James Otteson's book (2002) is a comprehensive and clear analysis of Smith's two works -- Wealth of Nations and The Theory of Moral Sentiments -- and their relation. Otteson's detailed analysis shows how, for Smith, market systems and moral systems are similar. Both are generated by individual decisions. And both generate unintended systemic social order. I think Otteson;s analysis is correct. In this paper I develop one possible implication of Otteson's reading of Smith (that Otteson did not develop) aimed at justifying his Smith's position (as read by Otteson).
Smith describes human beings as imperfect and not perfectible. Given all their biases, delusions and mistakes, how can individuals live together, be virtuous, and prosper? In both TMS and WN, Smith answers individuals do not know what is best for them and/or for society, but with a decentralized process of trial and error they develop successful rules of behaviour and/or institutions that allow them to achieve their goals as well as, unintentionally, social order. The question this paper asks is: was Smith accurate in describing how, aiming at something other than social order, individual descisions unintentionally and spontaneously generate social order?
The answer I offer is yes. Smith's implicit model of social order works because it focuses on how to minimize the consequences of mistakes and imperfections in society rather than on how to create the best social system.
Paganelli, M.P. (2006). Adam Smith: Why decentralized systems? The Adam Smith Review, 2, 201-206.
The Adam Smith Review