Adam Smith and Ludwig von Mises on the Moral Framework

0:00This is my first time at the Mises Institute and I'm enjoying myself very much. The name of my paper is Adam Smith and Ludwig von Mises on the moral framework. There is a moral framework in the works of Adam Smith and Ludwig von Mises. The discerning of that moral framework is the subject of this paper. Ludwig von Mises makes frequent use of the term praxeology in his writings. This term was coined by Alfred Espinus in 1890 in means the science or the study of human action. Mises uses this as the subject matter of economics. Economics deals with human action, or the means or methods put into action to achieve various ends. Quote, to act means to strive after ends, that is, to choose a goal and to resort to means in order to attain the goal sought.

0:50Man is also a moral being, quote, Man is not like the animals, an obsequious puppet of instincts and sensual impulses. Man has the power to suppress instinctive desires. He has a will of his own. He chooses between incompatible ends. In this sense, he is a moral person. In this sense, he is free from Mises. This incompatibility of ends suggests a trade-off in pursuing goals because of limited resources. The Familiar Production Possibilities or Consumption Possibilities And this choosing consists of man's freedom and man's moral choice. However, can we say anything about the ends themselves? Are there any stronger moral categories or moral statements that apply? For example, how does the great exemplar in economics, Adam Smith, approach the problem?

1:39And is his approach different from that of von Mises? In addition to his great work in economics, The Wealth of Nations, Smith also wrote The Theory of Moral Sentiments, in which he treats the springs of man's moral conduct. In treating both of these works, we can obtain a more complete picture of human action, according to Adam Smith, who follows his teacher, Francis Hutchison, in discussing the availability of moral knowledge. For Hutchison, moral knowledge was available to us through an internal faculty called the moral sense. Smith takes a different approach. Moral knowledge is obtained by a by sympathetic placement of oneself in another's situation as a sort of impartial spectator through whom judgments can be made as the course of proper moral action.

2:26However, for Smith, there can be no knowledge of morals without the interactions of society. The society of others regulates our own extreme passions as we consider the views of others. Our passions and viewpoints tend to be brought into accord with the rest of society by the The operation of sympathy, perhaps empathy in modern parlance. This is the beginning of moral judgment. An apprehension of moral ends Smith backs away from a strict methodological individualism. Thus in Smith's thinking, sympathy does not always denote a compassionate and benevolent feeling toward our fellow men. Sympathy is simply an ability to understand or feel to a certain degree the passions which motivate others, whatever those passions might It is possible for man to be motivated by self-interest, as Smith emphasizes in The Wealth of Nations, and also to sympathize with the motives of self-interest in others.

3:23However, in the first line of The Theory of Moral Sentiments, Smith states that the human beings are not exclusively self-interested creatures, quote, How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others and render their happiness necessary to him, Smith is taking a balanced view of the nature of man. He, like Mises, is not interested in the caricature presented to us by Homo economicus. The difference in the treatment of human society by Smith and Mises consists in Smith's taking a more holistic view of man and trying to say something about the ends which men pursue. We might say that Smith is taking a natural law of view, which is that nature itself gives us sentiments by which we are able to apprehend objective moral order and make moral choice.

4:19The order of objective value is called the Tao, which has been known by men all over the world from earliest times. Mises is clear that his work in praxeology is concerned with means, not ends, which are pursued. Quote, praxeology is indifferent to the ultimate goals of action. Its findings are valid for all kinds of action, irrespective of the ends aimed at. It is a science of means, not ends. It applies the term happiness in a purely formal sense. In the praxeological terminology, the proposition man's unique aim is to attain happiness is tautological. Mises may not disagree with the existence of the impartial spectator. He simply finds this line of investigation not to his purpose. He also parodies the use of the concept of the economic man as not necessary. Quote, the absurdity of this doctrine becomes manifest as soon as the question is raised in what this economic man differs from real man. He is considered as a perfect egoist, as omniscient, and is exclusively intent upon

5:25accumulating more and more wealth. But it does not make any difference for the determination to Market Prices, whether an egoistic buyer buys because he wants himself to enjoy what he bought or whether an altruistic buyer buys for some other reason, for instance, in order to make a gift to a charitable institution. Neither does it make any difference on the market whether the consumer in buying is guided by opinions that an unaffected spectator considers as true or false. He buys because he believes that to acquire the merchandise in question will satisfy him better than keeping the money or spending it for something else. Whether or not he aims at accumulating wealth, he always aims at employing what he owns for those ends which, as he thinks, will satisfy him best.

6:15So in Mises' work, it is the human action that produces movements and prices and changes and all other economic phenomena. This is the subject matter of economics or praxeology, not an analysis of the ends or purposes that men and women are trying to achieve. Smith wants to say something about the ends at which we aim. We might even use the word summum bonum or the highest good toward which humans can strive. In looking at Smith's broader There is no need to get involved with Das Adam Smith Problem, the so-called conflict between the Theory of Moral Sentiments and the Wealth of Nations. There is an overarching purpose in Smith's work. D. D. Raphael and A. L. McPhee, the editors of the 1982 Liberty Fund edition of The Theory of Moral Sentiments, state, Smith himself provides the best evidence against any idea that there is a conflict between his two works. In the advertisement to edition 6 of Theory of Moral Sentiments, he refers to the final

7:20paragraph of the book, which promises another one on law and government, and says that he has partly executed his promise in Wealth of Nations. Clearly, therefore, he regards Wealth of Nations as continuing the sequence of thought set out in Theory of Moral Sentiments. The sequence of thought that Smith began in Theory of Moral Sentiments had begun much earlier in his lectures in Moral Philosophy at Glasgow. The substance of these lectures is contained in lectures on Justice, Police, Revenue and Arms, in which topics of moral interest as well as economic interest are presented. For instance, the interrelationship between commerce and its effects on moral behavior Smith occupied the Chair of Moral Philosophy at the University of Glasgow from 1752 until 1764. In Scottish universities of that time, it was common for lectures on economic matters to be delivered from the Chair of Moral Philosophy. One might say that modern economics got its start from the Chair of Moral Philosophy. For Smith, then, economics is included under

8:29The marketplace does indeed have a moral dimension. The study of how the marketplace works does

8:59Smith is not a utilitarian, at least not in the Benthamite sense of philosophical radicalism. In our approval or desire for the intellectual virtues, Smith states, the utility of those qualities that may be thought is what first recommends them to us, and no doubt the consideration of this when we come to attend to it gives them new value. Originally, however, we approve of another man's judgment not as something useful, but as right, as accurate, as agreeable to truth and reality, and it is evident we attribute those qualities to it for no other Von Mises seems to support the utilitarian method, but at other times to present problems with it. Utilitarianism consists in the maximizing of one's utility or satisfaction. Jeremy Bentham developed an additive method for calculating utilities. It was known as the thalacific calculus, which was designed to add up pleasures and pains produced by some proposed piece This approach has been applied to individual action as well. For Bentham, good was pleasure and evil was pain.

10:33Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do. On the one hand, the standard of right and wrong. On the other, the chain of causes and effects are fastened to their throne. The Philosophic Calculus was a complex list of scoring pleasures and pains according to intensity, duration, certainty, proximity and other categories. The principle is simple. Add up the pleasures and pains and the course of action is clear. If the sum of the pleasures is greater than the sum of the pains, the action in question should be done. These pleasures and pains are subjectively defined, thus there is no way to say that a person is acting irrationally Mises agrees,

11:52In Utilitarianism, with absolutely subjectively defined ends, no action can be deemed irrational. This makes Utilitarianism into an ethically empty theory. There is simply nothing to say about the goals that humans strive for, either good or bad. There is no natural law proposition But the teachings of utilitarian philosophy and classical economics have nothing to do with the doctrine of natural right. With them, the only point that matters is social utility. They recommend popular government, private property, tolerance, and freedom, not because they are natural and just, but because they are beneficial. Since we cannot say anything Speaking about ends, we cannot say that the pursuit of prosperity is rational or good.

12:50We can observe that humans tend in this direction and can point out the most efficient means to attain prosperity. This is the subject matter of economics, human action. Adam Smith, however, wants firmer springs of human behavior to build upon, perhaps like the propensity in human nature to truck, barter, and exchange one thing for another, or perhaps some firmer for moral tendencies indicated by the impartial spectator or by natural law. A. C. Waterman comments on Smith's observation of the natural effort of every individual to better his own condition. Human action must therefore be driven by self-love or interest, which may be a reliable guide to right conduct and which may produce natural or good social outcomes. But where the institutional framework is defective, interest will naturally produce outcomes Smith tried to say something objective about human happiness, or the highest good at which humans aim. Both nature and providence indicate that the purpose for human beings is to attain happiness, quote, from moral sentiments. The happiness of mankind as well as of all

13:56other rational creatures seems to have been the original purpose intended by the author of nature when he brought them into existence. That end is still more confirmed by the examination of the Works of Nature, which seem all intended to promote happiness and to guard against misery, but by acting according to the dictates of our moral faculties, we necessarily pursue the most effectual means for promoting the happiness of mankind. This highest human happiness has content and is discussable. Human happiness consists of tranquility and the sense of being beloved. This is Smith again from Moral Sentiments. Ease and Tranquility comprise a sort of summary of the ends. They are a pair, meaning ease of body and ease of mind.

14:43In this phrase by James Alvey, ease of body corresponds to tranquility and ease of mind to Smith's sense of being beloved. Smith is not convinced that prosperity is necessarily the way to attain this, but there is an invisible hand operating in the moral world as well as the world of exchange. Smith's quote from Wealth of Nations on the Invisible Hand is well known. However, there is also a powerful invisible hand at work in the area of moral behavior, even though only a small number pursue the life of virtue. Smith likens the pursuit of wealth and greatness to a type of vanity or deception. Reception, quote, wealth and greatness are mere trinkets of frivolous utility, no more adapted for procuring ease of body or tranquility of mind than the tweezer cases of the lover of toys, moral sentiments.

15:32Fortunately, this pursuit of wealth, particularly for the lower and middle classes, lies along the same path as the pursuit of virtue. In the middling and inferior stations of life, the road to virtue and that to fortune, to to such fortune at least as men in such stations can reasonably expect to acquire are happily in most cases very nearly the same moral sentiments. So along this path of wealth creation lies the development of civil society. No doubt culture which is a sort of unintended consequence allows men and women to achieve the Smithian view of the good life. We can experience tranquility in the sense of being beloved through the pleasant sociability Another unintended consequence of the market economy may be the production of virtues and the enablement of altruism.

16:29Von Mises similarly believes in the existence of a kind of invisible hand. It is truly a market-driven invisible hand, and one does discern some Smithian good in it. quote from von Mises in Foundation. One could hardly misinterpret more fundamentally the essence of social cooperation and the economic effort of civilized mankind than by looking upon it as if it were a fight or the playful duplication of fighting or a game. In social cooperation, everyone in serving his own interests serves the interest of his fellow men. Driven by the urge to improve his own conditions, he improves the conditions of other people. Competition on the market must not be confused with the pitiless biological competition prevailing between animals and plants or with the war-steel wage between civilized nations.

17:20Catallactic competition on the market aims at assigning to every individual that function and the social system in which he can render to all his fellow men the most valuable of the services he is able to perform. Thank you very much.