ON SMITHIAN PATERNALISM:

Evaluating Adam Smith’s Perspectives on Modern “Libertarian Paternalism”

Cindy Shen

Professor Henry Clark

Adam Smith & Political Economy

20 November 2020 Shen 1

Best known for introducing the concept of the invisible hand, Adam Smith appears (at least on the surface-level) to be the founding champion of laissez-faire economic theory. Both ​ ​ economists and libertarians deify Smith for supposedly pioneering a market framework consisting of purely self-interested participants. But as game theorists continue to prove that people do not solely consider their own payoffs when making decisions, economic scholars have had to reconsider their neoclassical models pointing in favor of a fully deregulated economy.

1 Among left-leaning political circles, these inconsistencies in classic economic theory ​ have ​ added fuel to the notion that Smith’s ideas are merely archaic relics resting on false assumptions

(see Norman 2018). These circles of thinkers are considered paternalists, who are thought to be deeply skeptical of free choice (see Goodin 1991). By nature, it follows that paternalists cannot possibly embrace the libertarian schools of thought so pervasively tied to Smith’s legacy.

Given the mounting evidence against fully selfish market players, is it fair for paternalists to discard Adam Smith’s economic views as obsolete? This question miscontextualizes Smith’s beliefs. In reality, Adam Smith is neither the firm advocate of human self interest nor the staunch enemy of state interventionism his colloquial reputation has ascribed to him. While Smith praised free trade and market equilibrium, he also recognized a need for some state intervention and outlined government roles like collecting taxes and regulating banks, among others (see

Rockoff 2010; Smith 1976, II.ii). Smith thus balanced respecting an individual’s autonomy with paternalist skepticism of it: he emphasized the value of letting people make their own choices all while conceptualizing institutions that would encourage them to make better decisions.

Accordingly, Smith’s moral and economic framework outlined in both The Theory of Moral ​ Sentiments and The Wealth of Nations attempt to balance paternalist ideologies with those of ​ ​ ​

1 See Sendhil Mullainathan and Richard Thaler’s encyclopedia article for more on the inconsistencies of classic economics, available online at: https://www.econlib.org/library/Enc/BehavioralEconomics.html

Shen 2 libertarianism. Smith thus implicitly subscribes to a form of what’s known today as “libertarian paternalism.”

To fully assess the extent to which Smith proposes his own form of libertarian paternalism and the extent to which he deviates from modern libertarian paternalists, I’ve divided this paper into three parts: first, I draw parallels between the core components of Smith’s moral theory and modern game theory to argue that Smith’s moral account of human nature is both empirically-backed and essential to shaping Smith’s views on an ideal system of justice and what role the government should play in protecting it; second, I highlight how Smith’s distinction between his conceptions of “justice” and “beneficence” mark how his moral sentiments determine his views on the level of paternalism a government can reasonably exhibit; and third, I compare the modern libertarian paternalism first coined by Cass Sunstein and Richard Thaler with Smith’s perspectives on individual liberty and government intervention. I’ve structured my argument in this way as a comparison on two fronts: (1) on the micro-level, between Smith’s moral theory and behavioral economic studies, and (2) on the macro-level, between Smith’s political economy and libertarian paternalism. In both comparisons, the macro-level is an application of the micro-level theory to a systemic political, philosophical, and economic framework. I conclude that a form of Smithian libertarian paternalism can be formed from understanding the interaction of smith’s moral and political theory.

Smith’s Sympathy, as Quantified by Game Theory

Understanding Adam Smith’s moral framework in The Theory of Moral Sentiments is a ​ ​ critical part of drawing parallels between Smith and libertarian paternalism. Libertarian paternalism is informed from recent behavioral economic literature citing the important role of irrational decision-making in the economy. In a similar fashion, Smith’s understanding of

Shen 3 political economy is informed from his moral theory. Smith specifically bases his moral theory ​ ​ on the fact that people do not principally act out of self interest, but rather by their innate sense of what he calls ‘sympathy.’ This sympathy instills a sense of inherent justice in all of us, which in turn affects broader economic transactions.

Smith begins TMS by declaring that regardless of how “selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it” (Smith 1982, I.i.I.1). In this opener, Smith does not deny that we look after our own interests, Smith simply states that it is a fact of human nature that we care about people other than ourselves (Otteson 2002, 16). Smith further highlights this sense of sympathy: “But whatever may be the cause of sympathy, however it may be excited, nothing pleases us more than to observe in other men a fellow-feeling with all the emotions of our own breast” (Smith

1982, I.i.2.1). Smith argues that our desire for mutual sympathy is one of our strongest social desires, and achieving the sympathy of others gives us pleasure; thus we “behave in ways that generate this mutual sympathy” (Otteson 2016, 646). He adds, “Nature, when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his brethren” (Smith 1982, III.2.6). Smith not only recognizes that humans are social beings with a

“desire to please,” but also believes that this sociality is fundamental to our understanding of human interaction.

Modern game theorists have empirically tested versions of Smithian sympathy. Even in the simplest of decision settings, neoclassical economic predictions (the ones assuming pure self interest) routinely fail. In the ultimatum game, players are given cash that they can offer to a stranger who can choose to accept or reject that offer. Players routinely deviate from self interest;

Shen 4 often, players reject offers that would benefit them even if the alternative is zero reward whatsoever (see Camerer 2011). While deviations from maximizing a player’s own payoffs may appear to suggest that the aforementioned player behaves without reason, these deviations are systematically replicated. Research thus suggests that players factor in some consistent rationale when making choices and that self interest is not the only factor at play.

To Smith and to game theorists today, one of these rationales is that we factor in the livelihood of others when we make decisions (Irwin 2014, 6). Smith argues that our sympathy for others instills us with a strong sense of justice because we feel the joys and sorrows of those around us, albeit to a lesser extent (Smith 1982, I.i.I.2). In TMS, Smith argues, “Nature has implanted in the human breast that consciousness of ill-desert, those terrors of merited punishment which attend upon its violation, as the great safe-guards of the association of mankind, to protect the weak, to curb the violent, and to chastise the guilty” (Smith 1982,

II.ii.3.4). Justice for Smith is an “innate and instinctive reaction” against the injustice and injury done to others, and we are able to measure what is just because of our intrinsic sympathy for those around us (Irwin 2014, 6; Smith 1982, I.ii.3.1).

Justice can be empirically measured by our sense of fairness. Further research on game theory demonstrates that people are averse to unequal payoffs: in other words, people care about fairness. In a study conducted in Indonesia to investigate high-stakes rejections in the ultimatum game, Cameron concludes that while increasing the prize money in a game (or the stakes) decreases rejection rates for unequal offers, some participants still rejected large sums of money if the split was not even (Cameron 1999). Furthermore, participants even rejected shares where they were given larger shares than their counterparts.

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But confined to the ultimatum game, in cases where the first mover offers half the share, we cannot rule out the possibility that the first mover acts solely out of self interest: the first mover may have offered to split not because they value fairness but because they expect a lower offer will be rejected. To test this logic, researchers introduced the dictator game. The only difference between the dictator game and the ultimatum game is that second movers cannot reject offers. We expect that a player who offered half of the share out of self interest in the ultimatum game would offer nothing in the dictator game, but the first mover often offers positive amounts even in a dictator game where the first mover has complete anonymity

(Hoffman et al. 1994).

Smith would find these results unsurprising. Smith remarked that due to our sympathy for those around us, mankind has “a very strong sense of the injuries that are done to others” (Smith

1982, I.ii.3.2). This intrinsic fellow-feeling accordingly leads us to place a high valuation on fairness. Moreover, Smith contended that this desire for fairness, or “justice,” gives rise to resentment. Smith views resentment as “the safeguard of justice,” since resentment leads us to desire punishment, or retribution for wrongdoings (Smith 1982, II.ii.I.10). As a result, we hate the villain and love the hero, and we “delight as much in the punishment of the one, as we are grieved at the distress of the other'' (Smith 1982, I.ii.3.2). In modern game theory, Smith’s observations are confirmed when study participants reject offers that would benefit them in order to punish the other player for unjust behavior (see Hermann et al. 2008).

Smith did not only view our moral sentiments as a stagnant trait but recognized that a person’s sense of justice and morals is shaped by the society they live in. Smith demonstrates how the same mechanisms that trigger us to sympathize with those around us can also decay our morals. For Smith, our sense of morality is shaped by our sympathy for those around us over

Shen 6 time because we are not born with an automatic moral compass, only with the desire for the sympathy of others (see Otteson 2016, 647). A newborn child does not consider the proper way to ask for what it wants, it simply “endeavours always, by the violence of its outcries, to alarm, as much as it can, the attention of its nurse, or of its parents” (Smith 1982, III.3.22). It is not until the child is old enough to “mix with its equals” that he realizes he is not the subject of “indulgent partiality” to everyone (Smith 1982, III.3.22). After the initial bitterness from not getting its wants satisfied, the child tries to alleviate the bitter feeling and gain the favor of its peers. The child soon stumbles upon using “self-command” to tame their sentiments to match that of their playmates (Smith 1982, III.3.22; Otteson 2016, 649). Once the child experiences the satisfaction of earning the mutual sympathy of its peers, the child will then continue by trial-and-error to find the behaviors that best elicit positive sympathies from those around it.

Over its lifetime, the child adopts behaviors and judgments that increase its odds of achieving mutual sympathy. Smith posits that we “always endeavor to bring down our own passions to that pitch, which the particular company we are in may be expected to go along with”

(Smith 1982, I.i.4.9). Man does not only desire to be praised, but also to be “what he himself approves of in other men” (Smith 1982, III.2.7). Since everyone engages in the same trial-and-error process of self-command, we eventually adopt a shared standard of judgment and behavior within a society. Smith thus reasons that our choices are influenced by the existing norms, cultures, and institutions around us; further, he argues that culture has the power to pervert our moral behavior and consequently induce us (however innately sympathetic we might be) to infringe upon the justice of others. As Smith puts it, “The different situations of different ages and countries are apt, in the same manner, to give different characters to the generality of those who live in them” (Smith 1982, V.2.7). Smith characterizes society as a dynamic exchange

Shen 7 where the context of a person’s surroundings can contribute to their character and asserts that cultural customs have historically contributed to barbaric practices defying the “natural propriety of action” (Smith 1982, V.2.9).2 ​ While Smith’s analysis of culture is separate from his analysis of justice, it demonstrates his belief that the society and institutions around us have the power to shape our behaviors.

Empirical tests have studied these cultural differences in justice. Using an adapted version of the

3 public goods game, ​ researchers let players contribute “tokens” to a group fund where each token ​ invested in the fund generated a return of 0.4 for each group member (Herrmann et al. 2008).

Afterward, players could choose to punish other members (at the expense of their own payoffs) based on their respective contributions to the fund. Results showed a strong correlation between the strength of the group’s “rule of law” in their respective society and the severity of punishment (Herrmann et al. 2008). Players from places with a rule of law deemed relatively strong (where law enforcement institutions were generally considered just) punished slackers much more harshly than those with weaker rules of law (Herrmann et al. 2008). These results mirror Smith’s thoughts on how societal norms seep into decision-making, since socially unjust behavior is punished accordingly in societies with stronger rule. The results also suggest that justice and (accordingly) punishment materialize differently based on culture.

Smith’s “Just” Government Coercion

What insight can this discussion of human behavior offer us about Smith’s thoughts on how paternalistic or libertarian the government ought to be? Smith’s conception of sympathy

2 According to Smith, a man from a so-called “savage” culture is formed out of the “necessity of his situation” when “inured to every sort of hardship” (Smith 1982, V.2.9). Smith specifically adds that even the “civilized Athenians” practiced the murder of newborn infants because “uninterrupted custom” had “so thoroughly authorized this practice” that even the doctrine of philosophers tolerated the “barbarous prerogative” (Smith 1982, V.2.15). 3 A public goods game is a game that attempts to simulate a dilemma where cooperation generates optimal outcomes but each individual player is incentived to slack off.

Shen 8 does not exist in a vacuum of moral theory and individual human behavior; in fact, Smith’s political and economic theory are contingent on his moral framework. So far, I’ve established that for Smith, our individual desires to enjoy mutual sympathies collectively craft a culturally-specific moral framework (Smith 1982, I.i.4.7; Otteson 2012, 649). This moral understanding underscores his theory of political economy in The Wealth of Nations. On the ​ ​ libertarian end, since Smith was keenly aware that societal pressure has the power to shape our moral judgment, it follows that he recognized the potentially overreaching power government institutions could have on behavior and sought to devise a minimally imposing theory of governance to combat this (Meskill 2013, 91). On the paternalist end, since Adam Smith’s perspectives on human sympathy align with the behavioral economics of today, we can reason that Smith knew that people do not always make the best decisions for themselves (Conly 2013,

11).

According to Smith, the government’s main role is to create and maintain institutions that protect justice: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things” (Smith 1980, IV.25). Essentially, the government’s biggest task is to prevent injustice to the best of its ability. Part of this “tolerable” justice system includes an established means for punishing unjust behavior (Smith 1982,

II.ii.3.6). Without a “tolerable” justice system to help ensure wrongdoings do not go unpunished,

Smith opines that “resentment” (from the sight of injustice) would be kept unchecked, possibly motivating people to retaliate. For Smith, punishing injustice is thus crucial for “preserving the order of society” (Smith 1982, II.ii.3.7).

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Aside from capital punishment, how broad does the term “justice” extend in Smith’s

“tolerable administration” of it? To answer this question, Smith distinguishes between justice and “beneficence,” which includes values like charity and compassion. Smith only lists three rules of justice: the laws protecting “the life and person of our neighbour,” “his property and possessions,” and last of all “his personal rights, or what is due to him from the promises of others” (Smith 1982, II.i.2.2). This conception of justice is incredibly thin: under Smith’s definition, we act justly when we do not kill or molest, steal from others, or break our contracts

(Otteson 2016, 668). The barebones nature of justice renders it absolutely necessary to the proper function of a nation; Smith thus intentionally limits his definition of justice because he considers it justified for government coercion. Moreover, Smith’s thin conception of justice shows his aversion to sweeping, centralized policy. Because Smith argues that the enforcement of justice should be universal, his definition of justice makes a simple administration of justice easy to translate into tangible and detectible rules of law.

In contrast, the virtue of beneficence is “less essential to the existence of society than justice” (Smith 1982, II.ii.3.3). Smith reasons that because beneficence can only lead you or someone else to be better off than before, a total lack of beneficence just leaves you as you were without it: therefore, beneficence “cannot be extorted by force” and does not warrant coercive punishment from the government in the form of jailing or fines (Smith 1982, II.ii.3.3). It is worth noting that Smith believed beneficence is a moral requirement: by Smith’s measure, “Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it” (Ottenson 2002, 143; Smith 1982, II.ii.3.3). He compares society to a building, noting that beneficence is an “ornament which embellishes” while justice

“is the main pillar that upholds the whole edifice” (Smith 1982: II.ii.3.4). Smith concludes that it

Shen 10 is “sufficient to recommend, but by no means necessary to impose” beneficence (Smith 1982,

II.ii.3.4).

Smith states that it is okay for the sovereign to “recommend” beneficence because it tailors government intervention to be specific to the particular circumstances of a localized region (Otteson 2012, 671). Since Smith believed society acts upon the individual just as the individual acts upon society, he felt that laws should be context dependent on the history and situation of the people involved. For this reason, Smith deliberately does not call for (nor does he condone) policies interfering with societal beneficence. Through this distinct treatment of beneficence, we see that Smith idealized a minimalist government imposing minimal coercion, but still recognized that some level of coercion was necessary to maintaining a just society.

Libertarian Paternalism: An Oxymoron for Smith?

Over two-hundred years after Adam Smith posited a theory of political economy rooted in his moral framework of market participants acting out of the desire for mutual sympathy, famed legal scholar Cass Sunstein and Nobel-winning economist Richard Thaler introduce libertarian paternalism in the aptly titled “Libertarian Paternalism Is Not An Oxymoron” to propose a political theory from their understanding of behavioral economics. Sunstein and Thaler define libertarian paternalism as a philosophy that lets people make their own decisions (the libertarian part) while nudging people into making choices (the paternalistic part) they would have made had they “had complete information, unlimited cognitive abilities, and no lack of willpower” (Sunstein and Thaler 2003b, 1162). They encourage economists (who are typically libertarian) “to rethink” their negative views on paternalism; this “anti-paternalistic fervor,” they argue, is based on the false assumption that people always make choices that are in their best interest (Sunstein and Thaler 2003a, 175). To solve for this, Sunstein and Thaler propose setting

Shen 11 a ‘default’ framework that naturally prods people into making utility-maximizing decisions

(Sunstein and Thaler 2003a, 178).

Sunstein and Thaler’s framework weaves framing effects and default rules into the legal and organizational structures of government policy and is thus inherently Smithian. Smith advanced a system of natural liberty where the sovereign had three duties to attend to: first, to protect the society from “the violence and invasion of other independent societies;” second, to establish “an exact administration of justice;” and third, to erect and maintain “certain public works and certain public institutions” (Smith 1976, IV.ix.51). I discuss the latter two duties and the “default rules” Smith sets for them in this section.

Smith’s ideal system acknowledges the need for some baseline role for the government to set and enforce rules so that “every member” of a society is protected from “the oppression of every other member of it” (Smith 1976, IV.ix.51). This view is merely an application of Smith’s characterization of justice in TMS. Essentially, in Smith’s view it is up to the sovereign to ensure that laws are written and enacted in such a way that each person has the ability to pursue their individual liberties. Likewise, Sunstein and Thaler simply extend the role of the sovereign to ensure that laws are written and enacted in such a way that each person has complete information ​ to make informed decisions about the individual liberties they wish to pursue (Sunstein and

Thaler 2009, 5). The primary mechanism for this is through framing While Smith’s core beliefs on the role of the sovereign are far more minimalistic than those of modern libertarian paternalists, Sunstein and Thaler in many ways present a modernized groundwork of Smithian thought.

There are however important differences between the libertarian paternalism proposed by modern scholars and those suggested by Smith. Namely, Smith’s prescription for the role of

Shen 12 government in society does not extend to helping people make better decisions with an all-encompassing regulation across a large nation-state like the U.S. (whereas Sunstein and

Thaler consider automatic enrollment with an opt-out option for government-subsidized insurance). Ensuring that people have access to information or are led towards programs that could better their lives is a beneficence to Smith, and thus any paternalistic nudging would need to be administered locally for him to be on board with it. Smith states outright that policies designed to enhance beneficence are not only difficult to apply centrally, but also require extensive knowledge of localized circumstances (Otteson 2016, 673). Thus, to enact a nationwide policy that enhances an agenda that Smith would consider as beneficent does not fall in line with Smith’s framework of ideal governance.

Another important difference between the two accounts is that Smith places more emphasis on liberty. Sunstein and Thaler use the word libertarian as the modifier for paternalism ​ ​ ​ because their focus is on paternalism (Sunstein and Thaler 2009, 5). Smith's position tends toward more of a paternal libertarianism. Although the libertarian paternalism Sunstein and ​ ​ ​ ​ Thaler present is relatively weak and unintrusive, the approach still counts as paternalistic because it encourages central planners (or whoever is writing the law) to design programs that attempt to move people, or “nudge” them, into making choices that they think will make their

4 lives comparatively better (Sunstein and Thaler 2003b, 1163). ​ The libertarian approach Sunstein ​ and Thaler take still respects an individual’s right to choose and reflects Smithian values of liberty: “If people want to smoke cigarettes, to eat a lot of candy, to choose an unsuitable health care plan, or to fail to save for retirement, libertarian paternalists will not force them to do otherwise — or even make things hard for them” (Sunstein and Thaler 2009, 5). The extent to

4 Sunstein and Thaler define a nudge as “any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count a nudge, “the intervention must be easy and cheap to avoid. Nudges are not mandates” (Sunstein and Thaler 2009, 6-8).

Shen 13 which a government can coerce individual choices is then the only aspect of nudges Smith’s writings are in conflict with.

Where modern libertarian paternalist thought and Smith are most in dialogue is on the government’s function to erect and maintain “certain public works and certain public institutions” (Smith 1976, IV.ix.51). Both political ideologies acknowledge that there are certain public goods that require state intervention. Smith notably takes note of very few such public institutions, mainly infrastructure that facilitates commerce, as well as partially subsidized, locally controlled, primary schooling (see Smith 1976, V.i.f). For all of these cases, Smith highlights that these industries are specific instances of market failure. Similarly, Sunstein and

Thaler deduce that when private enterprise fails to produce socially optimal results in an industry with a moral imperative (such as schooling or healthcare), it is up to the government to generate policy nudges that correct for these market inefficiencies (Sunstein and Thaler 2009, 242).

While both sets of political theorists follow the same logic, Thaler and Sunstein explore a much wider range of public goods that they believe their nudges can help alleviate. Most notably, Sunstein and Thaler highlight the kinks in the U.S. healthcare system and offer solutions to fix it (see Sunstein and Thaler 2009, 159-174). Sunstein’s thoughts in particular are of marked interest because Sunstein later played an instrumental role in devising the individual mandate in

President Obama’s Affordable Care Act (Broder 2012). The individual mandate is a requirement for all people to obtain health insurance: for those unable to pay, the government subsidizes the cost; for those able but unwilling to pay, the government charges a penalty (Appelquist 2013, 6).

On the surface, this mandate appears to follow neither Sunstein’s nor Adam Smith’s respective philosophies. Mandating health insurance coverage is not considered a mere “nudge” to

Sunstein, and charging a penalty for a beneficence is unwarranted coercive punishment to Smith.

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Accordingly, the individual mandate presents a nuanced and intriguing point of comparison between libertarian paternalism and Adam Smith.

Sunstein’s position on the individual mandate is far more straightforward. To Sunstein, the individual mandate is a reflection of what’s called “choice architecture” (Sunstein and Thaler

2009, 81). Sunstein argues that when faced with most decisions, people will often take the option requiring the least amount of effort (Sunstein 2016, xvi). For any given choice there is subsequently a default option that the chooser will end up with if they do nothing; we thus expect that many people will end up picking the default option without consciously weighing the decision themselves (Sunstein 2016, xiii). In the case of the individual mandate, the government has merely set a “default.” Of course, the individual mandate tacks on a disincentive for opting out; Sunstein’s justification for this far-reaching nudge is that the individual mandate solves a collective action problem in healthcare. Without the individual mandate, insurance companies would otherwise reject providing insurance to the most vulnerable populations, the chronically ill and those with pre-existing health conditions (Appelquist 2016, 13). Thus, while the mandate contradicts Sunstein’s unimposing “nudges,” the paternalistic coercion is necessary to fixing the unethical failures of the health insurance marketplace.

It is difficult to confidently assume Smith’s perspectives on the individual mandate because he wrote very little on healthcare; however, Smith’s conceptions of morally necessary goods can be found sprinkled sporadically in his works. We cannot cleanly cast out healthcare as a beneficence since it is necessary for protecting Smith’s first rule of justice — life. Ergo, if we consider health insurance as protecting the system of justice, then Smith may have considered the mandate a form of public work. Smith also believed we should defend the poor and disadvantaged against those who wield power over them in the private sector, which the

Shen 15 individual mandate accomplishes by letting vulnerable populations get the health insurance that they need (Rasmussen 2006, 312).

Nevertheless, Smith would still approach the individual mandate with caution because it was written to appease insurance companies. One of Smith’s more passionately-written beliefs was that private business should stay out of government, since businessmen are likely to promote their own without concern for the wider populous. Smith wrote that the “proposal of any new law that “comes from this order… ought never to be adopted till after having been long and carefully examined” with the “most suspicious attention” because it comes from “an order of men” whose interests do not align with those of the public and are incentivized “to deceive and even to oppress the public” (I.xi.III.10). On the other hand, acquiring insurance only helps you pay for care and does not necessarily guarantee a longer or healthier life. But even if Smith considered health insurance to be a mere beneficence, Smith may not have been completely opposed to a government interference in the insurance market: he notes that the “civil magistrate” (or in Sunstein’s words, a local “choice architect”) may prescribe rules that are not limited to prohibiting “mutual injuries among fellow-citizens,” but also command mutual good offices to a certain degree” (Smith 1982, II.ii.I.8). Smith asserts that a government body can introduce laws promoting beneficence, but his use of the word “civil magistrate” limits these laws to the jurisdiction of local lawmakers— a far cry from the nationwide individual mandate.

In Conclusion

Much of this speculation on Smith’s views on the individual mandate demands answers to the question: where does paternalism go too far? The answer is unclear. While Smith did not advocate for as hands-off an approach as many of his followers, Smith did try to minimize the role of government as much as possible, albeit while protecting the virtues of the individual.

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Even Smith’s clearly-distinct conceptions of justice and beneficence do not leave us with a complete answer as to which group healthcare protects. The level of nuance in Smith’s understanding of governance does suggest however that Smith had his own working version of what’s now known as libertarian paternalism.

A Smithian libertarianism is in part the caricature that his utility-maximizing subscribers have attributed to him: Smith believed that the market could function with little interference

(although Smith’s basis for this economic theory stemmed from his belief in our desires for mutual sympathy, not entirely self-interest). Smith’s free-market thinking was limited, however.

A Smithian paternalism emerges from Smith’s understanding that markets sometimes fail, and that failure, especially if it imposes on the rules of justice, is morally imperative for the government to try and amend. By dissecting the nature of economic markets and their dynamic back-and-forth interactions with the moral sentiments of the individual, Smith’s observations sculpt an evolving market landscape that needs governance, specifically beneficent governance, to be tailored specifically to the culture and social norms it is embedded within. Smith’s moral conceptions explain his emphasis on individual freedom and support his formulation of a minimally-imposing governmental institution. The political economy Adam Smith explores in both The Theory of Moral Sentiments and The Wealth of Nations thus attempts to shape a ​ ​ ​ ​ preliminary version of modern libertarian paternalism with a few key differences in tolerance levels for a policy’s so-called nudges.

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