Adam Smith and the Epistemological Problem

Adam Smith, Theory of Moral Sentiments III.I.46:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe [...] would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people [...] And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure [...] with the same ease and tranquillity, as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own. To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference?  [...] [W]hat is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct.

I hesitate to parse this passage for the simple reason that it's oft-abused. Foes of market reasoning seize upon the first half, neatly ignoring the remainder as if to say, "see what a monster is this Adam Smith who cares more for his little finger than for the many millions of souls abroad!" I guess it's easy enough to counter this sophistry with the balance of the quote, but still, I am a mite leery.

And not entirely for only unjust cause. Even if you read it all in its entirety (and yes, the ellipses are mine, you can follow the link for the undamaged original) you might be forgiven for mistaking the argument for a piece of descriptive analysis rather than the parable that it actually is. All Smith was doing was predicting construal level theory (by a couple hundred years), an idea lately popularized by my pal Robin Hanson at Overcoming Bias. In the husk of a pecan, things and ideas that are close to us in space and time are clearer, more textured and more immediate. The farther something is, the more we abstract from it, find trends, identify patterns, and sketch impressions. Fingers are near, China is far. This helps resolve the paradox.

The more alarming problem is that public policy is aimed to influence the geology in China and the tools it wields tend to be pinky shears. "We've got to do something" often means lopping off an errant digit in the hopes that the Baikal Rift will stay put for the nonce. To put it another way, there's this monumental epistemological problem faced by policy prescription. "Someone should pass a law" retains the appeal of resembling virtuous, bold action, but it does nothing to answer fundamental questions like: "Have we correctly diagnosed the failure" or "how will actual humans implement this policy" or "how will people react to this policy" or "what are the likely unintended consequences" or a dozen others. These are inconvenient questions to ask, since they get in the way of the Very Serious Business of lopping off fingers.

But they're the most important questions to ask. It is euvoluntary exchange and its growing scope that delivers poverty-remediating wealth to the world's miserable. Every act of coercion impinges on either the extant set of euvoluntary exchanges or on a stochastic potential set sometime out in the future. Toothy Teddy Rooseveltian action appeals to a mercurial temperament, but caution and judicious restraint forms the bulk of the arguments forwarded in the Federalist Papers, and for good reason. Thought, care, and reflection rather than fleeting mob passions inform the rule of law that cradles the robust institutions surrounding euvoluntary exchange. When I read Smith's passage above, I read of an ethics that is not incompatible with judicial prudence. I encourage anyone picking up a copy of TMS to do the same.