Adam Smith’s magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, considered the foundation stone of modern economics, marked its 250th anniversary on March 9. While celebrating the epic work, it is also worth pondering the long-standing conflict between two of Smith’s books — The Wealth of Nations (1776) and The Theory of Moral Sentiments (1759).
A ‘problem’ or a misreading?
The “problem,” known as “Das Adam Smith Problem,” was first formulated by German economists of the Historical School, such as Wilhelm Hasbach and August Oncken, in the late 19th century. They perceived a huge contrast between the sympathetic moral philosophy of Smith’s first book and the selfishness depicted in the latter. Did Smith’s perspective really evolve over those 17 years?
In the 1920s, however, Jacob Viner, a mentor of the early Chicago school of economics, showed that Smith’s two books share an identical philosophical base. Furthermore, David D. Raphael and Alec A. Macfie, editors of the 1976 Glasgow Edition of The Theory of Moral Sentiments, categorically rejected the Das Adam Smith Problem, calling it “a pseudo-problem based on ignorance and misunderstanding.”
Smith extended his earlier moral philosophy into economics rather than discarding it. The ‘invisible hand’ was a metaphor for how individual motivations, when properly directed, could benefit society. It was never intended to be a celebration of avarice. Drawing on Rousseau’s Second Discourse, as discussed in Charles L. Griswold’s 2010 paper, “Smith and Rousseau in Dialogue: Sympathy, Pitié, Spectatorship and Narrative,” Smith suggested that human beings are not naturally sociable, and that markets are extensions of morality rather than moral voids.
The Das Adam Smith Problem has come to symbolise the dual nature of modernity itself, especially in the wake of industrial capitalism. The majority of contemporary scholars see this as a misunderstanding or a partial grasp of Smith’s philosophy and view it as forming a coherent whole that unites ethics and economics. As Amartya Sen wrote in a 2010 paper in the Erasmus Journal for Philosophy and Economics, “In economics, for example, Smith was concerned not only with the sufficiency of self-interest at the moment of exchange but also with the wider moral motivations and institutions required to support economic activity in general.”
Reconciling morality and markets
On closer inspection, Smith’s two perspectives are not only compatible but also complement each other, as they are, in fact, part of a unified system. While the Wealth of Nations is more outward-focused, the Theory of Moral Sentiments is inward-focused; both, however, view the world and the self through the lens of empathy. The Wealth of Nations deals with applied empathy, whereas Theory of Moral Sentiments is about empathy per se.
What is the root cause of the Das Adam Smith Problem? As Leonidas Montes argued in a 2003 paper in the Journal of the History of Economic Thought, “Scholars have long been interested in the apparent dichotomy between sympathy and self-interest in Smith.” This dilemma arises because, by nature, human beings are binary thinkers. The real world, however, exists along a spectrum of grey areas. There is a constant interplay, advancement, regression, etc., of self-interest and empathy. Smith’s two books engage with different points along this same spectrum.
In his 2010 work, Amartya Sen argued that “Adam Smith has had much smallness thrust upon him.” Smith became the welfare theorist of today because of the innovative interpretations of the welfare economists.
Leon Walras, the famous economist, set the goal for mathematical economics in the 1880s, but it was not until Kenneth Arrow’s work in the 1950s that it was realised. To comprehend what markets can accomplish collectively, Arrow developed economic theory beyond tired dichotomies of whether they are good or bad.
A debate that endures
There is no denying that the “Das Adam Smith Problem” has long puzzled academics, and it shows not just the dualities in Smith’s work but also our own uneasy relationship with morality and markets. But it is also necessary to mention the fact that though the two different Smiths are now well connected, there is no single thread that fully links the two works. As David Wilson and William Dixon noted in a 2006 paper in the Journal of Critical Realism, “There is still no widely agreed version of what it is that links these two texts, aside from their common author.” That is the beauty and mystery of it.
Today, the Das Adam Smith Problem has taken on a broader scope. “How do we integrate the fact that much economic analysis is based on self-regard (via the price mechanism) with renewed interest in and evidence of the importance of pro-social motivations?” Natalie Gold, of the University of Oxford, in her 2020 paper in Social Philosophy & Policy, writes that it’s the renewed Das Adam Smith Problem for the 21st century. Thus, the cornerstone of the Scottish Enlightenment in the 18th century continues to shed light on the world in a renewed spectrum.
(Atanu Biswas is Professor of Statistics, Indian Statistical Institute, Kolkata)
Published – May 05, 2026 08:30 am IST
