Development and Underdevelopment in the History of Economic Thought

Adam Smith, Justice, and the Four Stages of Progress

Malloy Robin Paul, Syracuse University

Adam Smith discussed the four stages of progress and development, and linked them to the simultaneous evolution of law and economics. In this paper, I explore the relationship between Smith’s notion of justice and his ideas of progress. Adam Smith, as the author of The Wealth of Nations, is best known for his foundational work in economics and for his metaphor of the invisible hand. In fact, this metaphor has been used by economists to give intellectual credence to the benefits of self-interest and it purports to explain how markets can be both self-coordinating and self-correcting; thus, supporting a policy of laissez-faire. Legal economists, and lawyers doing law and economics, have borrowed this understanding of Smith’s work from economics and applied it to law in order to advocate for efficient legal rules, and for making law more scientific by removing moral reasoning from legal judgments. While Adam Smith was interested in the relationship between law and economics, he was not principally concerned with the need to make law more efficient; he was concerned with the way in which law advanced justice while limiting the excesses of self-interested individuals. Law was about establishing the proper limits to the invisible hand and not about establishing an amoral commitment to efficiency as the measure of justice. In limiting self-interest and advancing justice, law contributed to economic development and progress. Law defines and clarifies property and the ways in which it can be owned, used, and transferred. Law reduces risk by establishing a framework for trade, exchange, and human interaction in which people can agree on terms and expect fair enforcement of agreements. Law introduces regularity and predictability to a world full of complexity and chaos. Most importantly, law introduces the concept of justice and fairness, which facilitates the willingness of people to enter into agreements and exchanges with strangers and across long distances. A belief


Keywords: Adam Smith, Invisible Hand, Law and Ecoomics