It is wrong to believe, as is commonly done, that Adam Smith had as his view of man an abstraction, an “economic man,” rationally pursuing his self-interest in a single-minded way. Smith would not have thought it sensible to treat man as a rational utility-maximizer. He thinks of man as he actually is: dominated, it is true, by self-love but not without some concern for others, able to reason but not necessarily in such a way as to reach the right conclusion, seeing the outcomes of his actions but through a veil of self-delusion.
Coase is indisputably correct about Smith, as is Smith about man. But as understood by both Smith and Coase, the wisest conclusions about policy to draw from this realistic understanding of human-being’s limited and often quirky cognitive capacities are quite the opposite of the conclusions drawn by most of today’s behavioral economists. Here’s Hayek writing on pages 76-77 of his 1960 volume, The Constitution of Liberty:
If we allow men freedom because we presume them to be reasonable beings, we also must make it worth their while to act as reasonable beings by letting them bear the consequences of their decisions. This does not mean that a man will always be assumed to be the best judge of his interests; it means merely that we can never be sure who knows them better than he and that we wish to make full use of the capacities of all those who may have something to contribute to the common effort of making our environment serve human purposes.
The assigning of responsibility thus presupposes the capacity on man’s part for rational action, and it aims at making them act more rationally than they would otherwise. It presupposes a certain minimum capacity in them for learning and foresight, for being guided by a knowledge of the consequences of their action. It is no objection to argue that reason in fact plays only a small part in determining human action, since the aim is to make that little go as far as possible. Rationality, in this connection, can mean no more than some degree of coherence and consistency in a person’s action, some lasting influence of knowledge or insight which, once acquired, will affect his action at a later date and in different circumstances.
Human beings in this Smithian-Hayekian-Coasean understanding, while not the moronic and incurably juvenile dupes that many on the “Progressive” left assume them to be, are not at all (to steal Deirdre McCloskey‘s terms) the MaxU prudence-only organisms found in many economics textbooks. (Or, actually, found even more consistently in the imaginations of people unfamiliar with economics who nevertheless fancy that they are familiar with economics.)