is justice the primary feature of the state? adam smith's critique of social contract theory

European Journal of Law and Economics, 6:215–230 (1998)© 1998 Kluwer Academic Publishers

Is Justice the Primary Feature of the State? AdamSmith’s Critique of Social Contract Theory

ELIAS L. KHALILUniversity of Chicago, Email: [email protected].

Abstract

In light of the question of whether justice is the differentia specifica of the state, this paper reviews Smith’s viewson justice and social contract theory. The paper finds that Smith did not regard justice, what supposedlymotivates agents to enter into a social contract with the sovereign, as the core of the polity. He rather explicitlycriticized social contract theory à la John Locke. Smith argued that the state is not only based on the protectionof rights, but is also founded on the principle of authority, which stems from the admiration of high-rank agentswho have desirable traits.

Keywords: Beneficence, justice, civil contract, political contract, social contract theory, Red Queen Paradox

JEL Classification: D70, B4

Introduction

It has been the hallmark of social contract theory, stretching from the works of ThomasHobbes to John Rawls, to advance the idea that agents enter civil society and set up agovernment in order to enhance given expected utility. Such utility is given because itstems from well-defined rules of justice. Justice, as understood here, is about the protec-tion of well-described property rights and, as understood broadly, following Rawls, isabout the reduction of the effect of risk and chance through welfare redistribution. Thispaper argues that Smith, while recognizing the given utility derived from entering civilsociety, did not think that justice or utility is the differentia specifica of the state. Ofcourse, this position does not ignore the fact that major functions of the state include thepreservation of justice and, by association, enhancement of utility. However, functions bythemselves do not afford insight about the nature of the actor, especially when thesefunctions can be fulfilled by entities other than the state. The issue is rather what is thenature of the state in the sense that if entities fulfilled that specified nature they would becalled states.

Section one argues that Smith did not regard the virtue of justice as a derivative of thevirtue of beneficence. Section two maintains that Smith did not conceive justice as anatural right. Section three shows that Smith, while recognizing the utility aspect of thestate, he did not view the core of the state to be based on utility or justice. Rather, assection four exposes, Smith regarded the state to be based on the “principle of authority,”

Kluwer Journal@ats-ss8/data11/kluwer/journals/ejle/v6n3art1 COMPOSED: 09/10/98 2:57 pm. PG.POS. 1 SESSION: 12

which is non-reducible to utility in the sense of security of property rights. Section fivereviews nine grounds upon which Smith refutes social contract theory à la John Lockewhich explains the state exclusively in terms of the principle of utility.

Following the practice of Smith, the paper does not make radical conceptual distinc-tions among the different forms of political subordination. Smith believed that the fun-damental feature of democratically elected government does not differ substantially frommonarchy [LJ(B) 19].1 Thus, the paper uses the term “state” broadly to denote the core ofpolitical community per se—which need not disregard the differences among the differentforms of political subordination. Also, the paper uses the term “civil contract” for whatSmith called “contract,” and uses “political contract” for the allegiance which Smithdenied to be a contract in the sense it differs from civil contract. In this manner, if politicalsubordination is thought to be contractual, political contract for Smith differs greatly fromcivil contract. Finally, I employ the term “social contract theory,” which Smith did not use,to denote the body of thought which generally reduces the political contract to the civilcontract.

1. Is justice derived from beneficence?

Smith understands beneficence as “the most ordinary degree of kindness” [TMS II.ii.1.7]which is expressed—along with generosity, humanity, compassion, mutual friendship, andesteem—either in countenance or behavior [TMS I.ii.4.1]. In contrast, Smith definesjustice as the respect of our neighbor’s rights. It would be injustice “to take from him whatis of real use to him merely because it may be of equal or of more use to us” [TMSII.ii.2.2]. No one would stop an agent from entering the race for greater wealth. “But if heshould justle, or throw down any of them [the competitors], the indulgence of the spec-tators is entirely at an end” [Ibid.].

Smith dedicates a chapter in The Theory of Moral Sentiments [TMS II.ii.3] to theelucidation of how the social order depends more on justice than on beneficence. Smithspent an earlier chapter on the difference between the two [TMS II.ii.1]. For Smith, justiceis a set of rules which are not open to interpretation while rules concerning other virtuessuch as beneficence are “indeterminate” [TMS III.6.9-11]. Of more importance, benefi-cence stems from a voluntary commitment, while justice is an obligatory commitmentand, hence, can be demanded by force:

Beneficence is always free, it cannot be extorted by force [TMS II.ii.1.3].There is … another virtue, of which the observance is not left to the freedom of our

own wills, which may be extorted by force, and of which the violation exposes toresentment, and consequently to punishment. This virtue is justice: the violation ofjustice is injury …. And upon this is founded that remarkable distinction betweenjustice and all the other social virtues … that we feel ourselves to be under a stricterobligation to act according to justice, than agreeably to friendship, charity, or gener-osity; that the practice of these last mentioned virtues seems to be left in some measureto our own choice, but that, somehow or other, we feel ourselves to be in a peculiar

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manner tied, bound, and obliged to the observation of justice. We feel, that is to say, thatforce may, with the utmost propriety, and with the approbation of all mankind, be madeuse of to constrain us to observe the rules of the one, but not to follow the precepts ofthe other [TMS II.ii.1.5].

This difference may explain why beneficence is usually rewarded while the observance ofjustice generally goes unrewarded [TMS II.ii.1.9].

Smith recognizes that there is an apparent anomaly in his distinction: the state mayextort beneficence from its citizens in the same manner it enforces rules of justice [TMSII.ii.1.8]. Smith resolves the anomaly by noting that the use of force to extract mutualgood offices can be possible only if it is executed by a third, agreed upon party. Benefi-cence, unlike justice, cannot be extorted by force when there is no third party mediatingamong players [TMS II.ii.1.7].

Smith identifies another apparent anomaly: Does reciprocation of kindness fall underbeneficence or justice? While beneficence clearly includes charity and generosity, becausethey are always left to interpretation or voluntary action, the expression of gratitude issometimes expected and demanded similar to the observation of justice. The agent whofails to “recompense his benefactor” out of selfish motives is “the proper object of thehighest disapprobation” and, hence, is the “object of hatred.” Does such precise rule ofreciprocation mean that gratitude falls under justice? Smith notes that out of all the rulesof beneficence, gratitude seems to be the most precise [TMS III.6.9]. In fact, however,rules of gratitude are far from precise:

Upon the most superficial examination, however, this rule [concerning gratitude] willappear to be in the highest degree loose and inaccurate, and to admit of ten thousandexceptions. If your benefactor attended you in your sickness, ought you to attend himin his? or can you fulfill the obligation of gratitude, by making a return of a differentkind? If you ought to attend him, how long ought you to attend him? The same timewhich he attended you, or longer, and how much longer? [TMS III.6.9].

In addition, ungratefulness, unlike injustice, does not inflict harm on anyone [TMSII.ii.1.3]. In fact, if gratitude is enforced like justice, it would backfire [TMS II.ii.1.3].Given it is still a free action, although not as free as charity, gratitude falls—along withfriendship, generosity, and charity—under beneficence [TMS II.ii.1.3].

Aside from gratitude, the beneficence/justice distinction lies deeper than the issue ofvoluntarism. It concerns the issue of motivation. Smith employs the story of a man ofhumanity in Europe who justifiably cares more about his injured finger than about mil-lions perished in an earthquake in China [TMS III.3.4]. Given one’s sympathetic partialityto one’s misfortune, a man of humanity would never, however, agree to inflict death onothers in order to save his finger [TMS III.3.4; see also TMS II.ii.2.1]. Smith asks why onewould not breach justice—what he calls “active principles”—because of justifiable, partialself-sympathy—what he dubs the “passive feelings” [TMS III.3.4]? To note, for Smith,sympathy is a general disposition not limited to beneficence [Khalil, 1990]. The sympathywith one’s misfortune does not justify the violation of the rights of others because the

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active principles are not ultimately based on altruism or beneficence, i.e., the soft powerof humanity. They are rather founded on reason and justice:

It is not the soft power of humanity, it is not that feeble spark of benevolence whichNature has lighted up in the human heart, that is thus capable of counteracting thestrongest impulses of self-love. It is a stronger power, a more forcible motive, whichexerts itself upon such occasions. It is reason, principle, conscience, the inhabitant ofthe breast, the man within, the great judge and arbiter of our conduct …. It is he[conscience] who shows us the propriety of generosity and the deformity of injustice;the propriety of resigning the greatest interests of our own, for the yet greater interestsof others, and the deformity of doing the smallest injury to another, in order to obtainthe greatest benefit to ourselves [TMS III.3.4].

In fact, when a man demands that a transgressor be punished for the injury he had inflictedon another person, the concern with the injured man does not spring from “exquisitesentiments” such as love and affection [TMS II.ii.3.10]. If the concern stems from ex-quisite sentiments, the concern would exclusively focus on the physical pain. To thecontrary, however, the resentment of the transgressor stems from the fury over his inso-lence—a fury which is not derived from the inflicted physical pain [TMS II.iii.1.5]. ForSmith, one observes the rights of others out of self-integrity. The motive of self-integrityis ultimately non-reducible to beneficence or, in general, sympathy with the welfare ofothers:

It is not the love of our neighbour, it is not the love of mankind, which upon manyoccasions prompts us to the practice of those divine virtues [i.e., justice]. It is astronger love, a more powerful affection, which generally takes place upon such oc-casions; the love of what is honourable and noble, of the grandeur, and dignity, andsuperiority of our own characters [TMS III.3.4].

Joseph Cropsey [1975] is correct when he notes that, for Smith, the observation ofrights of others is not ultimately based on the sociability of man, i.e., sympathy [seeKhalil, 1995, pp. 47–48]. As shown next, however, Cropsey [1975, p. 137] is incorrectwhen he argues that Smith locates justice as the “singularly political virtue” which makesman a political and not merely a social animal.

2. Is justice a natural right?

The natural right approach, as understood here, entails that rights are specified by thenature of humans, i.e., prior to entering civil society. Smith does not understand justice insuch a metaphysical sense of rights. For Smith, justice is rather derived from reciprocalrecognition of rights as a solution to avoid tit-for-tat or retaliation à la Robert Axelrod[1984]:

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As every man doth, so shall it be done to him, and retaliation seems to be the great lawwhich is dictated to us by Nature.… The man who is barely innocent, who onlyobserves the laws of justice with regard to others, and merely abstains from hurting hisneighbours, can merit only that his neighbours in their turn should respect his inno-cence, and that the same laws should be religiously observed with regard to him [TMSII.ii.1.10].

While retaliation is implanted by “Nature,” the role of nature is limited to the method ofenforcing the implicitly or explicitly agreed-upon rules of justice. Nature, in Smith’susage, does not specify the content of justice. This difference is clear when he describesresentment as “given to us by nature” in order to facilitate “defence” [TMS II.ii.1.4].Resentment acts as a retaliatory warning to potential perpetrators—a thesis which antici-pates Richard Posner’s [1981, ch. 8] economic analysis of revenge and Robert Frank’s[1988] Darwinian model of the emotions:

It [resentment] is the safeguard of justice and the security of innocence. It prompts usto beat off the mischief which is attempted to be done to us, and to retaliate that whichis already done; that the offender may be made to repent of his injustice, and thatothers, through fear of the like punishment, may be terrified from being guilty of thelike offence [TMS II.ii.1.4, see also TMS II.ii.3.4].

This view entails that the virtue of justice is not derived from natural right in the sense ofa code of morality existing prior to the existence of society—despite the fact that thevirtue is pursued with a passion for retaliation implanted in us by nature:

As to love our neighbour as we love ourselves is the great law of Christianity, so it isthe great precept of nature to love ourselves only as we love our neighbour, or whatcomes to the same thing, as our neighbour is found capable of loving us [TMS I.i.5.5].

Smith’s advocacy of retaliation is a clear departure from the Christian doctrine. Onecannot find it in Christianity that our love of our neighbor is contingent on our neighbor’slove of us. Instead, one finds the rule of forgiveness, the famous turning of the othercheek. Smith clearly argues that retaliation, not the turning of the other cheek, is thefoundation of justice:

There can be no proper motive for hurting our neighbour, there can be no incitementto do evil to another, which mankind will go along with, except just indignation for evilwhich that other has done to us [TMS II.ii.2.1].

Thus, for Smith, justice as a virtue cannot be conceived independently of reciprocalobligations characterizing every society. In another context, when Smith discusses generalrules as the manner by which one rectifies one’s misjudgment given one’s partialitytowards one’s self, Smith unambiguously argues that rules of morality (which includejustice) arise from everyday interaction:



They [general rules of morality] are ultimately founded upon experience of what, inparticular instances, our moral faculties, our natural sense of merit and propriety,approve, or disapprove of. We do not originally approve or condemn particular actions;because, upon examination, they appear to be agreeable or inconsistent with a certaingeneral rule. The general rule, on the contrary, is formed, by finding from experience,that all actions of a certain kind, or circumstanced in a certain manner, are approved ordisapproved of [TMS III.4.8].

Smith continues and maintains that those “general rules … are all formed from theexperience we have had of the effects which actions of all different kinds naturallyproduce upon us” [TMS III.4.9]. Many eminent authors have missed the fact that expe-rience is the origin of the rules of justice:

When these general rules, indeed, have been formed, when they are universally ac-knowledged and established, by the concurring sentiments of mankind, we frequentlyappeal to them as to the standards of judgment.… They are upon these occasionscommonly cited as the ultimate foundations of what is just and unjust in humanconduct; and this circumstance seems to have misled several very eminent authors, todraw up their systems in such a manner, as if they had supposed that the originaljudgments of mankind with regard to right and wrong, were formed like the decisionsof a court of judicatory, by considering first the general rule, and then, secondly,whether the particular action under consideration fell properly within its comprehen-sion [TMS III.4.11].

Thus, for Smith, rules of justice arise from mutual respect which people learn throughinteraction. In this sense, Smith’s view does not differ from the notion of the system ofrights as the efficient solution which facilitates such an interaction and avoids the sub-optimum equilibrium of the Red Queen Paradox.2 In Alice’s Adventures in Wonderland,Alice asks the red queen why is she running. The red queen answers that if she stopped,she would fall behind because the others will keep on running. Smith’s civil magistratewho protects property rights apparently saves us from the Red Queen outcome. Is theprotection of property rights for Smith, however, the main raison d’être of the state?

3. Is justice the differentia specifica of the state?

Smith observed that the preservation of justice is one of the major functions of the state.Justice can be defined simply as an institution which reduces transaction cost associatedwith unrestrained competition or asymmetric information. The question is whether justiceis the differentia specifica of the state for Smith. Smith’s “system of perfect liberty” [WNI.x.a.1, WN IV.ix.51], where agents observe the property rights of each other, plays animportant part in Smith’s conception of the market [see Boulding, 1973].3 Nonetheless,for Smith, the state qua constable is not a necessary condition for the observation of therights of others. The observation of rights can be sustained via everyday interaction

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because, for Smith, humans enjoy behaving according to what is honorable as stipulatedby the virtue of justice. For Smith, as seen earlier, honorable behavior is sustained throughretaliatory measures which do not call for the state.

Agents can appoint a tribunal to rule on contested issues, without ever needing toconceive the tribunal as anything more than a referee. In other words, the demand forprotection of property rights may at best explain the function of the referee; it cannotexplain the nature of authority which characterizes the state. Treaties with credible threatof retaliation can be a sufficient institution—as the Mafia system testifies. Insofar as theprotection of property rights is concerned, there is no need for a sovereign. As long as theinstitutions of property are in place, protected by a council or a system of credible threatof retaliation, the state does not have to exist. In fact, the credible threat of retaliation mayexplain why wars are less frequent than what we would have expected in a world withouta global government.

It is true that Smith associated the rise of the state with the rise of property in manydifferent contexts and texts:

The acquisition of valuable and extensive property … necessarily requires the estab-lishment of civil government. Where there is no property, or at least none that exceedsthe value of two or three days labour, civil government is not so necessary [WNV.i.b.2].

But when flocks and herds come to be reared property then becomes of a veryconsiderable extent; there are many opportunities for injuring one another and suchinjuries are extremely pernicious to the sufferer [LJ(A) i.33–34].

I should also say that the age of shepherds is that where government first com-mences. Property makes it absolutely necessary [LJ(A) iv.21].

However, in these instances, the government acts as a civil dispenser of justice, merely asa constable or a magistrate which protects property rights. The necessity of the state whenproperty arises does not entail that the state is based on the protection of given utility, i.e.,property rights, as some students of Smith have argued [Young & Gordon, 1996, pp.9–10].

4. Does authority spring from utility?

To support the finding above, Smith explicitly stated that the “utility principle,” whichprompts men to enter civil contract, differs from the “authority principle,” the substanceof political subordination:

There are two principles which induce men to enter into a civil society, which we shallcall the principles of authority and utility [LJ(B) 12].

While utility for Smith prompts people to enter into commercial contracts where theparties stand symmetrical to each other, the principle of authority does not entail sym-



metrical relation. Authority involves the subordination (within limits) of the sovereigntyof one under the will of another. The principle of authority which characterizes the statedoes not entail that agents do not care about their welfare in relation to the state. In fact,Smith emphasized, besides authority, the principle of utility as the foundation of the state.

To focus on authority, it stems for Smith from the submission of the less successfulpersons to the will of the relatively more distinguished agent:

With regard to the principle of authority, we see that every one naturally has a dispo-sition to respect an established authority and superiority in others, whatever they be.The young respect the old, children respect their parents, and in general the weakrespect those who excel in power and strength [LJ(A) v.119].

The principle of utility occasions compliance with the magistrate only insofar as to secureproperty rights:

With regard to the other principle [i.e., utility], every one sees that the magistrates notonly support the government in general but the security and independency of eachindividual, and they see that this security can not be attained without a regular gov-ernment. Every one therefore thinks it most advisable to submit to the establishedgovernment, tho’ perhaps he may think that it is not disposed in the best mannerpossible [LJ(A) v.120–121].

Although authority is occasioned, inter alios, by wealth, authority is unrelated to benefitor utility:

This [the importance of wealth] proceeds not from any dependance that the poor haveupon the rich, for in general the poor are independent, and support themselves by theirlabour, yet tho’ they expect no benefit from them they have a strong propensity to paythem respect [LJ(B) 12].

Smith argues that authority is not arbitrary; it rather springs from the object of admi-ration of one’s superiors and the desire to emulate them:

At the head of every small society or association of men we find a person of superiourabilities; in a warlike society he is a man of superior strength, and in a polished one ofsuperior mental capacity. Age and a long possession of power have also a tendency tostrengthen authority. Age is naturally in our imagination connected with wisdom andexperience; and a continuance in power bestows a kind of right to the exercise of it. Butsuperior wealth still more than any of these qualities contributes to confer authority[LJ(B) 12, see also LJ(A) v.129].

In The Wealth of Nations, Smith details the same grounds which occasion authority. Helists the circumstances which “naturally introduce subordination,” i.e., “give some mensome superiority over the greater part of their brethren” [WN V.i.b.3–4, see also LJ(B) 12]:

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The first of those causes or circumstances is the superiority of personal qualifications,of strength, beauty, and agility of body; of wisdom, and virtue, of prudence, justice,fortitude, and moderation of mind. The qualifications of the body, unless supported bythose of the mind, can give little authority in any period of society.… [WN V.i.b.5].

The second of those causes or circumstances is the superiority of age. An old man,provided his age is not so far advanced as to give suspicion of dotage, is every wheremore respected than a young man of equal rank, fortune, and abilities … [WN V.i.b.6].

The third of those causes or circumstances is the superiority of fortune. The author-ity of riches, however, though great in every society, is perhaps greatest in the rudestage of society which admits of any considerable inequality of fortune. A Tartar chief,the increase of whose herds and flocks is sufficient to maintain a thousand men, cannotwell employ that increase in any other way than in maintaining a thousand men.…[WN V.i.b.7].

The fourth of those causes or circumstances is the superiority of birth. Superiority ofbirth supposes an antient superiority of fortune in the family of the person who claimsit. All families are equally ancient, and the ancestors of the prince, though they may bebetter known, cannot well be more numerous than those of the beggar. Antiquity offamily means every where the antiquity either of wealth, or of that greatness which iscommonly either founded upon wealth, or accompanied with it.… [WN V.i.b.8].

Given the distinction between the two principles, Smith criticizes social contract theorywhich recognizes only the utility principle as the basis of the state.

5. Can social contract theory account for the state?

In Smith’s system of perfect liberty, men are best left to take care of themselves:

Every man is, no doubt, by nature, first and principally recommended to his own care;and as he is fitter to take care of himself than of any other person, it is fit and right thatit should be so [TMS II.ii.2.1, see also WN VI.i.1–5, WN VI.ii.1.1].

Such a recommendation by nature is not based on some selfish grounds. Rather, it is basedon the premise that humans prefer to help agents who are familiar to them. Given thathumans are most familiar with their own selves, it is natural that their primary inclinationis to help themselves:

Every man, as the Stoics used to say, is first and principally recommended to his owncare; and every man is certainly, in every respect, fitter and abler to take care of himselfthan of any other person. Every man feels his own pleasures and his own pains moresensibly than those of other people. The former are the original sensations; the latterthe reflected or sympathetic images of those sensations. The former may be said to bethe substance; the latter the shadow [TMS VI.ii.1.1].



Given the premise that one’s welfare is best served if one takes care of one’s self, theperfect system of liberty is recommended since it fulfills such a premise. Under suchsystem, trade flourishes on its own following “the propensity in human nature … to truck,barter, and exchange one thing for another” [WN I.ii.1, p. 25]. However, the system ofperfect liberty may not be so perfect. For Smith, the “exertions of the natural liberty of afew individuals” is not necessarily fault-free. The exertions “might endanger the securityof the whole society” [WN II.ii.94 p. 324]. Therefore, the whole society may set up ajudicial system, based on civil contract, in order to protect property rights. In this context,liberty is an external freedom, i.e., the freedom from fear of aggression or theft.

However, is the “whole society,” which is supposed to protect property, the core of thestate as advocated by social contract theory à la Locke?4 To Smith, subordination to civilgovernment has risen “naturally” [WN V.i.b.3–4]. He writes that subordination stems, “notas some writers imagine, from any consent or agreement of a number of persons to submitthemselves to such or such regulations, but from the natural progress which men make insociety” [LJ(A) iv.19]. Smith [(LJ(A) v.114] explicitly mentions “Locke and Sidney, etc.”as the social contract theorists who ground the political contract, which characterizes thesovereign-subject relation, on voluntary contract (i.e., civil contract). Smith argues that“indeed this [civil contract] does not seem to be the foundation of the power of thesovereign and the obedience of the people” [LJ(A) v.115].

As reconstructed from scattered commentary, Smith marshals at least nine reasons why“upon the whole this obedience which every one thinks is due to the sovereign does notarise from any notion of a contract [i.e., civil contract]” [(LJ(A) v.119].

First, “supposing that it had originally been the foundation of the authority of thesovereign it can not now be so” [Ibid.]. Why should posterity be bound by predecessors’contract with the sovereign?

Again, if the first members of the society had entered into a contract with certainpersons to whom they entrusted the sovereign power, their obedience would indeedhave been founded on a contract in a great measure; but this can not be the case withposterity; they have entered into no such contract. The contract of one’s predecessorsnever binds one merely because it was his [LJ(A) v.116].

While the heir is bound to pay the debts of predecessors, this does not extend to politicalsubordination under which predecessors have entered:

The heir indeed is bound to pay the debts contracted by his predecessors to whom hehas fallen heir, not because their promise is any way binding on him but because bypossessing their money he would be locupletior factus aliena jactura [‘enriched at theexpense of another’]. One is not bound to personal service promised by his ancestors;their promise has no influence upon him [LJ(A) v.116].

Smith points out that, in fact, one is not obliged to pay the debt of ancestors when itexceeds the estate left by them. This fact confirms that the obligation to pay the debt of

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ancestors stems from the principle that one should not enjoy fruits which belong to others.The obligation does not stem from the supposed principle of being constrained by thepredecessors’ promises per se. That is, the limited obligation to pay the debt of ancestorsdoes not stem from the supposed obligation to obey the sovereign they have chosen.

Second, one may argue that by “staying in the country [one] shews that he inclines tosubmit to the government established in it” [LJ(A) v.117]. Smith responds that peoplehave no choice concerning the country in which they reside:

But this is a very fallacious argument. A very ingenious gentleman exposed the deceitof it very clearly by the following example. If one who was carried on board of a shipwhen asleep was to be told that having continued afterwards on board he was bound tosubmit to the rules of the crew, any one would see the unreasonableness of it, as he wasabsolutely forced to stay on board. He had not his coming on board at his own choice,and after he was on board it was folly to tell him he might have gone away when theocean surrounded him on all hands. Such is the case with every subject of the state.They came into the world without having the place of their birth of their own choosing,so that we may say they came asleep into the country; nor is it in the power of thegreater part to leave the country without the greatest inconveniences. So that there ishere no tacit consent of the subjects. They have no idea of it, so that it can not be thefoundation of their obedience [LJ(A) v.117–118, see also LJ(B) 16].

Third, “why should the state require an oath of allegiance whenever a man enters on anyoffice, for if they supposed a previous contract, what occasion is there for renewing it”[LJ(B) 17]. Smith concludes that agents must not be aware of the supposed tacit contract:

Why do those who engage in parties and factions against the government refuse to takethe oath of allegiance? If by staying in the country they come under a contract, thesame as if it was voluntarily entered into, what need is there of an express oathafterwards. This shews evidently that they have no notion of this tacit contract; and itis no less evident that the government [sic] do not rely on it, else why would they putthis oath to them? [LJ(A) v.128].

Fourth, if obedience is based on contract à la social contract theory, agents such asemigrants should be able to break away from the contract easily when they leave thecountry, which obviously is not the situation:

Besides if allegiance depended on the tacit contract of the parties an express declara-tion against it, as well as leaving the countries, would render them altogether free fromit, and an alien would be more expressly bound than any other, the quite contrary ofwhich is the case [LJ(A) v.128–129].

In other words, if contract à la social contract theory is the basis of allegiance, why cannotone easily break ties with the mother country?



Again, if this [tacit consent] was the case one by leaving the country would free himselffrom all duty to the government; and yet we see that all nations claim the power ofcalling back their subjects either by proclamation or by a private mandate …, andpunish all those who do not obey as traitors; and in general every one who is bornunder the government is considered as being bound to submit to it [LJ(A) v.118, seealso LJ(B) 17].

This fact, Smith continues, leads one to conclude that “this tacit contract, so much talkedof, is never thought of either by the governors nor the governed” [LJ(A) v.129].

Fifth, why are aliens, although they come closest to expressing voluntary contract orallegiance, not accepted easily in their new country? Thus, obedience should not be seenas arising from contract à la social contract theory:

Again, of all the cases where one is bound to submit to the government that of an aliencomes the nearest to a voluntary or tacit contract. He comes into the country not asleepbut with eyes open, inlists himself under the protection of this government preferablyto all others; and if the principle of allegiance and obedience is ever founded oncontract it must be in this case. Yet we see that aliens have always been suspected bythe government, and have always been laid under great dissabilitites of different sortsand never have any trust or employment in the state; and yet they have shewn morestrong and evident signs of an inclination to submit to the government than any others;and the obligations they are under to obedience are to those of a native subject as thatof one who voluntarily enlists into the fleet compared to that of a pressed man [LJ(A)v.118–119, see also LJ(A) v.128–129, LJ(B) 17].

Again, Smith continues, “upon the whole this obedience which every one thinks is due tothe sovereign does not arise from any notion of contract” [LJ(A) v.119].

Sixth, “this doctrine of obedience as founded on contract is confined to Britain and hasnever been heard of in any other country, so that there it can not be the foundation of theobedience of the people” [LJ(A) v.115, see also LJ(B) 15].

Seventh, even in Britain hardly any common day-laborer marshals contract à la socialcontract theory as the foundation of his obedience:

Ask a common porter or day-labourer why he obeys the civil magistrate, he will tellyou that it is right to do so, that he sees others do it, that he would be punished if herefused to do it, or perhaps that it is a sin against God not to do it. But you will neverhear him mention a contract as the foundation of his obedience [LJ(B) 15].

That is, contract à la social contract theory cannot, even in Britain, be the foundation ofthe state because most people never heard of Mr. Locke:

[E]ven here [Britain] it [civil contract] can have influence with a very small part of thepeople, such as have read Locke, etc. The far greater part have no notion of it, and

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nevertheless they have the same notion of the obedience due to the sovereign power,which can not proceed from any notion of contract [LJ(A) v.115–116].

Eighth, concerning the “rule laid down by Mr. Locke,” i.e., the consent of people isrequired before the levying of taxes, Smith responds:

[I]n France, Spain, etc. the consent of the people is not in the least thought of; the kingimposes what taxes he pleases. It is in Britain alone that any consent of the people isrequired, and God knows it is but a very figurative metaphorical consent which is givenhere [LJ(A) v.134].

In fact, what explains the imposition of new taxes is not consent à la Locke, but rather itis the inability to rebel. Only “exorbitant tax … would, as well as any other gross abuseof power, justify resistance in the people.” The non-resistance to a tax may express thecalculation that the consequence of a resistance might be worse than the tax itself, espe-cially if the tax is moderate:

But where this [tax] power is exerted with moderation, tho’ perhaps it is not done withthe greatest propriety as it is in no country whatever, and tho’ not even a figurativeconsent is requir’d, yet they never think that they ought to resist tho’ they may claimthe liberty of remonstrating against it …. [R]esistance is to be made if the conse-quences of it be not worse than the thing itself [LJ(A) v.135].

Ninth, the allegiance which people express to new rules does not express consent à laLocke. Similar to taxes, the allegiance is rather the result of the high cost of resistance.People would not resist “new masters” if the venture is “a fruitless resistance.” We witnessthe transfer of territories with their people as part of a peace treaty, “as a portion of themarriage of a daughter, or even by testament according to the good pleasure of thegovernors,” which was allowed by all “feudal governments” and “principalities in Ger-many” [LJ(A) v.136–137]. Social contract theory cannot explain the transfer of allegiancewhich accompanies the transfer of territories.5

It is true that some of the criticisms marshalled by Smith can be dismissed as limitedto a naive version of social contract theory—the version which postulates that an actualcontract took place in history. However, the substance of his critique is that the politicalcontract is based on the principles of authority as well as utility, i.e., not exclusively basedon utility as in the case with civil contract:

The principles on which this allegiance are really founded are those of authority and ofpublic or general utility [LJ(A) v.129, see also LJ(B) 12].

Even when some forms of government such as republics stress the principle of utility, theprinciple of authority, which is emphasized by monarchies, is still operative.6 In short, theauthority principle entails that the relation between the state and its subjects cannot be a



contract among politically equal individuals as is the case with the civil contract, basedsolely on utility, which establishes the rules of justice.

6. Conclusion

The paper advanced a single thesis. While social contract theory has demonstrated theimportance of justice to the establishment of the state, there is a more fundamentalprinciple which constitutes the state according to Adam Smith. This principle is authority.The study of this principle falls outside the scope of this paper. It is sufficient to show,however, that for Smith authority is non-reducible to utility in the sense of the securityafforded by the protection of rights. For Smith, authority rather flows “naturally” from theway low-rank agents come to desire the traits of high-rank agents. This natural flowsuggests that the state is not a result of contract as is the case when one sets up a civilmagistrate to protect property.

A full account of the principle of authority à la Smith leads to political psychology.Such an account suggests that the political order, stemming from the natural dispositionto respect authority, opens new vistas for the operation of the invisible hand. However,these issues have to be dealt with in another paper.

Acknowledgment

The paper benefited from the comments of Richard Posner, Warren Samuels, Hans Jensen,and two anonymous referees. The author appreciates the technical help of Carole Brown.The usual caveat applies.

Notes

1. All references are to The Glasgow Edition of the Works and Correspondence of Adam Smith, whichidentifies the book or part, chapter, section, and paragraph numbers. The abbreviations follow the onessuggested by The Glasgow Edition: WN for The Wealth of Nations [Smith, 1976a]; TMS for The Theory ofMoral 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. Although the Red Queen Paradox resembles the prisoners’ dilemma, I prefer the former story since it doesnot presuppose institutions such as the legal system and trustworthiness between prisoners [Khalil, 1997].

3. Smith’s notion of “perfect liberty” somewhat influenced Hegel’s [1942] concepts of “civil society” [seeHenderson & Davis, 1991]. For Hegel, civil society develops its own rules of reciprocal respect of rightsirrespective of the identity of agents:

It is part of culture, of thought as consciousness of the individual in the form of universality, that I amapprehended as a universal person in which all are identical. A man counts because he is a man, notbecause he is Jewish, Catholic, Protestant, German, Italian, etc. [Hegel, 1942, par. 209].

For Hegel, the state’s protection of equality in front of the law expresses an administrative function. Similarto Smith, such a function does not represent the essence of the state. Hegel’s civil society which allows for

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the pursuit of particular ends and the satisfaction of mutual needs, given the reciprocal protection ofproperty rights, does not fulfill man’s need to be part of a universal which differs from the abstract universalcharacterizing the civil society. For Hegel, the state expresses unity, where the particular individual fulfillshis inner sense of freedom by adhering to a common goal, while civil society merely expresses a purpose-less order. Although regulated by cultural rules concerning property rights, civil society is still the outcomeof interaction of mass of particular ends which lack any common goal. I call elsewhere the order of civilsociety as opposed to the order of the state “structure order” versus “organization order,” respectively.

4. For a review of Locke’s social contract theory and its relevance to modern theory see C.B. Macpherson[1962] and, for a succinct and insightful statement examine John Dunn [in Gambetta, 1988].

5. Martin McGuire and Mancur Olson [1996; see also Olson, 1993] reject social contract theory on the sameground stated by Smith. Namely, the theory cannot be universal given that most historical rulers andgovernments were not consented to by the people even in an implicit contractual manner. However, Smithwould reject McGuire/Olson’s thesis that the system of justice is the distinguishing feature of the polity.They argue that a bandit-mafia qua king finds in his interest to maintain the system of justice. They maintainthat we do not need a benevolent ruler in order to ensure that the interest of society is his primary goal. Evenbandits who exploit their subjects to their advantage sooner than later find out that it is in their interest toinstitute policies which respect property rights in order to expand the tax base. Such an expansion allowsthe bandit-king to draw larger revenue than would have been the case through outright predatory finance.For them, this exemplifies the working of the invisible hand. However, Smith’s invisible hand works throughthe psychology of the desire to achieve what high-rank agents stand for. Such agents, in order to sustainallegiance, behave in a publicly spirited manner. McGuire/Olson’s version of the invisible hand cannotaccount for the common goal or public spiritedness which is essential for the sustenance of political order.

6. For Smith, “[e]ach of these principles [utility and authority] takes place in some degree in every govern-ment, tho’ one is generally predominant” [LJ(A) v.121, see also LJ(B) 14]. The monarchical form empha-sizes the principle of authority, while the republican form (aristocratical and democratical varieties [LJ(B)18–19]) stresses the principle of utility [LJ(A) v.121–123]. This should be the case because all governmentsare simple variations of the monarchical form; i.e., the monarchical form possesses the basic, proper notionof government:

To acquire proper notions of government it is necessary to consider the first form [monarchical] of it, andobserve how the other forms arose out of it [LJ(B) 19].

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is justice the primary feature of the state? adam smith's critique of social contract theory

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