LEARNING FROM ADAM SMITH: PROPRIETY IN INDIVIDUAL CHOICE, MORAL JUDGMENT, AND POLITICS by Paul D. Mueller A Dissertation Submitted to the Graduate Faculty of George Mason University in Partial Fulfillment of The Requirements for the Degree of Doctor of Philosophy Economics Committee: Director Department Chairperson Program Director Dean, College of Humanities and Social Sciences Date: Spring Semester 2015 George Mason University Fairfax, VA Learning from Adam Smith: Propriety in Individual Choice, Moral Judgment, and Politics A Dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy at George Mason University by Paul D. Mueller Master of Arts George Mason University, 2013 Bachelor of Science Hillsdale College, 2009 Director: Daniel Klein, Professor Department of Economics Spring Semester 2015 George Mason University Fairfax, VA This work is licensed under a creative commons attribution-noderivs 3.0 unported license. ii DEDICATION This dissertation is dedicated to my loving and lovely wife, Kathryn. iii ACKNOWLEDGEMENTS There are many people to whom I owe a debt of gratitude. First, I want to thank my wife who has been supportive, encouraging, and has helped me get past my fears, my doubts, and my distractions while also caring for our children while I worked. I would also like to thank the members of my committee, Peter Boettke and Donald Boudreaux, for their unwavering encouragement and support. I particularly want to thank Professor Boettke for helping me obtain funding that allowed me to devote more time to writing my final year of graduate school. I thank Mary Jackson for keeping me on track through the program. The forms and requirements to advance from class to field to degree were daunting at times but she was always clear and ever helpful. She has made the administrative process of moving through the program as easy as it could be. For that I am very grateful. Ideas do not come out of a vacuum. My thinking on Smith's ideas and work have been improved and strengthened by discussions with participants in the Smithian program at GMU, including the Adam Smith Reading Group, the directed readings seminars, and the Invisible Hand Seminar. I should also acknowledge the comments I received at APEE where I presented all three of these chapters at different times and in different forms. Although not directly related to the ideas in my dissertation, I want to thank the participants in my capital theory workshop. I have learned a tremendous amount from them and greatly enjoyed our wide-ranging discussions on monetary policy, financial markets, and business cycles. I am particularly indebted to my coauthor, Joshua Wojnilower, who introduced me to many ideas and theories in financial economics. I thank the many organizations that supported me financially while I was completing the PhD program: the Earhart Foundation, the Institute for Humane Studies, the Mercatus Center, and the Intercollegiate Studies Institute. No acknowledgement would be complete without recognizing the dissertation chairman. Professor Klein encouraged and challenged me from the first day of his course studying The Theory of Moral Sentiments. I asked him to chair my committee, in part, because he had given me extensive feedback. After teaching myself, I realize what a huge investment of time and effort that was on his part. For his encouragement, his provision of financial support, his generous gift of his time, and his teaching, I am deeply grateful to Dan Klein. Finally, I thank my Creator, who sustains my life every day and has given me the ability and the desire to enter academia, to study, and to think about economics, politics, and philosophy. I owe him everything and am thankful to call Him my Savior and my God. iv TABLE OF CONTENTS Page List of Tables................................................................................................................ vii List of Abbreviations ................................................................................................... viii Abstract ......................................................................................................................... ix Chapter One: Introduction ...............................................................................................1 Chapter Two: Adam Smith’s Views of Consumption and Happiness ...............................5 2.1 Overview ...............................................................................................................5 2.2 How Smith Talks About Consumption ................................................................. 10 2.3 Standards for Evaluating Consumption ................................................................. 19 2.4 Conclusion ........................................................................................................... 30 Chapter Three: Who Best Represents Impartiality? The Higher We Go, the More Partial Our Judgments............................................................................................................... 32 3.1 Overview ............................................................................................................. 32 3.2 How Our Moral Sentiments Can Be Corrupted ..................................................... 40 1st Corrupter: Admiring Wealth and Status ............................................................. 42 2nd Corrupter: Faction, Fanaticism, and the Partial Spectator .................................. 45 3rd Corrupter: Self-Deception.................................................................................. 47 3.3 Smith’s Moral Theory in Different Contexts ......................................................... 52 3.4 Three Levels of Context: Microcosm to Macrocosm ............................................ 60 1st Level of Context ................................................................................................ 61 2nd Level of Context ............................................................................................... 65 3rd Level of Context ................................................................................................ 67 3.5 Smith’s Advocacy of Decentralization.................................................................. 74 3.6 Conclusion: What Smith’s Moral Theory Can and Cannot Do .............................. 79 Chapter Four: Adam Smith, Politics, and Natural Liberty .............................................. 82 4.1 The Debate ........................................................................................................... 82 4.2 A Popular Misconception ..................................................................................... 92 4.3 Smith’s Skepticism of Politics and Government Intervention ............................... 97 4.4 A Presumption of Liberty ................................................................................... 105 4.5 What About Exceptions to Liberty? Squaring the Circle ..................................... 110 v 4.6 Conclusion ......................................................................................................... 115 Chapter Five: Conclusion ............................................................................................ 117 References ................................................................................................................... 118 vi LIST OF TABLES Table Page Table 1: Smith’s Parallel Contexts ................................................................................. 61 Table 2: Characteristics of Different Levels of Context…………....................................71 vii LIST OF ABBREVIATIONS An Inquiry into the Nature and Causes of the Wealth of Nations................................. WN Correspondence of Adam Smith ................................................................................ Corr. Essays on Philosophical Subjects ................................................................................ EPS Homeowner's Association ......................................................................................... HOA Lectures on Jurisprudence A ....................................................................................... LJA Lectures on Jurisprudence B ....................................................................................... LJB Lectures on Rhetoric and Belles Lettres ................................................................... LRBL The Theory of Moral Sentiments ............................................................................... TMS viii ABSTRACT LEARNING FROM ADAM SMITH: PROPRIETY IN INDIVIDUAL CHOICE, MORAL JUDGMENT, AND POLITICS Paul D. Mueller, M.A. George Mason University, 2015 Dissertation Director: Dr. Daniel Klein This dissertation explores and develops several important themes in Adam Smith's thought. Firstly, it explores the relationship between happiness and consumption. Smith thought that consumption was a necessary but not a sufficient condition for happiness. Virtue is also necessary. Secondly, it examines how Smith's moral theory works better or worse depending on the context. At low levels of concrete context, sympathy and moral judgment work remarkably well. At high levels of context involving macrocosms, however, there is no literal impartial spectator and our moral judgments are far more prone to error and corruption. Thirdly, it comments on a debate over how Smith viewed political actors and government intervention. Rather than being naive about the motives of political actors, Smith had a realistic and skeptical view of them; thus supporting a strong presumption of liberty that could only be overruled under special circumstances. ix