Smith sees economic life not as these abstract and impersonal market forces, but really about contests and power and how power in institutions structure who gets what. I'm Bethany McLean. Did you ever have a moment of doubt about capitalism and whether greed's a good idea? And I'm Luigi Zingales. We have socialism for the very rich, rugged individualism for the poor. When Mrs. Capital isn't, a podcast about what is working in capitalism. First of all, tell me, is there some society you know that doesn't run on greed? And most importantly, what isn't? We ought to do better by the people that get left behind. I don't think we should have killed the capital system in the process. In 1776, a Scottish philosopher named Adam Smith published a sprawling, and we mean sprawling, book about how nations become wealthy. The appropriately named wealth of nations ran more than a thousand pages and ranged across everything, from the origins of money to the economics of apprenticeship to the fall of the Roman Empire. Today, most people associate Adam Smith with a single phrase, the invisible hand. The crazy thing is that that phrase, the invisible hand, appears only a handful of times in his entire body of work. And Smith wasn't actually a gung-ho apostle of free trade. Glory Lu, who is an assistant professor at Georgetown, writes in her book, Adam Smith's America, intellectual historians have long complained that, quote, distorted notions of self-interest, free markets, and the invisible hand have eclipsed Smith's moral philosophy, jurisprudence, and more. Which raises some interesting questions. How did such a complicated thinker become reduced to a slogan or to absolutist? Along the way, there were other aspects of Smith's thinking that got marginalised. He thought deeply about inequality. He worried about chronic capitalists. He actually advocated strong government intervention when necessary. And all those things make not only a fascinating figure from the past, but one who's thinking is critically important to where we are today. Why everybody ends up using Adam Smith to make his own point? Because they can use David Ricardo, they can use Sayeed, they can use a lot of other people. But at least reading your book, it seems that everybody is obsessed with Adam Smith. Why? Yeah. Well, have you read Ricardo? It's impenetrable. I would say that people quote Adam Smith because he's such a recognisable authority and because his authority is malleable. His authority is malleable so that you can make Smith stand for not really anything you want, but he's a really, really useful device to articulate a specific view, kind of like what you think the economy should look like. In the course of your research, did you start to feel close to Smith and perhaps even protective of him? And how do you think he would have felt about seeing his words twisted in the way that they have? I think you've got a sense of that as you research. Funny. You know, I would say I actually got less attached to Smith when I was doing the research on the reception. And I think part of it is because doing reception history requires you to distance yourself from that particular object. But I actually found myself having to reattach to Smith and come up with my own version of Smith after writing the book. And I think that's because people were really asking for it. They were asking, I hadn't thought about that. So what is your own view of Smith? So I see Smith as a theorist of power and specifically a theorist of power in the economy. I think Smith really sees economic life as overlapping systems of power. And he sees the ways in which organized groups and people with varying levels of access to power can shape, distort, and kind of work to change their economic status. So one key example of this is how he talks about the difference in power that he says masters and workmen or employers and employers have. We have a whole description of kind of how wages are set. But then he says, look, the difference in interests between workers and their employers is very stark. Employers have an interest in raising their wages, and employers or masters have an interest in pushing down those wages as much as possible. The key difference is that the law is often on the side of the masters. They do everything in their power to prevent the combination or prevent unionization of the workers, but they make it possible for employers to combine. And then he kind of concludes this section. This is in Book 1 of the Wealth of Nations by saying, this is why any law that's in favor of the workmen is often just and equitable, because usually the law is being weaponized by people who have disproportionate power to oppress others. So that's kind of one pretty early and very strong example, I think, of how Smith sees economic life, not as these abstract and impersonal market forces, but really about contests and power and how power and institutions structure who gets what. Do you think it's too simplistic to say, then, that the core of Smith is power, that his view is absolute power corrupts absolutely? And I was thinking of this famous line of his that Luigi loves, that people of the same trade seldom meet together even for merriment or diversion, but the conversation ends in a conspiracy against the public. And I'm wondering how then this modern framing of him just ignored his deep suspicion of monopolies and consolidated corporate power. I think this is so attuned to changing forms of power and new forms of power and new interest group organization, if you will, to use some modern parlance, that were happening in his time, that were disrupting older forms of power and institutions that typically governed economic life. In the mid to late 18th century, you have the rise of a whole new class of people, not the like nobility of the ancien regime, not the working poor and not these artisans and light manufacturers, but a whole new class of people whose source of power is wealth. And it's wealth that's coming from things like capital investments and ventures. They're people whose wealth is generated by a world increasingly connected by commerce. It's these merchants and capitalists who are using their wealth as a lever of political power in a new way. The lottery of birth doesn't matter anymore. Like you could just take over a village or you can take over and plunder another country. And suddenly of wealth and that becomes a source of political authority. And this is outlined in his lectures on jurisprudence, which is a set of lectures that he gave in the 1760s that has now been a resource for thinking about Smith's views on politics. So we kind of have to understand that Smith has this interesting theory of where sources of power come from. And so when he's looking at the commercial system of Great Britain in his own time, 1776, he's noticing that you have this whole class of people who have disproportionate wealth and a disproportionate ability to organize and articulate their interests to legislators and convince legislators that their private interests as merchants who are organizing is also serving the country's interest. And that's what I find so illuminating about Smith is that he's able to kind of disclose that dynamic about how certain classes of people are able to use their economic resources to gain political advantage and thereby have this again, disproportionate effect on the distribution of resources and power in society as a whole. So I find your interpretation of Smith as a theorist of power, particularly intriguing in light of the embracement of Smith by the Chicago School, because the stuff you described in the book was not a big surprise to me in the sense that in the middle of the Cold War, economists finally can prove what is known as a first wafer theorem, which is the idea that a number of assumptions by a competitive equilibrium is some notable property called Pareto aficiose universal notable property. So they got in Namo with the invisible hand. And so it's not normal that because of the recent discovery and because of the Cold War, there is this big push for the invisible hand. And it's also understandable because a big part of the United States intellectual where sympathetic to the Soviet economy and to the Soviet way of allocating resources. So I understand all this as a reaction. However, I don't know how familiar you are, but the Chicago School and that particular period in economics does everything possible to eliminate the world power from the vocabulary of economists. Literally, they try to eradicate it because the only notion of power that the economists understand is market power. And even that is basically brought to zero by the Chicago School. But in general, these are by that time, they are UCLA, but Arshan and Dancer, they're two very famous economists, they have this line about a firm saying that the firm has no power whatsoever, except the power of the market. That being an employee of a firm is no different than being a customer of the firm that you can fire your provider. They go to an extreme that is for a normal human being is ridiculous because no normal human being think that firms, especially today's firms, so how can they possibly embrace myth without kind of some lobotomy or at least lobotomy of Adam Smith's brain in which half of it is taken and half of it is disposed. That is a very gross image, Luigi. Thank you for that. This is so fun. So the Chicago School is by no means unique in economizing Smith in this way and ignoring power in the way that I was talking about, whether it's about the relationship between masters and workmen or the mercantile system. But you get this slow scraping away of Smith as this multi-dimensional thinker who cared about power and groups and sympathy, right? The other book, The Theory of Moral Sentiments, about history and about institutions. And that starts much earlier than the Chicago School. I mean, you can trace this back to kind of post-1860s political economy and the transformation to economics really with the marginal revolution. What I do think the Chicago School had, again, like disproportionate influence in propagating, was this idea that Smith, the economist of the invisible hand in the market, is the Smith, right? That is like the timeless true Smith that has explanatory power for everything. And I think that that's why the Chicago School, Smith is so important to understand and to unpack. I like the idea of kind of denaturalizing the Chicago Smith as a version of Smith, because it really is based on a selective reading. Now, I will say that having written this book and heard different reactions to it, like some people were like, oh, my gosh, I can't believe how charitable you were to the Chicago School. And then other people were like, you're a crazy lefty activist. It felt too critical to historicize a past reading of Smith was itself an assault on Smith. We've been talking a little bit on capitalism about how maybe one of the things that kept capitalism in check was just this sense of morality that couldn't be legislated, went beyond laws and regulations, but just was a built-in sense of morality in that the more global the world has gotten and the more disconnected people have gotten and the more it's been possible for an owner of capital not to have to meet a worker at anything in the local community, that morality has sort of disappeared. And I was thinking that Smith sort of, in a way, is emblematic of this because there's this balance between the theory of moral sentiments and then Smith the economist and the wealth of nations, even though that's too simplistic, obviously, there's a lot of nuance in the wealth of nations, too. But I'm wondering if this sort of stripping by the academic discipline of economics, kind of stripping morality out of Smith's economic framework, kind of mirrors this progression of capitalism in a way. That's a really interesting way to put it. But I think it's also deeper than just stripping out morality from economics. I would put it slightly differently, which is that economics has its own value system. And to see economics as somehow value neutral or value free is to kind of misunderstand what economics is today and what it has been in the past. A lot of that has to do with the rise of the mathematician of economics and that the mathematicians and how it makes it value neutral. And also this idea that values of efficiency are somehow not in the same category of values as, say, interpersonal relations or equity or humanism, democracy, you know, all these other things. We can put those all as values and somehow we don't like to see economics as having an overlapping set of values that would put us more in the realm of Smith thinking about the human lives that make up the thing that we call the economy. So Smith doesn't use the term the economy, doesn't use the term capitalism, but it's very clear that the way he describes economic life, it's about people and what they're doing and who they're interacting with and how they're negotiating and how they're creating institutions and how they're trying to solve problems. And that's a very different view of economics and the value of studying economics and the values embedded with economics than what I think most people who study economics today, whether you're taking econ 101 or whether you're getting a PhD in economics today. It's a different set of methodological tools, but I also think a different understanding of human values. No, no, I'm sorry that I used the lobotomy analogy, but it was not completely coincidental because the worth of nation is a thousand pages. Okay. So it's a big volume. Gloria, I'm pretty sure you know that Joel Stigler created a bridge version of the wealth of nation where he cut out some part and he cut out the parts he didn't like. So I think that was really kind of a lobotomy done with intention. What I found super interesting is some of the ideas of Stigler on regulatory capture are there in already in Adam Smith. Going back to the overarching theme of Smith as a theorist of power, Smith is so he's such a careful reader of history and a careful analyzer of history that he sees this tendency towards capture over and over and over again, not just in trade policy, but in things like the creation of a tax regime or the creation of certain land regulation laws and even things like the emergence of independent judiciaries. He talks about these things in book five of the wealth of nations. Given that there's this tendency towards capture in a modern country whose internal organization and mode of external organization is commerce, how do you create institutions that aren't as susceptible to the rich and powerful just using them for their advantage? So he thinks about like, okay, think back into medieval times when we decided that it was maybe a good idea to have an independent judge rather than one guy being in charge of everything, like writing the laws and also executing them and being the judge for things like, okay, give rise to the independent magistrate. This was a good development. But then what happens when the magistrate is also collecting court fees in order to dispense justice? Well, then you get the corruption of justice because what happens is that even though we had this good development of an independent judiciary, justice is dispensed based on people's ability to pay rather than those who are actually in need of justice if that's the right phrase to use. So he sees the evolution of these institutions in modern society and he's so attuned to how institutions can be created. They can be advancements, but you have to be aware of how they can be captured by those who have a vested interest in them or those who have outsized ability to corrupt them. So I think that's another way in which, again, it's not specifically its idea of regulatory capture the way that Stegler is talking about it, but it is a form of capture and what I call like a state capacity deficit that Smith is so attuned to. So how do you think that begs the obvious question? What do you think he would think if he could see where the US is right now? Would he see modern lobbying in corporate political influence as, see, I told you so? Or do you think he'd think, oh, I warned you, but I never thought it could be this bad? Or do you think he'd look at some of the systems we've put in place to try to mitigate it like an independent judiciary and say, hey, you guys are trying? Oh, man. You know, I think it's the second one. Like I tried to warn you. And I do think that it is about the concentration of wealth in certain sectors of the economy and how certain sectors of the economy can kind of have disproportionate influence on the political system in order to kind of perpetuate these cycles of deep and persistent inequality in ways that renders meaningful political and economic change extremely difficult. He was well aware of the difficulty of political change. He talks about free trade and his system of natural liberty, but he says that to think that this would happen in my lifetime is a utopia. The fact that we did get an incredible liberalization of international trade policy by the 20th century is Smith probably would have been astounded that that happened during the kind of moment of post-Bretton Woods institutions and stuff. But I do think that with regards to whatever you want to call it, corporate capture and the vast disparities, I'm speaking from an American point of view here, the vast disparities in kind of wealth and income inequality, he probably would have had the same reaction. So I love the interpretation of Smith as a theorist of power. So let me try. Thank you. Let me try one interpretation and feel free to say I'm completely wrong. And then after my interpretation, I have a question for you. So the interpretation is Smith talks about the commercial society as maybe what we would talk now about capitalism is was the new system. And he sees the commercial society as something liberating man, humankind, from a lot of the restrictions and the limitations of freedom that a feudal society was bringing about. And why is because at the end of the day, if you could cultivate your piece of land, you could be an independent producer, et cetera, you had much more freedom that if you had as a serve or as a water. However, as you correctly pointed out, capitalism has evolved a lot since then. Now we have corporations everywhere. The only corporations that were at the time were the East India Company and Smith aided them. But now corporations have a lot of power over us with all due respect for my late colleagues. And so is it true that capitalism brings more freedom to individuals? And what will Smith says about that? Did you just ask me if capitalism will bring us more freedom? Is that the question? Yeah. And what does he say about that? Okay, I'm going to start with what would Smith say about that? So again, with the large footnote that Smith doesn't talk about capitalism, he usually talks about commercial societies, but commercial societies are very under specified. And so he's really interested in the forms of power that come into being within a society primarily organized by commerce. Okay, that's the footnote. What are the possibilities for freedom in these new societies that are primarily commercial? Smith did see that commerce had this emancipatory potential, that when you organize people's needs based on free exchange, that I can go buy my bread from the baker and the baker is not under these kind of like really, really oppressive regulations about the kinds of flour that he asked to use and the specific weight and dimensions of the bread, etc., etc. We are no longer constrained by these kind of really archaic and impersonal and sometimes very personal forms of domination. Think about the ways in which marriage was regulated. You had to get approval from the Lord in order to have your daughter married off to somebody or some sanctuary laws. On Wednesdays, you cannot wear pink. I says the version of some sanctuary laws. So Smith did see this new society in which the kind of arbitrary power of the old aristocracy was slowly being eroded and that people could meet their needs through free exchange and commerce rather than relationships of dependency. That is an erratical and emancipatory force. And to the extent that that has like a moral valence to it, it is a form of political and personal freedom that Smith saw unrivaled in his time. And I think something that is really, really core and important to recognize in his thought. The question of whether capitalism has created more freedom today is really tricky. And here is where I feel like Smith is no longer the most useful thinker for us to answer that question. Like we need to think with Marx too and we need to think of critics after Marx. Because again, I think that the nature of work has changed, the nature of commerce has changed and the nature of finance has changed. So we're like, I certainly see myself as freer in the broadest sense of the term than if I were to take myself in my embodied form and put myself in like 1776 in Great Britain. I think the quality of my life right now is probably on almost all metrics freer and better. But that doesn't mean that by no means follows that capitalism has kind of created freedom. If you're enjoying the discussions we're having on this program, there's another University of Chicago podcast network show you should check out. It's called The Pi. Economists are always talking about The Pi, how it grows and shrinks, how it's sliced and who gets the biggest share. Join veteran MPR host Tess Vigland as she talks with leading economists about their cutting edge research and the key events of the day. Here, how the economic pie is at the heart of issues like the aftermath of a global pandemic, jobs, energy policy and so much more. Do you think that even though people were trying to simplify Adam Smith because they saw that a simplified Adam Smith, a caricature of Adam Smith could serve their interests more, that actually that was a mistake and that the original rich and nuanced Adam Smith would actually provide more legitimacy to capitalism now today. In other words, should the people like Friedman and Stigler who were trying to legitimize things, did they actually make a mistake? Did they make the wrong turn in that moment? I don't think so. At the time, I think it's wrong now. At the time, that was probably the best way to sell capitalism and that's what they use and it's always difficult to do the counterfactoring history, but especially Milton Friedman, he was a phenomenal debater. So I think he picked his bottle very cleverly and this is no exception. However, today, I think we are in a different situation and we do need a more complex myth. Is it too late? Do you think we can bring back this more nuanced version of Smith? I mean, we've talked on this podcast before about and I thought her way of phrasing it is economics being stripped of everything but the math in a way that's not precisely what she said, but we've talked about that too. Can you, is this a two-way street? Can you go back in the other direction or once you've taken all of that out of it, is it just down to the bone? I think you can. I think he's uncomfortable in the mostly academic environments because they are so used to only use a certain language. However, academics need to justify what they do to the outside world. If they fail to have a bigger moral justification for capitalists, they might end up losing the bottle. So it is important not to just to prove the efficiency of capitalists, but also try to have some moral foundation for it. Yeah, I thought that was something really interesting that she said was that Adam Smith was also possible in his time because there was this lack of disciplinary boundaries. And as these disciplinary boundaries have grown up and become really, really, really hard lines, that's what also has led to in some ways this simplified version of Smith or stripping some of the moral elements out of him. And I thought we have to really reach for that now and break down those boundaries so that we can have those lack of boundaries again. That's as if those boundaries have become too strict and too severe. But I think that was my favorite thing about the podcast, was her calling Smith a theorist of power. I thought that was incredibly illuminating, did you? So, and he saw novel and unexpected, that I think that is a big result of our conversation. What I got from her is that he understands that now wealth can be very powerful in changing economic policy. And he's thinking about how to organize society in light of that fact. To be fair, up to his time, political realm was dominated by kings and nobles and people that had more titles and tradition than necessarily money. England at the time is the first commercial society where merchants were very powerful. Actually, there was the exception since I'm Italian and from that era, Venice was like that, but was by that time declining. And the Netherlands were a bit like this, but certainly England is the ultimate commercial power. These merchants are influential in how things work. And he lived at a time where the East India Company was bribing half another entire British parliament to get the way it wanted. I guess I would say it more simply, and I would say that the accumulation of capital leads to the accumulation of power. And then that very accumulation of power has an effect on everything, on the institutions that we've set up to safeguard how power works, because the power accumulates in such a way that it undermines some of the institutions that we've set up in order to safeguard the disbursement of power. So maybe another version of it, I'd ask, is that absolute power corrupts absolutely, but certainly power corrupts everything it touches. Luigi, you think my answer is too simplistic? No, I think that it may be true later on. Remember, we are before the explosion of the industrial revolution. So it's not that people have huge building, huge machinery, huge firms. This is more a commercial society where, yes, of course, you have some working capital that you need, but mostly are the opportunities that you can achieve that drives your power. So it's not that capital accumulated is the fact that you know how to get the spices in the right place, go in the right position to import cotton and so on and so forth. These are more kind of, if you want, there is more knowledge than capital accumulation in an American society. I don't think so. I don't agree. Well, it could be both, but for sure part of what he warned about is the accumulation of wealth and the admiration of wealth and how that becomes a corrupting force, both throughout the moral code of man and the way in which institutions work. So I think it is directly tied to the accumulation of capital and that the accumulation of capital becomes, as the accumulation of wealth becomes power. Yeah, I know there is definitely the element of accommodation of wealth, but when you say capital, what was the capital that they had? There is some wealth that they use. I'm using, maybe that's where we're getting tied up is in semantics because I'm using capital as wealth, the accumulation of money. So maybe that's where we're getting tied up. Capital isn't is a podcast from the Stiegler Center and the University of Chicago podcast network in collaboration with the Chicago Booth Review. If you haven't yet, you can now find our podcast as a video on YouTube. Don't forget to subscribe and leave a review wherever you get your podcasts. The show is produced by me, Matt Hodepp and Brittany Broders with production assistants for Manny Nazaro, Matt Lucky, Sebastian Berger, Jilly Prepst, and Andy Shee. The podcast is partially supported by a generous contribution from Luis Mounis and Cristani Medellus Mounis. We are grateful for their commitment to advancing the thoughtful dialogue and scholarly engagement on our show. 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