Psychological Foundations of Economics: From Adam Smith to the Dawn of Behaviorism
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This essay is in two parts. In the first we reflect on Adam Smith (considered as the Father of Economics) as a forerunner of Gestalt Psychology in relation with human behaviour and in the second we reflect on the efforts of Lionel Robbins who distanced economics from any psychological interpretation. We don't discuss the third part - in which psychology re-entered into economics through experimental, neural and behavioral economics.
I. Adam Smith as the forerunner of Gestalt Psychology
The intellectual legacy of Adam Smith is often encapsulated by his magnum opus, The Wealth of Nations (1776), but it is in his earlier work, The Theory of Moral Sentiments (1759), that we find a nuanced exploration of human emotion, moral perception, and social cognition. This treatise, deeply philosophical and psychologically astute, can be meaningfully interpreted as a precursor to Gestalt psychology, especially in its treatment of emotions and sentiments. Economist should not ignore the fact that although Smith is widely considered as the father of Economics, he was indeed a professor of Moral Philosophy and Jurisprudence at Glasgow.
Smith predates the formal emergence of Gestalt psychology by more than a century. His moral philosophy resonates profoundly with the core principles of the Gestalt school: holism, contextual perception, and the configurational structure of experience.
* Sympathy as Configurational Perception
At the heart of Smith's moral psychology lies the concept of sympathy, which he defines as the imaginative act of placing oneself in another's situation. This act is not merely an emotional contagion but a structured act of cognition and affect. For Smith, moral judgment arises not from cold rational deduction nor from raw feeling alone, but from an imaginative, holistic apprehension of the other person's emotional and situational gestalt.
Smith writes, "By the imagination we place ourselves in his situation... and thence form some idea of his sensations." This process is deeply aligned with Gestalt psychology's emphasis on the perception of organized wholes. Emotions are not discrete units; they are embedded in relational, narrative, and contextual fields. Smith's sympathy entails a mental simulation of another's experience, capturing not just isolated affective states but the entire pattern of their moral and emotional context.
* The Impartial Spectator as Moral Configuration
Smith's innovative idea of the "impartial spectator" also reflects a Gestaltic structure. The spectator is not an abstract rationalist or a strict rule-giver; rather, it is an internalized perspective shaped by social life, empathy, and habituated norms. It serves as an internal whole that evaluates moral behavior in terms of propriety, balance, and contextual appropriateness. Moral evaluation is thus not algorithmic but configurational.
In Gestalt psychology, perception is inherently structured; the mind tends to organize stimuli into coherent forms. Similarly, in Smith, moral feelings are structured perceptions—judgments of fitness, harmony, and proportionality in emotional expression and action. The impartial spectator is a dynamic, perceptual configuration that integrates social, emotional, and cognitive factors into a totalized moral intuition.
* Emotion as Structured and Contextual
Smith's treatment of emotions is strikingly modern. He does not treat emotions as physiological impulses or irrational disturbances but as structured responses to complex human situations. For example, grief, anger, and gratitude are judged in terms of their proportionality, their timing, and their social resonance. An emotion is morally approvable when it fits—when it resonates with the situation and the community’s expectations.
This understanding closely parallels Gestalt psychology's core idea: that psychological phenomena must be understood as wholes rather than as the sum of parts. Emotional response, in Smith’s system, is not a linear stimulus-response mechanism but a holistic evaluation of a lived situation. Smith’s emotions have gestalt—their meaning and moral value arise only in the pattern they form within the broader experiential field.
* Anticipation of Social Psychology and Field Theory
Smith’s moral philosophy anticipates many later developments in social psychology, particularly those pioneered by Gestalt-influenced thinkers such as Kurt Lewin and Fritz Heider. Lewin’s "field theory" posits that behavior is a function of the person in their environment—a configuration. Smith similarly conceives moral behavior not as an outcome of internal drives alone, but as an outcome of the individual's embeddedness in a web of social perceptions and moral expectations.
Heider’s attribution theory, too, finds antecedents in Smith. We do not merely feel for others—we interpret their motives, their situations, and their emotional expressions within a moral gestalt. Smith emphasizes the interpretative act of sympathy: we judge whether someone's emotions are appropriate, excessive, or insufficient based on an intuitive grasp of the total moral field.
* Rejection of Reductionism and Ethical Atomism
In contrast to later thinkers like Jeremy Bentham, who sought to reduce moral judgment to calculations of pleasure and pain, Smith maintains the irreducibility of moral experience. His system does not operate on singular principles or isolated metrics. Instead, it relies on layered perceptions, emergent judgments, and the dynamic interplay of individual and community.
This rejection of moral atomism places Smith squarely in alignment with Gestalt psychology's opposition to elementalism in psychological theory. Where Bentham counts, Smith perceives. Where classical psychology dissects, Gestalt psychology—and Smith—integrate.
* Adam Smith: A Proto-Gestalt Moralist
Though Adam Smith wrote in the eighteenth century and had no contact with modern psychology, his Theory of Moral Sentiments stands as a remarkable precursor to the Gestalt school’s approach to mind and emotion. In sympathy, we see configurational perception; in the impartial spectator, a structured field of moral evaluation; in emotional judgment, a concern for proportion and fit; and in his rejection of reductionism, an embrace of the complex wholeness of human experience.
Smith should thus be read not only as a moral philosopher but as an early psychologist of the Gestalt variety—one who saw that sentiment is structured, moral experience is relational, and the mind seeks not bits, but wholes.
II. Lionel Robbins: Banishing all psychology from economics
With the background in Section-I, it is natural to ask as to why did Lionel Robbins oppose psychological interpretation in economics and tried to formulate economics as an exercise in optimisation (a branch of Operations Research)? We proceed to provide a speculative answer to this question.
Lionel Robbins and His Rejection of Psychology: A Contextual Explanation
Lionel Robbins, in his influential 1932 essay An Essay on the Nature and Significance of Economic Science, famously defined economics as:
"the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses."
This formulation, while elegant and operationally precise, led to three major shifts in economic thought:
* Axiomatic distancing from psychology, particularly subjective and introspective dimensions.
* Reduction of economics to formal choice under constraints, opening the way for mathematical formalism.
* Suppression of normative questions, focusing strictly on efficiency rather than justice, sentiment, or welfare in a moral siences.
Why Did Robbins Reject Psychology, Despite Its Richness?
* Reaction Against the Psychological School of Economics (Edgeworth, Jevons, etc.)
Robbins was reacting to the earlier psychological utilitarianism of marginalists like Jevons and Edgeworth, who often linked utility with pleasure and pain—terms inherited from Benthamite psychology. This approach was increasingly seen as vague, unscientific, and untestable in the logical positivist climate of the 1920s–30s.
In contrast, Robbins sought a value-neutral and formal economics—one that could stand shoulder-to-shoulder with the natural sciences in methodological clarity.
* Influence of Logical Positivism and Vienna Circle Philosophy
Robbins was influenced by the growing movement of logical positivism, which sought to cleanse science of metaphysical or unverifiable claims. Psychology, especially in its introspective forms (like Gestalt or Freudian), was seen as too soft, speculative, or subjective to serve as a foundation for a rigorous science.
Gestalt psychology, while richer in human meaning, did not fit the mechanistic, formalist framework Robbins sought for economics.
* Economics as a Science of Scarcity, Not of Sentiment
Robbins’ emphasis was on choice under constraint, not the emotional or ethical content of decisions. From his perspective, emotions like sympathy (as in Adam Smith), or Gestalt perceptions of fairness or justice, were moral or psychological overlays, not the essence of economic reasoning.
In other words: economics studies what is chosen when options are limited—not why someone feels what they feel while choosing.
* Academic Positioning: Securing Economics as an Independent Discipline
Robbins, like others of his time (e.g. Pigou, later Samuelson), was also trying to carve out economics as an autonomous field, not merely a subdomain of psychology, ethics, or sociology.
Adopting psychological theories—especially those as holistic and qualitative as Gestalt—risked diluting this disciplinary identity, which economists were trying hard to consolidate.
* Irony: Robbins’ Own Framework Was Not Emotion-Free
Robbins thought he was banishing psychology, but he could not eliminate human intentionality, expectations, or subjective valuation from economic behavior. These are inherently psychological. Even in optimization theory, utility, preference, and rationality are psychological constructs—just abstracted.
Moreover, Robbins failed to anticipate the resurgence of behavioral economics, which in the late 20th century would reconnect psychology and economics precisely through the empirical and theoretical lenses he sought to avoid (e.g., Simon, Kahneman, Tversky—some of whom drew indirectly on Gestalt ideas)
* Robbins Chose Methodological Clarity Over Human Richness
In sum, Robbins likely knew of Adam Smith's Theory of Moral Sentiments and the rise of Gestalt psychology. Yet he chose to delimit economics as a formal, value-neutral, deductive discipline, partly to protect it from what he saw as the imprecision and philosophical baggage of psychology and ethics.
In doing so, he sacrificed the full complexity of human behavior—a choice whose consequences we continue to debate, especially in the era of behavioral and neuroeconomics.
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For the third section of this essay, please see
https://www.facebook.com/share/p/12KnUUSXxGn/
