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6 - Neoclassical Economists Join the Search

Vernon Smith and Michael Jensen

Published online by Cambridge University Press:  23 November 2023

Douglas E. Stevens
Affiliation:
Georgia State University
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Summary

In Chapter 6, I address how neoclassical economists have joined the search for a moral foundation for capitalism by discussing the lives and writings of Vernon Smith and Michael Jensen. I begin by discussing the victory of neoclassical economic theory over institutional economics. Max Weber and Frank Knight expressed deep concerns regarding the potential negative effects of neoclassical theory absent important social and moral norms, but their concerns went unheeded in the university-based business school. The victory of neoclassical economics over institutional economics altered the view of government regulation and business management in a way that severely reduced their value to capitalist society. Next, I discuss prominent neoclassical economists who have joined the search for a moral foundation for capitalism. I begin by discussing experimental economist Vernon Smith and his incorporation of Adam Smith’s moral theory to explain norm-based behavior emerging in the lab. I then discuss financial economist Michael Jensen and his incorporation of values and integrity into neoclassical theory after the crisis of capitalism brought on by the global market crash of 2007–08. This sets up a discussion of initial attempts to extend neoclassical economic theory and the continued resistance to such attempts.

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In Search of a Moral Foundation for Capitalism
From Adam Smith to Amartya Sen
, pp. 123 - 152
Publisher: Cambridge University Press
Print publication year: 2023

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