Adam Smith's Wealth of Nations

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The pivotal second chapter of Adam Smith's Wealth of Nations, "Of the Principle which gives occasion to the Division of Labour," opens with the oft-cited claim that the foundation of modern political economy is the human "propensity to truck, barter, and exchange one thing for another."1 This formulation plays both an analytical and normative role. It offers an anthropological microfoundation for Smith's understanding of how modern commercial societies function as social organizations, which, in turn, provide a venue for the expression and operation of these human proclivities. Together with the equally famous concept of the invisible hand, this sentence defines the central axis of a new science of political economy designed to come to terms with the emergence of a novel object of investigation: economic production and exchange as a distinct, separate, independent sphere of human action. Moreover, it is this domain, the source of wealth, which had become the main organizational principle of modern societies, displacing the once-ascendant positions of theology, morality, and political philosophy. Smith's formulation transcends a purely descriptive account of the transformations that shook eighteenth-century Europe. A powerful normative theory about the emancipatory character of market systems lies at the heart of Wealth of Nations. These markets constitute "the system of natural liberty" because they shatter traditional hierarchies, exclusions, and privileges.2 Unlike mercantilism and other alternative mechanisms of economic coordination, markets are based on the spontaneous and free expression of individual preferences. Rather than change, even repress, human nature to accord with an abstract bundle of values, market economies accept the propensities of humankind and are attentive to their character. They recognize and value its inclinations; not only human reason but the full panoply of individual aspirations and needs.3 Thus, for Smith, markets give full expression to individual, economic liberty. This combination of analytical and normative arguments provides Smith with conceptual resources for an implicit theory of social integration based on strategic interaction amongst selfinterested persons. Not just the economy but the larger social order is reproduced by unplanned behavior and processes, rather than by design.4 Inst... ... middle of paper ... ...transcends mere egoism and reveals how the individual itself is constituted by prior patterns of interaction. For Smith, the self is never disembedded or "unencumbered."38 Rather, as he put it, "their approbation necessarily confirms our own self-approbation. Their praise necessarily strengthens our own sense of our own praiseworthiness. In this case, so far is the love of praise-worthiness from being derived altogether from that of praise; that the love of praise seems, at least in a great measure, to be derived from that of praiseworthiness."39 This dialectic between the ego and the other finds expression in sympathy, which provides, by linking self-esteem to social praise, the psychological and social mechanisms undergirding social integration. "Nature," Smith argued, "when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his brethren. She taught him to feel pleasure in their favourable, and pain in their unfavourable regard. She rendered their approbation most flattering and most agreeable to him for its own sake; and their disapprobation most mortifying and most offensive."40
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