So I think what's kind of, for me about this, because I do agree that there is morality to economic behavior to trade to marketplaces, to all of this. When we sell economics, we say we generally, it's so wonderful, we create all this value with people. You never know who you never will know, you don't even have to like them. You're creating value for each other. So obviously there's some sort of positive gain here on both sides. We're not talking about the exploitative case, but part of the selling point is that you don't have to know the other person. And Smith talks about this, everyone after Smith talks about this. And so how does that kind of complicate the picture of it being moral or how is it not a problem? Because I see it as a selling point, but I think if we start calling it moral, you would expect to kind of know the person on the other side to understand that there's value created for the other person. But I think when you buy things off of, say, like Amazon or something, most people, especially if you're not trained in economics, you do not know how much value or even that there is value created on the other side. And so I don't know if that's all the same question, but there are kind of these problems in understanding even the context in which you're making a sort of decision or a trade, and then knowing who's on the other side to having it be moral.

Yeah, I don't think you have to know the other person for it to be moral. You can do it, think about it in the abstract, but that's also a wonderful thing about human beings that we can be interested in another human being, even though I don't even personally know them. And that's something you just can't take for granted in the animal kingdom. In fact, you can't do anyone. No other species does this but us. And so to think in the abstract, oh, I want to create something for other people that they value to be thinking about another person's interest, even though I don't know them, that's what I would argue is moral, that I care about them even though I don't know who they are specifically to have another animal care about another animal and provide something for them is I think that's a beautiful thing, and that makes all this impersonal trade something more than just mere material gain.

I love that. It's exactly what I wanted to hear, but I didn't know I wanted to hear it. So it's just becoming inevitable. Tell us about the animal kingdom. So how do you get from realizing that 20% of the class isn't fully on board with this rationally self-interested version of the story to this conclusion of economics is leaving this out? And how did then observing other species help that kind of realization? Or did it come after?

Well, so I kind of got lucky. I just ran into Sarah Brosnan, a primatologist at Georgia State at a conference, and we were talking about, we had similar ideas. She was running basic experiments on her capuchin monkeys and chimpanzees, and I was running experiments on humans, and we just started talking about like, well, can we apply some of these methods across species? And maybe, oh, somebody hasn't really tried to do that in a very systematic way. Let's do that. And so I was in that kind of strain of research learning about non-human primates, and in particular, just at the very basics of two assumptions that first of all, I was an experimental economist. I always give instructions to my participants. She can't give instructions to her participants. So just like that, she's got to start from a different place of creating the environments and creating the tax for her subjects.

And I'm thinking, oh, that's important. What do we take for granted by what I'm telling people? So it made me think more carefully about my instructions and what it means to instruct my participants. But the second thing was, once you go through these exercises, she cannot immediately assume she knows what the non-human primate, the capuchin monkey or the chimpanzee is up to. She can't assume she knows what they're thinking. She can't assume she knows what they're feeling. In fact, that's the whole point of this comparative psychology that she does, is to work that out. But she has to kind of keep a check on her own anthropomorphism to not impose on these other beings that she knows the answer up the bat. That's what needs to be fleshed out with an experiment. And I would notice in myself and experimental economists in general, that we tend to do that.

We run an experiment and we immediately, oh, I know what they're up to. This is what they're doing. And you look at the results and you put it all together. And this forced me to step back, do I really know? And that is part of the questioning of, well, do our models really explain what these participants in laboratory experiments are doing, and do we have good models of understanding why we do good things for other people because we want to do them? And I started to kind of think that the general game theoretical models aren't good at doing that. And Adam Smith seemed to have a pretty good framework for getting us a long way towards understanding that. So that's how these different kind of projects started coming together. And that's how I realized like, oh, there's something missing. That same, something missing is what Adam Smith was already integrating 250 years ago. He was doing that integrating, and it fell apart. We separated it in economics. And my goal is to try to put it back to complement all the advances that we've made in understanding economics since then, but add the Smithian points, the Adam Smithian point back into it.

So I've spent the last few years in college really helping conduct experiments, reading about experiments, thinking, living, breathing, experimental economics. How would you say experimental economics from at least what I can tell has always been kind of apart and judged separately from a lot of, well, obviously game theory if you look at like, oh, well the Nash equilibrium is this, but we don't see that. And so it already seems to be kind of like a branch within the discipline that not really criticizes, but that kind of stands apart. And so how do you move from already being already studying in method and in result, and the questions that you get to ask already being kind of more behavioral, more Smithian, and apart from the rest of economics, how does this take you further from that?

I think prior to experimental economics, the discipline was very much, what can I surmise what people would do on paper? And we would have a framework, a utility maximization or a profit maximization model, and we would say, this is what people would do. And we just kind of did it all in our, and maybe we'd run some regressions knowing, do some statistical analysis, but we really didn't ask ourselves, what do actual people do? And that's what experimental economics added. It was like, no, let's actually see what people do. Does it actually work with actual real human beings the way I think it does? And that's how Vernon Smith got started. He was skeptical about how supply and demand worked, even though it was in his textbook. So he said, well, let me run an exercise with it to see how the prices converged or not converged.

And he put the rules from an institution in there in his laboratory. He read, I think he went to the library and checked out the book literally to figure out how they trade in the Chicago Board of Trade and the New York Stock Exchange. And then he looked at it and all of a sudden the results were, oh yeah, supply and demand works really well. And he was surprised because he was asking, what do real people do? And so in that way, experimental economics was a commentary on the rest of the profession. You're all working on your pencil and paper ideas of what economics is, but we're looking at actual people. And sometimes or many times they don't work, they don't line up. And many times we're wrong about how they're lining up. And it took me a long time to realize this, but the value of experimental economics and running it with people is to realize when you're wrong that, oh, it doesn't work this way. People do other things and there's a systematic way that I completely missed. And so that was always the tension with experimental. And I would argue with the rest of the field that we were saying, no, we need to look at what real people do.

I guess, and maybe this is what you're getting at with adding the morality bit and understanding the mechanisms, faults, one of the limitations of experimental, and I guess all of economics other than there are a handful, right? Smith, what you're doing now, this sort of stuff, the people who very consciously add this sort of thing is that what happens if your experiment validates supply and demand? And so you accidentally kind of get the right answer, but you're missing how, because at the end of the day, it can show you how the theory is wrong, but if the theory gives you the right answer and the experiment gives you the right answer, we still don't have clarity about how you get there necessarily, because all we're doing is observing behavior, okay, we observe the right behavior. But how

That was the next step that Vernon, as soon as he saw that supply and demand seemed to work, he then said, well, can I break it? He did these designs where all the surplus in equilibrium was to go to one side of the market or the other, and he's like, oh, this won't break it. And no, the prices converged right down there, particularly when no one knew what anyone's values and costs were. And so that helps you understand, if I can push it to the extreme, does it break or not? And many times might break, and that's where you learn something. So the validation part is I think that's part of what's missing when we teach supply and demand and we run the double auction experiment, the point isn't that we get to the competitive price and quantity. How is this happening? What's going on there? And that's the question that you raised.

And we still don't have a model that explains in the double auction how we get to that pricing quantity. And I allude to this in my new book, but I think the problem is we're asking to explain a problem at the wrong place. What do I mean by that? So Adam Smith was concerned about with, well, what happens is too many buyers come to the market or too few sellers, the prices are going to move in a particular way. He called it a proportion. Modern economics, we call it a difference. Quantity demanded exceeds the quantity supplied and things are going to happen in prices. But he was looking at a market-wide notion of cause and effect. And the reason why we can't predict how we get to the price and quantity in a double auction experiment is we're trying to explain it by every buyer and seller, everything that they're doing and how we get there.

So we're trying to go in here into the mind to do something when Adam Smith says the problem is a whole market notion of cause and effect. And that's the process that's being adjusting to each other. And it's not trying to put it on the individual and it's a modern thing. I think it's game theory that I would argue with that when we try to put it into the individual like, oh, now I can predict what you do and I can predict what the other person does, and I can tell you what you do and what your payoffs are. We're like, oh, I got control.

But where's the locus of the decision problem inside the head, inside the mind, the mind and the heart, and we can't have the same access now. And that's kind of the point of my project, is we still have to have some notion of causation that we do attribute to human beings. We do attribute that other human beings are thinking, feeling, knowing, and wanting beings. And that's how I understand the cause of why they do what they do. But modern economics doesn't use those concepts to understand why people what they do. In fact, they don't ask why at all. They ask, how do I trade off material and immaterial stuff to get to why somebody does something? And it's more a how question, not why do you do it? When I look at a human being, I understand that, oh, she feels this way, she's thinking this.

She knows this, she wants that, and that's why she did what she did. And that's our notion of causation. But that's a messy notion of causation, right? Because it is going in its objective. The beauty is that Adam Smith had a way of thinking about the world that was intersubjective. And so we do understand other people. We don't know them completely how they think and feel, but we can sympathize. We do imagine we do trade places and we do something that helps us understand why they're doing what they're doing. And it's that insight of his that I think we could add back into economics to understand and go back to these notions of explaining why human beings do what they do.

It does what you're explaining. I see modern economics a lot of the time it kind of feels like a puppet show. I don't say that to imply necessarily that the economists doing any sort of analysis intend to make people dance. Some of them do. Some of them think that's better. And I mean that's a whole separate issue to deal with, but it's kind of this inherent assumption, or I guess it's just ignoring the assumption that we all somehow seem to make, which is that we already know how it works. But then it leads me to always ask this more kind of existential question that I don't know if it's just me or if it's kind of anyone who thinks too hard about why we care about certain things. But then I'm like, but why do we care? Why does it matter? And I'm inherently drawn to understanding this and focusing on how these processes work and how human beings operate. But if there's a point where we know we can't really know, then why do we do it? And so not to put you on the spot, but why?

Well, I think we are focused in economics on how questions we're all about process. We're all about mechanism. And that is only a small part of the bigger question of explaining why human beings trade. Why do human beings have property? Why do we divide our labor? How is just one subsection of the many different ways you could ask a why question? And so we've kind of limited ourselves to just, I would argue these maximization problems are just efficient causes for why people do things. What I mean is we just have this kind of trade off. I trade off a little bit of morality for a little bit more of my payoff, and we assume that's what's going on when we don't get it to the other why questions. Well, why would a being want to do that? Why do they feel the way they're doing? Where does that come from? And the answer will be largely human beings. It comes from our parents and our families and our communities where we learn all these different things about how to act with other people. And that's not being written into our models in economics in any way. And I think that's missing. And as Adam Smith immediately goes to watching and observing what people are doing, and then kind of integrates that into his way of understanding human society.

I mean you say family, so I have to bring this up. Gary Becker phenomenal the work he did. Novel, groundbreaking, very impressive, very interesting. Even though there's this concept of interdependent utility between people and a family and how whoever's in charge of the family or members of the family factor each other into their utility and their decision making and how they operate and that it might not exactly be like a market, but there's still a level of economics there that is discernible. We don't really know from his work why that matters or even, I mean to ask another how question, how that happens. And I don't know. I mean you've beat me to it, but that kind of leads to the natural question of what about the biology of all of it, right? Family seem to be a natural occurrence in nature a lot of the time. Smaller families, bigger families, whatever. But then once you get to trade, it gets even more tricky because our model of human behavior doesn't line up with what animals do. And even though our model of families oftentimes do line up with what animals might do, we still don't know why.

So Gary Becker, he notices that people are interdependent, but he doesn't ask why are they interdependent? And that question is going to have a deep evolutionary history to it. It's also going to have a kind of modern form to this as well. And so he's asking what happens to the family when we notice that they're independent and how that would play out. But he doesn't ask the why question. Why are we putting our lot with all these other people? And that's what Smith has recognizes upfront that human beings want to be in the company of other human beings, and that we like the feeling of having being in our motives and your motives are aligned, and that feels good to us. And it's not that hard to see that primates have this all the way back. I mean, there's very few primate species that aren't living in groups and that have communities, and that the relationships between parents and their children is a lifelong one. And that's not even true in mammals generally. So it's primates really that the mother chimpanzee will always know her young. There's always going to be that familial thing going on, even though they kind of live in a tribe. And that's not true in a lot of mammals, rats, they kind of split. They all go their own way

Only they're really, really self-interested.

Yes, yes. And so there's only 10 to 20% of mammals that live kind of in groups all their lives in some sense. And so that is a part of why we have families that we can't be a part from other members of our species. I mean, that's why the kind of solitary confinement is so inhumane is because we can't be separated from all other human beings. We need something to be associated. We need to be in the company of other members of our species. And that is the starting point for all of Gary Becker's observations that we are already a social species being in the company of one another, and we take pleasure in it. So that has to be part of the story when you start looking at things.

Okay, we've seen from this conversation some of the ways in which we are similar to other primates. I was so lucky last time I was in Indianapolis two times ago, my boss took us to the Zoo and I watched, I'm pretty sure it was an orangutan, do orangutan school and try to match things up and learn something. And we don't even know if, when we call it learning, if that's what it means, if it means understanding, making connections, or if it's you're getting it right the same way that a rat might realize after getting shocked that this is painful, so I shouldn't do this. What does it mean to know that? I don't know. It seems like it's opening a whole new bucket jar. I don't know. Door of questions, metaphysical, definitional questions of what does it even mean to learn something? I mean, AI is doing the same thing. Arguably, what does it mean to be in school if the freaking robot is not a robot can do all your work for you. So what are some of the ways that we're similar? What are some of the ways that we're different and what does that tell us about ourselves and how we're unique as a species and what implications does that have for economics?

So we are very social. All the other non-human primates, we want to live in communities together. We feel each other chimpanzees and play. They love playing all the way. I mean, even as adults. And that's kind of a mark of mammals in general. There's this notion of play going on, but it's just taken to a whole another level with primates of enjoyment and playing around with sticks and things like that, that’s chimpanzees have longer periods of being a child than other animals. Then human beings are even more so we have very extended adolescents compared to other primates. We're kind of in that, a continuum like that. And then there's this other element. So the orangutans, I'm pretty sure you get the same sense, but it's even more so with a chimpanzee. If you look at them, they look back in a way that your dog does not look back at you, or your cat does not look back at you.

It's kind of watching those documentaries. It's like, oh, that's me, but that's not me. It's kind of scary, but not in a, I'm in harm's way type. But yes, I know exactly what you mean.

And that kind of looking back, trying to understand the mind of this other being there is the core, I would argue of economics. And then we just take it one step further. We make it abstract. I can look at you and then know that you're thinking something and I can put all that together. And more than that, and this is the key part that Michael Tomasello impressed upon me from reading his work, is that we can know that we're thinking about the very same idea to know that we are thinking the same thing means we can coordinate in a way that no other species can. And so he argues that's really a key difference between the rest of not even primates. And that comes down to the relationship between parents and their children. That the children understand that the parent is teaching them for the sake of learning, not just the fact that it happens and works, which is what a chimpanzee, they're only looking at the effect, does this actually work when I stick into the termite hill or not?

And children, very quickly probably what age is, I mean, psychologists are noticing just that the notion of pointing that kids babies very young know. And you're already beginning that process of aligning our minds to the same idea. But think about that. It's an idea, same thing. And this is what trade is founded upon that I know you want this and I want that other thing. And that if we trade this thing, we will both be better off for it. That knowing that I what you want, and at the same time knowing I want, and that it will happen in the future when we actually trade this stuff, that's what makes trade work. And chimpanzees can't get to that next step. They can't get to, I know that you want that and then we'll be better in the future if we do this.

How have you seen that? What does it mean to be able to observe that if it's so dependent on an idea which you cannot see?

Well, so Sarah Brosnan has tried really hard to get chimpanzees to trade things for a lower value, for higher value things. And they both do that mutually at the same time. It's just not that easy. They can remember that I do you a favor and then I'll give you something in return in the future. And so they have that kind of memory body memory of that association. But they can't do it with this thing in the moment because they have to consciously think about the future being different than it is now. And that's what I argue my book is really important. We can imagine a future that currently isn't the case now, and trade changes that we make the world the way we imagine the world could be.

I mean, that seems like a super-duper super power, for lack of a better way to describe it. It seems so significant after. I mean, we've just spent 45 minutes outlining all the ways that capacity becomes super important, that that is a defining characteristic of human beings in relationships and trade and everything. And if other animals don't have that, and we ask ourselves, how are we different? How is it that America is wealthy? How is it that human beings are prosperous on earth, on an earth where the rate of economic growth was zero until like 200 years ago, including when human beings were alive before human beings were alive? All of it.

It's built on ideas. It's built on our minds. This ability to abstract and symbolically think about the world makes all of these basic principles of economics possible, which is why we can observe them in us and no one else. And what's important though is to realize that that is, as you mentioned, necessary, but it's not sufficient. So we've had these great mental powers for a hundred, 300,000 years, some of them probably going back to Homo Habilis, but we weren't rich yet. And so it's something else was needed. But I think this is why I think my work kind of dovetails with Deirdre McCloskey’s project in her Bourgeois Trilogy. She's arguing, what is it about the last 250 years? And she's planting it firmly in the notion of ideas that that's the reason why economists are pushing back. We don't want to have an immaterial thing being a cause for our material welfare. And my point is, my book says, write down to the very basic principles of economics. It immaterial it. It's the ideas and trades, specialization and property already there. And now it's a matter of thinking, well, what has to happen before they can create the wealth of the last 250 years? But it's ideas all the way down, and that's different than your textbook. Your textbook's going to tell you, no, it's scarcity. That's the starting point.

It's scarcity, the starting point. Then why are we rich?

Yeah, this is crazy because I literally, my intro macro students just had an exam on growth theory, and it is, growth is a function of resources, technology, and institutions. It's not just the fact that there's a tree outside. It's what you can imagine. The tree could be.

Yes.

It's why are institutions helpful? Well, the rule of law is helpful because it helps us be nicer to each other and be better with each other to do the things that we already want to do. But you have to be able to sympathize with someone in order to even be able to want to be nice to them, because you have to see how that relationship could play out. Wow, if only I had talked to you before they took their test. I mean, they did. Well, but that is so transformational or is not just a resource.

Yes. And [Ludwig von] Mises recognized this in Human Action. He has paragraphs and sentences about that, that it's about what you can imagine it to be, but then he doesn't do anything with that. I think we want to complement what we're teaching in all our micro macro courses with this notion of what is it that the human being is putting into all those equations? It's not just a list of all these physical things in the world, and then there's a technology that transforms them. But there's a being who's doing that transformation because of what they're imagining about the world, that they want the world to be a different way than it currently is. And that is fundamental to economics. We're just not navigating roadblocks to what we want, are imagining things and trying to change the world to be the way we want it to be, to improve our lives. And then we're not doing it just to improve our lives, but we're also doing it because we want a good life. So there's something, the abstract notion of thinking about the future allows us to think about things bigger than ourselves as well in this whole process. And so economics is not separate from those big, meaningful ways of understanding why I'm here and what I'm doing.

This is lovely. I'm about to ask you a question which is potentially derailing, but also I think kind of silly. Does this make you a speciesist? I mean, the way you talk about the chimpanzees and the United States and all these other species leads me to think that No, but then we're standing in a culture.

I'll admit to being a human exceptionalist in the sense of that we do things that no other animal does. There's no other way to explain vaccines walking on the moon, Macbeth, the Magic Flute and all these other things. 

Reese's Puffs cereal.

Yeah, exactly. There's no way to understand why those things are in the natural world today without understanding that human beings are different than all other animals. And that is not to then say that we are better or things like that. But it does mean that we're different and we need to acknowledge that that difference is why we're wealthy, why we live better lives, and why the world, why extreme poverty is dropping so fast and is so low, and that no other animal's ever done that. No other animal has extended their lifespan. No other animal has decreased their infant mortality rates. No other animal has done that. And so let's come to terms with why that is the case. That doesn't mean that we then should be mistreating any other animal by admitting that we're an exceptional animal ourselves.

Thank you so much for coming on the podcast. I have learned so much. I know my listeners will as well. I have really truly enjoyed this so much. I have one last question for you. What is one thing that you believed at one time in your life that you later changed your position on and why?

Well, the easy one is something we've already talked about it. I mean, I believe that utility maximization as a tool was the central core of understanding economics. And now it's only piece of it. I believed it was sufficient for what I needed to do. As an economist, I don't believe that. But since I've been talking about those things for the last hour, that's probably too easy. I think to go back to Adam Smith, I used to believe that he espoused a labor theory of value, and I don't think that's true anymore. And I kind of took it on face value from kind of other people saying that this has been the case, and it's true. And when I read The Wealth of Nations, I kind of took it in and read it. But then when I started to appreciate understanding an author on the author's own terms, it became really clear to me that I'm Smith is not espousing a labor theory of value. And it's actually a mistake on our part of misreading what he means by the word measure. So he always talks about labor is the real measure by which we judge how well off we are. He uses it as a noun, as in a standard. And then the labor theory of value uses measure as a verb to count or quantify, and he never uses it as a verb. He uses it as a noun.

And very famous economist. I think Jacob Viner kind of quoted, quoted, said Smith was measuring the value of something by the hours put into it. Like, no, no, he doesn't use the verb. And so I've learned to try to not read into authors what I expect. They have to try to really understand the authors on their own terms before I start summarizing what they say. But that was kind of important moment for me that I realized that, oh, I got to be careful about what I read into authors in their texts.

Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to the Great Antidote Podcast. It means a lot. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at Great antidote@libertyfund.org. Thank you.