Adam Smith

Adam Smith, Theorist

He sets out three thinking-caps. Economics puts on one and shrugs off the others, and more knowledge is los

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  “The man of system,” Smith wrote, meaning theorists and model- builders, including himself,

… seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess–board. He does not consider that the pieces upon the chess–board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess–board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse [sic] to impress upon it.  If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must at all times be in the highest degree of disorder.

Those few words, written near the end of a long life of successful theorizing, spelled out the central fact that makes the problems of economics – of the social sciences in general – so much harder than those in physics.  In returning to work on The Moral Sentiments, Smith was emphasizing the problem of human consciousness and will. Barely a hundred years would pass before the first theorists took up the problems of chess and reasoned that they could be abstracted and used to shed light on a wide variety of problems of strategy, including economic behavior. As Robert Leonard, of the University of Montreal, has shown, in Von Neumann, Morgenstern, and the Creation of Game Theory: From Chess to Social Science 1900-1960, the chess board was the path to game theory and, beyond, to behavioral economics..

There are a few things we know about human beings.  They are alert, inquisitive, forward-looking (that is, they form expectations about others’ actions), volatile, highly imperfect, eager to cooperate (or not) in varying degrees; and, in circumstances that also may differ greatly, they may be eager to improve their lot, that is, often, to “make money.”

More than a few times over the years, economists have ignored or overlooked or forgotten these most basic facts, which together add up to a principle of conditional autonomy, in hopes of making easy gains.  In invoking the player of the game of chess, Smith wasn’t repudiating the effort to make a social science; he wasn’t even making the case for caution.  He was, near the end of his life, stating the obvious: that the subject invited further work.

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