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Gavin Kennedy and Jeff Weintraub on Adam Smith's Behavioral Economics and Moral Philosophy

Gavin Kennedy:

Jeff Weintraub Opens a Debate with Brad Delong HERE over "Adam Smith's conceptual sleight-of-hand on exchange, cooperation, and the foundations of social order": [Jeff] title refers to “sleight-of-hand”, which implies a deliberate deception of Smith’s part, or at least a metaphorical or rhetorical debating point…. I do not think that Jeff has managed to [demonstrate that Smith is doing so] on this occasion. Smith was at a disadvantage compared to Jeff in that the science of anthropology now counts hundreds of thousands (possibly millions?) of papers, published and unpublished, many on-line, revealing new aspects, new concepts, new behaviour sets, most of them unknown to Smith. Also, close observation by scientists of groups of chimpanzees, and other related species, since Jane Goodall led the way, and now scores of others, have also revealed much new information certainly not available to Smith, nor to anybody else until after the mid-20th century.

Smith’s basic alternative… [to] exchange transaction[s considers relationships] between men and their dogs… a daily experience exceedingly common to many of his readers (and to his young teenage students – for much of these chapters in WN came verbatim from his Lectures in Jurisprudence, 1762-3, and were lifted into his WN). Dogs abounded….

I find Jeff unconvincing on the essence of dog pack hunting behaviours. The essence of the pack chase is mutual co-operation, but it is not intentional. If a dog sees a desirable target it will set off and chase it; others nearby see the target, or are alerted to it by dogs joining a chase; they too join the chase. A melee commences as soon as one dog catches the target. The co-operation is limited to the chase; then its down to every dog for itself)…. It was not an exhaustive account of the possibilities of co-operation that drove Smith’s account; it was a legitimate teaching point that starkly reveals the importance of exchange behaviour through bargaining, a wholly human behaviour…. On human exchanges, reciprocation behaviour was and is very important. I call it the ‘quasi-bargain… the exchange is separated in time, compared to full bargains where the exchange is simultaneously completed (mainly).

Smith in 1776 focussed on benevolence as the alternative to self-interested bargaining. But self-interest, especially in the WN “butcher, brewer, and baker” passage is woefully misunderstood, even by distinguished scholars….

Jeff suggests that there are at least three ways to achieve sustained coordination of human actions as: ‘top-down command’; ‘the market’; and ‘conscious cooperation’. From this restricted list, based on a selective view of self-interest, he draws conclusions about Smith’s supposed dichotomy of only benevolence or bargaining. But Smith is discussing the ‘exchange propensity’, which does not limit all decision-making in human societies…. There is the obvious world of politics, both personal and society wide. There are also laws of justice and regulation, neither of which are normally negotiable nor bilaterally open to acts of benevolence…. The ambit of his views of ‘sustained co-ordination’ was not limited to explicit exchange, except in some cases, and then when specified….

I agree with Jeff that the debate with Brad is a “brilliant, powerful, and fascinating theoretical argument”. But I do not agree that Smith was “wrong” and neither with Jeff’s assertion that “swallowing” Smith’s argument at the time and for the purposes of his Wealth Of Nations” has “led many very intelligent people astray”…. The full text is available at and I highly recommend that you read it in full. That may be essential to follow my counter-arguments to Jeff’s presentation.

Jeff Weintraub:

Hi Brad,

Your post with Snippets: Smith, Marx, Solow: Shoebox for Econ 210a Spring 2014 ("Exchange and its vicissitudes as fundamental to human psychology and society?") begins by quoting one of Smith's most theoretically important passages in The Wealth of Nations. That passage (from the second chapter in Book I of WN) also contains one of Smith's most impressive, and cleverly deceptive, bits of conceptual and rhetorical sleight-of-hand. Too many readers, including quite sophisticated ones, uncritically accept this conceptual sleight-of-hand and take it at face value. Perhaps even Brad DeLong is one of them?

I notice that you actually collude in the deception (no doubt unintentionally) by selectively quoting from that passage.

Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.... When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours by a thousand attractions to engage the attention of its master who is at dinner…. [M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them....

Let's start with those dogs…. Sure, it's probably true that nobody ever saw two dogs exchange bones of equivalent value…. But so what?… The central agenda of this passage is to argue that the only two ways to get help or assistance from someone else are (a) self-interested exchange or (b) an appeal to their "benevolence" by begging and "fawning"…. Is that second option the only way dogs ever do it?… Smith, in effect, denies that dogs (and presumably other canines) hunt in packs… dogs and other animals definitely do cooperate (not just in pairs, but in packs) in obtaining things they could not obtain, or achieving things they could not achieve, as individuals. In the process of cooperation, they help each other out. And they regularly do so in ways that do not involve market exchange (or servile fawning)….

[H]umans can hunt in packs, too, and do lots of other things in packs. Humans act in concert all the time, in ways that are not based on trucking and bartering. That may seem like an obvious fact, once it's pointed out… but a major purpose of Smith's discussion in the first several pages of that chapter is to obscure the theoretical significance of this obvious fact.

Why would Smith want to obscure that conceptual point?...

Smith is a careful analytical system-builder and a writer of great rhetorical skill and sophistication. (His writings on rhetoric are justly admired.) And one can't help noticing that obscuring, or evading, that conceptual point serves a useful function in helping Smith lay the foundations for his core theoretical argument in WN…. Smith further wants to suggest that the only possible alternative basis for (intermittent) mutual aid or beneficial interaction is gratuitous "benevolence" or (to use a later, 19th-century, word) altruism…. Let me step back and point out that, in the most basic analytical terms, there are at least three ways to achieve sustained coordination of human actions (even if we just ignore "benevolence" for the moment):

  1. One obvious possibility is top-down command, or what we might euphemistically term "imperative coordination" (to use Parsons's idiosyncratic and somewhat bowdlerizing translation of Weber's Herrschaft)….

  2. A second possible mode of coordinating human action is through the market—i.e., an impersonal, dynamic, and self-regulating system of self-interested exchange….

  3. But that brings us to a third possible mode of coordinating human action, which is conscious cooperation. Humans can sometimes manage to pursue joint or common ends, not through the indirect mechanisms of self-interested exchange of commodities, nor by simultaneously submitting to a common superior who directs and coordinates their actions (the Hobbesian solution), but by engaging in concerted action guided by common agreement, custom, habituation, etc.. Not only can humans do it, even dogs and wolves can do it….

And as long as we're on the subject of the tacit exclusions underlying Smith's foundational false dichotomy, let me mention just one more factor. Smith suggests in the passage you quoted that if we want someone else to do something that might be necessary or beneficial for us, there are two kinds of motivation, and only two kinds of motivation, that we might appeal to. We can appeal either to their individual self-interest or to their disinterested benevolence. Well, in the real world, we often make claims or recommendations, or have expectations that we regard as sensible and legitimate, based on people's obligations (moral, legal, customary, religious, or whatever). Obligations are not individual psychological characteristics, but socially structured norms, and they are not simply reducible to motivations of generalized "benevolence" or of the calculation of individual self-interest….

Smith might well want to argue that coordinating human action through the market, based on the motivations and practices of self-interested exchange (and their indirect and unintended consequences), is (generally speaking, and all things being equal) better and more efficient than coordinating human action through domination, conscious cooperation, obligation, etc. Elsewhere in WN Smith does, in effect, make arguments along those lines. And one could certainly find strong and plausible grounds for them (though I confess to having a soft spot for conscious coordination, where it's practicable).

However, such arguments would be different from the explicit argument that Smith actually does make in the passage you quoted—i.e., that the only significant basis for the sustained and mutually beneficial coordination of human action is self-interested market exchange ... and that the only conceivable alternative would be the throw-away residual category of gratuitous "benevolence" (which present-day mainstream economists usually shove into the even-more-grab-bag residual category of "altruism"). The argument that Smith actually makes there is incorrect, is based on an obvious false dichotomy ... and has proved to be a brilliantly successful and convincing piece of rhetorical and conceptual sleight-of hand. We should admire the brilliance, but we shouldn't be taken in.

Nor is this a peripheral or merely technical point. One of the central arguments that runs through and structures Smith's whole discussion in Books I-II of WN is that the market (based on the built-in human motivations and "natural" practices of self-interested exchange) is not just one important basis of social order, but is the fundamental basis of social order (and of the main tendencies of long-term socio-historical development). That's what it means to treat "exchange and its vicissitudes as fundamental to human psychology and society".

Again, that's a brilliant, powerful, and fascinating theoretical argument. But it's wrong ... and swallowing it uncritically has led many very intelligent people astray.

Let me first agree with Jeff and against Gavin that, to my knowledge at least, packs of canids do cooperate and they do so by establishing what Ariel Rubenstein calls a Jungle Equilibrium. They establish a dominance hierarchy, and the highest-status members eat first until they are full, with the lowest-status members facing the options of (a) challenging in order to move up in the hierarchy and so eat sooner, (b) striking out on their own and hoping to find another pack or survive alone, or (c ) hanging on and hoping not to starve. Humans do this too, and in fact extend it--this is Domination, Weber's Herrschaft, Parsons's Imperative Coordination.

But humans also engage in gift-exchange networks, with pure charity--transfer of resources in exchange for recognition of status--at one end of the spectrum and with arms'-length market exchange at the other.

And, Adam Smith would say, humans also feel each other's pain: we do engage in pure acts of benevolence.

And, Adam Smith would say, humans are also educated to want to become the people they want to be--to please the Impartial Spectator in their breasts. On this, the appropriate passage comes from the Theory of Moral Sentiments:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connexion with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general.

And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquillity, as if no such accident had happened.

The most frivolous disaster which could befal himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own.

To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it.

But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. It is he who, whenever we are about to act so as to affect the happiness of others, calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration. It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the natural misrepresentations of self-love can be corrected only by the eye of this impartial spectator. It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing the smallest injury to another, in order to obtain the greatest benefit to ourselves. It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters.

In Books I and II of WN, Smith definitely does write as if self-interest mediated by exchange is at the foundation of the social order. But Adam Smith the moral philosopher (as opposed to Adam Smith the proto-economist attempting to disrupt the 18th century discipline of "political oeconomy") does not believe that. And it is not true.

As I wrote back in 2012, your average economist is not a "Hobbesian" believing that humans are motivated by self-interest, but rather a "Lockeian", respecting others and their spheres of autonomy and eager to enter into reciprocal gift-exchange relationships, both one-offs mediated by cash alone and longer-run ones as well:

First, your standard economist is not "Hobbesian". He does not enter a butcher's shop only when armed cap-a-pie and only with armed guards, fearing--as a Hobbesian would--that the butcher will not sell him meat for money but will rather:

*knock him unconscious, * take his money, * slaughter him, * smoke him, and * sell him as long pig.

A Hobbesian does not buy and sell goods and services in mutually-beneficial Pareto-improving exchange relationships. A Hobbesian finds the biggest bad-ass in the neighborhood, and swears liege homage to that bad-ass in return for that bad-ass's promising not to kill him.

Your standard economist is, rather, a "Lockeian"--presumes that there is an underlying order of property and ownership that is largely self-enforcing, that requires only a "night watchman" to keep it stable and secure.

Now it is true that your standard economist is a largely-unreflective Lockeian: does not inquire why one trades rather than takes, affects the tough-guy pose that it is only the repeated-game nature of economic interactions that keep us from always winding up in the bad cell of the prisoner's dilemma, and adopts the reductio that humans are narrowly self-interested only in material acquisition (in order to strengthen the case that the social apparatus of voluntary market exchange produces good outcomes--to make the point that even private vices produce public benefits if they are constrained by the market). But that the standard economist is a largely-unreflective Lockeian does not mean that they are a Hobbesian.

When it comes to what the standard economist thinks, I think that the example of Hal Varian cuts the other way than Cosma thinks it does--or at least cuts ambiguously. Varian's graduate micro textbook is the formalism: people don't just take stuff because taking stuff is not in the strategy space. Varian's lectures and seminars are considerably more nuanced. Varian and Shapiro's Information Rules is intended for a business-school audience, and the object is to create barriers to entry so that your firm can profit. When he teaches not in the business school but in the economics department, Hal says, he still assigns Information Rules in his antitrust, regulation, and industrial organization courses, but--in the immortal words of Frederick von Frankenstein, he "changes plus to minus, and minus to plus": not the creation but the destruction of barriers to entry (as long as appropriate incentives are left for innovation) is the object.

Second, I do agree that I do--and other economic historians do, and Bowles and Gintis do, and McCloskey and Blaug do, and a bunch of the rest of us do--something somewhat different than what your standard economist does. But I view what I do as making the preconscious or the unconscious in "standard economics" conscious. And I would appeal not to the formal theory of the graduate textbooks, but to the actual practice of the economists I know as the test of what "standard economics" is.

It is true that back in my senior year of college it seemed to me that I was too shy to be anything other than a professor and should become one. I looked around, and discovered that the people applying for jobs as assistant professors of history and social studies were 40-year-olds who had written two books while the people applying for jobs as assistant professors of economics and social studies were 26-year-olds who had one half-written article. So it seemed a no-brainer to me to go for a Ph.D. in economics. But the fact that I made that decision demonstrates that I am a real economist after all: I regarded (and regard) responsiveness to market forces as a moral virtue, while if I were really a historian in disguise I would regard responsiveness to market forces as a moral vice.

Third, it seems to me that your standard political scientist's conception of the standard economist as "Hobbesian" is an exercise not in interpretive understanding but rather in disciplinary line-drawing--and, perhaps, attempted disciplinary imperialism: if the core of economics can be defined to be as small as possible, that leaves more space for political scientists to play.

Remember: there are real Hobbesians about. They are the international-relations realists in political science departments--not the economists in economics departments.