Robert J. Shiller on Capitalism and Human Nature

You’ve chosen a fascinating topic—‘capitalism and human nature’—but quite a tough one to get one’s head around.

It’s been the subject of discourse for centuries – or even millennia – so it’s very hard to summarise.

If you did try to summarize it, what would you say you’re trying to get at with these book choices?

I think that our economic system reflects our understanding of humankind, and that understanding has been developing, with especial rapidity lately. You have to understand people first before you can understand how to devise an economic system for them. And I think our understanding of people has been accelerating over the last century, or even half-century.

You’ve started off with Adam Smith’s Theory of Moral Sentiments. Tell me why you chose it.

This is a remarkable book because, although in some cases it’s outdated, he has an interest in exposing human traits that are relevant to thinking about our daily lives. He has a surprisingly insightful ability to do that. He doesn’t have any of the research methods of the modern social sciences; it’s all casual observation, and reading, I suppose, of other people and literature. But there are observations and conclusions in there that I never had before. They’re focused on a purpose, which is understanding how our society works and how people get a sense of mission, of purpose, that somehow makes things work as well as they do.

Can you give a particular example of a trait where you thought, ‘Wow! I hadn’t thought of that before, but he’s so right’?

Well, if you put it that way, it’s going to be disappointing – because your readers will say, ‘Yes I had thought of that before!’ It’s a personal thing. But the thing he starts the book off with is sympathy. He uses the word sympathy and he’s really focused on selfishness versus social consciousness. He sees that sometimes people are completely selfish, and that’s the problem for any economic theory: how to make a society work when people are completely, unremittingly selfish.

But he also notes something else. He doesn’t use the word empathy, because empathy hadn’t been defined yet, but he makes a very important observation about human behaviour, which is that we are wired to feel each other’s emotions and to have a theory of other people’s minds (not that he would have used the words wired or theory of mind either). The English word empathy was coined around 1900, in a translation of the German word Einfühlung from a German book by psychologist Theodor Lipps. What it means is that it’s not that I feel bad because I observe that you are suffering, it means I actually feel your feelings. So people may often be selfish, but they also have empathy.

Smith also talks about a selfish passion, which is a desire for praise. He argues that people instinctively desire praise, but that, as they mature, this feeling develops into a desire for praiseworthiness. This is a little bit different, and I haven’t seen it written about anywhere else. He points out that, suppose you were praised for something that you knew you didn’t do: It was a mistake, people thought you did something, so they’re praising you, but in fact you didn’t do it. It wouldn’t be such a good feeling – even if you could keep the lie going, and continue to receive the praise. He uses that to show that what people really want is to be deservedly praised. And that turn of mind, which develops as people mature, is what makes us into people with integrity.

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Robert J. Shiller is an American economist (Nobel Laureate in 2013), academic, and best-selling author.

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