Where Adam Smith and Occupy Agree: Inequality

The godfather of free markets feared it would harm the system he loved.

In this respect, we're all equal.

Photographer: Adam Berry/Bloomberg

There is a growing consensus in the U.S. that economic inequality isn't simply a minor nuisance resulting from a largely just system. Although their solutions differ considerably, both Democratic and Republican presidential candidates have acknowledged the existence of economic inequality and the need to address it in some fashion. As French economist Thomas Piketty has outlined, the issue is a stubbornly pervasive condition in modern economies. This is understood by much of the public today. What is less well-known is that the seminal advocate for the free-market economy, Adam Smith, was aware of economic inequality and offered one of the first critiques of the complications it introduces into social and political life.  

Smith originally published the "Wealth of Nationsin 1776 as a rebuke to the mercantilist system that had taken hold in Britain. But he had already established his intellectual reputation in 1759 as the author of "The Theory of Moral Sentiments." Because the philosophical founding father of modern capitalism devoted considerable thought to the problem of economic inequality, Smith's insights can shed some much-needed light on our contemporary struggle with the issue.

QuickTake Income Inequality

Although Smith never wrote a treatise specifically on inequality, he returns to the theme repeatedly in the above-mentioned works as one of the most significant threats to modern commercial societies. 

So what did Smith have to say? For Smith, economic inequality emerges from an unfortunate combination of powerful elements in human nature -- the primacy of self-interest, to be sure, but also our natural desire to seek approval from others, and an unambiguously dark desire to dominate others. Most strikingly, drawing from the logic of Jean-Jacques Rousseau, Smith argues in his "Theory of Moral Sentiments": “The rich man glories in his riches, because he feels that they naturally draw the attention of the world.” 

For Smith, the admiration that citizens feel for the wealthy amounts to nothing less than “the great and most universal cause of the corruption of our moral sentiments.” Indeed, the natural consequence of being super rich is merely to feed what Smith calls their “natural selfishness and rapacity.” 

On the opposite end of the spectrum, in market economies, the poor experience their condition as humiliation. Whereas in feudalism poverty was a mark of forces beyond one’s control, under capitalism it is a mark of shame, deserved or not. The inequality resulting from capitalism corrupts character, and it is for Smith simultaneously the source of an existential experience of worthlessness.  

For Smith, inequality’s effects extend well beyond individual character. It is the source of serious social dysfunction. The greater the gap between the wealthy and the poor, the less regard the wealthy have for the poor and their relative well-being. He notes in his "Lectures on Jurisprudence" that slave societies characterized by extreme inequality find that “the slaves were treated with the utmost severity, and were put to death on the smallest transgressions.” This stems from his observation in the "Theory of Moral Sentiments" that “Men . . . feel so little for each other, with whom they have no particular connexion, in comparison of what they feel for themselves.” The results of this failure to establish sympathy include a legal system that is fundamentally rigged in favor of the wealthy without regard to the interests of the poor, and potentially even class violence -- consequences some would claim have come to fruition. 

As recent scholarship has documented, Smith’s concern about  economic inequality and poverty led him to argue in the opening pages of his "Wealth of Nations" that a market economy generates so much aggregate social wealth that everyone benefits, including the poor, by escaping desperate poverty. There is real truth in this. Insofar as the greater social wealth of market economies provides clean water and housing for the poorest citizens, it has achieved demonstrable, valuable goals. At the same time, however, Smith’s solutions are aimed more at the problems associated with desperate poverty than they are at the problem of inequality. Providing clean water to the poor, while incontestably good in itself, does nothing to curb the vanity of the rich.  It does little to console the existential anxieties of the poor. It does little to constrain the tendency of the law to favor the rich. It does little to limit a desire to dominate the poor. Poverty is one thing; inequality is still another. Smith offers a solution to the first; he offers little for the latter. Despite his obvious concerns about inequality, as distinct from poverty, he prioritized the benefits of a growing economy over making a more serious effort to stem inequality.  

What, then, does this look back at Smith accomplish? First, it challenges arguments made by those who insist that inequality wouldn't have been problematic for the intellectual founder of free-market capitalism. Second, Smith offers insights into the nature of economic disparity that should guide a more enriched contemporary discussion of the issue. Many of today's critiques of inequality center on how it can stifle economic growth. This may be true. But as a professor of moral philosopher, this wasn't the focus of Smith’s commentary. Third, Smith’s attention to inequality as opposed to poverty is a rejoinder to those who suggest inequality isn't problematic in itself. Finally, Smith’s inability to offer a solution, one may argue, is manifested in our own failure to address inequality and its accompanying troubles. We have inherited a system that has made no provisions for a dilemma apparent at its very foundations. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    David Lay Williams at dwill105@depaul.edu

    To contact the editor responsible for this story:
    James Greiff at jgreiff@bloomberg.net

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