The book’s resurgence does not surprise me. Certainly not from Shiller who, with George Akerloff, gave us the intriguing book Animal Spirits. Shiller is of course not indifferent to the core point raised by TMS as well as the famous reference to Keynes, which is that “affect” matters in economics. From Karl Rove, I’m not quite sure. I’m curious as to what relevance, if any, Professor Mankiw thinks that TMS has today.
I’ve written about the importance of TMS before here at Volokh. Smith himself believed that you could not really understand, or for that matter hope to see in action, the market operations and effects of The Wealth of Nations without a concomitant “moral psychology” of human beings. The constitutive moral psychology of sociability was, for Smith, a predicate for the social institutions of the market that make up The Wealth of Nations. He believed that the two books, and the two accounts of human affective traits and market institutions based around the commodification of affections within a marketplace were what made market institutions possible, or at least stable.
The commitment to a psychology of market-making human beings that is more than simply “thin” rational self-interest is not the same as urging that markets need morally “better” people, which, come to that, we are not likely to get. The point of TMS or what I would hope is a turn toward economic foundationalism that takes affect and moral psychology seriously is not exhortation, windy or otherwise. It is not prescriptive; it is, rather, descriptive in its assertion that stable and successful market institutions are constituted around social practices – legal, personal, affective, sociable – that presume not thin rationalism but instead a much thicker affective parts.
The term “moral psychology” here is a term of art; it refers not to morality in the right and wrong sense, but instead to the affections that invite to sociability. Shiller, in the discussion linked by Professor Mankiw, refers to “empathy” as being the general quality that Smith means. He notes that the term had not yet entered the English language. But that is probably not quite it, not in our modern use of the word. Smith version of social virtues is not precisely the ability to feel as another feels, but to put oneself in the reciprocal condition and make judgments, including moral judgments of how to behave, on the basis of reciprocal fellow-feeling. I don’t think that is precisely the emphasis on “feeling” straight-up that we normally associate with our modern use of empathy. It is less a question of emotion and more a question of judgment.
Yet the preceding paragraph, while one that would not discomfit Smith, is one that must likely discomfit the economists who walk among us. It is attentive, after all, to all the contingent if not irrelevant things, affect rather than rationality, and the nuances of how we use words by seeking to apply a certain analytic sense to matters of sensibility. It is not, to say the least, social science. Nevertheless, it would not be beyond Adam Smith to channel Marx and even Freud and suggest that perhaps the insistence upon so much ahistorical social science has a certain amount of “veil of ideology” attached to it Or, if you prefer, the return of the repressed.
This is not wild-eyed revisionism and the belief (one that arises in manias and panics when Things Fall Apart) that somehow economic theory is up for grabs. Even if it lends itself to the sort of thing that justly causes the professional economists to roll their eyes, of course it’s not, or not necessarily that. Professor Mankiw’s texts should continue to sell as well as ever and may we all study them, including law students. But it is not beyond the pale to suggest that, for example, at some crucial points economic theory crossed from the empirical description of efficient markets in particular markets under particular conditions to a panglossian, deductive assumption about the nature of necessity and a necessity of nature.
The economic theorists I know seem to believe that the solution for the difficulties of rationalist economics is to introduce behavioralism. It is of course profoundly important. But it is also insufficient. Smith’s point, after all, is that intentions matter beyond mere behavior. If rationalism is too thin a conception of human beings in markets as social systems, so is behaviorism; it is thin in a different way, the one that says that one can read everything off the surface. The biggest divide that ought to preoccupy economics as a methodological question, it seems to me, is not between rationality and actual behavior, but instead between methods that are deliberately minimal, thin, and superficial as to human beings, and those that presume – as Smith does – that what we see as markets takes as foundational a thicker view of humans.
And a thicker view in two distinct senses, giving rise to two additional methodological lenses: moral psychology, the psychology of intention, on the one hand, and the social theory of legitimacy of institutions, whether of Weber or Durkheim or Marx or others, on the other. The reductionism of both rationalism and behaviorism – reading off the surface – has its point and far from me to deny its value. But the point of TMS, and presumably why it is resurgent among dissatisfied congniscenti, is that the observed social institutions that we call markets do involve thicker human beings than that, and necessarily so.
There is a problem in the foundations, I take Shiller to say, and as things stand, the foundations matter today rather more than they did. There is therefore a contribution, and a major intellectual one, to be made to the foundations of economics by the humanities, the philosophy of value and valuation, and moral psychology. The recovery of intellectual history that would re-locate economics within a larger tradition of social theory and philosophy, for example.
Problem is, outside of philosophy and particularly the philosophers of value – Elizabeth Anderson, for example – or certain social theorists – Zygmunt Bauman, for another – the remainder of the humanities does not have much to offer here. It should, but it doesn’t. As Bauman once put it in a superb essay, it has sawed off intellectual branch it was sitting on and, as I would put it, lost the ability to apply analytic sense to sensibility. It won’t recover it any time soon. It’s a pity for the humanities, of course – but also a pity for economics.
(ps. Law has something of its own to contribute. We are used to re-thinking law in terms of economics. It seems frankly strange in today’s intellectual environment to think that there might be something methodological the other way around. I mean as method, not as the substantive fact that markets depend upon legal assignments of rights, property, liability, etc. – I mean method and concepts in law that can be used to inform economics as a discipline in the way that law and economics as a subject takes economics to inform law.
An example of this would be agency and particularly the notion of a fiduciary. The notion of a fiduciary as a status that a person holds can be explained, if one likes, in reductionist economic terms of obligations to behave in the following ways or incur liability. What the law tells us, however, is that this is frankly insufficient to describe what we mean by the word itself. The term cannot be reduced, without leaving out a crucial part of its content, into purely act-consequence formulations; the internalization of a certain status, leading to a certain form of judgment, is part of what the law of agency means by fiduciary. It is a thicker description of an agent than is built into the territory of what it means to be a fiduciary, and that is so even when people fail in their duties and incur sanctions.)