How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness

Russ Roberts’ new book on Adam Smith is part introduction/summary and part self-help. Roberts takes a fresh look at Smith’s The Theory of Moral Sentiments to see what we can learn about how to make our own lives better. Along the way, we are introduced to Smith’s ideas of morality, economics, and human nature. While I am familiar with Smith’s TMS and his approach to morality, I am no expert and the refresher of key elements and ideas was most welcomed. To understand Smith, one needs to return to him again and again. Like many profound thinkers, his insights seem obvious once you get them, but before that you need to go back to Smith many times to grasp what he is getting at. Roberts takes Smith’s insights and applies them to how one lives his or her own life. How should we think about the pursuit of material wealth and good? How do we treat loved ones, strangers? And what does that treatment say about us? One of the more interesting sections is where Roberts looks at what an understanding of Smith can tell us about making the world a better place. He doesn’t focus on grand gestures or big plans. It is more about the little things we each do every day: smiling at the store clerk, being honest and trustworthy, or being good at one’s work. All of these are things that are good to do, and they also help make the world better. Appealing to Smith’s idea that social norms and civilization evolves out of the aggregation of all the actions we all take, the more good actions we do, the better the world gets. We show other people what counts as goodness. We encourage other people to good. We reinforce our own habits of acting well. Conversely, when we do bad things – even small, seemingly minor things – we make the world a little worse. Roberts also examines the “Adam Smith Question”: how to reconcile the apparent (and I think seriously overplayed) inconsistencies between TMS and The Wealth of Nations (WN). The latter is supposedly focused on humans as self-interested actors while the former focuses on the so-called altruistic virtues of love, sympathy, and justice. Roberts’ response is that TMS is about how we interact with those we know and care about it: our personal interactions. WN is about our market and commercial interactions which are mostly with strangers and usually are one-off. Smith isn’t using a different theory of human nature; he is focused on understanding human nature in different contexts, so the focus is different. The nice way Roberts sums this up is: “Love Locally, Trade Globally.” This is a quick, easy read; worthwhile for anyone interested in Smith, morality, and those interested in how to live better in their own lives. Warning: it’ll make you want to go and read Adam Smith.

Many economists today try to predict interest rates, explain how unemployment can be reduced, forecast next quarter’s GDP, and so on. The presumption is that economics “is like some giant clock or machine whose innards can be mastered and then manipulated with some degree of precision,” explains author Russ Roberts. Roberts is a research fellow at Stanford University’s Hoover Institution, and notes out that economist are probably worst at this type of precision. Economics “is about something more important than money. Economics helps you understand that money isn’t the only thing that matters in life. Economics teaches you that making a choice means giving up something.” Two hundred and fifty years ago, the Scottish moral philosopher, Adam Smith, wrote a book titled, “The Theory of Moral Sentiments” describing how and why people behave as they do. This book was followed by “An Inquiry into the Nature and Causes of the Wealth of Nations,” published in 1776 that gave birth to the theory of economics. To make economic decisions, you have to understand yourself and others, which is the connection between “The Theory of Moral Sentiments” and “Wealth of Nations”. However, “Moral Sentiments” is a difficult read, written in the language of the eighteenth century, and with long sentences. Robert’s contribution lies not only in highlight this obscure book, but in making the book accessible, and revealing the relevance of Adam Smith’s thinking. Today, “Moral Sentiments” would fit the genre of Behavioural Economics, a field that straddles economics and psychology. Behavioural economics challenges modern economics, which presumes people make economic decisions based on choosing to get more for less. In 2002, Daniel Kahneman recieved the Nobel Prize in Economics Sciences together with Vernon Smith for experimental work they did revealing the flaws in what was considered by economists as rational decision-making. “Moral Sentiments” underpins Adam Smith economic thinking. It makes the work of both Kahneman and Smith in behavioural economics a modern continuation of Smith’s thinking. In “Moral Sentiments” Smith provides sound advice on how to treat money, ambition, fame, and morality. He has firm views on what will make people happy, and why happiness does not follow material success. Ideas covered by Smith include our potential for self-deception, why power and fame are so seductive, and the limits of our rationality. He also explains why life is so complex, and often at the same time, so orderly. Adam Smith observed “My neighbour will help me if there’s something in it for my neighbour.” Trading with one another, in goods and kind as a way of giving something in return for my neighbour’s help. In “The Wealth of Nations,” Smith wrote, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self– love, and never talk to them of our own necessities but of their advantages.” Life is complex and often, at the same time, so orderly. On the other hand, we often act selflessly, sacrificing to be helpful to others. What spurs us to take care of our neighbour, Smith explains, is the desire to be honourable, to satisfy what we imagine an impartial spectator would expect. We desire people to respect us for what we are, not for what we project. Bernard Madoff was admired and respected by his investors for what they thought was his prowess with their money. However, the returns he promised were not a function of his genius as an investor though, but his genius in deception. Madoff must have known he was a fraud; he expressed relief at being arrested. Warren Buffett, in contrast, is able to grow a $ 90,000 investment into $ 100 million. He gave his son, Peter, a once-off gift of $90,000 of stock in his company, Berkshire Hathaway. Peter chose to drop out of Stanford at 19, and sold the equity to fund his desire to be a musician. Popular economics, looking only at maximizing financial returns, would see this as a fundamentally flawed decision. After years of struggling, Peter Buffet, built a solid music career writings songs for movies and television, and won an Emmy award. Smith never respected the pursuit of fame and fortune. He held that we want people to like us, respect us, and care about us. We want our peer to respect us for what we do and who we are. That is what makes people happy. Peter Buffett chose happiness over enormous wealth. Smith would have approved. Smith has much to teach still today. His psychological insights into why in 18th century men carried gadgets in their pockets, mirrors our desire for the latest gadgets today. So too, are his insights as to why people want to be famous, and why so many pay attention to the famous. Understanding the complexity of people and their decisions (behavioural economics,) makes economics so much stronger and more valuable. The title of Robert’s book, “How Adam Smith Can Change Your Life” highlights the genius of the founder of economics with his base in human behaviour. Readability Light -+--- Serious Insights High -+--- Low Practical High ---+- Low *Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Strategy that Works.

While everyone thinks of Adam Smith as the author of Wealth of Nations, Roberts plumbs the depths of his first book, The Theory of Moral Sentiments. I actually read Wealth of Nations. My first economics course assigned several sections and I just read the whole thing. His prose is indeed a bit dense for the modern reader but I enjoyed it. I went back recently to read Theory of Moral Sentiments and stopped a third of the way through. I don't know if I have lost my appreciation for turgid or whether the subject was less interesting, but I quit. I'm not proud of it but, like Spike, I'm man enough to admit it. Roberts's book on the book (P.J. O'Rourke did a pretty good one on Wealth of Nations), conversely, enraptured me. Why didn't I get this out of it? Some authors are better read about than read. Even my hero Karl Popper falls into this class: Richard Dawkins, Michael Oakeshott -- perhaps I'll just put Smith on this list. Yet I would love to connect with ToMS as Roberts did. Wealth of Nations is about economics; Theory of Moral Sentiments is about personal choices and structuring your life for optimal satisfaction. That's the conventional wisdom and Roberts does a great job comparing and contrasting the two works. But he asks first whether they are different as they appear. He tries to explain the heart of economics to casual contacts who think he can grace them with a hot stock pick: <blockquote>Alas, I am not an accountant or a stockbroker, I explain. But one very useful thing I've learned from economics is to be skeptical of advice from stockbrokers about the latest stock that's sure to skyrocket. Saving you from losses isn’t as exciting as promising you millions, but it's still pretty valuable. But the real point is that economics is about something more important than money. Economics helps you understand that money isn’t the only thing that matters in life. Economics teaches you that making a choice means giving up something. And economics can help you appreciate complexity and how seemingly unrelated actions and people can become entangled .</blockquote> Smith's suggestions for complexities and actions and personal choices are not about optimizing capital. Smith's suggestion to which Roberts keeps returning is the twelve words "Man naturally desires, not only to be loved, but to be lovely." To be worthy of esteem, to be admired and admirable. Roberts then mines some superb advice on achieving this Knowing Roberts from his Café Hayek work and The Price of Everything, he is a great champion of liberty and free markets and limited government and I suspect the Infield Fly Rule. Channeling Smith's temperance and prudence, this is not a strident or pugnacious book. One can almost hear Smith telling me and my Facebook friends to tone it down a bit. The developer of the invisible hand is dubious about excesses of ambition, the great sage of free trade (who ended his career employed as a tariff collector) cautions about excesses in desiring and acquiring the latest gadgets, conveniences and contrivances. The new watch you covet, he cautions, is not likely to make you more punctual. Smith in his book and with his life is telling us how to live. Seek wisdom and virtue. Behave as if an impartial spectator is watching you. Use the idea of an impartial spectator to step outside yourself and see yourself as others see you. Use that vision to know yourself. Avoid the seductions of money and fame, for they will never satisfy.</blockquote> This is a superb and charming book. Five stars.

This book review will be a little different. This is a bulletin article I wrote using some of the insights from this book. It is about self-deception, but the general look you have from this article is an indication of the quality of this book. This was one of the best, and most insightful books I read this year. It is well written, and is helpful, practical, and a great read. There is a lot of great material that could be turned into sermons. A lot of people might not have heard of Adam Smith. Those who have heard of this famous man are familiar with his work on the Economy. He wrote a famous book called “The Wealth of Nations.” But this book is not the only material he produced. He also wrote an excellent book called “The Theory of Moral Sentiment.” This book is an excellent look into the makeup of humanity. Here are some insights on the process of self-deception that Smith provides for us today. “The first principle is that you must not fool yourself—and you are the easiest person to fool.” “Not surprisingly, we find it much easier to see the moral imperfections in others than our own shortcomings.” “Once you’ve noticed this strange logical inversion— what seems good for me is actually good for you!—… We do what’s best for ourselves but convince ourselves that our motivation is for others.” “Smith reminds us that it’s hard to be objective when you have a horse in the race— your own self-interest. It’s easy to convince yourself that you’re doing the right thing when you’re merely doing what benefits yourself.” “If you have water in your basement and ask a waterproofer for an assessment of the problem, he’s likely to recommend spending $ 30,000 to dig a trench around your house and reset the piers that support your foundation. The guy who sells sump pumps will recommend a sump pump. The gutter guy will tell you need to replace your gutters, and the landscaper will want to construct a berm to direct water away from the house. When you have a hammer, everything looks like a nail.” These quotes come from a book called “How Can Adam Smith Change Your Life.” Adam Smith was an attuned observer of humanity. The best way to overcome self-deception is to be part of a community of accountability, and maintain a strong spiritual life.

Fans of Russ Roberts will find much that is familiar. (To be clear: I am one of those fans.) Regular listeners to Econtalk will be familiar with Roberts' recap of Smith's central thesis from The Theory of Moral Sentiments, namely that "Man desires to be both loved and lovely". Roberts does not proceed through TToMS linearly, but rather provides his own well thought out progression of topics. Frequent snippets from Smith serve both to assure the accuracy of Roberts' summarization and to make me glad that I did not have to work through the 18th century prose. Roberts waits until the end of the book to present his take on the "Adam Smith question", specifically "how could the same author produce one work so disdainful of pursuing wealth for wealth's sake and then write the founding book of classical economic theory assuming man as an economic actor solely pursuing his own material interest?" Hayek understood how to reconcile this and Roberts rightly credits him while presenting a richer version of Hayek's arguments, informed greatly by the material presented in the preceding chapters. Roberts deserves a lot of credit for both illuminating Smith's genius and keen understanding of the world and for writing a book that is a pleasure to read.

I was eager to learn more of Russ Roberts views. His work on www.econtalk.com usually gives me a clearer idea of the view of his guest, rather than him. Were I an interviewer, that is what I'd like others to think of my work. Regarding this book, I don't agree with the grand generalization presented that we (all) want to be 'loved and lovely'. I'd have to read TMS myself to judge whether Smith applied this to all, or most people. I've observed several that don't seem motivated by this idea, but I found it an interesting lens for consideration. Smiths 'impartial spectator' does not seem as correct or consistent as the 'inner master' from 'What is Man?' for understanding and predicting peoples behavior. I recommend Mark Twains work after reading Roberts book. One of the ideas that makes this book more than worth the candle is the necessity and justification for having a separate business outlook from personal outlook. Roberts description of a fireside chat with Adam Smith is charming. It is an interesting contrast to some of Smiths ideas that seem cold on first review, but wise after more thought is applied. Whether Roberts accurately reflects Smiths views or not, and whether or not Smith was correct in these views, this book outlines a useful guide.

And you should, then you will enjoy this book. Its an analysis of Adam Smith's "The Theory of Moral Sentiments", aka that other book Smith wrote. Whereas The Wealth of Nations spoke to the impersonal (the organizing of an economy), TMS dealt with personal human interaction. So how does Smith recommend you act? - By trying to please the "impartial spectator", a sort of referee in the back seat your mind creates who you know is watching - By seeking wisdom and virtue - Understanding yourself - Avoiding the seductions of money and fame These concepts are neatly summed up with Smith's wonderful quote, "Man naturally desires, not only to be loved, but to be lovely." Lovely in this sense means to earn admiration by being respected and honorable. Be careful to not delude yourself into thinking you are lovely. As Feynman put it, "The first principle is that you must not fool yourself and you are the easiest person to fool." Roberts does a masterful job of bringing in behavioral economics (confirmation bias, narrative fallacy) to show how natural this delusion is. Quoting a Venetian proverb by way of Taleb, "the sea gets deeper as you go further into it". Be modest. Mute your success and be humble. Know that most people agree with Gore Vidal, "Every time a friend succeeds, I die a little." Know that wealth is a side effect, not the goal. I loved the story of Warren Buffet's son who would forgo the appreciation of his inheritance to start a fledgling, and initially unsuccessful, music career. He is now successful and all the while followed his passion. What would he have even done with such a large fortune? He probably still would have been a musician. Take comfort in knowing as stated in the Talmud: "It is not up to you to finish the work. but you are not free to desist from it." Do not worry if others do not hear the same impartial spectator. The world is made up of complex interactions you cannot control but just by individually acting with propriety, you can slowly steer societal norms. This is how language evolves (through an "emergent order") and how trust flourishes. It is also why the "man of system" or top down approach almost never succeeds in government. There is a lot here. Russ dances around each idea with his own interesting, conversational views. You will keep pondering the Hillel quote, "If I am not for myself, who will be for me? If I am only for myself, who am I?"

Per a recommendation from a friend, I just finished my library's digital edition of "How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness." Book was so very, very, very good, I just purchased a hard copy from my Amazon friends. Have also read Smith's "Theory of Moral Sentiments" and "Wealth of Nations." Robert's modern interpretation of Smith's great works, are, well, great! A forceful, defendable rationale for "Because nice matters," it's easily readable and highly recommended. Especially notable is Robert's integration of "Moral Sentiments" (the book's main focus) with the more famous "Wealth of Nations," nicely resolving any seeming conflict between the two. Don't worry, buy and read this book, and, finally learning how to effectively pursue happiness, be happy in 2015! : ) Check out some of William J. Bahr’s books: Strategy Pure and Simple: Essential Moves for Winning in Competition and Cooperation and George Washington's Liberty Key: Mount Vernon's Bastille Key – the Mystery and Magic of Its Body, Mind, and Soul , a best-seller at Mount Vernon. “Character is Key for Liberty!”

Great book, always known Smith as an economist, discovered a new side of him.

Easy to read and understand... His view of happiness is so clear... So dificult to practice! But we have to try!!!

Great reading

Having read theory of moral sentiments many years ago I found this book an excellent summary of the key themes and reminder of the fascinating insights of the original text.

Great Read. The author gives current age examples to relate Adam Smith's ageless wisdom. An eye opener to understand the motives behind human behavior.