A Clear Understanding of Adam Smith in Huffington Post

Klunk posed in Can.politics an article written by David Sloan Wilson HERE

The original article is from Huffington Post HERE

“The Invisible Hand is Dead. Long Live (Smart) Regulation”

“The invisible hand metaphor originates with Adam Smith in The Wealth of 
Nations (1776). Bernard Mandeville made a similar point with his Fable of 
the Bees (1705), which fancifully describes human society as a wondrously 
productive bee hive, even though each bee is as selfish as can be.

Smith was critical of Mandeville and presented a more nuanced view of human 
nature in his Theory of Moral Sentiments (1759), but modern economic and 
political discourse is not about nuance. Rational choice theory takes the 
invisible hand metaphor literally by trying to explain the length and 
breadth of human behavior on the basis of individual utility maximization, 
which is fancy talk for the narrow pursuit of self-interest. For the general 
public, unfettered competition has been turned into a moral virtue and 
"regulation" has become a sin.”

…. For those who wish to learn more about how economics is going beyond rational choice theory, I recommend a book titled Moral Sentiments and Material Interests: The Foundations of Cooperation in Economic Life (2006), edited by Herbert Gintis, Samuel Bowles, Robert T. Boyd, and Ernst Fehr. Gintis, Bowles, and Fehr are eminent economists while Boyd is an eminent evolutionary anthropologist, illustrating how integrative the new economic theory has become. I have also written an essay titled "The New Fable of the Bees" that explores the theme of this blog in more detail.”

Comment
There is much more as well. David Sloan Wilson (professor of biology and anthropology at Binghamton University, part of the State University of New York) is pretty-well informed about Adam Smith and his actual writings (and Bernard Mandeville’s too; plus recent work by behavioural economsts) and I highly recommend that you follow the link. It’s a short lesson in Adam Smith’s legacy.

If I have a criticism, it is that David Sloan Wilson accepts the modern invention of the invisible hand by default but criticizes it on its phony merits. But what is a small blemish in a fine article?

NB. The Huffington Post appears to be pretty consistent recently in its appreciation of Adam Smith from Kirkcaldy, compared to the usual North American version of Adam Smith, ‘alive and well and living in Chicago’ (George Stigler, 1976).

Long may it continue!

Evolution Challenges Homo Economicus

Gary Marcus, a professor of psychology at New York University, is author of "Kluge: The Haphazard Evolution of the Human Mind" (Houghton-Mifflin, 2008), tell us to: “Forget About Survival of the 'Fittest'” in Wall Street Journal, HERE:

“Evolution usually makes do with 'good enough'”

“To the extent that evolution has often been forced to make do, contemporary economics has a serious problem. A great deal of contemporary economic theory has been premised on the assumption that individual human beings are "rational agents," people capable of reliably acting in their own self-interest, assessing costs and benefits with a sure eye toward making optimal choices.

If we were really creatures that invariably acted in the interests of our "selfish genes," the so-called homo economicus or "rational man" theory would have some substance. It would make sense to try to predict the actions of the multitudes by assuming that each individual would act in the interest of his (or her) own selfish genes.

In reality, we often don't. Although any fool will instantly realize that winning $5,000 is better than $500, daily life is filled with decisions that cannot be said to be rational, optimal or otherwise maximally fit. At the micro-level, we'll drive across town to save $25 on a $100 microwave, but not to save the same $25 on a $1,000 flat-screen TV, showing both that we are blind to the cost of our own labor, and confused about the fact that money is an absolute rather than relative commodity.
The average American watches three to four hours of television a day, which does nothing for our "reproductive fitness" or even for our happiness (regular TV viewers are actually less happy than those who watch rarely, as several studies have shown). Our brains often have trouble keeping our minds on track, even when vital decisions are at stake. We procrastinate on important projects until we have too little time to complete them properly, often making careless errors as a result, and we frequently sabotage long-term goals (like living a long, healthy life) in favor of ephemeral short-term pleasures (like smoking cigarettes). Such self-defeating choices afflict even the powerful and the brilliant (witness the decline and fall of Eliot Spitzer -- or the many who lost millions by investing in Bernie Madoff).
All this matters because endeavors like economics and social policy are all built around theories about what human beings are and how they function. We allow consumers access to credit cards, for example, because we assume (despite ample evidence to the contrary) that they will be smart enough to balance their short-term needs as consumers with their long-term capacity to maintain a fiscally sensible reality.

The new discipline of behavioral economics is aimed at addressing these issues, but is not taken seriously enough. Even now, in the eye of the worst fiscal storm in recent memory, we trust citizens to do the "right thing," without factoring in the quirks of our evolved psychology.

As we deal with the current crisis and in the years to come, it will behoove us as a society to recognize that evolution equipped us not with foolproof, steel-trap rational minds, but something more like a "kluge," a clumsy and inelegant mental patchwork that is good enough to get the job done, but far from perfect.

If humans were truly the fittest possible creatures one could imagine, the rational-man model would make sense. But the "fittest" that survived are not necessarily the fittest possible. We are flesh and blood creatures, filled with cognitive quirks that are the detritus of evolution. If we are to move past perpetual cycles of fantasy-driven booms followed by devastating busts, we must recognize evolution's limits, and confront them head-on.”

Comment
I am a regular critic of Homo economicus and rational agents, so I feel able to offer a correction to the statement from Gary Marcus, without being misunderstood:

“A great deal of contemporary economic theory has been premised on the assumption that individual human beings are "rational agents".

The correct statement is slightly, but importantly, different. Gary Marcus should have written:

“A great deal of contemporary economic theory has been premised on the assumption that individual agents in their theoretical models are "rational agents".

There can be no pretension that in the real economy individuals act as ‘rational agents’, nor that ‘Homo economcus’ is other than a theoretical abstraction first postulated in the late 19th century when the first steps were made by ‘smart’ economists to abandon ‘political economy’ in favour of mathematical make-believe.

Gary Marcus is absolutely correct in the general tenor of his article. Myths of ‘rational agents’ being representative of human beings are now so firmly entrenched in our discipline (often with a mixture of enthusiastic pride and disdainful put-downs to those who protest that far too much is concluded about so much of economic life from too narrow a connection with reality).

Any study of evolutionary theory, and of human history (and pre-history!) shows how varied are any species in their behaviours in their multiple environments, including at, and beyond, their normal localities.

Indeed, natural selection shows many biological cul-de-sacs, so to speak; social evolution among humans shows as many ‘dead-ends’ in social forms, of which the large stone detritus strewn around Europe and beyond, and small stone artifacts, cave paintings, and ‘grave goods’, strewn everywhere else, are strong reminders.

The ‘religion’ of rational man is due for a quiet burial. It offers little as a reliable explanation of the current crisis (it caught its exponents ‘off-side’, as we say in football). Whether ‘behavioural’ economics is the answer remains to be seen, but it certainly looks like a step forward.

[I have ordered Gary Marcus's "Kluge: The Haphazard Evolution of the Human Mind" and shall report in due course on its merits.)