We need Adam Smith more than ever. That's the thesis of Jesse Norman's new book, Adam Smith: What He Though And Why It Matters.

To establish this, Norman first rescues Smith from the caricatures. He was not a free-market headbanger; he did not believe Britain was over-governed, had no doctrine of the "invisible hand" and "did not think free markets always served human well-being." Nor was he a shill for the rich. He deplored the tendency to "admire, and almost to worship the rich", favoured progressive taxes and thought (as did Marx) that some of the functions of the state worked "for the defence of the rich against the poor."

Instead, Norman links the Smith of Wealth of Nations with the Smith of the Theory of Moral Sentiments. The TMS shows how our sense of right and wrong - our conscience or what Smith calls the impartial spectator - arises from interactions with others. From these we learn what Smith's near contemporary Robert Burns called the gift to see ourselves as others see us. Our commercial activities are similar. The moral question "how would others judge my behaviour?" is similar to the prudential questions: "How am I coming across to my client?" What does the customer want?" All require sympathy - a key concept in Smith - which we learn from interacting with others.

Market outcomes and social norms alike arise therefore from very similar processes. For Norman, Smith was one of the first theorists of emergence:

Innumerable human interactions can yield vast but entirely unintended collective consequences - social benefits, yes, but also social evils.

Markets, then, operate within norms. Norman says:

Markets are sustained not merely by incentives of gain or loss, but by laws, institutions, norms and identities, and without those things they cannot be adequately understood.

In a healthy commercial society (Norman wisely distinguishes this from capitalism) social norms and market processes will reinforce each other well. Norms against cheating and rent-seeking will ensure that markets work well, whilst commercial activity will, in Montesquieu's phrase (and recently revived by Deirdre McCloskey) "polish and soften barbaric ways."

Which brings us to Smith's relevance today. For Norman, we do not have such a society today. Instead, we have crony capitalism in which:

Business activity loses any relation to, and often clashes with, the public interest;...business merit is separated from business reward. These features then feed off and into a culture in which values of decency, modesty and respect are disregarded, and short-termism and quick rewards come to dominate long-established norms of mutual obligation, fair dealing and just reward.

We need, says Norman, a social, economic and political renewal along Smithian lines which reverses this vicious downward spiral between markets and norms.

Much of this is brilliant. There is, however, another story we can tell here. Smith's view of the economy as the realm of "truck, barter and exchange" - interactions between equals - is a partial one. There is also Coase's point (pdf) that lots of economic activity is organized not by markets but by firms. This changes things. As Marx said, most of us leave the "very Eden of the innate rights of man" and enter the "hidden abode of production" in which there is hierarchy and domination. And these shape social norms as much or more as do barter and exchange.

And they do so less healthily. As Joseph Schumpeter claimed (pdf), the supplanting of the entrepreneur by the bureaucrat weakens market dynamism: I suspect one reason for our current stagnation is that bosses have wised up to the fact that innovation doesn't pay. What's more, the characteristics needed to thrive in a hierarchy are not those of sympathy but their opposites: narcissists and psychopaths are over-represented in boardrooms. We have large islands of Stalinism within a market sea. And the characteristics required to prosper within Stalinism are those of Stalin.

Worse still, if we view economies only through the prism of truck, barter and exchange we miss the fact that inequalities of power matter hugely. It is surely no accident that western capitalism best promoted human flourishing during the 1945-73 period, when capitalists' power was constrained by workers' power. Norman sees cronyism as a particular pathology of capitalism rather than capitalism itself. But I'm not so sure: cronyism is what we get when capitalists are unconstrained.

Of course, Norman is far too intelligent not to see this. But I fear he doesn't stress it enough, and that he under-rates the importance of power.

Which is a shame, because greater equality of power might be the way of achieving what Norman (and I) want - a healthy commercial society. Perhaps Smith was right that a world in which equals would truck, barter and exchange would lead to one of sympathy and healthy social norms. We need, however, to establish this equality. So yes, we need Smith. But maybe we also need Marx too.