George A. Akerlof and Robert J. Shiller: Animal Spirits: How human psychology drives the economy and why it matters for global capitalism

The current financial and economic crisis has, in the meantime, generated an abundance of economic literature. " Animal Spirit " by Akerlof and Shiller stands out from this crowd. This book is not intended to provide new or revamped familiar economic recipes for coping with the crisis, nor has it been written by authors who have converted to Keynesianism in light of recent events. Naturally, Akerlof and Shiller do develop economic advice. However, to them the crisis serves as a peg rather than as an opportunity to advocate a new orientation of economic theory. For the authors, Keynes' reference as to the power of " animal spirits " in " The General Theory " is a hint that it is recom-mendable to embed macroeconomic theory not only in psychology, but in sociology too. In brief, according to Akerlof and Shiller, the patient is not the economy, but economic theory, which was not capable of properly measuring and interpreting the econ-omy's fever. According to the authors, those " animal spirits " – the volatility of confidence due to desires, jealousy, disgruntlement, illusions and particularly action-driving stories on the state of the economy – have triggered this economic crisis, just as other economic crisis before. " Animal spirits " thus cover the whole array of irrational behavior as well as rational but noneconomic behavior in economics. Most decidedly, and without mentioning by name Vilfredo Pareto, let alone less economically oriented sociologists, Aker-lof and Shiller ignore Pareto's demarcation that restricted economics to exploring the domain of rationality while committing sociology to specializing on the exploration of irrationality. In my opinion, they are implicitly following the basic idea of Talcott Parson of a voluntaristic action theory according to which each subsystem of society – that also includes the economy – has its own cultural, social, political – and in the case of the economy, dominant economic-ways of action. In a more contemporary formulation (and with a better theoretical solution than the one suggested in traditional structural functionalism), Akerlof and Shiller adhere to instrumental action in economic contexts as a rule; however, they acknowledge that economic behavior is embedded in social contexts and admit that– at least when seen from a strictly rational point of view – it is not free of irrationalities. The authors concretize these basic considerations that are known in contemporary sociological notions of " rational choice " , in five different …