Khalil 05

Cambridge Journal of Economics 2005, 29, 57–71
doi:10.1093/cje/bei014
Downloaded from https://academic.oup.com/cje/article/29/1/57/1730021 by Universidad de los Andes Sistema de Bibliotecas user on 11 May 2023
An anatomy of authority: Adam Smith
as political theorist
Elias L. Khalil*
Authority for Smith arises ironically from the desire to attain a high station in
life. Given that most people fail, they ‘free ride’: they identify their ego with
high-ranking agents, through ‘vicarious sympathy’. Vicarious sympathy gives
rise to status and, if combined with utility, would occasion political allegiance,
the basis of political order (an invisible hand argument). Smith’s theory
challenges liberal political theory (of the classical type à la Locke or of the
social type à la Bentham). It also challenges traditionalist political theory that
deposits authority in the hands of selected guardians (from Plato to Strauss).
Key words: Vicarious sympathy, Social contract versus political contract,

Status, Rank, Nationalism
JEL classifications: B3, D7
Introduction
What is political authority? Does authority as exercised by the state over its citizens
differ from power as exercised by referees in basketball games, by hegemonic states over
other states, or by monopoly firms?
Political philosophers and theorists from Socrates and Locke to Bentham and Nozick
have offered divergent views on authority and how it relates to power. This paper shows
that Adam Smith advances, in The Theory of Moral Sentiments (TMS), a view based on
psychology that sets him apart from most political theorists. Many authors have
discussed Smith’s political psychology (e.g., Cropsey, 1977, 1987; Winch, 1978;
Haakonssen, 1981; passim Hont and Ignatieff, 1985; Hermann, 1986; passim Jones
and Skinner, 1992; Kressel, 1993; Gallagher, 1998; Griswold, 1999; Barry, 2000;
Kahn, 2000; Cottam and Cottam, 2001; Rothschild, 2001; Kuklinski, 2002).
However, much of the secondary literature amounts to hurried commentaries without
noting, as is shown here systematically, the unpleasant implications of Smith’s view
with regard to both traditionalist and modern (i.e., liberal) political theories. Stated
broadly, traditionalist theories—such as the Platonic/Straussian legacy—justify the
Manuscript received 21 October 2002; final version received 6 June 2003.

Address for correspondence: Konrad Lorenz Institute, Adolf-Lorenz-Gasse 2, A-3422 Altenberg,
Austria; email: [email protected]
*Earlier versions benefited from the comments of James Buchanan, Richard Posner, Walker Todd,
Hans Jensen and two anonymous referees. The final version benefited also from the support of Vassar
College Research Committee. The usual caveat applies.
Cambridge Journal of Economics, Vol. 29, No. 1, Ó Cambridge Political Economy Society 2005; all rights reserved
58 Elias L. Khalil
primacy of the authority of élites because subjects supposedly cannot govern their own
affairs. In contrast, modernist theories—such as the classical liberal legacy of John
Locke and, what one may call, the ‘social liberal’ legacy of Jeremy Bentham and Karl
Marx (Khalil, 2002)—stress the primacy of civil society because subjects supposedly
can govern their own affairs.
For Smith, authority, which involves allegiance, differs fundamentally from power
as wielded by monopolists, sports’ referees, hegemonic states, and so on. Economists
interested in collective action, in the role of constitutions, and in the behaviour of
politicians and bureaucrats generally do not pay attention to political psychology. In
particular, public choice theorists have broadly failed to come to grips with the
phenomenon of political leadership or authority. To remedy this situation, James
Buchanan and Viktor Vanberg (1989) attempted to account for leadership. They pro-
posed that leaders simply occupy a function in the system of division of labour, in
which they specialise in the skill of constitutional construction, in no way differently
from surgeons or plumbers.
Smith was highly critical of such a view of authority as expressed in his day by the
social contract theory of John Locke (Khalil, 1998). While other thinkers—especially
in the 19th century, such as Benjamin Constant, Madame de Stael and Francois
Guizot—also criticised social contract theory, they still adhered to classical liberalism.
Such liberalism, though, has to become normative. While Smith criticised social con-
tract theory, he developed a positive account of authority that undermines the liberal
project. Smith viewed the state and the citizen as involved in a symbiotic relation.
Smith constructed his view by observing the natural sentiments of men in society. As
men act on their natural sentiments, admiring the rich and powerful, a political order
arises without their design. This is probably another example of the invisible hand
(Khalil, 2000A, B).
This paper reconstructs Smith’s theory around four questions, discussed in four
sections. First, what is the origin of rank, i.e., the distinction accorded to successful
agents, as motivated by the admiration that men hold for each other? Second, how does
a particular rank become widely accepted in society, what is termed here ‘social rank’?
Third, how does social rank, in turn, evolve into ‘status’—understood here as more-
or-less rigid social stratification? And fourth, the core of the paper, how does status, in
turn, develop into an authority relations. The concluding section highlights how
Smith’s theory diverges from liberal theory, and resembles that of Joseph Schumpeter.
1. The origin of rank: admiration

Social psychologists have recorded that shyness may signal submissiveness and, hence,
may play a role in relations of dominance. Shyness, as widely agreed (e.g., Kagan,
2001), expresses an innate temperament that characterises a person independently of
social interaction. Shyness as an innate temperament cannot be used to explain the
origin of rank, which involves social interaction. To his credit, Smith does not start
with innate temperaments, which would pre-empt the theoretical effort to explain the
phenomenon of authority. Smith rather commences with agents interacting with each
other—and how they consequently rank one another. This ranking, with regard to
a specific ability, determines the allocation of admiration (Khalil, 1996) and, as shown
here, is at the core of the nature of authority.
An anatomy of authority 59
s
Figure 1 summarises Smith’s account of the ranking process. The spectator A (A ) is
equidistant, to signify neutrality or objectivity, from the stations of persons B and C. As
judges whether the potential of B (Bp) with regard to a particular ability is superior or
inferior to the potential of C (Cp) with respect to the same ability. As wants to estimate
the distinction of Bp, situated in the first station, in comparison to Cp, situated in the
second station. The spectator, acting as a competent and impartial judge, should be
able to determine which agent ranks higher than the other, i.e., which agent has more
admirable potential. The agent with the capability that receives the highest ranking or
admiration of spectators becomes more prominent, depending on the importance of
that ability in the particular society:
At the head of every small society or association of men, we find a person of superior
abilities; in a warlike society he is a man of superior strength, and in a polished one of
superior mental capacity. (LJ(B) 12)1
Smith admits that it is ‘very difficult’ to identify the characteristics which occasion
authority. However, this difficulty does not prevent him from identifying age, wisdom,
physical strength, wealth, and antiquity as such characteristics (L,A) v.129, see also
LJ(B) 12).2 In another text, Smith argues that the private man who is not born into the
nobility has to rely on his talents and efforts in order to distinguish himself (TMS
I.iii.2.5).
2. From rank to social rank

Why does the admiration of a capability, i.e., the ranking of agents according to their
capability under focus, turn into what one may call ‘social rank’? Social rank involves
a system that specifies what is desirable. One may classify agents according to abilities
without turning the admired rank into a social rank. For instance, one may rank agents
s p
3rd station A B 1st station
p
C 2nd station
Fig. 1. Three-station model of the comparison of capability of the other.

1
All references are to The Glasgow Edition of the Works and Correspondence of Adam Smith, which
identifies the book or part, chapter, section, and paragraph numbers. The abbreviations follow the ones
suggested by The Glasgow Edition: WN for The Wealth of Nations (Smith, 1976A ); TMS for The Theory
of Moral Sentiments (Smith, 1976B); LJ(A) for Lectures on Jurisprudence: Report of 1762–63 (Smith,
1978); LJ(B) for Lectures on Jurisprudence: Report dated 1766 (Smith, 1978).
2
For a detailed discussion of the four circumstances that occasion high distinction and rank, see The
Wealth of Nations (WN V.i.b.3–8).
60 Elias L. Khalil
according to the ability to differentiate between different species of birds, paint or
write poetry without turning the admired ability into a social rank, i.e., the object of
desire. The sufficient condition for rank to develop into social rank is that the
capability under focus becomes of particular importance, i.e., becomes the object of
desire. A rank can become the object of desire given changes in technology, resource
availability, organisational relations and threats that face the society.
Agents must be able to exert ‘imaginative sympathy’ in order for an admired,
important ability to become the object of desire. The term ‘imaginative sympathy’, as
used by Smith, denotes a different emotion from ‘sympathy proper’ in Smith. As
argued below, and contrary to the assertion of Knud Haakonssen (1981, p. 129), the
imaginative sympathy that underpins the principle of authority is dissimilar to the
sympathy proper that underpins the virtues. As is well known, sympathy proper in
Smith is the basis for the judgment of propriety, and the coresponding virtue of self-
command, and is the basis of the judgment of merit, and the corresponding virtues of
beneficence, justice and prudence (see Khalil, 1990). Sympathy proper is a general
capacity that ‘Nature’ equips humans with to enable self-preservation, propagation,
and social order (TMS IV.ii.v, see also VI.ii.1.20).
Stated differently, sympathy proper is not a motivation to promote propriety (the
virtue of self-command) or merit (the virtues of beneficence, justice and prudence).
The motivation can only be explained after understanding the role of sympathy as
a mechanism that allows one to travel to the station of others. The mechanism permits
the agent to judge whether the expression of emotion is within the limits of taste
(propriety of action)—to which Smith dedicated part one of TMS. The mechanism
also permits the agent to judge whether the action is meritorious—to which Smith
dedicated parts two and three of TMS (Khalil, 1990). Smith also employed sympathy
qua mechanism to account for respect and admiration; that is, how spectators judge
whether others are exercising their best ability or wasting their ability in frivolous
pursuits (Khalil, 1996).
This paper is interested in another meaning of the term ‘sympathy’, viz., imagina-
tive sympathy. Imaginative sympathy is the relevant concept to account for social rank
and, eventually, political subordination (i.e., authority). In this role, sympathy acts as
an imaginative pleasure in the sense that the benefit that comes from a higher station is
imagined as happening to one’s own person.
The simple ranking of ability according to any trait becomes social rank when the
distinguished or admired trait is, in addition, the object of desire, i.e., the object of
imaginative sympathy. One may admire the ability of a mountain climber, but such
ranking becomes social rank if one also desires to be a mountain climber. Ambition
amounts to the desire to achieve the distinguished trait. The desire has to be an all-
consuming drive, as the one that epitomises entrepreneurs (see Schumpeter, 1989;
Khalil, 1997A). The mere thought of abandoning ambition, i.e., the acceptance of
a lower station, is usually viewed by ambitious agents as ‘worse than death’ (TMS
I.iii.2.1). Ambition is based on the imagined belief that the higher station expresses
the perfect state (TMS VII.iv.25). The desire to attain a trait leads us to look up to
distinguished people as our leaders and directors, from whom we learn the things that
we admire in order to become leaders and directors (TMS VII.iv.24).
The desire for a higher station may not occasion what is discussed below as status
if the low-rank agent believes that he can emulate the directors and become a leader
himself. In this case, the desired station would become the ‘object of envy’ (TMS
I.iii.2.1). The desire for higher distinction stems from the need to be noticed. The desire
does not arise from pecuniary interest, or what Smith calls ‘utility’ (TMS I.iii.2.1).
The term ‘utility’ as used by Smith, and as also used in this paper, corresponds to
the notion of ‘material welfare’ in the sense of shelter, food, medicine, entertainment
and so on. The sum of the material welfare of individuals is what Smith calls ‘public
benefit’. In contrast, the desire for distinction (which is at the origin of authority)
corresponds to what one may dub ‘symbolic welfare’, which confirms one’s self-image
or self-esteem. The pursuit of symbolic products is well noted by economists and
sociologists. But such theorists usually model such products as tools to gain status.
Psychologists, though, recognise them as ends in themselves, what Ronit Bodner and
Drazen Prelec (2001) call ‘self-signalling’ activity that the agent undertakes to signal
to himself his own importance. Modern economic theory generally does not regard
self-signalling or symbolic welfare as different from material welfare—both are sup-
posedly tastes that are fully fungible in a unified utility function (Khalil, 2000C).
Adam Smith, however, seems to regard material welfare as differing from symbolic
utility, as if they stem from two separate principles. For him, the desire to become the
object of emulation, to achieve the higher distinction, captures the imaginations of
ordinary men:
Of such mighty importance does it appear to be, in the imaginations of men, to stand in that
situation which sets them most in the view of general sympathy and attention. And thus,
place, that great object which divides the wives of aldermen, is the end of half the labours of
human life; and is the cause of all the tumult and bustle, all the rapine and injustice, which
avarice and ambition have introduced into this world. People of sense, it is said, indeed
despise place; that is, they despise sitting at the head of the table, and are indifferent who it is
that is pointed out to the company by that frivolous circumstance . . . But rank, distinction
pre-eminence, no man despises, unless he is either raised very much above, or sunk very
much below, the ordinary standard of human nature . . . (TMS I.iii.2.8)
As to become the natural object of the joyous congratulations and sympathetic attentions of
mankind is, in this manner, the circumstance which gives to prosperity all its dazzling
splendour. (TMS I.iii.2.9)
For Smith, even the poor man, who desires to reach a higher station, but goes un-
noticed, finds his most ardent desires and hopes dampened (TMS I.iii.2.1). However,
the desire and admiration of a trait need not occasion social rank. Social rank emerges
only if the spectator also desires the admired trait. If spectators think they can attain
the high-rank station, they try to emulate the distinguished. Through imaginative
sympathy, low-rank agents sustain their ambition, i.e., the ‘passion, when once it has
got entire possession of the breast, will admit neither a rival nor a successor’ (TMS
I.iii.2.7). In this light, social rank is not imposed from a source that is outside the self.
It rather stems from what the self wants to become.
3. From social rank to status

Social rank evolves into ‘status’ when a sufficient number of agents realise that
they cannot attain the desired station. They can only approximate the enjoyments
associated with the higher station through free riding, i.e., enjoying the station of
62 Elias L. Khalil
others vicariously. I call such free riding ‘vicarious sympathy’ afforded by imaginative
sympathy, in order to distinguish it from the sympathy proper mentioned above.
In vicarious sympathy, the agent behaves somewhat similarly to the egocentric
actor. The agent does not transport himself to the station of others. He rather imagines
the social rank or distinction of others as pertaining to his own person (TMS I.iii.2.1).
In this manner, he can capture some of the satisfaction that successful individuals are
experiencing. A proud agent that refuses to bask in the shadow of successful giants
may invite pain on himself in the sense of suffering from frustrated ambition.
To avoid such a fate, the agent may expend some resources (such as club fees or
frivolous consumption) to imagine the distinction experienced by successful others.
This expenditure of resources may not be different analytically from masochism. In
both cases, there is the loss of benefit (pain) in order to gain vicariously some pleasure
(in case of masochism) or some distinction (in case of status). The act of vicarious
sympathy may undermine altruistic, other-directed sentiments, which Smith criticised
(Khalil, 2001). However, it is the foundation of status and identification with other
entities and causes.
The man with the distinction that is the object of desire becomes the centre of
‘expectation’, i.e., attention (TMS I.iii.2.1). The desire to attain greater distinction
combined with the realisation that one does not have, for some reason, the required
ability explains why low-rank agents identify with high-rank agents. Agents of less
desired rank wish high-rank agents immortality to sustain the benefit of identifying
with the status group, i.e., the imagined ‘perfect and happy state’ (TMS I.iii.2.2).
Status arises when a simple rank is transformed into a social rank and, in turn, when
some agents realise that they lack the ability or circumstance to succeed, i.e., to attain
the desired rank:
By the admiration of success we are taught to submit more easily to those superiors, whom
the course of human affairs may assign to us; to regard with reverence, and sometimes even
with a sort of respectful affection, that fortunate violence which we are no longer capable of
resisting. (TMS VI.iii.30)
This phenomenon of identification explains why the affairs of the noble are, for such
low-rank agents, more important than the deaths of thousands of ordinary rank (TMS
I.iii.2.2).
In another chapter, Smith notes that the misfortunes of kings and princes are the
most interesting subjects of tragedies and romances (TMS VI.ii.1.21). Spectators
seem to give more weight to the grief of a magnificent prince than to the grief of a
commoner. Humans are fascinated by the great and are less concerned with the misery
of common people (TMS VI.ii.1.20). Smith laments human nature for its lopsided
disposition over the misfortune of the distinguished (TMS I.iii.2.2). As a result of this
disposition, status appears and ‘order of society’ emerges. The admiration, desire,
identification with the higher rank, and the resulting order do not hinge on utility in
the sense of material welfare (TMS I.iii.2.3, see also VI.ii.1.21). Submissiveness to
one’s superior stems from admiration and the desire to be identified with them, rather
than from any material benefit. Even when the order of society, i.e., the material
interest of individuals, dictates that we should oppose the reigning king, our habit of
desiring his station prevents us from the required action (TMS I.iii.2.3). That is,
people may not follow ‘reason and philosophy’ and oppose the monarch. They usually
follow ‘Nature’ and submit to the monarch’s authority out of symbiotic sympathy.
Therefore, it requires great resolution to treat kings as men and argue with them as
equals (TMS I.iii.2.3). To stand up to the king, the opposing men must be recognised
as magnificent as well. Only when the conduct of the king becomes excessively
injurious would the subjects become able to summon their resolve to oppose him—
and even then they often lose their resolve (TMS I.iii.2.3).
This explains why, for Smith, revolutions are rare. In public choice theory
(Olson,1965), the scarcity of revolution is blamed on the free riding problem. For
Smith, to oppose the king or, in current modern democracies, to oppose the national
consensus concerning issues of profound importance is rare because it would be
stigmatised as non-patriotic and even treacherous in the case of imminent foreign
invasion. Smith seems to argue that the consensus of the body politic, as expressed in
the flag or the king, is so great and enormous that it takes tremendous courage for even
magnificent people to dissent.
In short, status does not depend only on the distinction of the trait, but also on what
the agent would have liked to become, but cannot achieve for one reason or another.
So, high-rank agents who are the object of desire and emulation act, in effect, as the
alter-ego of the low-rank agents who cannot attain the high-rank station. Such high-
status agents wield authority, in the sense of influence, as others act in awe of their
ability or possessions. This idea entails that high-rank agents signify the alienated
desire of low-rank agents who submit to their station. Such a view has an important
implication for the theory of the state as reviewed below.
Interestingly, Smith dedicated a chapter (TMS I.iii.3) to expressing ambivalence
towards the origin of authority. For Smith, the disposition to admire the rich and
neglect persons of poor and mean conditions ‘is necessary both to establish and
maintain the distinction of rank and order of society’. The disposition, however, is,
at the same time, ‘the great and most universal cause of the corruption of moral
sentiments’ (TMS I.iii, 3.1). Donald Winch (1978), who traces Smith’s intellectual
development, takes it to mean that Smith was later critical of what I call vicarious
sympathy. A close examination of the chapter, however, reveals the source of Smith’s
concern (Khalil, 2002). For Smith, people may become too weak, and their admir-
ation of authority may become excessive. People may start to follow appearances of
distinction rather than what the appearances are supposed to signify, namely, true
distinction of character. In this chapter, Smith was not critical of vicarious sympathy
per se, but rather critical of its excesses. Smith was afraid that the populace might
become less critical and, consequently, uphold an unworthy ruling élite that might
have outlived its distinction (Khalil, 2002).
4. From status to political subordination

4.1 The dual principles of utility and authority
When does status develop into political subordination or political contract? This
development involves the mutation of authority, based on status relations, into
subordination. Vicarious sympathy with a high-status agent involves an authority
relation, in which the low-status one emulates the wishes and actions of the high-status
agent. Such emulation does not entail subordination until a political contract is
entered into between the two. One may desire the station of an entrepreneur, and
64 Elias L. Khalil
realise that one cannot attain it, without it leading one necessarily to enter what is
termed here an ‘organisational contract’ with the entrepreneur, i.e., employment.
In the political contract, what Smith calls ‘allegiance’, the principle of interest has to
balance the principle of authority:1
This principle of duty of allegiance seems to be founded on two principles. The 1st we may
call the principle of authority, and the 2d the principall of common or generall interest.
(LJ(A) v.119)
For Smith, authority does not stem from utility as stipulated in the social contract
theory of John Locke and others. Given the independent source of authority, however,
the principle of authority can be balanced with the principle of utility as illustrated in
the employment contract and the political contract. For Smith, who was greatly
influenced by the argument of David Hume (2000),2 the balance of the principle of
authority and the principle of utility is at the origin of allegiance, even when authority
fails to satisfy the interest of the subjects. Note that the balance may tip in favour of
revolution when the subjects no longer admire authority, even when that authority
succeeds in satisfying their interest. This balance is a precarious affair, and it would be
outside the scope of the paper to discuss it further.
Smith maintained that low-rank agents are supposed to express, at least implicitly,
allegiance towards high-rank agents under whom the low-rank agents enlist their
services. As shown below, such allegiance, for Smith, is not unconditional. It is rather
based on the belief that the leader or the authority is concerned with the interests of the
subordinated subjects. If one is to distinguish allegiance from loyalty, the belief that
imbues the allegiance expressed by members of the state or the firm differs from the
trust that permeates loyalty as characterised in the bond between friends, inter-firm
relations and inter-nation alliances. Allegiance expresses an asymmetrical relation:
Belief in a leadership is not necessarily reciprocated as is the case with loyalty between
friends. Loyalty between friends usually denotes a symmetrical relation, in which trust
expressed by one partner is sustained by a reciprocal trust expressed by the other.
For Smith, with regard to the principle of utility alone, i.e., material interest, the
state functions as a mere constable who promotes justice. That is, justice in the sense
of protection of property rights expresses primarily the operation of the principle of
interest. (Justice can also be the concern of the principle of authority if property rights
are violated as part of political persecution—an issue which I ignore here.) The state is
supposed to advance the cause of justice—as part of its function as the promoter of the
principle of interest. Smith recognised the function of the state as a civil magistrate or
policeman, as implied by the social contract. However, such a function specified by
the social contract cannot be the defining feature of the state. The state is more than
a referee or a policeman who protects property rights (Khalil, 2002). The distinguish-
ing feature of the state is rather the principle of authority. Civil magistrate or police
services can administer the principle of utility by social collectives or neighbourhood
associations that do not give rise to authority. The state can, as is usually the case,
administer the principle of utility.
1
The principles are unrelated to the ‘Adam Smith Problem’, viz., the reconciliation of self-interest,
stressed in WN, and sympathy, emphasised in TMS (see Khalil, 1990).
2
John Millar (1806, 1960), Smith’s contemporary, developed this argument to discuss authority in
diverse human organisations, ranging from the household to the tribal chief and the state.
However, the state’s distinguishing feature, authority, expresses rather the unre-
flected disposition of low-ranking agents to admire high-ranking agents (LJ(A) v.119).
That is, the authority principle arises ‘naturally’, i.e., does not depend on calculative
utility or material benefit. For Smith, the disposition to respect authority is tanta-
mount to obedience (LJ(A) v.119–20). Similar to obedience, the disposition to respect
authority comes naturally in the sense that one does not question it at first approxi-
mation. One does not start from ‘first causes’, i.e., some fundamental metaphysical
grounds to explain why this rather than an alternative authority is legitimate. The
default position is the status quo. It stems from the innate tendency to regard whoever is
wielding authority to be superior—until proven otherwise. Put differently, agents
usually take whatever is the existing authority as legitimate, and only question authority
if the existing one deviates from the distinction that it purports to embody.
Smith observes that submission, which comes naturally, can only be sustained if the
leader is actually great and acts as such. Leaders usually exhibit self-admiration, which
can be excessive. Nonetheless, self-admiration or national self-congratulation is
necessary if a leader is to succeed and ‘to command the submission and obedience
of their followers’ (TMS VI.iii.28). For Smith, ‘(e)ach of these principles [utility and
authority] takes place in some degree in every government, tho’ one is generally
predominant’ (LJ(A) v.121, see also LJ(B) 14). The monarchical form emphasises the
principle of authority, while the republican form (aristocratical and democratical
varieties (LJ(B) 18–19)) stresses the principle of utility (LJ(A) v.121–3). This should
be the case, because all governments are simple variations of the monarchical form,
i.e., the monarchical form possesses the basic, proper notion of government (LJ(B)
19). In addition, the gap between the two principles informs the difference between
the Whig and Tory political parties (LJ(A) v.123).
As Smith notes, the Whigs offer social contract theory, which stresses the primacy of
civil society over the state, to explain why subjects have the right to resist rulers. He
also notes that the Tories offer the argument that stresses the primacy of the state over
civil society. Namely, for the Tories, authority is immediately derived from God as
a justification of why it is ‘an impiety to resist’ the king (LJ(A) v.124).1 Smith proceeds
to note that the ‘bustling, spirited, active folks . . ., naturally join in with the democrat-
icall part of the constitution and favour the principle of utility only, that is, the Whig
interest’. In contrast, the ‘calm, contented folks of no great spirit and abundant for-
tunes which they want to enjoy at their own ease . . ., as naturally join with the Tories’
(ibid., see also LJ(B) 14–15). Once both principles were present in government, the
leader would be successful and the wheels of government would function more
smoothly (LJ(A) v.122).
4.2 The origin of political subordination

But what occasions the principle of authority? What is the element that transforms
status—which usually affords high-rank agents some authority in the sense of influence
and deference—into political subordination? According to Smith, the key element is
economic dependence in the broad sense, where low-rank agents enlist themselves
1
In the last edition of TMS Smith added the passage in approval of Plato’s maxim, ‘never to use
violence to (one’s) country no more than to his parents’ (TMS VI.ii.2.16). Such a tilt toward the
principle of authority confirms Laurence Dickey’s (1986) argument that Smith became dismayed with
liberalism as he became older.
66 Elias L. Khalil
as an extension of the will of high-rank persons. In this regard, Smith’s position
resembles the argument of Sir James Steuart (1967, vol. I, pp. 315–46). Steuart
maintains that the extent of political subordination is a direct function of the degree of
economic dependence. Steuart, therefore, argues that the slave/master relation in
ancient civilisations was appropriate given the great extent of economic dependence,
while it is inappropriate in modern industrial civilisation.
For Smith, the enlistment under the authority of an employer or a state forms the
origin of allegiance. In contrast, the absence of enlistment and absence of authority
occasions power as in market monopoly and hegemonic state in international relations.
In power relations, agents do not surrender any portion of their autonomy. Such agents
purchase the monopolistically priced products or comply with the wishes of a hegem-
onic super-state exclusively out of utility—i.e., identification with a ruler is absent—
similar to the way in which unarmed agents comply with the wishes of a gunman.
According to Smith, economic inequality is at the origin of authority. Economic
inequality, first to appear among shepherds (LJ(B) 20), leads some poor agents to
enlist themselves and, correspondingly, their political allegiance, in the service of the
rich ones (LJ(A) iv.8). It is true that Smith differentiated between different kinds of
dependence—as in his famous theory of evolution of modes of subsistence, according
to which the market system abolishes personal dependence. However, the employ-
ment contract for Smith continues to be based on inequality and, hence, occasions
political subordination. The division between rich and poor that, through the employ-
ment relation, prompts dependence accounts for the ‘power and influence’ exercised
by the employer over the employee (LB(A) iv.8). Again, Smith argues that dependence
arises from one-way ‘gift’ giving. This idea anticipates efficiency wage theory,
according to which the above-market-wage assures allegiance (see Akerlof, 1982).
Such dependence, the core of the master/slave relation, is most evident in shepherd
society because wealthy persons have the fewest opportunities to spend their property
(LJ(B) 21).
Smith stresses that the dependence originating from the employment relation or, in
general what was called above ‘organisational contract’, differs from the normal
purchase of the service of the tailor or the doctor, ‘structural contract’ (Khalil,
1997B). Unlike the organisational contract, the structural or commercial contract
does not demand political allegiance, i.e., oblige the provider of the service to fight for
the rich (LB(A) iv.8). However, Smith continues, before market exchange, i.e., com-
mercial contract, developed, the rich man gave his luxury to the poor, which enabled
the rich to wield ‘considerable power’ over their followers (ibid.).
However, Smith does not sharply differentiate such authority from the power of the
civil magistrate or referee who administers justice. The magistrate has to stand an
equal distance from the disputants. In contrast, the chief who commands allegiance
through organisational contract does not act as a third party, but rather acts as the
primary party, as a leader, who demands allegiance.
Smith’s theory of the state, based on the alienation of one’s sovereignty and
submission to the employer’s or ruler’s, somewhat resembles Marx’s (1973) account
of why men in pre-modern societies expressed great reverence toward their chief or
king. For Marx, the pre-capitalist state is the outcome of what one may call ‘status
fetishism’, where the subjects alienate their authority and attribute it to the all-
powerful king or representative of God (Khalil, 1992). Unlike Smith, however, Marx
restricted political subordination to pre-capitalist modes of production, because such
alienation and political subordination are supposedly the outcome of low technolog-
ical prowess. According to Marx, once man conquers the environment in the modern
capitalist mode of production, political subordination disappears; man can reclaim his
alienated essence.
For Smith, subordination is ubiquitous: it stems from enlistment in the service of
highly ranked and desired ideals. Such enlistment makes the organisational contract
different from the structural contract. For Smith, the state, as expressed in the
organisational contract, is based on the authority principle and the utility principle. In
contrast, commercial contracts or any club arrangements, as expressed in the
structural contract, are based only on the utility principle. The authority principle is
ultimately derived from the desire for distinction, which is based on ‘symbolic welfare’
as mentioned earlier, and its substitution via vicarious sympathy with the admiration
of the successful and the consequent rise of status. In contrast, the utility principle is
about material welfare or the pecuniary interest that informs many commercial
contracts and explains why we construct clubs, such as neighbourhood associations, in
order to administer public goods or internalise externalities.
So, it is the authority principle, rather than the utility principle, which, for Smith,
occasions the differentia specifica of the state. Of course the state is also founded on the
utility principle, but this principle is not what distinguishes it from clubs or other
alliances based on utility. If Smith conceived the core of the state to be based only on
justice, he would have embraced a liberal theory similar to Locke’s that emphasises
exclusively the utility principle (LJ(A) v.115–35).
4.3 From political subordination to nationalism and public spiritedness

Political subordination, for Smith, is based on the natural tendency among individuals
to identify their ideals, which they cannot actually attain, with the leader’s. Once an
individual formally enlists his service under the command of the leader, the leader
becomes the vehicle through which that individual can approximate his ideals. Thus,
the leader is, in effect, merely the tangible personification of the ideals fancied by the
self. Therefore, the modern notion that the leader is merely a proxy of the ideal as
expressed in the constitution or the flag of a country is not a radical innovation. It
merely expresses the refinement associated with greater division of labour. As shown
above, despite the different forms that the state takes, such as a monarchy or a re-
public, Smith regarded these forms as variations of the same core as originally ex-
pressed in the monarchical form.
To illustrate this point, we should expect that as much as the love of one’s leader is
derived from expanded self-oriented regard, the love of one’s country will also be
based on expanded self-oriented regard. Such self-oriented regard is not about self-
interest, i.e., welfare in the material sense, but rather about self-esteem in the sense of
symbolic welfare in terms of admiration and respect (Khalil, 2000C). The love of
country, hence, is self-love in two senses: First, the self is extended to include one’s
imagined community and, second, the love is about symbolic utility that involves
admiration and respect. As such, love of country, i.e., nationalism, has no relation to
altruism in either respect. First, in altruism, there is no expansion of self, but rather the
transfer of goods from one self to an external other. Second, in altruism, the transfer is
mainly about welfare in the material, narrow sense.
68 Elias L. Khalil
Smith argues that love of country (nationalism or patriotism), which is actually love
of one’s expanded self, differs from ‘love of mankind’, which can be regarded as
generalised altruism. Otherwise, the people of Great Britain would favour the interests
of the French over their own, since France has probably three times more people than
Great Britain (TMS VI.ii.2.4). In the chapter that he dedicates to nationalism (TMS
VI.ii.2), Smith clearly argues that ‘the mean principle of national prejudice is often
founded upon the noble one of the love of our own country’ (TMS VI.ii.2.3). Such
a thesis can only be derived from his theory of the state as an expanded self (unrelated
to the Hobbesian notion of the state) that expresses the desired goals of members,
according to which these members cannot attain such goals on their own.
Smith argues that love of country does not arise from some civil contract. Rather, it
arises from natural allegiance to the state under which one has been born and educated
(TMS VI.ii.2.2). One tends to exaggerate the glory of the past heroes of one’s country
and to derive personal honour from their achievements (TMS VI.ii.2.2). And one
certainly applauds patriots who lay down their lives in the defence of their country and
condemns traitors as villains (TMS VI.ii.2.2).
The applauding of patriots and condemnation of traitors would be hard to explain if
actors merely mean symmetrical loyalty, i.e., a sentiment solely based on civil contract
(i.e., social contract) informed exclusively by the principle of utility. Only when one
takes into consideration the asymmetrical political contract informed by the principle
of authority, i.e., the subordination of one’s autonomy to externalised ideals such as
the love of country, can one account for the public spiritedness of ordinary citizens and
statesmen (TMS VI.ii.2.6). Such public spirit is most evident when foreign war or civil
faction erupts (TMS VI.ii.2.13).
Smith also (TMS VI.ii.2.14) argues that if the leader of the successful party does not
abuse his authority, and instead uses it to secure the internal tranquillity and happiness
of his fellow citizens, he gains the same glory accorded to the patriot who distinguishes
himself in a foreign war.1 However, Smith warns in a section added on the eve of the
French Revolution (see Hont, 1994, 86–8), that the public spirit which motivates one
faction in a civil discord could degenerate into a ‘spirit of system’, i.e., ideology, which
calls for a radical reconstitution of the political order (TMS VI.ii.2.15–18). The man
of system fancies that he needs to eradicate the basic class make-up of a country in
order to prevent ‘in all time coming, any return of . . . inconveniences and distress’
(TMS VI.ii.2.15). The man of system, with arrogance, ‘seems to imagine that he can
arrange the different members of a great society with as much ease as the hand
arranges the different pieces upon a chess-board’ (TMS VI.ii.2.17).
Thus, Smith does not criticize the man of system à la public choice theory, i.e.,
as basically a self-serving agent. Rather, he criticises the ‘system’ (i.e., ideology or
dogma) that portrays society as an artifact—as if the constitutive members do not have
their own reason of motion that is distinct from the plan of the man of system (TMS
VI.ii.2.17). Authority cannot be imposed by a top-down mechanism as traditional
theorists suppose. It rather arises spontaneously from a bottom-up mechanism as
discussed above. However, in light of the above discussion, Smith’s bottom-up
mechanism is antagonistic to the liberal, modern view of authority. Authority is not
1
For Smith, although factions are bounded by a strong bond, or because of it, internal conflict
between them is more ferocious than foreign war (TMS III.3.43).
based, for Smith, on rational consent, where the agent submits allegiance to the state
in return of some material benefit. Rather, for Smith, authority is based on human
frustration and weakness. Authority is born when agents who are frustrated start to
conceive the successful agents (in terms of richness or talent) as their alter egos and
want to enlist under their command. The authority relation can enhance the material
well-being of the ruled, but this is not its primary, and definitely not its exclusive,
function.
5. Conclusion
Smith’s view of the distortion of public spirit could not be entertained if his political
psychology did not accommodate public spiritedness from the start. Public spirited-
ness arises from vicarious sympathy that allows the symbiotic fusion of the egos of
ruler and subjects. While the symbiosis makes the status quo the default position, Smith
offered an analysis that allows for revolutionary men to challenge authority when
authority no longer commands admiration or respect (Khalil, 2002). Thus, Smith
justifies revolutionary action on quasi-rational grounds—which places Smith far apart
from modern liberal theorists.
While we admire the leader for his skills, the admiration for Smith is more than the
admiration we hold for a skilled mountain climber. The leader is supposed to possess
an ability to which the subjects submit. Such a view is a non-liberal one. Smith argued,
against John Locke, that the political contract or allegiance arises from identifying our
ego with the station of the leader or the station of the nation, so that one’s ego is
expanded to encompass the ego of the imagined group. For Smith, the submission to
political authority comes as naturally as the submission of the child to parental
authority. There are obviously some differences between the two forms of submission.
Nonetheless, in both forms for Smith, the subordinate expresses, out of anxiety
concerning his plans for the future, love and affection towards authority. The love does
not arise from a calculation of objective interests. If the agent operated only according
to objective interests, he would not want to entertain vicarious sympathy to start with.
Smith would be surprised by the entry point of public choice theorists and classical
liberals. These theorists place the leader under suspicion for promoting his ego. But
self-promotion, within limits, is exactly what the subjects or citizens expect. Likewise,
Smith would be surprised with social liberals of the Benthamite kind, who suppose
that the leader executes a given social welfare function. For Smith, the leader does not
act as a secretary trying to maximise some objective function. I think Smith would
welcome Joseph Schumpeter’s (1950) theory of democracy, which Richard Posner
(2004) extends and defends. For Schumpeter, in opposition to classical liberals and
social liberals, the democratic mechanism allows an ex post check on the excesses of
politicians. So, the issue is not to find the politician that represents the pre-given
preferences of voters, if such a thing exists, but rather to safeguard a mechanism to
which voters can resort in order to reject a leader who no longer deserves the title.
So, incumbents, in Schumpeter’s and Smith’s accounts, enjoy a great advantage by
default, which is the case in modern democracies. As such, democracy avoids the
accumulation of pent-up anger, which may lead to sudden and deep unrest. It rather
allows the leader to gauge public opinion in a periodic manner and, hence, to avoid
instability.
70 Elias L. Khalil
In this light, for Smith, authority exercised by the state towards its subjects differs
from the power exercised by the state towards other states. A state complies with the
power of another state simply out of interest, not out of authority. The power of
referees, monopolists or hegemonic states can be implemented either because of an
enforced social contract or because of fear of retaliation. In either case, it is based
solely on interest. In contrast, the state, in addition to interest, is based on an authority
that can be traced back to vicarious sympathy.
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Cambridge Journal of Economics 2005, 29, 57–71

Key words: Vicarious sympathy, Social contract versus political contract,

Manuscript received 21 October 2002; final version received 6 June 2003.

1. The origin of rank: admiration

2. From rank to social rank

Fig. 1. Three-station model of the comparison of capability of the other.

3. From social rank to status

4. From status to political subordination

4.2 The origin of political subordination

4.3 From political subordination to nationalism and public spiritedness

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