To what extent is Smith’s theory of mutual sympathy descriptive? Does it provide a justification for the commercial society of Smith’s time?  PDF

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To what extent is Smith’s theory of mutual sympathy descriptive? Does it provide a justification for the commercial society of Smith’s time?  essay...

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TO WHAT EXTENT IS SMITH’S THEORY OF MUTUAL SYMPATHY DESCRIPTIVE? DOES IT PROVIDE A JUSTIFICATION FOR THE COMMERCIAL SOCIETY OF SMITH’S TIME? Seminar Tutor: Fabian Pape Student ID: U1827939 Word count: 2960/3000

Introduction: In his book The Theory of Moral Sentiments, first published in 1759, Adam Smith introduces his theory of mutual sympathy. In fact, he opens the book by explaining his understanding of ‘sympathy’ in comparison to words such as ‘compassion’: “Pity and compassion are words appropriated to signify our fellow-feeling with the sorrow of others. Sympathy, although its meaning was, perhaps, originally the same, may now, however, without much impropriety, be made use of to denote our fellow-feeling with any passion whatever” (Smith, 1790). Put simply, sympathy, according to Smith, is the ability to feel what someone else is feeling. In economic terms, this amounts to the mutual agreement of the buyer and seller on the natural price of a good, rather than on its market price. Here, it can be argued that the sympathy procedure acts as the moral counterpart of the invisible hand, which is a metaphor for the unseen forces that regulate the free market economy (Majaska, 2019). The natural price, on the one hand, is a price a little over the production costs to both cover these and allow the seller some profit. It “is part of society’s prevailing value patterns, which orient people’s behaviours and actions” (Peil, 2009, p.506). The market price, on the other hand, is the price we see in an actual market, often increased by uneven power relations. It “reflects the actual social values, produced in the actual exchange of the personal interpretations of which actors have given to the value patters in their local situation” (Peil, 2009, p.506). This agreement takes place in the commercial society of Smith’s time, which he considers as the final stage of human history according to his four stages theory of history. This society is “organised according to the principles of commerce: free exchange between people is ruled by shared beliefs, values and norms (re)produced through the processes of (mutual) sympathy immanent in that very same exchange” (Peil, 2009, p.505). There has been an ongoing debate regarding Smith’s work, from economists such as Friedrich List who finds Smith’s approach of the market too idealised or philosophers such as Thomas

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Reid who believes that his theory of mutual sympathy relies on selfishness. This essay will argue that mutual sympathy is idealistic and therefore normative rather than descriptive, although it does to some extent demonstrate that the commercial society of Smith’s time had techniques of social regulation. At that time, most market relations happened face-to-face but nowadays there are a lot more steps when purchasing goods most of the time. Furthermore, whether it be in Smith’s days or in ours, when market relations happen on a larger scale than face-to-face, mutual sympathy does not work as the two parties are not often equal which causes the more powerful one to take advantage of its market power. In order to build up this argument, the first part of this essay will assess the extent to which the theory of mutual sympathy is descriptive and provides a justification for the commercial society of Smith’s time. The second part of this essay will argue that the theory of mutual sympathy is actually idealistic, that if it ‘worked’ there would be no instances of market power abuse which often happens in the case of a monopoly and that the theory is normative, in the sense that norms are abstractions of political world views.

Paragraph I: Smith’s theory of mutual sympathy needs to be descriptive to provide a justification for the commercial society of his time. First of all, this essay will assess the extent to which Smith’s theory of mutual sympathy is descriptive. In fact, it needs to be descriptive in order to justify a lack of regulation in the market, thereby justifying the commercial society of Smith’s time. The latter uses commercial society as a model to illustrate that a society organised by processes such as mutual sympathy exchanges is self-regulating (Peil, 2009, p.505), supporting his position as an advocate of social regulation rather than market intervention. Indeed, according to Smith, a market regulated by social norms does not need government intervention. Social regulation

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can be defined as “the body of formal and informal rules governing social and economic activities” (Dancette, 2004). Economists have studied how following social norms can influence market behaviour (Bicchieri, Muldoon and Sontuoso, 2018), just like Smith does with mutual sympathy. According to James Otteson, American philosopher and political economist, the desire for mutual sympathy is a universal social norm: “As Otteson puts it, because the desire for mutual sympathy is universal, meaning that all people have it, this process of alternately moderating and amplifying sentiments tends ultimately toward an equilibrium sentiment” (Halpern, 2017, p.43). He, among others, also believes that the power of social regulation on the market is equal to that of economic regulation, stating that the “process of mutual correction and regulation of sentiments to an equilibrium level [is] analogous to economic mechanisms whereby market prices gravitate toward what Smith calls ‘natural price’” (Halpern, 2017, p.43). For these reasons, mutual sympathy does provide a justification for the commercial society of Smith’s time, in the sense that it demonstrates that it has techniques of social regulation, mutual sympathy being one of them. Another important technique which cannot be detached from sympathy is spectatorship since “sympathy is a consequence on a spectator’s cognition of a person’s feelings or emotions” (Broadie, 2006, p.158). Indeed, Smith’s impartial spectator is “considered an inner man” and “constructed by a process of internalisation of such outer people, using them as mirrors to reflect ourselves as we seek images of the proper action to take” (Broadie, 2006, p.182). These techniques of social regulation avoid exploitation in markets, suggesting that price controls are not needed as they allow decisions to be made according to ethical judgement, which means that individuals use their reason to make a decision. However, many scholars have criticised Smith’s work for the alleged inconsistency between his moral philosophy and his economic theory. Indeed, critics argue that his moral philosophy is based on sympathy whereas his economic theory is based on self-interest

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(Broadie, 2006, p.164). This argument came up among German scholars in the second half of the 19th century and is commonly referred to as the ‘Adam Smith Problem’. They pointed out this inconsistency between his two major works: The Theory of Moral Sentiments and The Wealth of Nations (1776) (Tribe, 2008, p.514). In the latter, Smith seems to argue that selfinterest works well in the market, making sure that the market functions and that following self-interest is in everyone’s interest. This behaviour can be referred to as ethical egoism which “claims that I morally ought to perform some action if and only if, and because, performing that action maximizes my self-interest” (Shaver, 2019). Thomas Reid is part of those who have condemned Smith’s theory of mutual sympathy for being essentially selfish. The former argues that when composing a moral judgement on someone’s attitude or behaviour, we immediately imagine how we would feel if we were in their situation. However, it seems like Smith had prepared a defence to this kind of attack as in The Theory of Moral Sentiments he stresses the importance of understanding that, in sympathising, the spectator imagines being the agent in the agent’s situation (Broadie, 2006, p.163), underlining the selflessness of the action: “we enter as it were into his body, and become in some measure the same person with him” (Smith, 1790). However, it can be argued that sympathy is not selfless, for the reason that we get something out of it. For example, in the context of the commercial society, the simple fact that both the buyer and seller agree on a price means they are both happy with it. Additionally, the word ‘mutual’ in ‘mutual sympathy’ underlines the fact that both parties win something out of the exchange. Although, as argued above, mutual sympathy shows that the commercial society of Smith’s time had techniques of social regulation, suggesting that his theory is descriptive, this is only true to a certain extent. In fact, in this commercial society, market relations happened face-to-face but it can be argued that once a commercial relationship goes beyond face-toface contact, it is not possible to apply Smith’s sympathy. In other words, the distance

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between the buyer and seller undermines the whole concept of sympathy. Furthermore, Friedrich List has criticised Smith’s theory by arguing that the liberal defence of the market he puts forward is based on an idealised understanding of the economy. These limitations to Smith’s argument will be discussed in the second part of this essay.

Paragraph II: The theory of mutual sympathy is idealistic, if it ‘worked’ there would be no instances of market power abuse. It is also normative, in the sense that norms are abstractions of political world views. Next, this essay will argue that Smith’s theory of mutual sympathy is idealistic, that if it ‘worked’ there would be no instances of market power abuse which often happens in the case of a monopoly and that the theory is normative, in the sense that norms are abstractions of political world views. First of all, mutual sympathy and the commercial society of Smith’s time are not relatable to our contemporary society, which highlights their normative aspect. Indeed, many recent discussions regarding his work have “tended to view Smith’s concept of sympathy as essentially providing a principle of virtue adapted for a commercial society”, which “would be of more use to men of middling rank, living in a modern, commercial society than the libertarian civic virtues of the classical republican” (Harkin, 1995, p.175). This suggests that Smith’s theory of mutual sympathy is normative and cannot be ‘applied’ to a society outside of the commercial society of his time. Indeed, this commercial society was historically situated and Smith’s sympathy was socially and culturally situated, which suggests that although it might have been considered universal at the time, Smith’s view belongs in its context and has not evolved with our changing approach of the market over the centuries.

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Next, if mutual sympathy actually ‘worked’, in other words if it were a descriptive theory, there would be no instances of market power abuse as social regulation would be effective. Market power refers to “the power of a person to overly influence market prices” (UKEssays, 2018). This kind of abuse can often happen when there is a monopoly, which can be considered an extreme result of free-market capitalism in which a company would experience no restrictions and would be able to possess all the market for a particular good or service (Kenton, 2019). In this case, theories such as the invisible hand lead to monopoly which highlights a need for intervention and price regulation in order to achieve economic efficiency. Furthermore, mutual sympathy can only be effective if the two parties are somewhat equal, however in the case of a monopoly it is very rarely the case as it has the power to decide the price, which the buyers will comply to most of the time as they cannot get the good or service the monopoly provides from another company. Here, the market price offered would most likely be a lot higher than the natural price, which stresses the limitation of mutual sympathy and the fact that human behaviour is often guided by self-interest, often leading to the market to fail. An example of monopoly power abuse contemporary to Smith would be the British East India Company. Indeed, the latter took advantage of low manufacturing prices in colonised countries and sold its goods for a high price. This company started as a monopolistic trading enterprise and was formed for the exploitation of trade with East and Southeast Asia and India and received a Royal Charter in December 1600. It became involved in politics and quickly obtained an important role in British imperialism in India between the early 1700s and mid-1800s (The Editors of Encyclopaedia Britannica, 2020). However, the corporation hastily took advantage of its market power and made sure to keep its “supply and production costs low while maximising the price of goods sold in England” (Wile, 2012) in order to get the most out of its advantageous position. Indeed, it outsourced as much as it could, from manufacturing to shipping and from the 1620s it started to be involved

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in slave trafficking, which reached its peak in the 1730s (The Editors of Encyclopaedia Britannica, 2020). Although Smith was an advocate of global trade, in The Wealth of Nations he clearly demonstrates that he is a critic of international trading companies as he dedicates a large part of this work to “expose the irrationalities and injustices of companies in their operations both within their home countries and abroad”. Indeed, he believed that these companies abused of their market power (Muthu, 2008, pp.185-186). Important joint stock companies of his time such as the British East India Company lead to “severe economic distortions and steep political costs within Europe and abroad” (Muthu, 2008, p.186), so much so that the Regulating Act of 1773 led to government intervention and to the company’s gradual loss of commercial and political control. Eventually, in 1873, it ceased to exist as a legal entity (The Editors of Encyclopaedia Britannica, 2020). It has been argued that, still to this day, the East India Company “remains history most ominous warning about the potential for the abuse of corporate power” (Dalrymple, 2019). This example demonstrates once again the limitations of the descriptive nature of Smith’s mutual sympathy theory and the social regulation techniques of the commercial society of his time. These practices can lead to market power abuse which suggests that techniques of social regulation alone are not sufficient to ensure a fair and healthy economic environment. Finally, Smith’s theory of mutual sympathy is also normative in the sense that norms are abstractions of political world views. List’s critique has touched on this subject as he claims that Smith’s idealised understanding of the economy assumes the politics and power relations out of the equation. David Ricardo’s theory of comparative advantage serves as an example for this, as it acts as an abstraction from the historical context of the time, including the wars and colonialism of the time. This theory first appeared in Ricardo’s Principles of Political Economy, published in 1817, and encourages countries to specialise in the production of goods in which their workers are relatively most efficient in comparison to

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other countries. Through this process, production and consumption efficiency are improved by free trade (Black, Hashimzade and Myles, 2009). However, these benefits do not come free of drawbacks. Indeed, it seems this concept ignores the political and historical context of the time, such as commercial treaties and slavery, promoting a liberal world trading order at all costs. An important treaty it fails to mention is the Methuen Treaty, which was a “military and commercial treaty between England and Portugal signed in 1703 as part of the War of the Spanish Succession” (Watson, 2017, p.266). This treaty “stipulated that no tax higher than the tax charged for an equal amount of French wines could be charged for Portuguese wines exported to England and no English textiles exported to Portugal would be charged any taxes, regardless of the geopolitical situation in each of the two nations” (Timelinefy, n.d.). This was to make sure that, once England would no longer be at war against France, it would still purchase wine from Portugal since England and France fought on opposing sides of the War. Therefore, it is no coincidence that Ricardo used England and Portugal as the examples for his theory of comparative advantage and that he gave them respectively a comparative advantage in the production of cloth and wine. What Ricardo leaves out is how the Methuen Treaty was tied to transatlantic slave trade. Portugal struggled to meet its treaty obligations and the only solution it had to make up for its trade deficit was to use the newly discovered gold resources from its Brazilian colonies (Watson, 2017, p.266). However, these gold mines were worked by slaves, who were taken from Portugal’s African colonies to Brazil on the merchant ships that brought the gold to Europe to pay for Portugal’s debts. This slave labour practice was not new to Portugal as it had “previously appropriated Brazilian surpluses in the sugar industry to its own ends, where the plantations had been worked by slave labour” (Watson, 2017, p.266). These abstractions of key historical events for the sake of liberalism and free trade highlight the need for new liberal norms to disassociate liberal political economy “from these highly illiberal economic processes” (Watson, 2017, p.257).

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Overall, although in the context of the commercial society of Smith’s time his theory of mutual sympathy has a descriptive value, it only belongs in this context and only has a normative value outside of it. Indeed, it was not thought to work out in our contemporary vision of the market and the economy or outside face-to-face market relations, otherwise abuse of market power and monopolies would not be able occur. Lastly, the normative aspect of this liberal defence of the market can be noticed in Ricardo’s comparative advantage theory, in which liberal norms are abstractions from the historical and political context.

Conclusion: In conclusion, this essay has argued that both the commercial society of Smith’s time and his theory of mutual sympathy are socially, historically and culturally situated and that mutual sympathy is not applicable outside of its context. Nonetheless, in this context, which is commercial society, Smith’s theory appears to be descriptive as it provides a justification for the society of his time, as it shows that the latter has techniques of social regulation. However, his understanding of the economy demonstrates some limitations as it has been criticised by different scholars for being selfish and idealised. Indeed, it only represents a set of norms when applied to our contemporary understanding of the market and when exchanges go beyond face-to-face relations. These norms are abstractions of political world views, as the hidden historical context of Ricardo’s comparative advantage highlights. Furthermore, if mutual sympathy were a descriptive theory, there would be no instances of market power abuse which often occurs when there is a monopoly, which stresses the need for price regulation and market intervention and the fact that social regulation is not enough to ensure economic efficiency.

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Bibliography:

Bicchieri, C., Muldoon, R. and Sontuoso, A., 2018. Social Norms. In: The Stanford Encyclopedia of Philosophy. Metaphysics Research Lab, Stanford University. [online] Available at: [Accessed 12 May 2020]. Black, J., Hashimzade, N. and Myles, G., 2009. Comparative advantage. In: Oxford Dictionary of Economics, 3rd ed. [online] Oxford University Press. Available at: [Accessed 13 May 2020]. Broadie, A., 2006. Sympathy and the Impartial Spectator. In: K. Haakonssen, The Cambridge Companion to Adam Smith. [online] Cambridge University Press, pp.158-188. Available at: [Accessed 8 May 2020]. Dalrymple, W., 2019. Lessons for capitalism from the East India Company. Financial Times, [online] Available at: [Accessed 9 May 2020]. Dancette, J., 2004. Social Regulation. In: Analytical Dictionary of Globalization and Labour. [onlin...