Recently a friend and I were ranking creepiest love songs. The beautiful, but haunting “Hallelujah” by Jeff Buckley was mentioned as a runner-up. I suggested that really anything by the ever-angsty Death Cab for Cutie qualified. But we ended up agreeing that  “Every Breath You Take” by the Police takes the cake. He may only be able to see her in his dreams, but there’s a good chance she should only see him in court to file a restraining order.

We don’t promote stalking people on this blog, but how is that we learn what is moral? I’m sure at one point or another, all of us has been told a version of the Golden Rule: treat others as you would want to be treated. Common to most ethical systems is the idea that we should consider how another person, maybe a better, more patient version of ourselves, would act given the same circumstances.

At this point, you may be wondering what the Golden Rule and ethics have to do with economics. It turns out that many economists are interested in what cultural rules govern the interactions that facilitate the economy. After all, economic transactions exist within a culture that has norms that tell us how we should act. Adam Smith, most famous for his book Wealth of Nations, engaged with these questions in his first book, Theory of Moral Sentiments.

The impartial spectator

Adam Smith Source: Society of Fellows

Adam Smith wondered how it was that people evaluated whether or not they were acting morally, that is, acting in line with the ethical rules of their society. Although people could use other’s reactions to determine if their action had been moral after the fact, this did not help in evaluating the morality of an action beforehand. Smith solved this problem by theorizing that people could think about what another person, like themselves but more patient and ethical, would do in their situation. He called this phantom person an “impartial spectator.” That person, using past experiences in society, could help them evaluate whether or not the action they were taking was moral. In Theory of Moral Sentiments, Smith writes,  “[I] divide myself, into to two persons,” one being himself, the other, an objective observer who will judge his actions. That person would evaluate his actions based on cultural values, agreeing with an action only if it fits well with those.

Consider an example. Halloween is only DAYS away, and I’m thinking about the wide varieties of candy I can put away in my cabinet until Christmas cookies are in season. Until the day of Halloween, I’ll try to accumulate as many Reese’s, Kit Kats, and Hershey bars as I can possibly fit into my work purse then evaluate my spoils in the days following. If my husband also leaves his candy on the counter, I will more than likely consider taking all of the chocolate in his bucket and trade it for the less enticing Laffy Taffy and Smarties in my bucket. Although I know he prefers chocolate to the ones I have given him, I have left him with the same amount of candy as he had in the first place. Is this ethical?

Enter the impartial spectator. The spectator reminds me that if I were in my husband’s situation, I would be pretty angry if someone switched my candy. Additionally, it reminds me that I could just ask him for some of his chocolate, and he would likely be more than willing to share with me. Last but not least, the spectator reminds me that I was trying to limit my sugar intake.

It’s easy to see how the impartial spectator applies to our daily lives, but it’s also at work throughout the economy. Business relationships, trade partnerships, and contracts large and small are built on trust that the other actor won’t break an important contract. Although there are certainly instances of contract breach and fraud when legal recourse is pursued, much of the economy prospers in spite of the opportunity for wrong-doing. This is the impartial spectator at work, informing us of the consequences of breaking relationships and reminding us of how we would like to have cooperative relationships in the economy. If you’re interested in learning more about Smith’s Theory of Moral Sentiments and how it matters to the study of economics, read Mackenzie’s post here!

In sum, Smith’s concept of the impartial spectator is not dissimilar to what many of us do on a daily basis when thinking about making choices. In considering how another person much like ourselves would feel if were the recipient of our actions, we evaluate whether our choices are moral. Maybe the Police were onto something– being watched isn’t so bad.

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