YANG Peng: The Social and Natural Order Under the 'Invisible Hand'

The essence of the “Invisible Hand” is not explained in The Wealth of Nations, but rather in The Theory of Moral Sentiments. Without the hand of God, the human spirit cannot stand.

Yang Peng, Renowned Scholar, Bachelor's and Master's Degrees from Peking University. Guest Speaker on CCTV's "Scholars Discuss Books". Research Scholar at Harvard University's Asia Center (2014-2016) Co-Founder and Former Secretary-General of the Alashan SEE Ecological Association. Former Secretary-General of Shenzhen One Foundation.  A Dedicated Practitioner of Organizational Action for Ideals.

Editor's Note: On September 25, 2022, YANG Ziyun interviewed Yang Peng regarding Gao Quanxi's article Adam Smith’s The Wealth of Nations and the ‘Invisible Hand’ (《斯密的〈国富论〉及其‘看不见的手’》). The interview focused on analyzing the concept of the “Invisible Hand.” Here is a summary of that interview for our readers.

Ziyun: You mentioned in the group chat that you were dissatisfied with Gao Quanxi’s explanation of the “Invisible Hand” and wanted to respond to his article Smith’s Wealth of Nations and the ‘Invisible Hand’. Gao suggested that you read his other related articles before responding. Did you read those other articles?

Yang Peng: Yes, I also read his articles A Discussion on Adam Smith’s Philosophy of Sentiments (漫谈亚当斯密的情感主义哲学) and The Smith Problem in the History of Thought (思想史中的斯密问题).

Ziyun: After reading these three articles, what are your thoughts? How do you plan to respond?

Yang Peng: All three articles share the same issue. Rather than directly responding to these three articles by Gao, I would like to take this opportunity to clarify what Smith’s “Invisible Hand” truly represents.

Ziyun: So, you intend to first analyze what the “Invisible Hand” is?

Yang Peng: Yes, we should first thoroughly discuss what the “Invisible Hand” is. Once we have an objective standard, the strengths and weaknesses of Gao’s article will become clear. We can briefly comment on his article at the end of our discussion.

Ziyun: In that case, I suggest we start with the text. Let me first quote the passage where Smith mentions the “Invisible Hand” in The Wealth of Nations:

"Indeed, he (referring to the owner of capital) generally neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

The only fair principle is that of laissez-faire.

This is the passage where the “Invisible Hand” is mentioned. It appears only once in The Wealth of Nations, yet it has become famous, symbolizing the self-regulating order of the free market economy.

Yang Peng: What do you think the “Invisible Hand” refers to in this passage?

Ziyun: Smith believed that when individuals invest in industry and commerce, they do so for their own profit, which is driven by self-interest. However, in the market, they unintentionally adhere to proper rules, thereby promoting the public good and achieving beneficial outcomes. There exists an invisible mechanism that harmonizes individual self-interest with social welfare. The “Invisible Hand” enables the spontaneous unification of personal gain and public good.

But why does such a mechanism exist in the market? Smith does not provide an answer. From this passage alone, it is unclear what this mechanism refers to.

Yang Peng: That’s an excellent question. In the competitive market order, why is there an invisible, spontaneous mechanism that unites self-interest with public welfare? Smith’s thinking is rooted in his understanding and answer to this question.

Ziyun: In The Wealth of Nations, Smith analyzes economic issues, such as how the division of labor determines the extent of the market, but he does not explain the “Invisible Hand.” It seems he merely takes the “Invisible Hand” as a backdrop, a premise. If we simply regard the “Invisible Hand” as the “spontaneous order of the market,” we are essentially not answering the question.

Yang Peng: Exactly. The essence of the “Invisible Hand” is not explained in The Wealth of Nations, but rather in The Theory of Moral Sentiments (道德情操论). Without the hand of God, the human spirit cannot stand.

Ziyun: I was just about to ask this question. The Wealth of Nations was published in 1776. Before that, Smith had already introduced the concept of the “Invisible Hand” in his 1759 work, The Theory of Moral Sentiments. In The Theory of Moral Sentiments, there is an indirect explanation that the “Invisible Hand” comes from Providence.

According to Merriam-Webster’s dictionary, the term "Providence" with a capital 'P' generally refers to divine guidance or care, or God conceived as the power sustaining and guiding human destiny. It also denotes the eternal presence of divine grace.

Yang Peng: The concept of the “Invisible Hand” appears once in The Theory of Moral Sentiments and once in The Wealth of Nations. This is a crucial point, so let's quote the passage from The Theory of Moral Sentiments for further analysis.

Ziyun: Sure. Let me quote the translation from The Theory of Moral Sentiments:

"The number of people whom the produce of all the land can maintain never exceeds that which it can maintain in its best-conditioned state. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and despite their natural selfishness and rapacity, though they mean only their own convenience, though the sole end which they propose from the labors of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus, without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition."

Yang Peng: Clearly, the content of these two mentions of the “Invisible Hand” points to the same idea: that self-interested individuals, through their economic activities, unintentionally promote social benefits. Both refer to the spontaneous unification of individual self-interest and public welfare.

What’s crucial here is that The Theory of Moral Sentiments mentions the source of this unification mechanism between self-interest and public welfare: Providence.

I have a screenshot from the 2002 Cambridge edition, where I drew a line between “invisible hand” and “Providence.” Take a look.

Ziyun: The “Invisible Hand” is related to Providence. However, I have two questions: First, how should we understand the Providence that Smith refers to? Is it merely a conventional term with little ideological significance, or is it a real theological issue? Second, since The Wealth of Nations was published much later than The Theory of Moral Sentiments, can we use the latter to interpret the former? In his article The Smith Problem in the History of Thought (思想史中的斯密问题), Professor Gao Quanxi also mentions the scholarly debate over the “Smith Problem,” i.e., the contradiction between the moral man in The Theory of Moral Sentiments and the self-interested economic man in The Wealth of Nations.

Yang Peng: Let me address the second question first. The Theory of Moral Sentiments was published in 1759, when Smith was 36 years old. The Wealth of Nations was published in 1776, when Smith was 53. Smith continued to revise and republish both books throughout his life. The fifth edition of The Wealth of Nations came out in 1789 when Smith was 66, and the sixth edition of The Theory of Moral Sentiments was published in 1790, when Smith was 67. The writing and revision of these two books overlapped for many years, so there is no real contradiction for Smith.

The difference between them lies not in a substantive distinction in thought but in perspective. The Wealth of Nations looks at the collective from the viewpoint of the individual, focusing on self-interest as it relates to public welfare. The Theory of Moral Sentiments views the individual from the collective perspective, focusing on public welfare as it relates to self-interest. Both books reveal the inherent unity between self-interest and public welfare, individual and collective. There is no contradiction in Smith’s thinking.

Ziyun: Your argument regarding the second question is well-supported. I raised the first question because, while The Theory of Moral Sentiments does relate the “Invisible Hand” to Providence, Smith does not further explain this relationship. If we simply regard the “Invisible Hand” as a manifestation of divine will, it feels like an intellectual shortcut, leaving the question essentially unanswered.

Yang Peng: To understand the relationship between Providence and the “Invisible Hand,” one must understand Smith’s cosmology. Smith’s cosmology can be described as a “watchmaker cosmology,” which he clearly explains in The Theory of Moral Sentiments.

Ziyun: A watchmaker cosmology?

Yang Peng: The Theory of Moral Sentiments is rich in content, but to understand the “Invisible Hand,” we only need to focus on one key section.

Smith viewed the universe like a watch. The purpose of designing a watch is to accurately display time. A watch is made up of many parts, each occupying a different position and serving a different function, but together they serve a unified purpose: to display time. Smith wrote:

"The wheels of a watch are admirably adjusted to the end for which they were made: to point out the hour of the day. Their different movements conspire to produce this effect. If they were endowed with a desire and intention to produce it, they could do no better."

Ziyun: From Smith’s description of the watch, we can see a parallel between the individual and society. Individuals are like the parts of a watch, and society is like the watch itself. Just as different parts serve different functions, people serve different roles, but all contribute to a common social goal. What is this common social goal?

Yang Peng: Smith clearly explains this. Let me quote:

"In the whole system of nature, we observe that the means are adjusted with the nicest precision to the ends which they are intended to produce. In the mechanism of a plant or animal body, we admire how everything is contrived to promote the two great ends of nature: the support of the individual and the propagation of the species. In all such cases, we discover that the works and operations of nature are the result of final causes."

Ziyun: A watch is mechanical, while the bodies of plants and animals are organic, yet both obey the same principle: the functions of individuals (parts) automatically serve the unified goal of the collective (whole).

For a watch, the “Invisible Hand” is the design purpose of displaying time, as well as the blueprint for that design. For living organisms, it is the goal of individual survival and species propagation, along with the corresponding laws and methods to achieve that goal. But is individual survival and species propagation the ultimate purpose, the ultimate happiness?

Yang Peng: Smith believed that the Creator made humanity with the intention of happiness. This is the purpose of love and goodness, and Smith’s theology is teleological. Although Chinese readers lacking theological knowledge might not be accustomed to Smith’s way of reasoning, let me quote his original words:

"There are countless considerations that can confirm this conclusion: the happiness of mankind, as well as of all other rational creatures, seems to have been the original purpose intended by the Author of nature when he brought them into existence. No other end could be worthy of that supreme wisdom and divine beneficence which we ascribe to him. This view is further confirmed when we consider the works of nature, for they appear to be calculated to promote the happiness and guard against the misery of all living creatures."

"When we act according to the dictates of our moral nature, we seek the most effective means of promoting human happiness. We may say that, in some sense, we cooperate with the Deity, contributing as far as we can to the execution of his providential plan."

"If we take a contrary course, in some degree we thwart the benevolent purposes of the Author of nature, who intended the happiness and perfection of the world. Thus, in a certain sense, we declare ourselves the enemies of God, and naturally, we must dread his vengeance and punishment, while we hope for his special favor and reward."

When reading this passage about the goal of human happiness set by God, doesn’t it remind you of the phrase “the pursuit of happiness” in the Declaration of Independence? Happiness is not only a secular pursuit but also a theological mandate. This idea resonates with the Chinese saying, “There is divine justice three feet above one’s head.” The underlying order of the world is inherently just, rewarding good and punishing evil.

This view is not far removed from the facts of human nature. Those who run businesses know that to grow and thrive, they must improve cost-effectiveness and better serve consumers—this is a competitive tendency towards goodness. Smith saw this divine law of justice behind market order. In people’s market choices, there is an invisible hand of divine retribution guiding the promotion of good and the suppression of evil.

Ziyun: Smith's words sound almost like a sermon. If we keep probing, we might eventually ask, “Who is the designer and controller of the Invisible Hand?”

Yang Peng: Indeed, that is the natural progression of inquiry. Smith, being as astute as he was, had already prepared an answer. Let’s look at the text again. Smith says:

"When we are led by natural principles to pursue these ends, this fine and enlightened reason will suggest that we should do so; we tend to attribute these goals to our own reason, sentiments, and actions, as their effective cause, and imagine that they result from our human wisdom. But in fact, they are due to the wisdom of God."

Ziyun: The text is quite clear. God set the grand purpose for humanity, which is individual survival and species propagation. God's natural law is omnipresent. In humans, it manifests through reason, sentiment, wisdom, and organization, all of which automatically guide people towards this grand purpose of survival and propagation. This unity between the individual and the collective, between self-interest and public welfare, cannot be attributed to human reason and wisdom alone; it can only be attributed to the ultimate cause—the Creator.

Thus, the “Invisible Hand” becomes clear. It refers to God and the natural law of God as manifested in nature, human nature, human social organization, and human economic behavior.

Ziyun: I haven’t read The Theory of Moral Sentiments carefully, but the three pieces of text you quoted—are they pieced together from different parts?

Yang Peng: These three passages are all from the second volume, third chapter of The Theory of Moral Sentiments, and they appear on the same page. I’ve divided them into three parts for analytical convenience, but they are originally part of a single whole. From this, we can understand the relationship between parts and the whole. The parts serve the whole, and the whole is composed of parts. This reflects the unity between the individual and the collective, self-interest and public welfare, in Smith's economics.

Ziyun: It seems that careful reading is essential for solid research. I wonder if Professor Gao noticed this material you mentioned. Smith’s cosmology does seem to have characteristics of Newton’s: God as the watchmaker. God has imparted to this world a set of fine and harmonious natural laws, and from the harmony and stability of natural order, one can see the presence of God.

Is Smith’s thought aligned with Natural Theology? God is rational, and God’s will is manifested through natural laws.

Yang Peng: Yes. This is not unique to Smith. This is a thought paradigm established by figures like Descartes (1596–1650), Spinoza (1632–1677), Newton (1643–1727), and Leibniz (1646–1716). Although these giants of thought had many disagreements, they shared the same basic paradigm, and Smith was merely a successor to this paradigm of natural theology.

Descartes believed that “the universe is like a great machine that follows fixed laws, a machine created and wound up by a great clockmaker.”

Newton was not only the founder of modern physics but also a foundational figure in modern thought. In the second and third editions of his Mathematical Principles of Natural Philosophy, he wrote a General Scholium specifically to explain the relationship between God and natural order:

"This most elegant system of the sun, planets, and comets could not have arisen without the design and dominion of an intelligent and powerful being. And if the fixed stars are the centers of similar systems, all of them must be subject to the dominion of One, especially since light is emitted from them in all directions, just as from the sun. And lest the systems of the fixed stars should, by their mutual gravity, tend towards one another, He hath placed them at immense distances from one another."

Ziyun: It seems that Professor Yang Zhenning’s recent remarks about seeing the Creator through the wonderful laws of nature are based on Newton’s cosmology.

Yang Peng: From a theological tradition, both Paul in the Bible and Plato in The Republic expressed this idea that one can discover God through the harmony of creation. Newton’s rational and harmonious cosmology was well-expressed in philosophy and ethics by Spinoza. Many Western scientific elites hold a Newtonian or Spinozian view of “God-Natural Law” cosmology, including figures like Einstein and Musk.

Gottfried Wilhelm Leibniz (1646–1716), a mathematician, philosopher, inventor of calculus and binary code, and an important German thinker, also contributed to this view.

Ziyun: You reminded me that Leibniz also proposed the concept of “pre-established harmony,” suggesting that the deep order of the world is rational and harmonious, predetermined by God.

Newton studied the rational laws of celestial motion, while Smith applied Newton’s methodological approach to economics. Smith was the Newton of economics.

The Wealth of Nations essentially analyzes how the “pre-established harmony” in market economics operates. The unity between the individual and the collective, self-interest and public welfare, belongs to this “pre-established harmony.”

Yang Peng: Precisely.

Ziyun: This idea of “pre-established harmony” is the theological basis for Smith’s opposition to government mercantilist economic regulation and his emphasis on free and open market economies?

Yang Peng: Yes. All regulation is based on an interpretation of a tendency towards disharmony, which justifies the need for the “visible hand” of intervention. Distrust in the harmonious order of the market, in the goodness of human nature, and in the automatic unification of self-interest and public welfare ultimately reflects a disbelief in the harmonious and benevolent order of God. It places trust only in the harmonious and benevolent nature of those in power, which is the ideological foundation for human-made regulation.

In the eyes of Descartes, Newton, Leibniz, and Smith, God infused the law of intelligent and benevolent harmony into the order of all things. The rational and benevolent harmony is the fundamental nature of things, and individual interest naturally serves public interest. In this sense, freedom is the good governance of God, while regulation is the usurpation of God’s authority by those in power, leading to evil and decay. Newton and Smith’s theological belief in “God-Natural Law-Rational Order-Harmonious Benevolence” underpins their disdain and anger towards government intervention and regulation, forming the deep ideological foundation of Western freedom.

Writing always involves potential adversaries. Smith’s The Wealth of Nations was, to a large extent, a response to Hobbes’ Leviathan. Hobbes’ Leviathan, published in 1651, posited that in the state of nature, human relations are inherently antagonistic—a war of all against all—and thus called for absolute power to maintain social harmony and stability.

In contrast, The Theory of Moral Sentiments and The Wealth of Nations argue for harmony in the state of nature, rejecting the necessity and legitimacy of absolute power.

Thomas Hobbes (1588–1679), a British thinker, supported royal power during the English Civil War. His Leviathan (1651) is titled Leviathan or The Matter, Forme and Power of a Commonwealth Ecclesiasticall and Civil.

Ziyun: It seems that the foundation of national systems lies in deeper mainstream thought. Freedom requires a belief in the existence of the “Invisible Hand,” in the tendency towards natural rational harmony. I can't help but feel that Smith's understanding of the “Invisible Hand” bears some resemblance to Laozi’s thought in China.

Yang Peng: Yes, Laozi advocated for governing through non-action, with minimal intervention from the court. This approach is premised on the belief in the “Way of Heaven,” which benefits and does not harm—a form of “pre-established harmony.” However, Smith differs from Laozi. Laozi’s philosophy revolves around governance strategies based on the harmony of the Tao, while Smith’s philosophy is rooted in the theological realm of sacred rights, centered around the “Invisible Hand.”

The Wealth of Nations and the Declaration of Independence were both published in 1776, and they stem from the same theological belief. The Declaration of Independence attributes the rights to life, liberty, and the pursuit of happiness to “the Laws of Nature and of Nature's God.” Similarly, Smith attributes the laws that promote public welfare through the free market economy to the “Invisible Hand,” which is also rooted in “the Laws of Nature and of Nature's God.” Thus, in a society where both market and political freedom are emphasized, the state’s role is to safeguard and serve freedom, limiting infringements on economic and political liberties by others.

The fact that The Wealth of Nations and the Declaration of Independence—two foundational documents of modern freedom—both emerged in 1776 is not a coincidence. They represent the expression of natural theology’s ideas of freedom and order in the economic and political realms.

Ziyun: Speaking of the intellectual paradigm of figures like Descartes (1596–1650) and Newton (1643–1727), it seems we’ve overlooked a significant figure—Luther (1483–1546).

In the history of modern thought, two figures stand out as having the greatest influence: Luther, with his Protestant Reformation, and Newton, with his Mathematical Principles of Natural Philosophy. According to the God-rational harmony paradigm of Descartes-Newton-Leibniz-Smith, it seems they would be at odds with Luther, who distrusted human nature. Is Smith’s natural theology a transcendence of the Christian tradition of human depravity?

Luther sparked the Protestant Reformation by posting his Ninety-Five Theses on the door of the Castle Church in Wittenberg on October 31, 1517.

Yang Peng: It might be too simplistic to understand Luther in this way. Luther opposed the intermediary role of the Pope and the papal authority over individuals, arguing for justification by faith alone. For the Pope, there was no salvation outside the Church, and without papal control, harmony between man and God would not exist.

For Luther, without the Pope’s control, believers face God directly, achieving righteousness through faith in God. The individual’s relationship with God does not require the Pope to mediate harmony. In this sense, the premise of papal authority is the mistrust of individual capability, while Luther’s justification by faith underscores the freedom of trusting the individual.

If Luther were to enter the field of economics, he might arrive at conclusions similar to Smith’s: human nature is indeed weak and prone to error, but God is just, and God’s invisible hand will guide the free individual who has faith in God towards the path of righteousness. In the realm of market economics, where everyone freely strives, God’s free order represents the highest justice, and no person or organization can substitute for God in representing justice.

At the same time, Luther’s thought contributes to the establishment of strict laws due to his concern over the fallen nature of humanity. His trust in grace fosters a community spirit based on a shared belief in God and moral law. It’s not about anarchy or the absence of laws but about setting government and laws to prevent infringement and protect freedom, based on the principle that “freedom is the greatest public good.”

Ziyun: Luther and Newton had the greatest influence on the formation of modern Western free order, yet their theological orientations were different. Newton adhered to natural theology, emphasizing rational natural law over revelation and grace. Luther’s theology was one of grace, emphasizing revelation and grace while being cautious of reason. How do we reconcile their influences on free order?

Yang Peng: They share a common belief in God. Luther emphasized divine election through grace, while Newton emphasized the order of God’s rational natural law. The path of grace is one of faith, prayer, devotion, fellowship, grace, and election—a religious path. The path of reason involves observation, analysis, reasoning, practice, and efficiency—a scientific path. They represent the dual foundations of the freedom order of their time: God-faith and God-reason. The movement to establish a free order in modern times was born from the dual forces of Luther’s theology of grace, which proclaimed equality before God, and the theology of free reason based on “God and His natural law.”

Ziyun: It seems Smith aligns more closely with Newton’s natural theology. We can summarize Smith’s “Invisible Hand” as follows: God—rational natural law—human traits of reason, sympathy, emotion, and wisdom = the coordination of the individual and the collective, the unity of self-interest and public welfare. This is the overall framework of Smith’s theory of the “Invisible Hand,” an expression of natural theology in the field of economics. At its core is God’s teleological preservation of individual development and the flourishing of species, guided by a belief in life’s love and happiness—a rational or natural theological conviction.

This discussion arose from the need to evaluate Professor Gao’s article on the “Invisible Hand.” Now that the standard is clear, we can assess Professor Gao’s article. Earlier, you mentioned that Professor Gao’s three articles share a common problem. What is this problem?

Yang Peng: The problem is that Professor Gao has an inherent spiritual ceiling, a lack of transcendence and awareness of God. As a result, he can only perceive what lies below this spiritual ceiling—a ceiling that does not exist in Smith’s thought. This leads to significant selection bias in his interpretation of Smith’s ideas, choosing to see only what aligns with his own views and ignoring the foundational presence of God as the source of natural rational order in Smith’s works.

Ziyun: Instead of making an abstract denial, can you provide specific examples?

Yang Peng: In Professor Gao’s article Smith’s Wealth of Nations and the Invisible Hand, his understanding of the “Invisible Hand” is reduced to a mere natural law, awkwardly expressed as “natural law (Heaven’s Way),” while deliberately excluding the author of natural law—God. This is not Smith’s “Invisible Hand.” It’s like looking at a watch and only vaguely seeing the design and parts while missing the purpose and the designer.

Ziyun: What’s your opinion on his A Discussion on Adam Smith’s Philosophy of Sentiment?

Yang Peng: The title of his article misuses the concept of “sentimentalism,” which some scholars studying the Scottish Enlightenment like to invoke. What is “-ism”? It denotes the primary meaning or dominant thought. Is Smith’s philosophical system built on “sentiment”? Does the “Invisible Hand” equal a hand of sentimentalism?

Based on the Smith’s “watchmaker cosmology” text we just cited, where does “sentiment” fit in? Is it the designer, the maker, or just a component? I’ll quote another passage from Smith’s The Theory of Moral Sentiments regarding the role of “sentiment”:

"Those actions, namely those that produce actual evil or are intended to produce it, will immediately bring fear upon us and be subject to the natural creator’s (Author of nature, referring to the Creator) reasonable and certain judgment as objects of human aversion and punishment. Human sentiments, schemes, and affections—these manifestations—may be judged by rational human action as the sum of all virtues and defects, but in truth, this judgment is reserved for the great Judge of hearts (referring to God), who places it beyond the judgment capacity of any person and retains for Himself the infallible knowledge."

Who created human reason and sentiment? God did, and they are tools to fulfill God’s purposes, transcending human understanding. Only God is omniscient. The true judgment of human sentiments lies beyond any mortal’s wisdom; it is the ultimate authority of God.

From this passage, is it “sentimentalism” or “the great Judge of hearts-ism”? Is it sentimentalism or God-ism? Sentiment is a creation, while God is the creator of sentiment. Which one is truly the “-ism”?

In Professor Gao’s summary of the Scottish Enlightenment thought with the triad of “sentiment—order—virtue,” he conspicuously omits God, the “Author of nature,” the “great Judge of hearts,” and the “goodness of God” that Smith emphasized.

It’s not that God, the Judge, and the Creator are absent from Smith’s thought; rather, it’s that Professor Gao, blinded by his own atheistic perspective, cannot see them and, intentionally or unintentionally, uses his writing to obscure the reader’s exploration of the source.

Ziyun: What about your view on Professor Gao’s The Smith Problem in the History of Thought?

Yang Peng: As I’ve mentioned, there’s no real contradiction between The Theory of Moral Sentiments and The Wealth of Nations, so there shouldn’t be any “Smith Problem” to discuss. The “Smith Problem” isn’t Smith’s problem; it’s a problem for those who study Smith. From the individual to the collective, from self-interest to public welfare, there is the “Invisible Hand” to unify them. From the collective to the individual, from public welfare to self-interest, the “Invisible Hand” also unifies them. Without the transcendent perspective of the “Invisible Hand,” one cannot see the unity.

Ziyun: In Professor Gao Quanxi’s article Smith’s Wealth of Nations and the Invisible Hand, he writes:

"In Smith’s economics and moral philosophy, on the one hand, he proposes that artificial institutions of justice and other virtues, as well as the market economy order, are not natural themselves, but rather evolved from natural sentiments and behaviors. They are man-made, or artificially created."

Yang Peng: Has Professor Gao portrayed Smith as a thinker of “human over nature,” a creator of man-made laws? This is utterly unreliable. Would Smith really argue that the institutions of justice, virtues, and market economy order are man-made? Would Smith advocate for a man-made “visible hand”? This is a significant deviation, disregarding the facts.

Ziyun: Here’s another sentence you might want to look at. Professor Gao writes:

"Smith believed that to solve the emergence and evolution of moral sentiments, and thereby establish a moral social order and a life based on virtue, one cannot provide external foundations for human sentiments, as Christian morality does by preaching from divine will. Nor can one, like Kant, derive it from absolute moral imperatives. As for Hutcheson’s sixth moral sense, it lacks a physiological basis and is disconnected from natural sentiments. These approaches won’t work. One must return to the sentiments themselves, finding the basis for moral sentiments in human sympathy and imagination. On this point, he agreed with Hume. They both sought to excavate a path from pre-moral natural sentiments to moral sentiments and, ultimately, to social order and good virtue, thereby justifying modern commercial and civilized society."

Yang Peng: Smith would argue that “one cannot provide external foundations for human sentiments”? Is this really the Smith who wrote The Wealth of Nations and The Theory of Moral Sentiments? Is God and God’s natural law not the external source of human sentiments? People are merely components in a watch, and their functions (including reason, sentiments, etc.) are set by the Creator (though they are also inherent within us).

Professor Gao’s statement is reminiscent of the slogan “there has never been any savior; to create the history of humanity, we must rely on ourselves (and our sentiments)!”

I am speechless. I don’t even want to refute it—Smith’s own works refute it.

His logic here reveals a fundamental issue: he treats the principles underlying morality and law as subjective human “inventions.” But with the original quotes from Smith that we’ve discussed, clearly showing Smith’s belief in “God—natural law—reason and sentiment—spontaneous harmony of individual and collective,” we can see that Professor Gao’s “Smith believed” is not what Smith truly believed, but rather what Professor Gao has imposed on Smith.

Ziyun: This brings to mind a matter of thought processes. I recall you once mentioned that Zhou Gong and Confucius were objectivists. For them, Heaven’s mandate came from outside, and people could only come to know, revere, and follow it. But Chinese thought gradually shifted towards the self, towards subjectivity, especially after Buddhism entered China, leading to a deep turn towards the self-nature and the belief that “all things arise from the mind,” profoundly influencing Chinese thought. In a sense, it marked a shift from objectivism to subjectivism, where everything is understood within the framework of self-nature subjectivity.

Yang Peng: After the Qin dynasty, the Chinese psyche gradually became Buddhist. Yangming’s School of the Mind is a typical example of Buddhist-influenced Confucianism. In modern times, New Confucian scholars like Mou Zongsan represent a Buddhist-influenced Confucianism—a Confucianism where “all things arise from the mind.”

I’ve noticed that many scholars studying Chinese philosophy, especially Confucianism and Daoism, have largely internalized a Buddhist way of thinking. They no longer adhere to Zhou Gong and Confucius’s reverence for Heaven’s mandate. New Confucian scholars advocate for internalizing everything into the mind, viewing everything as a manifestation of the mind, losing the sense of reverence and adherence to objective natural and moral laws.

Ziyun: Such a mindset of “all things arise from the mind” leaves little room for rational science.

Yang Peng: The premise of science is a belief in objective laws. Scientific inquiry is about expressing objective laws through mathematics. A society dominated by the belief that “all things arise from the mind” is unlikely to discover scientific equations, and its knowledge of natural laws will not reach higher levels.

Many intellectuals’ mental paradigms seem to be rooted in the idea that “my mind is the mind of the universe; all things arise from the mind,” which feels satisfying but may only be a self-deifying illusion without a basis in reality.

The reality is that we live in a providential order. The atmosphere, sunlight, rain, seasons, minerals, plants, animals; gravity, the speed of light, attraction; and an infinite array of mathematical equations—none of these were created by humans. Their operational laws are not under our control but are graciously bestowed by the Creator. All of this exists outside of us, objectively—objectively—objectively.

I once told a friend who strongly advocated for self-dominion: Can you dominate the air? Can you dominate the seasons? Can you dominate the speed of light? Can you dominate gravity? Can you dominate your own age?

We need to think about the term “dominion” at a cosmic level. Human dominion is essentially legal equality among people. Theological dominion refers to eternal life through God’s victory over death.

In the realm of the universe’s natural laws and history’s moral laws, humans can only conform to the transcendent laws. Acknowledging human limitations, recognizing the transcendence of natural and moral laws, fosters basic reverence and respect for the rule of law, as well as a deep understanding of rights.

Natural laws govern nature, and moral laws govern human society; both are given. We have reason to understand natural laws, and we have virtue to understand moral laws. Our reason, virtue, and sentiments all stem from natural and moral laws. Belief in the permanence of natural laws is the premise for scientific research. Belief in the objectivity of moral laws provides the universal basis for legal principles.

Newton discovered the natural laws governing celestial bodies, and Smith discovered the moral laws governing the market economy. Both started from an objective order given to them. Their thinking paradigm comes from the Bible and ancient Greek philosophy, rooted in the belief in the Creator’s laws of creation and the pursuit of objective rational laws—they were objectivists.

Newton would never claim that the natural law that light consists of seven colors was his own creation.

Ziyun: I’m also puzzled by Professor Gao’s repeated emphasis that in the market order, the “Invisible Hand” only plays a supplementary role, not a dominant one. He says:

"After all, it is not the real order, not the driving force behind wealth creation, not the mainstay of the market economy, nor can it dominate the standards of artificial virtue and justice. These things lie within the commercial society itself, in the creative actions of entrepreneurs and merchants, in the spontaneous social evolution. The ‘Invisible Hand’ can only adjust and assist, but cannot fully replace them."

He places the “Invisible Hand” alongside the “creative actions of entrepreneurs and merchants, and the spontaneous evolution of society,” playing only a supplementary role.

Yang Peng: He has relegated Smith’s first principle to the status of a servant, expecting the “Invisible Hand” to serve the “visible hand,” expecting the hand of Providence to serve the hand of man. This is Professor Gao’s interpretation, not Smith’s. Such a misinterpretation of Smith makes me question whether Professor Gao has seriously, rigorously, and comprehensively read these two original works by Smith.

For Smith, the objective existence of the law of the “Invisible Hand,” the law that unifies self-interest and public welfare in market order, is the cornerstone of Smith’s free-market economics. It is fundamental—how could it be relegated to a supplementary role?

Newton revealed a universe controlled by a miraculous mathematical natural law. Smith revealed a market economy and social order controlled by a miraculous moral law that unifies self-interest and public welfare spontaneously.

The Theory of Moral Sentiments presents a watchmaker’s view of order, where human creativity and social evolution are all guided by the design and power of the “Invisible Hand.” Therefore, a pair of atheistic eyes constrained by a materialistic ceiling cannot see the height of the “Invisible Hand.”

It’s always “me, me, me, me, me,” placing the subjective—man-made—above all else, always trying to squeeze God and His natural law into one’s own mind, treating them as personal creations. Such a view, which acknowledges only human-made morality and law without recognizing truly transcendent natural and moral laws, let alone the deeper understanding of the source of these laws, is not only Professor Gao’s problem but also a widespread issue in Chinese academia.

Our prevailing thought paradigm is the thousand-year-old traditional thinking of Shang Yang and Qin Shihuang, where the sage king dictates rules and laws. It’s the thousand-year-old traditional inclination of subjective self-deification, where the mind creates all things. It’s also the modern materialistic mindset of “man can conquer nature.” The institutional direction is rooted in this mental mindset, and most of us are controlled by it.

Under this “all things arise from the mind” mindset, morality and law become mere expressions of the victor’s will, and interpersonal relations become a war for institutional control. This leads to a world where the “visible hand” enslaves people everywhere, rather than a world of equality and freedom under a shared, authoritative, and universal moral law (virtue and law).

Ziyun: Perhaps it’s not entirely fair to say this, as there are few scholars in Chinese academia who advocate for freedom, and Professor Gao is one of the important ones.

Yang Peng: The edifice of free order is supported by a combination of certain thought elements. The first principle of free order was first expressed in the Ten Commandments and later in the Declaration of Independence, not in Mou Zongsan’s “freedom of the infinite mind” or in Professor Gao’s “man-made and subjective” thinking.

What’s strange is that some friends who speak of free order don’t have the most important document of free order—the Declaration of Independence—in their hearts. They lack the Creator mentioned in it, and they lack the basic understanding of natural rights bestowed by the transcendent Creator.

Freedom comes from the Creator, found in natural and moral laws. Freedom preexists; it is discovered, not invented. Freedom rights preexist; they are simply something everyone must strive for.

The Declaration of Independence can be called the fundamental expression of the first principle of free order. It clearly attributes the rights to life, liberty, and the pursuit of happiness to the Creator who created mankind equally.

Just as Smith attributes the moral legitimacy of the free market economy to the “Invisible Hand” of Providence. Freedom is the greatest public good—this is the objective law set by God’s natural law. Freedom rights are the sacred rights that everyone must strive for, and realizing freedom is the duty that everyone must undertake.

Treating freedom as an invention, as a man-made, subjective product, implies that the foundation of freedom law is historically contingent, suggesting that freedom can be replaced at any time by historical circumstances. This man-made view of freedom is not a reliable foundation for free order.

The rule of law and free order, to use your concept, are built on objectivism, not subjectivism. The basis of the rule of law must be objective; if it is subjective, it becomes rule by man, not rule by law. The underlying logic and thought paradigm of some friends who advocate for freedom are subjective, not aligned with the rule of law and freedom. If Professor Gao is like this, what can we expect from others who have no sense of “freedom as the greatest public good”?

Freedom has always existed across the sea; it has always been there. But without crossing the sea, it cannot be obtained.

The law of freedom has always existed. Freedom is the greatest public good—this is a given, a divine order that continues to advance throughout history until freedom under just law is fully realized, until the coming of a new heaven and a new earth of freedom.

If we are confined within our shallow, man-made spiritual world, unable to transcend, unable to rise, we will not see the objective natural and moral laws that transcend human minds, nor will we have a deeper understanding of the fundamental forces that create these laws. Without an internal sense of reverence and a sincere pursuit of natural and moral laws, we will continue to try desperately to pull Smith down from his position of faith, dragging him into the lowly ranks of those waving the “visible hand” without faith, going so far as to distort his teachings, applying arbitrary interpretations to his works, and finally dressing Smith in a “sentimentalism” cap, a “man-made justice” coat, and “man-made market order” trousers, before pushing him onto the stage to announce to the world: this is Smith, a de-godified Smith.

Smith’s thinking is rooted in the Creator and the order of the universe, as shown by his watchmaker cosmology and the “Invisible Hand.” Originally, reading Smith could elevate our spiritual standing, from the subjective interactions of individuals to the deeper natural and moral laws, and further to the gracious force that gives life to these laws. We need to elevate ourselves to Smith’s high level rather than trying desperately to drag Smith down to our original, lower spiritual level.

The truth will set us free, but we do not know the truth. Our spiritual level is too low, so we are not free. Mr. Smith, you looked upward, while we are too accustomed to looking downward. Please forgive us, Mr. Smith.

Yang Peng’s work, research and his books:

Yang Peng has extensive experience in managing philanthropic organizations. As one of the founders and former Secretary-General of the Alashan SEE Ecological Association, he also served as the Chair of the Expert Committee. He has been a Director and Secretary-General of the Shenzhen One Foundation. Yang Peng is a scholar who embodies the integration of knowledge and action, continuously validating and expanding management wisdom through practice.

An Innovator in Bridging Eastern and Western Thought.  Graduating from the Department of Spanish at Peking University, Yang Peng furthered his studies at Harvard University's Asia Center (2014-2016). He was a guest speaker on CCTV's "Scholars Discuss Books," where he promoted the New Sinology of China. Yang Peng excels in placing traditional Chinese thought within the context of global religious and philosophical traditions, making him one of the few scholars capable of bridging Eastern and Western intellectual frameworks. His academic research is marked by original and captivating insights.

He is also the founder of Yang Peng New Sinology.  In 2017, Yang Peng founded Yang Peng New Sinology, through which he developed 15 Chinese cultural courses, including In-depth Explanation of the Dao De Jing (90 lectures), Parent-Child Reading of the Analects (100 lessons), Commentaries on Figures in the Records of the Grand Historian (50 lectures), Twenty Lectures on the Book of Documents, Twelve Lectures on the Great Learning, Nine Lectures on the Doctrine of the Mean, Four Lectures on the Book of Lord Shang, Five Lectures on Han Feizi, Twelve Lectures on Bronze Age Thought, Five Lectures on Oracle Bone Script Thought, Hymns to Heaven in the Book of Songs, Learning Decision-Making from the Comprehensive Mirror in Aid of Governance, Core Concepts in the History of Chinese Thought and Global Comparisons, among others.

He has authored 13 books, including Becoming God (1994), The Rise of a New East Asian Culture (1997), A Detailed Explanation of Laozi: A Study in Laozi's Political Philosophy (2003, reprinted five times), For Public Welfare and the Republic (2012), Investigating the Origins of God in China (2014), DAO DE JING (English translation of the Dao De Jing, published in the U.S. in 2015), Yang Peng’s Interpretation of the Dao De Jing (2017), Dao De Jing (Bilingual edition, 2019), Yang Peng’s Interpretation of the Analects (2020), Yang Peng’s Interpretation of the Great Learning (2022), Twenty Lectures on the Book of Documents (2023), Fifty Lectures on Figures in the Records of the Grand Historian (2024), among others. His interpretation of the Dao De Jing has been acclaimed as "restoring the central value system of it."