Modern capitalist philosophy has been advanced in a way that has little to do with what Smith really thought and taught. Smith believed that the invisible hand operated in a societal context. The reason Smith had such a positive philosophy of freedom was that he believed that human beings, would behave best if not compelled to merely serve the personal interests of a sovereign. Humans had a right to self-determination and to serve their own interests. However, when competition was threatened -- for example, when individuals by fair means or foul gained too much market power and created monopolies -- then it was appropriate for the government to step in. Smith believed that self-interest could prove to be beneficial to others but he did not believe that selfishness was an end in and of itself.
Justice and democracy are necessary for capitalism to function, but the rampant selfishness and lack of compassion advocated by current free market zealots is antithetical to democracy. Smith's Theory of Moral Sentiments, stresses that "justice is the pre-condition for social order. Upon that foundation you will build commerce" (Wight 2003, p. 85). This is a radical notion because right-wing economists have tended to stress that capitalism is what is important, and democracy will 'take care of itself,' contemporary example of China notwithstanding. This was one of the defenses of 'looking the other way' regarding the brutality of fascist and right-wing dictatorships during the Cold War -- it was assumed that there was more hope for democratic development in these nations than in the communist world. The so-called Kilpatrick Doctrine of the Reagan Administration openly stated that it was better to support brutal right-wing dictatorships than left-wing dictatorships, because at least they were capitalistic, and thus were more likely to eventually liberalize (Bodenheimer & Robert Gould 1989). But according to Wight, no system, capitalist or Marxist is bigger than the moral heart of its people: "Institutions don't survive simply because they work, and even work well. Institutions reflect the circumstances of society, and they survive because they're defended by an underlying fabric of moral support" (Wight, 2003, p.54).
The construct of the book is undoubtedly funny. However, to some extent it is also unsupportable -- the Founding Fathers would be horrified if they returned to America today and saw women voting, but that would not justify their antiquated point-of-view. Sigmund Freud's theories are no longer used in the discipline of psychology, which he helped found, because now psychology has more information about the biology of the brain than Freud could have ever known in the 19th century. It is impossible for economists to go back to pre-mathematical models. Smith was writing to defend capitalism and condemn state intervention in the economy by dictatorial monarchs. He cannot be faulted for not conceiving of the more complicated global economy in which we live, but the fact that linear algebra and graphs are used by contemporary economists is not necessarily something to be parodied, as Wight sometimes implies.
However, the idea of capitalism as a social system founded in values of trust, human intelligence, and morality has often been forgotten. Smith was an Enlightenment philosopher who believed in the innate rationality of man, in democratic choice and freedom, and a relatively weak ruler -- because the ruler he lived under was a king, not a democratically-elected legislature and executive. Instead of placing Smith in our own current context, a more sensible attitude might simply be to strive to move forward, and not use the words of the Enlightenment (whether those of the Founding Fathers or Smith) to justify a lack of progress in our own century. This is true of both healthcare reform and financial regulation of the excesses of the markets. Free markets are not a moral end in and of themselves, and the Enlightenment philosophers were trying to create a better world. Using Smith as a justification to create a less form of compassionate capitalism with a high degree of wealth consolidation and a lack of transparency does not fulfill the ideal of progress that all Enlightenment philosophers supported.
Bodenheimer, Thomas & Robert Gould. The Reagan Doctrine: Third World Rollback.
From Rollback. South End Press, 1989.
Overbye, Daniel. (2009, March 9).They tried to outsmart Wall Street. The New York Times.
Retrieved April 25, 2010 at http://www.nytimes.com/2009/03/10/science/10quant.html
Wight, Jonathan B. (2002). Saving Adam Smith: A tale of wealth, transformation, and…