Statistical discrimination when group members are aware of their stereotype: Learning from David Hume and Adam Smith

Statistical discrimination when group members are aware of their stereotype: Learning from David Hume and Adam Smith

Journal of Economic Behavior and Organization 181 (2021) 86–93 Contents lists available at ScienceDirect Journal of Economic Behavior and Organizati...

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Journal of Economic Behavior and Organization 181 (2021) 86–93

Contents lists available at ScienceDirect

Journal of Economic Behavior and Organization journal homepage: www.elsevier.com/locate/jebo

Statistical discrimination when group members are aware of their stereotype: Learning from David Hume and Adam Smith David M Levy Center for Study of Public Choice, George Mason University

a r t i c l e

i n f o

Article history: Received 1 February 2020 Revised 24 August 2020 Accepted 24 August 2020

a b s t r a c t The founding contributions to the theory of statistical discrimination implicitly supposed group members unaware of how their choices influences their stereotype. Hume and Smith point out how small religious groups police their members’ behavior evidencing awareness of stereotypical externalities. Did African-American legislators vote to impose a harsher penalty for using a drug favored by their constituents than what would be imposed on the chemically equivalent drug favored by others in awareness of stereotypical externalities? Newspaper discussions are full of concern for the cost of the stereotype on law abiding voters. © 2020 Elsevier B.V. All rights reserved.

1. Introduction Here is the puzzle. It is widely believed that racism was responsible for the legislation passed by the U.S. Congress in 1986 that established more severe sanctions on the use of crack cocaine, the variation of the drug favored by AfricanAmericans, than on the use of power cocaine, the variation of the drug favored by white Americans (Sklanksy 1995). Although racism may very well have played a critical role, nonetheless, African-American legislators voted for these very sentencing disparities in evident awareness of the impact on the community they were elected to represent (Kendall 1997, pp. 370–380). How could this be?. The founding contributions to the theory of statistical discrimination, in which a stereotype is taken as a sensible estimate of group characteristics, do not seem to provide tools to help explain why the legislators would make such a choice. The early models of statistical discrimination implicitly supposed that group members were not aware of how their choice would influence their group’s stereotype and there was no mechanism by which they could be aware (Arrow 1971; Phelps 1972). This limitation is not restricted to the foundational contributions. James Buchanan’s stereotype-bending defense of affirmative action to correct the unfairness to individuals resulting from stereotype-based hiring, follows this tradition of unaware agents (Buchanan 1981, 2001; Levy and Peart 2020). In contrast, however, both David Hume and Adam Smith lay out such a mechanism when they point out how small religious groups police their members’ behavior in evident awareness of “stereotypical externalities” (Levy and Peart 2016).1 The words Hume uses are “dishonor on the whole”; Smith uses “for the credit of the sect.” Their insight suggests the classics of our discipline, by supposing agents who might be made aware of group membership, may have a more subtle

E-mail address: [email protected] “Stereotype” in its modern meaning was introduced to the language in Walter Lippmann’s Public Opinion (Lippman 1922; Levy and Peart 2016). The original usage of the word, a technical term in days of printing with metal, will surely fall out of understanding as the use of metal casting in printing vanishes. 1

https://doi.org/10.1016/j.jebo.2020.11.023 0167-2681/© 2020 Elsevier B.V. All rights reserved.

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Journal of Economic Behavior and Organization 181 (2021) 86–93

understanding of the role of a group in the life of an individual than did their twentieth-century heirs (Arrow 1971; Levy and Peart 2016). It is perhaps unnecessary to belabor how important group identification is to contemporary controversy. Hume and Smith deal with an awareness of “stereotypical externalities” in a small group setting (Levy and Peart 2016). In the case they considered, the only viable punishment for behavior with a negative impact of the group’s stereotype was expulsion. With democratic politics perhaps, the Hume-Smith solution of a group punishing a member for deviant behavior that harms the group’s reputation is available in a large number settings even in a context in which the question of joining or leaving the group does not arise. Could this be what happened with the African-American legislators who adopted the rules that were harsh on African Americans?. The purpose of this exercise is not so much to shed light on various punishments of behavior that deviates from group norms, but rather to address the question of whether the past has useful analytics that might speak to the question of group identification and perhaps to the awareness of identification that comes with group membership. To do that I propose to document an eighteenth-century discussion in political economy arguably more powerful than its modern counterpart in part because it speaks to the analysis of mental states that seem important for group identification. No one reading modern economics can miss the employment of models supposing an isolated individual. Robinson Crusoe might be as well known in economics than he is in English literature. Taking the isolated individual as foundation has been resisted, even in professional economics. Closer to our time, for Frank Knight one particular group, the family, is the foundational unit for economics. We also should notice how the twentieth-century Knightians within economics invariably emphasize the importance of group conventions, something one might use as a piece of group awareness. The path from Smith to Knight will be considered when we address the proposal Richard Whately made in 1831 to describe our discipline as catallactics, the Greek word he coined for the science of exchange. Knight may not have known Whately’s work very well but he certainly did know F. Y. Edgeworth’s development of catallactics in Mathematical Psychics. Here in the context of W. S. Jevons’s contribution to marginal economics, Edgeworth makes a distinction between epiphenomenal groups of the Jevons sort and indivisible groups in the catallactic tradition. Edgeworth saw that in the economics Jevons constructed, anytime there was a trade, one could define a group. There would be no reason to expect any sort of stability. Jevons’s logical work was, as Edgeworth knew, of central importance to what he accomplished (Levy 2007). For Jevons, if someone knows anything they know everything, or else they are defective (Peart 1996). When the modern literature of aware agents was developed (Halperna and Rêgo 2009) it was immediately obvious that the supposition of omniscience was not helpful, so it turned to logics from the older world, ones that Jevons regarded as confused, but ones that allowed rather more complicated mental states to be the tools of choice.2 For the issue at hand awareness may only be local as would seem to be the case if we are not aware of any reason why African-American legislators would vote the way they did. 2. The Hume and Smith texts We start with David Hume’s enormously complicated essay “Of national characters.” In the 1753–1754 edition of Essays Hume added this note: A small sect or society amidst a greater are commonly most regular in their morals; because they are more remarked, and the faults of individuals draw dishonor on the whole. The only exception to this rule is, when the superstition and prejudices of the large society are so strong as to throw an infamy on the smaller society, independent of their morals. For in that case, having no character either to save or gain, they become careless of their behavior, except among themselves. (Hume 1987, p. 629). The 1753–1754 edition is of considerable scholarly interest, first, for the racism that was added in this edition (which I discuss in an appendix), and, second, because as Hiroshi Mizuta (20 0 0, p. 126) documented, there is a 1752 letter from Hume to Smith asking whether he had any suggestions for addition or subtraction for the new edition of Essays. What have scholars taught us about this passage? With the expanding breadth of scholarship covered by JSTOR, it is perhaps not frivolous to examine what discussion there has been of the central phrase “dishonor on the whole.” The search result is “No results found.” If we widen the search to what is covered in Google Scholar, we find three articles, only one of which is by Levy-Peart.3 Therefore, recent scholars have been cut off from a sensitivity to group dynamics that flows from an awareness of a shared reputation. Adam Smith, however, paid a great deal of attention to Hume’s Essays (Mizuta 20 0 0, p. 126) and in Smith’s analysis of small sects, the obvious gaps in Hume’s analysis are filled in. Most profoundly, perhaps, Smith suggests that the monitoring aspect of a small sect might be the reason a person would join one: 2 The central moment in the awakening awareness of just how powerful ancient logic had been was Benson Mates’s demonstration that “Diodorus [4th century BCE] managed to define a plausible sense of ‘implication’ that is stronger than Material implication and weaker than Strict implication—a feat requiring no little skill” (Mates 1949, p. 235). “Strict implication” was C. I. Lewis’s term for his axiomatic foundation of “intentional” logic, one in which the mental states of “necessary” and “possible” are defined (Lewis 1918). Material implication is foundational in systems of “extensional” logic in which mental states other than a kind of omniscience are not well defined. I return to this in footnote 4. 3 Palter (1995) and Levy and Peart (2016) are commentary. Tasset (2002) is a bilingual (Spanish/English) edition of the essay itself. Andrew Sabl rightly encouraged me to look beyond JSTOR. Palter (1995) does not discuss Smith’s “credit of the sect.”

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A man of low condition, on the contrary, is far from being a distinguished member of any great society. While he remains in a country village his conduct may be attended to, and he may be obliged to attend to it himself. In this situation, and in this situation only, he may have what is called a character to lose. But as soon as he comes into a great city, he is sunk in obscurity and darkness. His-conduct is observed and attended to by nobody, and he is therefore very likely to neglect it himself, and to abandon himself to every sort of low profligacy and vice. He never emerges so effectually from this obscurity, his conduct never excites so much the attention of any respectable society, as by his becoming the member of a small religious sect. He from that moment acquires a degree of consideration which he never had before. All his brother sectaries are, for the credit of the sect, interested to observe his conduct, and if he gives occasion to any scandal, if he deviates very much from those austere morals which they almost always require of one another, to punish him by what is always a very severe punishment, even where no civil effects attend it (Smith 1981; WN V.i.g.12; pp. 795–96). A JSTOR search for “Adam Smith” and the “credit of the sect” finds four hits: Clark 1946, p. 447; Anderson 1988, p. 1071; McLane, 2006, pp. 36–37; Welsh 2008, p. 188. None of the four well-informed contributions links to Hume; less surprising, none links to Arrow-Phelps.

3. Judging destructive choice As we have seen, the problem to be addressed is the remarkably severe sanctions laid on crack cocaine relative to the chemically equivalent powder cocaine. As there was a dramatic racial difference in consumption patterns, with AfricanAmericans purchasing the former and whites the latter, the attractive explanation is straightforward legislative racism. The powerful objection to this explanation, as the only motivation, is that African-American legislators voted for the same bill, with the disparity in sentencing. A generator of the legislative sanctions of crack cocaine is well-known, the prenatal exposure to cocaine, which led to “crack babies.” The NGram view documents how this term, and the singular, leapt from nowhere. An older term, “boarder babies,” describing infants abandoned in the hospital by their mothers and damaged by AIDS or drugs, came into even wider usage in the era as well although its usage faded

The Wikipedia article on prenatal cocaine suggests that the opposition to crack inspired by the “crack babies” was a straightforward concern for the expenditure consequences: “Fears were widespread that a generation of crack babies were going to put severe strain on society and social services as they grew up.” That would, of course, be a colorblind concern. The public support in the African-American community for the “war on crack” is documented by Brian Mann (2013). This research explains why the votes in the legislature Kendall cited went the way they did: But America’s modern war on drugs was established at a time of growing African American political power. Many of the toughest crime laws were crafted based on ideas and political mobilization that came from the black community itself. (Mann 2013) The discussion reported (Section 5) in the Amsterdam News in the days of the crack “epidemic” will suggest what “toughest” might mean. If “boarder babies”/“crack babies” become part of the stereotype of African-Americans then the vast majority of those who would never abandon their infants are labeled with this stereotype. 88

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4. What is the starting point for economics? In order to understand the reaction of the African-American legislators (and possibly the broader African-American public) we must understand the dynamics of group identification. This requires that we revisit a very old discussion in political economy: where to start the analysis, with an individual as a member of a group or with an isolated individual. If we take the latter branch on the basis that this is how our group, professional economists, build their models, then we have a problem when we deal with group identity. Exactly with which group does our isolated individual identify? And why not another? If we start with an individual in a group then at least we have a place to start. The question of individual and group is at the center of 19th century political economy in Richard Whately’s pronouncement that the isolated individual—he named Robinson Crusoe explicitly—could not be understood in Adam Smith’s framework. Here he coined a Greek term for the science of exchange, catallactics (Whately 1831). One might well ask why a foundation in exchange would help understand group identity. The greatest exponent of catallactics of any era, F. Y. Edgeworth, compared catallactics with the new approach to economics developed by W. S. Jevons.4 Here in Jevons’ work, Edgeworth wrote, we find the “catallactic molecule”: [the] catallactic molecule, as it might be called, is presented in the case above described in the definition of perfect competition. (1881, p. 31) Molecules can be broken apart just as exchange can result from the casual encounters of random individuals. It would be hard to believe this might help with group identification. But in a footnote to that passage, Edgeworth explained the foundational difference between the catallactic approach and that of Jevons. Jevons did not work with an invisible pair. Edgeworth uses the phrase the “catallactic atom.” Atom is Greek for indivisible: It must be carefully remembered that Prof. Jevons’s Formulæ of Exchange apply not to bare individuals, an isolated couple, but (as he himself sufficiently indicates, p. 98), to individuals clothed with the properties of a market, a typical couple (see Appendix V.). The isolated couple, the catallactic atom, would obey our (α ) law (Edgeworth 1881, p. 31). Here are more than casual parties in a random transaction and perhaps the foundation of a group. Had Frank Knight’s annotated copy of Mathematical Psychics been preserved at the University of Chicago Library for scholarly study, it might have been easier to appreciate Knight’s criticism of ordinary economics in his 1923 “Ethics of Competition.”5 The individual is not the unit of analysis, the family is.6 Perhaps Edgeworth’s “catallactic atom” has re-emerged and widened as Knight’s “family.” In the first place, an individualistic competitive system must be made up of freely contracting individuals. As a matter of fact, a rather small fraction of the population of any modern nation enter into contracts on their own responsibility. Our "individualism" is really "familism"; all minors, the aged, and numerous persons in other classes, including for practical purposes the majority of adult women, have their status-determining bargains made for them by other persons. The family is still the unit in production and consumption. It is hardly necessary to point out that all arguments for free contract are nullified or actually reversed whenever one person contracts on behalf of another (1923, p. 590). Knight is important because for him, and for the Knightians, one might identify a group by an awareness of the conventions it holds in common. The issue here is an awareness of a common fate that follows from being aware of membership in a stereotyped group. The conjectured link from Edgeworth to Knight would help explain the persistent objection to “new welfare economics” by Knightians as neglectful of group conventions. At foundation, the Knightians deny that we start with an isolated individual. Milton Friedman raised the question of whether being on a higher indifference curve allows us to say to what is preferred when he questioned the foundations of “new welfare economics.”7 George Stigler’s criticism of “new

4 Jevons was in his time a formidable logician and his economics is not orthogonal to his logic (Peart 1996, Levy 2007). The only precursor to the system of strict implication that Lewis knew was that developed by Hugh MacColl (Lewis, 1918, p. 108). Jevons offers very precise reasons for rejecting MacColl’s system: “Mr. MacColl rejects equations in favor of implications; . . . in preferring implications to equations, Mr. MacColl ignores the necessity of the equation for the application of the Principle of Substitution. His proposals seem to me to tend towards throwing Formal Logic back into its ante-Boolian confusion” (Jevons,1896, p. xv). The substitution principle, formulated in standard set theories as the axiom of extensionality (Quine, 1969), would impose something akin to omniscience if applied to belief states. If I am aware of σ then I am aware of all of the equivalents of σ . The most accessible discussion of the “ante-Boole confusion” I know is the avowedly non-technical historical introduction of Lemmon (1977, pp. 1-12) which was intended to be titled Intensional Logic. 5 Knight’s marginalia are most extensive a few pages above the “catallactic atom” at the place Edgeworth draws his non-box diagram. A box would trap the traders. Edgeworth’s traders are of different races, and unlike the textbook version of the Edgeworth box, there is an exit option. If the white landowner is insufficiently sympathetic, the black laborer simply leaves to find land of his own to work on. In a literature dominated by the arguments advanced by Thomas Carlyle, that such a desire for independence by black workers would justify their re-enslavement (Peart and Levy 2005), that is an absolutely remarkable piece of egalitarian analysis from a thinker who was ideologically anti-egalitarian. 6 John Rawls’ index to his copy of “Ethics of Competition” shows his careful attention to Knight’s argument in the next pages that the family is the root of inequality. The index is reproduced in Levy and Peart 2020. 7 Friedman (1959, p. 104): “The reader should perhaps be warned that the identification of ‘being on a higher indifference curve’ with ‘is preferable to’ is a far less innocent step than may appear on the surface. Indeed, the view expressed in an earlier footnote about the validity of the “new” welfare economics in general rests in considerable measure on the belief that this step cannot be justified within the utilitarian framework of that approach, though it can be within a different, and in my judgment preferable, philosophical framework.”

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welfare economics” was a good deal more sustained (Levy and Peart 2008, 2017). More recently Buchanan proposed a return to catallactics as an alternative to orthodox economics in both normative and positive dimensions (Buchanan, 1959, 1964; Levy and Peart 2020). Taking Knight’s family-based foundation as the starting point makes it completely obvious what the problem is with the prenatal use of crack. The baby is damaged by someone choosing for her. But who is making the choice? This for Knight would be an open question since his concept of coercion includes persuasion; something he treats as the most dangerous form because it catches people unaware.8 Thus, from a Knightian point of view attributing to the supplier the choice to use crack would be plausible, especially if the user were still a child, unaware of the ways of deceit. 5. Concern over stereotypes The procedure followed to look for sensitivity to stereotypes is to examine the searchable Amsterdam News, the New York newspaper with a large Afro-American readership.9 Search terms are “crack babies,” “racism” and “stereotype” with some variation.10 It will be no surprise whatsoever that the anguish at the fate of damaged children simply leaps out from the pages of the newspaper. To pick one example out of many: Imagine having a child who is unable to recognize your face and who can’t make eye contact with you, a child who has an extremely high-pitched, nerve-racking cry. Your child has difficulty keeping warm and gets frantic easily. Its body is stiffer than a normal baby’s and it is always uncomfortable. This is the state of most crack-addicted babies . . . . (Feb 9, 1991, p. 22) The question of stereotypes comes up rather dramatically with the newspaper’s commentary on the CBS documentary “24 Hours on Crack Street.” An editorial—“CBS Contribution to Racism”—goes into considerable detail: What the program did succeed in doing was to leave a nation with the impression that Blacks, in the main, were the sellers, the users, the promoters of crack, and that to some degree, whites were involved. But the whites, in the main, came from idyllic suburban settings and professional backgrounds, who somehow went astray and who have family and community support to help them on their way back to the straight and narrow with family. Not so with Blacks, or for that matter, Hispanics. The distinct impression with which one is left is that narcotics addiction is a Black problem that has somehow rubbed off on a few white people, and that Blacks, somehow, are responsible for it all. This was not stated—not in words. Far more eloquently put than words, the cameras zoomed in on almost fifty Blacks, many of them so far gone as to allow their misery to be filmed. We do not know whether or not they sought, or got any form of compensation for their cooperation. In far too many instances, the faces of whites dealing, were blurred, while most of the Black faces were not. We wonder why! (Sep 6, 1986, p. 12) The question of stereotypes, and a proposed solution, comes up even more dramatically in a letter on the CBS documentary from M. Johnson. First, he sketched the white involvement in the alcohol and drug trade: By the 1950 s, their college-educated descendants were sitting in the safety and comfort of their suburban homes, passing judgment on the “depravity and immorality of THOSE people." Of course, “those people” referred to Blacks. The pious whites who judged us, didn’t care that their delicious lifestyle had been paid for through the systematic destruction of the Black community. It was only when alcoholism became a problem to whites, did the “Elliott Ness types” begin to crack down on bathtub gin! In Ohio, where I grew up in the 1950‘s, most Black people had never heard of narcotics. The few who had, called Marijuana, “those funny cigarettes," and only “the lowest of the low” ever smoked them. In the 1960 s, the new mind control substance was heroin. With unlimited funds to invest, and a well-organized crime machine to import and distribute all manner of hard-core drugs, white people laughed as the Black community crumbled under an avalanche of dope. His letter gives insight into what “tough” measures were being discussed that entered into Brian Mann’s report (Mann 2013). M. Johnson suggests that the President take the “war on drugs” with all due seriousness:

8 Knight (1941, p. 319): “(Please note that coercion includes all persuasion, of which the essence is deception, and because the victim is not conscious of it, persuasion is the most dangerous form.)” This is discussed in Levy and Peart 2020. 9 The Amsterdam News is available in the Proquest Historical Newspaper data base. A benefit of using widely available searchable newspaper is ease of replication. Had this project been to document the extent of awareness of stereotypes, not simply whether there was any, then it would be necessary to widen the search space. 10 “Boarder babies,” an older term used to describe babies abandoned in the hospital, is common in the Amsterdam News in the period, as the NGram reader suggests. Before crack there was heroin and AIDS. An account of Nov. 28, 1987, p. 12, describes the rescue efforts. “Many boarder babies are born addicted, because before birth they live off what’s in their mother’s system. Then the babies have withdrawal. They shake and get edgy. They are also often born tiny and premature because drug addicts don’t provide the right nutrition or go to the doctor enough. Mrs. Springer’s one-month-old boarder baby weighs six pounds and she is addicted. When she has a withdrawal, Mrs. Springer wraps her in a blanket really tight and holds her really close. ‘It takes a long time to calm down drug-addicted babies. One night I sang every song I ever knew off key….’”

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He should treat these mass-murderers the same way Nazi war criminals are treated. Once hard evidence is presented against them, taxpayers should not be burdened with the feeding and upkeep of these mass-murderers, by jailing them for long periods. All pushers, from the white executive to the Black street dealer, should be tried for mass-murder, and put to death. Once pushers, big and small, realize that they may not live to enjoy their blood money, perhaps they will think twice before peddling this poison to their fellow human beings. As for the “baby” pushers, any child who is sophisticated enough to run a drug business, is mature enough to understand his or her actions well enough to stand trial and face a stiff prison term (Oct 18, 1986, p. 12). Perhaps the most important contribution comes in a series of signed articles by Abiola Sinclair in the column “Media Watch.” Contrary to what the early statistical discrimination literature suggests, Sinclair tells us that people do not form stereotypes by directly observing choices; rather, they observe what television executives choose to present. The media sampling procedure— a focus exclusively on the deplorable aspect of black experience—would need to be balanced with the praised aspects to arrive at an unbiased estimate: Tell them in plain but polite language there’s more to us than, crack addicts, escaped convicts, welfare hotel dwellers, abandoned babies, and fire victims. (July 18, 1987, p. 23) There is a selective enforcement because the stigmatized group is being held to lower standards. With lower sanctions for drug use, drug usage flourishes and so on. This points to a feedback between stereotype that reverses the direction of cause supposed in the foundational statistical discrimination literature Conversely, they systematically allow the poor to wallow in their debaucheries, with the quip—“those people,’’ Never will they come and take the offending parties to jail, book, fingerprint, arraign. This in many cases would act as a deterrent. Half of the time the offending person is convinced no one cares so they can get away with whatever they are doing. (Dec 24, 1988, p. 30) He suggests why ordinary sanctions might not work. Selective enforcement and lower standards for the stigmatized group fail to deter crime. While one might ask who was “M. Johnson” to propose a “war crimes” response, we need not ask the same of Benjamin Hook. In his keynote address to the NAACP, the fight against the Black crack dealer is identified with the fight against the KKK: We cannot do the job alone. We call upon the more fortunate segments of Black America to enlist in this fight—or to re-enlist. There is work enough for all, and we need every hand on deck. We know that Black America must do much of this work itself, for it is our future we must save. If we are not prepared to work for our salvation, our race will be doomed. We will never stop insisting that the total American society accept its clear responsibility to banish racism, which is the fertile soil of so much misery. I TELL YOU, WE CANNOT AFFORD TO PARK HERE! Just as we fought against the KKK, we will fight against cocaine and crack. Just as we fought the raping and destruction of the virtues of our Black women by men of the white race, we shall stand up and struggle against mistreatment of Black women by a few Black men who do not want to respect Black womanhood. Just as we struggled for the maintenance of family ties during the long history of slavery and its aftermath, we shall fight for the continued existence of the strong Black family. I TELL YOU MY BROTHERS AND SISTERS, WE WILL NOT PARK HERE! (July 12, 1987, p. 18) Recognition of how the “Black crack user” stereotype damages all Black males is detailed in Marian Lee Smothers’ account in her article of May 12, 1990; The new stereotype of the young Black “crack” criminal smacks of the same old Jim Crow stereotypes of bygone years. Even though the Black middle class swelled 250 per cent in the 20 years between 1967 to 1987, the negative overshadows the positive. No matter how many Black corporate CEOs, or nuclear scientists, or talk show hosts, or Black historical heroes flash across our television sets to uproot old racist notions, the stereotypical image of the young Black criminal remains foremost in white minds. Blacks always seem to be guilty of something simply because of the color of their skin. This is a world in which white men are going to the moon, and Black men are going to jail. The message is that racism is justifiable because—wouldn’t you know it—after all that civil rights, black-pride hullabaloo of the ’60s—those darkies turned out to be shiftless and no account after all. . . . Yes, my son wears a box haircut and sometimes walks through white neighborhoods late at night to get home from the library. That I don’t mind. It’s that big bulls-eye traced over his bright future that I’m trying to scrub off (May 12, 1990, p. 6). 91

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6. Conclusion The doctrine of innate human sociability with the consequence that we are supposedly aware of others like us, so obvious in the writings of David Hume and Adam Smith, anchors the catallactic tradition of Whately, Edgeworth, and Knight. In this context Hume and Smith’s discussion of stereotypical externalities is suggestive of what might be accomplished with a political economy reset on old foundations. We are aware that there are others like us and that we share a common fate. Moreover, the fact that acute observers of ordinary experience can teach us important things not discussed in the early technical literature would surprise neither Hume nor Smith, who took proverbial wisdom with such seriousness (Peart and Levy 2005). Acknowledgments A preliminary version was presented at the NYU Conference “David Hume, Economic Rationality, and Policy” in October 2019. I benefited from the wide-ranging discussion of all the papers. I would like to thank Mario Rizzo, David Harper, and Andrew Sabl for particularly insightful comments. Jane Perry helped with a careful reading. The comments on the submitted version of the paper were enormously helpful. Jane S. Shaw’s reading for JEBO caught mistakes and help clarify how the pieces fit together. The mistakes which survive are my responsibility only. Appendix. Hume’s Footnote As a result of Richard Popkin’s research (Popkin 1980), the 1753–54 edition of Hume’s Essays has become notorious for the addition of a footnote setting forth a very strong doctrine of a hierarchy of race. Eugene Miller’s edition of Hume’s Essays first called attention to the ghastly error in the older standard edition, the one that Popkin trusted, which missed the changes in this footnote that Hume made in the posthumously published edition of 1777. The deletions Miller documented are indicated with strikeouts; the additions with italics: “I am apt to suspect the negroes, and in general all the other species of men (for there are four or five different kinds) to be naturally inferior to the whites. There scarcely ever never was a civilized nation of any other that complexion, than white nor even any individual eminent either in action or speculation” (p. 208). The literature that Miller’s scholarship has spawned is discussed in Levy and Peart 2016, where we offer evidence to support Aaron Garrett’s conjecture that Hume’s change was motivated by Smith’s results in the Wealth of Nations (Garrett 20 0 0). This racialized view of humanity allows us to separate the contributions of Hume and Smith. The foundational elements in Smith’s account, in which he commits to a natural equality, do not leap around to ease his explanatory burden (Peart and Levy 2005, 2021; Levy and Peart 2016, 2020). References Anderson, G.M., 1988. 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