Duncan Foley’s name popped up, and somehow I ended up reading a discussion of his book Adam’s Fallacy: A Guide to Economic Theology. I had the pleasure of reading Adam’s Fallacy a couple of years back and for a long time, I was meant to write down some thoughts on it. Now, the thoughts are long gone, instead, I will shamelessly cut and paste from the cutted and pasted discussion on the Economist’s View:
On the influence and authority of conscience, and other considerations not found in any economics textbook, by David Warsh: Duncan … Foley was born in 1942. His father was an industrial physicist, his mother an environmentalist. Foley himself began attending Quaker meetings at age nine and joined the Society of Friends at fifteen. He graduated from Philadelphia’s famous Central High School in 1960, from Swarthmore College in 1964 and went straight to Yale, where he skipped the core courses and took the qualifying exam instead, obtaining his Ph.D. in mathematical economics in just two years. In 1966, he moved to the Massachusetts Institute of Technology, to teach and do research.
Foley read Marx. He published mainstream papers: with Miguel Sidrauski, with Karl Shell, with Robert Engle, with Martin Hellwig. He moved to Stanford University in1973, and … returned east to Barnard College of Columbia University in 1977.
After 22 years at Barnard, mostly teaching undergraduates, Foley moved downtown to the New School in 1999, replacing Robert Heilbroner as the senior figure there, with a view to building up the economics department. (He had published four ambitious books in those uptown years as well…)
Now Foley has followed still further in his predecessor’s footsteps, writing an alternative version of Heilbroner’s great book, The Worldly Philosophers.
Adam’s Fallacy: A Guide to Economic Theology is a beautiful little book. It contains some of the most lucid exposition of the core ideas of economics that I have ever read. Laid out pretty much on the same plan as Heilbroner, though with none of the attention to history that makes The Worldly Philosophers such a gripping read, Adam’s Fallacy leads the reader through the ideas of Adam Smith (“Adam’s Vision”), David Ricardo and T.R. Malthus (“Gloomy Science”), Karl Marx (“The Severest Critic”), Alfred Marshall (who in “On the Margins” rates but a single mention, in contrast to many entertaining pages on Thorstein Veblen), and, finally, of the twentieth century trinity of John Maynard Keynes, Friedrich von Hayek and Joseph Schumpeter (“Voices in the Air”). As a penetrating critic of capitalist economic development, with its “immense opportunities, and its equally immense social and moral stresses,” Foley has few peers.
Yet Adam’s Fallacy seems to me, at least in a certain way, to be profoundly mistaken. The reason is simple to relate. Foley dwells entirely on what economists have managed to make so far of The Wealth of Nations, and gives short shrift to Smith’s other book, The Theory of Moral Sentiments, and to the relationship of the one to the other. Published in 1759, seventeen years before the work for which Smith is remembered, Moral Sentiments is a compendium of much that today’s economics leaves out — declares “exogenous,” in the argot of the field, “human nature” being quite beyond economists’ models present-day ability to address.
So what exactly is Adam’s fallacy? According to Foley, it’s “the idea that it is possible to separate an economic sphere of life, in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome, from the rest of social life, in which the pursuit of self interest is morally problematic and has to be weighed against other ends.” This abstraction of an economic sphere from the messy complexity of real life is indeed the kernel of present-day economics, just as Foley says it is:
[U]nderstanding the logic of capital accumulation does not require us to surrender our moral judgment to the market… The exploitation of any profit opportunity involves a range of consequences, some good and some harmful. There is no escaping the moral relevance of weighing the good and the harm in each case. The fallacy lies in thinking there are universal principles that short-circuit this process.
But Smith isn’t responsible for what has happened in the 200+ years since he died, in 1790. He saw the world whole. And, in the first instance, what he saw was that self-interest was an inevitably complicated matter. […]
Many economists have been content to believe that somehow Smith abandoned these views [laid out in the Moral Sentiments] by the time he finished The Wealth of Nations. Their conviction usually rests on a famous passage near the beginning of the book: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard for their own self-interest,” he wrote. But, as D.D. Raphael asked in his introduction to the 1976 Glasgow edition of The Moral Sentiments, who, on the basis of this sentence and a few others like it, especially the image of the Invisible Hand, would think that this meant that Smith had recanted his earlier belief in the existence or the moral value of benevolence? “Nobody with any sense.”Nor is it surprising that economic science should proceed this way — modeling what it can at the expense of ignoring what it cannot, in the expectation that better models will emerge in time from the strategy. […]
Foley simply ignores the earlier Smith, and caricatures the latter:
Smith asserts the apparently self-contradictory notion that capitalism transforms selfishness into its opposite: regard and service for others. Thus by being selfish within the rules of capitalist property relations, Smith promises, we are actually being good to out fellow human beings. With this amazing argument, Smith proposes to absolve us of the moral ambiguity and pain that haunt capitalist reality.
Certainly it is true that economics has not yet succeeded in incorporating in the scope of its formal reasoning such topics as “the influence and authority of the conscience.” Only recently has it begun to tackle the problem of increasing specialization in its deliberations, despite the abundant clues that Smith gave in the first three chapters of The Wealth of Nations. Interdependent utility functions and persuasive interpersonal comparisons of welfare will be the work of many years.
Economists are in the thrall of any number of fallacies, small and large. Some of them are downright dangerous if taken seriously. Duncan Foley alerts his readers to the worst of them. But they do not owe their existence to Adam Smith.
I picked up Adam’s Fallacy after stumbeling over it in a bookstore. I tend to pick up odd books, I admit. (In an odd coincidence, I picked up, on a whim, unaware of the connection to Foley, Heilbroner’s The Wordly Philosophers the next time I visited that same bookstore. Of course, the coincidenciallity also speaks of my limited knowledgability of economic literature.) The time I picked up Adam’s Fallacy, however, it was not completely out of the blue: I had just met Duncan Foley. He visited San Diego in the spring of 2008 and gave the best economics seminar I’ve ever attended. Pure, simple ideas connecting to elegant and surprising conclusions. (I’ve meant to discuss the paper he presented on this blog too, but you know; perhaps I get to it some day.)