It is, therefore, a just political maxim, that every man must be supposed a knave: Though at the same time, it appears somewhat strange, that a maxim should be true in politics, which is false in fact.
David Hume, Essays: Moral, Political and Literary
Motivation crowding out describes the phenomenon of intrinsic motivation being diminished when external incentives--typically, monetary incentives--are introduced in a context that was previously dominated by spontaneous behaviour, for example a spontaneous will to solve problems or to help others. It became a research topic in the 1970s and 1980s (see for example Titmuss, 1970; Deci, 1975; Lepper and Greene, 1978). One might think, therefore, that this phenomenon must have something to do with the societal tendencies of late modern capitalism. But it can be argued that the structural problems that can lead to motivation crowding out run much deeper, and that they have to do with the fundamental character of a society in which man's self-interested passions are given free reign in the economic sphere.
This essay discusses some distinctions in the thought of an author who is often taken to be the 'father' of economics as a separate science, and who was, in any case, one of the earliest and most in-depth analysts of commercial society: Adam Smith (1). As will be shown, his distinction between higher and lower virtue points to the phenomenon of motivational crowding. Smith develops a complex account of a society in which peace and opulence can be reached despite the fact that most people can only ever reach the lower standard of virtue. He does so by relating different human passions to different mechanisms of unintended consequences that can have a beneficial role in different spheres of life. As will become clear, however, this model makes the place of higher virtue in commercial society precarious, in ways that are similar to the problem of motivation crowding out. For Smith there is still a place for 'higher' virtue in commercial society, but it may not lie in the full-hearted pursuit of self-interest. This nuanced view of the role of self-interest in commercial society is often forgotten in contemporary economics, and in particular in economic teaching.
The weakness of human nature
Smith's focus on self-interest in the Wealth of Nations (WN), and his focus on the 'principles in [human] nature which interest him in the fortune of others' in The Theory of Moral Sentiments (TMS, I.I.1.1) led to the formulation of 'Das Adam Smith Problem', which saw an irreconcilable conflict between his two published works. It is now widely acknowledged, however, that they are better understood as belonging to one coherent system (see for example Montes, 2004, 20ff.). Many interesting aspects of Smith's theory precisely arise from his analyses of the interaction of these different human tendencies.
For Smith, who here stands in a line with thinkers such as Hobbes and Mandeville, the majority of men are 'weak and [...] imperfect creature[s]' (TMS II.I.5.9). Their capacity of self-command, the virtue 'from [which] all the other virtues seem to derive their principal lustre' (TMS VI.III.11), is seldom developed to the highest degree. Most human weaknesses--for example, insufficient mastery of the passions (I.I.5.8), the lack of moral sensitivity (III.V.1), or self-delusion (III.IV.4)--have to do with a lack of self-command. Only a minority of men possess enough self-command to stick to moral principles when most people would fall prone to the 'temptation to do otherwise' (VI.III.11) and form their moral ideas with 'the most acute and delicate sensibility' (VI.III.25). Individuals also differ in the epistemological ability that is needed for moral judgment, which Smith sometimes calls 'wisdom' (for example TMS VI.I.16). Only morally outstanding agents are 'capable of suiting, with exact justness, their sentiment and behaviour to the smallest difference of situation' (TMS III.V.1), which, of course, presupposes knowledge of these differences. For Smith, the 'bulk of mankind' cannot be supposed to possess this wisdom; they often have neither time for nor interest in acquiring it. Knud Haakonssen has distinguished two kinds of knowledge in Smith (1981, 79). While 'contextual knowledge' is limited to factors directly relevant to one's situation, 'system knowledge' describes 'the understanding of things, events, or persons in some sort of functional relationship to a greater "whole" or system ...'. For Smith it is clear that the 'bulk of mankind' possess contextual rather than system knowledge--the latter is acquired only by 'men of speculation', philosophers or scientists.
Smith's descriptive account of people's moral abilities is thus rather pessimistic: he regards the 'bulk of mankind' as quite limited with regard to self-command and epistemic abilities. It is 'but a small party' (TMS I.III.3.2) who are morally outstanding and strive for higher virtue.
The moral philosophy of TMS reflects this structure, distinguishing between different standards of moral achievement. On the one hand, there is a higher standard of 'complete propriety and perfection' (TMS I.I.5.9, cf. VI.III.23) that 'deserves to be admired and celebrated' (I.I.5.7), and that the 'wise and virtuous' aspire to. On the other hand, there is a lower standard of 'mere propriety', the standard 'the actions of the greater part of men commonly arrive at' (I.I.5.9). It is a kind of minimum standard, falling short of which deserves blame (I.I.5.9). Adhering to it is ethically neutral, as it were: an ordinary degree of beneficence, for example 'seems neither blameable nor praiseworthy' (II.II.1.5). For this lower standard rules play an important role, as they help to overcome the problem that in the 'eagerness of passion' we often do not listen to the voice of reason (III.IV.3). To structure one's moral behaviour by following moral rules is a second-best: it represents a 'very decent' form of morality, and this 'sense of duty' is the only principle by which the 'bulk of mankind', who are formed of 'coarse clay', are 'capable of directing their actions' (III.V.1).
Smith, however, was not only a moral philosopher, but also a social theorist and economist. As such, he was interested in how there can be peaceful social life and economic progress given the fact...