Thought du Jour

Yale University economist Robert Shiller, in an interview for “The Browser”, recommends five books on a fascinating but difficult subject: Human Traits Essential to Capitalism. Professor Shiller begins with a book by Adam Smith, my favourite economist. The book is  The Theory of Moral Sentiments (1759), which contains underpinnings for all his later work, including The Wealth of Nations (1776). Smith begins his book with a discussion of what he refers to as “sympathy”, but, Shiller explains,

he’s really focused on selfishness versus social consciousness. He sees that sometimes people are completely selfish, and that’s the problem for any economic theory – how to make a society work when people are completely, unremittingly selfish.

But he also notes something else: he doesn’t use the word ‘empathy’, because ‘empathy’ hadn’t been defined yet. But it’s a very important observation about human behaviour, which is that we are wired to feel each other’s emotions and to have a theory of other people’s minds (not that he would have used the words ‘wired’ or ‘theory of mind’ either). The English word ‘empathy’ was coined around 1900, in a translation of the German word Einfühlung from a German book by psychologist Theodor Lipps. What it means is that it’s not that I feel bad because I observe that you are suffering, it means I actually feel your feelings. So people may often be selfish, but they also have empathy.

Smith also talks about a selfish passion, which is a desire for praise. He argues that people instinctively desire praise, but that, as they mature, this feeling develops into a desire for praiseworthiness. …. He uses that to show that what people really want is to be deservedly praised. And that turn of mind, which develops as people mature, is what makes us into people with integrity. ….

I think this underlies how the economy works. We start out with selfish feelings, which are intermixed with feelings of empathy for others, and then we develop this mature desire to be praiseworthy. I think it is central to our civilisation that people do that.

“Robert Shiller on Human Traits Essential to Capitalism“, Interview by Sophie Roell, The Browser, January 2011.

Adam Smith was a great thinker, and Robert Shiller shows deep appreciation and affection for him. This choice pleased me. I was also pleased with Shiller’s second pick, a book by Albert Hirschman (1915-), whose prolific writings have influenced me very much. The book is The Passions and The Interests: Political Arguments for Capitalism Before its Triumph (Princeton University Press, 1977).

Tags: Robert Shiller

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