10/5/2017

Adam Smith
On the division of labor and the invisible hand

Who is Adam Smith?

Born in 1723. Died in Edinburgh in 1790.

Adam Smith was a philosopher by trade, holding positions in the

academe teaching logic and moral philosophy.

Adam Smith is often described as the father of modern political

economy, and his magnum opus, The Wealth of Nations, is often
treated as the “bible” of what would become classical economics.

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Adam Smith’s methodology

To understand a phenomenon, one does not turn to general principles,
natural law, divine law, or anything foundational. Adam Smith’s
methodology was to use illustrations of a phenomenon, details of how
it actually works, and how we actually experience it. To explain moral
or economic judgments, we study the details of how we actually make
such judgments based on our first person experience, the
generalizations of which we could then use as a normative guide on
how to make further judgments. Smith’s methodology may be
described as phenomenological and particularistic.

Sympathy as foundation of morality

Sympathy arises when we imagine how we would feel when we place
ourselves in the circumstances of others. One of our principal drives in
life is to try to share in the feelings of others – mutual sympathy.
Because we only imagine and not wfeel what others feel, we engage in
a process of mutual emotional adjustment in order to get along.

To sympathize with another’s feelings is to approve of those feelings. To

sympathize as we think an impartial spectator would is to give moral
approval of those feelings. Moral norms thus arise as the expression of
the feelings of an imagined impartial spectator, an outcome of our
attempts to try to achieve mutual moral sympathy.
Walang mabubuong norm kapag magkakaiba yung imagined spectator.
Magtutugma dapat moral judgement para magkaron ng moral norm.

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Rules and virtues

There are two normative guides to action: rules and virtues.

Moral rules bar certain types of behavior and provides a framework for
shared expectations in a society. Moral rules are necessary for the
administration of justice in society because not all can be virtuous.

Virtues require the internalization, the reconfiguration of emotional

disposition, to that of the imagined impartial spectator, wherein
following moral rules paradoxically becomes not following rules at all.

Religion and culture

Religion plays a big role in our moral lives because people’s belief in a
higher power or deity, which may be viewed as the representation of
the impartial spectator, could give power to moral rules through the
appearance of sacredness.

Culture is an important aspect in moral life because it explains the

differences in emphasis on virtues across different societies.

Laws can be impartial spectators

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Structure and agency in moral life

Adam Smith conceived of a socially constituted self, where feelings are
not natural dispositions but are instead products of socialization. To
understand others necessarily means understanding one’s self, so the
self and the other are mutually constitutive of each other.

The impartial spectator, the concept which allows us to make moral

judgments, is socially constructed. However, once internalized in the
development of virtuous character, the impartial spectator helps
individuals to step out of their society and subject it to moral
evaluation and criticism.

Relativistic morality
Because morality is constituted through the mutual construction of the
impartial spectator by the self and the society one is embedded in,
moral judgments vary in many ways across societies, within societies,
and even between individuals themselves.

Adam Smith did not offer first principles to turn to in settling issues of
morality. What he offered is a systematic explanation of how morality
came about.

Wala universal morals

As for me, there are universal moral and there are morals na hindi. Like sa
science, may fundamental laws but there could be exceptions.

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Propensity to exchange
Adam Smith observed that one distinguishing feature of humans is our
propensity to truck, exchange, and barter. Other animals grow almost
fully independent in their capacity to survive upon maturity. Humans,
however, almost always had to rely on the “help” of others to survive.
And this help is often not received out of benevolence, but rather
through the appeal to one’s self-love, that is, through convincing the
other of the possibility of mutual benefit.

The division of labor

The observed division of labor in modern society is a consequence of
the human propensity to truck, exchange, and barter. The consequence
of the division of labor is the observed significant improvement in the
productivity of labor in the modern capitalist economy.

The effects of the division of labor on productivity is more observable

in manufacture, rather than agriculture, because it allows for more
subdivisions of labor in the process of production. The more opulent
nations are more distinguishable from less opulent nations in the state
of their manufacture / industry, rather than agriculture.

Nasa industrial sector ang yaman ng bansa

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How division of labor increases productivity

1. Improvement of the dexterity of the workman
2. The saving of time lost in passing from one species of work to
another
3. The invention of machines which facilitate and abridge labor

Effect of the market on the division of labor

“As it is the power of exchanging that gives occasion to the division of
labor, so the extent of this division must always be limited by the extent
of that power, or, in other words, by the extent of the market. When
the market is very small, no person can have any encouragement to
dedicate himself entirely to one employment, for want of the power to
exchange all that surplus part of the produce of his won labor, which is
over and above his own consumption, for such parts of the produce of
other men’s labor as he has occasion for.”

Kapag maliit market, hindi ka kikita pag isa lang ginagawa mo

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Component parts of the price of commodities

“The real value of all the different parts of price, it must be observed, is
measured by the quantity of labor which they can, each of them,
purchase or command. Labor measures the value not only that part of
the price which resolves itself into labor, but of that which resolves
itself into rent, and of that which resolves itself into profit…in every
improved society, all the three enter more or less, as component parts,
into the price of the far greater part of commodities…Wages, profit,
and rent, are the three original sources of revenue as well as
exchangeable value. All other revenue is ultimately derived from some
one or other of these.”

The natural price

“When the price of any commodity is neither more nor less than what
is sufficient to pay the rent of the land, the wages of the labor, and the
profits of the stock employed in raising, preparing, and bringing it to
market, according to their natural rates, the commodity is then sold for
what may be called its natural price.”

The natural price is dependent on what is considered ordinary or

average in the time and place in which the labor or stock is employed.

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The market price

“The actual price at which any commodity is commonly sold is called its
market price…the market price of every particular commodity is
regulated by the proportion between the quantity which is actually
brought to the market, and the demand of those who are willing to pay
the natural price of the commodity.”

The market price is different from the natural price. However,

adjustments due to the forces of supply and effectual demand would
make the market price tend towards the natural price in conditions of
perfect liberty.

The invisible hand

“Every individual endeavors to employ his capital as near home as he
can, and consequently as much as he can in support of domestic
industry; provided always that he can thereby obtain the ordinary, or
not a great deal less than the ordinary profits of stock…Every individual
who employs his capital in the support of domestic industry necessarily
endeavors so to direct that industry that its produce may be of the
greatest possible value….He generally, indeed, neither intends to
promote the public interest nor knows how much he is promoting
it…(cont.)”

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The invisible hand

“…By preferring the support of domestic to that of foreign industry, he
intends only his own security; and by directing that industry in such a
manner as its produce may be of the greatest value, he intends only his
own gain, and he is in this, as in many other cases, led by an invisible
hand to promote an end which was no part of his intention. Nor is it
always the worse for the society that it was no part of it. By pursuing
his own interest, he frequently promotes that of society more
effectually than when he really intends to promote it.”

People work for their interest so maseserve din

interest as a whole.

Government and the employment of capital

“What is the species of domestic industry which his capital can employ,
and of which the produce is likely to be of greatest value, every
individual, it is evident, can, in his local situation, judge much better
than any statesman or lawgiver can do for him. The statesman who
should attempt to direct private people in what manner they ought to
employ their capitals would not only load himself with a most
unnecessary attention, but assume an authority which could safely be
trusted, not only to no single person, but to no council or senate
whatever, and which would nowhere be so dangerous as in the hands
of a man who had folly and presumption enough to fancy himself fit to
exercise it.”

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On state restrictions on foreign trade

To give the monopoly of the home market to the produce of domestic
industry, in any particular art or manufacture, is in some measure to
direct private people in what manner they ought to employ their
capitals, and must, in almost all cases, be either a useless or a hurtful
regulation…the tailor does not attempt to make his own shoes, but
buys them of the shoemaker. The shoemaker does not attempt to make
his own clothes, but employs a tailor.”

Problem: Tumataas prices

Labanan ang monopolyo na nagpapataas ng prices

On the duties of government

“According to the system of natural liberty, the sovereign has only three
duties to attend to…first, the duty of protecting society from violence
and invasion of other independent societies; second, the duty of
protecting, as far as possible, every member of the society from the
injustice or oppression of every other member of it, or the duty of
establishing an exact administration of justice; and, third, the duty of
erecting and maintaining certain public works and certain public
institutions which it can never be for the interest of individuals, or
small number of individuals, to erect and maintain; because the profit
could never repay the expense to any individual or small number of
individuals, though it may frequently do much more than repay it to a
great society.”

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On happiness
For Adam Smith, the pursuit of self-interest (happiness) and the pursuit
of morality are different. Thus, the economy described in the Wealth of
Nations is not necessarily Smith’s depiction of a moral society. It is just
a wealthy society.

Still morality and self-interest are not necessarily conflicting. Adam

Smith said, “the chief part of human happiness arises from the
consciousness of being beloved.” Being beloved requires acting in
accordance with the impartial spectator – gaining self-approbation and
the moral approbation of others. Happiness is ultimately attained
through a virtuous life.

Other references
Fleischacker, Samuel. 2017. “Adam Smith’s moral and political
philosophy.” Retrieved from
https://plato.stanford.edu/entries/smith-moral-political/.

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