Beyond the Efficiency of the Market
Adam Smith on Sympathy and the Poor Law
There is an ongoing debate about the morality of the market system. This debate often takes the form of two arguments, that the market improves the situation of the least well-off and is morally beneficial, or that it encourages moral depravity and potentially worsens the situation of the least advantaged. One scholar has characterized this dual-nature of the market as “The Problems and Promise of Commercial Society” (Rasmussen 2008). On the one hand, we are familiar with the promise of commerce, and the argument that the market is effective in alleviating poverty and spreading wealth by allowing people to coordinate diverse interests. Adam Smith points to these positive capacities of the market in Wealth of Nations (WN), arguing that commercial society generally improves the situation for the poorest, making them as “rich as an African King” (WN Li.11).2 Economists have referred to improvements in standards of living as an outcome of the market process (e.g., Kirzner 1992). Economists have also referenced the market order to describe both the laws and social structure that make market coordination and the improvement of material conditions possible, and the several orders that can result from such coordination (Hayek  1978). They have described the market order as a “spontaneous order” that emerges from the coordination of diverse ends, arguing that it is neither an order that persists or is always visible nor one that seeks a specific end.3 The rules that govern the market order, such as private property, rule of law, and freedom of contract create a space where individuals can pursue their unique ends while also connecting with one another. The market process also fosters economic growth by facilitating the coordination of these ends within the market order.
Further, some argue that the market not only facilitates material growth, but also encourages moral behavior by teaching virtues (e.g., McCloskey 2006), or even transforms actors into more moral human beings (Storr, forthcoming).
In this way, the market allows for more than simply a kind of negative liberty by preventing individuals from interfering with one another. It also does more than coordinate individuals to achieve material ends. The market has the potential to teach us how to be decent human beings or at the very least to treat others with respect so that we are better able to satisfy our interests.
However, we are also familiar with the tragedy of the market. The market can have morally problematic consequences, such as encouraging us to value material gains above human relationships.4 In this description of the market, sometimes attributed to Adam Smith’s “invisible hand” metaphor, the market encourages people to be greedy.5 Actors in the market are not virtuous, and in fact, their very moral depravity is what spurs the market process on. As Mandeville ( 1924) explains, “The Root of Evil, Avarice, That damn’d ill-natur’d baneful Vice, Was Slave to Prodigality, That noble Sin; whilst Luxury Employ’d a Million of the Poor, And odious Pride a Million more. . . . That strange ridic’lous Vice, was made The very Wheel that turn’d the Trade.” While Smith vehemently disagrees with Mandeville’s position on the role of selfishness in Theory of Moral Sentiments (TMS), he acknowledges the market’s potential to be morally problematic.6 He illustrates, for example, how the poor man’s son seeks commercial pursuits to obtain the many material pleasures that the rich have; however, he finds at the end of his life that they have not made him feel happy or fulfilled. Indeed, while Smith says the paths to virtue and wealth are the same for most people because succeeding in the market depends on gaining the social esteem of one’s peers, the pursuit of wealth can cause depravity in the most well-off members of society (TMS I.iii.3.5). It can also promote the substitution of wealth for virtue in the moral judgments of everyone. In these ways, the market has the potential to be both ameliorative and destructive for political and social life.
Economists have pointed to the ways that the market, by encouraging greed and selfishness, expands economic inequality (e.g., Piketty 2014). Political scientists (Gilens 2012; Hacker and Pierson 2011; Bartels 2008) also point out increasing inequality and argue that it leads to inequalities in political power. In these ways, the market fosters moral depravity and makes the material situation of the least advantaged worse.
Both of these views of the market have often been attributed to Smith’s work, but another way of considering the moral effects of the market in his theory is to consider how policies that impede the market affect individuals. Smith is very concerned throughout Wealth of Nations with the ways in which the market can improve the situation of the least advantaged. He often discusses the market in terms of the “natural liberty of the market,” which allows individuals to improve their situation. Because of this emphasis on the importance of the liberty of the market for improving the general economic situation of nations and the material condition of the least well-off, Smith also pays attention to policies and practices that impede this liberty. Among them is his famous discussion of the problems with monopoly and joint-stock companies.
A less famous example of a policy that impedes the market is his discussion of the Elizabethan poor law.7 The poor law was established in the early seventeenth century when Elizabeth I revised and enforced The Act for Poor Relief of 1597. The original, or “old,” poor law required each parish to deliver aid to the most deserving in their jurisdiction. Yet each parish’s ability to administer aid adequately to their own varied. Further, the responsibility of the local parish for their own poor increased with the passing of the 1662 Settlement Act. This new component of the poor law reduced labor mobility because neighboring parishes would not take on new poor to their relief rolls. With the aid of a commission that included the economist Nassau Senior, the poor law was amended in 1834 to be less costly and to reach only those truly in need.8
In his discussion of the poor law, Smith argues that the new act is economically problematic because it prevents workers from following the market for their labor and prevents the market from fulfilling one of its central tenets, to improve the situation of the least well-off. However, Smith also argues against the law on seemingly moral terms. Why does Smith discuss the moral effects of the law rather than simply dismissing it on economic grounds? It is this puzzle that this chapter aims to address. I argue that by reading Theory of Moral Sentiments in light of this argument in Wealth of Nations, we see that in the case of the Settlement Act, economic liberty is also tied to healthy moral judgment and sympathetic relationships. I argue that what is unique about the poor law example in Smith’s work, as opposed to the character of the poor man’s son, for instance, is that what is problematic for the liberty of the market is similarly problematic for the liberty of individuals and their potential for forming relationships with one another. That is, what is problematic for economic liberty is also problematic for the formation of the moral ties that Smith thinks are so crucial to our happiness.9 Smith often argues that the paths to virtue and wealth are the same, and this example shows why the market can help individuals relate to one another better than certain regulations of the market by law. The poor law example shows how interference in the market can actually foster some of the market’s morally problematic potential. By further encouraging people to see the poor as objects of derision, the poor law not only prevents the circulation of free labor, it also harms their potential to be seen as people worthy of the sympathy of their peers.
I propose that to understand Smith’s arguments about the moral aspects of the law, namely its negative effect on sympathetic relationships, we need to consider his discussion of the poor law in Wealth of Nations in light of his arguments in Theory of Moral Sentiments. Since the dismissal of “das Adam
Smith Problem,” scholars have increasingly been reading Smith’s economic and moral works together (e.g., Storr, forthcoming; Herzog 2016; Rasmussen 2008). Scholars have also been making this argument for the unity of the two works on rhetorical grounds, by demonstrating that WN is a rhetorical exercise in which Smith makes the case for many concepts in TMS (e.g., Pitts, 2017; Fleischacker 2004, 209).10
To show how the poor law actually worsens the situation of the poor by preventing them from being sympathized with by their peers, I establish the connection between Smith’s economic and moral arguments in the example of the poor law. I argue that there are two key aspects of the law that harm the moral situation of the poor. First, I argue that the poor law problematically establishes a position of arbitrary power for its overseers relative to the rest of society. Second, I argue that the law positions the poor as objects to be administered rather than individuals with moral worth.
My argument will proceed in three parts. In the first section, I present Smith’s discussion of the poor law in WN. Then, I focus on the economic consequences of the law, particularly its effects on the labor market. In the second section, I turn to Smith’s comments about the moral dimension of the poor law. I focus on the key problem that the poor law introduces into the market: the administration of the poor by overseers. I then demonstrate why this aspect of the law is problematic by applying the problem with the extent of sympathy that Smith outlines in TMS to the structure of the poor law as Smith analyzes it in WN, focusing on the issue of distance between people of different social rank. I build Smith’s case for why it is difficult, but not impossible, to sympathize outside of our social circle. Whereas we might expect the market to expand our circles of sympathy, as I presented above, the poor law, by administering the poor, reduces this possibility for them. I show how this limitation of the extent of sympathy that the poor law propagates is problematic not just for the liberty of the poor, but also for all citizens. In the concluding section, I turn back to Smith’s arguments about the economic problems of the poor law for limiting material well-being and tie this to his concerns about the effects of the law on moral well-being. I conclude with a discussion of what Smith’s critique of the poor law on moral and material terms teaches us about the market process and market order. I argue that interfering with the market process makes it more likely that we enhance its negative potential for fostering selfishness to the detriment of Smithean sympathy.