What have we learnt from 20 years of economic research into culture?

Economics is undergoing a process of methodological naturalization, i.e. further converging with the sciences. Simultaneously, in past decades there has been an upsurge of interest in the role of culture in the economy. Yet this does not imply an opening up to the humanities, both in the broad sense and in the sense of cultural studies. This article is a stock-taking exercise. I briefly summarize recent economic work on culture and show that this is lacking a systematic theory of culture. This compares with the strong fusion of economics and the humanities, especially historical studies, at the turn from the 19th to the 20th century, in continental Europe, especially Germany. Looking for theoretical foundations of cultural analysis in contemporary economics, the notion of cognitive schemes looms large, seen as a device to deal with uncertainty. Interestingly, this concurs with some views in biological anthropology, and thus fits into the naturalization trend. However, there are many difficulties in what turns out to be close to functional reductionism. This points towards an alternative approach in economics as well, which centres around the notion of identity. I argue that, even in the context of naturalization, identity is significant precisely for its non-functional dimensions, for instance, as a group marker that is resistant to corrosion because of the lack of incentives for functional imitation between groups. This almost paradoxical role of identity explains why economics has troubles with culture, which, on the one hand seems to be ephemeral to economic processes in general, but on the other can obtain strong causal impact depending on idiosyncratic contextual conditions. This stalemate can only be resolved if economics begins to consider creative actions that establish and change identities on both the individual and collective level. I argue that this perspective leads back to the origins of the discipline, in particular Adam Smith in his role as a moral philosopher.