After writing "The Classical Economic Model and the Nature of Property in the Eighteenth and Nineteenth Centuries" (1) Adam Smith's ideas have never left my thinking. Upon reading Coase's 1937 article, "The Nature of the Firm," (2) I was impressed with Coase's knowledge of Adam Smith's classical model and with his realistic analysis of the modern firm.
However, I was not pushed into asking the big question and jolting issue, "What is Adam Smith's ethic?" Then I read, "The Problem of Social Cost," Coase's 1960 article. (3,4) That article forced me to think even more what a deep and powerful thinker this Nobel Laureate is. When asked to write a paper for The Oxford Round Table, I thought, why not write on Adam Smith's ethic compared to Coase's ethic? However, I had never read The Theory of Moral Sentiments by Adam Smith because no one had ever mentioned that it was worth reading. As a matter of fact, I had never met anyone who had read the book. I decided to read it and in that way try to understand the Adam Smith ethic. After reading it, I have been able to hopefully understand the Adam Smith ethic and compare it to the Coase ethic.
This paper is divided into six parts: Part I Introduction; Part II The Ethic of The Theory of Moral Sentiments; Part III The Ethic of The Wealth of Nations; Part IV The Ethic of "The Nature of the Firm;" Part V The Ethic of "The Problem of Social Cost;" Part VI Analyses and Conclusions.
II. The Ethic of The Theory of Moral Sentiments
A. The Doctrine of Sympathy
An analysis of The Theory of Moral Sentiments (5) written in 1759 by Adam Smith is best begun by following the design that Adam Smith has created. For Adam Smith, the concept of ethic has to do with a moral judgment. A detailed analysis would be very informative but a more meaningful analysis is to set a limitation by dealing with the two most important doctrines of Adam Smith's system. They are: (1) the doctrine of moral judgment which is centered on sympathy; and (2) the dualism of virtues which is based on the contrast between justice and benevolence. The reason for this is to understand the relation of his ethical theory to his economics and perhaps then see the overall implications.
For Adam Smith, sympathy is a principle of communication whereby the sentiments of an individual influence and are influenced by the sentiments of his fellow men. This does not mean that sympathy is the essential content of morality but, on the other hand, sympathy is the communicating factor between individuals from which arises or which allows the moral judgment. The doctrine of sympathy, pertaining to the moral experience, is presented in The Theory of Moral Sentiments.
The key to Adam Smith's ethical theory is fundamentally an imaginary change of situation. That is, the person making the judgment places himself in the position of the individual being judged and thus he feels somewhat as if his sentiments and passions are the sentiments and passions of that judged individual. Sympathy then is the participation in the feelings of others.
Adam Smith's own words show the nature of sympathy:
"When we see a stroke aimed and ready to fall upon the leg or arm of another person, we naturally shrink and draw back our own leg or our own arm; and when it does fall, we feel it in some measure, and are hurt by it as well as the sufferer."
"The mob when they are gazing at the dancer on the slack rope, naturally writhe and twist and balance their own bodies as they see him do, and as they feel that they themselves must do if in his situation."
"Persons ... that in looking on the sores and ulcers which are exposed by beggars in the streets, they are apt to feel an itching or uneasy sensation in the correspondent part of their own bodies." (6)
A pleasure arises when the sentiments are in accord. And when this imaginary change of situation has happened and we sense that the other's emotions are in agreement with our own in the particular situation, we approve and call them good. …