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Katallactic Rationality: Exploring the Links between Co-operation and Language
American Journal of Economics and Sociology, The, Oct, 1999 by David Levy
DAVID LEVY [*]
ABSTRACT. Is the well-known finding of experimental economics that talk is correlated with co-operation in prisoner-dilemma contexts related to Adam Smith's claim that trade requires language? Using Smith's postulate of the existence of a desire for approbation and the supposition that language carries approbation, we demonstrate how the ability to exchange approbation enhances the rationality of co-operation.
I
Introduction
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WHY IS IT THAT WHEN SUBJECTS in prisoner-dilemma experiments can talk, they co-operate more than when they cannot? (Issac-Walker 1988) There is nothing in the logic of neo-classical economic logic suggesting this regularity. In search of an answer to this puzzle I propose to consider the claims advanced by Adam Smith in the Wealth of Nations [WN] which linked trade and language. [1] Perhaps in Smith's analysis, we can find hints toward a solution to the experimentalist's puzzle of the link between co-operation and language.
In WN Smith begins his analysis of choosing agents by first considering two individuals exchanging, not an isolated individual optimizing against an impersonal nature. Indeed, it was in his commentary on Smith's account that Richard Whately in his Oxford lectures coined the term "catallactic" from one of the Greek words for exchange, [kappa][alpha][tau][alpha][lambda][lambda][alpha][tau][epsilon] [[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII][nu].sup.2] To emphasize that exchange is a social act, as he proposed this name for political economy, he simultaneously asserted that an isolated individual, Robinson Crusoe in particular, was outside the purview of our discipline. [3] So began the katallactic moment in economics, that period, long dead, buried and forgotten, in which economists modeled humans as inevitably social beings. It is completely in this spirit that F. Y. Edgeworth (1881, 31) wrote in Mathematical Psychics of the "isolated couple, the catallactic atom," but famously he explained co-operation without reference to language and turned katallactics into economics. [4]
For all good things there is a cost. That is economics in one lesson. We who teach this notion in the space of commodities ought not to be deeply surprised if the thought is pursued into the space of economic models describing the choice of commodities. If we take an isolated individual as the foundation of economic modeling, we cannot take two individuals trading as the foundation. The cost of a Robinson Crusoe model is a katallactic model foregone. To make the cost clear, we consider katallactics before Edgeworth.
II
Katallactics or Robinson Crusoe?
WITH KATALLACTICS THE MODEL GAINS access to the judgment of the spectator. The judgment of the spectator, which is itself a model of conduct, offers approbation for choice in accord with the judgment. [5] As I reconstruct the pre-Edgeworth katallactic approach approbation is something which people value. If they do not, the katallactic model collapses to a Robinson Crusoe model. We can appreciate the importance of this empirical specification by noticing how Smith in Theory of Moral Sentiments [TMS] emphasizes that the desire for approbation is central to the sociability of humans: [6]
Nature, when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his brethren. She taught him to feel pleasure in their favourable, and pain in their unfavourable regard. She rendered their approbation most flattering and most agreeable to him for its own sake; and their disapprobation most mortifying and most offensive (Smith, 1976a, p. 116).
Language comes into the account because approbation is carried by language. Experimental contexts which allow talking between subjects make it easier to exchange approbation. If we are going to suppose that individuals value approbation, it is surely a good idea to find out how approbation is supposed to be earned. To that task, we turn our attention.
III
Regularities of Approbation
WHAT DID WHATELY MEAN BY HIS KATALLACTIC PROPOSAL? If he had proposed "exchangology" the meaning would be obvious to us. But he did not; he used a Greek word. When we, in the waning of the 20th century, discuss a 19th century proposal to apply a Greek word to the discipline, we might worry if we catch the full meaning of the enterprise by giving one English word as a sufficient translation. Classical Greek, like modern English, has many words for exchange; are there any connotations carried by this one? [7]
Let us therefore consider what the older generation historians of economics, who grew up with Greek, have said about Whately's proposal. It seems that mainly they ask the sensible questions why it did not catch on. [8] Of particular note is Joseph Schumpeter's discussion. While comparing the broad Continental meaning of "Political Economy" with the narrow "English" meaning--economic theory--he has this to say:
Realizing the danger that lurked in this terminology, Archbishop Whately made the unsuccessful suggestion: to replace the term Political Economy in this sense by the term Catallactics -- from K[alpha]T[alpha][lambda][lambda][alpha]T[epsilon]LV, to exchange. In this he showed his usual good sense. But having failed to make his meaning clear, he himself was misunderstood and thus made matters worse. The reader will not have to tax his imagination very heavily in order to visualize how this must have struck critics: What!--Political Economy, the science of the economic fate of humanity, entirely reduced to a miserable theory of bargaining! (1954, 536)
