Adam Smith’s curiosity continues to enlighten us—or at least those who understand his views

But his ambitions and insights extended so much further than the dismal science as now conceived. In many ways, his modern followers, intent on narrowing and thereby desiccating the field, have let him down.

The breadth of his thinking is hard for modern readers to grasp because his prose was ornately opaque even by the standards of his time.

Scholars argue about what he really meant and didn’t mean—a literature that doesn’t rival the one dedicated to Karl Marx (who was much influenced by Smith) because nothing could, but which trundles on and shows no sign of exhausting the source material.

Meantime, for non-specialists, Smith is simply an avatar of laissez-faire capitalism. What a pity his legacy has come to this.

The right way to mark the anniversary is to celebrate not only the works but also the remarkable intellectual temperament that produced them.

I say ‘works’ because Smith conceived The Wealth of Nations as a companion to its predecessor, The Theory of Moral Sentiments, and they need to be judged together.

His critics have often said they’re at odds: one concerned with commerce and the machinery of economic progress, the other with the source of moral values; one dedicated to the power of self-interest and “greed is good,” the other to the roots of benevolence.

In fact, the two aren’t just consistent, they come together to form a single, coherent view of the world. And, what’s most important, this view has nothing to do with the ‘market fundamentalism’ often associated with Smith—or with any kind of fundamentalism.

Smith’s project was to understand how a commercial society works, starting from the observation that the success of any such enterprise seems extremely improbable. After all, it involves a bewilderingly complex system of choices, competition and cooperation. Is there something about ‘human nature’ that makes such a system tenable?

His answer was yes: People are motivated by a blend of benevolence and self-interest, and a flourishing commercial society needs both.

Surely, you might think, this contradicts the one quotation fromThe Wealth of Nations that everybody knows: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love…” There you have it. Give praise to self-love. Greed is good.

This reading completely misunderstands Smith’s thinking, as the economist Ronald Coase explained 50 years ago. (His article ‘Adam Smith’s View of Man’ is the best short thing to read on this.) In the same paragraph as that tiresomely familiar quotation, Smith also observed, “In civilized society [man] stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.”

This is the puzzle that fascinates him throughout. For cooperation at a distance, benevolence (an admirable sentiment) can’t be expected, much less relied on; self-interest (deplorable in excess) is necessary.

Smith applies this thinking consistently to governments as well as to buyers and sellers—yet another contradiction of the modern caricature. He sees that rulers are also self-interested. They have the same motives as the rest of us and, crucially, face fewer constraints. He questions government interventions not because he wants private self-interest to prevail unhindered, but because he’s alert to the depredations of self-interested kings and ministers.

He isn’t preaching self-love. He’s saying that self-love is a fact of human nature—a necessary evil, part of what makes commercial society work, and something that must be kept within bounds.

The Wealth of Nations, mainly concerned with cooperation at a distance, is appropriately preoccupied with self-interest and incentives, more than with benevolence. The Theory of Moral Sentiments is mainly concerned with the norms and intuitions that guide people in their relationships with families, friends, neighbours and fellow citizens, where benevolence and related sentiments, such as affection, loyalty and sympathy, figure more prominently.

But again Smith applies the same basic framework: He sees self-love and benevolence intermingling and acting together. As he illustrates at length, our benevolent instincts often serve our interests, as when they promote trust (which successful commerce requires) or burnish our status, reputation or self-esteem.

As you’d expect, this framing gives rise to another line of criticism: Smith’s view of human nature, not just of commercial society, is mean and dispiriting. He isn’t content to argue that society is and should be ruled by selfishness; he also thinks that true benevolence doesn’t exist, regarding this sentiment as either fraud or self-deception.

Again, this critique is wrong. There’s such a thing as genuine benevolence, Smith believed, and it’s admirable; sometimes, it also rewards the benevolent, which is good, because it encourages benevolence. There’s no contradiction.

Indeed, this understanding of benevolence and self-interest interacting in ways that, according to circumstances, moderate or reinforce each other—in turn helping commercial society to flourish—points ineluctably to adaptation and natural selection. Smith’s ‘science of man’ anticipates Darwin.

Maybe we often misunderstand Smith’s project of morals and markets because he was more concerned with seeing and understanding how societies work than in advocating any particular course of action.

His recommendations are well known and the classical liberals he inspired (an endangered species, sadly) advocate them still: liberty, rule of law, limited government, competition, free trade.

Yet he had little time for theoretical abstraction and delighted above all in observing and disentangling unforeseen or unintended consequences. As a result, he ranged far beyond economics, as it’s now understood, through moral and political philosophy, sociology, and social psychology. He was driven by curiosity more than conviction.

This is why the charge of market fundamentalism is risible. First and foremost, Smith was a pragmatist: he saw that commercial society worked, and applied his open mind to asking why. After 250 years, his answers are still enlightening. ©Bloomberg

The author is a Bloomberg Opinion columnist and member of the editorial board covering economics.