Was Adam Smith Really a Right-Winger? | Freakonomics Radio | Episode 526

Economists and politicians have turned him into a mascot for free-market ideology. Some on the left say the right has badly misread him. Prepare for a very Smithy tug of war. (Part 2 of a series) This episode was originally published December 14, 2022. For a full transcript, resources, and more, visit: https://freak.ws/3GaMx3F Photo credit: Audrey Bernstein FOLLOW FREAKONOMICS RADIO: YouTube: https://freak.ws/3yIl6dl Apple Podcasts: https://freak.ws/3yAvQh0 Spotify: https://freak.ws/3TsdCmV ABOUT FREAKONOMICS RADIO: Discover the hidden side of everything with host Stephen J. Dubner, co-author of the Freakonomics books. Each week, Dubner speaks with Nobel laureates and provocateurs, intellectuals and entrepreneurs, and various other underachievers to uncover things you always thought you knew (but didn’t) and things you never thought you wanted to know (but do) — from the economics of sleep to the future of education, from markets for marriage to the surprising utility of wolves. ABOUT THE FREAKONOMICS RADIO NETWORK: Freakonomics began as a book, which led to a blog, a documentary film, more books, a pair of pants, and in 2010, a podcast called Freakonomics Radio. Hosted by Stephen J. Dubner, it’s one of the most popular podcasts in the world, with a reputation for storytelling that is both rigorous and entertaining. Its archive of more than 500 episodes is available, for free, on any podcast app, and the show airs weekly on NPR stations. Freakonomics Radio is now the flagship show of the Freakonomics Radio Network, which includes the podcasts No Stupid Questions, People I (Mostly) Admire, and The Economics of Everyday Things. FREAKONOMICS RADIO NETWORK PODCASTS: Freakonomics Radio: https://freakonomics.com/series/freakonomics-radio/ No Stupid Questions: https://freakonomics.com/series/nsq/ People I (Mostly) Admire: https://freakonomics.com/series/people-i-mostly-admire/ The Economics of Everyday Things: https://freakonomics.com/series/everyday-things/ Special series: https://freakonomics.com/topics/ CONNECT WITH US: [email protected] https://twitter.com/freakonomics https://www.instagram.com/freakonomics/ https://www.facebook.com/freakonomics/ https://www.tiktok.com/@freakonomicsradio https://www.linkedin.com/company/freakonomics-media Subscribe to our newsletter: http://eepurl.com/bKm0cf

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Stephen J. Dubner?

  What do you think Adam Smith would make of the UK economy today?

• 0:07Speaker 01

  Oh, golly. He'd think it's in a great pickle. I think he'd actually think that it's one of the most tyrannical systems that he'd ever discovered. The idea that government should be taking 40% of the national income in taxes of one sort and another, not just direct taxes on income, but taxes on everything you spend, taxes on air travel, all sorts of hidden taxes, taxes on work, taxes on jobs. He would think that this is the most oppressive regime in the whole world.

• 0:43Stephen J. Dubner?

  That is Ayman Butler.

• 0:45Speaker 01

  I'm a director of the Adam Smith Institute, which is a free-market think tank based in London.

• 0:51Stephen J. Dubner?

  In our previous episode, In Search of the Real Adam Smith, we traveled to Scotland to see where Smith was born and spent most of his life.

• 1:00Speaker 02

  That's the pulpit, so he would have been baptized in the front of the church. He seems to have been a sociable individual who took a full part in the life of the university.

• 1:10Stephen J. Dubner?

  Today, we're down in London. We are trying to figure out how a moral philosopher from 18th century Scotland became the patron saint of free-market capitalism in the current century. Did Smith, for instance, really see governments as tyrannical?

• 1:25Speaker 03

  He distrusts politicians, both their abilities and often even their intentions.

• 1:29Stephen J. Dubner?

  We'll find out when and where the modern view of Smith gained traction.

• 1:34Speaker 03

  The Chicago School picked up a few aspects of Smith's thought and made it the whole of Smith's thought.

• 1:42Stephen J. Dubner?

  And we'll hear how this interpretation of Smith is often quite wrong.

• 1:46Speaker 04

  As much as that might have been efficient in terms of allocation, it was horrible from the perspective of human welfare.

• 1:57Stephen J. Dubner?

  Today on Freakonomics Radio, prepare yourself for a tug of war.

• 2:02Speaker 03

  There's raging debate in Smith scholarship among people who are sometimes called left Smithians and right Smithians.

• 2:08Stephen J. Dubner?

  Whether you are a left Smithian or a right Smithian, it's fair to say that we are all Smithians now, even if you've never heard of him. In Search of the Real Adam Smith, part two, starts right now.

• 2:31Speaker 05

  This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.

• 2:47Stephen J. Dubner?

  In 1759, Adam Smith published his first book, The Theory of Moral Sentiments. He was in his mid-30s, and he'd spent the previous several years teaching moral philosophy at the University of Glasgow.

• 2:58Speaker 04

  The initial reception of The Theory of Moral Sentiments was quite warm.

• 3:02Stephen J. Dubner?

  That's Glory Liu, a political scientist and Smith scholar.

• 3:06Speaker 04

  The initial reviews in London magazines, as well as in the United States, are praising Smith for the beauty of his writing.

• 3:14Stephen J. Dubner?

  But it wasn't just the beauty of Smith's writing that won praise. It was his humanity, his sympathy. He argued, for instance, that wealth does not necessarily indicate moral virtue, nor does poverty preclude it. Here's a passage from the book.

• 3:30Speaker 06

  This disposition to admire and almost to worship the rich and the powerful, and to despise, or at least to neglect, persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is at the same time the great and most universal cause of the corruption of our moral sentiments.

• 3:54Stephen J. Dubner?

  The book brought Smith a sterling reputation as a writer, philosopher, and public intellectual, which is why some of his friends thought it odd that he accepted a position as a tutor to a 17-year-old duke, the stepson of a future chancellor of the Exchequer. This assignment included travel around continental Europe. Smith grew bored with the tutelage itself, but he did get to spend time with Voltaire, with the economist François Canet, and with Benjamin Franklin. He also had the chance to observe how other nations were dealing with the massive economic changes being produced by the rise in global trade and the onset of the Industrial Revolution.

• 4:37Stephen J. Dubner?

  In a word, he thought they were dealing poorly. Governments, he noted, often had protectionist instincts, where Smith thought they ought to be more open to free trade. After a couple of years, he returned to Scotland and threw himself into his next book. Smith had never been accused of being a fast writer, and it turned out to be 17 years between the publication of The Theory of Moral Sentiments and the release of his second and final book, The Wealth of Nations. The publication of The Wealth of Nations coincided with two major events. The first was the death of the philosopher David Hume, Smith's best friend and most significant mentor. We heard about that relationship in part one of the series.

• 5:21Speaker 04

  Yes, yeah. Adam Smith and David Hume are best friends. It's very cute.

• 5:26Speaker 03

  You can trace Hume's influence on virtually everything that Smith ever wrote.

• 5:31Stephen J. Dubner?

  And the second major event? Well, this was the year that Britain lost control of its colonies in America. Ayman Butler again.

• 5:41Speaker 01

  The Wealth of Nations, his big book, published in 1776, what a great year that was. It really is a polemic. It's a polemic against economic centralism and restrictions on trade.

• 5:52Stephen J. Dubner?

  So who, in your mind, did he write The Wealth of Nations for?

• 5:58Speaker 01

  Oh, for the politicians of the day, because the politicians of the day were stuck in this idea that you had to resist foreigners bringing goods into your country. And similarly, you want to export as much as possible. So that was his main target, people who wanted to control international trade and people who thought that the key to wealth was getting lots of gold and silver in rather than producing stuff.

• 6:21Stephen J. Dubner?

  Now, when you say he was speaking to leaders, were those primarily European? Or, and I realize he started writing Wealth of Nations long before 1776. Do you think he had America in mind at all?

• 6:33Speaker 01

  Oh, absolutely. I mean, there's lots of material in The Wealth of Nations, which is very supportive of the colonists in terms of getting out of the control of the UK control of trade. I mean, the first edition of The Wealth of Nations was actually published in Russia. I've seen an edition which has got Hamilton's signature on it. It did get right out around the world, partly because he'd written about the colonies and so on. I think the Americans took it up very enthusiastically, the American founding fathers.

• 7:04Speaker 04

  So one of my favorite lines in The Wealth of Nations is from the very last paragraph.

• 7:10Stephen J. Dubner?

  Glory Liu again.

• 7:12Speaker 04

  This is where Smith is giving his withering last remarks on the British Empire. And he says, if the colonies, notwithstanding their refusal-

• 7:24Speaker 06

  Notwithstanding their refusal to submit to British taxes, are still to be considered as provinces of the British Empire, their defence in some future war may cost Great Britain as great an expense as it ever has done in any former war. The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic. This empire, however, has hitherto existed in imagination only. It has hitherto been not an empire, but the project of an empire.

• 8:06Speaker 06

  Not a gold mine, but the project of a gold mine. A project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost immense expense, without being likely to bring any profit.

• 8:24Speaker 04

  It's clear that he thinks that the colonial projects, both in the Americas as well as other parts of the British Empire, in Bengal, are a loss. They are a huge financial drain.

• 8:38Stephen J. Dubner?

  Glory Liu recently published a book called Adam Smith's America: How a Scottish Philosopher Became an Icon of American Capitalism. You write in your book that the wealth of nations became the origin point of the science of political economy in the United States, and that Smith was both revered and criticised. Sketch that out for me, both the reverence and the criticism. What I'm really trying to get a sense of is, how concretely or prominently did Adam Smith's ideas shape the US political economy early on?

• 9:12Speaker 04

  So the important thing in the founding era is that Smith is important as like a very technical resource, but he hasn't quite obtained that halo around him yet. He's not like Adam Smith, the father of all gifts and the markets and people like genuflect when they hear his name. He's well-known, but he hasn't acquired that intellectual authority yet.

• 9:40Stephen J. Dubner?

  So his writing wasn't treated like a religious text, more like a blueprint, perhaps?

• 9:45Speaker 04

  Absolutely. That's a great way of describing it. You have people like James Madison, who will say things like, oh, you know, I own this great text on political economy and I'm a friend to commerce. The implication or the kind of subtext is like, this was a smart man who wrote 900-plus pages about different ways to think about commerce, the relationship between agriculture and manufacturing, the conditions under which liberalized trade made sense versus prioritizing national defense. This is the most sophisticated, most up-to-date analysis of what it means to be at the helm of a nation that cares

• 10:29Speaker 04

  about national wealth. So it's natural that you have the founders, Madison, Hamilton, Jefferson, reading The Wealth of Nations to understand a way of thinking of national wealth.

• 10:46Stephen J. Dubner?

  Glory Liu writes in her book that Alexander Hamilton actually cribbed bits of Adam Smith in his own Report on National Banks. And thus, the moral philosopher from Kirkcaldy, Scotland, began to be woven into the fabric of the American experiment. By the mid-19th century, political economy was an established academic discipline. And Smith, himself dead by now for several decades, was considered its founder. American statesmen and attorneys would study Smith in preparation for their careers. In Congress, meanwhile, there were vigorous debates about trade policy and tariffs.

• 11:25Speaker 04

  The primary source of revenue for the federal government in its fledgling decades is from import taxes. And later on, much later on, like after the Civil War, the tariff becomes a wedge issue. It's the issue that divides Democrats and Republicans, Republicans being the party of protectionism, Democrats being the party of free trade.

• 11:49Stephen J. Dubner?

  And Adam Smith became the wedge with which to fight the wedge issue.

• 11:53Speaker 04

  You have people from both sides of the debate, free trade and protectionism, being like, ah, but Adam Smith. Look at what Adam Smith said. Oh, even the apostle of free trade said that the home market was really important. And so you start to see that, like, the intellectual authority matters. It's not Smith's ideas that matter that much anymore, it's his authority. That authority rests on an assumption that the science he created, the science of political economy, was powerful.

• 12:24Stephen J. Dubner?

  Smith continued to be cited by politicians and others throughout the 19th and early 20th centuries. Some used Smith to argue in favor of unbridled commerce and to rail against regulation. Others went the opposite direction. As the organized labor movement grew, for instance, the progressive economist Richard Ely argued that Adam Smith would have been firmly on the side of the unions. If you know even a little bit about Adam Smith's reputation today, it may surprise you to learn this, that Smith was used in service of such progressive causes, because Smith's reputation today runs conservative, or at least libertarian.

• 13:06Stephen J. Dubner?

  So where did that reputation come from? In her book, Glory Liu says it mostly came from the University of Chicago.

• 13:15Speaker 04

  That's accurate, according to my view of things.

• 13:17Stephen J. Dubner?

  So you write, Glory, that the University of Chicago economics department not only embraced Smith around the middle of the 20th century, but also, to quote you to yourself, "smoothed over or altogether obscured the complexities, tensions, and other problematic aspects characteristic of earlier readings of Smith." Okay, so that's a lot to unpack. Unpack that for me, please.

• 13:42Speaker 04

  One place to start is to ask, okay, well, what were the problems and complexities in the earlier versions of Smith? So this brings us to kind of early Chicago school. The figures that I look at are people like Jacob Viner and Frank Knight, and they are these like heavyweights. The University of Chicago doesn't have the reputation that it does today when Jacob Viner and Frank Knight were around in like the 1930s. They teach Smith as an early theorist of price. So teaching Smith as an early theorist of price and somebody who gives scientific value and a kind of objectivity to economics is really important for building intellectual

• 14:26Speaker 04

  credibility, let's call it, of Chicago's way of doing economics.

• 14:30Stephen J. Dubner?

  But then Viner and Knight go away. They, whatever, they move, they die, right?

• 14:35Speaker 04

  They leave.

• 14:36Stephen J. Dubner?

  Then there's the new generation. Here's what you write about them. You write that by reworking Smithian concepts like individualism, self-interest, and the invisible hand, a new set of thinkers like Friedrich Hayek, George Stigler, and Milton Friedman transformed Smith into an original way of thinking about an individualistic, market-oriented society that was justifiable on social, scientific grounds. So wowzer. That's an incredibly powerful sentence, and again, much to be unpacked.

• 15:08Speaker 04

  Let's start with self-interest. Self-interest in old Chicago school view is not just rational utility maximizing individualism. It's a human motivation among many, and there are extreme versions of self-interest that are dangerous. We lose that texture when we get to somebody like George Stigler, who looks to Smith as the Prometheus of economics. Self-interest has the most explanatory power.

• 15:41Stephen J. Dubner?

  Did Stigler view Smith that way because Stigler felt that way and looked for support? Or was he persuaded of that view by Smith's writing itself?

• 15:53Speaker 04

  I think it was both. And the reason why I say this is because Stigler loved the history of economic thought. And so I don't want to treat Stigler like this kind of-

• 16:03Stephen J. Dubner?

  A fanboy.

• 16:04Speaker 04

  A fanboy who's just cherry picking. But I do think that it was this symbiotic relationship where like, Stigler loved reading Smith, and he also happened to find the perfect mascot that coincided with his own views of what economics should be and how to think about economics in relation to the politics of deregulation.

• 16:34Stephen J. Dubner?

  In Glory Liu's book, there is a photograph of a grinning George Stigler wearing a T-shirt that says, "Adam Smith's Best Friend." Where did that come from? As the story goes, Stigler liked to play a game with the very young children in his family where he would offer a million dollars if they could answer a tough question. One day, he asked, "Who is Adam Smith's best friend?" The answer Stigler was looking for was David Hume. The answer he got was, "You are Uncle George." It was a pretty good answer, good enough to go on a T-shirt at least. Stigler and a few other Chicago economists had had a tremendous impact on the reputation of a man who by then had been dead nearly 200 years.

• 17:20Speaker 03

  Okay, so the Chicago School picked up a few aspects of Smith's thought and made it the whole of Smith's thought.

• 17:28Stephen J. Dubner?

  That is Dennis Rasmussen, another Smith scholar. He is a political scientist at Syracuse University.

• 17:34Speaker 03

  They picked out the phrase "the invisible hand," which he uses just two or three times in his writings, and made that the central feature of who Smith was. To me, that's unfortunate.

• 17:44Stephen J. Dubner?

  The phrase "the invisible hand" appears exactly once in The Wealth of Nations. It is in a section about whether local businessmen would be tempted to use foreign trade to enrich themselves at the expense of their nation. Smith's argument was that no, they wouldn't. Why not? Here is Smith's reasoning.

• 18:05Speaker 06

  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.

• 18:32Stephen J. Dubner?

  Whether Smith was actually right in this regard and whether his reasoning holds up today, that is a matter of debate. During the past few decades of economic globalization, there's plenty of evidence to the contrary. In any case, Smith's phrase, the invisible hand, has come to mean something different.

• 18:50Speaker 02

  Yeah. It's a lovely phrase, and nobody can deny that.

• 18:54Stephen J. Dubner?

  And that's Craig Smith, yet another Adam Smith scholar. He is at the University of Glasgow.

• 19:00Speaker 02

  One of the problems with it is that it's come to mean a particular set of modern ideas, a shorthand for a particular conception of how markets operate, that's not quite the same as the uses that Smith puts it to in his work. So if you look at the uses that Smith puts it to, it's a kind of metaphor for an unintended consequences explanation. So he explains how something is produced out of social interaction without it being the intention of any of the actors.

• 19:30Stephen J. Dubner?

  But the unintended consequences being what economists call positive externalities versus any negative externalities, correct?

• 19:38Speaker 02

  Indeed. But you can also look elsewhere in his work and find unintended consequence arguments with negative outcomes. And it just so happens that the invisible hand as a nice phrase has become associated with positive cases of unintended consequences. And that's led to it then becoming associated with a whole range of different arguments.

• 19:57Stephen J. Dubner?

  What Craig Smith is saying here is that the phrase, the invisible hand today, is used to imply that economic markets will operate perfectly well if you just let them be, even though that's not what Adam Smith was saying. Here is Dennis Rasmussen again.

• 20:14Speaker 03

  I think one of the most valuable and interesting aspects of Smith's thought is precisely that he recognized the real potential drawbacks and dangers of commercial society, the ways that commerce can produce great inequalities, the ways that wealthy merchants and manufacturers collude against the public interest, and above all, the way that the desire for wealth often leads people to submit to endless toil and anxiety in the pursuit of just frivolous material goods that will produce only fleeting satisfaction. And so I think too many of the Chicago School thinkers, even today's self-proclaimed Smithians, read him as a mere apologist for commercial society, whereas I think he was anything but. It's not that Smith didn't ultimately defend commercial society. He absolutely

• 20:57Speaker 03

  did. He's absolutely convinced that commercial society's faults, though real and important, are not nearly as numerous or as great as those of other forms of society, that the security and liberty and prosperity that commercial societies make possible constitutes a real improvement over the alternatives.

• 21:18Stephen J. Dubner?

  Do you think economists, including the Chicago School, knowingly exploited Smith's teachings, knowingly cherry picked for their purposes, or were they true believers and focused on what resonated most and just didn't really engage too much with the rest?

• 21:35Speaker 03

  My sense is the latter. Smith isn't a particularly easy thinker to read or to understand. I mean, he writes in English, and it's modern English, so it can sometimes have the appearance of being very familiar and easy. But to understand the nuance of his thought, you really have to spend some time with it.

• 21:53Stephen J. Dubner?

  But the fact is that the Chicago economists, George Stigler and especially Milton Friedman, did promote Adam Smith as a sort of superhero of economic thought. Glory Liu again.

• 22:06Speaker 04

  Friedman was a rhetorical genius. Like, he was so charismatic, and he was so good at speaking to the public.

• 22:15Stephen J. Dubner?

  Here, for instance, is Milton Friedman as host of the public television show Free to Choose.

• 22:21Speaker 07

  As Adam Smith wrote over 200 years ago... In the economic market, people who intend to serve only their own private interests are led by an invisible hand to serve public interests that it was no part of their intention to promote.

• 22:36Stephen J. Dubner?

  This seemingly magical phenomenon, Friedman said, was driven by what is called the price mechanism.

• 22:42Speaker 07

  Adam Smith's flash of genius was to see how prices that emerged in the market, the prices of goods, the wages of labor, the cost of transport, could coordinate the activities of millions of independent people strangers to one another.

• 22:57Stephen J. Dubner?

  Glory Liu likes to call this invisible hand waving.

• 23:01Speaker 04

  For Friedman, the idea of the invisible hand as the price mechanism isn't just a descriptive metaphor. The price mechanism signaled what producers wanted to produce and what buyers wanted to buy. So the price mechanism was a way to organize and allocate most efficiently, and therefore, once you recognized how prices did that, you didn't need centralized planning.

• 23:33Stephen J. Dubner?

  In other words, if markets can organize themselves so well and so efficiently via the price mechanism, you certainly don't want the government mucking things up with unnecessary rules and regulations, or, God forbid, with price controls.

• 23:49Speaker 04

  Precisely. And in fact, a lot of the time, experts, bureaucrats, government organizations act like private interest groups and create huge inefficiencies. I think what we see in the Friedman-Stigler interpretation is a way of treating the market as a moral thing in and of itself, right? While it appears objective, scientific, and politically neutral to say that this is how prices work, there's an implicit moral claim that those are the most important values, right?

• 24:32Speaker 04

  As opposed to equity, as opposed to universalism, democracy.

• 24:37Stephen J. Dubner?

  Here is maybe your harshest indictment of Friedman and his colleagues at Chicago. You write, "Perhaps the greatest consequence of the Chicago Smith, Adam Smith, was that it served to reframe the problems of modern American capitalism and modern society as problems that stemmed from government rather than the market itself." What's your best evidence that the market itself is responsible for these problems of modern American capitalism?

• 25:05Speaker 04

  Here's a current example. The opioid epidemic. Why was it so bad? We could look at it from the standpoint of like, the psychology of addiction, but we could also look at it from the standpoint of the failure of regulatory bodies and perhaps the market incentives to push a drug onto the market. And as much as we think that might have been efficient in terms of allocation, it was horrible from the perspective of just human welfare.

• 25:50Stephen J. Dubner?

  But the version of Adam Smith that was promoted by Milton Friedman and others at the University of Chicago would resonate well beyond academia. Politicians in the US and the UK began looking to Smith to shake up their struggling economies. Coming up after the break, how one true believer brought Smith back to Britain just in time for a new revolution.

• 26:14Speaker 01

  That was quite thrilling, that it was an administration which was genuinely interested in ideas.

• 26:20Stephen J. Dubner?

  I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back.

• 26:31Stephen J. Dubner?

  You might need a scorecard to keep track of the chaos in British politics lately. This past July, amid rising inflation, a fragile economy, and a cornucopia of personal scandals, Boris Johnson resigned as Prime Minister.

• 26:45Speaker 08

  It is clearly now the will of the parliamentary Conservative Party that there should be a new leader of that party and therefore a new Prime Minister.

• 26:57Stephen J. Dubner?

  The next Prime Minister chosen by the Conservatives was Liz Truss, who had previously served as Foreign Secretary and International Trade Secretary.

• 27:04Speaker 09

  I will deliver a bold plan to cut taxes and grow our economy.

• 27:10Stephen J. Dubner?

  Truss was an avowed fan of former Prime Minister Margaret Thatcher. In her agenda, cutting taxes and trimming government itself, this held considerable appeal for the Thatcherite wing of the Conservative Party. Everyone else was much less enthusiastic, especially the markets. As soon as Truss announced her plans, interest rates spiked, the pound tanked, and after just 44 days in office, the shortest term ever for a British Prime Minister, Liz Truss announced she would resign.

• 27:44Speaker 09

  Given the situation, I cannot deliver the mandate on which I was elected by the Conservative Party.

• 27:51Stephen J. Dubner?

  By the time we arrived in London in search of the real Adam Smith, Truss's successor had just taken office, Rishi Sunak, a former Chancellor of the Exchequer, and he made clear that his economic plan wouldn't be quite so bold.

• 28:06Speaker 10

  Some mistakes were made, not born of ill will or bad intentions, quite the opposite, in fact, but mistakes nonetheless.

• 28:20Stephen J. Dubner?

  And so it was that Sunak took over Number 10 Downing Street in the heart of Westminster. The man we had come to visit has an office just a short walk away.

• 28:33Stephen J. Dubner?

  Hello there.

• 28:33Speaker 01

  Oh, hello, Eamonn, hi.

• 28:35Stephen J. Dubner?

  That again is Eamonn Butler, director of the Adam Smith Institute. The institute's walls are adorned with Smith portraits. One of them was on the 20-pound note for a while.

• 28:46Speaker 01

  Now, I got a call from the Bank of England, their library, and they said, do you have any good images of Adam Smith? And I said, well, there's plenty, you know, what would you like? And they said, well, I'm not really supposed to tell you this, but we're thinking of putting him on a bank note. And I thought, oh, yes.

• 29:03Stephen J. Dubner?

  There are also some flags hanging on the walls, the Scottish Saltire in honor of Smith. There's also a big American flag, which it turns out makes a lot of sense for the Adam Smith Institute in London would not exist were it not for America. Let me explain. Eamonn Butler grew up in the West Midlands of England, and in 1978, he got his PhD in moral philosophy from the University of St. Andrews in Scotland. He and a couple of like-minded friends considered their professional prospects in the UK, and they didn't like what they saw.

• 29:37Speaker 01

  We'd all emigrated to America, given that the British economy was plummeting. And so we joined what's called the brain drain. I spent a couple of years in America. I worked on Capitol Hill for a group of congressmen, which was very educational because it let me understand how legislation was made, which is a bit like making sausages, not very pleasant to watch. And then I taught philosophy for a year in Hillsdale in Michigan.

• 30:02Stephen J. Dubner?

  Butler was impressed with how some things were done in America. The government didn't regulate industries as tightly as they did in the UK, nor did they feel as compelled to nationalize all the industries as was common in the UK.

• 30:16Speaker 01

  For example, in the United States, you had competition in telephones. Now, my economics professor in St. Andrews told me that competition in telephones was theoretically impossible.

• 30:27Stephen J. Dubner?

  It was curious to Butler that the US seemed more in sync with the free-market teachings of Adam Smith than the government in the country that had produced Smith, just another prophet without honor in his own country. Was the US government more Smithian because the University of Chicago economists were doing such a good job promoting the invisible hand? The message had certainly worked on Butler and his fellow British expats.

• 30:54Speaker 01

  Friedman and Hayek and all of these great economists had laid the foundations, if you like, and people like us were intrigued and captured by these ideas.

• 31:05Stephen J. Dubner?

  So he and a couple of friends started up a free market think tank.

• 31:09Speaker 01

  We'd seen lots of interesting ideas in America that we thought could work in the UK, and originally we thought we would swap ideas across the Atlantic.

• 31:18Stephen J. Dubner?

  Instead, they decided to relocate to London. This was in 1977. The Adam Smith Institute took up offices in Westminster, and their timing turned out to be extraordinary.

• 31:30Speaker 01

  In 1979, Mrs Thatcher was elected in the UK, and we had a bit of an open goal in terms of promoting free market theories and free society theories.

• 31:48Stephen J. Dubner?

  If there is one political leader over the past half century who embodied the conservative reading of Adam Smith, the Smith of free markets, of economic liberty, of smaller government, surely it's Margaret Thatcher. She was Prime Minister of the UK from 1979 to 1990. It has been said that Thatcher carried in her handbag a copy of The Wealth of Nations.

• 32:18Speaker 11

  One of the great debates of our time is about how much of your money should be spent by the state and how much you should keep to spend on your family.

• 32:28Stephen J. Dubner?

  Here was the big question. Would Britain be, as Adam Smith wrote in The Wealth of Nations, a nation of shopkeepers? Or would it be a nation of government bureaucrats? Thatcher sided with shopkeepers.

• 32:43Speaker 11

  There is no such thing as public money. There is only taxpayers' money.

• 32:48Stephen J. Dubner?

  And what did all this mean for Ayman Butler and his new Adam Smith Institute?

• 32:52Speaker 01

  It's the most exciting time of my life when Mrs Thatcher took office. What you had was an ideological administration. Before then, politicians had all been managerialists. They were just trying to keep the show on the road. Whereas Mrs Thatcher, daughter of a shopkeeper, she was determined to run the economy like you would run a shop, very prudently, and to experiment with all sorts of new ideas that had been off the agenda for such a long time because there was this sort of centrist, left of centre consensus. So that was quite thrilling, that it was an administration which was genuinely interested in ideas.

• 33:29Stephen J. Dubner?

  Thatcher cut taxes, slashed government spending and curbed the trade unions. She also set out to privatize a great many state assets and industries. It seemed as if Thatcher was giving a great bear hug to Adam Smith and, by association, to the Adam Smith Institute.

• 33:48Speaker 01

  Well, one of our first publications was on what we call Quangos, quasi-autonomous, non-government organisations. They're sort of boards and committees around Whitehall that ministers appoint people to. But there's some very weird ones, like the Hadrian's Wall Advisory Committee and the Detergent and Allied Products Voluntary Notification Scheme Scrutiny Group. And we discovered in the UK there were 3,068 of these. And we said, that's far too many. This is just bureaucracy, let's get rid of it. And we published that in a book, but it was a strange book because it only had one page, but that page was 12 feet long, which was a list of all of these Quangos.

• 34:29Speaker 01

  So Mrs Thatcher saw that and she got the head of the civil service to meet up with us and he said, well, the Prime Minister's told me I've got to cut Quangos. Which ones should I start with? So there was that. And then a second thing that we sort of came up with was contracting out local government services, repairing the roads and collecting the garbage and things like that. We looked around the world for practical examples of where this had happened and we discovered that you save a lot of money and provide a much better service if you contracted out to private companies. And again, Mrs Thatcher saw our little pamphlet on that and promptly, against all copyright rules. Printed twenty thousand copies and sent it to all of her local government party members.

• 35:13Stephen J. Dubner?

  I'm sure you sued, yes?

• 35:15Speaker 01

  We weren't too worried about it. And then, of course, there was privatization with all the big industries, shipbuilding, steel, railways, gas, water, electricity, trucking, telephones, all of these things were nationalized industries and we work on the intellectual means to return them or take them into the private sector.

• 35:33Stephen J. Dubner?

  I'm sure many people listening to you will say, oh, yeah, that was a turning point that was important for economic reform. And there are many others listening to you will say, oh, that was the darkest day ever when privatization began. So to those in the latter group who feel that this was a move in the wrong direction, a move that we are seeing continuing to grow now to the point where many people feel that, you know, that labor is continuing to get squeezed and squeezed and squeezed. How do you defend or support that?

• 36:06Speaker 01

  Well, when Mrs. Thatcher took office, a third of the housing stock was owned by the local governments. And what she did was to allow the tenants to buy their own properties for a large discount. So people did that because they knew that they'd be getting an asset relatively cheaply. But against that asset, they could borrow, so they could start a business, for example. So it was a great exercise in promoting a capital-owning democracy. And that was the huge improvement. Or if you look at telephones, one of the biggest privatization of the time in 1984, with millions of people buying the shares, that before then, it had been a state monopoly, it had been basically run by the post office, believe it or not, telephones.

• 36:50Speaker 01

  So, yeah, sure, mistakes were made on the way in privatization in the UK because Britain was the first to do it. So naturally, you make mistakes. But generally speaking, we haven't reversed any of those privatizations. Trucking is still private and telephones are still private and steel is still private and so on and so on.

• 37:08Stephen J. Dubner?

  The NHS, however, the National Health Service, is not private, is it?

• 37:12Speaker 01

  That's correct, yes, one of our great failures. People say it's a kind of religion in the UK that you have to believe. Even the NHS, all politicians say, oh, we do support the NHS. But it's a top-down Stalinist-style organisation and it's grotesquely inefficient. We're told, oh, it's the envy of the world, but nobody copies it. So that tells you something. There's no reason why every doctor and nurse in the country should be a civil servant. Why every hospital should be a nationalised hospital. We don't do that with anything else. If people need shoes or clothing, we give them the money and they go out and they buy shoes and clothes. Why can't we do that with healthcare?

• 37:53Stephen J. Dubner?

  So you've got another new Prime Minister, Rishi Sunak, not nearly as Thatcherite as his very short-lived predecessor. But if you had maybe a couple of hours today with the new Prime Minister to deliver the economic gospel, according to Adam Smith, what would you want to emphasise as actually doable in this political and economic moment?

• 38:16Speaker 01

  Well, I would say that considerable reforms in the government system are needed. You know, we have a huge bloated civil service. It's a complete spaghetti and nobody can navigate their way through it. So why don't we just get rid of a lot of that? Reforming the tax system and making it simple and straightforward. We have the most complicated tax system in the world. The planning reform, again, need to allow people to do what they like with their houses instead of saying you can't build an extra room and things like that when it doesn't affect anybody else. But we have a system where, you know, a few local residents can block an airport, for example. And that's why it's taken 15 years to build a new runway at Heathrow. So those sorts of reforms, we're just doing things that everybody knows needs to be done,

• 39:00Speaker 01

  but there's so many vested interests you have to cut through.

• 39:07Stephen J. Dubner?

  I asked Butler if he wanted to take a walk over to Number 10 Downing to see if we could talk our way in and present his Adam Smith-inspired advice. Butler was game. It was a lovely walk through the old Westminster streets, some flint and brick architecture, some odes to Britain's inventive past.

• 39:27Speaker 01

  These street lamps here, they're still gas and they're the oldest street lamps in the world.

• 39:33Stephen J. Dubner?

  Really?

• 39:33Speaker 01

  Because what is now the Home Office used to be the gasworks.

• 39:37Stephen J. Dubner?

  Does that make sense that there's still gas?

• 39:39Speaker 01

  No, it makes absolutely no sense at all. But it's, you know, a nice tradition and, you know, we do a lot of that silly stuff in Britain.

• 39:47Stephen J. Dubner?

  We arrive at 10 Downing Street. There is a throng out front, some of them protesting against the state of the British economy.

• 39:55Speaker 01

  I don't think any of it does any good. I mean, I've always said if you have to go on to the streets, you've lost the arguments.

• 40:00Stephen J. Dubner?

  Butler and I squeeze past the throng and we walk down a barricaded path up to the armed guard in front of number 10.

• 40:08Speaker 01

  Good morning. My friends are doing a radio show and we wanted to have a chat with you. I'm not doing anything on the radio.

• 40:17Stephen J. Dubner?

  Okay, so there would be no drop in visit with the Prime Minister. We pass the protesters again on our way out. I told Butler I had seen more economic protest on this visit to the UK, more anger and fear than any time in my recent memory.

• 40:34Speaker 01

  Well, the last time when there was real unrest was the so-called winter of discontent, which was the winter before Mrs. Thatcher was elected. And I think it's that kind of sentiment out there today that they're fed up with politicians. You know, that's why the Conservative Party elected Liz Truss, because she's not a routine politician. And it's why people voted for Brexit, because they were fed up with the European way of, the bureaucratic way of doing things. And I suppose it's why people in America voted for Trump and why people in other European countries are voting for far-right candidates. It's not that they particularly want far-right candidates, they just don't want the centralist, bureaucratic, management-minded politicians.

• 41:14Stephen J. Dubner?

  For a brief moment, back when Liz Truss was Prime Minister and tried to channel Margaret Thatcher, Eamonn Butler and the Adam Smith Institute were poised to return to their glory days of real influence. But it wasn't to be. With the new Sunak government that is more centralist and bureaucratic, as Butler might put it, he seems nostalgic for the past.

• 41:37Speaker 01

  I was once at a reception in Downing Street and they were serving wine and canapes and some poor chap, his canapé had a sort of blob of cream or some sort of sauce on it and he dropped it and it splodged onto the carpet. The Prime Minister, Mrs. Thatcher, came up, took a cloth out of her handbag and started wiping it up and the staff said, "Oh, it's all right, Prime Minister, you don't need to do that." "Oh, no, it's fine, I've got it now." So that was what she was like. She was just very hands-on.

• 42:07Stephen J. Dubner?

  Coming up after the break, how faithful is the Adam Smith Institute interpretation of Adam Smith?

• 42:14Speaker 12

  Did you actually ever read to the guy? Because what you're saying has nothing to do with what he said.

• 42:19Stephen J. Dubner?

  This gets us to what has been called Das Adam Smith Problem. There's no Das Adam Smith Problem. Like, it's a pseudo problem. Pseudo problem or not, we'll try to solve it. This is Freakonomics Radio. I'm Stephen Dubner in search of the real Adam Smith. We'll be right back.

• 42:44Stephen J. Dubner?

  Eamonn Butler, co-founder and director of the Adam Smith Institute in London, was just telling us that Adam Smith and the Wealth of Nations inspired Prime Minister Margaret Thatcher to privatize huge swaths of the British economy. The water and gas and phone utilities, car and ship manufacturing, the houses where nearly 2 million Britons lived, even British Airways. Butler thinks this all fits snugly with Adam Smith's view of smaller government and that this sort of privatization is an excellent idea. Not everyone agrees.

• 43:19Speaker 12

  The real irony is that the privatization in the UK was often privatized by selling off the assets to other governments. China, the French state.

• 43:29Stephen J. Dubner?

  That is Mariana Mazzucato.

• 43:31Speaker 12

  Also, Macquarie, a very large Australian financial company, has bought up our publicly owned green investment bank. Big mistake, I think.

• 43:40Stephen J. Dubner?

  Mazzucato is an economist at University College London. She thinks that certain champions of laissez-faire policies have misinterpreted and exploited Adam Smith, with privatization in the UK being a prime example.

• 43:55Speaker 12

  UK privatization, one of the things it did is it not only sold it off to the private sector, but lots of different private sector companies. So there's very little coordination. So, say, public transport. The real question is, why did the UK government, when it sold public transport, you know, public rail, to, for example, Richard Branson with Virgin? Why were there No conditions attached. We could today have a low-cost, accessible, modern, green, sustainable transport system. Instead, it's not sustainable, it's not green, and it's definitely not accessible. It's extremely expensive. So conditionality, like building into a deal when you're selling something off with strong publicly set conditions, it doesn't mean the state does everything, but it means it has to have

• 44:40Speaker 12

  the confidence to say, look, we developed this thing, we funded it. If a bit of it is going to get privatized, under what conditions to deliver a public goal?

• 44:49Stephen J. Dubner?

  But didn't Adam Smith want free markets, free from the interference of the state?

• 44:54Speaker 12

  He didn't really mean free from the state. When he talked about the free market, he meant free from rent, free from extraction of value from the system. Smith would have so much to say about the excess profits that are being earned by energy and mining companies globally. Modern-day finance, where you have $6 trillion in the last 10 years having been used just to buy back shares, to boost share prices, stock options, and executive pay, that's the modern-day feudal kind of value extraction that Adam Smith would have ranted against.

• 45:30Stephen J. Dubner?

  If Adam Smith were forced to choose between private and state ownership of a given firm or industry, he would almost certainly choose private. But he did warn of the tendency of private firms to collude with one another, to fix prices and exploit the public. Today's British public, having experienced a few decades of privatization, seems to side with Mariana Mazzucato. One fairly recent poll found that more than three-quarters of the population would prefer that services like gas, water, electricity, and railroads were publicly owned. And what about the other services that governments typically provide, like education?

• 46:11Stephen J. Dubner?

  In Book Five of The Wealth of Nations, Adam Smith would appear to be in favor of this.

• 46:16Speaker 06

  For a very small expense the public can facilitate, can encourage, and can even impose upon almost the whole body of the people, the necessity of acquiring those most essential parts of education.

• 46:31Speaker 06

  The public can facilitate this acquisition by establishing in every parish or district a little school where children may be taught for a reward so moderate that even a common laborer may afford it.

• 46:43Stephen J. Dubner?

  So what does a Smithian on the right side of the political spectrum like Ayman Butler make of this? And how can it be that right Smithians and left Smithians come to such different conclusions when they read the same text?

• 46:58Speaker 01

  Yes, because The Wealth of Nations is an enormous, elephantine, sprawling book, and it's just full of facts and figures and arguments, some of them not entirely consistent. So you can take Adam Smith in many different ways.

• 47:12Stephen J. Dubner?

  Now, I've heard you talk about Smith's advocacy or support for the government providing services like education, infrastructure, law and order, and things like that. But then I've heard you say that that argument, which occurred in the last book of The Wealth of Nations, book five, you've said it was that he was rushed, you thought. Are you saying that he didn't really support that much government intervention?

• 47:37Speaker 01

  Well, it took him 15 years to write this book. And I think at the end of it, his friends would say, oh, come on, Smith, old chap. You know, it's about time you got this finished. And so I think the final chapter is a little bit rushed.

• 47:49Stephen J. Dubner?

  Look, you're the Smith scholar, so who am I to argue with you? But everything I've read about him and by him suggests he was, maybe perfectionist is not quite the right word, but I have heard him called that. You really think he would publish The Wealth of Nations after working on it for so many years with an incomplete idea of the degree to which the government should provide services like education and transportation?

• 48:11Speaker 01

  Yes, because I don't think that was the main thrust of his argument. The main thrust of his argument was all the previous stuff about how the economy works, and in particular, that restrictions on trade and commerce produce bad results, that they don't maximize human welfare. So it wasn't his main thing. And I think his publisher was on to him as well to get the thing out. I think his poor chap was probably under a lot of pressure.

• 48:35Stephen J. Dubner?

  So to those in the modern era who want to use Smith to That government should, let's say, be massively downsized. Do you suggest they just skip Book Five? Because it will.

• 48:48Speaker 01

  Well, if it was me, I wouldn't read the book at all because it's enormous. 900 pages. 90 pages of it are what he calls a digression on the price of silver. And it's in this 18th century language, and it's really just imperitable.

• 49:06Stephen J. Dubner?

  It may strike you as odd that the director of the Adam Smith Institute says we shouldn't actually read Adam Smith. I think it's odd. But remember what the economic historian Robert Heilbrunner once wrote? No economist's name is more frequently invoked than that of Adam Smith, and no economist's works are less frequently read. But there is an even bigger issue. If you do read Adam Smith, and you read both his books, The Theory of Moral Sentiments and The Wealth of Nations, you might conclude there is not one Adam Smith, but two Adam Smiths. Because this riddle was explored primarily by Smith scholars in Germany in the 19th

• 49:49Stephen J. Dubner?

  century, this has come to be known as Das Adam Smith Problem. Glory Liu again.

• 49:54Speaker 04

  Which was this theory that Smith changed his mind, or had a change of heart, between writing The Theory of Moral Sentiments in 1759 and The Wealth of Nations in 1776.

• 50:07Stephen J. Dubner?

  In other words, how could someone who wrote a book about the theory of moral sentiments and the deep humanism we all strive for also be the person who wrote this guidebook to unfettered capitalism? That's Das Adam Smith Problem, essentially, yes?

• 50:20Speaker 04

  Right, exactly.

• 50:21Stephen J. Dubner?

  And why did this happen in Germany?

• 50:24Speaker 04

  Oh, I don't know. German scholars are weird. One reason why I think it happened in Germany, and not in England, and not in the United States, is because German scholars were really interested in Adam Smith as a thinker, recovering the philosophical consistency of Smith's works, as opposed to like what was happening in England and what was happening in the United States, which is that people didn't really care about what Smith actually said. Smith is really just whittled down to the ideology of free trade.

• 51:01Stephen J. Dubner?

  And what does Lou think of Das Adam Smith Problem?

• 51:05Speaker 04

  Any self-respecting Smith scholar will just be like, there's no Das Adam Smith problem. Like, it's a pseudo-problem.

• 51:11Stephen J. Dubner?

  Dennis Rasmussen, the Smith scholar at Syracuse University, agrees.

• 51:15Speaker 03

  I think most Smith scholars today would say that this problem isn't a problem, that the two are perfectly compatible. Sympathy in the theory of moral sentiments doesn't entail or require any kind of altruism or other directedness. It's perfectly compatible with people being self-interested. And likewise, that the emphasis on self-interest in The Wealth of Nations wasn't advocating that people be selfish, wasn't advocating that greed is good, to use the line from the movie, but rather trying to describe how people interact. And also, the argument is a reliance on self-interest can be liberating, in the sense that if you rely on people's self-interest, you don't have to rely on their benevolence. You don't have to act like a dog at a table begging for scraps, right? You can count

• 51:57Speaker 03

  on people acting out of their self-interest. There's a way in which this produces a sense of personal independence.

• 52:02Stephen J. Dubner?

  It does seem that the political right and the economic right and conservatives have done a better job using Smith to advance their arguments, whereas the left and liberals have neglected Smith to their peril. And there's a lot in his writing that I would think they would want to use.

• 52:20Speaker 03

  So there's raging debate in Smith scholarship among people who are sometimes called left Smithians and right Smithians about where he would fit on today's political spectrum. I think once a thinker has been claimed by one side reasonably successfully in this case, it's kind of hard for the other side to reclaim them. They often just turn to a different thinker and find that to be an easier path to take.

• 52:40Stephen J. Dubner?

  But don't you think that's kind of a shame? Because when you read Smith, there's a lot there for everyone, I would say. And in fact, I would argue that he is a really good thinker if you want to, I'm not saying unite the political extremes, but show that there's a very broad middle, that you can be really pro-market and really pro-human at the same time. So- Wouldn't it be nice?

• 53:02Speaker 03

  It would absolutely be nice, yes. The different elements of Smith's thought that would push him in different directions, he shows this very deep and palpable concern for the lot of the poor. The wages, the conditions of the working poor are really his central measuring stick for the wealth of nations, for how wealthy an economy is. It's not the holdings of the affluent few, but the ease of everyday people to attain the necessities of life. On the other hand, there are elements of his thought that push him toward the right of today's political spectrum. He really does distrust government. He distrusts politicians, both their abilities and often even their intentions. And so there are elements of his thought that push in both directions. It's hard to know, to be honest, where he would stand on today's political spectrum

• 53:47Speaker 03

  with regard to a lot of these questions because he saw the two as going hand in hand. A lot of the government programs that he's most worried about are there to benefit the rich and they unfortunately also harm the poor. They're rent-seeking things that companies have, as he says, extorted from the legislature for the support of their own absurd and oppressive monopolies. They make ordinary goods more expensive. He thinks that shrinking government, getting government less involved in the economy benefits the poor. What would he think today about a government program designed explicitly to help the poor? It's really hard to say. Is it his concern for the poor or is distrust of government that would win out at the end of the day? That's hard to know.

• 54:28Stephen J. Dubner?

  The more we've been looking for the real Adam Smith these past couple of episodes, the more I've come to believe Das Adam Smith Problem may be real, but it's not the same problem the German scholars were concerned with. As Dennis Rasmussen just explained, it is not so hard to reconcile the Wealth of Nations Adam Smith and the Theory of Moral Sentiments Adam Smith. I think Das Adam Smith Problem today is simply that most of the economists and politicians and others who look to the Wealth of Nations for guidance have simply never read The Theory of Moral Sentiments. Here is one such economist.

• 55:07Speaker 13

  I thought, well, I don't have to read this because it's not economics. It's philosophy or psychology, you could call it. And I didn't read it forever. Most economists don't.

• 55:17Stephen J. Dubner?

  That is Russ Roberts. He got his PhD from the University of Chicago during the era when Milton Friedman was turning Adam Smith into the poster boy of free market economics. Roberts went on to a long academic career at institutions, including George Mason University and the Hoover Institution at Stanford, places known for the kind of conservatism or libertarianism that Adam Smith currently represents. And where's Roberts today?

• 55:45Speaker 13

  I am president of Shalem College in Jerusalem, Israel. I am the host of Econ Talk, the podcast, and author of How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness.

• 55:59Stephen J. Dubner?

  So, question one. How did Adam Smith change your life?

• 56:04Speaker 13

  So, my book is an attempt to bring to the modern reader Adam Smith's forgotten masterpiece, The Theory of Moral Sentiments. The Theory of Moral Sentiments tries to answer the question, why do we do anything that isn't just for ourselves? Because we are self-interested. We're not selfish, although some of us are, but our nature is to be self-interested. We put ourselves at the center of our universe, and yet, we often do kind and thoughtful things for others. And Smith was interested in understanding why that was the case, and that was what his book was about. And I didn't read it forever.

• 56:39Stephen J. Dubner?

  What was that experience like, reading it?

• 56:41Speaker 13

  You know, I picked it up. I read the first page. I had no idea what it was talking about. It kind of starts in midstream. Read the second page. Read about, I don't know, five, 10 pages, and I thought, I don't really get this book at all. And so, I persevered and eventually fell in love with the book. Adam Smith's a brilliant writer. He's a brilliant stylist. He's one of the rare people writing in the 18th century that you can read with utter delight and pleasure most of the time. He forces you to look at yourself and realize what makes you tick, what pushes your buttons, rings your bells, tightens your shoelaces. He understands our flaws. He understands our need for self-deception.

• 57:24Stephen J. Dubner?

  There's one passage from The Theory of Moral Sentiments that Robert spends a lot of time on in his book. If you're going to read just one paragraph of The Theory of Moral Sentiments, this might be the one.

• 57:36Speaker 06

  Man naturally desires not only to be loved, but to be lovely, or to be that thing which is the natural and proper object of love. He naturally dreads not only to be hated, but to be hateful, or to be that thing which is the natural and proper object of hatred. He desires not only praise, but praiseworthiness, or to be that thing which though it should be praised by nobody is however the natural and proper object of praise. He dreads not only blame, but blameworthiness, or to be that thing which though it should be blamed

• 58:17Speaker 06

  by nobody is however the natural and proper object of blame.

• 58:24Speaker 13

  We want to be appreciated. We want to matter. And what he's saying there is that not only do we want to be praised and honored and respected, but we want to earn that honestly. We want to be praiseworthy. We want to be honorable. We want to merit the respect of others. And then he says something really extraordinary. He says, because we care, because we want to feel important, because we want to matter, there are two ways to get there. One is to pursue fame, wealth, and power. Well, that's pretty primal, yeah. The quieter path is to pursue wisdom and virtue, which he advocates for. He says the pursuit of wealth, here's the person who wrote The Wealth of Nations, says the pursuit of wealth is a fool's game. It's going to degrade you. You're going to do things you're

• 59:07Speaker 13

  going to be ashamed of and that you'll want to hide.

• 59:11Stephen J. Dubner?

  After you read The Theory of Moral Sentiments and started thinking and talking like this, did your economist colleagues think you'd gone soft?

• 59:22Speaker 13

  Yeah, economic decision making is basically... Expected utility maximization, which is just a fancy phrase for you do the thing that gives you the most pleasure relative to pain as best as you can anticipate it. And of course, you make mistakes and things that you thought were going to turn out well done all the time. That's not a rejection of economics, but I think the essence of the economist approach is that we're constantly weighing our pleasure and pain on a daily basis and trying to project how we're going to feel about the decisions we make. That's really not the nature of the life well-lived. It's not just about racking up utility points. And I think economists often forget this.

• 1:00:06Speaker 13

  They focus on what's measurable. So in that sense, I've rejected a lot of the utilitarian foundation of my field.

• 1:00:13Stephen J. Dubner?

  You are a particularly good person to speak with about this because you've got an appreciation for the full Adam Smith that many economists don't, but you're also a University of Chicago guy. And in her new book, Adam Smith's America, the political scientist Glory Liu argues that it was that University of Chicago economics department, especially Friedman and Stigler, who sort of cherry picked Smith's writing and turned him into a patron saint of free market capitalism in a way that a closer reading of Smith, especially the Theory of Moral Sentiments, wouldn't support. Can you untangle this for me? I mean, I don't mean to cast aspersions on Friedman and Stigler, both of whom were

• 1:00:55Stephen J. Dubner?

  amazingly sharp and shrewd and powerful economists, but I'm curious to know whether you think that they hijacked their reputation to the detriment of the field.

• 1:01:03Speaker 13

  I would say it a little differently. I would say that Milton Friedman is the patron saint of free market economics, and he saw Adam Smith as a cousin, if not a close relative, even closer relative, a brother in arms. I think that's roughly fair to Smith. I don't think there's anything in the Theory of Moral Sentiments that is an indictment of what we would normally call free market economics. I know progressives have tried to claim Smith. Certainly, there are things in Smith that have a progressive aspect to them. Often, it sometimes requires quoting him out of context, leaving out the next paragraph

• 1:01:44Speaker 13

  or the one before, but there are things in Smith that certainly conflict with standard free market dogma.

• 1:01:54Stephen J. Dubner?

  You write that Adam Smith has a way of saying things that get into your bones. Can you talk about that a little bit more?

• 1:02:01Speaker 13

  Smith was a great writer. He's a great communicator. I think great writing is underrated. It is no small feat to coin a phrase like the invisible hand. Smith used the phrase the invisible hand twice in his two books, once in each. I would suggest that in neither one is he using it in the way that modern people use it or modern economists. In modern economics and public policy, it has come to mean that we don't have to worry about certain problems because the market will take care of them. And that's the magic of the invisible hand. Now, that gets laughed at a lot.

• 1:02:42Speaker 13

  The truth is, it is an extraordinary phenomenon that is underappreciated, but it should not be overappreciated. The underappreciated part is that over the last maybe 10, 15 years, hundreds of millions of Chinese citizens and people have moved from the countryside into the cities of China. Hundreds of millions. It's one of the greatest migrations, probably the greatest migration of people in human history, certainly from rural to urban areas. Well, I assume a lot of those people started sending their kids to school, and I assume a lot of those kids started using pencils. Did that ever affect your life in America? Do you ever say, "Oh, I wish I could find a pencil, but of course I can't because they're all going to the Chinese." "Oh, there must have been a department

• 1:03:26Speaker 13

  set up to deal with that shortage." But there wasn't. That's what modern economists mean by the invisible hand. We didn't have to worry about the availability of pencils. That's the invisible hand. It's invisible, so we don't fully appreciate it. Now, you don't want to carry it too far. It doesn't solve every problem. It doesn't solve pollution. A lot of things require legislation, regulation, and so on. Smith was not an anarchist. His modern disciples, most of them are not anarchists. They understand that not all problems solve themselves. But the fact that any do is quite remarkable.

• 1:04:04Stephen J. Dubner?

  My sense from reading your book on Adam Smith, my sense is that it's an act of acknowledging who you were and wanted to be as a human, but it's sort of gotten away from. I want to know how, reading that book and then wrestling with that book and writing your own book about it, I want to know how that changed you.

• 1:04:27Speaker 13

  A very hard question to answer.

• 1:04:33Stephen J. Dubner?

  Because to me, reading your book felt like one long epiphany. It was an intellectual, but also sort of a spiritual and moral epiphany. Most of us, when we have an epiphany, we come out a little bit different. And it may not be permanent, but it may be. So that's what I want to know.

• 1:04:52Speaker 13

  I mean, reading The Theory of Moral Sentiments, if you push your way through it, forces you to think about how you live your life. Economists, you know, we think about incentives all the time, but often we get lazy and we focus on monetary incentives because they're everywhere. And Upton Sinclair said it beautifully. It is difficult to get a man to understand something when his salary depends on not understanding it. And that's the truth. You are often pushed and pulled emotionally by who pays your salary and what they want from you. When I read Adam Smith's book, The Theory of Moral Sentiments, I realized that, you know, there's a lot of other things that push and pull people. Now, come on, didn't you know that before?

• 1:05:37Speaker 13

  Of course I did. But reading Smith forced me to think of it and have it be at the front of my mind, that we want to be loved. And so when you read that and you think about it, and you write a book about it, as I did, it wouldn't be surprising that I started to also begin to think more deeply, more focused on questions of what is the life well-lived? I have trouble not thinking about it.

• 1:06:04Stephen J. Dubner?

  Adam Smith led Russ Roberts to rethink himself, and it left him better off. Over the past couple episodes, we have been rethinking Adam Smith, and I would like to think it is leaving us better off. If nothing else, we're starting to see him as more than the cardboard cutout he's been turned into. Smith was a philosopher, but also fiercely practical. He was a macro thinker, but micro as well. He was a radical in some ways, but also respectful and even acceptable to those with whom he disagreed. So coming up next time in our third and final episode, what would Adam Smith make of the current global economy?

• 1:06:46Speaker 06

  He would have been appalled by our brand of casino capitalism.

• 1:06:50Speaker 04

  He thinks getting people out of poverty is good. He thinks high wages and low profits are good.

• 1:06:58Stephen J. Dubner?

  It's difficult to know because he was a whig. And we'll head back to Scotland to say goodbye to the man himself.

• 1:07:05Speaker 06

  I like the grave. I think it fits his personality, and I think it fits his world and his place in it.

• 1:07:14Stephen J. Dubner?

  That's next time on the show. Until then, take care of yourself, and if you can, someone else, too.

• 1:07:28Stephen J. Dubner?

  Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire archive on any podcast app or at Freakonomics.com, where we also publish transcripts and show notes. This episode was produced by Zach Lipinski and mixed by Greg Rippon, with help from Jeremy Johnston. We also had help in London from Rob Double, Alex de La Salle and London Broadcast Studios, and help in Scotland from Josh Nixon and Upload Studios. Thanks also to John Yule for reading Adam Smith. Our staff also includes Morgan Levy, Ryan Kelly, Catherine Moncur, Alina Cullman, Rebecca Lee Douglas, Julie Canfor, Eleanor Osborne, Jasmine Klinger, Daria Kleiner, Emma Terrell, Lyric Bowditch, and Elsa Hernandez. The Freakonomics Radio Network's executive team is Neil Carruth, Gabriel Roth,

• 1:08:13Stephen J. Dubner?

  and me, Stephen Dubner. Our theme song is "Mr. Fortune" by The Hitchhikers. Our main music is composed by Luis Guerra. Big thanks to Not Sensibles for letting us play some of their amazing 1979 song, "I'm in Love," with Margaret Thatcher. As always, thanks for listening.

• 1:08:35Speaker 04

  I'm thinking of this quote.

• 1:08:39Speaker 04

  Always, like, you know where it is, and then, of course, right when you want to find it, you can't find it.

• 1:08:48Speaker 05

  The Freakonomics Radio Network, the hidden side of everything.

• 1:08:56Speaker 04

  Stitcher.