We examine sustainability through the lens of Adam Smith’s seminal work, The Theory of Moral Sentiments (1759), where he writes, “they are lead by an invisible hand to make nearly the same distribution of the necessaries of life…and thus without intending it, without knowing it, advance the interest of the society.” We will examine how the three forms of capital (natural, human and financial) are put into a new economic equation: Natural capital + Human capital = Financial capital.
Is Adam Smith the Founding Father of Sustainability?
Is Adam Smith The Founding Father of Sustainability? Nils-Michael Langenborg Founder & Executive Director The Sustainable Adam Smith #GreenAdamSmith October 19, 2011
Rules of Conduct This is not about me This is not about you This is about all of us
Our Workshop Agenda Introductions My talk (w/discussion) Your thoughts Sustainability Leaders The Renewed Invisible Hand Breakouts – The Necessaries of Life Final Thoughts
Who is Adam Smith? Born June 16 1723 Died July 17, 1790 (age 67) Scottish social philosopher Collaborated with David Hume Part of the Scottish Enlightenment Professor of moral philosophy at University of Glasgow Pioneer of “political economy” (the study of production) Lived with his mother his entire life
The Wealth of Nations ➡ An Inquiry into the Nature and Causes of the Wealth of Nations ➡ Four basic principles emerged “consumption” “division of labor” “self-interest” “the invisible hand” ➡ Foundation of market capitalism
Consumption “Consumption is the sole endand purpose of all production;and the interest of the producer oughtto be attended to only so far as it maybe necessary for promoting that of theconsumer. The maxim is so perfectlyself-evident that it would be absurd toattempt to prove it.”
Consumption But in the mercantile system theinterest of the consumer is almostconstantly sacriﬁced to that of theproducer; and it seems toconsider production, and notconsumption, as the ultimateend and object of all industryand commerce.”
Division of Labor “The greatest improvement inthe productive powers oflabour, and the greater part of theskill, dexterity, and judgment with whichit is any where directed, or applied,seem to have been the effectsof the division of labour.” One pin = 18 different steps One man = 20 pins a day Ten men = 4,800 pins a day/each; 48,000 vs. 200 pins/day
Division of Labor “This division of labour, from which somany advantages are derived, is notoriginally the effect of anyhuman wisdom, which foreseesand intends that general opulence towhich it gives occasion.”
Self Interest “It is not from the benevolenceof the butcher, the brewer orthe baker, that we expect ourdinner, but from their regardto their own interest.”
Self Interest “But man has almost constantoccasion for the help of hisbrethren, and it is in vain for him toexpect it from their benevolence only. We address ourselves, not to theirhumanity but to their own self-love, and never talk to them of our ownnecessities but of their advantages.”
Invisible Hand “…he intends only his own gain,and he is in this, as in many othercases, led by an invisiblehand to promote an endwhich was no part of hisintention.”
Invisible Hand “By preferring the support ofdomestic to that of foreignindustry, he intends only hisown security; and by directing thatindustry in such a manner as itsproduce may be of the greatest value,he intends only his own gain, and he is in this, as in many othercases, led by an invisible hand to promote an end whichwas no part of his intention.”
The Theory of Moral Sentiments Amaratya Sen* explains: There are two distinct propositions here: 1. “…human beings are not guided only by self-gain or even prudence.” 2. “…there are good ethical and practical grounds for encouraging motives other than self-interest.” These are two distinct points, and, unfortunately, a big part of modern economics gets both of them wrong in interpreting Smith. * Amaratya Sen is Professor of Economics and Philosophy, at Harvard University and was awarded the 1998 Nobel Prize in Economic Sciences for his contributions to welfare economics and social choice theory, and for his interest in the problems of societys poorest members..
The Theory of Moral Sentiments ➡ Published 1759 (17 years before WN) ➡ Four basic principles emerged “self-love” “man within the breast” “approbation” “the invisible hand” ➡ Might it be the foundation of sustainable capitalism in the future?
Self-love (the impartial spectator) “When the happiness or misery of othersdepends in any respect upon our conduct,we dare not, as self-love mightsuggest to us, prefer the interestof one to that of many. The man within immediately calls to us,that we value ourselves toomuch and other people too little,and that, by doing so, we render ourselvesthe proper object of their contempt.”
Man within the breast (self-command) “It is reason, principle, conscience, theinhabitant of the breast, the manwithin, the great judge and arbiter of ourconduct. It is he who, whenever we are about to actso as to affect the happiness of others, callsto us, with a voice capable of astonishingthe most presumptuous of our passions,that we are but one of themultitude, in no respect betterthan any other in it.
Approbation (approval) “In the steadiness of his industry andfrugality, in his steadily sacriﬁcing the easeand enjoyment of the present moment forthe probable expectation of the still greaterease and enjoyment of a more distant butmore lasting period of time, the prudentman is always both supported andrewarded by the entire approbation ofthe impartial spectator, and of therepresentative of the impartial spectator,the man within the breast.”
The Invisible Hand “They are led by an invisiblehand to make nearly the samedistribution of the necessaries oflife, which would have beenmade, had the earth beendivided into equal portionsamong all its inhabitants, and thuswithout intending it, without knowing it,advance the interest of society, and affordmeans to the multiplication of the species.“
The Re-Enlightened Invisible Hand “They are led by an invisible hand to make nearly the samedistribution of the necessaries of life, which would have beenmade, had the earth been divided into equal portions amongall its inhabitants, and thus without intending it, withoutknowing it, advance the interest of society, and afford meansto the multiplication of the species.“ Natural Human Financial
The Necessaries of Life 1. Family (population) 2. Food & Shelter (the basics) 3. Contribution (aka “work”) 4. Capital (natural and human) 5. Health (personal and environment) 6. Exchange (currency) 7. Technology (as enabler of necessaries) Natural Human Financial
Breakouts Our assignment: Foods “To make nearly the same distribution of food had the earthbeen divided into equal portions among all its inhabitants andthus afford means to the multiplication of the species.” Natural Human Financial
Final Thoughts Nils-Michael Langenborg Founder & Executive Director The Sustainable Adam Smith #GreenAdamSmith email@example.com October 19, 2011