Cambridge in Mind: Economics and Psychology on the Cam
Vincent Barnett
What role does psychology play in generating or influencing economic and business behaviour? This seemingly innocuous question has produced an extensive stream of literature over many decades (for a well-known example, see Akerlof and Shiller 2009). In this chapter, the contributions of some notable Cambridge economists and psychologists to answering this question, from the last quarter of the nineteenth century up until the Second World War, will be investigated. Henry Sidgwick, Alfred Marshall, A.C. Pigou, and John Maynard Keynes are the four economists to be considered, and James Ward, G.F. Stout, and Charles Myers the three psychologists.
Although the historical examination of the psychological underpinnings of economic theory is a topic that has recently received some attention (see Cook 2006; Bruni and Sugden 2007), what is original in this chapter is that it will examine the work of Cambridge psychologists alongside the work of Cambridge economists, in order to better understand any potential links and/ or overlaps in how the two disciplines developed within a city-specific environment. Cambridge is taken here to mean not just the University environment, but the wider cultural milieu of the city as well.
Sidgwick believed there to be such a thing as ‘the Cambridge mind’: certain aspects of subjects had more attraction for those in the Cambridge tradition than others (Sidgwick 1876a: 244). The special Cambridge interest in natural philosophy, as represented in the Newtonian tradition, ‘disposes the mind to [1]
be interested in hypothetical extensions of physical explanations to psychical phenomena’ (ibid.: 245). This clearly suggested that psychology might have certain unique attributes within the Cambridge context.
One key aspect of the psychology/economics interaction was well formulated by Dennis Robertson in 1915 whilst he was discussing the ‘much abused factor the “psychology of the business man’” (Robertson 1915: 38). The often implicit and sometimes problematic connection between psychological explanation and economic rationality was clearly articulated:
At one extreme in this matter stands Mr. Hull [G.H. Hull, author of Industrial Depressions (1911)], who regards the business man as an entirely rational and clear-headed expert, not compelled by ‘an organic defect of human nature,’ nor by ‘celestial influences,’ nor by ‘mental waves’ nor by ‘sun spots,’ but governed solely by plain, simple unadorned business considerations. At the other extreme stand those who appear to regard him as a wholly incalculable and irresponsible person, whose mental processes it is entirely beyond our power to analyse. But it is clearly possible to hold that while a business man’s actions are often not rational, they are nevertheless very seldom wholly incalculable in the sense that they are not provoked by any external stimulus: they may be the result of nonrational or only semi-rational inference from the actions of other people or from other observed facts (Robertson 1915: 38—39).
Here a rationality continuum is articulated: business people as entirely non-rational, as semi-rational, or as wholly rational, with economists seen either as fully capable or entirely incapable of understanding ‘the business brain’. Robertson evidently believed in the middle option, which was that business people were not always entirely rational, sometimes non- or semirational, but usually understandable by economists in relation to the business situation that they found themselves in.
However, up until the Second World War, considering the role of psychology in explaining the rationality that underpinned business behaviour was often a problematic theme: it was included in the works of some economists as an afterthought, or as a supplementary aspect that needed to be added so as to cover all the bases. Others did provide a more integrated analysis of the place of psychology in economic understanding, as is sketched below, but sometimes these psychological aspects were then lost in further elaboration, for example, in the process of mathematical modelling. Psychology was occasionally conceived of as something entirely alien to the calculative rationality of homo economicus.
Recent historical work has rightly indicated the importance of psychology to early neoclassical economics in the UK: experimental psychology was a ‘central component’ of neoclassical economics as articulated by Jevons and Edgeworth (Bruni and Sugden 2007: 149). Psychological laws relating to human wants were used to deduce economic theories, assuming self-interest and the pursuit of pleasure, that is, self-interest had a psychological component. There was a hierarchy of wants and sensations in relation to income levels that required psychological explanation. The formal separation of economics from psychology based on maximisation concepts was not fully completed until the 1930s and 1940s (ibid.: 146).
The question naturally follows: How did Cambridge neoclassical economists like Marshall utilise psychological concepts in their own work? As will be shown in this chapter, Cambridge economists took varying positions with regard to some aspects of the psychology/economics nexus, whilst on others, common features between them can be detected. But before attention is focused on economists of the Cambridge School, a sketch of the early development of psychology as a subject is required.
- [1] Barnett (*) Researcher in the History of Economics, London, UKe-mail: This email address is being protected from spam bots, you need Javascript enabled to view it © The Editor(s) (if applicable) and The Author(s) 2017 R.A. Cord (ed.), The Palgrave Companion to Cambridge Economics, DOI 10.1057/978-1-137-41233-1_6
