Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
Adam Smith, Capabilities Theorist, in the First Edition of
the Theory of Moral Sentiments
James E. Alvey
Since World War II, mainstream economics has been dominated by what may be
called “engineering”. It has deliberately distanced itself from ethics. One ethical
approach to economics, the Capabilities Approach, has been developed from the late
1970s by Amartya Sen and Martha Nussbaum. We investigate whether this ethical
approach can be traced back to Adam Smith, the founder of modern economics. It
focuses on the first edition of Smith’s Theory of Moral Sentiments (1759). The first
conclusion is that the Capabilities approach to economics does stretch back from Sen,
at least to Smith. The second, tentative, conclusion is that Smith shows it may be
possible to combine “engineering” and ethical approaches to economics.
Field of Research: Economics (All Other Economics Topics)
JEL Codes: A12, B31, B41
1. Introduction
A frequent concern that has been raised about mainstream economics is its lack of
ethical awareness (see Fullbrook 2007, Chs 51-5; Alvey 2011, pp. 1-5).
Nevertheless, some contemporary economists, such as Amartya Sen (the Nobel
Laureate in economics), have seen the problem, provided a critique of the
mainstream view, and proposed constructive alternatives. Most importantly, along
with Martha Nussbaum, Sen has established an ethical approach to economics: the
Capabilities approach (see Nussbaum 2011).
This paper is devoted to economic methodology and the history of economic thought.
First, it sets out a new methodological framework, which builds on the work of Sen
and Nussbaum. Second, it uses this ethical approach to undertake analysis in the
history of economic thought: examining the first of the two books written by Adam
Smith, the founder of modern economics (Sen 1987, p. 2; see pp. 21-2). The Theory
of Moral Sentiments (TMS hereafter) was his first major publication. The aim of the
paper is to establish whether the Capabilities approach to economics stretches back
to Smith and he can be viewed as part of the ethical tradition of economics.
The paper is structured as follows. A brief literature review on “ethics and
economics” and Smith‟s methodological views is provided in Section 2. Section 3
sets out the Capabilities methodological framework. Section 4 states what “data”
was used i.e. the text of the first edition of the TMS. Section 5 uses the framework
from Section 3 to re-examine the “data” in Section 4. The paper concludes in
Section 6.
2. Literature Review
Despite criticisms from various sources, it is clear that a considerable gap has
opened up between economics and ethics (see Sen 1987; Alvey 2011, pp. 5-9). Sen
is correct, however, in viewing economics as having throughout its history both an
______________________________________________
Dr James E. Alvey, Senior Lecturer, School of Economics and Finance, Massey University,
Palmerston North, New Zealand. Email: J.E.Alvey@massey.ac.nz
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
ethical tradition as well as an “engineering” tradition (Sen 1987, pp. 4-7, 78). What
has happened is that the “engineering” tradition has displaced the ethical tradition
(with a few exceptions). With which tradition does Smith align?
Throughout the time since Smith died (1790), many topics related to Smith have now
been treated extensively in the secondary literature. Numerous disputes have arisen
about how to interpret his various concepts and works (see Sen 1986b). Other
disputes concern whether his writings are consistent throughout his lifetime (Raphael
and Macfie 1976, pp. 19-25; Montes 2004, pp. 15-56). For the purpose of this paper,
pending further research, I simply assert the consistency of his thought and work.
Perhaps due to his wide acceptance as the founder of modern economics, some
have presented Smith as a general equilibrium theorist (Hollander 1973). Sen (1987,
p. 8) views general equilibrium theorizing as “engineering”. Inevitably, viewing him
as an engineer, tends to align Smith with the modern, “scientific,” positivistic,
methodology and the assumption that all human motivation is self-interested.
Campbell (1971) and Raphael (2007) see even the TMS as an empirical (rather than
normative) work. The same, of course, applies to his second book, the Wealth of
Nations (Smith 1976 [1776]). Some commentators have noted Smith‟s rejection of
the positive-normative dichotomy but condemned him for doing so (Hutchison 1988,
p. 363). With regard to human motivations, Stigler (1971) and Coase (1976) claim
that self-interest dominates Smith‟s work. Cropsey says that everything is directed
either to self-preservation or to pleasure maximization in Smith (Cropsey 1957, pp.
viii, 3-4 (and note 4), 15-6, 29 c.f. p. 72).
By contrast, some writers have included Smith within the ethical tradition of
economics. For example, Young (1997) has shown that Smith rejected the positivenormative dichotomy and wrote in the ethical tradition of Aristotle. Fitzgibbons
(1995), Hanley (2009), and Fricke (2013), find ethical motivations in Smith. Muller
(1995) and Fitzgibbons (1995) argue for an ethical understanding of social
achievement in Smith.
Previously, I have shown that Smith‟s early works (those written before the TMS) are
consistent with the ethical tradition in economics (Alvey 2014b; 2014c). Sen
frequently cites Smith in his work (Sen 1986b; 2009 throughout) and asserts that the
latter inspired him in his development of the Capabilities approach (1987, p. 46 n.).
Nevertheless, he never attempted a comprehensive examination of Smith from the
Capabilities perspective. This paper represents a step towards filling this gap.
3. The Methodology
This section presents Sen‟s Capabilities approach, a new “ethics and economics”
methodological framework. For more details, see Alvey (2014a; 2015).
Sen rejects the standard metrics of well-being: utility and opulence (1987, pp. 45-7).
He argues that these measures, as well as national accounting aggregates, such as
GNP and GNP/head, are reductionist and misleading for policy purposes (Sen 1999,
pp. 46-51). An alternative approach is required: a range of metrics is required to
capture the complexities of human welfare.
First, Sen asserts that “ethical deliberations” are relevant “to actual human behaviour”
(1987, p. 4). It is on the foundation of ethical motivations that many other parts of
Sen‟s work are built.
Second, the starting point for Sen‟s view of well-being is the concept of functionings.
Functionings “can vary from the most elementary ones, such as being well-nourished
…, to quite complex and sophisticated achievements, such as having self-respect”
(Sen 1992, p. 5; see 1993, pp. 36-7). “A functioning is an achievement, whereas a
capability is the ability to achieve” (Sen 1986a, p. 48). The standard example that
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
Sen provides to distinguish capabilities from functionings is fasting (1986a, p. 49;
see 1993, p. 45). Even if the “achieved functionings” of “the rich person fasting” is
the same as the poor person starving, they “differ in their capabilities” (Sen 1993, p.
45). In short, the capabilities approach is concerned with “a person‟s ability to do
valuable acts or reach valuable states of being”, even if they choose not to achieve
them (Sen 1993, p. 31). Human capabilities are the true goals.
Third, given this understanding of functionings and capabilities of individuals, we can
turn to achievements within the society. Notions of distributive justice arise (Sen
1987, pp. 32-3). For Sen, social achievement represents some benchmark of
acceptable performance for the society in terms of delivery of functioning
achievements.
Fourth, Sen incorporates his own version of “agency” into his work. Agency includes
the virtue of practical reason: the agent forms “goals, commitments, values, etc” and
acts to fulfil them (Sen 1987, p. 41). Sen lists a range of subjects which may form
part of agency goals: achievements for one‟s family, community, class, party, or
some other cause (1987, p. 43). Another aspect of agency is responsibility for one‟s
own actions (Sen 1985, p. 183).
Fifth, for Sen, freedom is valuable but complex (Sen 2002, pp. 7, 9). First, freedom
is “valued” as a means to “achievements”, such as well-being, and “because of its
own importance” (Sen 1987, p. 60; 1993, p. 39; 2009, p. 18). Second, although one
can refer to freedom in general, one can also consider various types of freedom e.g.
personal liberty, political freedom, etc. (Sen 2000, pp. 5-6 and throughout; 2002, pp.
413, 598).
Sixth, Sen also recognises rights to some degree. Again, he claims that rights have
both an instrumental value and an importance for their own sake (Sen 1987, pp. 4751, 56-7, 70-2, 74-8).
To summarize, Sen‟s Capabilities metaframework consists of three tiers. The first
tier refers to the motivations of individuals. We can distinguish between three broad
categories of motivations: “the ethics-related view of motivations,” self-interested
motivations, and malevolent motivations. In the second tier there are various
considerations: functionings/capabilities, freedom, rights, and human agency. The
top tier is social achievement. In On Ethics and Economics the concept refers to
distributive justice with respect to capabilities. It is better, however, to view social
achievement as a depiction of the achievements, agencies, freedoms, and rights of
various individuals within the society. Numerous ethical judgments are required e.g.
the choice of items evaluated, the weighting given to each item, and the proportion of
the population required for success.
4. The Data
The first edition of the TMS (1759) is examined in detail below. For background on
the TMS, see Alvey (2015b; 2015c).
5. The Findings
The Capabilities framework was used to re-examine the first edition of the TMS. (All
citations below are from Smith 1992 [1759].) The chief findings are summarized
below.
First, Smith argues that there is evidence for the providential care of Nature (p. 168
n.). Not only does Nature demonstrate benevolent design throughout but Smith
claims to have discovered that there are five or six natural ends for human beings
(Alvey 2003, pp. 1, 32-5, 275-83 and throughout). Human beings desire “self-
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
preservation and the procreation of the species” (p. 168n.; see pp. 191-2). We
humans desire these ends but nature directs us to these ends by means of instincts
(p. 168n.). In addition, Smith explicitly attributes another three ends to nature: order,
happiness, and perfection of the species (p. 168n.; see pp. 238, 284-5, 290; see
Alvey 2003 throughout). I have also suggested that freedom may constitute an
implicit sixth end of nature for Smith (Alvey 2003, pp. 35, 58-9, 69). This discussion
has implications for functionings and social achievement.
Second, Smith has a complex view of human motivations. There is some evidence
that Smith views humans as directed only to self-preservation or pleasure
maximization (pp. 12, 168n., 181-2, 191-2, 504). In several places, however, Smith
rejects those who try “deducing all our sentiments from certain refinements of selflove” (p. 14; see pp. 14-5, 441-54, 492-7). There is stronger evidence for Smith
adopting arguments along the “ethics and economics” interpretation. Humans are
social beings. Smith‟s references to the fellow-feeling with other humans are
ubiquitous (pp. 3, 5-6, 8, 11, 14, 35, 199). He actually begins the TMS with a claim
about fellow feelings (p. 1). Humans have a “strong fellow feeling with the injuries
done to their brethren” (p. 69). Fellow-feeling flows outwards and inwards. Due to
our social nature and the socialization processes, we inevitably become empathetic
towards other humans. We are spontaneously affected by someone else‟s misery and
we “almost involuntarily… fly to his assistance” (p. 74).
Third, Smith reveals important insights into his views of human functionings. 1)
Consider the lower functionings which arise from the first two of the fundamental
ends of nature mentioned earlier. He says that the ends of self-preservation and
procreation of the species are largely achieved by instincts: “Hunger, thirst, the
passion which unites the two sexes, the love of pleasure, and the dread of pain” (p.
168 n.). Smith provides strong support for the ability to live a long life (p. 168 n.).
It is not surprising that he condemns the “horrible practice” of exposing infants (p.
412; see pp. 409-12).
If we look again at the quote concerning the role of instincts in delivering the ends of
nature, we soon realize that Smith implies several more functionings: the ability to
have good health, to be free from diseases, and to be well nourished and well
housed (on health, see p. 97; on sickness and disease, see p. 347; on nourishment,
see pp. 56, 353; on housing, see p. 353). A life without pleasure, or one dominated
by pain, runs contrary to these two ends. Alternatively, one could say that Smith
argues for the ability to feel pleasure and pain and have a life characterized by
at least moderate pleasure. Finally, a life without sexual pleasure and offspring is
deficient. Humans should be able to enjoy sexual experiences and procreate.
2) Let us now move upwards in the list of ends of nature. Order is more complex
than self-preservation and procreation. It has a number of components. External
order consists of defence from external attack with a view to protecting the lives of
residents within the polity. Internal order includes various measures to protect
residents from other residents. Elsewhere, Smith refers to a range of negative things
including “anxiety, … fear, …sorrow, …danger” (p. 347). Order overcomes, or
greatly limits, many of these things.
Not harming our neighbours is part of justice. Justice bridges individual morality and
jurisprudence. Conforming to the rules of justice is an essential aspect of individual
morality. Like other aspects of morality, in Smith‟s view, the origins of the rules of
justice can be traced to a series of processes related to ethical judgment. The
ability to place ourselves in the situation of another in our imagination is one of
these essential processes (pp. 2-4, 36-9). Without this ability, we cannot be moral
beings. Over time, moral judgment is refined and comes to approximate natural
justice.
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
Unlike other virtues, breaches of justice can be punished. The government attempts
to create an administration of justice (through enactment of laws, and enforcement
by various agencies) that approximates natural justice.
Smith focusses on
commutative justice.
The most sacred laws of justice … are the laws which guard the life and
person of our neighbour; the next are those which guard his property and
possessions; and last … come those which guard … what is due him from the
promises of others. (p. 184)
In other words, we should have the ability to have our life and body secure from
attack. (Retrospective punishment of perpetrators is a necessary condition.
Nevertheless, if attacks are frequent and most people live in fear, retrospective
punishment may be insufficient.) In addition, we should be able to acquire and
securely retain private property and possessions. Finally, commercial law
should develop in step with the material conditions in order to secure an expanding
range of contractual arrangements. In other words, we should be able to enter
securely into market transactions.
3) At the highest level are functionings associated with the ends of “happiness and
perfection of the species”. Not surprisingly, Smith has in mind here a wide range of
abilities. Consider emotional attachment to others and friendship as requirements
for happiness. It is a dreadful situation to be living “where there is nobody to care for
them, or enquire after them” (p. 179; see p. 369). The same can occur in the midst
of society. The poor are often ignored, even when they are visible in society (pp.
110-1). Being isolated, ignored, or the object of hatred by everyone else (or not
having one‟s sentiments shared by anyone else) is a miserable condition (pp. 59,
138, 140, 179, 185-6, 369). In short, Smith also stresses the ability to befriend
others and be befriended by others (see pp. 2-5).
Human perfection includes the development of processes for sophisticated ethical
judgment and action in accordance with this standard throughout one‟s lifetime.
Understanding the range of human virtues beyond justice (e.g. generosity) is difficult.
Acting in accordance with these virtues is even more difficult. Over the course of
one‟s lifetime ethical judgment and action merge into issues of character. The
theoretical case of” the solitary”, who grows up without meeting any other human,
shows that morality is a social product. Many aspects of morality require the ability
to harmonize our sentiments with others (pp. 31, 37).
Smith also stresses the importance of human reasoning (pp. 9-10). This is an underappreciated aspect of his work that returns to play an important role in the Wealth of
Nations.
In short, Smith has a rich notion of human functionings. Just as important as
functioning achievements is the absence of impediments, including poverty (see pp.
398-402).
Fourth, Smith endorses various aspects of agency, freedom, and rights. With
respect to agency, he makes accountability a key part of human life (p. 257; see p.
539). He also stresses the importance of avoiding dependency (p. 56). Other
aspects of agency have been captured already under various functionings.
Concerning freedom, Smith asserts the importance of personal autonomy (p. 56).
With regard to rights, he also endorses some vague notion of fundamental duties
and rights (pp. 232-3, 242; see p. 234).
Fifth, Smith gives us considerable insight into his view of social achievement. He
tells us that human beings “stand in need of each other‟s assistance” and can live
“only in society” (p. 188). Not all societies are equal, however. Smith describes and
ranks three possibilities. The “most comfortable” is:
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
Where the necessary assistance is reciprocally afforded from love, from
gratitude, from friendship and esteem, the society flourishes and is happy. All the
different members of it are bound together by the agreeable bands of love and
affection, and are … drawn to one common centre of mutual good offices. (p.
188; see pp. 188-90)
The second best society is where “no one … in it should owe any obligation, or be
bound in gratitude to any other”; it is like a group of “merchants” subsisting “from a
sense of its utility” alone (p. 189). This is the image of commercial society. The final
scenario is not really society at all. It is when all “are at all times ready to hurt and
injure one another” (p. 189). The “bands” of society are broken “asunder” (p. 189).
Overall, the first scenario is characterized by beneficence, the second by justice and
the third by injustice (p. 190). Human beings want to share their sentiments with
others but, if this is not possible, you look upon others as “beasts” (p. 191) or
strangers. While the ideal may be unattainable, a moderate degree of harmonization
of the sentiments is necessary for the “harmony of society” or social stability (p.
38).
Another aspect of social achievement is moral improvement. Smith implies that
economic development leads to this improvement (pp. 397-412). In their inability to
secure life (p. 410) and emotional development, societies at the hunting stage of
history were profound failures. “Civilized” societies (i.e. those at the commercial
stage) had achieved better results in these areas.
Many of the points made above are consistent with what was discovered in Smith‟s
early writings (see Alvey 2014b; 2014c). This points towards his consistency over a
longer time horizon.
Two main conclusions can be made. First, ethical concerns are important in framing
Smith‟s thoughts in the first edition of the TMS. Various components of the
Capabilities framework can be found in this work. Smith can be seen as a
contributor to the ethical tradition stretching forwards to Sen‟s Capabilities approach.
He was a rich contributor to the ethical branch of economics.
The second conclusion is provisional, depending on further research demonstrating
that his views were largely consistent during his lifetime. If this assumption holds, to
the extent that Smith contributed to the “engineering” tradition in his Wealth of
Nations, he may be a model of how to combine work in the two traditions of
economics (see Sen 1987, pp. 6-7).
6. Conclusion
This paper uses a new, Capabilities methodology which builds on the work of Sen.
The framework was used to investigate the extent to which Adam Smith integrated
ethics and economics in the first edition of the Theory of Moral Sentiments.
The first conclusion is that Smith did integrate ethics and economics. He was an
early Capabilities theorist who endorsed many capabilities. The Capabilities
approach to economics is more than just a contemporary fad, it is embedded in the
founder of modern economics. The history of economics is a rich source for
Capabilities theorists. A second, tentative, conclusion can be made, assuming the
consistency of Smith‟s views over time. Smith may be an exemplar of how to
combine the “engineering” and ethical traditions in economics. It need not be one or
the other.
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
References
Alvey, J 2003, Adam Smith: optimist or pessimist? Ashgate, Aldershot.
Alvey, J 2011, A short history of ethics and economics: the Greeks, Edward Elgar,
Cheltenham.
Alvey, J 2014a, „A new framework for ethics and economics‟, Discussion Paper
14.01, School of Economics and Finance, Massey University, Palmerston North,
New Zealand.
Alvey, J 2014b, „Ethics and economics in Adam Smith‟s very early works, lectures,
and correspondence, part I‟, Discussion Paper 14.02, School of Economics and
Finance, Massey University, Palmerston North, New Zealand.
Alvey, J 2014c, „Ethics and economics in Adam Smith‟s very early works, lectures,
and correspondence, part II‟, Discussion Paper 14.03, School of Economics
and Finance, Massey University, Palmerston North, New Zealand.
Alvey, J 2015, „A new framework for ethics and economics‟, The Journal of Social
Science, no. 79, pp. 123-42.
Campbell, T 1971, Adam Smith’s science of morals, Rowman and Littlefield, Totowa,
NJ.
Coase, R 1976, „Adam Smith‟s view of man‟, Journal of Law and Economics, vol. 19,
no. 3, pp. 529-46.
Cropsey, J 1957, Polity and economy, Martinus Nijhoff, The Hague.
Fitzgibbons, A 1995, Adam Smith’s system of liberty, wealth, and virtue, Clarendon
Press, Oxford.
Fricke, C 2013, „Adam Smith: The sympathetic process and the origin and function of
conscience‟, in C Berry, M Paganelli, & C Smith (eds.), The Oxford handbook
of Adam Smith, Oxford University Press, Oxford, pp.177-200.
Fullbrook, E 2007, Real world economics, Anthem Press, London.
Hanley, R 2009, Adam Smith and the character of virtue, Cambridge University
Press, Cambridge.
Hollander, S 1973, The economics of Adam Smith, University of Toronto Press,
Toronto.
Hutchison, T 1988, Before Adam Smith: the emergence of political economy 16621776, Basil Blackwell, Oxford.
Montes, L 2004, Adam Smith in context, Palgrave Macmillan, Houndmills.
Muller, J 1995, Adam Smith in his time and ours, 1st Princeton paperback printing
with corrections and a new preface, Princeton University Press, Princeton.
Nussbaum, M 2011, Creating capabilities, Belknap Press, Cambridge, Mass.
Raphael, D 2007, The impartial spectator, Clarendon Press, Oxford.
Raphael, D & Macfie, A 1976, „Introduction‟ and „Appendix II‟, in A Smith (D Raphael
and A Macfie [eds.]), Theory of Moral Sentiments, Oxford University Press,
Oxford, pp. 1-52, 383-401.
Sen, A 1982, „Rights and agency‟, Philosophy and Public Affairs, vol. 11, no. 1, pp.
3-39.
Sen, A 1985, „Well-being, agency and freedom: The Dewey lectures 1984‟, Journal
of Philosophy, vol. 82, no. 4, pp. 169-221.
Sen, A 1986a, „The standard of living‟, in S McMurrin (ed.), Tanner lectures on
human values (vol. VII), University of Utah Press, Salt Lake City, pp. 1-51.
Sen, A 1986b, „Adam Smith‟s prudence‟, in S Lall and F Stewart (eds.), Theory and
reality in development, Macmillan, London, pp. 28-37.
Sen, A 1987, On ethics and economics, Basil Blackwell, Oxford.
Sen, A 1992, Inequality reexamined, Harvard University Press, Cambridge, Mass.
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
Sen, A 1993, „Capability and well-being‟, in M Nussbaum & A Sen (eds.), The quality
of life, Clarendon Press, Oxford, pp. 30-53.
Sen, A 1997, „Economics, business principles and moral sentiments‟, Business
Ethics Quarterly, vol. 7, no. 3, pp. 5-15.
Sen, A 1999, Commodities and capabilities, Oxford India paperback, Oxford
University Press, New Delhi.
Sen, A 2000, Development as freedom, Anchor Books, New York.
Sen, A 2002, Rationality and freedom, Belknap Press, Cambridge, Mass.
Sen, A 2009, The idea of justice, Belknap Press, Cambridge, Mass.
Smith, A 1976 (1776), An Inquiry into the Nature and Causes of the Wealth of
Nations, R Campbell and A Skinner (eds.), Oxford University Press, Oxford.
Smith, A 1992 (1759), The theory of moral sentiments, exact reprint of the 1st edition,
Risen, Kyoto.
Stigler, G 1971, „Smith‟s travels on the ship of state‟, History of Political Economy,
vol. 3, no. 2, pp. 265-77.
Young, J 1997, Economics as a moral science, Edward Elgar, Cheltenham.