The Adam Smith Problem Revisited: A Methodological Resolution

Abstract

The Adam Smith problem refers to a claimed inconsistency between the Theory of Moral Sentiments and the Wealth of Nations, regarding the portrayal of human nature in these two books. Previous research predominantly resolved the claimed inconsistency by uncovering virtuous, less selfish character traits in the Wealth of Nations. This article voices caution. I acknowledge -on methodological grounds -fundamental differences regarding the portrayal of human nature in Smith's behavioral ethics, i.e. the Theory of Moral Sentiments, as compared with Smith's economic research. The key argument is that Smith's two books address different research problems and hence do not, need not and cannot adopt the same view of human nature -for methodological reasons, so my argument. Adam Smith scholarship overlooked that Smith himself in considerable degrees understood "economic man" as a heuristic abstraction. I connect to the philosophies of science of Imre Lakatos and Karl Popper.

In search of ethics: from Carroll to integrative CSR economics

“…North's historic institutional economic research is exemplary in that it shows that outcomes like economic growth (the "wealth of nations"; "public good") in a market economy rely on the establishment of constitutional and institutional-legal structures that frame a market economy system (North, 1990;North and Thomas, 1973;North and Weingast, 1989;also, Buchanan, 1975also, Buchanan, , 1976also, Buchanan, , 1987aalso, Buchanan, , 1987bBuchanan and Tullock, 1961;Williamson, 1985Williamson, , 1996Williamson, , 2000in degrees, also Friedman, 1962). Smith had already offered many insights in these regards (Khalil, 2002;Reisman, 1998;Viner 1927;Wagner-Tsukamoto, 2013), namely that the mutual gains program of the market economy, as discussed above, is to be supported through a framework that sets guidelines and constraints for those who interact on markets. This understanding brings an explicit, normative ethical dimension to Carroll's idea of legal responsibilities.…”

For Humanistic Management and Against Economics

“…Indeed, Smith broke in this regard with his earlier approach to ethics, his Theory of Moral Sentiments . This theory was grounded in sympathy‐based virtue ethics and aligns with personalist ethics and personalist humanistic management (Smith, /1966; see also Figure ; Wagner‐Tsukamoto, ).…”

“…Popper poignantly summarized this: "The 'zero method ' [e.g., the homo economicus, homo sociologicus, etc. ] of constructing rational models is not a psychological but rather a logical method" (Popper 1994, p. 158, emphasis as in original;also, Homann 1994;Suchanek 1994;Wagner-Tsukamoto 2013b) With their unique tools in hand, sciences like psychology, anthropology, or sociology explain economy, ethics, and society differently from economics by employing different models of human nature, such as homo psychologicus, homo anthropologicus, and homo sociologicus. Here again these are only models of human nature but not portrayals of whole persons, as Dahrendorf, Blau, and Popper stressed. In this respect, an important question is how personalist humanistic management could reconnect to any of the social sciences since all of them only engage models of human nature, in their respectively different terms, but do not entertain complete philosophies of human nature.…”

“…The “economic market” and the “legal state” closely interrelated in this program, as this has been doubted at times by personalist humanistic management (e.g., Naughton , p. 184). Already Smith (1776/1976, Books IV and V) was outspoken regarding a strong institutional dimension of business activity in a market economy (Reisman ; Viner ; Wagner‐Tsukamoto , ). Characterizations of Smith, as put forward by personalist humanistic management, as a “liberal” who unrestrainedly held up laissez‐faire markets (e.g., Grassl and Habisch , p. 41; similarly, Donohue‐White et al , p. 56; Wishloff , p. 149), can be contested.…”

“…On this basis, the paper aligns institutional economics with impersonalist ethics, connecting to the works of Buchanan, North, Ostrom, or Williamson, to name but a few. This tradition is clearly evident already in Smith's Wealth of Nations (Buchanan 1976;Reisman 1998Reisman , 2015Viner 1927;Wagner-Tsukamoto 2013b). The argument is that an understanding of institutional economics as impersonalist ethics conceptually grounds personalist humanistic management and improves the practical success of personalist humanistic management-when a market economy context is given.…”