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Understanding Adam Smith - Giving the Rich a Hand

This is the 5th of an eight-part series designed to explain several important aspects of Adam Smith’s writing, or at least correct widespread misconceptions regarding those writings. You can pick up the start of this series here.

Earlier in this series we introduced Smith’s constructs of the invisible hand and the impartial spectator, which you can read here, here, and here. Smith first wrote about both in Theory of Moral Sentiments (Moral Sentiments), the best-seller book he wrote before Wealth of Nations. How are the invisible hand and impartial spectator connected? We’ll show you!

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Building on the prior posts of this series, a reading of Moral Sentiments shows Smith’s impartial spectator, an imaginary and invisible human standing “in all cases” (a Smith phrase) as a witness, motivator, and judge of our actions. Pause a second to create a visual of what that looks like for yourself and others. Now, let’s see what Adam Smith said that looks like for those who are rich.

Remember, the designation of ‘rich’ doesn’t apply to just multi-millionaires and billionaires, although it most clearly and forcefully does apply to them. The bottom line here, for all of us with an annual household income of 10x or more of your country’s poverty threshold for the same sized household (e.g., even barely six figures), the term ‘rich’ applies to us. Yes. Objectively. You can stop denying that now. Really.

In Moral Sentiments Smith writes that the rich are led by the impartial spectator’s “invisible hand to make nearly the same distribution of the necessaries of life which would have been made had the earth been divided into equal portions among all its inhabitants; and thus, without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” (See, Part IV, Chapter I, Paragraph 9.)

Notice again the parallel language in Wealth of Nations.

[H]e intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (See, Book IV, Chapter II, Paragraph 9; emphasis ours.)

Reading Wealth of Nations through the lens of Moral Sentiments, we can see that the invisible hand found in both are one and the same. Further, the invisible hand is not disembodied but belongs to an equally invisible spectator, who is present in all cases, and whose influence is tangible. This impartial spectator, when heeded, gives self-interest an intentional social dimension; it leads oneself to consider how a “situation will appear to other people.” (Moral Sentiments, Part IV, Chapter I, Paragraph 7.)

This leading of the impartial spectator’s invisible hand is how pursuing one’s interest “more effectually” promotes that of the society—pursuing one’s interest with a perspective of how others are affected is more effective at promoting social (others and self) interest, than attempting to promote social interest somehow without self-interest. Contrary to flawed yet widespread misunderstanding, the invisible hand is not an inexplicable force that magically turns unfettered selfishness into social good. The invisible hand is the working of the impartial spectator to intentionally align self-interest with the interests of others for mutual benefit.

American capitalism is well beyond the time and need for its thinkers and leaders to return to the intention of Adam Smith. We discovered and now show you the invisible hand as part of Smith’s larger, insightful gift of mutual empathy, more fully embodied by the impartial spectator. Quite the opposite of a reason to ignore others, the concept of the impartial spectator’s invisible hand is a gift intended to check against unfettered selfishness lest we find ourselves where we are today, with the high levels of poverty and economic disparity that not only inhibit the well-being of individuals but gut without distinction the souls of both the recklessly rich and painfully poor.

From our reading, research, and analysis of Adam Smith (the same being available to anyone who cares about how the world does business), we conclude he neither envisioned nor advocated for the brand of capitalism America practices today. Indeed, we assert he would reject being called its father. Rather, his construct of capitalism is built on a foundation of values that promotes self-interest and other-interest, and results in social benefit.

How does this reading of Adam Smith change your thinking about capitalism, particularly the way you, your company, your community, or your country practices it and does business?

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