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What’s so Right about Adam Smith?


his endorsement of the latter as opposed to the former see PhiLosophy of
Right, para.67, and also my discussion in the earlier noted article in
Radical, PhiLosophy 26.

Phenomeno Logy, para. 196 .

This is clearer in the discussion in the EnayaZopaedia: BegeL’s PhiLosophy

What’ 5


of Mind, trans. lVallace and Findlay (Oxford, 1971), paras.433-3S.

EncycLopaedia, para.43S Zusatz. Norman’s discussion is good on the
necessity to avoid a ‘happy~endinR’ interpretation of the slave’s mode of
self-realization and to move the dialectic forward (BegeZ’s PhenomenoLogy,
pp.SS-60) .



about Adam Smith?

Noel Parker

One of Milton Friedman’s colleagues in Chicago
(George Stigler) said at a conference in Glasgow in
1976 to celebrate the 200th anniversary of the publication of The Wealth of Nations: ‘I bring you greetings from Adam Smith, who is alive and well and
living in Chicago’ [1]. Thus the Right, ‘New’ and
invigorated, claims proprietorial rights over the
heritage of Adam Smith. Rumour has it for example
that Sir Keith Joseph, on going to the Ministry for
Industry, gave civil servants a reading list of
monetarist texts plus The Wealth of Nations. Again,
Milton Friedman’s television series ‘Free to Choose’,
which was broadcast in 1980 in the US and in Britain,
and likewise the book that went with the series,
began by proclaiming that America was the incarnation
of two sets of ideas: those of Jefferson and those of
Smith, and later credited the great ages of Britain
and the US to the realisation of the true principles
of Smith (35) [2]. Yet this heritage is not everything the Right would have us believe.

By simplifying him, the New Right claims to
derive its broad political attitudes from Smith. If
their descent from Smith is granted, the Right has
two assets that make a powerful ideological weapon:

simplicity combined with authority. But recent academic work on Smith reveals, in my view, how, as
against the pseudo-Smithian simplicities of the Right,
Smith belongs to a progressive tradition in which the
thinking of the Left has a natural home. This essay
is designed to undermine the force that the New Right
derives from a parody of Smith’s thought and the
development of European thought in general, and some
conceptual sleight of hand they perform in the

There are two themes that the Right sees in Smith’s
work. First, they see in it a classic account of the
effectiveness of the market, as a means by which selfinterested actions on the part of individuals allocate resources for maximum productivity and optimum


distribution of wealth. Secondly, they find in it a
scepticism about the outcome of social action in
achieving its original goals. These two themes
complement each other beautifully; if action is always ineffective we do not need to worry because the
market will do a perfectly good job anyway. The Left
is wrong-footed by the combination of these themes.

It appears to oppose – hopelessly, romantically or
viciously – a tide of self-interest which, since the
advent of the market, has in any case become benign.

You will notice that these two themes should have
altogether different logical statuses – one is an
analysis of a particular social reality, whereas the
other is a cautionary principle to guide action or
the investigation of social reality in general. The
second is, then, much more likely to be valid at any
time. As we shall see, the trick of the Right is to
treat both as timelessly valid, in part by uniting
them and transposing to the first the better claim of
the second to be atemporal.

Smith does put forward these two positions, but
not as one, and not on their own. Smith’s approach
is essentially historical, and his findings cannot be
separated from the historical dimension of his description of them. If these themes of the Right are
put back into that dimension, the story of the benign
working of Smith’s model would have to be re-examined
for any given historical period, and political movements would be free to adapt to new historical
circumstances with some hope (not, of course, certainty) of success. Smith, and the Left, then show up as
the realists, and the New Right position as pseudoSmithian, a vicious circle of idealism and scepticism.

I shall first draw together the general lessons of
Smith’s approach in his work, which do not, in my
view, favour the Right at all. Then I will explore
the New Right position and its use of Smith more
thoroughly. Finally, I shall comment on some philosophical distinctions which are confused to shore up

the New Right’s position.

Smith’s Historical Perspective
Let us look a little closer at Smith’s work itself
[3]. It is clear that Smith does say most of the
things about the market for which the Right praises
him. The argument of Books 1 and 2 of The WeaZth of
Nations is that the prosperity of humankind depends
upon the productive use of people’s labour, which is
chiefly enhanced by the specialisation of different
producers in the division of labour. Specialist
production is only possible to any degree, however,
where the different goods and services can be transferred from the various specialist producers to the
various consumers, and where someone can advance the
means of production and survival to those, the majority, practising specialised work without money to
supply themselves with these things. Both these
functions are made possible by the market, which
optimises the specialised work so that it is devoted
efficiently to goods and services which are effectively sought. In particular, price movements
encourage those whose placing of capital puts others
to work to direct it to the production of those goods
and services most in demand of which the greatest
amount can be produced for a given outlay of capital.

In what Smith terms an ‘improved society’, therefore,
efficient and valuable use of specialised labour is
the result of the quantity of capital, that is wealth
which puts people to work, and its prudent placing in
pursuit of profitable sales on the market.

But when Smith says these things about the market
for which the Right praises him, it is with an acute
awareness of its relation to the social and historical
environment. First there is the socialisation of
agents in the market. Smith gives a crucial place to
the division of social classes implied by his analysis
of the market. Much of Book 1 is concerned with
fluctuations of price, and in particular the size and
relative proportions of its three elements: wages,
profit and rent. The conclusion of the last chapter
of Book 1 relates these elements to ‘the three great,
original and constituent orders of every civilised
[i.e. improved] society’ (WN 1.276; Lxi. p.7) [4].

Meek has noted [5] that this new version of the basic
class structure marks Smith out from all his predecessors, and led him to a number of adverse comments
upon the social classes in question, particularly the
merchant class – as he called it. Yet if one
examines the overall drift of the second book it is
easy to see why Smith has to move up, as it were,
into social gear and leave any entirely abstract
market model behind before he goes on. Book 2 covers
the v’i tal question of the overall size of a society’s
capital stock. The rate of accumulation of stock
depends crucially upon the social character of the
accumulators of stock (i.e. the merchant class). The
first two chapters of Book 2 present respectively
definitions of the different parts of this stock and
a lengthy argument (presumably directed against
Smith’s usual target, mercantilism) to show that gold
and silver money in itself is not to be counted as
part of the value of stock . . Chapter 3 then gives us
the real mechanism behind the rate of accumulation.

Some orders employ labour ‘productively’, i.e. in a
way that produces greater value/stock than was used
to put it to work, and others ‘unproductively’.

Where, in fact, labour produces return on capital,
this return is always put to the further employment
of productive labour (Vm I 356; I.iii. 11-12).

l’lhere, on the other hand, labour produces rent or
public revenue, or (sometimes) profit over and above
the return on capital, it may be put to productive
or unproductive use, and is very often put to the
latter. l~at ensures, then, that the recipients of
return on capital put it to productive use? Accord-

ing to Smith it is the ‘parsimony’ natural to those
who manage capital:

Capitals are increased by parsimony, and
diminished by prodigality and misconduct ….

Parsimony and not industry is the immediate
cause of the increase of capital …. Parsimony, by increasing the fund which is destined
for the maintenance of productive hands, tends
to increase the number of those hands whose
labour adds to the value of the subject upon
which it is bestowed … it puts into motion
an additional quantity of industry, which
gives additional value to the annual produce.

(WN I 358-g; II.iii. 14-17) [6]
Let us consider secondly an example of the socialisation by the market of those who operate in it and
its effects on other aspects of social life. The
passage dividing society into three orders is
followed immediately by an argument (WN I 276-78;
I.i.p.8-l0) for the distribution of political power
on the grounds that their activity within the market~
makes the different orders more or less fit for
political responsibility. Smith’s preference goes
to the landowners (more or less the actual situation
up to 1832). Having spent much of the chapter showing how any increase in the value of rents, in real
or in cash terms, must be the result of a prior
improvement of the wealth of society as a whole,
Smith claims that the landowners’ interest is directly
linked to that of society as a whole. He allows that
the indolence inherent in their position ‘renders
them too often not only ignorant but incapable of that
application of mind which is necessary …. ‘, but he
argues that the other order whose interest is dependent on the general level of prosperity, that of the
labourer, suffers the contrary disadvantage of too
little leisure. Worst of all politically is the
merchant class, whose acute grasp of their individual
interests will always encourage them to misuse public
influence for private gain.

Smith’s recognition of these aspects of the social
environment are not just departures from a view of
the market which in general divorced it from other
social practices – moments where Smith has to depart
from an otherwise self-contained analysis of the
market. For Smith saw the behaviour of men in the
market as a sub-set of their behaviour in social relations in general. For in relying on the parsimony or
in producing the narrow self-interestedness of the
merchant class, the market obeys a very general rule
of social life, according to which we assess our
actions via the view others take of them. This socialising attitude to our actions is at the heart of
Smith’s general theory of social life and moral
responsibility in his Theory of MoraZ Sentiments.

There he builds upon the idea that we experience the
emotions of others by sympathy and prefer those
attitudes with which others sympathise to those with
which they do not sympathise. One effect of this
preference for that which others sympathise with is
the pursuit of worldly success itself, because our
fellows can sympathise with us more in happiness than
in sorrow. In consequence, the distinction between
the different ranks of men arises, and distinct objectives come to be deemed proper to each rank and
hence pursued by and sympathised with in the members
of the different ranks .(TMS I.iii) [7]. Parsimony is
thus a proper attitude on the part of the merchant,
while munificence befits the aristocrat. It would
not be too much to say that the effects of sympathy
underpin the market society as a whole, even though
much of it can be explained without reference to
sympathy. For one thing, it is the socially inspired
pursuit of worldly success that in the beginning gets
underway the pursuit of material prosperity – which
Smith in stoical moments regards as worthless in
itself. Secondly, self-interest is one of the quali-


ties in character which come to be valued by others in
use, and hence by us in ourselves, via the workings of
sympathy. According to Smith’s account, moral sensibility develops by a two-fold sympathy with the
motives of actions and with the feelings of those
affected by them, through which we arrive at general
principles of good conduct (with, of course, some
variations for various ranks). One of those principles is a proper measure of ‘regard to our own
private happiness and interest’ shown in ‘habits of
economy, industry, discretion, attention and application of thought’ which are ‘apprehended to be very
praise-worthy qualities’ (TMS VILii,3.16). From a
certain point of view the whole of The ~ealth of
Nations could be seen as an essay on the merit of
self-interest, beginning as it does with the assertion that our numerous needs must be largely satisfied by appealing to the self-interest of others in
exchanges, and showing a variety of agreeable consequences of their pursuing their self-interest.

In addition, Smith’s theory of historical evolution
embraces his account of the social determinants of
action. For Smith took over from Turgot one of the
general models of the stages of society’s development
which were under discussion in the late eighteenth
century as a way of understanding historical development to date. According to Smith, there is a normal
sequence of social development: first hunting, then
pasturage, then arable farming and finally commerce.

He introduces this sequence at the very start of his
Leatupes on JupispPUdenae (LJ(A) 27) [9] because in
his view the various laws and institutions which are
his subject are the product of their historical context, and, as he puts it, ‘it is easy to see that
in the severall ages of society, the laws and regulations with regard to property must be very different’

(LJ(A) 32-33).

Smith can see, then, what the Right cannot: that
the market society of his model is a stage of historical development – the latest to his knowledge – with
institutions and attitudes that develop with it to
form a successfully functioning whole. It cannot be
viewed in isolation from those institutions and
attitudes, and its rise must be accounted for. Moreover, Smith does not suppose that his four-stage
model of historical development is going to apply
necessarily in all cases. He considers departures
from his pattern, and were he writing today he would
certainly have considered the evolution of the various social formations known to us, including Western
capitalist society itself – perhaps, who knows, even
re-writing the four basic stages or adding others to
fit the facts. Take as an example of his historical
flexibility his attempt in Chapters 2-4 of Book 3 of
The Wealth of Nations to account for the abnormal
development of European society itself, where th~
‘natural order of things’ has been ‘entirely inverted’

since the fall of Rome (WN I 405-06; IILi.9).

Whereas the growth of the capital in agriculture
should, in his view, normally spill over to the
establishment of towns and commerce, the insecurity
occasioned by the destruction of law and order led
in Europe to estates becoming political as well as
commercial institutions generating the unnatural law
of primogeniture in inheritance (NN I 407-08; IILii.

1-3) and sustaining a baronian class. The motor for
extending commerce in Europe was therefore the import
of foreign luxuries which silently broke the great
proprietors’ source of political power, their retainers, by syphoning off their surplus into the purchase
of luxury. Even Smith’s famous stipulation of ‘the
simple system of natural liberty’, which may exist
where ‘systems of preference or of restraint’ are
taken away and ‘each man is left free to pursue his
own interest in his own way’ subject only to ‘the
laws of justice’, is intended to be understood as a
product of such complex historical processes, which


Smith uses to account for all the minute changes in
law in his Leatupes.

The Adulation of the Market on the Right
Now that we have seen the historical nature of
Smith’s accounts of society, let us see how the Right
idealises Smith’s market. Given the fact that the
USA itself is supposed to be one-half of the living
embodiment of Adam Smith’s ideas, it is not surprising that Friedman feels the very mention of his name
will sanctify a triviality. Wage negotiation outside
the Unions becomes (229), for example, ”’The higgling
and bargaining of the market place” – as Smith termed
it’. Deception in claims to altruism by p o l i t i c a l ,
agents becomes ‘an invisible hand in politics that

operates in precisely the opposite direction to Adam
Smith’s invisible hand’ (292).

In fact, before surveying Friedman’s overall argument it is worth looking at’his and Smith’s use of
that classic phrase ‘invisible hand’. For the way
that Friedman uses it is unwittingly different from
that of Smith himself, and that difference illustrates perfectly the way that Friedman has universalised Smith’s conception of historically specific selfinterest. The phrase itself gets hard use from
Friedman as a portmanteau term for the unintended
blessings produced for us all by the actions of
individuals pursuing their self-interest wherever
circumstances that resemble the market can be established. However, this is not really how Smith used
it. For him (as I have already argued), selfinterested action within a market was only one case
of action with unintended beneficial consequences though a very important one. l~ereas he accepted
that self-interested individuals in a properly
functioning market do indeed increase overall wealth
without intending to, Smith actually used the phrase
‘invisible hand’ for various circumstances where he
can show by specific argument that good results arise
regardless of the agents’ intentions ~ somo of which
might surprise Friedman.

The first use Smith ever made of it, for example,
in an early essay on the history of astronomy, makes
clear the ambivalence of any notion of a hidden power.

Smith is discussing the social conditions that give
rise to speculative science in general. Prior to
the security and plenty of civilised society, he
argues, we have little curiosity about the ‘hidden
chains of events’ that underlie the normal order of

Instead we see an ‘invisible and designing
power’ similar to our own wills behind those departures from the normal order that are of most concern
to us. It appears, then, that uncivilised peoples
make two mistakes: they invent too anthropomorphic a
kind of hidden process; and they apply it to the
wrong things, never supposing, for example, that ‘the
invisible hand of Jupiter’ is ’employed’ in the normal order of nature [10]. While an order not evident
to the unthinking observer is for Smith tl.e goal of
science, there is evidently a great danger of misapplying such a notion. Nonetheless, in the Theopy
of Mopal Sentiments Smith feels justified in identifying an invisible hand which, against their wills,
forces acts of redistributive charity upon those who
make themselves rich in the general development of
the world’s resources because it is impossible for
them to consume all their wealth single-handed [11].

The invisible hand is a deceptive notion, then, and
not by any means unique to the market.

Smith uses the term once again in The Wealth of
Nations (I, 477; IV.ii.9), and Friedman quotes this
passage in part a number of times. Smith is arguing
that import restrictions divert capital from one
productive use to another, usually less productive
one (the protected industry), but cannot increase the
amount of capital in use in the domestic economy as


a whole. The ‘invisible hand’ leads each individual,
then, ‘to promote an end which was no part of his
intention’, namely the two goals which a policy of
import restrictions might have aimed at in the first
place: the optimum and maximum use of capital. True
to his caution and his historical approach, Smith
brings forward specific grounds for postulating each
of these outcomes. Optimisation arises from the
pursuit of profitability in placing capital, of
course. Maximisation arises from the greater security of capital placed nearer home. The fact that
Smith offers specific grounds for each act of ‘the
invisible hand’ here in itself shows how he saw it
working in specific and variable historical circumstances which could change with the course of time.

But the case for maximisation is especially interesting because it would clearly not apply today, where
the largest portion of capital is allocated by transnational companies who have no ‘home’ in Smith’s
sense; pursuing Smith’s historical method properly
would in this century lead to a different argument.

The fact that, with the change of historical circumstances, the hidden hand can loosen its grasp – which
Smith would, from the presentation of his argument in
the famous passage, clearly be willing to recognise shows how the benign result of the ‘invisible hand’

can even vary according to the circumstances in the

The invisible hand does not refer, then, to the
unique and universal beneficial effects of the market.

Rather, it expresses something else: Smith’s very
proper scientific awareness that the order of things
is not immediately obvious and that in social life
people’s actions have consequences they do not intend
(what I referred to earlier as his scepticism about
the outcome of social action in relation to its
original goals) together with his optimism about some
of these consequences when it comes to ‘improved’

societies in particular where self-interested action
is involved. It is easy to think of your own examples
of good unintended consequences of self-interest,
depending upon what you are optimistic about. Try
‘Professor Milton Friedman, while pursuing the wealth
and prestige of a leading economist, Presidential
adviser and Nobel Laureate, restored the USA to her
former glory and made the world safe for democracy.’

Or alternatively there is ‘The working class, while
pursuing an improvement in its own welfare and security, destroyed class differences between people and
laid a new basis for social cohesion’ [12]. Clearly,

either of these could be a case of a benign invisible
hand, but to follow Smith each would have to be demonstrated by an analysis of the specific historical
circumstances where the self-interested actions are

But this is precisely what Friedman’s argument
does not give us. He opens (Introduction and Chapter
1) by reiterating Smith’s claim for the unintended
beneficial effects in the market. He sets out (13-24)
the function of the price mechanism in allocating
resources and distributing income as described by
Smith (‘the existence of the modern corporation does
not alter matters’! [20]). He then appears to take a
broader view, by referring to a range of institutions
(language, knowledge, moral and political conventions)
established by voluntary co-operation (25-27). But
this acknowledgement has no impact upon Friedman’s
argument. Indeed, were he to allow it to, it would
undermine his whole drift – as I shall argue in my
last section. Instead, he re-states (28-33) the three
duties that Smith deduced for government in societies
at the stage of development he observed (i.e. defence,
justice and public works, and institutions beyond the
scope of private interest) (11 208;, and
asserts that ‘even on the loosest interpretation, they
rule out much existing government legislation’. He
then, in the body of his book, runs through a number
of cases where state action has produced undesirable
results (or so he claims – much of this is unsubstantiated rightist rumour – ‘Hardly anyone maintains that
our schools are giving the children the tools they
need to meet the problems of life’ (151)). Finding
state action wanting in its results, he proposes that
we re-institute the old and tried alternative: Smith’s
market and the level of sta·te activity envisaged by

Let us take three examples. Friedman’s argument
about the welfare state (Chapter 4) lists the ‘failures’ of the welfare state in a number of countries:

social security payments resented by the contributors;
housing estates that become ghettoes; public medicine
unable to extend its services. Then he exposes the
‘fallacy of the welfare state’ in a neat little table
that shows the difference between the deployment of
money in the welfare state and in the (Smithian) market: the money doesn’t belong to the people who are
spending it! Magic. No serious analysis of bureaucratic structure or of the character of the state in a
modern society [13]. What is wrong with the welfare
state is that it is not like the ideal market. (Is


the market?)
Or there is Friedman’s chapter on the great
Depression. This appears to be a technical argument
about the effect of specific state financial mechanisms on money supply and inflation. But the technical
argument alone cannot prove what Friedman claims we
‘now know’; namely, ‘that the Depression was not
produced by a failure of private enterprise, but
rather bya failure of government’ (71), to wit to
control the money supply. This conclusion is needed,
of course, to exonerate the market. Yet it cannot be
sustained by the technical arguments alone, which
only show the consequences of certain specific state
mechanisms operating within a specific conjuncture.

A reversion to the Smithian market is hardly the
only alternative on the basis of such an analysis.

So Friedman begins his chapter with the conclusion
I have just quoted. He ends, rather more meekly it
must be granted, with a much weaker claim that ‘wonetary collapse was both a cause and an effect of the
economic collapse’ (my emphasis), that is consistent
with his analysis but inconsistent with his opening

Again, there is Friedman’s plan for education
(Chapter 2), where he recommends that the market
relationship should be instituted between parents of
students and schools or colleges. In such a system,
says Friedman, the social benefit of education would
arise from the individual’s self-interested pursuit
of greater employability – ‘Adam Smith’s invisible
hand’ (What else?) would make the student’s private
interest serve the social interest (179). Now the
curious thing about this is that Smith, on the basis
of an analysis of economic evolution, specifically
discounted individual private interest as a sufficient incentive for the level of education required
for the public interest. Smith does believe that
education in all socially useful spheres would be
bought by the wealthy sections of the populace (11,
298; V.i.f.43), and that education would be provided
better under such a system (in which, indeed, he
worked) (11 282-302; V.i.f.1-50). But as a general
principle he states that:

In some cases the state of the society
necessarily places the greater part of
individuals in such situations as naturally
form in them … almost all the abilities
and virtues which that state requires. In
other cases the state of society does not
place the greater part of individuals in
such situations and some attention of
government is necessary ….

(11 302; V.i.f.49)
In particular, he has in mind the masses, for he
holds that the division of labour engenders dullwittedness and ignorance liable to foster disruptive
attitudes and beliefs. Against these evils the state
must act on behalf of the public interest (11 304-09;
V.i.f.52-6l) [14]. To follow Smith’s approach fully,
Friedman would have to consider how the ‘rewards’ of
education are perceived by those in different social
positions in a class-divided society at a certain
historical stage (or, in other words, how the market
fits into social life), and be open about the social
benefits of education. It is a token of how profoundly Friedman has misunderstood Smith’s argument
while universa1ising its conclusions that in the
case of education he can come so blithely to a view
at odds with Smith’s own.

Anti-Rationalism on the Right
Though less well known to the public than Friedman,
F.A. Hayek is certainly a more influential and
subtler figure on the Right. He links two generations of conservative economists and political and
legal theorists. He first occupied a chair at LSE


in 1931, and was in Chicago during the 19505.

Unlike Friedman, he appears to grasp Smith’s innovation in the method of investigating social reality
and to draw from it legitimate general conclusions
about social action regardless of historical circumstances. However, this general conclusion is in
fact unfounded, as we can see from two points:

Hayek’s case against rational control over the
development of society, which he couches in terms
that give a unique (and in my view quite unsubstantiated) position to capitalist market society; and his
view of the development of European thought, which
places Smith at a crucial turning point.

In his The Constitution of Liberty [15], written
to re-state ‘the basic principles on which modern
Western civilisation was built’ over two centuries
ago, Hayek attributes to Smith (and a number of other
Scottish Enlightenment figures such 2.S Hume and
Adam Ferguson) [16] a fundamental ‘anti-rationalist’

insight into the workings of society which:

… enabled them for the first time to
comprehend how institutions and morals,
language and law, have evolved by a process
of cumulative growth and that it is only
within this framework that human reason has
grown and can successfully operate. Their
argument is directed against the Cartesian
conception of an independently and antecedently existing human reason that invented
these institutions …. (57)
What Hayek then does is to equate that belief in a
prior, rational foundation for law (usually a contract, of course) with the much wider belief in the
possibility of any conscious, designed improvement,
reform or transformation of society, which Michael
Oakeshott called ‘rationalism’ [17]. In due course,
Hayek began to use a different term for this attitude
‘constructivism’ or sometimes ‘constructivist rationalism’ – but he still attributed to Smith the
discovery that it is faulty and saw opposition to it
as a unique and essential advance maaeby liberal,
Western society.

Hayek’s Law, Liberty and Legislation [18] is an
analysis from first principles of the liberal constitutionalism which he had claimed to be reviving in
The Constitution of Liberty, together with an account
of wha.t those principles imply for the modern Western
world – ‘what those founders … would do today if
… they could command all the experience we have
gained in the meantime’ [19] (1-2). In brief, what
this amounts to is that the pursuit of social justice,
which is habitually espoused by representative
democracy unrestrained by law, inevitably tends to
totalitarianism because it clashes with the ‘spontane.

ous’ character of society which Smith and his fellows

In the first volume of Law, Liberty and
Legislation, Hayek develOps the fundamental distinction of ‘spontaneous orders’ and ‘organisations’,
from which, in his view, there follows a general conclusion: law has a special place, and political
action (via the law) is limited to certain paths.

Once again, Smith and his fellows are cited as the
first to understand these orders. During the
eighteenth century thinkers became more and more
aware of regular patterns in human relations that
had not been the conscious aims of anyone involved.

Adam Smith et al. began a systematic social theory
to explain these patterns, though the implication
of their work – that there are limits to what human
reason can make of society – was partly eclipsed by
the return of constructivism with Bentham (22-34).

The ‘invisible hand’ is then Smith’s~way of referring
to the fact that spontaneous orders arise without
anyone intending them (37). What distinguishes spontaneous orders (Chapter 2) is that, since they arise
without any particular intelligence first conceiving

them, they can be more complex than any particular
intelligence may grasp. They can be understood
abstractly, however, that is to say by mentally
constructing abstract elements (both human individuals and organised groups) defined by some only of
the qualities of real elements, which maintain relations within corresponding and often unconscious
abstract rules. But this level of understanding does
not allow us to anticipate the exact disposition of
individual elements within the spontaneous order [20],
or make possible the degree of power over particular
elements that we have for the simpler, deliberately
designed mechanisms, or ‘organisations’.

The special character of law is, for Hayek (Ch.9),
that it continually asserts or even improves upon
the rules followed by the elements already relating
in a spontaneous order. Like the original rules of
the spontaneous order, the law cannot determine the
exact behaviour of individual elements. Law for
spontaneous orders has, then, to be general. What
the law does is to enable the elements (individuals
or groups) – which we could in principle show maintaining relations that go to make up the spontaneous
order, of course – to act with some certainty in a
context that lives up to their expectations. But,
naturally, it is impossible to ensure that all
expectations are realised. A choice must be made.

Hayek claims that the law can maximise the expectations it ensures.

And the only method yet discovered of
defining a range of expectations which
will be thus protected, and thereby reducing
the mutual interference of people’s actions
with each others’ intentions, is to demarcate for every individual a range of permitted
actions by designating •.. ranges of objects
over which only particular individuals are
allowed to dispose and from the control of
which others are excluded.


In other words, the central aim of law must be to preserve property, understood in a very broad sense as
a sphere of individual freedom of action, because
that maximises the realisation of the expectations
of individual elements fulfilling the function of the
rules inherent in spontaneous orders. For the law to
do otherwise, or for some principles unlike those
of the law thus understood to predominate in the
organisation of society, is to work against the grain
of the spontaneous order, and set aside the revolutionary scientific insight of Smith and the rest two
hundred years ago.

But does this conclusion about the possible content and status of law follow from the scientific
principle that societies’ development and survival is
not necessarily or perhaps ever the intended result
of human action? For there to be any observable
regularity in spontaneous orders, there must indeed
be regularities or implied rules in the ways the
elements relate regardless of their intentions.

Since these orders are complex and exist prior to
and independently of the effort of understanding
them, the implied rules we can extrapolate and upon
which, we might say, the order rests, must be general,
Insofar as these rules are deeply embedded in the
majority of social orders, then, it would be unscientific to suppose either the continuance or
change of any social order without some rules of
this type. And since these rules are experienced
by individual, unwitting elements of a spontaneous
order as expectations about the outcome of their
actions, following the rules normally ensures that
expectations are realised .. There must be general
rules, then. But what rules? That surely depends
upon the nature of the spontaneous order in question
and the way it is developing. Hayek’s statement of
the optimal aim of rules is attractive. If rules

appropriate to the spontaneous order in question
maximise the realisation of expectations and the
scope of individual freedom that would be a happy
coincidence of scientific and libertarian principles.

Under what circumstances, then, do the appropriate
rules ensure property in Hayek’s sense? Under what
circumstances are the appropriate rules what he calls
‘law’? The answer is, of course, that the appropriate rules are ‘law’ where the elements of the spontaneous order relate principally by exchanging as
equal, independent parties in a market as described
by Smith. For each element in this set-up has within
its own private sphere of free action objects which
it could enjoy, and relates to other elements largely
when exchanging its object for others’ for its own
benefit and that of its trading partner. If Smith’s
abstraction of relations in the spontaneous social
order that he considered were to be inadequate for
the society we have to operate within, the range of
rules consistent with that society’s ‘spontaneity’

could perfectly well be different.

Hayek’s attitude to the rules which are characteristically proposed in modern societies [21] (one is
tempted to say that demands for them arise ‘spontaneously’) shows that he has not complied with the need
for an adequate account of relations in the given
spontaneous order before setting out the rules
appropriate to it. He tries (141-42) to delimit the
proper range of ‘social’ legislation, compatible with
the character of law as he has described it. Social
legislation may be compatible with ‘law’ if it confines itself to transferring assets from some members
of society defined in general terms, to others also
defined in general terms. But if it seeks to direct
particular private activity towards particular ends,
then it is attempting to direct individual elements
in the spontaneous order of society, and it is necessarily overstepping the general character of those
rules we can extrapolate from spontaneous orders – in
Hayek’s terms trying to make them into “organisations’

in which the legislators can realise any conscious
design whatsoever. This argument encounters two
difficulties. The first is that of showing that
rules with social goals are not part of the evolving
spontaneous order. It could easily be the case, for
example, that just as the spontaneous growth of the
market generated the rules of property, which Hayek
generalises and identifies with law, so the evolution
of the market (industrialisation, urbanisation, advanced technology, the development of new social
classes) generated new rules – overlaid on the others
perhaps – presupposed in the relations of unwitting
elements in the spontaneous order, rules about standards of accommodation, individual mobility, the usefulness of skills learnt in early life, or the scope
of political action needed in the economic sphere.

Spontaneous rules like that couZd perfectly well
govern the relations in modern capitalist societies,
and if so, ‘social’ legislation could quite properly
affirm them. The second difficulty is that of
deciding what is a general rule and what is not.

Hayek’s exemplary general rules cover individuals in
society possessing property in a broad sense, since
that was, according to the Smithian model of society,
a very general feature of individuals in society.

Change your model, or your society, and the features
that appear most general can also change. Suppose a
society of an advanced, capitalist technological production, for example. The most general feature of
individuals in such a society might be that they
acquired in youth certain know-how and an ability to
acquire more which they contributed to massive, relatively autonomous productive complexes in return for
their means of livelihood. The general rules of such
a social order might concern the acquisition of knowhow and the provision for those too young or too old
to contribute to the productive process [22].


I am not, of course, asserting without further ado
that any of the above examples actually is a sound
basis for overt, general rules consistent with a
sci~ntific grasp of the nature of the present social
ord-er. My point is that the anti-rationalism of the
Right is based not solely upon the scientifically
proper realisation that society can run on lines outside the conscious grasp of individual members, but
also upon the assumption, unsupported by proper
investigation, that the general lines of the social
order are ineluctably those of the Smithan market.

Hence, for the New Right only those general rules
which are consistent with that particular sort of
social order are compatible with a scientific grasp
of any social order at all.

There is an earlier version of Hayek’s argument
for the necessary generality of law, which rather
resembles Mill in On Liberty (Constitution of Liberty,
pp.37-42). According to this, individuals have to
be left a sphere of free action because they will
necessarily possess knowledge beyond that which could
inform any political action by the state. If this
sphere is eradicated, the argument runs, then the
individuals’ knowledge would be lost to them and
society as a whole. The weakness of this argument,
which I will return to in the context of discussion
about conscious action in my last section, is that it
is not at all obvious that the generality of law as
recommended by Hayek is necessary or sufficient to
preserve the sphere of free action sought.

The History of European Thought According to
the Right
The Right, then, draws from Smith two connected
themes: the special character of the market and the
role of the unintentional in social action. I have
tried to show that these themes in Smith do not by
any means lead directly to the New Right’s political
postures, unless they are wrung from the historically
complex whole in which Smith applied them. But the
New Right presents them as equally unique and more or
less timelessly valid discoveries for our Western
society. Because they have almost equal status, they
are moreover easily run together. Let us look at the
strength and coherence acquired by the New Right if
it is permitted to weave together these two apparently timeless themes.

A short polemical example is available in Hayek’s
~ily Telegraph article tAdam Smith and the Open
Society’, commemorating the 200th anniversary of The
Wealth of Nations in 1976. Smith’s great achievement,
says Hayek, was to recognise in discussing the market


that men were able through ‘the abstract signals of
the prices at which things were demanded and offered
on the market’, ‘to serve the enormous field of the
Great Society which no human knowledge and wisdom can
ever be sufficient to survey’. The market appears,
on this account, to be an unsurpassable central phenomenon in our Western society and the unique object of
our recognition of the role of the unintentional in
social arrangements. Opposition to the working O f ,I”
the market can only be sustained, it then appears, by
a romantic urge to revert to a type of society and an

intellectual’s dream of control which are, since

Smith, gone forever. On the one hand, an atavism
still survives, says Hayek, ‘a deeply ingrained

instinct’ for earlier ‘face-to-face’ society ‘that a
man should aim at doing a visible good. to’ his known
fellows’, which ‘still under the name of “social
justice” governs all socialist demands’. On the
other hand, Smith’s intellectual target, ‘the man of
system’ who ‘seems to imagine that he can arrange the
different members of society with as much ease as the
hand arranges different pieces upon a chess board’

[23], still threatens our present society in the
shape, evidently, of socialist intellectuals.

We can see from this example how the use the New
Right makes of Smith is a crucial ace in its political hand. So long as the growth of the market is a
once-and-for-all and unique fusion of individual
actions, needing no further historical or social
analysis to demonstrate its viability in future, the
Left can only be harking back to the past in the face
of our common experience and our common sense. Our
late twentieth-century malaise springs from our trying to get away from Smith’s insight and Smith’s
market, and our future can only be secured by returning to that acceptance of Smith which characterised
the great days of the West in the nineteenth century
(see Friedman pages 35 and 144). The New Right
politician is fond, indeed, of striking the pose of a
leader courageous enough to face up to the unpalatable truth that we all know. American readers who
have not yet had the pleasure of seeing how this
posture can draw confirmation of its truth from the
very disasters it occasions probably don’t have long
to wait.

Now, my argument so far as been that Smith himself
applied his two themes with historical insight. Were
we to apply the same insight today we might very
naturally come to altogether different proposals from
those of Smith. We might well conclude, for example,
that the socialisation of our modern capitalist or
the evolution of the market account for the failure
of modern production to employ the human potential of

our society; or that the historical development of
the working class has altered its potential to participate in economic and political processes; or that
the altered role of the state is an attempt to patch
up a leaky old system. In truth, it is arguments of
this sort, based upon a study of our historical conjuncture and modern social reality, whjch characterise the best efforts of the Left, and are excluded
froln the deepest assumptions of the New Right.

Compared to those it is the New Right which is
atavistic. But so long as the Right is allowed to
pull off that trick of abstracting two (intertwined)
timeless trUths from our intellectual heritage, they
can make it seem as though it is the Left that
refuses to accept present reality.

International Action, Conscious Action,
Voluntary Action
The Right’s pseudo-Smithian principles need to cloud
a number of fairly obvious distinctions which have to
be kept in view if we are to conduct a rational
politics of change. I have three such distinctions
in mind: that between the unintentional and the incomprehensible; that between conscious and centralised action; and that between voluntary and selfinterested action. Drawn out from the principles of
the Right, the nature of these distinctions again
becomes clear. I should like to close by re-stating

Smith delighted in discovering cases where agents’

behaviour produced consequences which they did not
intend, and it is a common feature of human life that
our actions do have such consequences. The antirationalism which the Right claims to derive from
Smith supposes, by contrast, that deliberate efforts
to improve society are irremediably beyond us. But
this move can only be justified if the normal relationship between our intentions and our understanding
is set aside. For the unintended consequences of our
action are more often than not those which we did not
anticipate for lack of understanding of the environment in which we acted. Indeed, ignorance is an obvious excuse for harmful unintentional consequences
of action – though it will not, of course, excuse
culpable or deliberate ignorance. The greater our
understanding, then the greater are the consequences
which we can anticipate. Smith’s own work, in advancing as it does our understanding of the social
environment and recommending a variety of political
courses of action, enables us to extend the scope
for intentional action even as it catalogues the
unintentional consequences of past action. If we
return to the passage of Smith that Hayek uses, we
find that Smith is there attacking the ‘man of
system’ not simply for believing that he could
arrange things better, but for believing that he
could override the ‘principle of motion’ of every
element in any way he wishes. The subject of the
chapter from which the passage is drawn is, in fact,
the people’s duty towards their own society. In
normal times, Smith argues (THS VI. ii. 2 .11-17), one
carries out one’s duties to one’s fellows by respecting the civil order. But in times of upheaval that
is not always the virtuous course. The ‘man of
system’ then imagines he can establish government
exactly the way he likes, while the man of true
public spirit, ‘when he cannot establish the right
… will not distain to ameliorate the wrong’.

Smith’s attitude is that which any serious student
of social life must have: that we are able to change
things but only on the basis of understanding how
they function. Indeed, we are often inspired by a
‘love of system’ (TMS IV.l.ll) to promote and preserve institutions beyond what is necessary for our
own personal benefit. In other words, Smith believes

that intentional social action can be coherent, though
it is wrong-headed where it is not guided by an understanding of the given social reality. Dialectical
materialism itself could not ask for a better rationale. This dialogue between knowledge and intentions
cannot, of course, do away with all ignorance of all
unintentional consequences of action. These remain
part of the ineluctable risks of all action – or inaction. But the anti-rationalism of the Right plays
upon our sense that we cannot know everything and
hence cannot avoid unintentional consequences in a
quite paradoxical way. For the Right argues that we
will be dogged by unintended consequences in an area
of social life which it claims to have explained to
us, namely market relations.

As an example of how the Right ignores the dialogue of understanding and intentions, take Hayek’s
case against action for social justice. It is based
on the claim that such action necessarily conflicts
with the ‘spontaneity’ of society. He ignores
altogether the pretty obvious possibility that
inquiry into society’s spontaneous elements may
reveal impulses towards social justice likely to
sustain a socialist politics, just as Smith’s
inquiry into ‘commercial society’ suggested an
impulse towards a different kind of justice which
governments should follow~
The distinction between conscious and centralised
action can also be shown from these simple points
about the dialogue of understanding and intention.

The Right distorts the attack of Smith and his
fellows upon contract theory into anti-rationalism,
an attack on any politics of social justice. They
liken the single, original contract founding society
to programmes of social goals, all of which are
presented as inherently centralist and dirigiste.

The claims made for central direction in Eastern
European versions of socialism obviously lend support
to this conflation. Centralised administration
appears on this account to be the one possible channel of conscious goals for social improvement, and
the implication that all Left politics is necessarily
centralist like that clearly weakens its appeal.

Action unintentionally producing some effect can
become conscious, however, by the mere fact of our
understanding its tendency towards that goal. It
does not have to be channelled through a distant,
organising centre. Quite undirected behaviour by
participants in the market, to take an obvious
example from the Right’s own case, can become conscious action ‘to improve the productivity of the
economy’ once they are instructed in the wonderful
workings of the price mechanism. Social activity
tending towards, say, socialist forms of co-operation
but without central direction can equally become the
conscious pursuit of these goals where the agents
come to understand that consequence of their behaviour. And on the basis of their understanding of
social arrangements they could perfectly well consciously alter or extend their activities without
central direction.

This point exposes the weakness of Hayek’s argument (referred to in my section on Anti-rationalism)
that law or political action has to be general in
order that individuals’ knowledge can be exercised.

That argument contends that a Smithian environment
of separate, individual spheres of free action is
the only one that would permit the requisite individual action. However, central political direction
does not in reality have any straightforward bearing
on whether individuals are free to put their individual knowledge into practice. Thus individuals
could be prompted by their knowledge of their particular circumstances to act in ways at odds with the
Smithian social order – or even in ways intended to
change that order. And, of course, such action on
the individuals’ part could be undertaken with or


without central direction. A fortiori, the ‘generality’ of state laws or political action mayor may
not be compatible with the individuals’ exercising
their individual knowledge. It could be based
either on assumptions about what is general in the
given social order which are compatible with the
given individual’s actio”n, or equally well upon
assumptions that constrain the given individuals
from implementing the lessons of their individual

It is commonly said on the Right that the Left
wishes to override the most basic of human impulses,
concern for self, and that this makes the Left
inherently oppressive. Unable to get used to human
nature as it is, the Left must use unlimited compulsion to try to change it. This criticism, classically stated, of course, in Popper’s Poverty of
Historicism, also implicit in Hayek’s reference to
the atavistic wish inspiring socialist politics that
men should do visible good, or in Friedman’s use of
Smith’s phrase ‘the uniform, constant and uninterrupted effort of every man to better his condition’

(pp.6 and 144) and in his talk about voluntary
institutions. ~lliat the Right tries to suggest is
that it is impossible to obtain people’s voluntary
adherence in any form of social organisation but the
market, because only in that form do agents follow
th~ir own self-interests.

It follows that to try to
go outside the market is to set one’s face against
the fundamental drive of voluntary associations,
namely the self-interest of their members.

In adopting this posture, the Right first assumes
that the market is in modern society as Smith
describes it, a theatre for the mutual satisfaction
of self-interest. Then they play upon a naive con-

fusion of this particular manifestation of selfinterest and a truistic sense of self-interest
according to which all voluntary action must be
motivated by self-interest. If the agent wants to
do it, the argument runs, he must hope to gain some
satisfaction from doing it. Self-interest in that
sense is universal, and to oppose it would be to
reject voluntary action. But is there anything to
oppose in self-interest in the truistic sense?

Smith’s friend David Hume rumbled this truism long
ago [23], arguing that this kind of self-interest
(‘self-love’ as he called it) cannot be logically
prior to the great variety of htman passions whose
satisfaction it pursues. There are, in other words,
many possible objects of self-interest, and many
forms of association which could satisfy them.

There are, to take a modern example, various objects
that individuals could pursue, in their own interest,
in voluntarily joining an egalitarian movement especially if they will probably come out at the
bottom of any inegalitarian set-up! The politics of
the Left can perfectly well, as indeed it must, cater
for the interests of the people whose co-operation it
is intended to muster.

Smith is presented by the New Right as what indeed
he is, a turning point in the development of
European Thought and a classic from which there is
something to be learnt. But by misrepresenting his
approach, simplifying both his understanding and the
history to which he belongs and on which he comments,
and abusing the simplest philosophical distinctions
regarding political action, the Right also extracts
lessons of conservatism and stagnation from a
thinker whose lessons still have a place in progressive thought and politics.


that the basic conception of the evolution of European Thought stands.

‘Rationalism and Politics’ in the book of the same name, 1947. Oakeshott,
too, straddles two generations of conservative political “theorists but his
distaste for economics has made him politically a much less appealing figure.

18 Three volumes, Routledge & Kegan Paul, London, 1973-79.

19 It can be seen from this that Hayek is not a conservative in the obvious
sense. He specifically denies being one in Constitution, pp.397-408. His
conservatism emerges in the conclusion of his argument rather than as a
first principle.

20 Hayek holds that the peculiar character of social science derives from the
fact that it is not possible to know the exact disposition of individual
elements in the social order. This view infuses much of his thought, and
has long roots in his intellectual origins (see Norman P. Barry, Hayek’s
SociaZ and Economic PhUosophy, MacMillan, London, 1979, pp.20-33). While
it does not seem pertinent to argue the point in this essay, it seems clear
to me that his view fails to appreciate the very substantial role of general
rules (and the corresponding limits of knowledge regarding individual
elements) in the natural sciences. The misconception perhaps arose in his
case via von Mises, whose ‘praxeology’ took the step of supposing that the
intentionality of human agents (which really is a characteristic problem
for social science) would only be studied by assuming that their intentions
were derivable from general, rational rules.

21 It is, of course, arguable whether Smith’s account was even adequate for his
day. To take one contestabl e point, Smith’s near-contemporary, Rousseau usually derided on the Right as an arch-rationalist and, what is worse, an
egalitarian – argued at the time that mutual interference could indeed be
minimised in a market society, but only if extreme differences of weal th,
which always led the rich to impose on the poor, were prevented by law.

He was pessimistic about the prospects of any European society realising
individual and political liberty. See also D. Forbes, ‘Sceptical Whiggism,
Conunerce and Liberty’ in Skinner and Wilson, op.cit. and D. Winch, Smith’s
PoUtics, Cambridge University Press, 1978, for further discussion of how
Smith attempted to grasp contemporary society.

22 Hayek himself recognises a version of this second problem: namely that it is
possible to construct laws which are general in the sense that they do not
name individuals but which in reality only affect a minority of the members
of society. To protect the minority attacked by this distortion of ‘general’

rules beyond their proper bounds, Hayek develops his ‘double majority rule’

(Constitution of Liberty, p .154) . But apart from the difficul ties about the
rule itself (see J.W.N. Watkins, ‘Philosophy’ in A. Seldon, Agenda for a
Free Society, London, 1961, and Barry, op.cit., pp.9l-93), this concession
still presupposes that it is clear what the most general rules for a society
are – even though the boundary between general and particular may be fuzzy.

My point is that even the most general rules cannot be determined in an
historical and social vacuum.

23 The quotation is from TMS VI. ii. 2.17 ..

24 Enquiry (Jonce1’Yling the P:r>incipZes of MoraZs, Appendix 11, Selby-Bigge
edn., pp.301-02.

Quoted in R.L. Meek, Smith Marx and After, Chapman & Hall, La.ndon, 1977.

Numbers in brackets are pages of the Secker and Warburg Edition of Free to

Choose, Milton and Rose Friedman, London, 1980.

In this section I have made extensive use of Meek, op.cit.; D.A. Reisman,
Adam Smith’s socioZogicaZ Economics, Croom Helm, London, 1976; A.S.

Skinner A System of SociaZ Science: Papers reZating to Adam Smith,
Clarendon, Oxford, 1979; A.S. Skinner and T. Wilson (eds.), Essays on Adam
Smith, Cl arendon , Oxford, 1976.

References to The WeaUh of Nations are first to the volume and page in





Edwin Cannan’s edition of 1950, and then to the book, chapter, division
(where applicable) and paragraph as indicated in the Clarendon, Oxford
edition of 1976, ed. R.H. Campbell and A.S. Skinner.

op.cit., pp.6-l2.

See also Reisman, op.cit., pp.93-lOl and 121.

References to The Theory of MoraZ Sentiment indicate part, section (where
applicable), chapter and paragraph according to the Cl arendon , Oxford
edition of 1976, ed. 0.0. Raphael and A.L. Macfie.

See Meek, op.cit., Chapter 2 and A.S. Skinner, ‘Adam Smith: an Economic
Interpretation of History’ in Skinner and lVilson (ed.), op.cit.

References to the Lectures on Jurisprudence are to pages in the first
version ‘LJ(A)’, as in the Clarendon edition, Oxford, 1978, ed. R.L. Meek,
0.0. Raphael and P.G. Stein.

‘The Principles which lead and direct Philosophical Enquiries; illustrated
by the History of Astronomy’, Ill, 1-5 in Essays on PhiZosophicaZ Subjects,
ed. W.P.D. Wightman and J.C. Bryce, Clarendon, Oxford, 1980. See also
A.L. Macfie, ‘The Invisible Hand of Jupiter’, JournaZ of the History of
Ideas, xxxii (1971), which identifies this first use of the phrase, but
accounts for its various appearances in terms of stylistic continuity.

Friedman might obj ect that this example takes the ‘action’ of a class rather
than an individual. To do so is, however, entirely in accord with Smith’s
own usage (e.g. \IN I 424; III.iii.8).

There are two apparent exceptions to this. He cites, from a study by Max
Gammon (from 1976) of the growth of the administrative structure in the
British NHS, and also Stigler’s ‘Director’s Law’, which states that public
expenditure is invariably directed to the benefit of the middle classes
(l09, 111). In fact, these references do not affect the case, for any
pursuit of t”he broad and important issue they raise is wiped out by
Friedman’s reliance on the ‘fallacy’ of the Welfare State.

See E.G. lVest, ‘Adam Smith and Alienation’ and M. Blaug, ‘The Economics of
Education in English Classical Political Economy: A Re-examination”, in
A.S. Skinner and T. I~ilson (eds.), op.cit.

Routledge and Kegan Paul, London, 1960.

Hayek realises that Vico has some claim to have the same discovery (429),
but would argue, I imagine, that his small influence in his own day means


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