in Part IV of the Wealth of Nations are simply a repetition of his comments in The Theory of Moral Sentiments (1759; 1790), about the racer in a running competition always doing his very best to win the race, being applied to those engaged in a comparable economic race doing the best they can to sell their particular products. This brings out a positive response from their competitors, who also run and train harder. This positive interactive feedback effect is referred to metaphorically as an invisible hand, although it is actually the result of all of the sober people simultaneously applying the virtue of prudence. None of this has anything to do with Bentham’s Max U utilitarian approach.
Once the gain, profit, or savings has been won, it is now time to apply the Virtue of Self Command (the Virtues of Temperance and Courage) to invest to expand one’s business.The correct choice is not financial manipulation , stock market speculation or conspicuous consumption, but investment in physical durable capital goods, worker training,and inventories of intermediate parts and materials.Business success now allows one to apply the final virtues of justice (fairness, equity), magnanimity and benevolence as worker wages and benefits can be increased.The result is opulence for all.
Keywords: Smith, Virtue Ethics, Benthamite Utilitarianism, Kennedy, Money, Banking, Prodigals, Imprudent Risk Taker, Projectors
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation