James Otteson on Adam Smith

1: Yay! I also have never read the Theory of Moral Sentiments, so I hope you let the rest of us benefit from your dogged efforts.

2: And yeah, a lot of people have stereotyped understandings of economists–starting with Smith. While (again) I haven’t read this book, I did make it through the first sentence:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

This suggests a recursive nature to utility functions: I derive utility from your satisfaction, and you derive utility from mine. (At the same time, I may also experience schadenfreude–deriving utility from someone else’s disutility.)

This observation poses a challenge to a classical liberal/libertarian-ish model that presumes people live in spheres of autonomy. Smith begins his first(?) book by observing that (most) humans are social animals and that externalities–specifically, the influence that one person’s circumstances have on another person’s happiness, regardless of consent–are so pervasive as to undermine the premise of autonomy. I admit that I haven’t yet found a better starting point than the sphere-of-autonomy model, but I conclude that it’s a VERY stylized model, which provides some context for evaluating people’s objections regarding this or that invasion of their autonomy.

3: Then again, Smith’s observations do not lead to Pollyannaish conclusions. I derive disutility from seeing people in need, and this feeds an impulse to help such people–as well as an impulse to keep them where I don’t have to see them. I have elsewhere speculated that this second impulse drives a certain amount of immigration policy, zoning, loitering laws, etc. As Smith observed in 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 tonight; 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.

The first part of this passage seems to have acquired greater renown than the second. Perhaps it rings truer?

One more gem mined from the Theory of Moral Sentiments (1759): Adam Smith is perhaps the first person to describe the cognitive bias related to affective forecasting!

Smith considers the case of “The poor man’s son, whom heaven in its anger has visited with ambition.” The boy pours himself into his work, intending short-run sacrifice for long-term gain. But it’s all for naught; he has been deceived. “It is then, in the last dregs of life, his body wasted with toil and diseases, his mind galled and ruffled . . . that he begins at last to find that wealth and greatness are mere trinkets of frivolous utility.”

But Smith concludes that “it is well that nature imposes upon us in this manner [because] it is this deception which rouses and keeps in continual motion the industry of mankind.”

In sum, the poor man’s son suffers from affective forecasting error, as do we all. And this error may be adaptive because, in the absence of this cognitive bias, we might not be sufficiently motivated to delay current consumption and invest in the future–investments that likely generate positive externalities accruing to the benefit of society at large (at least, for people who acknowledge a society at large).