Analyzing the Moral Effects of the Welfare State Through the Lens of Adam Smith's Theory of Moral Sentiments

Eric Hammer

Advisor: Daniel B Klein, PhD, Department of Economics

Committee Members: Donald J. Boudreaux, David M. Levy, Bobbi Herzberg

Buchanan Hall, #D180
June 20, 2018, 11:00 AM to 01:00 PM


In this collection of articles I perform a structured analysis, based on the works of Adam Smith, of the moral effects of the modern welfare state on its subjects.

To structure the analysis I use Adam Smith’s The Theory of Moral Sentiments (TMS) as a basis for building a moral scorecard. The scorecard asks the user to assign quantitative values to the four sources of moral approbation described by Smith: motive, results for the counterparty, concurrence of execution with custom, and the system-wide effects of the action. The values assigned are then weighted to derive an overall moral score for the action. The approach allows discussants to compare their perceptions and judgments of an act with more clarity, and allows us to explicate our predicted reactions of others to an act. We can describe our own reactions as well as the reactions of other spectators.

In the following chapter I use the scorecard methodology as a scheme for describing the changes in moral approbation that occur when a benevolent action is coerced by a third party, specifically the modern welfare state. For the purposes of this discussion, welfare is defined as governmental redistribution that is both means tested and ongoing, whether in the form of cash or in-kind benefits. The changes in moral approbation between both the benefactor and the beneficiary are tracked within the scorecard schema, as well as the changes in the perceptions of impartial spectators in society. I show that the potential for moral approbation as a coercive third party is involved is sharply lowered. The spectator finds one or both sides of the benefactor-beneficiary relationship morally compromised; only a spectator with full knowledge of the actor’s inner state can make a judgment that does not suffer from prejudice. The analysis concludes that the welfare state has a potentially high cost in the moral approbation between members, and thus weakens the social cohesion of its members.

The concluding chapter addresses the question of why a system with such moral costs remains in place. Applying the scorecard to those with agency in making policy decisions, the politicians and bureaucratic agency heads, I show that the separation of action, motive and results leads to a less robust moral judgment. In such a situation our moral sentiments are prone to error and corruption, leading us astray. Building upon work by James Buchanan I develop a theory of moral rent seeking, whereby approbation that is lost by citizens is appropriated by politicians and bureaucrats to further their own careers. I also examine the issue of factional strife, and how the governmentalization of charitable aid both creates faction and incentivizes the maintenance of factional rifts by politicians as a means of garnering support.

The three chapters together set out a framework for discussing moral issues more effectively, apply that framework to the welfare state system to discover sources of moral loss within society, and discuss why those sources are not only allowed to continue but increased by the ruling classes. In doing so, I demonstrate the hidden costs of the welfare state, and its contribution to the corruption of the political process.