Wednesday, June 29, 2016

Geoffrey Hodgson — Why We Need Adam Smith and Charles Darwin to Fix the Global Economy

Adam Smith is said to be the founder of modern economics.[1] Yet, contrary to a widespread view, Smith regarded individuals as driven by moral motives as well as self-interest. This is most clear in his Theory of Moral Sentiments, but ideas of justice and morality also pervade his Wealth of Nations.[2]
It took economics a while to get rid of this argument. In two classic works published in 1871, William Stanley Jevons and Carl Menger placed individual self-interest at the foundation of economics. Three years later, Léon Walras built neoclassical general equilibrium analysis upon a similar assumption. For the next 100 years or more, self-interested, utility-maximizing, “economic man” was the centerpiece of mainstream economic theory.
But also in 1871, Darwin published his Descent of Man, with its evolutionary explanation of cooperative solidarity and morality, which took over one hundred years to be confirmed broadly by theoretical and empirical research. In that same year, Darwin had provided an evolutionary vindication of Smith’s view of human motivation. But it was ignored by most economists.
It is one of the great ironies of history that portraits of Smith and Darwin appear respectively on £10 and £20 banknotes in the UK. I do not think that these designs were intended to remind us that moral and evolutionary considerations are central to our understanding of a money-driven economy. But they are.…
When morality is ignored as not being substantive, then the result is that morality is equated with legality, so that if it is legal it is moral. Powerful elites then use their power and influence to shape the law so that what society regards as being immoral or unethical is made legal and there is not penalty involved in acting immorally or illegally. Elites are famously shameless, so that reputational stricture does not apply to them or restrain their behavior.

Why We Need Adam Smith and Charles Darwin to Fix the Global Economy
Geoffrey Hodgson | research professor at Hertfordshire Business School, University of Hertfordshire, England

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