Adam Smith and the Sustainability of Nations
Justice, Capital, and Posterity
Sustainability is not only a technical problem of resource management; it is fundamentally a question of justice (Rockström et al. 2023). In particular, it is a question of what one generation owes to the next. Adam Smith did not use the language of sustainability or intergenerational justice, but he understood the underlying problem clearly: a nation becomes wealthy not by consuming its inheritance, but by preserving and enlarging the stocks of capital on which future prosperity depends. Thinking in terms of capital is therefore not merely an economic convenience, but an ethical necessity - an argument I develop further elsewhere (McLaughlin 2026).
In developing this argument, I draw on Kenneth Boulding (1971), one of the pioneering thinkers in Sustainability Science, who described the Wealth of Nations as economic ‘scripture’. For Boulding, modern economics had largely ‘clarified, expounded, expanded, mathematized, and translated into modern language’ ideas that were already implicit in Smith’s work. Smith remained seminal not only because of his originality, but because each rereading revealed new insights (Boulding 1971), a view echoed by others who argue that Smith still has much to teach economists (Bordo & Rockoff 2023).
Justice before Wealth
The Wealth of Nations was underpinned by a framework of justice and justice was seen as one of the essential roles of the state in Book V (Backhouse 2002). One of the most famous quotations from the Wealth of Nations relates to ‘natural liberty’, but what is equally important is the adherence to the ‘laws of justice’:
All systems, either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.
Justice was a central function of economic institutions. Smith saw it was as essential not only for commerce and economic activity, but also for the credibility required to sustain a national debt:
Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice; in which the people do not feel themselves secure in the possession of their property; in which the faith of contracts is not supported by law; and in which the authority of the state is not supposed to be regularly employed in enforcing the payment of debts from all those who are able to pay.
What exactly Smith meant by ‘justice’ is most clearly outlined in his other masterpiece, The Theory of Moral Sentiments. Justice is central to Smith’s vision as it is ‘the main pillar that upholds the whole edifice [of society]. If it is removed…[society] must in a moment crumble to atoms’.
Because society does not reward good behaviour, Smith saw justice as a negative virtue: it only punishes infractions on liberty. Positive virtues can be fulfilled without a requirement to take action. While Smith was an advocate for liberty, this was not to come at the expense of wider society, noting that, ‘though his own happiness may be of more importance to him than that of all the world besides, to every other person it is of no more consequence than that of any other man.’
Smith outlined a framework for judging one’s actions based on the perception of an ‘impartial spectator’, and that to ‘disturb the happiness’ of others because it stands it the way of our own would be intolerable to the impartial spectator. Smith had a clear hierarchical structure to justice, with the greater the crime the worse the punishment. Murder ‘is the most atrocious of crimes’, followed by theft and breach of property, which were considered greater crimes than breach of contract. It is through the application of justice ‘that man, who can subsist only in society, was fitted by nature to that situation for which he was made.’ Here Smith’s view was that human beings can only flourish in society because they depend on one another for assistance and are equally vulnerable to injury from one another. If people offer help willingly, and without force, then society prospers through reciprocity.
Justice was of great importance to society, and injustice could potentially destabilise and even ‘destroy’ it. For Smith, justice was not only a matter of individual perspective but also concerned the broader social implications of an action. Negligence, stemming from an absence of care regarding all possible outcomes of an individual’s action, was a key concern:
a person [who] happens to occasion some damage to another, he is often by the law obliged to compensated it…[As] nothing, we think, can be more just than that one man should not suffer by the carelessness of another; and that the damage occasioned by blamable negligence should be made up by the person who was guilty of it.
In modern economic terminology, Smith is describing a negative externality: a private gain that imposes a public cost. This line of thinking was evident in the Wealth of Nations when Smith noted that:
But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical.
Here Smith was referring to private bank notes but also to the public walls to prevent fire. In other examples, Smith referred to quarantine during contagion as a way to prevent the spread of a ‘public evil’.
Intergenerational Justice
John Rawls (1971, 1999) expanded on the idea of justice and made it explicitly intergenerational by establishing a ‘just savings principle’. This condition is based on the idea that each generation contributes towards future generations and that each subsequent generation receives a bequest from their predecessors. When Rawls (1999) revised his work, he explicitly focused on the ‘just savings’ in an attempt to clarify the concept. The essence of his explanation of intergenerational justice remains the same:
Each generation must not only preserve the gains of culture and civilization, and maintain intact those just institutions that have been established, but it must also put aside in each period of time a suitable amount of real capital accumulation. This saving may take various forms from net investment in machinery and other means of production to investment in learning and education.
There are no guidelines for how this intergenerational accumulation and distribution of real wealth should be allocated, but Rawls does provide some ethical constraints.
Rawls contrasts a utilitarian view with his own view of contracts. In the utilitarian view, future generations may have higher wellbeing if capital accumulation and technological improvements lead to improved conditions in the future (and an ability to support a larger population). Therefore, higher savings in the poorer generations could disadvantage them.[i] Rawls then compares the utilitarian approach to the contract approach, or the ‘veil of ignorance’, where people do not know what generation they belong too. In that context it is better to develop a consistent savings rule as every generation, apart from the first, would gain if a ‘reasonable rate of saving is maintained.’
The Rawlsian approach to intergenerational justice influenced how economists have approached the issued since the 1970s. Both Ken Arrow (1973) and Robert Solow (1974) - two key figures in how economists have thought about the idea of sustainability - were explicitly drawing on a Rawlsian approach in early studies analysing the intergenerational allocation of resources. Rawls provided the ethics; Arrow and Solow converted it into economics. Solow in particular expanded the definition of capital to also include finite natural resources. He operationalised the Rawlsian approach as maintaining constant consumption per capita across generations.
The application of the Rawlsian ethical approach adds greatest nuance when the role of non-renewable natural resources are considered as this creates a challenge when trying to balance constant consumption per capita in perpetuity when resources are finite. Ultimately, in the case of non-renewable natural resources, technological progress is the saviour, because, as Solow notes, ‘unlimited technological progress may be unlikely, but it is not, like unlimited population growth on a finite planet, absurd’. This proves to be key to Solow’s application of Rawlsian intergeneration justice, but one of the problems is that it is maintained by the assumption of perfect substitution between produced and natural capital (i.e., that produced capital can act as a substitute for non-renewable natural resources). A conceptualiusation of wealth as envisaged by Solow is illustrated in Figure 1.
Following Solow, the economist John Hartwick (1977) showed how intergenerational equity could be achieved by a savings/investment rule, ‘invest[ing] all net returns from exhaustible resources in reproducible capital’. This is what Solow (1986) later referred to as a the ‘Hartwick Rule’.
The Rawlsian interpretation of justice is the bedrock of one of the most influential descriptions of sustainable development, the 1987 Brundtland Commission, which stated that, ‘sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’
Within the Brundtland (1987) definition there were two key concepts; the first was ‘needs’, where the emphasis was on the ‘the essential needs of the world’s poor, to which overriding priority should be given’, and second was environmental limits to present and future needs that were, ‘imposed by the state of technology and social organization’. While Rawls is not cited in the report, the Brundtland definition of sustainable development in terms of intergenerational justice has a clear Rawlsian fingerprint.
Reconciliation of Smithian and Rawlsian Justice
In setting out his theory of justice, Rawls sought to distinguish his views from the utilitarian tradition that had come before him. Rawls grouped Adam Smith (and David Hume (1711-1776)) in with utilitarians such as Jeremy Bentham (1748-1832) and John Stuart Mill (1806-1873). While Smith places weight on utility this was not the primary basis for action and, in this sense, Smith is closer in thinking to earlier classical thinkers (Gill 1976 ), or, as the economic historian Deirdre McCloskey (2008) argues, Smith was a virtue ethicist. Smith’s work on moral theory is often analysed in isolation from his canonical text on political economy, but when read together the two inform the other and help to reconcile Smithian and Rawlsian approaches to justice (Cowen 2021).
While Adam Smith’s views of justice have been criticised as being too thin (as they do not consider broader welfare), others see Smith’s views as having wider applicability (Otteson 2017). Amartya Sen, who sees his own work in the tradition of Smith and other enlightenment thinkers, argues that Smith was aware that there are ‘several different meanings’ of justice. Sen (2009) draws on traditions of Indian jurisprudence to make a distinction between niti and Nyaya: niti is the ‘organisational propriety and behavioural correctness’ of justice, while nyaya refers to ‘realised justice’. Sen used the motto of the Holy Roman Emperor Ferdinand I (1503-1564) as an extreme example to illustrate the distinction: ‘Fiat justitia, et pereat mundus [let justice be done, and let the world perish]’. There is clear niti but the consequences in terms of applied justice are catastrophic. In terms of applicability of niti and nyaya, Sen sees Rawlsian justice as a form of niti, while Smith and other enlightenment thinkers are more in the nyaya approach.
In discussions of sustainability Sen defers to Solow, particularly praising his work on intergenerational equity. Sen believed that Solow had applied the Brundtland Commission’s concept of sustainable development to economics. This is not entirely correct; Solow’s work predated the Brundtland Commission and was directly influenced by Rawls’s idea of ‘just saving’. Regardless of this intellectual lineage, Sen broadened the Rawls-Solow-Brundtland framework, proposing that sustainable development should be understood as preserving (and if possible expanding) the capabilities and freedoms of the current generation ‘without compromising the capability of future generations’ (emphasis added). This brings us back to the idea of ‘just saving’: it is through the maintenance of capital (broadly defined) that we can preserve the capabilities of future generations. This is in essence the argument that Smith was making.
Public Debt and Justice Across Generations
A final thought on Smith and justice relates to his thinking on the national debt. The national debt is something that is inherently intergenerational as debt accumulated in the past must be paid by future generations of taxpayers. Smith disparaged the frivolous accumulation of debt as he argued that debt had ‘gradually enfeebled every state which has adopted it.’
Smith saw debt as intergenerational: ‘To relieve the present exigency, is always the object which principally interests those immediately concerned in the administration of public affairs. The future liberation of the public revenue they leave to the care of posterity.’ Public debt allowed present voters to enjoy the political and military benefits of war while shifting the tax burden onto posterity. For Smith, this was not prudent finance but moral evasion.
Smith’s critique of public debt is, in effect, a pre-Rawlsian argument about unjust dissaving. The main issue was the lack of parsimony in normal times, regardless of political form of government, and that this lack of parsimony led to an accumulation of debt in war time. Smith’s issue was not with the accumulation of debt per se, but with the effect of the increase in taxes on the productive capacity of the state.
Smith’s thinking on debt has been revisited in light of controversies over the rise in public debt. Most notably Nicholson (1920) drew on Smith’s thinking in light of the spectacular rise in UK debt after the First World War – as shown in figure 2.
A useful illustration of debt and fairness can also be seen in the Irish default on debt obligations to the British state in the 1930s. Éamon de Valera regarded these obligations as unjust, arguing that ‘in view of all the historical circumstances, it is not equitable that the Irish people should be obliged to pay away these moneys’. The debts in question were land annuities owed by Irish tenant farmers, originally created to compensate landlords under the earlier land settlement system (Foley-Fisher and McLaughlin 2016). The dispute was not simply economic but moral: should an independent Irish state be bound by obligations created under a previous political settlement?
Smith did not use the language of sustainability, planetary boundaries, or intergenerational justice. But he did understand the underlying problem: a nation becomes wealthy not by consuming its inheritance, but by preserving and enlarging the capital (institutional, productive, social, and natural) on which future prosperity depends.
References
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Sen, A. (2009). The Idea of Justice. Cambridge MA: Havard University Press; TMS, Part IV, Section II, chapter I.
Solow, R. M. (1974). Intergenerational Equity and Exhaustible Resources. The Review of Economic Studies, 41: 29-45.
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[i] This is a line of argument that bears a similarity to that used as a rationale for economic actions in the case of climate change; for example, see: Nordhaus (1991).