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

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 -+--- SeriousInsights High -+--- LowPractical 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 thisKnowing 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.

All of Smith's thoughts and theories beautifully summarised, and clearly explained! Definitely would recommend it to those who don't know much about Smith, or for those who need some revision or a quick skim through of his ideas i.e the invisible hand ;)

Fascinating analysis of a man who thought of himself first as a philosopher. incidentally as an economist: a new profession. Well written and witty.

A thought provoking book which can be applied to life in general to make one a better person. Digestible and fun as well as deeply knowledgable.

Good to read this one alongside Smith's orginals

Russ Roberts does it again. A wonderful read, lively, full of insight about Smith's world and how it's lessons are so relevant for now. Every page is a delight: contrary to what people think, economists can really write well.