Positional goods were once free, taken for granted and seemingly plentiful, and thus social relations were rarely mentioned by classical economists. Hirsch shows that they were implicitly assumed. Taking Adam Smith’s economic analysis in The Wealth of Nations and his social analysis in The Theory of Moral Sentiments, Hirsch summarizes his views as follows: “[Men] could safely be trusted to pursue their own self-interest without undue harm to the community not only because of the restrictions imposed by the law, but also because they were subject to built-in restraint derived from morals, religion, custom, and education.” Smith’s position is a far cry from the celebrations of the dominance of self-interest that one finds today.
In Republican Paradoxes and Liberal Anxieties, Ronald Terchek says that people rely on fragments of his work to understand Smithian metaphors or assumptions about rationality and economic markets. They omit critical parts of Smith's theory and, in the process, give us not merely an incomplete Smith but also a distorted Smith. Even though Smith believes that the pursuit of self-interests in economic markets generates social benefits, he warns that such interests are too often driven by deceits that serve our vanities and lead to our own unhappiness.
He argues that although the rise of commerce introduces freedom, it provides no guarantee of a happy, moral life. For Smith, there is nothing about freedom that assures its wise and prudential use. Rather, he sees that free societies have many temptations that, if pursued, invite unhappiness. Therefore he promotes freedom as well as the moral development of agents and sounds both a celebration and a warning about liberty.
The prominence Smith gives to self-interest is widely known. He repeatedly argues that people have an interest in their own well-being and that they engage in activities that they think will promote it. But in addition to self-interests, Smith credits people with carrying moral sentiments. Smith claims that we come with natural endowments that enable us to make elementary moral judgments, to rejoice with the happiness of others, and to grieve at their misfortune. Such sentiments "superintend" our passions and desires and prompt us to be attentive to others.
Also, Smith finds that when one person or a few people hold the preponderance of power and wealth in society, they can be counted on to use these goods to serve their interests, not the interests of those dependent on them for a living and security. Smith repeatedly argues that when wealth and power are combined, the greatest social cost comes from the loss of independence of those who are excluded. Dependencies cause honesty to be routinely penalized. He holds "Nothing tends so much to corrupt and enervate and debase the mind as dependency, and nothing gives such noble and generous notions of probity and freedom as independency."
He warns of the deception of wealth which makes people believe that more personal wealth and power will bring them happiness. He sees wealth giving us the ability to make choices to do things we could not have made without it. However, he finds wealth becomes dangerous to us when we allow it to define our character. He emphasizes individuals who marginally improve and do not make quantum jumps in fortune or rank. When Smith introduces us to those who have earned vast fortunes, we encounter people who find that tranquility has eluded them.
Usually seen as a champion of increasing national income, Smith nevertheless fears that when national wealth passes a critical point and luxury becomes widespread, the consequences are usually disastrous. He fears that during prosperous times, individuals lose a sense of their limits and refuse to do what is necessary to retain their freedom. In pressing their own immediate interests, they do not secure their long-term welfare but rather buy a little time for their current enjoyment only, in the end, to become dependent on those who care little about them.
He worries that excessive individualism undermines itself. He holds that self-restraint remains necessary for people who wish to retain their freedom. He acknowledges that background makes the most profound difference in the chances and choices available to people and restricts the autonomy of many in commercial society. He fears that the accumulative, unsettling effects of economic growth serve to demythologize the very restraints that he thinks are necessary for a flourishing, autonomous life and for political legitimacy.
Smith warns about the deception of deference, namely the widely held notion that those who possess great wealth and honor deserve our admiration and respect. According to him, this deception is "the great and most universal cause of the corruption of our moral sentiments." When we are deferential, we excuse our "superiors," even when our moral sense would direct otherwise. Standing in awe of wealth and power, we not only ignore the wise and virtuous, but we also despise and "neglect persons of poor and mean condition.' Moreover, Smith finds that deference contributes to the legitimization of a regime, its practices, and the inequalities it protects and exonerates.
His good society is characterized by more than markets, diffused power, and freedom. It is a place where politics is not instrumental, and where culture promotes a sense of limits and deference. He is also concerned about the concentration of private power and the pattern of hierarchy and subordination that evolves within civil society, knowing that people can be dependent on private concentrations of power as well as public ones. If any of these latter characteristics are weak or missing it is not at all clear that Smith would automatically approve.
(Adam Smith's capitalists were all small fry - shop owners, merchants and small scale industrialists. In his time, a 'manufactory' with a dozen workers was a big concern. The market was highly fragmented and wealth and power was not concentrated in a few hands.)
PS: The Theory of Moral Sentiments was Adam Smith’s attempt to explain where morality comes from and why people can act with decency and virtue even when it conflicts with their own self-interest. The book is heavy reading and I gave up mid-way. An accessible account of the work is How Adam Smith Can Change Your Life.