Liberty Matters

What Adam Smith Means to Me (November 2021)

What Adam Smith Means to Me

For this Liberty Matters, we asked prominent scholars of Adam Smith to reflect on what the great Scot means to them. We hope you enjoy thsis fascinating exploration of the legacy of Smith and the Scottish Enlighenment as it unfolds this month. Our first reflection comes from Vernon L. Smith, Nobel laureate and professor of economics at Chapman University.

The Discussion

Vernon L. Smith, "Me and Adam Smith"


Vernon L. Smith, "Me and Adam Smith"

Why does Adam Smith matter to me? 

First, he articulates a theory of community, or human sociality, founded on two pillars of morality that relate uniquely to human action: beneficence and justice. Second, by carefully distinguishing the background condition of being self-interested from actions motivated by self-interest, Adam Smith models rich forms of other-regarding conduct among individuals who necessarily have common knowledge that are all self-interested. Third, in religion he finds evidence for the ancient cross-cultural emergence of this morality. Smith’s methodology of analysis that first examines the origins of human action, then its consequences, is fresh and relevant for understanding 21st-century social and economic processes.


Beneficence and Justice are Rooted in Self-interested Actors whose Emotions of Gratitude and Resentment Alone Call for Appropriate Action 

In Adam Smith’s lexicon of community, civil society has but two pillars: beneficence and justice (Smith, 1759, p 112).[1] Beneficence embraces all those actions by one person toward another that are acknowledged both beneficial and properly motivated. The recipient of such beneficial action, as well as any informed third-party observer would agree, that the action is intentionally designed to benefit—and is of benefit—to the selected recipient. Smith states unequivocally that such actions “seem alone to require reward; because such alone are the approved objects of gratitude, or excite the sympathetic gratitude of the spectator” (p 112).

Contrastingly, justice is a virtue the violation of which “is injury: it does real and positive hurt to some particular persons, from motives which are naturally disapproved of” (p 114). 

Smith’s proposition on the violation of justice is the obverse of his proposition on beneficence: “Actions of a hurtful tendency, which proceed from improper motives, seem alone to deserve punishment; because such alone are the approved objects of resentment, or excite the sympathetic resentment of the spectator” (p 112).

Lest a person think that the agents of these actions are selfless contributors to the public good, or to the reduction of public bad, Smith unequivocally states: 

Though it may be true, therefore, that every individual…naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle. He feels that in this preference they can never go along with him, and that how natural soever it may be to him, it must always appear excessive and extravagant to them. When he views himself in the light in which he is conscious that others will view him, he sees that to them he is but one of the multitude, in no respect better than any other in it….he must…humble the arrogance of his self-love, and bring it down to something which other men can go along with (p 120).

Not only are all strictly self-interested, but all must have common knowledge that all are self-interested, for otherwise the concepts of benefit, hurt, reward, and punishment are meaningless.

Of these two pillars, justice is the most essential as “society…cannot subsist among those who are at all times ready to hurt and injure one another” (p 124).

Note that in Smith’s concepts of beneficence and justice, we get a clear and sharp distinction in any society between the good, beneficial, and neighborly actions that one person can do for another—and the bad, hurtful, and unneighborly actions that they can do to another. Beneficence can lead naturally to positive reciprocity supported by propriety, which means community-level approval, consent—or, in Smith’s word, APPROBATION. In the economy it leads to trade, provided that we have justice. This is the topic of Smith’s second book (Smith, 1776). Justice leads to community sympathy for the victims of improperly motivated hurtful actions, from murder to theft and robbery to the violation of promises or contracts—although the latter is not criminal, only a civil offense—and is the foundation of property.[2] Smith’s “fair (meaning not foul, as in fair-play rules) and impartial spectator,” requires punishment to be no more nor less than what fits the infraction and the resentment felt.

Notice also in Smith’s dichotomy, that justice has nothing to do with distributional outcomes because justice is about—and only about—providing security from injury. Distributional issues are about beneficence and economic gain.

But surely, in both propositions, it must be an exaggeration to assert that such actions alone require reward or deserve punishment. That this is not true is explained fully by Smith in the distinction he draws between emotions that can only be satisfied by our actions and those that are capable of being satisfied without our agency. For example, we are delighted when a friend is promoted, though the action was well beyond our control. 

There indeed exist passions other than gratitude and resentment that interest us in the happiness or unhappiness of others “but there are none which so directly excite us to be the instruments of either.” Love and esteem are emotions associated with family, friends, and neighbors who are close to us. For any such person, “our love, however, is fully satisfied, though his good fortune should be brought about without our assistance. All that this passion desires is to see him happy, without regarding who was the author of his prosperity. But gratitude is not to be satisfied in this manner. If the person to whom we owe many obligations is made happy without our assistance, though it pleases our love, it does not content our gratitude. Till we have recompensed him, till we ourselves have been instrumental in promoting his happiness, we feel ourselves still loaded with that debt which his past services have laid upon us.” Hence, do we find phrases such as “debt of gratitude” and “I owe you one” embedded in English language and thought.

In the same manner the emotions of hatred and dislike that we might feel toward some can be satisfied without our agency (p 94-5).

Consequently, the emotions of gratitude and resentment are unique in calling upon the selected recipient of benefit or hurt to respond by rewarding or punishing the author of the action.

The following narrative illustrates the benefit-gratitude-reward calculus associated with beneficence:

It is Monday, trash pickup day, and before you depart from home to your office, you wheel your trash barrel from inside your gate to the curb. Upon returning in the evening, with mind preoccupied by a busy day, you forget to wheel in your trash barrel to avoid a citation, since early Tuesday AM the street-sweeper will pass through. Your neighbor, while wheeling in her own trash barrel, notices that you neglected to rescue yours, proceeds to wheel it in for you. The following weekend you pick a few extra avocados off one of your trees, taking them to your neighbor with the intention of thanking her for bringing in your barrel. She is not home so you leave them on her doorstep. 

In this social exchange, observe that the context or circumstances involve much common information shared by neighbors concerning trash-pickup and street-sweeper schedules, the associated duties, and who has avocado trees. Moreover, all the principals are strictly self-interested; for that is how each has experiential knowledge that it is odious to move trash barrels, receive citations, and that you and your neighbor both like avocados. But being self-interested in no way compromises you or your neighbors’ proclivity for other-regarding action.

Here is a narrative illustrating the justice-resentment-punishment calculus:

As your neighboring couple is arriving home late after attending a movie, burglars escape out the back door with items of jewelry and a box of antique silverware. Your neighbors—filled with both fear and outrage—call the police and give them identifying particulars of the items stolen. When they tell you about it, you feel their fear and outrage. The burglars—urgently attempting to fence off the goods locally—are, unusually, caught and arrested. The neighbors are elated by the police arrests and feel much satisfaction in supplying the particulars that made the arrest possible. You enter entirely into their elation when they share their happy resolution with you.

Adam Smith on Rules and the Religious Origins and Development of Morality

Adam Smith believed that all order in cosmic and human existence has divine origins. Order was not an accidental or unaccountable probabilistic property of our sensual reality. For Smith, order implies design, which implies a designer, and the reverse. Perceptively, he also saw in religious beliefs—and in their commonality across cultures old and new—solid evidence in human experience that morality was deeply rooted in nature, in the slow evolutionary process that enabled us to create communities of civil order that were stable, while also identifying the sources of potential instability. 

Thus, Smith argued that in the most ancient human superstitions we find divine creatures to whom we attributed (“ascribed”) all the darkest passions of human nature “such as lust, hunger, avarice, envy, revenge.” Nor equally, did the divine virtues fail to have representatives embodying all those qualities most ardently admired in “the love of virtue and beneficence, and the abhorrence of vice and injustice” (p 232). Consequently, humanity drew on its accumulated experience of both evil and good to imagine ideal forms that were captured in religious belief. Moral behavior was natural, part of nature, the author of our morality. 

A man intentionally hurt by the action of another, called upon God to bear “witness of the wrong that was done to him,”… and the “man who did the injury felt himself to be the proper object of vile detestation and resentment of mankind” (pp 232-233). Ultimately these “natural hopes, and fears, and suspicions, were propagated by sympathy, and confirmed by education; and the gods were universally represented and believed to be the rewarders of humanity and mercy, and the avengers of perfidy and injustice” (p 233). Moreover, even the rudest forms of religion sanctioned the emergent “rules of morality, long before the age of artificial reasoning and philosophy. That the terrors of religion should thus enforce the natural sense of duty, was of too much importance to the happiness of mankind for nature to leave it dependent upon the slowness and uncertainty of philosophical researches” (p 233).

When, thousands of years later, research scholars addressed the origin and function of morality in human civility, they “confirmed those original anticipations of nature.” Whether that morality was thought to be founded on reason, an innate instinct, or sense of moral behavior “or upon some other principle of our nature, it cannot be doubted that they were given us for the direction of our conduct in this life.” Moral rules carry the badge of supreme authority that prominently serve us from the inside, as self-commanding arbiters that govern and supervise “all our actions,…senses, passions, and appetites, and to judge how far each of them was either to be indulged or restrained” (p 233).

These moral faculties are not on a level (as some pretend) “with the other faculties and appetites of our nature, endowed with no more right to restrain these last, than these last are to restrain them. No other faculty or principle of action judges of any other. Love does not judge of resentment, nor resentment of love. Those two passions may be opposite to one another, but cannot, with any propriety, be said to approve or disapprove or one another. But it is the peculiar office or those faculties now under our consideration to judge, to bestow censure or applause upon all the other principles or our nature. They may be considered as a sort or senses, of which those principles are the objects” (p 233-234). 

In his accustomed attention to great detail, Adam Smith continues by elaborating on the uniqueness of our senses and their supervision by the rules of morality. 

Each sense reigns in command of the objects that are its own. From the eye’s judgement of the beauty of color there is no appeal; nor from the ear’s sense of harmony; nor from the taste of flavor. That which gratifies taste is sweet; pleases the eye is beauty; pleases the ear is harmonious. Each quality resides in the sense it addresses. In the same manner, “it belongs to our moral faculties…to determine when the ear ought to be soothed, when the eye ought to be indulged, when the taste ought to be gratified, when and how far every other principle of our nature ought either to be indulged or restrained…What is agreeable to our moral faculties, is fit, and right, and proper to be done; the contrary, wrong, unfit, and improper… The very words, right, wrong, fit, improper, graceful, unbecoming, mean only what pleases or displeases those faculties” (p 234). 

The author of this comprehensive treatment of the roots of community, and the path from propriety to property, was now ready to complete The Wealth of Nations and write of his theory of natural liberty. Only the author of the first book would take care to place the conditional on justice before the verb in summarizing that theory: “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way…” (Smith, 1776, Vol 2, p 184). 


Smith, Adam. The Theory of Moral Sentiments; or, An Essay towards an Analysis of the Principles by which Men naturally judge concerning the Conduct and Character, first of their Neighbours, and afterwards of themselves. To which is added, A Dissertation on the Origins of Languages. New Edition. With a biographical and critical Memoir of the Author, by Dugald Stewart (London: Henry G. Bohn, 1853).

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations, Volume 2, edited with an Introduction, Notes, Marginal Summary and an Enlarged Index by Edwin Cannan (London: Methuen, 1904). 

[1] Hereafter only the page number will be referenced.

[2] The penalty for theft or robbery exceeds that of the violation of contract because the former takes from us what we are possessed of, whereas the latter only disappoints us of what we expected (p 121). Although not referenced by Smith, this statement is implied by his proposition on the asymmetry between gains and losses, which he derives from the asymmetry between human joy and sorrow: “We suffer more…when we fall from a better to a worse situation, than we ever enjoy when we rise from a worse to a better” (p 311) .


Author Biographies

Vernon L. Smith is a professor of economics at Chapman University’s Argyros School of Business and Economics and School of Law in Orange, California. He was awarded the Nobel Prize in Economic Sciences in 2002 for his groundbreaking work in experimental economics. He is also a research scholar emeritus at George Mason University Interdisciplinary Center for Economic Science, a fellow of the Mercatus Center, and a senior fellow at the Cato Institute, all in Arlington, Virginia.

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