What Role does Love Play in Economics?

A paper presented at the Annual Economics Conference, 2015

John De Val

There are two four letter words beginning with ‘L’ that are rarely found in the index of present day text books on economics. The first is ‘land’ and the second is ‘love’. The two, of course, are closely related. Insofar as land is the name given to the naturally occurring materials of our planet from which all mankind’s material needs are met, land is a magnificent expression of love. If economic policies were a reflection of a grateful acknowledgement of that fact, one suspects that the lives of many people around the world would be transformed for the better. Sadly that is not the case.

The study of land has been the focus of much attention within the Economics Faculty of the School. The subject of love in the context of economics, does not, at first sight, have received so much consideration. However if we accept William Temple’s view, in his book ‘Christianity and the Social Order’, that the primary form of Love in social organisation is Justice, then it appears that love has not been far away from our studies after all.

However, when we look around the world today, economic justice is not what we see and from this we can conclude that love, if not absent, is certainly not fully operative in our economic affairs. Of course, the object of economic policy is not to somehow make people love one another but it is fair to demand from our economic policymakers that they do not encourage conditions which make it difficult for such a love to manifest. For example, for a man or woman who is hungry or malnourished, the Biblical instruction to love your neighbour as yourself, is going to be much more difficult to follow than for someone whose material needs are well catered for. So to the extent that economic policies lead to hunger and malnutrition, those policies are misguided and unjust.

It is perhaps not surprising that love is not centre-stage in the study of economics when we look at the very limited and, to my mind at least, dry and unappealing, definition, of what economics is all about as can be found in such places, as, for example, the Wikipedia website. According to Wikipedia,

Economics is the social science that studies economic activity to gain an understanding of the productiondistribution and consumption of goods and services in an exchange economy. It focuses on the behaviour and interactions of economic agents and how economies work.

In this description you and I have now become economic agents. As such our interactions with each other are governed by rational self-interest because this assumption is at the heart of modern economic thinking often termed neo-classical economics. According to this approach what has become known as ‘economic man’ is a person who acts rationally on complete knowledge out of self-interest and the desire for wealth. He deals with businesses who still follow the prescription set down by the American economist, Milton Friedman in 1970;

‘In a free society there is one and only one social responsibility of business; to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud’.

This view took a bit of knock when the financial crisis struck, but now appears to be back in the saddle.

I will park this concept of economic man, or homo economicus for now and turn to the experience of an American economist called Jennifer Morse. Morse is also a libertarian, that is, someone who believes in small government and is certainly no big fan of the welfare state. She and her husband brought up two children, one of whom was an orphan boy who had been in a Romanian orphanage until the age of two and a half years. She recalls attending a conference for parents who, like herself, had adopted children who had spent substantial time in Eastern European orphanages before the Communist era collapsed. One mother remarked in the course of discussion that her son “was fed like a hamster.” The attendant at the orphanage had wired a baby bottle between the bars of the crib. The baby was able to eat whenever he wanted without anyone ever having to pick him up. The members of that particular audience knew exactly what she meant. Many of their orphan children had been fed like hamsters, too.

Many children who for one reason or another have been starved of affection or intimacy in their early years, due to family breakdown, death of parents, badly run orphanages etc have difficulty forming an attachment to others. Even children who are later adopted by loving and competent families sometimes never fully attach to them or anyone else. Experts believe that children who do not develop attachments in the first eighteen months will have grave difficulty in forming attachments later. If the parents of such children do not intervene by the time the child reaches twelve years of age, the prospects are thought to be diminished to the point of hopelessness. This condition is known as attachment disorder.

The classic case of attachment disorder is a child who does not care what anybody thinks of him or her. The disapproval of others does not deter the child from bad behaviour because no other person, even someone who loves them very much, matters to the child. They respond only to physical punishment and to the suspension of privileges. The child does whatever they think they can get away with, no matter the cost to others. They do not monitor their own behaviour, so authority figures must constantly be wary of them and watch them. They lie if they think it is advantageous to lie. They steal if they can get away with it. They may go through the motions of offering affection, but people who live with them sense in them a kind of phoniness. They show no regret at hurting another person, though they may offer perfunctory apologies.

As they grow into adolescence, they may become a sophisticated manipulator. Some authors refer to this child as a ‘trust bandit’ because they are superficially charming in their initial encounters with people and can deceive them long enough to use them. In the meantime their parents and anyone else who has long-term dealings with them, grow increasingly frustrated, frightened and angry over the child’s dangerous behaviour, which by this time is often quite violent. As the parents try to seek help for their child, they may find that the child is able to ‘work the system.’ They can charm the therapists, social workers, counsellors, and later perhaps even judges and parole officers. The child is unwilling to inconvenience themselves for the sake of others.

Who is this child? Jennifer Morse claims that it sounds exactly like homo economicus – the rational, calculating, economic man, the person who considers only their own good, who is willing to do anything they deem is in their own interest to do, who cares for no one. All of their actions are governed by the self-interested calculation of costs and benefits. Punishments matter; loss of esteem does not. As for their promises, they behave opportunistically on every possible occasion, even breaking promises if they deem it in their interest to do so.

Anybody who has read about activities in the financial sector over the last two decades will recognise instances of such behaviour. There are two important points arising from Jennifer Morse’s experience which I would like to pursue in the context of this exploration of love in the realm of economics. One is the importance of the family and linked with this the importance of trust in economic matters.

In his book ‘Theory of Moral Sentiments’, Adam Smith observed that a society based upon merely utilitarian considerations could function, while a society based on love would flourish. But a group of people who were always ready to injure one another could not survive as a society at all. He concluded that justice was more fundamental to the foundation of society than love since love could be dispensed with while justice could not.

But Smith seemed not to recognise that without love present in the background, a much larger fraction of people would be always ready to injure one another. He seems to have assumed that people develop a sense of justice naturally. Nothing in the social environment of his time led him to enquire into the nature or causes of the disposition to co-operate.

During Smith’s time, no doubt, some men abandoned their wives, fathered children out of wedlock, or were dominating tyrants in their own homes. No doubt some women delegated the care of their children to strangers, bore children out of wedlock, or drove their families to distraction by nagging. But in Smith’s very Calvinist eighteenth-century Scotland, such people would very likely have been regarded with disdain and have borne the censure of the community. It would have been unusual to find people defending or excusing behaviour that disrupted family life in such profound ways.

Today we have tended to swing in the opposite direction. Today it is the Calvinist mindset which bears the brunt of public disapproval. Meanwhile, even the most destructive behaviour is excused not only by the law but even by social conventions. The 24/7 global economic system which is dominant today relies increasingly on such features as increased anti-social working hours and the need for both spouses to go out to work in order to earn enough to maintain an adequate standard of living. These trends are not helpful in creating a stable environment in which to bring up children.

Adam Smith took for granted that what he called ‘the man within the breast’ or conscience, was formed in enough detail to guide an individual in the numerous fine points of daily living. For instance they would avoid doing things that would be distasteful if they saw someone else doing them. This self-restraining person was in the background of Smith’s later and more famous work, “The Wealth of Nations”. But we are not born with a fully grown ‘man within the breast’ to guide our actions. We are all born as helpless babies. Little babies are bundles of impulses and desires. They do not automatically respect the rights of other people, make long-range plans, make and keep promises, or offer equivalent value for value in transactions. In short, babies are not guaranteed to become full participants in the free market or in participatory self-government. Children must be taught to do these things. Babies absorb the most profound, if inarticulate, moral lessons through their connections with other members of the human race. Babies come to know that they matter, and they come to allow other people to matter to them. As they mature, children learn from example, and this requires that they spend significant amounts of time with adults who provide worthy examples.

People do not provide this sort of connection, example, or instruction to babies out of some cleverly redefined self-interest. People take care of babies because they love them. If the parents for some reason fail to take care of their own children, the possible alternatives are probably really second-best imitations.

Returning to William Temple, he also emphasised the importance of the family and asserted that one of the most important principles by which the Christian tradition would lead us to direct human life was to treat the family as the primary social unit. He argued that ‘a community committed to this principle would see that there were houses available for all citizens, within their means, in which a family could be brought up in health and happiness, in the unity of family life and in the decency and dignity proper to human beings who are the children of God’. He was writing in 1942 and acknowledged that great strides had been made, but observed that the housing situation for many was still very poor.

The quality of housing has improved immeasurably since then but we are in danger of sliding backwards and much still needs to be done before we can claim that Temple’s ideal has been met.

One of the casualties of a lack of love in bringing up children mentioned by Jennifer Morse is a corresponding inability to trust or to be trustworthy and it is this that I will now consider in the context of economics. To illustrate the importance of trust in economics I will go back to 16th century France, in particular to the city of Lyons in 1555 where a scandal arose. An Italian merchant had settled there and proceeded to make himself rich in a remarkably short space of time. By itself there was nothing particularly surprising about that. Lyons was one of the great commercial cities of France, and of Europe. It was no stranger to the business of international trade, or to the wealth that it could bring to an enterprising merchant. Its fair which it hosted four times a year was at that time the greatest mercantile gathering in all of Europe. It was the manner of the Italian’s success that caused a stir. He had come to the fair bringing no merchandise whatsoever; nothing in fact but a single table and an inkstand. He had spent his days doing nothing more strenuous than signing his name to pieces of paper brought to him by fellow merchants. And yet by the end of the fair, a few weeks of such decidedly undemanding activity had made him astonishingly rich. The explanation was obvious; the man was a fraud.

Fairs like that at Lyons had once been great occasions for Europe’s great merchants to convene gigantic versions of the markets held on a weekly basis in villages and towns across the Continent. But in the course of time, the organisation of cross-border trade had changed; the business of exchange had been subjected to a division of labour. The heads of the merchant houses no longer travelled with their goods. They remained at home, and kept agents permanently resident in their main export markets, while professional hauliers would transport cargoes by land or sea as contracted. The merchant became concerned primarily with the legal and financial aspects of international trade; the change of title to the goods, and to the money received in return; and the financial calculus of balancing revenues received in one currency with expenses incurred in another. The tedious business of getting goods from one place to another was farmed out to a lesser class of businessman.

Thus over time, these periodic gatherings of Europe’s merchant class came to concentrate on credit rather than commodities. Less and less were they opportunities for the physical exchange of goods. More and more, they were occasions for the clearing and settlement of credit and debit balances accumulated in the course of international trade over the preceding months. Between fairs, payments for international imports were generally made not in coin, but on credit, using bills of exchange i.e. credit notes sold by pan-European merchant houses to their clients, who could then present them to their suppliers in foreign cities in payment for goods. By 1555, the primary role of the fair in Lyons was as a clearing house for the credit and debit balances accrued by the merchant houses of Europe against one another in issuing these bills of exchange to finance trade.

This was a system of which the paper-pushing Italian was a part – and it was every bit as mysterious and confusing to the uninitiated as the global markets today. Nothing real changed hands except bundles of bills or promises to pay. The great merchant houses of Europe had rediscovered the art of banking – how to produce and manage private money on an industrial scale. The system worked, as does the banking system today, because of the trust between the various parties, the trust that the promises to pay would be honoured. Without trust the system would collapse and trade would suffer.

Trust of course does not only underpin our financial systems, it supports the whole of society. We trust the post will arrive just as we trust the sun will rise. Trust is there every time we ride on a train or a plane, switch on an electric light, or turn on a tap. We are trusted when we eat a meal in a restaurant and pay afterwards, and when we jump in a taxi and pay on arrival. It is so familiar that it is easy to miss it. Without trust we would be reduced to barter and even then we would be afraid to be the first to part with the goods. Raymond Makewell points out in ‘The Science of Economics’ that trust forms the bridge over the large gap between levels 2 and 3 in the hierarchy diagram, the level of community and the level of society.

So to conclude, it is true that human beings are self-interested and have the capacity to reason. But it is also true that they have the capacity to love. Much of our public discourse seems to assume that these two great realities of the human condition; reason and love, were in conflict with each other. The political Right favours the cold, calculating, tough-minded approach of the intellect. The political Left favours the warm, fuzzy, emotional approach of the heart. Yet the Left at its most extreme has given as the impersonal state and its bureaucracy as the answer to social and economic problems. At the same time the Right at its most extreme has given us the irrationality of trying to reduce man to the sum of his bodily needs.

I will leave the last words to Jennifer Morse;

‘Inside the home, the family as a whole has the benefit of being able to call upon both these deep realities of the human condition. Mother may very well react to her son’s staying out past curfew by worrying about his safety and smothering him with hugs when he finally gets home. Father may very well declare that it is in the son’s long term interest to get the verbal equivalent of a swift kick in the pants. The son probably needs both. Marriage and family at its best allows people to cross this divide, at least inside the home. Love guided by reason and reason informed by love are more realistic and therefore more humane approaches than building a society exclusively on either the intellect or the heart.

What will we have then? We will have a society in which people can work, be productive, and enjoy material prosperity – and, at the same time, a society in which people can relax into the comfort of those who love them and the comforts of home. It will not be a perfect society but it will be a society worth living in…. we will have a civilisation of love’.



Love & Economics by Jennifer Roback Morse

Money: The Unauthorised Biography by Felix Martin

Christianity and the Social Order by William Temple

The Theory of Moral Sentiments by Adam Smith