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Moral Sentiments and the Mythical Homo Economicus with Russ Roberts



Dr. Russ Roberts is the John and Jean De Nault Research Fellow at the Hoover Institution. He has taught economics at George Mason University, Washington University in St. Louis, the University of Rochester, Stanford University, and the University of California–Los Angeles. In 2006, he launched the popular podcast, EconTalk, which he continues to host today. He has also authored 5 books, including Gambling with Other People’s Money which was released last year (2019), and How Adam Smith Can Change Your Life. In this episode, we discuss Adam Smith’s Theory of Moral Sentiments, and how character is a priori to the invisible hand. Russ explains that self-interest is distinct from greed.


APA citation: Cazzell, A. R. (Host). (2020, March 17). Moral Sentiments and the Mythical Homo Economicus with Russ Roberts [Audio Podcast]. Retrieved from https://www.ambercazzell.com/post/msp-ep31-RussRoberts


NOTE: This transcript was generated automatically. Please excuse typos and errors.


Amber Cazzell (01:25):

Hi everyone. Today I am excited to be with Russell Roberts. He's the host of the econ talk podcast and he's also a fellow at the Hoover Institute here at Stanford. So yay. We have a little bit of common grounds here. So today we're going to be talking about economics and ethics generally. And I reached out to Russ because he is the author of a wonderful book called how Adam Smith Can Change Your Life. And this book is about Adam Smith's theory of moral sentiments and how it can be applied to life broadly, not just economics, but we're going to be looking at it through an economics lens today. So first of all, Russ, thanks so much for coming on the Moral Science Podcast with me.


Russ Roberts (02:08):

Great to be with you, Amber.


Amber Cazzell (02:10):

So as many listeners know, I like to start out these podcasts by hearing about the guests background. So I'd love to hear a bit about how you became interested in ethics and economics, specifically what, what the story behind your book, how Adam Smith can change your life.


Russ Roberts (02:29):

So most economists know that Adam Smith wrote at least one book the Wealth of Nations. And some economists know, and I did know that he wrote a second book called the theory of moral sentiments, but like most economist side didn't bother with that book. I mean, that doesn't mean deal with economics, the Theory of Moral Sentiments. What could that, that's some weird thing he did when he was younger. So I, I never read that book. I knew a couple of quotes from it, but as I when I got older and got to George Mason University at a colleague named Dan Klein, Dan is, there was a lot about Adam Smith and I thought it'd be fun to interview him for my podcast, EconTalk, talking about that book or he may have suggested it to me and then I thought, well this will be good cause then I'll read it and I opened it up.


Russ Roberts (03:16):

And I couldn't understand the first page very well. I thought well that's a bad sign. And I didn't understand the second page very well. That's the worst sign. So I, but I kept going and eventually I got the hang of it. It kind of starts in mid stream. It's not and a book that's easy to just pick up and read. And it's daunting because it's written in 17th, published in 1759 when sentences for longer. But it is a fascinating book and it's funny and it's powerful and it's inspiring and it's insightful. And the title of my book, how Adam Smith Can Change Your Life is a little bit tongue in cheek. It's a little bit dramatic, overly dramatic, a little bit of hyperbole there, but, but it does change the way you think about yourself and the way you think about your interactions with others.


Russ Roberts (04:04):

And so, Oh, after Dan and I had six hours or so of talking about the book, having read it, I thought, well, you know, maybe it would be fun to write a book on this that would bring the insights of Smith's 1759 book into the present and to talk about what we might be able to take from that book that would still be useful today. And then the answer, I thought was quite a bit. And so I got interested that and along the way I got interested in what you might call the state of economics. I was trained at the University of Chicago in a very, very dogmatic, often usefully dogmatic but a dogmatic way of looking at economic life and the average person and what they do when they enter the economy and when they transact and when they work.


Russ Roberts (04:51):

And as I got older, I start to think, you know, some of those models maybe, are not so informative. And in fact, I started to worry that some of them were actually a little bit dangerous. And ironically, Adam Smith helped me think about those things. I say ironically, because there is the quote, the first economist, it's not true, but he often gets considered the called or take it as the first economist. But I realized that a lot of submissive sides were in conflict with the way that modern economic theory is taught. And so I became very interested in that, those issues. I don't write about that so much to the book cause they average person couldn't care less. But I'm sure we'll talk about them today, but that's, those are the two ways in which I got interested in Smith and, and the interface between economics and, and what we might call philosophy.


Amber Cazzell (05:38):

Very. Cool. So I'm curious, I just have to ask, you said that you said that the theory of moral sentiments, it's, it's funny at some points.


Russ Roberts (05:46):

Yeah. He, he, I know that that does sound strange and I Smith has a, it has a pretty good sense of humor and he has a, what I w we would call a dry sense humor. He also is occasionally, funny, perhaps without intending to be funny or maybe the right word for that would be delightful. So when he talks, for example about how strange and bizarre it is that someone would spend a large sum of money for a pocket watch, that tells slightly better time and, and in fact does so on the grounds that that way he can be more on time to meetings. Yet in fact, that often is not the case because surely, as we know, those kind of accuracies are often not that helpful, but that the real reason the person's buying it is to show off and to show that they have the latest gadget.


Russ Roberts (06:41):

What could be more I'm not wearing my Apple AirPods right now, but what could be more timely and relevant than our need to signal to others that we are with it and have the latest thing, whatever it might be in our world. But for Smith it was a, watches, I'm afraid it's unfortunate, but the phrase he mentions, the device he benches are ear pickers. I think this was the equivalent of a toothpick for one cleaning one's ear. They might be made of silver or gold. There's something else in there too, in that, in his list, but that would be an example of something I found quite amusing. And, and of course quite relevant.


Amber Cazzell (07:21):

Yeah, that's, that is really funny. I actually remember that from your book. I, I was able to listen to the whole book on Audible. So shout out to audible. Your book is great and it's, and it's on there. So listeners should go and check it out. And for those listeners who haven't yet read your book or the Theory of Moral Sentiments, could you kind of give us a rundown of what it was that, what, what was Adam Smith's main thrust in this book? What was he trying to accomplish and what did he say?


Russ Roberts (07:54):

So in a sense, it's a simple book which of course is true of all books. You know, there's a, it's like the haiku version or the Twitter version of, of, of a great novel might be a man is obsessed with killing away. I'll chase this is after it. Mayhem ensues. That's what we did. But it's more to the book strangely enough than a simple plot summary that would be true of this book as well. But the simple description of what Adam Smith is trying to describe and write about is why we do things that are not self interested. Why, why do we care at all about others? Smith's very interested in the tension between our self interest and our social interactions with others. And he opens the book, not literally, but early on, he tells a, a wonderful story of how we react to


Russ Roberts (08:44):

News of an earthquake in China that by that a tragedy that would kill, I think he says hundreds of millions of people. And of course we have such tragedies in our time, natural disasters and other tragedies. And he says, you know, a person who hears about that news would feel a tremor of unease and sadness for the people who, who passed away. He might worry, by the way, Adam Smith, of course, writing in 1759, very male centric. So he's going to typically use male examples. I'll try to, make them a little more universal. So a person who hears about this, she would maybe not sleep so well for not, excuse me. She would sleep fine after she had that moment of tremor and unease and sadness. She might wonder about if a company has business activities in China, if they were near where the earthquake was, she might even decide to make some kind of gesture of helping the people in our day, it would be maybe a donation to the red cross and then she's going to sleep like a baby.


Russ Roberts (09:46):

But if you tell her that she's going to lose her little finger tomorrow in an operation, she's gonna have to have it amputated for some reason. She's going to toss and turn sleep very poorly. And so how is it Smith asks that we feel that way? And he says, well, that's just human nature. We, we might be more concerned about losing our little finger than the deaths of 100 million. And a lot of people end there telling her that story there and they say, see, Adam Smith thought people were horrible. But that's a fact. Unfortunately, I think more or less that we do tend to take our own minor crises much more seriously than much worse tragedies that happen to strangers. And then Smith's continues. And this is the important part. He says, despite that feeling, despite the fact that we would be more concerned about her little finger than we would about the deaths of 100 million people, he said, if I could save my little finger by killing 100 million people, would I do it?


Russ Roberts (10:40):

And the answer is absolutely not. Who would be some monstrous Smith asks, most of us wouldn't even consider that for an instant. It's, it's such a horrific thought. And then it asks, why is that? If I feel worse about my little finger, meaning I seem to care more about my little finger than those other lives, why is it that I won't act that way? And that lets him launch into a conversation about why didn't we do anything nice for other people? What's the motivation? What explains our often occasional but sometimes often care about other people? And his answer is a strange answer. He says he does not want to rest his answer on what he calls the weak read, the weak read of benevolence, he's going to, he says, you know, you know, basically saying we don't really care that much about others, but what we do care about a lot is how we're perceived and how we are measured and observed and appreciated by those around us.


Russ Roberts (11:38):

He says, man, naturally desires not only to be loved but to be lovely. We want the people around us to love us. And by that he didn't just mean emotional or romantic love. He meant respected, honored praised. And we want to be lovely. We want to be praiseworthy. We want to be worthy of respect, worthy of honor. So Smith argues that we have a self image about ourselves based on the image that other people have of us. And then he invokes this idea, a beautiful idea, of the impartial spectator. This idea that there is someone that we act as if someone is watching us who's impartial, not something as we are as individuals, but rather someone who is, doesn't have a skin in the game, isn't someone who is subjective, not a close family member who might be sympathetic to us, but just an observer.


Russ Roberts (12:27):

Someone who is seeing how we behave in a situation and charging us. And he says that's what motivates us to behave and do the right thing often and maybe most if not all the time. He doesn't even say it's our conscience, it's not our religious upbringing. It's not how our parents raised us. It's how we swim in social circles and how we are perceived. And it's a very profound and interesting idea and once you start thinking about it, it forces you to see how you're it. It allows you to step back and see yourself in those social settings and then you see others in social settings and how they behave. And it's a, it's a wonderful lens for helping to understand how people interact with each other.


Amber Cazzell (13:07):

Yeah. I just, I just love that when, when I was listening to your book and there was the discussion of the impartial spectator that then continued and was sprinkled throughout the rest of it. I was very surprised at just how nicely that jives with what we psychologists have in our own literature about self regulation and this idea that self-control seems to be about us managing how we think general others will look at us and see us. And so it just, it jived so nicely with that. This idea that, and an impartial spectator I think is a very concise way of putting that kind of abstract idea in psychology into place. It, it just makes a little bit more intuitive sense. I think it's a better naming then talking about self-regulation as, as self awareness and things like this. So I was very surprised and pleased by that. And I don't know, were you aware that that was that there's a pretty rich research literature in that space in psychology?


Russ Roberts (14:19):

No. And I, what's interesting for me is I was, my dad has a master's in psychology which created a terrible bias against psychology for me. My dad didn't like psychology. Did think he'd got anything out of that master's degree except a, a credential. So when I went to college, I didn't take any psychology classes. I didn't read any psychology. And to my shame, I was proud of it, you know, ah that's just silly stuff I knew from my dad. And as I've gotten older, I've gotten much more interested in the psychology literature and, and the behavioral economics insights,


Russ Roberts (14:52):

Some of which I think are true, some are, which I think are maybe exaggerated or not true. But I think this interface between our, you know, our neuroscience, our psychological makeup and our economic behavior and our behavior as human beings is just, it's so interesting. And you know, Smith, a lot of people will say Smith was the first behavioral economist. I don't think of Smith as an economist per se. I think of him as a social scientist and obviously a moral philosopher as well, which is, well, you know, we're talking about in this book, but I think it is other writing in the Wealth of Nations. Sure. It's about what, well, we call economics, but there's all kinds of stuff in there. It's all about our motivation, how we see ourselves. So yeah, so I was interested in all these things. The only thing I would mention is that yeah, it's a long standing cultural meme that there's a good angel or a bad angel, you know, on your shoulder, you know, watching you.


Russ Roberts (15:47):

And that's kind of what Spence appropriated or maybe helped create with that language of that impartial spectator. He sometimes calls it the man in the breast, meaning the person's sort of inside you who's somehow separate from you. And that's also a great metaphor for thinking. The way, for looking at the way modern, you know, neuroscience and psychology, think about ourselves. We're complicated. We got different parts of our brain that sometimes are having conflicting signals to us about what we should do. And sometimes we listen to one and sometimes the other and, and I don't think we fully understand it. But we're trying to, trying to understand that. And Smith's clearly grappling with that in his own way in the 18th century.


Amber Cazzell (16:31):

Yeah. Yeah. Very interesting stuff. And I, and I also just have thought that the phrase it's come to mind a lot since reading your book that people want it to be lovely and to be loved is such a useful framework for trying to understand a lot of the interactions that we see every day.


Russ Roberts (16:51):

Yeah, but it's also a, you know, it's also a road to self-improvement. I like to say be lovely and I think it's wonderful advice and, and a good way to live and and it also can help you be loved, which is you know side benefit that we often care about.


Amber Cazzell (17:12):

Um I, I want to kind of return back to a comment you had made about some people referring to Adam Smith as the first behavioral economist and you were saying, well, I mean maybe, but not really. It's interesting because that is my tendency as well after learning about the theory of moral sentiments is to think, wow, it seems like a lot of behavioral economics might kind of boil down to a rediscovery of what Adam Smith was saying about how humans seem to have this baseline need for honor. And that honor precedes our economic decision making and transactions in such a way as to influence them which you might not get out of just classical economic theories.


Russ Roberts (18:00):

That's absolutely right. And, and the other part I think that Smith understands deeply, which is very relevant is self-deception. So Smith says you are motivated to be loved. So you want other people to think highly of you. You want to matter, you want to have dignity and be significant. When you walk into a room, you want people to pay attention to you. You don't want to be a, you know, just a nobody. And he, you know, he says there's, there's two ways to be loved. There's fame, money and power. All those people have, I tend to be paid attention to. But he also says that's the wrong way to get it. It's our natural impulse because those are, he calls them, I think it's the glittering road to being loved, but the quieter road is to have wisdom and virtue and that's what he counsels.


Russ Roberts (18:51):

He suggests you should pursue that, that road. It's just hard to do. And what he observes, and it's a deep truth of course, is that a lot of times we are not lovely, but we don't like to face that. And so we try to convince ourselves that what we did was actually for the best, even though, and for the good, even though it actually benefited me. You know, I think I used this example, the book the politician or the football coach who steps down because they want to spend more time with their family. Usually not the reason, often it's because they've been fired or they're not doing a good job and they're going to be fired or they're not going to be reelected in the case of the politician. And so, you know, a lot of people are like, Oh, they just say that to sound better.


Russ Roberts (19:33):

But I think often they fool themselves. I don't just try to fool us. And when we look at our own behavior, we see this all the time, very difficult to confront the possibility that we are not lovely. We are, we like to think of ourselves as lovely and it's a very powerful impulse. It's spelled understood that we can delude ourselves. And in particular in the heat of the moment when making a decision, he talks about how we will often make quote the wrong decision. We'll do something self interested and that will not that there's necessarily anything wrong with that, but that often there are times when it is the wrong thing and he says later in the cool of the moment when when we've calmed down and we can look better, add it, reflect more reflectively and more self-awareness. And with the wisdom of the impartial spectator, we'll look back and go, Hmm, I don't think I did such a good job there. I think I may have done the wrong thing. And so, so it's very interested and aware of our ability to fool ourselves, which of course is a theme of, of modern behavioral economics.


Amber Cazzell (20:35):

Right? So another kind of seeming misconception that I had prior to reading your book was that I always thought of when I thought of Adam Smith, I thought, okay, invisible hand and the invisible hand is this fully amoral thing that doesn't care about human dignity. The invisible hand is really probably more about greed and just this, this underlying thing that causes market efficiency to happen. But now I'm understanding that Smith's idea of the invisible hand was quite a bit more nuanced than that. Could you kind of give me a picture of, of what the invisible hand really means in light of his Theory of Moral Sentiments?


Russ Roberts (21:26):

Yeah, it's a fascinating thing to me. And I, I'm into this question way too much, but so you'll stop me if I get I too deeply into the weeds, but the abysmal hand, I would make a distinction between the way that most modern economists use it and the way that Smith used it. And then I'm going to add one word twist to that. So most economists I think mean it more or less the way you described it. Modern economists,


Russ Roberts (21:53):

Not necessarily that greed is good, but that's self interest is good. It's self-interest, leads to a good, do good things under certain situations, certain circumstances. And that would be an example of this would be say a, you would like to take care of yourself, you might want to take care of your family. And so you try to create a product in the marketplace that people are willing to pay for. And let's say it's a wonderful product and as a result, you become wealthy and other people's lives are improved along the way. And the price you charge for that product might be constrained by competition. So, even though you might want to charge more than you are able to, you can't charge more than that because you'll be undercut by competitors, people who provide substitutes for your product. So that's sort of the invisible hand in it's most attractive a story.


Russ Roberts (22:45):

It's important to mention as you suggested that Smith would never say that greed is good, that's a, a corruption of, of Smith. Smith would say self-interest is real. And that it's naive to pretend that people are not self interested, but he would make them a distinction between self interest and greed, self interest is that you'll look out for yourself. And to the extent that you either have benevolence or care, as we talked about earlier about how people think of you, you might just be charitable or do kind and generous acts either out of benevolence or, or care for your reputation. But greed, is something different. Greed. is the pursuit of money for its own sake and spends adamant in welding, excuse me, in the theory of moral sentiments says it more than once. That if you pursue grade, first of all, if I could make you happy, you're not going to, in the course of that pursuit, you're going to do some things that are not so lovely if you're not careful.


Russ Roberts (23:46):

And the second thing is that he says is that when you get it, you're not going to be any necessarily any happier than when you were not so wealthy? So in Smith's world and his vision, the pursuit of wealth is an illusion. The idea that it will, you know, lead to satisfaction or happiness. And so that's the second is an additional question of why a person who wrote a book called the wealth of nations, who doesn't deal with this at all. And that book would write so much about the pursuit of wealth being unsatisfying, but that's what he does in the theory of moral sentiments. He says, basically the pursuit of wealth is not going to lead to any more happiness than you have. And if you're not careful, it'll degrade you. Mmm. Having said that, and this is where I, you know, I love this, but it's a little bit complicated.


Russ Roberts (24:33):

Having said that, the way that modern economists use the invisible hand, Smith does talk about it, but he doesn't use that phrase. Smith only uses the phrase, the invisible hand a once and the wealth of nations and once in the theory of moral sentiments and each time all he means by it is something much narrower that we talked about earlier, which Smith means by the invisible hand is that pursuing your own self vendors could have some beneficial effects and it's complicated that could have unintended consequences that are positive, that's not nearly as dramatic a claim as most economists have in mind about the invisible hands creating an entire market that market competition constrains behavior and, and grasping and profit seeking. Because there's a, there's a self regulating aspect of a marketplace if there's enough competition. So that's what's weird. Smith's use of the invisible hand is much narrower than the modern version.


Russ Roberts (25:34):

However, Smith does talk about that marketplace. It just doesn't use the phrase, the invisible hand and his most beautiful. And I think most important application of that idea is in the theory of moral sentiments, ironically, not in the wealth of nations. And it's where he talks about the role of approval and disapproval in modulating and regulating our ethical behavior. So what he says is that he calls it, I think the author of nature. Sometimes he talks about Providence. It's a big debate in economics and philosophy, but whether Adam Smith was an atheist or not but what we do know is that he lived before Darwin. He did not know about evolution and whether he believed in God or not, it's not really relevant. He, he talked about that our nature, meaning it's hardwired in us, even if he didn't understand that genetics, it's hardwired in us to care about what other people think of us.


Russ Roberts (26:30):

And it's hardwired in us to judge other people and to approve or disapprove of their actions. And he suggests that essentially that, that God has deputized us to keep an eye on each other. When you do something that's not nice. Let's say we're on a trip, we're at a conference and we have a cup of coffee at a coffee shop and you turn to me and say, well, we're never going to eat this coffee shop again. I'd be an idiot to leave a tip. I'm going to look at you like, what? Are you kidding? Now if it's an economist, two economists might say, yeah, good idea. But in general, most human beings say, well, that'd be, that's not nice because we know that the person's waiting on us, that there compensation consists of direct pay and tips and that there's a social norm that is usually invoked and in play, where a tip is put down.


Russ Roberts (27:24):

And so my approval, if you say, if we got wonderful service, this person just did above and beyond and you said, I'm going to leave 20% or 25% I'd smile and say, yeah, good idea. And similarly, if they were horrible to us and you said, I've only gonna leave 10 I might say, yeah, that's too bad. But I think that's probably the right thing to do. And if you leave zero after you've got great service, really be disappointed in you as a friend. I'd say, gee, that's not so good and I might show that with, I'm probably not going to cut you off and never see you again, but I might raise an eyebrow or make a remark. And Smith's point is that those small social gestures, the raised eyebrow, the remark, my refusal to laugh at an inappropriate joke my, Oh lauding have you, would you do something laudatory something praiseworthy?


Russ Roberts (28:14):

Those are the ways that our norms and culture and really civilization gets created and you no, it's an imperfect system. It doesn't prevent racism or sexism or people occasionally acting horribly inappropriately and stiffing someone on a tip or just taking advantage of someone when they can. These things happen all the time. Smith, again, he's not naive. It's not an idiot. But his marvel is that what is marveling at is that it works at all that our self-interest doesn't overwhelm or social behavior in those settings and constantly lead us to do the most self interested thing. Smith says, why is that? And the answer is because we're kind of keeping an eye on each other. And most importantly, we kind of keep an eye on ourself. You know, I had an amazing experience the other day. I was okay. It's not that amazing, but it was a beautiful example of this.


Russ Roberts (29:07):

I was traveling. There's a shuttle you have to get on a Dulles airport. And the doors opened and I got on the shuttle and two other people got on the shuttle with me and a third one got on it and she realized she'd left something behind and she dashed back off the shuttle to where she had left, turned out to be her wallet. And she raced back to get back on the shuttle. Someone said, Oh, you dropped something. And it turned out to be her passport. So she went back to get that and then the doors closed so me and two other people are riding along with this other person's bags that she had put on then forgot about when she went back to get her passport and wallet. This is a really unpleasant situation. And I said


Russ Roberts (29:49):

To the two other people went. When do you, when does your flight leave? See if they had time to wait, when we got to the gate area, yeah and sit with the bags till this person got on the next shuttle and they refused to answer the question. They said, they've just said, Oh, I don't have time. Know they weren't going to tell me when their flight was. And I turned out, it turns out I had time, but I'm also neurotic about being late. So I was really unhappy. But I said, okay, I'll, I'll do it. And one of the two people felt that terrible that she had said, I don't have time. And she insisted on waiting with me with the bags till this woman got on, turned out the second shuttle, you know, the first who came along, we waited, she didn't get off it.


Russ Roberts (30:34):

Then she got on the, she came off the second time and she thanked us profusely. She gave us a big hug. And, but the part that was most interesting to me is it the person who had waited with me, thanked me and I knew what she was thanking me for. She wasn't thanking me for doing the right thing. She was thanking me because by my tone of voice, when I had said I'll do it, I had sorta said to her, you should do it. And she realized you're right. And I said to her, cause I, of course I'm interested in this I said, you know, I could have done it by myself, but I'm glad you stayed with me. And it's interesting that you decided to, and I'd offered to let her go. I see you don't have to wait. But she insisted. And when I thanked her for attacking me, she said, Oh, I just know it was the wrong thing.


Russ Roberts (31:17):

You know, I should've waited and I'm glad I did. And I think that's that's, that's clearly the, the right thing to do. And my mild, incredibly mild criticism of her was not direct, but she could tell by my tone of voice and she had both been socialized or raised or whatever reason to know that that was the right thing to do was to help that woman get reunited with her luggage. And so that's what makes the world go round. And it's a beautiful idea. It doesn't work. Every time we could have both said to ourselves, Oh, I don't have time left her bags, they're on the shuttle or abandoned them at the side of the, of the shuttle exit. And maybe they would have been confiscated by security and you know, who knows if she'd ever find him again. Anyway, so that, that I think is, is it beautiful inside of semester? I think it gets it how we actually behave.


Amber Cazzell (32:12):

Yeah, I mean that's a great, that's a great story. And humans are endlessly complicated and fascinating in what they are willing to do and why. I want to return back to another little tidbit that had come up a while ago. You had mentioned Adam Smith was around before Charles Darwin. This is something that I didn't realize until recently, I just didn't put timelines together like that. But it is, it is fascinating that I have, I think it's so, anyway, I just recently learned that Adam Smith influenced Charles Darwin, not the other way around.


Russ Roberts (32:52):

Yeah, for sure. That's a great point because a lot of people assume that that capitalists of which I would call myself one in some dimension or free market people you know, all they believe in dog-eat-dog capitalism, that, you know, the survival of the fittest. And I think that's a fundamental misunderstanding of what well, at least what I believe is, I would describe myself actually as a classical liberal, meaning someone who believes as Smith did, that we should have a limited government and personal responsibility for taking care of each other as best we can. And that voluntary associations are the way that we help each other. Rather than being a coerced from the top down, it doesn't mean we were anarchists.


Russ Roberts (33:34):

I'm not, Smith wasn't, it was not an anarchist at all that there were lots of appropriate roles for government as as do I, but certainly this sort of caricature of capitalism as is survival of the fittest idea that that was taken from Darwin. As you say, that didn't inspire Adam Smith. It was the other way around the, the role of competition and and markets and creating outcomes that no one intends what, what is often called a emergent order. That is a, starts with Smith and its' Darwin who applies that to the natural world rather than Smith who applies it. Right. In reaction to Darwin, to the economics world.


Amber Cazzell (34:15):

Yeah. Which is, which is really, I think just interesting things. I think that most people, well maybe this is just showing my naivete, but I tended to think, okay, well evolution seems like it's closer to biology is like a hard science. Economics is closer to like social sciences is soft science and it seems like these insights would trickled down from, from the hard sciences to the soft sciences. So it's pretty interesting that our look into the social world could influence understanding of theories in, in the biological world. I think that's pretty interesting. I also am kind of curious about, you know, this idea of survival of the fittest, that this idea of fitness seems similar in theory to the idea of utility in economics. And yet fitness and utility are complicated. Like again, what does utility really mean? Well, it seems like from the theory of moral sentiments that utility has a lot to do with, with honor or being lovely. And yet it doesn't, I'm not sure that utility is really being used or talked about that way now.


Russ Roberts (35:38):

Well, I, utility is a, is the economist word for the things that, Oh, I don't even know how to describe it. There's so many different ways you can describe it. It's, it's a deliberately vague word. It's an ugly word, right? Utility. It sounds, I dunno practical and dry. Yeah. but economist created that word too. Yeah. I started catchall for the things that give me satisfaction and they tended as time went on to focus on things that were material rather than immaterial non-material. So, you know, a shirt gives me satisfaction. A meal gives me satisfaction, a, a stock, a good investment gives me satisfaction because of the things I can buy with it. And economists became very focused as time went on on things that they could measure. They had dollar values. But in Smith's day, obviously as you point out, utility included things like non-material things, pride, honor, dignity, non monetary satisfaction.


Russ Roberts (36:37):

And certainly I used to tell my students on the last day of class, I'd still tell them if I was in the classroom, I, I taught for 30 years. I don't teach formally anymore. But on the last day of class, I'd say, don't take the job that pays the most money. At least don't do it as a rule, don't have a rule, I'll, I'll just take whatever pays the most because there are many other aspects to a job besides how much it pays that we all know that at least in, in in theory we know that, but it doesn't. Sometimes we make mistakes and we take jobs that pay more and I don't just mean, well you have to take account of the cost of living where the job is. I mean the things you'll learn on the job, the satisfaction you'll get from knowing what you're doing is helping other people or the pleasure of the actual work itself. These are all things that good economists I think emphasize is an important part of, of how we make decisions and what we care about. And certainly Smith was deeply interested in those things, not just the monetary, measurable, quantifiable things. And I think that's just I think that's just a mistake to head in that direction. It's certainly utility if you define it properly, is, is going to capture some of that. But I think most economists struggle to keep those things in mind. Yeah. Many do.


Amber Cazzell (37:53):

So earlier when you were telling me a bit about your backstory, you mentioned that when you were at Chicago you saw some things going on in classical economics that you thought was alarming and potentially, I forget if you used the word that you were kind of afraid of, of what it could lead to or, or something like that. It was this sort of the issue, just the?


Russ Roberts (38:16):

Yeah, so it's a great point. I'd say actually it didn't happen when I was, when I was at Chicago and was at Chicago. I drank the Koolaid joyously. I loved the Koolaid there. And I still like most of it, by the way, I don't want to suggest I've turned my back on it or I or I don't like it or it's quote wrong. But I think here's, here's what I've become increasingly concerned with as I've, as I've gotten older and thought more about it, a lot of people, so the Chicago model, and it's still the model of most departments. It's the way most places are taught. In economics is where I would call, I'd describe it as rational economic man or person, right? That, that we do what's in our own self interest. We try to maximize those two aspects of that. We we're grasping.


Russ Roberts (39:07):

That is we are. We are the equivalent of a calculating machine trying to maximize net benefits and that we know what they are and that we're rational about that. So we're rationally self interested. Now you could include charity as part of that. You could say, I, I give my charity rationally. So self-interest doesn't have to be in selfish because I could include in my utility, my satisfaction helping others. But the implication is I will do that in a rational way. I'll do it to maximize, et cetera, et cetera. And I think that's not a bad starting place to think about human behavior. It's as long as you enrich it with these non-monetary aspects such as pride and the way Smith Smith did, I think the danger is you start to forget about those things because you can't measure them. And you start thinking that the only thing that matters are the things you can measure.


Russ Roberts (39:57):

And you start to think that human beings actually maximize that describes not just, it's a useful model for predicting what people are going to do. It actually is what people do. I think that's false. And then, and then finally, if you're not careful, you'll start to think that what's in your self interest and what's rational is what is ethical, which is nuts. So for example, to go back to our exam or to conversation about tipping, it would be bizarre. And yet there's a certain logic to it. If I said, Oh well I'm in a restaurant, I'll never eat in again, I shouldn't tip. Or I'm in a cab, I'll never have this cab driver again. I don't have to tip. That would be irrational. Well it's certainly not in my, it's not my self interest to tip in a restaurant that all, I'll never eat it again.


Russ Roberts (40:43):

It's not my self interest to tip a cab driver I'll never see again, but it's the wrong thing to do. And those of us who care about it, ethics and right thing to do aren't going to do that even though it involves a sacrifice and we'll tip. Most people do. They tip at restaurants they'll never eat it again. They vote by the way, even though their vote is very unlikely to break a tie and therefore has a minuscule impact on the outcome you vote because we understand that if everyone felt that way and didn't vote, we'd live in a really unpleasant world. So we have a duty to vote. And so we vote and we leave tips and we give blood and we donate kidneys even sometimes, which is really an amazing thing to strangers or near strangers. So, so if you want to understand that, if you want to think about real behavior rather than this sort of textbook, rational economic human being?


Russ Roberts (41:31):

You have to understand that what's going on there is a lot is, is more complicated. The most dramatic example, this is a, is Milton Friedman's methodology paper in 1953 where he said, you know, people act as if they're maximizing. He does not say they actually maximize, not sitting around and calculating and making cost benefit analysis in their head. He said, but it's like the, it's like the truck driver on a rainy night who's trying to take a curve at speed. And, and under, he acts as if he solving a differential equation of the friction of the tires and the rain. He's not actually solving it. But he acts as if he is, we want to predict what he's going to do. We're going to predict that he slows down. Okay. But the problem is, and this is where I start to revolt against my youth and my training, is that people forget that.


Russ Roberts (42:18):

They forget that it's as if they actually think it's what people do and then they start to think it's good that that's what they do, even when it leads to bad outcomes. So that's my, my problem with sort of you could call it a straw man, but I think often cases, it's, is the way people think about economic behavior and in my profession is that they tend to think of it as this maximizing thing. The metaphor I like to use is the dance floor. I got this a lot I think from Vernon Smith. The economist. Who reads them, thinks a lot about Adam Smith. He says, well, this is my version of it. When you're on a dance floor, it's true that there was a temptation and urge to impress people around you, to sh to show off to be a great dancer, right?


Russ Roberts (43:04):

Same urge as on a basketball court. I want to be the superstar. I want to score the most points. But that doesn't make a very good team and after a while you start to realize that and you realize you have to sometimes pass the ball and you have to help your teammates succeed and that there's something glorious about being part of something larger than yourself and you start to care about that, not just your own performance, your own image and your own ego. And so on the dance floor, if I'm with a partner in particular and we're waltzing, I don't want everyone to necessarily say, look at me. I have a different motivation which Smith writes about, which is I want to be proper. I want to do the right thing. I want to act with what Smith called propriety. I want to be prudent.


Russ Roberts (43:44):

I'm going to dance in a way that allows other people to enjoy the dance as well. And I just follow a social norm that says, don't bang into other people. Don't hurt my partner. Let my partner shine as well, not just me. Those are all norms that we have on the dance floor of life. And if we're not careful, we're, we are fooled by economics and to think, Oh, I'm just gonna maximize my behavior. Well, that's not what people do a lot of time in life, especially in social situations, if they did that they're not going to have any friends. And now you can improve the narrow homo economicus view and say, Oh, I'll just put into the utility function, care about my reputation. And my pH D advisor was Gary Becker. Becker did this with great elegance and effectiveness and thoughtfulness. But most economists don't and can't. And so I think our profession has a view of our fellow human beings that's too narrow. It's great for when we're looking at the demand for shirts or how we behave in online and transactions or all kinds of other situations if very powerful and useful. But in some situations it's misleading and wrong.


Amber Cazzell (44:51):

Yeah. it's, it's also interesting that I think even, I mean we got on this because we were talking about evolution, evolutionary theory and economics and it's interesting that evolutionary, at least evolutionary psychologists have had to kind of deal with some similar stuff that fitness doesn't seem like it doesn't seem like self-interests happens in this, in this very narrow way. It seems like, and I know that there's been a debate going on about this, but that self interests seems to be happening at multiple levels that sure, there's concern for yourself as your own, as your own animal. But there's also concern at the species level that we're, we're just, we're hyper social beings and we are concerned with things. And that potentially is what has allowed these moral norms to evolve such that we feel like leaving a tip out a place that we'll never return to.


Russ Roberts (45:50):

Well, biology, biology has struggled at, has made some progress at trying to understand how, you know, self-interested genes and genes are surely only self interested. I I think can lead to creatures that do things for each other. And you know, there's your relatives and your, you know, there's, there's not just your own as possible. It's not just your own fitness you care about. But I think the more important point there is that in, in cultural settings, as human beings, we don't just have our biology, biological imperative. Sure. It's, it's there in the background and it's incredibly useful I think to be aware of it in all kinds of situations. I certainly think about it when I want the seventh cookie, that may be my sweet tooth, which may be came from my desire to eat sweeter peaches in a a hundred when my ancestors ate sweeter peaches $100 billion years ago. And those that did tended to survive. Cause the sweeter peaches had more nutrition. As a result. I have a sweet tooth though that maybe I should not listen to that. That's a useful thing, but we have more than that. Right? We have our culture and we have our reason and it's a mixed bag, but we have other things going on there.


Amber Cazzell (47:06):

Yeah. And I think another thing that it's interesting to me in economics is this idea that sort of our morality, and this kind of came into play a little bit too, when you were discussing, you know, chopping off your baby finger versus, you know, eliminating the suffering of, of hundreds of thousands of people from a natural disaster that even economically we sort of understand that different moral norms operate at different levels. So the norms that you're using to operate with your family don't necessarily apply when you try to scale them up to the size of a whole society.


Russ Roberts (47:46):

Well said. That's a deep truth. And


Amber Cazzell (47:52):

Yeah, I mean, Oh, sorry, sorry to interrupt.


Russ Roberts (47:56):

Well, I was just going to say, one of my other intellectual heroes, F. A. Hayek makes this point when he says that, you know, our genetics come from the small group, the band he calls it or the tribe. And that he says we have a natural impulse to take the ethics of that group, the norms of that group, and push them into the larger macrocosm. And that hasn't worked out so well historically. I'm open intellectually to the possibility could work better in the future, but the socialism and communism of the past has not worked well in its actual application. It's led to death and destruction. And so he says, actually, we have to live in two different worlds. So I'm a socialist in my house, right? I share my food, I don't chart and I'm not an economist in a normal, you said the word. I don't charge my children rent. I usually divide up the food equally. My wife and I we're a benevolent team of dictators. And if one of our kids is in trouble. We help them more than their kids who aren't in trouble. So, but we love them and we know them and we have some information about what is that their lives are about. And, and Hayek would say that that calculus works less well at scale. And has that worked historically well at scale? And I think he's correct.


Amber Cazzell (49:20):

Yeah. And I think it's interesting, like why do you think that your view as an economist? And I'm curious about this from your view as an economist, why it seems to be that there are, I mean there's probably more than two, but generally as a characterization two broad thoughts when it comes to economic systems, one that that focuses on like redistributive justice and getting more at equality of opportunity. And then there's a whole other school of thought that focuses on equality of opportunity. Where do you think that comes from? Why are people so divided into these different camps?


Russ Roberts (50:03):

Well, I think it's hard to keep more than two things in your head at once, right? But if you think, if you think about it this way, if you Google the world's divided to two groups of people I think that phrase is going to come up more often and then the world is divided into seven groups of people. Two is really powerful. Now. 10 is good, seven's not bad, but two is, is pretty good. It's pretty cool. It's, dichotomies are useful obviously. Obviously we have the so-called mixed economy in most places of the world. There's no real capitalism and no real socialism. We have all kinds of in-betweens in reality, but it's useful I think to think about about extremes, but okay. I do think it's probably I would make there that I think is, is important is that I F I like to say that the opposite of government is not business.


Russ Roberts (50:56):

The opposite of government is voluntary. A lot of people think there's two choices. There's either they do things through the government, through the ballot box, or you do it through the marketplace and the profit motive. Well, there's a third thing called voluntary, but not profitable. Yeah. It's what charities do. It's what foundations do. Yeah. It's what we do when we get together and do something over the weekend to help other people. Yeah, it, there's lots of human activity that is bottom up that is not about making money. So I would say there's three ways that we work, that we work together. There's the way we work together for money. We call that a business. There's the way we work together through the ballot box and legislation that's called government. And it's the way we work together through voluntary associations that are called unprofitable, I would call them, you know, charities or foundations and all three are important.


Russ Roberts (51:52):

And so I think it's important to think about all three of those and not have just a dichotomy between profitable and not government. So you know, the, the school system, I don't think the two alternatives are government runs schools versus a profit business motivated schools think we could have schools run by loving, caring people who don't necessarily want to make an enormous amount of money, but who want to serve other people through a great education. And that's the way we could have the private schools. The private school system runs that way. More or less, yes, people pay for it, but they also have big charity, big charitably funded scholarships in most of those schools. All those schools have scholarships for people who can't afford it. And it's a, it's a richer world that we have those options and those ways that we can interact with each other.


Russ Roberts (52:39):

So I just think that dichotomy between private and public is, is often I think confused as a wonderful example from blanking on his name right now. The socialist socialist example might remember it a minute where he talks about a camping trip. So a group, people go on a camping trip and there's one of the people of the camping trip who's been on the camping trip before. He's been in this area before and he knows where the water is. He knows where the stream is, but no one else knows, it's their first time. So would that, would it be right for that person to charge other people for access to the water and we all go, well, no, that's a horrible idea. Who want to be go camping with that guy. He's a jerk. Right. And that's an example of, to me, of the Hayekian point that on a camping trip, we expect a certain level of what I would call socialism.


Russ Roberts (53:38):

And I don't think that's a very good metaphor for how we behave out in the actual world. Hmm. Person who wrote it, which you'll maybe help me find later on the internet and list elicit, I'll find it in a second. But that person thinks and therefore, people who have scarce talents shouldn't make extra money and that's a nice idea. But I don't think that's the way the world would work as well if we, if we acted that way. I don't think that that leap from the camping trip, the camping trip is about a bunch of people who know each other, care about each other, enjoy each other's company, and use all kinds of wonderful social norms to get people to do the right thing. And it's fun. I don't think society can be organized effectively that way in, in large groups. It can be organized that way in small groups.


Amber Cazzell (54:22):

Wow. So that's really, yeah, really interesting. The scaling issues. And I guess when I was asking about sort of these two things, the dichotomizing, I think you make a very good point about that, but it is, I guess I'm just curious about where you think generally these different moral sentiments, for lack of a better phrase, come from. Why are some people inclined to think that the world should operate in one of these spheres more heavily than another sphere? Do you have a sense for why people lean one way or the other?


Russ Roberts (54:59):

Oh, that's a great question. I, I don't but I think Jonathan Haidt and the Righteous Mind tries to get at some of that. I think it's you know, that's a wonderful research agenda is to think about why we see the world more in one way than the other. I think, a good chunk of my adult life has been a trying to convince people that if you one to leave things alone and allow them to emerge from the bottom up you're not a wicked person. Hmm. I think there's a presumption that if you feel that way, you don't care about others. And I don't think that's true, but I understand why some people do think that that's the case. And I think, ah, that also is part of how we see our own and identity is as which side of this ideological divide we're on is that it's part of how we see ourselves as good people. We want to see ourselves as good people. We want to be seen as lovely and it's complicated.


Amber Cazzell (55:58):

Yeah. So just last question in closing here. I'm curious how you would like to see scholars incorporate this knowledge of, of ethical, of the ethical underpinnings of economics moving forward in economic research or social research or policy recommendations at large. Um how can we kind of take these insights from your own work and from Adam Smith and apply them in a meaningful way?


Russ Roberts (56:32):

Oh, that's a tough question. I think certainly what I tried to do in my book, How Adam Smith can Change your Life is think about how to apply them to your own personal behavior. Think about an academic context, you know, thing I care about lately and I think it's related to what we've been talking about is, an overemphasis in, in economics and now increasingly in other social sciences on what can be measured. I think we're like the drunk looking for the keys under the lamppost when they maybe were lost somewhere else. We're, we're really likely to look where the light is and sometimes the action is in the darkness. And I just would encourage people to be comfortable with imperfection and to realize that some of the most important things in life are not quantifiable and, and our knowledge is therefore limited.


Russ Roberts (57:17):

And that's okay. That's real. We tend to have all that take way too much overconfidence in our, our disciplines and our academic ability to master things. And I think hubris is dangerous and humility is in order.


Amber Cazzell (57:30):

Yeah, that really resonates with me. Actually recently finished this wonderful trade book called the Tyranny of Metrics. Yeah, you've read it? Okay. So.


Russ Roberts (57:40):

I interviewed the author on it. On Econ Talk, Jerry Muller.


Amber Cazzell (57:42):

Oh, there you go. Yeah. So shout out and yes listeners should go and check out the EconTalk radio show podcast. Thank you so much Russ. I really appreciate your conversation here today. I had an absolute blast speaking with you and just thanks so much again for your time and your wisdom.


Russ Roberts (58:02):

Thanks Amber. I really enjoyed it. Great. This was so much fun.