Martin Schlag: Adam Smith’s Virtue of Prudence in E-Commercial Society

The full article is available here

Adam Smith’s virtue ethics is of enduring relevance within contemporary business and societal discourse, also in the realm of e-commerce. Despite the widespread recognition of Smith’s contributions to economic theory and business ethics, there has been a gap in the exploration of Smith’s virtue ethics in the context of modern societal and technological advancements, such as digitalization. Smith’s virtue theory, particularly his emphasis on prudence, offers valuable insights for understanding and evaluating ethical behaviors also in e-commerce. Prudence, as articulated by Smith, serves as a foundational virtue that directs self-interested passions toward the preservation of wealth, health, rank, and reputation. In the commercial society envisioned by Smith, prudence generates attitudes like industry, frugality, parsimony, and thrift, essential for capital accumulation through saving. Alongside his contributions to economic theory, contemporary scholarship positions Smith as a virtue ethicist, highlighting his focus on virtues of character rather than prescriptive moral rules. In this sense, Smith portrays praiseworthy characters and their qualities, both in The Theory of Moral Sentiments and The Wealth of Nations. Prudence plays a role over and above other virtues in Smith’s moral framework, because prudence plays a pivotal role in regulating self-interest, especially in economic activities. While justice is crucial in Smith’s philosophy, he sees justice as a negative virtue primarily concerned with avoiding harm, whereas prudence is the virtue guiding decision-making and ethical reasoning. Smith’s concept of prudence, in contrast to justice, fosters economic activity and societal flourishing and, as a moral and economic virtue, regulates self-interest within the framework of a just society. Smith’s virtue of prudence, as expounded in his works, has garnered significant attention from scholars in recent years.

Subscribe to our Substack to receive blogs and book reviews

When we apply Smith’s virtue ethics to the contemporary context of e-commerce, we can make the Scottish Enlightenment thinker’s notion of prudence fruitful for guiding ethical behaviors among buyers and sellers in digital transactions. E-commerce, with its unique features and global reach, creates new forms of societal interaction that can benefit from Smith’s ethical principles. Just as Smith updated classical virtue ethics in the context of his commercial society, we can do the same to Smith’s notions in contemporary e-commercial society. Smith’s approach to prudence diverges from classical Christian ethics, where it is the central moral virtue regulating all aspects of life. Instead, Smith focuses on its role in regulating selfish passions and bodily desires within the bounds of health and fortune. While classical ethics emphasizes prudence as the charioteer of all virtues, guiding actions towards a proper end, Smith confines its scope to sentiments necessary for one’s good standing in a commercial society.

In portraying the prudent person, Smith emphasizes traits such as security-seeking, genuineness, and moderation in speech and social interactions. The prudent individual avoids unnecessary risks, values truthfulness, and maintains decorum in society. This depiction aligns with Smith’s belief in the importance of reputation and propriety in fostering social cohesion. Moreover, Smith discusses the impact of prudence on business activities, advocating for steady industry, frugality, and foresight in decision-making. Prudence, for Smith, involves sacrificing present desires for future interests and entails a careful balance between present enjoyment and long-term security. Smith’s conception of prudence extends into his economic theory as well. In The Wealth of Nations, he emphasizes the importance of saving, investment, and frugality in fostering economic growth and social progress. Prudent management of capital, Smith argues, leads to increased productivity, employment, and specialization, benefiting society. Smith’s advocacy for prudence in both moral and economic spheres reflects his belief in the interconnectedness of individual and societal well-being. While prudence serves the self-interest of individuals, it also contributes to the common good by fostering economic prosperity and social harmony. Smith’s theory was written for different times and circumstances. We thus need to acknowledge his limitations in addressing modern challenges. Nevertheless, we can judiciously apply his ideas to understand the dynamics of e-commerce.

The landscape of e-commerce is evolving, both in its technical capabilities and societal impacts. In business research technical aspects are widely explored, whereas ethical considerations tend to be underrepresented. Smith can supply some conceptual tools to help navigate the uncharted ethical waters of e-commerce.

We propose two propositions that link Smith’s detailed traits for prudent commercial activity with e-commerce. We also introduce two propositions elucidating how prudent e-commerce influences societal well-being. Smith breaks down the virtue of prudence into the following traits of the prudent person: balance, steadiness, sacrifice, living on current income, self-command. Applying these traits to e-commercial activity, we discover that e-commerce platforms can either foster prudence or reinforce vices, depending on users’ pre-existing moral dispositions.

The two propositions thus are:

  • A1: The context of the e-commercial society reinforces the development of the Smithian traits of prudence linked to commercial activity if a person already shows a disposition towards virtues.
  • A2: The context of the e-commercial society can corrupt the development of the Smithian traits of prudence linked to commercial activity if a person is used to following unrestrained selfish passions.

Security, genuineness, moderation in speech, friendship, and observance of decency are explored as traits that positively impact societal well-being when cultivated by e-commerce users. Conversely, neglecting these traits can hinder societal flourishing. Two additional propositions (B1 and B2) summarize these insights, affirming that cultivating Smithian traits in e-commerce supports societal flourishing, while neglecting them detracts from it.

  • B1: Cultivating the Smithian traits of the prudent person in e-commerce positively contributes to societal flourishing.
  • B2: Not cultivating the Smithian traits of the prudent person in e-commerce negatively contributes to societal flourishing.

Practically speaking, the study of Smith’s concept of prudence in e-commerce would advocate the integration of virtue ethics education into business curricula and emphasize the importance of ethical considerations beyond those concerned with legal compliance.

Our Team

Professor Msgr. Martin Schlag is the Alan W. Moss Chair in Catholic Social Thought and the Director of the John A. Ryan Institute for Catholic Social Thought at the University of St. Thomas