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Alexander Berger
March 7, 2016
Adam Smith: Loveliness and the Invisible Hand
Introduction and Overview of Smith’s Two Works
Adam Smith, widely considered the grandfather of economics, was born in Kirkcaldy, Scotland
and was baptized on June 5th, 1723. His first book, ​The Theory of Moral Sentiments​ (1759)
introduced the idea that people desire to be both loved and lovely, and that imagining and
impartial spectator is a valuable tool for moral self regulation, among other ideas. As a result of
serving as tutor to a young Scottish duke Smith was able to travel to France and meet other great
thinkers of the time including Benjamin Franklin. Smith then published the first book dedicated
to Political Economy, the academic precursor to modern economics. ​An Inquiry into the Nature
and Causes of the Wealth of Nations​ (1776) dealt with the concept of GDP as the true measure of
a nation's wealth (rather than gold and silver), the productivity benefits of division of labor, and
the idea that an Invisible Hand, representing some underlying natural order, would often guide
individual self interested behavior in such a way as to maximize welfare for the market
participants. Smith passed away in 1790 at the age of 67.
Historical Context
Smith was writing in the 1700s, a time when mercantilism was ‘eating the world’ and spitting
out global capitalist markets in it’s wake. Just a few hundred years before in the 1300s feudalism
had been the norm in Europe. In the first half of the century agricultural production failed to keep
up with population growth leading to a localized Malthusian type event in Europe. Famine,
plague, and war reduced the population of Europe by somewhere between 30% and 60%. The
political instability resulted in peasant revolts, loosening the economic control of the landed
gentry and opening the door to mercantilistic trade, and eventually capitalism.
The charts below are excerpted from a study of long run GDP growth in England conducted by
Stephen Broadberry of the London School of Economics. They are presented here to make an
important point about the historical lens through which Smith was studying capitalism:
especially​ as a tool that creates freedom as well as stable economic growth. ​Stable,​ but not
explosive. Referencing table 17 and 19, before Smith’s writing GDP growth in England had
never exceeded 1% per annum for any extended period of time, a rate we would consider
extremely depressed in modernity. The more ​drastic​ effects of mercantilism/capitalism were
seen in the fall of feudalism, the discovery and settling of the Americas, and the shifting balance
of power away from monarchs and towards the merchants and private owners of capital.
Additionally as shown in table 18, feudalism failed to prevent the drastic population decline of
the 1300s, whereas mercantilism and capitalism had helped to rebuild and double England’s

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population in the 250 years following. From these simple statistics we can see that Smith was
writing at a time when the beginning of capitalism had demonstrated its ability to promote
stability, growth, increased egalitarianism, and freedom. When comparing capitalism to
feudalism, it is no surprise that Smith saw Capitalism and the Invisible Hand as a path to greater
societal Loveliness.
Source: (Broadberry 2011)
Conflicting Points of View? Loveliness and the Invisible Hand
In his first work ​The Theory of Moral Sentiments​ Smith hopes to lay out a system for living a
satisfying and wholesome life. In the second chapter he explains that we are social creatures and
look to others for feedback on our behaviour:

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“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” (Smith 1759, Pg. 64).
By ‘loved’ smith means that we are honored, respected, and cared for by those around us, and by
‘lovely’ he means that we are rightly deserving of the honor, respect, and care directed upon us
by others. He believed that in order to be truly satisfied in life, it was not just the the love of
others we crave, but the knowledge that this love is come by in an honest manner and that we are
deserving of it.
Expanding on the concept of Loveliness, Smith explained that our desire for Loveliness is the
primary limiting force that acts to keep our natural selfishness and greed in check. Smith
describes an ‘impartial spectator’ that lives within our minds (much like the Christian concept of
a moral conscience) who helps us maintain our belief in the Loveliness or “superiority of our
own characters” (Smith 1759, Pg. 72).
“It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of
resigning the greatest interests of our own, for the yet greater interests of others, and the
deformity of doing the smallest injury to another, in order to obtain the greatest benefit to
ourselves” (Smith 1759, Pg. 73).
After reading ​The Theory of Moral Sentiments​ it is clear that Smith was a deeply moral man and
believed strongly in the personal and social importance of living a life that others would rightly
find lovely. How then do we reconcile this vision with the often cited Invisible Hand concept
from ​Wealth of Nations​? In order to understand what Smith intended we return to the original
text.
In chapter two Smith is talking about domestic versus international commerce and tariffs, a hot
topic in his time when most industrial nations were hyper­focused on the mercantilistic concept
of balance of trade. Smith explains that “every individual, therefore, endeavours as much as he
can both to employ his capital in the support of domestic industry, and so to direct that industry
that its produce may be of the greatest value; every individual necessarily labours to render the
annual revenue of the society as great as he can.” In others words local businesspeople will
invest in the local economy and seek to maximize revenues which in turn results in revenue
being maximized for the local economy generally. Smith continues to explain that the business
owner “generally, indeed, neither intends to promote the public interest, nor knows how much he
is promoting it. 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

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greatest value, he intends only his own gain...” In other words Smith is saying that the business
owner is being selfish and opportunistic, rather than altruistic. All of this builds to the following
three sentences, the only place in all 750 pages that Smith references his often cited Invisible
Hand concept:
“...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 the society more effectually than when
he really intends to promote it” (Smith 1776, Pg. 349).
Although many economic thinkers since Smith have interpreted the Invisible Hand narrowly as
representative of purely free market competitive forces, Jacob Viner, an early Smithian expert,
believed that Smith had a much more expansive view. In a famous ​Journal of Political Economy
article Viner explained that Smith envisioned “a harmonious order in nature manifesting itself
through the instincts of the individual man.” Viner goes on to explain that Smith saw the forces
of this natural order as being “guided by God” and since economic markets are one part of God’s
creation, Smith applied this “general doctrine with strict consistency to the economic order”
(Viner 1927, Pg. 199­200). The source of the Invisible Hand provides important context often
missed by modern economists and policy makers.
The idea that self interest can lead to beneficial social outcomes has caught the attention of
enterprising politicians and business people for hundreds of years now. It is understandably an
attractive concept. “I can be as selfish as I desire in my business dealings and not only am I guilt
free but I am actually ​helping​ society?” This appeals strongly to our acquisitive nature and our
desire to see ourselves as lovely in spite of it. Without careful analysis this concept can easily be
taken too far.
Smith says that the lack of altruistic motive is not “always the worse for the society.” This leaves
plenty of room for situations in which a direct altruistic motive actually would be better. In the
next sentence Smith again purposely avoids using an absolute term when he states that self
interest is “frequently” more effective in promoting the public good, again leaving plenty of
room for situations on which this is not the case.
After carefully considering the idea that people desire to attain Loveliness and the idea that an
Invisible Hand frequently leads unintentionally to socially optimal outcomes, I do not believe
these two concepts are at odds with each other. In fact, I believe that Smith intended them to
complement each other.

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Application Then and Now
How Should We Balance Our Desire to be Lovely with Our Trust in the Invisible Hand?
The concept of Loveliness dictates that we should care personally for the well being of others,
while the Invisible Hand gives an indication that natural market forces will often determine
welfare outcomes for us in a socially beneficial way. How do we apply Smith’s ideas to the
always contentious topic of economic policy?
Many modern economic and political thinkers pay no attention to the concept of Loveliness, but
enjoy using the Invisible Hand to promote or morally justify laissez faire economic policies
much more libertarian than a classical liberal like Smith would support. In order to understand
what modern economic policies Smith might support, we should examine what policies he
supported in his day and for this we return to ​Wealth of Nations.
Beyond the basics of national defense, public infrastructure, and the enforcement of contracts,
Smith was in favor of a long list of additional government functions. I list some of the more
interesting examples below:
Basic fire code (Pg. 252) Operation of a post office (Pg. 633)
Encouraging the frequency and gaiety of
public events (Pg. 614)
Enforcing copyrights, patents, and temporary
monopolies (Pg. 584)
Education of children (Pg. 587) Education of adults (Pg. 607)
Prevention the spread of serious diseases
Spreading (Pg. 607)
Financial consumer protection laws limiting
interest rates (Pg. 356)
Limits on exports of corn in rare
circumstances (Pg. 416)
Maintain a registry of property ownership and
mortgages (Pg. 670)
It is clear from just this partial list that Smith recognized the potential for the state to improve the
welfare of its citizens in many different ways. When discussing governmental economic
regulation, Smith addressed the issue of liberty often raised by libertarians in the following way:
“Such regulations may, no doubt, be considered as in some respects a violation of natural liberty.
But those exertions of the natural liberty of a few individuals, which might endanger the security
of the whole society, are, and ought to be, restrained by the laws of all governments, of the most
free as well as of the most despotical” (Smith 1776, Pg. 252).

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So how would Smith have us think about the role of government in economic policy? He would
want us to create policies that balanced the need for innovation and growth with desire to treat
our fellow man in a lovely manner.
In a Washington Post article titled ​Is Capitalism Moral​, Steven Pearlstein hits the nail on the
head when he says that the way “markets distribute rewards... [is] determined by laws,
regulations, technology, norms of behavior, power relationships, and the ways that labor and
financial markets operate and interact. These arrangements change over time and can
dramatically affect market outcomes and incomes” (Pearlstein 2013). We live, work, and trade in
an extremely complex globally connected economic marketplace. The system has never been
precisely quantifiable or predictable, and this is more true now than in Smith’s time. Simply
closing our eyes and trusting the Invisible Hand to sort things out is not a lovely way to treat our
fellow humans. We must think carefully before implementing economic policies that might stifle
productivity, but not shy away from policies that improve social welfare in accordance with John
Stuart Mill's’ Greatest Happiness principle.
I will close with a quote from ​Theory of Moral Sentiments ​that should serve as a guiding
principle both in personal life, and the drafting of economic policy:
“When the happiness or misery of others depends in any way on how we behave, we dare not
follow self­love’s hint and prefer the interest of one to that of many. ∙If we start to move in that
direction∙, the man within immediately tells us that we are valuing ourselves too much and other
people too little, and that by doing this we make ourselves the proper object of other people’s
contempt and indignation” (Smith 1759, Pg. 73).

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References
Broadberry, S. et. al. (2011). British economic growth, 1270–1870.
Hobbes, T. (1651). ​Leviathan​.
Pearlstein, S. (2013, March 15). Is Capitalism Moral?
Retrieved March 06, 2016, from ​Washington Post
Smith, A. (1759). ​The Theory of Moral Sentiments​.
Smith, A. (1776). ​An Inquiry Into the Nature and Causes of the Wealth of Nations​.
Solow, R. M. (2014, April 22). Thomas Piketty Is Right.
Retrieved March 06, 2016, from ​New Republic
Viner, J. (1927). Adam Smith and Laissez Faire. ​Journal of Political Economy,​ ​35​(2), 198­232.
Additional Reading
Milling, W. (2013, March 31). Without Question, Capitalism Is Supremely Moral.
Retrieved March 06, 2016, from ​Forbes
Morehouse, I. (2012). Capitalism Or What?
Retrieved March 06, 2016, from ​Values and Capitalism
Roberts, R. (2015). ​How Adam Smith Can Change Your Life​. Penguin.
Sandell, M. J. (2012, April). What Isn’t For Sale
Retrieved March 06, 2016, from ​The Atlantic