WEBVTT NOTE Adam Smith and Ludwig von Mises on the Moral Framework 1 00:00:00.000 --> 00:00:05.320 This is my first time at the Mises Institute and I'm enjoying myself very much. 2 00:00:05.320 --> 00:00:11.360 The name of my paper is Adam Smith and Ludwig von Mises on the moral framework. 3 00:00:11.360 --> 00:00:15.760 There is a moral framework in the works of Adam Smith and Ludwig von Mises. 4 00:00:15.760 --> 00:00:20.160 The discerning of that moral framework is the subject of this paper. 5 00:00:20.160 --> 00:00:25.240 Ludwig von Mises makes frequent use of the term praxeology in his writings. 6 00:00:25.240 --> 00:00:32.120 This term was coined by Alfred Espinus in 1890 in means the science or the study of human action. 7 00:00:32.120 --> 00:00:35.840 Mises uses this as the subject matter of economics. 8 00:00:35.840 --> 00:00:41.720 Economics deals with human action, or the means or methods put into action to achieve various ends. 9 00:00:41.720 --> 00:00:50.880 Quote, to act means to strive after ends, that is, to choose a goal and to resort to means in order to attain the goal sought. 10 00:00:50.880 --> 00:00:53.440 Man is also a moral being, quote, 11 00:00:53.440 --> 00:00:58.320 Man is not like the animals, an obsequious puppet of instincts and sensual impulses. 12 00:00:58.320 --> 00:01:01.560 Man has the power to suppress instinctive desires. 13 00:01:01.560 --> 00:01:03.160 He has a will of his own. 14 00:01:03.160 --> 00:01:05.740 He chooses between incompatible ends. 15 00:01:05.740 --> 00:01:08.080 In this sense, he is a moral person. 16 00:01:08.080 --> 00:01:11.880 In this sense, he is free from Mises. 17 00:01:11.880 --> 00:01:16.160 This incompatibility of ends suggests a trade-off in pursuing goals because of 18 00:01:16.160 --> 00:01:17.920 limited resources. 19 00:01:17.920 --> 00:01:22.040 The Familiar Production Possibilities or Consumption Possibilities 20 00:01:22.040 --> 00:01:26.000 And this choosing consists of man's freedom and man's moral choice. 21 00:01:26.000 --> 00:01:29.160 However, can we say anything about the ends themselves? 22 00:01:29.160 --> 00:01:34.200 Are there any stronger moral categories or moral statements that apply? 23 00:01:34.200 --> 00:01:35.640 For example, 24 00:01:35.640 --> 00:01:39.520 how does the great exemplar in economics, Adam Smith, approach the problem? 25 00:01:39.520 --> 00:01:43.000 And is his approach different from that of von Mises? 26 00:01:43.000 --> 00:01:46.960 In addition to his great work in economics, The Wealth of Nations, Smith also wrote 27 00:01:46.960 --> 00:01:52.880 The Theory of Moral Sentiments, in which he treats the springs of man's moral conduct. 28 00:01:52.880 --> 00:01:58.280 In treating both of these works, we can obtain a more complete picture of human action, according 29 00:01:58.280 --> 00:02:03.440 to Adam Smith, who follows his teacher, Francis Hutchison, in discussing the availability 30 00:02:03.440 --> 00:02:10.280 of moral knowledge. For Hutchison, moral knowledge was available to us through an internal faculty 31 00:02:10.280 --> 00:02:16.040 called the moral sense. Smith takes a different approach. Moral knowledge is obtained by a 32 00:02:16.040 --> 00:02:22.640 by sympathetic placement of oneself in another's situation as a sort of impartial spectator 33 00:02:22.640 --> 00:02:26.480 through whom judgments can be made as the course of proper moral action. 34 00:02:26.480 --> 00:02:32.880 However, for Smith, there can be no knowledge of morals without the interactions of society. 35 00:02:32.880 --> 00:02:38.980 The society of others regulates our own extreme passions as we consider the views of others. 36 00:02:38.980 --> 00:02:44.260 Our passions and viewpoints tend to be brought into accord with the rest of society by the 37 00:02:44.260 --> 00:02:49.880 The operation of sympathy, perhaps empathy in modern parlance. This is the beginning 38 00:02:49.880 --> 00:02:56.100 of moral judgment. An apprehension of moral ends Smith backs away from a strict methodological 39 00:02:56.100 --> 00:03:02.540 individualism. Thus in Smith's thinking, sympathy does not always denote a compassionate 40 00:03:02.540 --> 00:03:07.740 and benevolent feeling toward our fellow men. Sympathy is simply an ability to understand 41 00:03:07.740 --> 00:03:13.140 or feel to a certain degree the passions which motivate others, whatever those passions might 42 00:03:13.140 --> 00:03:19.140 It is possible for man to be motivated by self-interest, as Smith emphasizes in The Wealth 43 00:03:19.140 --> 00:03:23.700 of Nations, and also to sympathize with the motives of self-interest in others. 44 00:03:23.700 --> 00:03:28.460 However, in the first line of The Theory of Moral Sentiments, Smith states that the human 45 00:03:28.460 --> 00:03:32.380 beings are not exclusively self-interested creatures, quote, 46 00:03:32.380 --> 00:03:38.300 How selfish soever man may be supposed, there are evidently some principles in his nature 47 00:03:38.300 --> 00:03:43.100 which interest him in the fortune of others and render their happiness necessary to him, 48 00:03:43.100 --> 00:03:57.100 Smith is taking a balanced view of the nature of man. He, like Mises, is not interested in the caricature presented to us by Homo economicus. 49 00:03:57.100 --> 00:04:08.100 The difference in the treatment of human society by Smith and Mises consists in Smith's taking a more holistic view of man and trying to say something about the ends which men pursue. 50 00:04:08.100 --> 00:04:19.500 We might say that Smith is taking a natural law of view, which is that nature itself gives us sentiments by which we are able to apprehend objective moral order and make moral choice. 51 00:04:19.500 --> 00:04:27.380 The order of objective value is called the Tao, which has been known by men all over the world from earliest times. 52 00:04:27.380 --> 00:04:34.060 Mises is clear that his work in praxeology is concerned with means, not ends, which are pursued. 53 00:04:34.060 --> 00:04:38.360 Quote, praxeology is indifferent to the ultimate goals of action. 54 00:04:38.360 --> 00:04:43.560 Its findings are valid for all kinds of action, irrespective of the ends aimed at. 55 00:04:43.560 --> 00:04:46.760 It is a science of means, not ends. 56 00:04:46.760 --> 00:04:50.460 It applies the term happiness in a purely formal sense. 57 00:04:50.460 --> 00:04:58.960 In the praxeological terminology, the proposition man's unique aim is to attain happiness is tautological. 58 00:04:58.960 --> 00:05:02.860 Mises may not disagree with the existence of the impartial spectator. 59 00:05:02.860 --> 00:05:07.860 He simply finds this line of investigation not to his purpose. He also parodies the use 60 00:05:07.860 --> 00:05:13.680 of the concept of the economic man as not necessary. Quote, the absurdity of this doctrine 61 00:05:13.680 --> 00:05:18.500 becomes manifest as soon as the question is raised in what this economic man differs from 62 00:05:18.500 --> 00:05:25.180 real man. He is considered as a perfect egoist, as omniscient, and is exclusively intent upon 63 00:05:25.180 --> 00:05:29.820 accumulating more and more wealth. But it does not make any difference for the determination 64 00:05:29.820 --> 00:05:36.120 to Market Prices, whether an egoistic buyer buys because he wants himself to enjoy what 65 00:05:36.120 --> 00:05:42.360 he bought or whether an altruistic buyer buys for some other reason, for instance, in order 66 00:05:42.360 --> 00:05:45.780 to make a gift to a charitable institution. 67 00:05:45.780 --> 00:05:50.400 Neither does it make any difference on the market whether the consumer in buying is guided 68 00:05:50.400 --> 00:05:56.040 by opinions that an unaffected spectator considers as true or false. 69 00:05:56.040 --> 00:06:01.380 He buys because he believes that to acquire the merchandise in question will satisfy him 70 00:06:01.380 --> 00:06:06.360 better than keeping the money or spending it for something else. Whether or not he aims 71 00:06:06.360 --> 00:06:11.800 at accumulating wealth, he always aims at employing what he owns for those ends which, 72 00:06:11.800 --> 00:06:15.280 as he thinks, will satisfy him best. 73 00:06:15.280 --> 00:06:20.840 So in Mises' work, it is the human action that produces movements and prices and changes 74 00:06:20.840 --> 00:06:27.280 and all other economic phenomena. This is the subject matter of economics or praxeology, 75 00:06:27.280 --> 00:06:33.260 not an analysis of the ends or purposes that men and women are trying to achieve. Smith 76 00:06:33.260 --> 00:06:39.700 wants to say something about the ends at which we aim. We might even use the word summum 77 00:06:39.700 --> 00:06:45.380 bonum or the highest good toward which humans can strive. In looking at Smith's broader 78 00:06:45.380 --> 00:06:55.380 There is no need to get involved with Das Adam Smith Problem, the so-called conflict between the Theory of Moral Sentiments and the Wealth of Nations. 79 00:06:55.380 --> 00:06:58.380 There is an overarching purpose in Smith's work. 80 00:06:58.380 --> 00:07:08.380 D. D. Raphael and A. L. McPhee, the editors of the 1982 Liberty Fund edition of The Theory of Moral Sentiments, state, 81 00:07:08.380 --> 00:07:13.900 Smith himself provides the best evidence against any idea that there is a conflict between his 82 00:07:13.900 --> 00:07:20.860 two works. In the advertisement to edition 6 of Theory of Moral Sentiments, he refers to the final 83 00:07:20.860 --> 00:07:26.540 paragraph of the book, which promises another one on law and government, and says that he has 84 00:07:26.540 --> 00:07:32.540 partly executed his promise in Wealth of Nations. Clearly, therefore, he regards Wealth of Nations 85 00:07:32.540 --> 00:07:39.020 as continuing the sequence of thought set out in Theory of Moral Sentiments. 86 00:07:39.020 --> 00:07:43.220 The sequence of thought that Smith began in Theory of Moral Sentiments had begun much 87 00:07:43.220 --> 00:07:47.220 earlier in his lectures in Moral Philosophy at Glasgow. 88 00:07:47.220 --> 00:07:51.500 The substance of these lectures is contained in lectures on Justice, Police, Revenue and 89 00:07:51.500 --> 00:07:56.200 Arms, in which topics of moral interest as well as economic interest are presented. 90 00:07:56.200 --> 00:08:00.780 For instance, the interrelationship between commerce and its effects on moral behavior 91 00:08:00.780 --> 00:08:12.140 Smith occupied the Chair of Moral Philosophy at the University of Glasgow from 1752 until 92 00:08:12.140 --> 00:08:19.020 1764. In Scottish universities of that time, it was common for lectures on economic matters 93 00:08:19.020 --> 00:08:23.860 to be delivered from the Chair of Moral Philosophy. One might say that modern economics got its 94 00:08:23.860 --> 00:08:29.260 start from the Chair of Moral Philosophy. For Smith, then, economics is included under 95 00:08:29.260 --> 00:08:36.260 The marketplace does indeed have a moral dimension. The study of how the marketplace works does 96 00:08:59.260 --> 00:09:28.020 Smith is not a utilitarian, at least not in the Benthamite sense of philosophical radicalism. 97 00:09:28.020 --> 00:09:32.920 In our approval or desire for the intellectual virtues, Smith states, the utility of those 98 00:09:32.920 --> 00:09:38.740 qualities that may be thought is what first recommends them to us, and no doubt the consideration 99 00:09:38.740 --> 00:09:44.580 of this when we come to attend to it gives them new value. Originally, however, we approve 100 00:09:44.580 --> 00:09:50.520 of another man's judgment not as something useful, but as right, as accurate, as agreeable 101 00:09:50.520 --> 00:09:56.020 to truth and reality, and it is evident we attribute those qualities to it for no other 102 00:09:56.020 --> 00:10:06.100 Von Mises seems to support the utilitarian method, but at other times to present problems 103 00:10:06.100 --> 00:10:13.220 with it. Utilitarianism consists in the maximizing of one's utility or satisfaction. Jeremy 104 00:10:13.220 --> 00:10:18.620 Bentham developed an additive method for calculating utilities. It was known as the thalacific 105 00:10:18.620 --> 00:10:24.420 calculus, which was designed to add up pleasures and pains produced by some proposed piece 106 00:10:24.420 --> 00:10:33.420 This approach has been applied to individual action as well. For Bentham, good was pleasure and evil was pain. 107 00:10:33.420 --> 00:10:44.420 Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do. 108 00:10:44.420 --> 00:10:52.420 On the one hand, the standard of right and wrong. On the other, the chain of causes and effects are fastened to their throne. 109 00:10:52.420 --> 00:10:59.660 The Philosophic Calculus was a complex list of scoring pleasures and pains according to 110 00:10:59.660 --> 00:11:05.280 intensity, duration, certainty, proximity and other categories. The principle is simple. 111 00:11:05.280 --> 00:11:10.980 Add up the pleasures and pains and the course of action is clear. If the sum of the pleasures 112 00:11:10.980 --> 00:11:16.140 is greater than the sum of the pains, the action in question should be done. These pleasures 113 00:11:16.140 --> 00:11:22.260 and pains are subjectively defined, thus there is no way to say that a person is acting irrationally 114 00:11:22.260 --> 00:11:24.260 Mises agrees, 115 00:11:52.260 --> 00:12:09.260 In Utilitarianism, with absolutely subjectively defined ends, no action can be deemed irrational. 116 00:12:09.260 --> 00:12:14.720 This makes Utilitarianism into an ethically empty theory. There is simply nothing to say 117 00:12:14.720 --> 00:12:20.060 about the goals that humans strive for, either good or bad. There is no natural law proposition 118 00:12:20.060 --> 00:12:28.620 But the teachings of utilitarian philosophy and classical economics have nothing to do 119 00:12:28.620 --> 00:12:34.340 with the doctrine of natural right. With them, the only point that matters is social utility. 120 00:12:34.340 --> 00:12:38.260 They recommend popular government, private property, tolerance, and freedom, not because 121 00:12:38.260 --> 00:12:43.940 they are natural and just, but because they are beneficial. Since we cannot say anything 122 00:12:43.940 --> 00:12:50.820 Speaking about ends, we cannot say that the pursuit of prosperity is rational or good. 123 00:12:50.820 --> 00:12:55.040 We can observe that humans tend in this direction and can point out the most efficient means 124 00:12:55.040 --> 00:13:00.780 to attain prosperity. This is the subject matter of economics, human action. Adam Smith, 125 00:13:00.780 --> 00:13:05.980 however, wants firmer springs of human behavior to build upon, perhaps like the propensity 126 00:13:05.980 --> 00:13:11.180 in human nature to truck, barter, and exchange one thing for another, or perhaps some firmer 127 00:13:11.180 --> 00:13:17.480 for moral tendencies indicated by the impartial spectator or by natural law. A. C. Waterman 128 00:13:17.480 --> 00:13:22.580 comments on Smith's observation of the natural effort of every individual to better his own 129 00:13:22.580 --> 00:13:28.140 condition. Human action must therefore be driven by self-love or interest, which may 130 00:13:28.140 --> 00:13:34.340 be a reliable guide to right conduct and which may produce natural or good social outcomes. 131 00:13:34.340 --> 00:13:38.740 But where the institutional framework is defective, interest will naturally produce outcomes 132 00:13:38.740 --> 00:13:46.040 Smith tried to say something objective about human happiness, or the highest good at which 133 00:13:46.040 --> 00:13:52.260 humans aim. Both nature and providence indicate that the purpose for human beings is to attain 134 00:13:52.260 --> 00:13:56.820 happiness, quote, from moral sentiments. The happiness of mankind as well as of all 135 00:13:56.820 --> 00:14:01.380 other rational creatures seems to have been the original purpose intended by the author 136 00:14:01.380 --> 00:14:07.120 of nature when he brought them into existence. That end is still more confirmed by the examination 137 00:14:07.120 --> 00:14:11.920 of the Works of Nature, which seem all intended to promote happiness and to guard against 138 00:14:11.920 --> 00:14:16.960 misery, but by acting according to the dictates of our moral faculties, we necessarily pursue 139 00:14:16.960 --> 00:14:22.300 the most effectual means for promoting the happiness of mankind. 140 00:14:22.300 --> 00:14:26.640 This highest human happiness has content and is discussable. 141 00:14:26.640 --> 00:14:31.400 Human happiness consists of tranquility and the sense of being beloved. 142 00:14:31.400 --> 00:14:33.800 This is Smith again from Moral Sentiments. 143 00:14:33.800 --> 00:14:43.800 Ease and Tranquility comprise a sort of summary of the ends. They are a pair, meaning ease of body and ease of mind. 144 00:14:43.800 --> 00:14:51.800 In this phrase by James Alvey, ease of body corresponds to tranquility and ease of mind to Smith's sense of being beloved. 145 00:14:51.800 --> 00:15:01.800 Smith is not convinced that prosperity is necessarily the way to attain this, but there is an invisible hand operating in the moral world as well as the world of exchange. 146 00:15:01.800 --> 00:15:05.800 Smith's quote from Wealth of Nations on the Invisible Hand is well known. 147 00:15:05.800 --> 00:15:13.800 However, there is also a powerful invisible hand at work in the area of moral behavior, even though only a small number pursue the life of virtue. 148 00:15:13.800 --> 00:15:18.800 Smith likens the pursuit of wealth and greatness to a type of vanity or deception. 149 00:15:18.800 --> 00:15:23.880 Reception, quote, wealth and greatness are mere trinkets of frivolous utility, no more 150 00:15:23.880 --> 00:15:29.600 adapted for procuring ease of body or tranquility of mind than the tweezer cases of the lover 151 00:15:29.600 --> 00:15:32.840 of toys, moral sentiments. 152 00:15:32.840 --> 00:15:37.120 Fortunately, this pursuit of wealth, particularly for the lower and middle classes, lies along 153 00:15:37.120 --> 00:15:40.440 the same path as the pursuit of virtue. 154 00:15:40.440 --> 00:15:45.200 In the middling and inferior stations of life, the road to virtue and that to fortune, to 155 00:15:45.200 --> 00:15:51.000 to such fortune at least as men in such stations can reasonably expect to acquire are happily 156 00:15:51.000 --> 00:15:55.000 in most cases very nearly the same moral sentiments. 157 00:15:55.000 --> 00:15:59.920 So along this path of wealth creation lies the development of civil society. 158 00:15:59.920 --> 00:16:08.420 No doubt culture which is a sort of unintended consequence allows men and women to achieve 159 00:16:08.420 --> 00:16:11.220 the Smithian view of the good life. 160 00:16:11.220 --> 00:16:15.120 We can experience tranquility in the sense of being beloved through the pleasant sociability 161 00:16:15.120 --> 00:16:27.520 Another unintended consequence of the market economy may be the production of virtues and 162 00:16:27.520 --> 00:16:29.760 the enablement of altruism. 163 00:16:29.760 --> 00:16:33.960 Von Mises similarly believes in the existence of a kind of invisible hand. 164 00:16:33.960 --> 00:16:39.280 It is truly a market-driven invisible hand, and one does discern some Smithian good in 165 00:16:39.280 --> 00:16:40.280 it. 166 00:16:40.280 --> 00:16:42.680 quote from von Mises in Foundation. 167 00:16:42.680 --> 00:16:44.880 One could hardly misinterpret more fundamentally 168 00:16:44.880 --> 00:16:47.160 the essence of social cooperation 169 00:16:47.160 --> 00:16:50.240 and the economic effort of civilized mankind 170 00:16:50.240 --> 00:16:52.600 than by looking upon it as if it were a fight 171 00:16:52.600 --> 00:16:56.480 or the playful duplication of fighting or a game. 172 00:16:56.480 --> 00:17:00.720 In social cooperation, everyone in serving his own interests 173 00:17:00.720 --> 00:17:03.320 serves the interest of his fellow men. 174 00:17:03.320 --> 00:17:05.880 Driven by the urge to improve his own conditions, 175 00:17:05.880 --> 00:17:08.220 he improves the conditions of other people. 176 00:17:08.220 --> 00:17:13.740 Competition on the market must not be confused with the pitiless biological competition prevailing 177 00:17:13.740 --> 00:17:20.340 between animals and plants or with the war-steel wage between civilized nations. 178 00:17:20.340 --> 00:17:25.160 Catallactic competition on the market aims at assigning to every individual that function 179 00:17:25.160 --> 00:17:30.260 and the social system in which he can render to all his fellow men the most valuable of 180 00:17:30.260 --> 00:17:34.220 the services he is able to perform. 181 00:17:35.220 --> 00:17:37.220 Thank you very much.