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Anyone with a remote interest in politics, society, and business is familiar with Adam Smith, the author of the 1776 capitalist canon, The Wealth of Nations. A Scottish philosopher of the Enlightenment, Smith brilliantly linked the workings of a pin factory to the division of labor and the pursuit of self-interest to the general welfare. He also made a forceful case for the mutual benefits of free trade among nations.
Over the past two centuries, hundreds of thousands of economists have mined The Wealth of Nations for insight into why some economies grow and others stagnate. Of course, outside the economic fraternity not that many people dive into his lengthy classic anymore.
Yet relatively few economists have paid any attention to Smith's other major work, The Theory of Moral Sentiments. Too bad, for Smith regarded the two books as intimately connected. He believed self-interest and markets weren't adequate to create a decent society for all. It also took a vibrant civic culture built on the innate human desire to get along with others.
NATURAL PRINCIPLES. The opening sentence of The Theory of Moral Sentiments puts it this way: "Howsoever selfish man may be supposed, there are evidently some principles in nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it."
Civic institutions fascinated Smith the philosopher. He saw them as the wellspring of the moral sentiments that support a market economy. In modern parlance, he studied society's "social capital," the web of family, community, school, religion, and voluntary associations that inform everyday life. From there, this web of connections governs human behavior and commerce in villages, cities, regions, and finally nations.
It's Smith's commercial humanism -- the belief that economics is only part of a much larger mission of creating a good society -- that Peter J. Dougherty is determined to revive in his book, Who's Afraid of Adam Smith: How the Market Got Its Soul!
THE HUMAN ANGLE. Economics is more than land, labor, capital, supply-and-demand curves, and fiscal and monetary policies. It's also trust, empathy, and community ties. "Social capital complements economic capital, and vice verse," says Dougherty.
Who's Afraid of Adam Smith is a labor of love, a personal report from a close observer of economists and their writings. Dougherty is a long-time economics editor, now at Princeton University Press after stints at publishers such as Harcourt, McGraw-Hill, and the Free Press.
He has edited Nobel laureates Paul Samuelson and Robert K. Merton, financial economists Peter J. Bernstein and Robert J. Shiller, and journalists Michael Barone and David Warsh. For the past two decades, Dougherty has been a fixture at the annual meeting of the American Economics Assn. conference, a gathering of some 7,000 to 9,000 card-carrying members of the dismal science.
I've attended about 10 of those meetings. Each time, the highlight of the occasion has been coming upon Dougherty wandering through the book publishers' booths. He's always eager to talk about economists and their work, pointing out new books that say something of significance.
A LIVELY READ. So it's hardly surprising that he has written an enjoyable, enthusiastic journey through the intellectual history of economics for the layman. Here the reader can learn about the towering achievements of economist Adam Smith's best-known worldly followers, including Alfred Marshall, John Maynard Keynes, Paul Samuelson, and Milton Friedman.
Even more important for Dougherty's purposes, the reader gets a picture of what a younger generation of economists is trying to accomplish, such as new-growth theorist Paul Romer, urban scholar Michael Porter, and financial engineer Robert Shiller.
The book fairly bubbles with ideas. In fact, it's reminiscent of a wide-ranging coffee-shop conversation with a charming and knowledgeable enthusiast who truly believes economics matters -- as it does. Dougherty can't resist the intriguing insight, the scholarly nuance that advances our understanding of how a market economy works, even if it takes him away from his thesis.
CREATING UTOPIA. But he doesn't stray far for long. He always comes back to Smith's underlying concern that by understanding the link between social capital and the economy, a nation could not only end joblessness and alleviate poverty but make life vibrant and culture dazzling for everyone.
The book's opening quotes economist Deidre N. McCloskey, and the passage captures Dougherty's central conception:
"We must encourage capitalism, it being the hope for the poor of the world and being in any case what we are, but our capitalism need not be hedonistic or monadic, and certainly not unethical. An aristocratic, country-club capitalism, well satisfied with itself, or a peasant, grasping capitalism, hating itself, are both lacking in virtues. And neither works. They lead to monopoly and economic failure, alienation, and revolution. We need a capitalism that nurtures communities of good townsfolk, in South Central L.A. as much as in Iowa."
Specifically, Dougherty breaks down civic economics into four grand agendas, all infused with frequent references to Smith. First, economists should develop a better understanding of how to construct a civic infrastructure that attracts and stimulates markets in underdeveloped economies.
Second, he would then like to see new economic thinking brought to bear on the economics of large-scale public enterprise so that government can successfully tackle disturbing social ills like hard-core deprivation and poverty.
Third, since Adam Smith believed in making "every man a merchant," finance economists should figure out how to give everyone a material stake in the economy, whether through stock options or home ownership.
HOPEFUL BOOK. Last, cities are incubators of ideas and a newly imagined urban economics would focus on strategies for revitalizing America's major urban centers. The latter part of the book focuses largely on sketching out the insights of economists who put a magnifying glass to these compelling challenges.
Like many curious people who love economics but aren't PhDs, Dougherty is often frustrated with the profession's insularity, its near-obsessive devotion to mathematical precision, and its tendency toward theoretical abstractions of the ordinary business of life. Still, this is a hopeful book that highlights the work of scholars who are grappling with society's most pressing issues. It's also an impassioned call for more scholars to work within the tradition of Adam Smith -- not just the author of The Wealth of Nations but also The Theory of Moral Sentiments.
Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over Minnesota Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online Edited by Beth Belton
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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