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ADAM SMITH AND THE GREAT MIND FALLACY

  • James R. Otteson (a1)
Abstract
Abstract

Adam Smith raised a series of obstacles to effective large-scale social planning. In this paper, I draw these Smithian obstacles together to construct what I call the “Great Mind Fallacy,” or the belief that there exists some person or persons who can overcome the obstacles Smith raises. The putative scope of the Great Mind Fallacy is larger than one might initially suppose, which I demonstrate by reviewing several contemporary thinkers who would seem to commit it. I then address two ways the fallacy might be overcome, finding both wanting. I close the paper by suggesting that Smith's Great Mind Fallacy sheds interesting light on his “impartial spectator” standard of morality, including with respect to the specific issues of property and ownership.

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1 In referring to Adam Smith's writings, I use the now standard abbreviations to the Glasgow Edition of Smith's works: TMS for The Theory of Moral Sentiments (1759), ed. Raphael D. D. and Macfie A. L. (Oxford: Oxford University Press, 1977); WN for The Wealth of Nations (1776), ed. Campbell R. H. and Skinner A. S. (Oxford: Oxford University Press, 1976); EPS for Essays on Philosophical Subjects, ed. Wightman W. P. D. and Bryce J. C. (Oxford: Oxford University Press, 1960); LJ for Lectures on Jurisprudence, ed. Meek R. L., Raphael D. D., and Stein P. G. (Oxford: Oxford University Press, 1982); and LRBL for Lectures on Rhetoric and Belle Lettres, ed. Bryce J. C. (Oxford: Oxford University Press, 1983).

2 Nozick Robert, Anarchy, State, and Utopia (New York: Basic Books, 1974), 160–64.

3 See Hayek Friedrich A., “The Use of Knowledge in Society” (1945), reprinted in his Individualism and Economic Order (Chicago: University of Chicago Press, 1980), 7791; and Hayek Friedrich A., The Constitution of Liberty (Chicago: University of Chicago Press, 1960), chaps. 1 and 2.

4 See Hayek, “The Use of Knowledge in Society.”

5 Other statements of the Local Knowledge Argument can be found throughout The Wealth of Nations. See, for example, WN, I.i.8, IV.v.b.16, IV.v.b.25, and IV.ix.51.

6 Smith also writes: “But though the profusion of government must, undoubtedly, have retarded the natural progress of England towards wealth and improvement, it has not been able to stop it. The annual produce of its land and labour is, undoubtedly, much greater at present than it was either at the restoration or at the revolution. The capital, therefore, annually employed in cultivating this land, and in maintaining this labour, must likewise be much greater. In the midst of all the exactions of government, this capital has been silently and gradually accumulated by the private frugality and good conduct of individuals, by their universal, continual, and uninterrupted effort to better their own condition. It is this effort, protected by law and allowed by liberty to exert itself in the manner that is most advantageous, which has maintained the progress of England towards opulence and improvement in almost all former times, and which, it is to be hoped, will do so in all future times” (WN, II.iii.36; my italics). This argument too can be found throughout The Wealth of Nations. See, for example, WN, I.viii.44, I.x.c.14, II.i.30, II.iii.28, II.iii.31, II.v.37, III.iii.12, IV.ii.4, IV.ii.8, IV.v.b.43, IV.ix.28, and V.i.b.18. See also LJ (A), vi.145.

7 Many commentators get it wrong. Emma Rothschild, for example, describes the “invisible hand” passage in The Wealth of Nations as an “ironic joke,” failing to see the Invisible Hand Argument's centrality in Smith's analysis of human social life. See Emma Rothschild, Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment (Cambridge, MA: Harvard University Press, 2001), chap. 5. For demonstrations of the centrality of the notion, see Otteson James R., Adam Smith's Marketplace of Life (Cambridge: Cambridge University Press, 2002); Otteson James R., Adam Smith (London: Continuum, 2009); and Smith Craig, Adam Smith's Political Philosophy (London: Routledge, 2005).

8 Smith continues: “Nor is it always the worse for the society that it was no part of it [that is, his intention]. By pursuing his own interest he frequently promotes that of the society much more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the publick good” (WN, IV.ii.9). Smith repeats variants of this argument throughout WN as well. See, for example, WN, Introduction.8, II.Introduction.4, II.iii.39, IV.ii.4, IV.v.b.25, and IV.vii.c.88.

9 The Economizer Argument does not hold that people always seek to minimize the effort they expend: that would be obviously false, since there are many cases of people deliberately taking harder ways. Think, for example, of athletes in training. The argument's claim, rather, is that given their ends, people tend to seek efficient ways to achieve them.

10 In his 1793 Account of the Life and Writings of Adam Smith, LL.D., Dugald Stewart speaks of a manuscript of Smith's, now unfortunately lost, that Stewart reports as stating, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical” (EPS, IV.25).

11 Smith called his conception of justice “negative,” writing that one “may often fulfil all the rules of justice by sitting still and doing nothing” (TMS, II.ii.1.9). He claimed that justice comprised only three rules: the respect of another's person and life, the respect of another's property, and the fulfillment of one's voluntary contracts, promises, and voluntarily assumed obligations (TMS, II.ii.2.2).

12 Sunstein Cass R., Free Markets and Social Justice (New York: Oxford University Press, 1997), 2629.

13 Ibid., 28.

14 Ibid., 30. Sunstein also asserts: “The American government should compile and distribute an annual ‘quality of life’ report, including, among other things, per capita income, poverty, housing, unemployment, average weekly earnings, inflation, child mortality, longevity, subjection to violent crime, literacy, and educational attainment. The report should also specify minimum standards for such things as income, education, health, and housing and allow for comparison across regions, between men and women, and among different racial and ethnic groups” (ibid., 123). What exactly would count as “minimum standards” for such matters is just the kind of thing that Smith would claim a legislator, however wise, cannot know.

15 Thaler Richard H. and Sunstein Cass R., Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008), 46 and passim.

16 Ibid., 1–6, 103–31, and 67–68, respectively.

17 Ibid., 236, 242.

18 Ibid., 76–77.

19 For this and other examples, see ibid., 68, 72, 80, 127, 155, and 192.

20 Ibid., 5.

21 See ibid., chap. 18 and passim.

22 This claim is illustrated by the broad scope of other topics that Thaler and Sunstein discuss, including prescription drugs, environmental and energy issues, organ donation, schooling and education, health care and medical lotteries, and marriage unions and partnerships. See Nudge, chaps. 10–15.

23 Ibid., 5.

24 Ibid., 229–35.

25 Interestingly, Thaler and Sunstein recognize the problem in their discussion of a particular case, that of “nudging” people to invest their money. They write, “we do not have any way of knowing the preferences of individual participants [in retirement plans], and we also do not know what assets they may be holding outside the social security system, so it is not possible for us to say anything definitive about how good a job they did picking a portfolio [of investments]” (ibid., 149). The GMF holds that a similar lack of information obtains with respect to other areas of others' lives as well.

26 Fleischacker Samuel, A Third Concept of Liberty: Judgment and Freedom in Kant and Adam Smith (Princeton, NJ: Princeton University Press, 1999), 238–39. See also ibid., 18–19.

27 These two terms, along with “necessary goods” and “basic capabilities,” are used relatively interchangeably in the literature; I do not believe that whatever differences there may be among them affect the argument here.

28 Copp David, “Equality, Justice, and Basic Needs,” in Brock Gillian, ed., Necessary Goods: Our Responsibilities to Meet Others' Needs (New York: Rowman and Littlefield, 1998), 124. Cf. the Universal Declaration of Human Rights adopted by the United Nations General Assembly in 1948, which, in addition to the standard rights to life, liberty, and property, includes among everyone's “universal rights” such things as “a right to social security” (Article 22), “the right to … periodic holidays with pay” (Article 24), and “the right to a standard of living adequate for the health and well-being of himself and his family” (Article 25). It also declares: “Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages” (Article 26). Several other “fundamental human rights” are included; see the entire list at http://www.un.org/rights/50/decla.htm.

29 Copp, “Equality, Justice, and Basic Needs,” 124.

30 Martha Nussbaum, “Aristotelian Social Democracy,” in Brock, ed., Necessary Goods, 152–53; see also Nussbaum Martha, Frontiers of Justice: Disability, Nationality, Species Membership (Cambridge, MA: Belknap Press, 2006). Another area in which the GMF is prevalent is development economics. For a paradigm example, see Sachs Jeffrey, The End of Poverty: Economic Possibilities for Our Time (New York: Penguin, 2005); for criticism of Sachs consistent with the Smithian perspective, see Easterly William, The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good (New York: Penguin, 2006).

31 See Thaler and Sunstein, Nudge, “Introduction” and passim.

32 Ubel Peter A., Free Market Madness: Why Human Nature Is at Odds with Economics—and Why It Matters (Cambridge, MA: Harvard Business Press, 2009), 74.

33 Ibid., 74, 75, 212.

34 Ibid., 225. For the more aggressive state actions Ubel recommends, see, for example, chaps. 12 and 13.

35 Fleischacker, A Third Concept of Liberty, 238.

36 Ibid., 239.

37 Copp, “Equality, Justice, and Basic Needs,” 124.

39 Nussbaum, “Aristotelian Social Democracy,” 152.

40 Sunstein, Free Markets and Social Justice, chaps. 2 and 3. See also Sunstein Cass R., Risk and Reason (Cambridge: Cambridge University Press, 2004).

41 Thaler and Sunstein, Nudge, chap. 9.

42 Fleischacker, A Third Concept of Liberty, chaps. 4 and 5.

43 Sunstein, Free Markets and Social Justice, 21.

44 Ibid., 21, 25, 29. Compare ibid., 57–64, where Sunstein elaborates on these main categories, adding a fourth: “caste,” by which he means cases in which discrimination leads to undesirable social norms (see esp. ibid., 63).

45 Ibid., 25–26, 29.

46 Ibid., 30.

47 Fleischacker, A Third Concept of Liberty, 248–49.

48 This would be a “pure proceduralist” position. For a good discussion of the various ways one might defend democratic decision-making, along with a defense of his own plausible account, see Christiano Thomas, “The Authority of Democracy,” The Journal of Political Philosophy 12, no. 3 (September 2004): 266–90.

49 Sunstein, Free Markets and Social Justice, 138; see also chap. 5 passim. Sunstein makes four proposals for instantiating this hybrid process without taking a position on which is best; see ibid., 138–39.

50 These include recommendations about racial and other kinds of discrimination (ibid., chap. 6), free speech in the digital world (chap. 7), constitutional protections and restraints on property and ownership (chap. 8), equality (chap. 9), the environment (chap. 10), and health care (chap. 12).

51 Ibid., 145–46.

52 Rousseau Jean-Jacques, The Social Contract (1762), in Gourevitch Victor, ed., The Social Contract and Other Later Political Writings (Cambridge: Cambridge University Press, 1997). Again, Fleischacker is skeptical of the process. In discussing an argument of Quentin Skinner's, he writes that Skinner's argument “is metaphysical hocus-pocus. As long as we begin from individual wills, there is no such thing as a ‘will of the entire membership,’ at least aside from the extremely rare cases in which everyone in a society agrees exactly on what the society should do. There is no ‘it’ to have ‘its own ends’ in a society; there are merely coalitions of larger and smaller numbers of individuals who happen to agree, here and there, on things that further their various individual ends” (Fleischacker, A Third Concept of Liberty, 247).

53 Rousseau, The Social Contract, 59.

54 Ibid., 60. Rousseau's further explanation of how deliberative democracy can achieve the general will explicitly endorses a Great Mind that can guide society in the correct direction: the apparently all-seeing and all-knowing “Censor” who “maintains morals by preventing opinions from becoming corrupt, by preserving their uprightness through wise applications, sometimes even by fixing them when they are still indeterminate” (ibid., 141).

55 Surowiecki James, The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Societies, and Nations (New York: Doubleday, 2004), xixiii. A classic illustration of the “wisdom of crowds” phenomenon is Francis Galton's report about an incident at a country fair in 1906. As told by Surowiecki, there was a contest to guess the weight of an ox. Although none of the guesses was correct, it turned out that the average of all the guesses—1,197 pounds—was astonishingly close to the actual weight of 1,198 pounds. Galton concluded, “The result seems more creditable to the trustworthiness of a democratic judgment than might have been expected” (ibid., xiii).

56 Ibid., 10.

58 Heath Will C., “Hayek Revisited: Planning, Diversity, and the Vox Populi,” The Independent Review 12, no. 1 (Summer 2007), 60; italics in the original.

59 See ibid.; Johnson Norman L., “Importance of Diversity: Reconciling Natural Selection and Non-Competitive Processes,” New York Academy of Sciences, Proceedings of the 7th Annual Evolutionary Systems Conference on Closure: Emergent Organizations and Their Dynamics (May 1999), available at http://ishi.lanl.gov/Documents1.html; Hong Lu and Page Scott E., “Groups of Diverse Problem Solvers Can Outperform Groups of High-Ability Problem Solvers,” Proceedings of the National Academy of Sciences 101, no. 46 (November 16, 2004): 1638516389; and Page Scott E., The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies (Princeton, NJ: Princeton University Press, 2007). See also Sunstein Cass, Infotopia: How Many Minds Produce Knowledge (New York: Oxford University Press, 2008). Sunstein's argument in this book is quite surprising (see, for example, his second chapter, “The Surprising Failures of Deliberative Groups”) given his reliance elsewhere on “deliberative groups,” especially when such groups are composed of experts. See my discussion of Sunstein earlier in this section.

60 That this research supports the extension of market-based decision procedures is a conclusion reached by many investigators, including Heath, “Hayek Revisited”; Page, The Difference; and Shermer Michael, The Mind and the Market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics (New York: Times Books, 2008). William Easterly reaches a similar conclusion, though by somewhat different means; see his White Man's Burden, in which he distinguishes the inferior, though well-intentioned, “planners” from the superior “searchers.”

61 Thaler and Sunstein, Nudge, 5.

62 Ubel, Free Market Madness, chap. 6 and passim.

63 Caplan Bryan, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton, NJ: Princeton University Press, 2007), 10; italics in the original.

64 These are Caplan's examples; see ibid., chap. 3 and passim. Incidentally, all of Caplan's main areas of voter “bias” are regularly contested. For a recent broadside against Caplan's position on immigration, for example, see Krikorian Mark, The New Case Against Immigration: Both Legal and Illegal (New York: Sentinel HC, 2008).

65 As Caplan understands; see The Myth of the Rational Voter, chap. 8.

66 Ibid., 138, 197, 119–22.

67 I thank Richard Arneson for formulating this objection for me.

68 Hume David, “Of the Rise and Progress of the Arts and Sciences” (1741), in Miller Eugene F., ed., Essays Moral, Political, and Literary (Indianapolis, IN: Liberty Fund, 1987), 124.

69 See, for example, Veblen Thorstein, The Theory of the Leisure Class: An Economic Study of Institutions (1899; New York: Oxford University Press, 2008); and Kahneman Daniel and Tversky Amos, eds., Choices, Values, and Frames (Cambridge: Cambridge University Press, 2000). Peter Ubel makes use of Kahneman and Tversky's work to criticize supporters of free markets; see Ubel, Free Market Madness, chaps. 1 and 3.

70 For an essay that argues for this conclusion, see Buchanan James M. and Vanberg Viktor J., “The Market as a Creative Process,” Economics and Philosophy 7, no. 2 (1991): 167–86.

71 The failed Biosphere experiments are cases in point. See “Paradise Lost: Biosphere Retooled as Atmospheric Nightmare,” New York Times, November 19, 1996 (available online at http://query.nytimes.com/gst/fullpage.html?res=9C0CE2D9133AF93AA25752C1A960958260); and “Columbia University Ends Its Association with Biosphere 2,” New York Times, September 9, 2003 (available online at http://query.nytimes.com/gst/fullpage.html?res=9C02E7D6173BF93AA3575AC0A9659C8B63).

72 Wilson E. O., Consilience: The Unity of Knowledge (New York: Vintage, 1999).

73 Ibid., 93, 94.

74 For an overview, see Camerer Colin F., “Using Neuroeconomics to Make Economic Predictions,” Economic Journal 117 (March 2007): C26C42.

75 Schumpeter Joseph A., Capitalism, Socialism, and Democracy (1942; New York: Harper and Row, 1975), 198.

76 See LRBL, 203–26. For a discussion of Smith's essay on language, see Otteson James R., “Adam Smith's First Market: The Development of Language,” History of Philosophy Quarterly 19, no. 1 (January 2002): 6586.

77 For discussion, see Otteson, Adam Smith's Marketplace of Life, chaps. 1 and 2.

78 Smith, Lectures on Jurisprudence, 459. All italics in the quotations from LJ are mine. Note that the Lectures on Jurisprudence are students' notes of Smith's lectures, not Smith's own notes.

79 There are additional references to impartial or indifferent spectators in LJ. See, for example, LJ, 17, 19, 32, 87, and 104.

80 By way of contrast, a recent treatment that attempts to establish universal principles on the basis of intuition and a priori analysis is Murphy Liam and Nagel Thomas, The Myth of Ownership: Taxes and Justice (New York: Oxford University Press, 2002).

81 For a description of this process, see Otteson, Adam Smith's Marketplace of Life, chaps. 1–3. See also Craig Smith, Adam Smith's Political Philosophy, chaps. 3 and 7.

I would like to thank Harry Dolan, Kyle Erickson, Max Hocutt, Chani Kovacs, Mark LeBar, Fred Miller, Ellen Frankel Paul, David C. Rose, the other contributors to this volume, and the participants at a workshop hosted by Loren Lomasky at the University of Virginia for comments on earlier, substantially different drafts of this essay. Remaining errors are mine.

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