Hoisted from the Archives: DeLong Smackdown Watch: Cosma Shalizi Argues That Adam Smith Is Not a Real Economist Edition

Cosma Shalizi:

Brad DeLong Makes a Wishful Mistake: Brad DeLong asserts that the microfoundations of economics point not to a Hobbesian vision of the war of all against all, but rather to Adam Smith's propensities for peaceful cooperation, especially through exchange.

The foundation of microeconomics is not the Hobbesian 'this is good for me' but rather the Smithian 'this trade is good for us,' and on the uses and abuses of markets built on top of the 'this trade is good for us' principle.

Bertram objects that this isn't true, and others in DeLong's comments section further object that modern economics simply does not rest on this Smithian vision. DeLong replies: "Seems to me the normal education of an economist includes an awful lot about ultimatum games and rule of law these days..."

I have to call this one against DeLong….

If you open up any good book on welfare economics or general equilibrium which has appeared since Debreu's Theory of Value… economic agents care about… their own consumption of goods and services. Does any agent in any such model care at all about what any other agent gets to consume? No; it is a matter of purest indifference to them whether their fellows experience feast or famine; even whether they live or die. If one such agent has an unsatiated demand for potato chips, and the cost of one more chip will be to devastate innumerable millions, they simply are not equipped to care. (And the principle of Pareto optimality shrugs, saying "who are we to judge?")…. Well, you might say, welfare economics and general equilibrium concern themselves with what happens once peaceful market systems have been established. Of course they don't need to put a "pillaging, not really my thing" term in the utility functions, since it would never come up. Surely things are better in game theory, which has long been seen to be the real microfoundations for economics?

In a word, no. If you ask why a von Neumann-Morgenstern agent refrains from pillaging, you get the answers that (1) the game is postulated not to have pillaging as an option, or (2) he is restrained by fear of some power stronger than himself, whether that power be an individual or an assembly. (Thus von Neumann: "It is just as foolish to complain that people are selfish and treacherous as it is to complain that the magnetic field does not increase unless the electric field has a curl.") Option (1) being obviously irrelevant to explaining why people obey the law, etc., we are left with option (2), which is the essence of all the leading attempts, within economics, to give microfoundations to such phenomena. This is very much in line with the thought of an eminent British moral philosopher — one can read the Folk Theorem as saying that Leviathan could be a distributed system — but that philosopher is not Dr. Smith….

[E]very graduate student in economics reads (something equivalent to) Varian's Microeconomic Analysis, but not Bowles's Microeconomics: Behavior, Institutions, and Evolution; would that they did. If you read Bowles, you will in fact learn a great deal about the ultimatum game, the rule of law, and so forth; in a standard microeconomics text you will not. I think the Hobbesian vision is wrong, but anyone who thinks that modern economics's micro-foundations aren't thoroughly Hobbesian is engaged in wishful thinking…

I kinda still think that I am right. I am, after all, an economist, and economics is, after all, what economists do. Cosma might reply that I am not an economist but rather a Berkeley economist, which is a different genus or family or order or class altogether…