Economists Forgot Smith and Darwin’s Message: Society Cannot Function Without Moral Bonds

The problem when we ignore moral dispositions and concentrate on self-interest

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Editor’s Note: In an effort to center New Economic Thinking in the discussion of the COVID-19 crisis, we’ve curated a list of Evonomics articles relevant to this moment—including this one. Check out the full list here.

29 June 2016

By Geoffrey Hodgson

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.

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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 mainstream economists began to question that individuals are entirely self-interested, their approach was to retain utility-maximization and preference functions, but to make them “other-regarding” so that some notion of altruism could be maintained. But such an individual is still self-serving, rather than being genuinely altruistic in a wider and more adequate sense. While “other regarding” he or she is still egotistically maximizing his or her own utility. As Deirdre McCloskey  put it, the economic agent is still Max U.

There is now an enormous body of empirical research confirming that humans have cooperative as well as self-interested dispositions.[3] But many accounts conflate morality with altruism or cooperation.[4] By contrast, Darwin established a distinctive and vital additional role for morality. Darwin’s argument counters the idea of unalloyed self-interest and the notion that morality can be reduced to a matter of utility or preference.

A widespread view among moral philosophers is that moral judgments cannot be treated as matters of mere preference or utility maximization. Morality means “doing the right thing.” It entails notions of justice that can over-ride our preferences or interests. Moral judgments are by their nature inescapable. They are buttressed by emotional feelings and reasoned argument. Morality differs fundamentally from matters of mere convenience, convention or conformism. Moral feelings are enhanced by learned cultural norms and rules. Morality is a group phenomenon involving deliberative, emotionally-driven and purportedly inescapable rules that apply to a community.

We are selfish, to a major extent. But we are also moral beings, and our ethical feelings and beliefs – well-formed or otherwise – play an ubiquitous role in our interactions with others, even in the modern acquisitive world of business and consumerism. As both Smith and Darwin emphasized, society or economy cannot function without moral bonds and rules.

What is morality?

In Darwin’s account, morality results from a combination of emotional impulses and thoughtful deliberation. He argued that although primitive moral feelings have evolved for millions of years among “the progenitors of man”, humans alone have a developed sense of morality:

A moral being is one who is capable of comparing his past and future actions or motives, and of approving or disapproving of them. We have no reason to suppose that any of the lower animals have this capacity … man … alone can with certainty be ranked as a moral being …

For Darwin, morality emerged in humans upon a long-evolved foundation of instinct and impulse. As noted in the following section, Darwin also saw morality as a social phenomenon, involving social relations and shared values.

Much of the recent theoretical work by economists that attempts to explain cooperation in the real world conflates issues of morality with altruism or cooperation under the description of “social” or “other-regarding” preferences. The assumption of “other-regarding” preferences contrasts with the previously-prominent idea that economic man was entirely selfish. But someone with “other-regarding” preferences is still maximizing her own utility, and may be regarded as selfish too.

The leading moral philosopher Richard M. Hare argued that morality was subject to reason and one cannot hold contradictory ethical judgments. He also maintained that any normative judgment was universalizable in the context to which it pertained, in the sense that anyone proclaiming an “ought” in a particular context was committed to prescribing a similar normative judgment for anyone in any relevantly similar situation. As Mackie put it in his classic account, a moral judgment is not purely descriptive, certainly not inert, but something that involves a call for action or for the refraining from action, and one that is absolute, not contingent upon any desire or preference or policy or choice, his own or anyone else’s.In his impressive philosophical account of the Evolution of Morality, Richard Joyce argued on the basis of considerations in the philosophical literature that morality has most or all of the following characteristics:

  1. Moral judgments express attitudes (such as approval or contempt) and also express beliefs.
  2. The emotion of guilt is an important mechanism for regulating moral conduct.
  3. Moral judgments transcend the interests or ends of those concerned.
  4. Moral judgments imply notions of desert and justice.
  5. Moral judgments are inescapable.
  6. Moral judgments transcend human conventions.
  7. Moral judgments govern interpersonal relations and counter self-regarding individualism.

These characteristics do not establish a valid morality; they instead help us to identify what is a moral judgment, whether acceptable or otherwise. The argument in this paper relies on descriptive rather than normative ethics: there is no attempt here to identify the “right” morality, but instead to identify the basic nature of a moral claim. Most religions uphold moral claims, but that does not make them all right or just.

Like Darwin, Joyce emphasized the role of the emotions as well as deliberation. His point (1) establishes that a moral judgment must involve both beliefs and sentiments, and is not reducible to either alone. If an action is impelled purely by emotion and sentiment then – as Darwin understood – it cannot amount to moral motivation. Deliberations and beliefs are also vital, but are themselves insufficient because they must be backed by sentiments or emotions: acting morally is more than calculated conformity to moral rules.

Moral judgments may be rationalized in various ways, but they are more than matters of propositional belief or logical syllogism. Defiance of shared moral rules in a group is often met with emotional hostility. Conformity to them may sometimes bring a warm emotional glow. The emotional dimension of moral rules plays an important role in their evolution and their survival, as I shall discuss further below. Guilt (point 2) is a particularly important emotion that sometimes emerges after breaches of moral rules, and it too plays a part in the evolutionary process.

Joyce’s points (3) through (7) reveal the limitations of typical utilitarian approaches. Moral judgments are not simply expressions of an individual’s interests, preferences, sentiments or beliefs. They are also claims to universality in their context, which would apply irrespective of the interests, preferences, sentiments or beliefs of those to whom they are supposed to apply.

As both Mackie and Joyce insist, morality surpasses questions of preference. It is a matter of right or wrong, or of duty, of “doing the right thing,” irrespective of whether we like it or not. This is part of what makes us human: we are capable of considering moral rules, and understanding that their observance is more than a matter of personal whim or satisfaction. This dimension is missing in much of economics. Moral values are either ignored or subsumed under matters of utility or preference.

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Modern society establishes a fundamental difference between moral rules and other (normative) rules. “Murder is wrong” does not carry the same connotations as “splitting infinitives is wrong” or “in Britain one must drive on the left side of the road.” Linguistic and traffic rules are matters of convention; they are non-universal. But punishment may still occur when some conventions are breached. Murder is also punishable, but by contrast it is more than a breach of convention.

Threat of punishment or respect for the law are each insufficient to explain the relatively low frequency of murder and other crimes. Most of us abstain from murder not simply because the probability of severe punishment outweighs any expected benefit. Most of us refrain from murder because we believe that it is morally wrong; we would desist even if we lived in a country where murder went unpunished.

While there is a difference between morality and mere convention, some conventional rules seem to acquire a moral imperative when they become laws. They sometimes inherit the force of morality from other purportedly universal moral rules, particularly the need to respect others and to obey the law. While conventions may differ from culture to culture, we often conform to them, partly out of mutual respect or legal responsibility. Hence matters of mere convention can acquire some moral force if they become enshrined in law. If so, they do not necessarily become moral issues themselves, but their observance may acquire moral substance by virtue of their legal status. Consequently the moral legitimacy (or otherwise) of the legal system in the eyes of citizens is crucial

Significantly from an evolutionary perspective, studies show a number of common features of moralities across cultures, notwithstanding other important cultural variations.[5] All cultures regard many acts of harm against others as immoral and invest many acts of reciprocity and fairness with moral virtue. All cultures have moral rules concerning required behaviors specific to particular social positions, roles or ranks. Moral codes restraining individual selfishness are also commonplace. As well as sustaining enormous cultural diversity, genetic and cultural co-evolution has ensured that some specific types of pro-social moral rule have endured.

In summary, and in answer to the question that heads this section, a moral judgment involves and expression of attitudes, beliefs and emotions but are also subject to deliberation concerning matters of fairness or justice. In contrast to standard utilitarian approaches, a moral judgment is more than mere convention; it is inescapable and transcends individual preferences or interests. A moral system refers to shared and interactively reinforced moral values in a society or social group. These definitions are incomplete and imprecise, but they are sufficient for our purposes in this paper.

Darwin and the evolution of morality

We require evolutionary explanations of the origin and persistence of morality. In his Descent of Man, Darwin considered dispositions such as “sympathy, fidelity, and courage” that would advantage one tribe again the other in their struggle for existence, and which had been originally “acquired by the progenitors of man.” The accent on sympathy is of course reminiscent of Adam Smith in the Theory of Moral Sentiments.[6] Among the other qualities he considers, Darwin listed the disposition to obey those in authority rather than follow individually selfish motives:

Obedience … is of the highest value, for any form of government is better than none. Selfish and contentious people will not cohere, and without coherence nothing can be effected. A tribe possessing the above qualities in a high degree would spread and be victorious over other tribes …

Obedience to authority is of course a vital mechanism in the establishment of a system of morality in society. Darwin wrote:

It must not be forgotten that although a high standard of morality gives but a slight or no advantage to each individual man and his children over the other men of the same tribe, yet that an advancement in the standard of morality and an increase in the number of well-endowed men will certainly give an immense advantage to one tribe over another. There can be no doubt that a tribe including many members who, from possessing in a high degree the spirit of patriotism, fidelity, obedience, courage, and sympathy, were always ready to give aid to each other and to sacrifice themselves for the common good, would be victorious over most other tribes; and this would be natural selection.

Darwin proposed that groups containing individuals that devote themselves to the interests of their group will have an advantage in the struggle for survival. Among humans, binding sentiments of sympathy and solidarity are strengthened by a moral code, typically transmitted by instruction and often sanctified by religion (Wilson 2002).

Darwin’s evolutionary explanation of moral sentiments relies to some degree on a notion of group selection, where individual traits that benefit the group are assumed to prosper. Darwin did not counter the objection that selfish individuals would be able to free-ride within an altruistic group, and eventually out-breed the unselfish. Before the theory of group selection was rehabilitated,[7] Darwin’s theory of the evolution of morality was regarded as quaint and outmoded. Darwin’s account also suffered because of a long-established and popular contrary view that the foundations of human morality are of recent origin, rather than based on “social qualities … acquired by the progenitors of man.”

Darwin was ignorant of the mechanisms of inheritance, including genes. We now understand that genetic must be distinguished from cultural group selection. As Joseph Henrich (2004) shows, both types of group selection are possible in principle under specified conditions, but this does not always necessarily mean that they are always strong. Furthermore, genes and culture interact with one another in specific ways. Culture provides part of the environment in which genes are selected, and our genetic endowment influences cultural evolution.

Strong arguments support the notion of cultural group selection among humans. The existence of genetic group selection in our species is more problematic. Although it is possible in principle, it depends on the restriction of inter-group migration and the limitation of genetic mixing between groups. But the evidence among primates is that significant group-to-group migration does occur. There is also inter-group migration in some contemporary hunter-gatherer societies, and consequently lower levels of genetic relatedness within groups. We lack any clear evidence on the degree of inter-group migration among early humans, but we have no reason to presume that they differed radically from primates in this respect, although several hypotheses have been developed.

Consequently, on the basis of existing evidence, the genetic foundations of altruistic and moral feelings seem more likely to have evolved first through mechanisms of kin altruism and then reciprocal altruism. William Hamilton demonstrated that altruistic genetic dispositions can evolve among closely-related individuals and Robert Trivers  showed how altruism could be reinforced in small groups by mechanisms sustaining reciprocation. Our best guess with current knowledge is that altruistic, cooperative and moral feelings then required the further emergence of a culture, so that they could spread through the group and become reinforced by enduring cultural norms. In short, genetic mechanisms established critical masses of altruists in social groups, leading to the spread of cultural norms sustaining cooperation and to the development of systems of morality that further enhanced the fitness of groups. Genes played a role, but also indispensable was culture, particularly through the inculcation of behavioral norms in children by parents.

In any case it seems certain that very basic moral feelings have a genetic basis and have evolved in family and kin groups. Because reciprocity and cooperation in such circumstances enhances the fitness of the genes, emotional and other dispositions that aided cooperation and family cohesion also had a survival advantage. Moral sentiments thus evolved on a genetic foundation. But they require structured social interaction to become channeled and expressed. Culture developed these sentiments into a transmitted moral code. Hence the evolutionary origins of morality involved the interplay of genetic and cultural factors. Morality thus has both individual and social aspects.

The bottom line: economics without economic man

Morality, as understood by leading moral philosophers, cannot be incorporated into models based on individual utility maximization, even with “social” or “other regarding” preferences. This is because morality is about “doing the right thing,” even if it would otherwise not be the preferred option. Moral judgments are inescapable and cannot be reduced to mere preferences. I argue elsewhere that any form of behavior can be fitted into a utility function. But fitting behavior into functions does not explain its cause or motivation.[8] Digging deeper into the evolutionary and cultural origins of our motives leads us to the issue of morality. Moral motives have evolutionary origins and are sustained through interaction with others: morality is a social as well as an individual phenomenon.

Humans have moral capacities. But we are also self-interested. Evolution has provided us with instincts that trigger our moral development in suitable socio-cultural settings, and with basic instincts such as hunger and lust that can be spurs to egoism. Through our socialization we typically develop into complex personalities where all biologically inherited impulses are extended or constrained to different degrees and in different ways.

The diverse inner impulses that we bring into the world may come into conflict as our personality develops, in the institutional settings of parental care, peer group interaction and organized education. These settings have major effects on how the moral and self-interested aspects of our personalities develop. Given our declining potential for adaptation as we get older, the earliest years are the most formative.

While accepting that individuals have multi-faceted personalities, the mistake of several influential neoclassical economists was to assume that in the economic sphere self-interest was overwhelming, and our altruistic and moral tendencies could be ignored as we entered the world of contract and business. Writers such as Gary Becker claimed that utility maximization, developed in the neoclassical analysis of business life, applies generally to all social interactions.

But even firms and markets are unavoidably infused with moral considerations. These may be countered or developed by example or circumstance. If policy-makers ignore our moral dispositions and concentrate on self-interest alone, then they will threaten the very fabric of a modern market economy. The acknowledgement of moral motivation opens a large agenda for economists. It is highly relevant for the theory of the firm. Morality cannot be reduced to individual preferences or altruism. Economic policy is not just about maximizing satisfaction while ensuring that no-one’s utility is decreased; it should be about guiding and enhancing our moral dispositions. Especially from an evolutionary perspective, and even in the competitive world of modern business, there is no excuse for ignoring the evolution of moral systems and the moral motivations of economic agents.

[1] This essay makes use of material from Hodgson (2013, 2014).

[2] See Smith (1759, 1776). In his Moral Sentiments and elsewhere Smith emphasized moral motivations and the importance of justice in economic arrangements (Sen 1987, Evensky 2005). Darwin made notes on the Moral Sentiments but there is no evidence he read the Wealth of Nations.

[3] See, for example, Güth (1995), Field (2001, 2007), Henrich et al. (2001, 2004), Hammerstein (2003) and Bowles and Gintis (2011).

[4] See, for example, Fehr and Gächter (2002), Bowles et al. (2003), Boyd et al. (2003), Gintis et al. (2005), Kaplow  and Shavell (2007) , Bowles and Gintis (2011).

[5] Bok (1978), Roberts (1979), Brown (1991), Schwartz (1994), Haidt and Joseph (2004), Nichols (2004).

[6] In his Moral Sentiments and elsewhere Smith emphasized moral motivations and the importance of justice in economic arrangements (Sen 1987, Evensky 2005). Darwin made notes on the Moral Sentiments but there is no evidence he read the Wealth of Nations.

[7] Major contributions to this rehabilitation include Wade (1978), Wilson (1980, 1983), Wilson and Sober (1994), Sober and Wilson (1998), Wilson and Wilson (2007).

[8] See Hodgson (2013, esp. ch.3). Even apparently inconsistent or intransitive preference rankings can be forced into a utility function, by taking into account that different choices always take place in an (at least slightly) different context or with different information.

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