Mainstream economics is considered the most advanced social science discipline. The orthodox economic paradigm is perceived as an exemplar for social theory and science, including sociology. Social science has frequently involved efforts to emulate this paradigm, especially in recent years. In sociology, the emulation of orthodox economics, by adopting and extending its principles, has resulted in rational choice, including social exchange, as an assumed general theory. The same trend in political science, for example, has ensued in public choice as an economic paradigm of politics. The paper's key argument is that orthodox economics does not necessarily imply or allow a universal utilitarian-economic paradigm of all social life and cannot be used to theoretically found or justify rational choice. By the novelty of its argument, the paper fills in a void in the present literature that dubiously emphasizes the theoretical foundations of rational choice in orthodox economics.
In this paper the central question is whether rational choice theory can be founded in orthodox economics (i.e. classical political economy and neoclassicism). What is at issue is then the consistency between rational choice and orthodox economics rather than the adequacy of either. Whatever the degree of consistency, the orthodox economic paradigm is not seen as beyond reproach and with the canonical status of a scientific exemplar. An exploratory analysis tries to find out whether or not rational choice is theoretically founded in and thus logically derives from orthodox economics. No plea is therefore made for orthodox economics and against rational choice theory. The objective is to critically reassess the conventional wisdom in modern social theory that rational choice has theoretical foundations in neoclassical economics.
Many rational choice theorists argue that the “economic [rational choice] approach to human behavior is not new, even outside the market sector” (Becker 1 , 1976:3). Arguably, many classical and neoclassical economists, including Smith (1937), Bentham (1970), Mill (1884), Marshall (1961), and Edgeworth (1967), initiated and employed the “rational choice approach [which] has been refined during the past two hundred years” (Becker, 1991:ix-x). Moreover, it is contended that “one of the few general theories applied (particularly by Smith and Hume) is the rational choice model, the ’economic model of man’, or ’utilitarian theory’“ (Opp, 1989:2). In such interpretations, already “with Hume and Smith, then, we see an ‘economic’ approach to a very large part of social behavior” (Tullock, 1972:321).
In particular, sociological rational choice theory is founded on expected utility models imported from microeconomics (Macy, 1995) and generally on a “paradigm of rational action borrowed from economics” (Coleman, 1986:10). Specifically, sociological rational choice theory is built on “four elements from neoclassical economics [such as] methodological individualism, the principle of actor maximization or optimization, the concept of a social optimum, the concept of system equilibrium” (Coleman, 1994:166). Notably, for rational choice sociologists “a more precise notion is required [than purposive action]: the conception of rationality that forms the basis of the rational actor in economic theory, [or] the narrow conception of rationality given by the principle of maximization of utility” (Coleman, 1990:13). Sociological rational choice theory then uses the principle of utility optimization as a criterion “at all points” (Coleman and Fararo, 1992), i.e. at both micro- and macro-levels of analysis.
Presumably, the “propositions of elementary economics could also be used to account for social phenomena under conditions into which the classical economic variables, money, prices, and quantities did not enter” (Homans, 1990:85). Rational choice theorists suggest that “just as a free market can be conceived in economic exchange, a similar model of pure competition can be conceived in collective decisions” (Coleman, 1986:33). This suggestion implies that the rational choice theory of collective decisions and politics (public choice) is “consistent with the framework of economic markets” (Coleman, 1966:1119) that is advanced by orthodox economics. This perceived consistency leads to the extension of orthodox economics’ “framework of exchange in a free market” (Coleman, 1966:120) to non-economic exchanges (Macy, 1995), i.e. to social relations initially beyond its scope. The result of this extension is social exchange theory defined as the “economic analysis of noneconomic social situations” (Emerson, 1976:336), including the application of the concepts of marginal utility, supply and demand, markets, price, cost, competition, equilibrium, etc. to analyzing such situations (Blau, 1964:148-56). Rational choice theorists’ justification for extending the orthodox economic framework is that social action represents a “generalization of market behavior” (Coleman, 1966:1122).
In this connection, some rational choice theorists propose to “rehabilitate economic man” (Homans, 1961:79) by conceiving human agency in terms of the “species Homo Economicus” (Friedman, 1996:3). The following is a characteristic depiction of human agency thus understood: “an image of man as wholly free: unsocialized, entirely self-interested, not constrained by norms but only rationally calculating to further his own self-interest” (Coleman, 1986:15). In this view, human agents are endowed with private preferences, consistently seek to obtain private goods (Coleman, 1984), and act for utilitarian or instrumental reasons “in the style of the rational choice model [in economics]” (Boudon, 1996). In short, humans are construed as rational egoists 2 (Ostrom, 2000) or selfish monads (Frank, 1996).
Concerning its scope of application, its advocates claim that the rational choice or economic approach “is a comprehensive one that is applicable to all human behavior” (Becker, 1976:3). Rational choice thereby becomes the most promising (Hechter and Kanazawa, 1997; Kiser and Hechter, 1998) general social theory to be accorded paradigmatic privilege (Abell, 1992; Goldthorpe, 1998) vis-à-vis other theories. Rational choice theory’s application outside economics is thus seen as the “most hopeful development in modern social science” (Homans, 1990:85). Further, orthodox economists’ talents to reason in terms of economic mechanisms--e.g. consistent utility/profit maximization, accurate cost-benefit calculation, automatic markets, perfect competition, equilibrium, optimum, etc.--”often only become clear when they go beyond the traditional boundaries of the discipline” (Hedstrom and Swedberg, 1998:4).
Overall, the “rigor, parsimony, and analytic power of rational choice has prompted sociologists to extend the theory beyond market transactions to exchanges of symbolic and nonfungible resources such as social approval, security, and even love” (Macy, 1995:73). Rational choice thus becomes an attempt at elaborating and expanding orthodox economics’ theoretical assumptions and methodological tools beyond the original domain (Coleman, 1966:1122). This needs to be qualified, for in recent years many social scientists outside economics have sought to build countermove, synthetic (albeit still auxiliary) rational choice models seen as more than mere adoptions and extensions from orthodox economics (as a referee remarked).
Thus some sociologists maintain that, instead of a single overarching theory a la orthodox economics, there is a ‘whole family’ of rational choice models featuring not only ‘family resemblances’ but also ‘significant differences’ (Goldthorpe, 2000:115). Then political scientists propose modifying or transcending the standard rational choice model predicated on rational egoists, especially its extensions such as the zero-contribution thesis of collective action 3 (Ostrom, 2000:137). No doubt, this mixture of commonalities and differences between various rational choice models illustrate the vitality of this theoretical wave in modern social science.
These (secondary) tendencies notwithstanding, much of rational choice is primarily characterized by “efforts to extend microeconomic models to extraeconomic exchange” (Macy, 1995:73), or non-market phenomena. In sociology, a case in point is (Coleman’s) sociological rational choice theory’s purported “generalization of neoclassical economics” (Rambo 1999). And so is (Homans-Blau-Emerson’s) social exchange theory that blends behaviorist assumptions with “concepts and principles borrowed from economics” (Cook, 2000:687). In political science, an exemplar is public choice as the application of economics to politics (Mueller, 1997:1) in the belief that this can be explained by “ordinary economic assumptions about the utility-maximizing behavior of individuals” 4 (Buchanan, 1991a:31).
The current literature on orthodox economics and rational choice seems to take as granted the theoretical foundations of the latter in the former. Attempts are lacking at scrutinizing the theoretical foundations and justification for rational choice in orthodox economics, except for some observations from other contexts. For instance, Etzioni (1988) presents a compelling case for deontological socioeconomics or moral economy within traditional, particularly Smithian, economic theory. Etzioni distinguishes socioeconomics from narrow market analysis as well as from the economic approach to human behavior advanced by rational choice theorists. Smelser (1992:403) observes that, by expanding neoclassical assumptions beyond the market sphere, rational choice becomes “an inclusive and universally applicable construct that simultaneously explains everything and therefore nothing.” For Smelser (1992), the result of such tendencies is the increased theoretical indeterminacy and the reduced rigor and falsifiability of rational choice. Sciulli (1992) argues that by virtue of its attempts at reaching universality rational choice seeks over-inflated scope of application as well as fails to precisely define the “criterion of quantitative ends”, e.g. utility and profit maximization, borrowed from orthodox economics. Particularly, this hold true of expected utility models admittedly “imported from microeconomics” (Macy, 1995). Still some rational choice theorists (Macy, 1995:73) recognize that such extensions of neoclassical micro-economics, “invite considerable skepticism”. Further, others (Boudon 1998) acknowledge that the rational choice (cost-benefit) model cannot be general social theory but just part of such theory. Recently, some sociologists (Somers 1998) have critically reexamined the role of rational choice as the putatively best general theory (Kiser and Hechter, 1998) for comparative-historical sociology. Finally, for some sociologists (as a referee commented), rational choice might not be a sociological theory at all, but a theoretical sociology, i.e. the product of imagination, as scientific theory is grounded in evidence not wishes. In this view, the sociology of knowledge stressing the social construction of science by institutions and ideology (Krohn, 1971) may provide an appropriate perspective by highlighting the function that the promotion of rational choice performs for its advocates. In economic terminology, this implies the benefits, as weighed against the costs, sociologists realize when deciding and acting upon the decision of being rational choice theorists. Since rational choice is the dominant paradigm in economics, such a decision leads to higher academic prestige and the corresponding side-benefits for its promoters within sociology and other social sciences, especially political science (e.g. public choice theorists).
This paper’s purpose is to contribute toward filing in this void in the literature by providing some novel insights into the bearing of orthodox economics on rational choice. Unless otherwise stated, the reference is usually made to the sociological version of rational choice (Kiser and Hechter, 1998), i.e. rational action theory for sociology (Goldthorpe, 1998). In the way of organization, the paper’s main portion explores those theoretical or substantive elements of orthodox economics with bearing on rational choice. First, attention is centered on such elements in classical political economy, and then on those in neoclassical or marginal economics 5 . Discussed next are further implications of rational choice’s founding in and extension of orthodox economics. Finally, concluding comments follow.
I first reexamine rational choice’s supposed foundations in classical political economy, and then those in neoclassical economics or marginalism. This sequencing seems justified insofar as there are essential differences to be worked out (as a referee suggested) between classical political economy and what Veblen (1919) originally termed neoclassical economics in order to (ironically) stress the continuities rather than discontinuities between the two 6 . For our topic, the most important of these differences are following. One difference is the introduction of the means-end scheme by neoclassical economists as a defining element of rationality to be distinguished from the more general and traditional definition (e.g. reasonable behavior) in classical political economy. Another one is neoclassical economics’ recognition of individual rational consumer decisions as explanation of the macro-mechanisms (e.g. markets) of the economy as distinct from classical political economy’s focus on rational producer activities. While classical political economy confines the notion of rational economic agent (homo economicus) to the process of production (Mises, 1960:180), neoclassical economics extends it to the realm of consumption as well. Still another, related difference is the switch from the notion of value—both in economic and non-economic senses--in classical political economy to that of utility in neoclassical economics, especially marginalism 7 (Myrdal, 1958). In the non-economic sense, the switch is from the concept of “transcendental values” (Buchanan, 1991b), such as Smithian “moral sentiments”, to that of utilitarian-hedonic values or utilities (Jevons, 1965), including preference scales (Wicksteed, 1933) and indifference curves (Pareto, 1927). Consequently, economic science evolves from what Smith, Mill and other term “moral science” into the so-called “Utilitarian species of hedonics” or “Utilitarian Calculus” 8 (Edgeworth, 1967:vii). In the strictly economic sense, then, there has been a shift from the labor-cost conception of value in classical political economy to the marginal utility theory of economic behavior in neoclassical economics, a theory exemplified in the consumption principle of diminishing marginal utility and the production rule of decreasing marginal productivity. In this regard, the switch is from the classical concept of cost of production as an explanation of economic value and prices to the novel neoclassical notion of opportunity costs defined as foregone alternatives (Davenport, 1964:87-8). Other significant differences entail neoclassical economics’ introduction to economic analysis of the notion of time (Marshall, 1961), including the “cost of time” (Becker, 1976:90), as well as full knowledge and perfect information. Included in these differences is also the neoclassical distinction between “measurable risk and unmeasurable uncertainty” (Knight, 1964:7) versus their implied equivalence in classical political economy. In addition, while most classical economists operate with a largely implicit and rudimentary principle of methodological individualism, the early neoclassicists or marginalist pioneers make more explicit and further develop this principle. (Incidentally, it was probably the young Schumpeter who, influenced by Menger and Walras, coined the term “methodological individualism” in the early 1900s, cf. Swedberg 1998.) Keeping in mind these differences, the paper adopts the view of classical political economy as embracing the period from the late 18th century (the work of Smith) to the 1870s (Cairnes, for example). For the purpose of this analysis, neoclassical economics spans from the 1870s through the 1920s, viz. since the rise of Jevons-Menger-Walras’ marginalism to the late careers of Marshall, Pareto, and others. In this sense, the 1930s heralded contemporary economics, viz. the Keynesian revolution in macro-economics, the theory of monopolistic/imperfect competition in micro-economics, modern mathematical economics and econometrics, etc. I consider primarily the bearing of classical and neoclassical economics thus understood on rational choice (that of contemporary economics can be the subject for a separate paper).
Many rational choice theorists invoke Adam Smith as one of the founders of their theory. Since Smith, the presumed father of economics, is one of the best known economists, this invocation lends theoretical grounding and credibility to rational choice as a unifying economic paradigm of human life. Not only in theoretical but in practical-political terms is Smith’s vision treated as sacrosanct by economists or rational choice theorists proposing a political system that would function “in a manner close to Smith’s with respect to the economic order” (Buchanan, 1991a:39).
For instance, some modern economists (Iannaccone, 1998:1464/1478) claim that Smith laid the foundation for the rational choice analysis or economics of religion as the “new territory within the expanding domain of economics.” Predictably, applying the economic approach to religion, its advocates view religious conduct as an instance of rational choice, viz. religious beliefs and feelings as religious commodities with shadow prices, religious experience as religious human capital or a form of consumption capital, etc. (Iannaccone, 1998:1478-83). Moreover, they claim that the rational choice model of religious behavior “has set off a small revolution within the sociology of religion [characterized by] a poverty of theory” (Iannaccone, 1998:1491), as if no sociological theories of religion had never existed.
The basis for this reliance on Smith as an anchor of rational choice theory is his rationalist conception of social life, as exemplified in concepts such as the “invisible hand” of the market, the “propensity to truck, barter, and exchange”, the pursuit of self-interest, etc. However, what is overlooked is that this is only one, economic aspect, the Smith, the economist from the Wealth of Nations. The other equally relevant aspect for social theory is the non-economic, the Smith from the Theory of Moral Sentiments, namely a Scottish moralist (Schneider, 1967) and broad-minded social philosopher (Reisman, 1998) rather than a narrow economic theorist. This is Smith (1976:9) arguing that “how selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, although he derives nothing from it except the pleasure of seeing it.” Furthermore, the “wise [rational] and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest” (Smith, 1976:235). This second aspect of Smith’s work emphasizes the primacy of non-utilitarian and non-egoistic factors such as sympathy and morality in human, including economic, behavior, thus casting doubt on rational choice as a utilitarian paradigm operating with rational egoists (Hechter and Kanazawa, 1997). In this sense, Smith’s is deontological economics (Etzioni, 1988) or moral economy (Bell and Driskol, 1981), and generally sociological economics (Reisman, 1987) or economic sociology (Schumpeter, 1949) rather than rational choice.
It may be natural for narrow—as distinguished from broad, sociologically minded--economists to resort to Smith’s first aspect in extending the rational choice model to all social life, and to neglect the second (with some exceptions, e.g., Buchanan, 1991b). This approach would seem to be less expected for rational choice theorists outside economics, as some sociologists (Boudon, 1998; Lindenberg, 1989) implicate. Some (Boudon, 1998:824), while calling Smith the spiritual father of rational choice, maintain that he solves many analytical problems not in terms of a cognitive-axiological (beliefs and values) rather rational choice model (costs-benefits), the second, including social exchange theory (Boudon, 1996), being is a particular case of the first. According to this interpretation (Boudon, 1996), even in his writing on economic theory, Smith employs a broader cognitivist rather than a narrow rational choice model. Other rational choice sociologists (Lindenberg, 1989:51) reinterpret Smith’s theory of human motivation and action in the sense that humans seek not only wealth but also social approval, thus having both material interests and moral sentiments. These are atypical interpretations of Smith in rational choice theory, which, like mainstream economics, associates him with self-interest as the principal motive for action, working its way through the invisible hand of market, rather than morality. The pursuit of self-interest becomes a principle of rationality (“rational egoism”), morality is seen as irrational conduct and excluded from rational choice analysis (Samuelson, 1983:90-2), or treated reductively in utilitarian terms (Harsanyi, 1977).
Further, the case for Smith’s rational choice theory, as an overarching economic principle of social life, may be weaker than for his economic sociology or sociological economics, as a societal perspective on the economy. To that extent, Smith can less plausibly be deemed a rational choice theorist than a sociological economist (Reisman, 1998). Smith’s economic sociology involves analysis of the social and technical division of labor, the societal origins of private property, society’s control over nature, economic, political and civil liberties, political stability, legal security, institutions, policies, and other elements constituting the social context of economic behavior (Schumpeter, 1949:60). Particularly, it entails an attempt to delineate the relations between the economy and government (Smith, 1937:651), i.e. between market and state (Reisman 1998). In this regard, sociological economics (Knight, 1958:19) rather than rational choice is at the heart of early economic science or political economy. In sum, Smith views both self-interest and morality as inducing human behavior and is attentive to the social setting of the economy.
Many rational choice theorists see Bentham as the original source—and many of its critics as the “original sin”--of their theory in the sense of a stylized reformulation of utilitarianism, as proclaimed with joy and pride by some (Becker, 1976; Harsanyi, 1977) and recognized with discomfort by others (Boudon, 1998). To that extent, rational choice, like welfare economics, “only revives the Benthamite tradition” (Schumpeter, 1954:1069) partly abandoned in mainstream economics (Samuelson, 1983). While rational choice can be given the paradigmatic privilege of general social theory (Goldthorpe, 1998; Kiser and Hechter, 1998) or dismissed as déjà vu utilitarianism or folk psychology (Somers, 1998), at issue here is whether the theory can find unequivocal conceptual foundations in Bentham. Paradoxically, it seems that upon a closer inspection even Bentham does not entirely fulfill the rational expectations of his modern followers.
Specifically, there are three points of partial divergence between Benthamite utilitarianism and rational choice. One is Bentham’s variant of social utilitarianism or quasi-institutional individualism with social-structural implications. This is shown in his concept of social utility or the “happiness of the community” as distinguished from individual utilities or the happiness of individuals 9 (Bentham, 1970:1-5). This entails a distinction between what some Benthamite neoclassical economists (Edgeworth, 1967:102-3) call the “tropical expanse” of social utilitarianism 10 (including altruism) in the sense of a moral postulate of the “general good” and the “frozen pole” of egoism as the “principle of self-interest.” As Bentham (1970:3-5) states, human actions, including government measures, are compatible with the “principle of utility” when they tend to increase the “happiness of the community”—i.e. to promote the principle of social utilitarianism rather than of egoism.
The second point of divergence is the treatment of asceticism. Perhaps oddly for a Puritan gentleman, Bentham dismisses asceticism as being opposite to the principle of utility and by implication to rationality. This is because the principle of asceticism (unlike utility) is devoid of pleasure calculus in that it implies “approving of actions insofar as they diminish happiness” (Bentham, 1970:9). By contrast, rational choice by assumption incorporates asceticism and its derivatives (e.g. delay of gratification in consumption, saving, investment, etc) in the principle of rationality. This holds true insofar as asceticism is viewed as underlying rational processes and outcomes like abstinence in spending, saving, wealth accumulation, capital investment, planning or forward-looking behavior, postponement of immediate pleasure, preference for the long-run to the short-term, minimizing risk and uncertainty, rational expectations, etc. Asceticism thus understood is the driving force of proverbial Puritans’ rational activities, including abstinence- and waiting-prone capitalists as described by orthodox economists (e.g. Senior, 1951; also Marshall 1961) as well as the ideal type of Protestant entrepreneurs 11 depicted by Weber.
The third point of divergence revolves around the notion of consistency and rationality. This is pertinent insofar as consistency is considered the main axiom/criterion of rationality, as in teleologically agnostic (or thin) models, viz. social choice (Arrow, 1950; Coleman, 1966). Notably, Bentham (1970:5) qualifies if not disallows the consistency axiom of rational choice by asserting that “in principle and in practice”, consistency and thus rationality is the “rarest of all human qualities.” Hence Bentham would probably concur with the observation that “scales of choice are not even self-consistent, but rather so illogically constructed that it is quite possible to prefer A to B, B to C and C to A” (Clark, 1918:30). This view of consistency in the ordering of preferences and actions can be extended to other venerable axioms of rational choice, such as transitivity, independence, completeness, cancellation, invariance, dominance, etc. That many of these axioms have been relaxed or abandoned makes Bentham’s remark more salient. For instance, transitivity has been replaced by preference reversal, invariance by representation or framing, independence by elicitation, cancellation by the certainty effect (the Allais paradox), dominance by contrasting risk, theorems, etc. (Thaler, 1991). To summarize, Bentham espouses social utilitarianism as opposed to private egoism (Edgeworth, 1967:102-4), distinguishes the principle of utility seeking from ascetic conduct, and acknowledges the axiomatic and empirical (“in principle and in practice”) impertinence of consistency and thus rationality in human life 12 .
Some other classical economists and utilitarians also do not necessarily supply a strong theoretical rationale for rational choice. For instance, Senior’s (1951:58-9) theory of abstinence 13 , as rational behavior involving saving-investment considerations, cost-benefit calculations and profit optimization, is just one facet, as was Smith’s conception of self-interest and Bentham’s principle of utility. The second facet is Senior’s implied conception of unproductive consumption. From the angle of abstinence or productive consumption (Senior, 1951:54), non-productive consumption represents irrational behavior involving a waste of scarce resources that could have been used for productive purposes, such as investment for profit. By foregoing productive and profitable alternatives such consumption involves a trade-off or opportunity-cost (Davenport, 1964:87-8).
Like most classical economists, including Malthus, Mill, and Marx, for Senior beneath the surface a constant tension exists between the rational imperative of abstinence with its future rewards and the irrational impulse of consumption with its foregone productive uses. This impulse leads to consumption for enjoyment and related sentiments, which make this behavior an emotional action in Weber-Pareto’s sense. It is also conducive to Veblen-type conspicuous expenditure for the sake of achieving social status, power, and other extra-economic ends, thus making such activities economically non-rational (though perhaps non-economically rational). While less explicit than Pareto, Weber or Veblen, Senior (1951:54/60) suggest this much by stating that since unproductive consumption “always adds to enjoyment to no one but the consumer himself, to abstain from enjoyment which is in our power, or seek distant rather than immediate results, are amongst the most painful exertions of the human will.”
This epitomizes what Marx, a dissident classical economist, calls the Faustian dilemma of the economic subject. Assumed to be a consistent homo economicus bent on abstinence, saving, investment, and wealth accumulation, this subject by virtue of being human often falls as a victim of the “original sin” of extravagant consumption or economically non-rational spending. Both Senior and Marx realize that the actual economic actor is a more fragile and inconsistent creature than assumed by the notion of rational economic man, as do, for that matter, some neoclassical economists (Knight, 1964; Schumpeter, 1949).
Ironically, Marx—who was not fond of Senior et al. to say the least—makes explicit the Faustian dilemma implicit in the abstinence theorem as follows. In his words, the “original sin is at work everywhere. As capitalist production, accumulation and wealth become developed, the capitalist ceases to be the mere incarnation of capital. He has a fellow feeling for his own Adam and gradually smile[s] at the rage of asceticism as a mere prejudice of the old-fashioned miser. While the capitalist of the classical type brands individual consumption as a sin against his function, and as ’abstinence’ from accumulating, the modernised capitalist is capable of looking upon accumulation as ’abstinence’ from pleasure. ‘Two souls alas, do dwell within his breast; the one is ever parting from the other’” (Marx, 1967:597-8). In contrast to Marx and Senior, for rational choice theorists no Faustian dilemma exists insofar as they assume that “we are all” entrepreneurs, highly trained economists, speculators, traders, businessmen, and related reincarnations of homo economicus (as noted by Buchanan, 1991a:62-3). Apparently, there are no relevant theoretical foundations in Senior and Marx for such admittedly “extreme rationality assumptions’ (Buchanan, 1991a:63) of rational choice.
Hence Senior-Marx framework of a duality between rational profit-seeking based on the principle of abstinence and non-rational consumption violating this principle implies a conception of the economic actor that is more complex than that in rational choice. Economic agents in this framework are not emanations of an anemic, one-dimensional homo economicus (Bowles, 1998:78) single-handedly devoted to abstinence, capital accumulation and profit-making, thus displaying an “irrationally rational passion for impassionate calculation [or rationality]” (Clark, 1918:24). Rather, they are dramatis personae (Bowles, 1998:78), complex social actors acting in the way of homo sociologicus economicus, i.e. homo socio-economicus (Lindenberg, 1990), with a variety of (economic and non-economic) motivations in production and consumption. These actors are not lightning calculators (Veblen, 1919:73) but simply humans (Thaler, 1991:xxi), with interests not only in production by making rational investment-profit decisions, but in consumption, including what is from the stance of homo economicus an irrational waste of extravagant spending.
Even a more charitable (rationalist) interpretation of Senior, by retaining only the abstinence theorem, does not support the universality claims of rational choice. Senior’s rational abstinence theorem, like the concept of homo economicus, applies primarily to the domain of production and (only) secondarily to consumption, not to extra-economic activities, thus implicating no comprehensive economic approach to human behavior. In Weber’s (1968:68) terms, Senior’s abstinence theorem is a hypothesis of entrepreneurial-managerial behavior rather than all economic, let alone social, action. To sum up, Senior confines the rationality principle (abstinence) to economic activity and recognizes the friction between capital accumulation (saving) and unproductive consumption.
The aforesaid of Senior holds true even more of J. S. Mill. First, Mill’s political economy display a higher degree of institutionalism than rational choice. Notably, this institutionalism is exemplified in the assertion that wealth distribution is a function of institutional arrangements and social rules than being a natural, technical or individual process. In other words, the “Distribution of Wealth is a matter of human institution only [and] depends on the laws and customs of society” (Mill, 1884:155-6). On this account, Mill’s represents institutional social economics (Jensen, 1993) partly premised on institutionalism rather than an instance of rational choice theorizing.
Relatedly, Mill (1884:214) notes while the conventional supposition is that “competition is free so far as regards human interference, being limited only by natural causes, or by the unintended effect of general social circumstances [in reality] law and custom may interfere to limit competition.” In this regard, Mill’s and classical political economy overall can be deemed catallactics (Edgeworth, 1967:30), i.e., the “theory of price determination under a hypothetical regime of absolutely free competition” 14 (Walras, 1952:xi). Thus, classical political economy as catallaxy (Reisman, 1998) is the analysis of a “perfect market” (Edgeworth, 1967:30) or economic exchange rather than all society. Further, not only does not Mill extend this narrow theory to “extra-economic exchange” (Macy, 1995), but warns against such extensions, as shown below.
In this connection, Mill distinguishes political economy--since the 1870s renamed (pure) economics by Walras, Marshall, Wicksell, Pareto and others--from the science of social economy. While political economy centers on the rational operation of the profit/wealth motive in market exchange, the science of social economy is concerned with a plurality of motives (Mill, 1968:136-9), including non-economic ones, in social life. In this regard, the science of social economy appears as cognate to or influenced by Comte’s sociology. Hence, Mill confines the scope of rational choice to profit, wealth, market exchange and other economic phenomena. As the basis of political economy or catallactics, rational choice is by implication considered part of sociology or social economy rather than an all-inclusive paradigm. In Mill’s (1968:136-51) words, the science of social economy or sociology “embraces every part of man’s nature, in so far as influencing the conduct or condition of man in society. Political Economy is not the science of [all human behavior] but a branch of that science. Political Economy considers mankind as occupied solely in acquiring and consuming wealth [albeit] many [actions] are really the result of a plurality of motives. With respect to those parts of human conduct of which wealth is not the principal object, to those Political Economy does not pretend that its conclusions are applicable.” Apparently, Mill’s views mirror Comte’s idea of economics as a branch of sociology, as the science of social economy is understood as a general discipline of which political economy is part. (Subsequent variations on Mill’s social economy can be found in such neoclassical economists as Walras, Wicksell, Wieser, and others.) Summing up, first, Mill postulates a plurality of motives in human action rather than a single class of material interests (wealth). Second, Mill limits the rationality principle, or what some sociologists (Hechter, 1994) call the typical value assumption of rational choice (the pursuit of wealth), to the market-economic realm rather than all social life. Next, Mill recognizes the strong effect of social institutions and rules on individual economic actions and thus what Parsons (1990) would call institutionalized individualism and motivation. Finally, Mill incorporates political economy (economics) into the science of social economy (sociology) rather than relegates social science into an appendix or extension of the economic approach, as done by many economists today.
Rational choice’s presumptive founding in classical political economy has similar implications when considering Cairnes, often termed the last relevant classical economist. For illustration, Mill’s plurality of motives in social behavior is elaborated in Cairnes’ totality of human desires in contrast to the “mono-utility” function (Etzioni, 1988) in rational choice. While the latter assumes human motivations to be single and finite, Cairnes recognizes that these are multiple and infinite, with analysis reckoning with all of these. Various desires, passions and propensities, rational and nonrational alike, induce individuals and groups in the pursuit of wealth and all economic behavior, so the ends and nature of the economy derive from such motivational multiplexity 15 (Cairnes, 1965:56). In addition, Cairnes (1965:58) recommends taking motives and principles of action (preferences) not as constant, homogeneous, and exogenous, but as variable, heterogeneous, and endogenous, i.e., as they developed in the progress of society. On this account, one cannot find theoretical support for taking preferences, tastes, or values as stable, as done by rational choice theorists. Then, Cairnes’ individualism far from being unqualified and uncompromising combines elements of holism, as suggested by his view that social actors can be not individual but also collective. A case in point of collective actors is what he calls non-competitive industrial groups as special cases or proxies of social classes found in classical political economy since Smith and Ricardo. To summarize, Cairnes acknowledges the infinity and multidimensionality of human motives in socioeconomic behavior, combines individualism and holism by treating individuals and groups as social actors, and takes preferences as variable, heterogeneous and endogenous.
Finally, some other classical economists, including Ricardo, Malthus and Say, entertain similar though more implicit attitudes to the possibility and plausibility of extending the economic or rational choice paradigm to social life. They share the implied classical view that economic science (political economy)--and thus rational choice proper as its micro-foundation--represents a limited analysis of the market economy rather than all society.
For many rational choice theorists, their theory stands (or falls) with the presumed neoclassical foundation, which implies a certain parasitic relationship. However, it may be dubious to found rational choice in what Veblen (perhaps misleadingly) denoted as neoclassical economics to express marginalism’s continuation of classical political economy. The case for a rational choice paradigm of human behavior in marginalism seems on weak grounds, for attempts at expanding economic principles to all society are rare and impertinent in relation to the main orientation toward the “theory of [market] catallactics” (Edgeworth, 1967:33).
For instance, Leon Walras--the “greatest of all economists” according to Schumpeter (1956:104; cf. also Samuelson 1952)--distinguishes the domains of pure economics or rational choice proper and of other social sciences. Generally, utility, material interest and related economic variables constitute the domain of the former, and justice, equality and other non-economic phenomena of the latter. Walras’ rationale for such delimitation between pure economics and the rest of social science is the principle of utility and interest governs the economy, but not necessarily all society ruled, instead, by other principles, including equity, morality and related extra-economic forces. In his words, the “law” of economic relations between human actors is “Utile or Interest” (Walras, 1936:120). However, this law would not or only secondarily apply to their non-economic or social relations in society, since Walras (like Mill) assumes that these relations are subject to different laws. Rational choice is thus equivalent to or a basis for a well-limited pure economics that analyzes the operation of (perfect) markets, especially the formation of economic values or prices. More precisely, rational choice (pure) economics represents no more than a “theory of price determination under the hypothetical regime of absolutely free competition” (la theorie de la determination des prix sous un regime hypothetique de libre concurrence absolue) (Walras, 1952:xi).
By contrast, what Walras calls social economy (économie sociale) is concerned with justice and related social considerations in distributing wealth among individuals and groups in society. Walras’ social economy thus contains elements of economic sociology or sociological economics, but is narrower than Mill’s version (see above). Hence, Walras distinguishes social economy from pure economics (économie politique pure) as well as applied economics (économie politique appliquée) on the basis of their respective subjects. Social economy is defined as the analysis of the distribution of social wealth (Walras, 1936:120) in contrast to pure economics as the theory of markets and prices. Though both pertain to the laws of economic relations, as manifested in the principle of utility/interest, they differ in that social economy deals with the social, especially institutional, aspects of these relations, and pure economics with their market forms.
Walras’ division between institutional social economics and market, pure economics resembles Mill’s distinction between production and distribution. This distinction is based on the premise that while production is governed by natural laws, distribution is regulated by human will as expressed in social institutions (Mill, 1884:155-6). However, Walras’ is not identical with Mill’s division between the science of social economy and political economy. For Mill, the science of social economy is an overarching discipline of which pure economics is part, thus mirroring Comte’s view of economic science as a branch of sociology. While économie sociale is more restricted than the science of social economy, Walras’ pure économie politique is homologous to Mill’s political economy. Notably, Walras’ économie sociale adopts a major premise of Mill’s science of social economy, namely the influence of laws, customs and other social rules on market competition. While arguing that the “state is not an entrepreneur” (L’êtat n’est pas un entrepreneur), Walras (1952:449) admits that no economy can function without “interference from some authority.” For instance, the principle of free competition “is not necessarily applicable to the production of things which are [in addition to government intervention] the object of a necessary and natural monopoly” (Walras, 1952:234).
Evidently, Walras’ économie sociale, as a study of the institutional regulation of wealth distribution, appears as coterminous with economic sociology, especially in Schumpeter’s (1954:9-22) taxonomy defining the latter as an analysis of the impact of social institutions on the economy. In general, economic sociology analyzes the social determination of economic life, including wealth and income distribution. Finally, since Walras does not extend rational choice, as epitomized in the “law” of utility and interest, beyond what he calls “economic relations of people” into social relationships, Walrasian general equilibrium refers to the economy, not society.
In a similar vein, another important neoclassical economist, Wicksell, divides economic science into pure economics and social economics (plus applied economics). Like that of Walras, Wicksell’s pure economics represents a narrow, rational choice theory of the operation of a market economy, not a general conception of society. By contrast, social economics is a study of the ways to attain maximal “social gain and of what changes in the existing economic and legal structure of society are necessary to this end” (Wicksell, 1934:5). In doing so, social economics tries to analytically resolve the “social problem of distribution [i.e.,] the question of property rights of the various factors of production” (Wicksell, 1934:7). In Wicksell’s social economics or economic sociology, no assumption is made that society is subject to the same principles--e.g. price determination by supply and demand, market equilibrium, utility or profit optimization, etc.--as the economy, and hence no proposal is advanced for extending the economic approach to all human behavior. On the contrary, Wicksell concurs to Walras’ view that these principles are domain-specific rather than universal. This is indicated by the postulated prevalence of the principle of utility and efficiency in the economy, and that of justice and equality in society. Rather than being valid for the entire society, “special laws are valid for the market [alone]--in the first place, the law of free competition or the law of indifference [uniform price]” (Wicksell, 1954:45).
In sum, Walras and Wicksell, they treat the principle of utility, interest and efficiency as applicable to the economy only, and assign other principles, e.g., equality, justice and morality to society. As a corollary, they predicate solely pure economics on rational choice in the sense of utility optimization, but not all of economics (viz. social economy), let alone all social science. Notably, they see the economy as a part of society, and by implication economic equilibrium as an aspect of social equilibrium, thus almost concurring with Comte, Durkheim and Pareto. Finally, Walras and Wicksell envision explicit (product and factor) markets and money prices, but not implicit, non-economic markets and imputed (shadow) prices.
Still another neoclassical economist, Pareto, holds a particularly strong influence on rational choice. Paradoxically for a general social theory, the key influence comes from Pareto’s purely economic conception of utility (ophelimité) optimization, market equilibrium, economic (welfare) optimum, etc. For example, Pareto (1927:150) defines market-economic equilibrium as the outcome of the “opposition between tastes [or wants] and the obstacles [resources] for their satisfaction.” Alternatively, like mainstream economists (e.g. Samuelson, 1998), rational choice sociologists ignore Pareto’s general sociological theory. Yet, Pareto’s pure economics as well as general sociology does not seem to provide theoretical (and methodological) foundations for building a general social theory of the rational choice type (Morishima, 16 1998). While assuming that rational variables (e.g. material interests) play a key role in the economy, Pareto recognizes that non-rational elements, including emotions, are the driving force in society. In his words, residues, as manifestations of “sentiments and instincts” and thus as “principles of non-logical conduct”, are more important than anything else in society, operating as the “main” factors in determining societal equilibrium (Pareto, 1963:509-12). In consequence, logico-rational behavior has reportedly played a “very minor part in the organization of society [as] human beings are moved much more by sentiment than by thought” (Pareto, 1963:1478).
Moreover, for Pareto economic variables are aspects or elements of social phenomena, and thus the economy a part or subsystem of society as a total social system, incidentally, a view influencing economists-turned sociologists like Parsons. This implies corresponding, unit-whole relations between economic equilibrium (the Pareto-optimum) and social equilibrium. Hence, “we have to consider not just the economic phenomenon taken by itself, but also the whole social situation, of which the economic situation is only a phase” (Pareto, 1963:1418). In particular, economic well-being is part of social welfare, an idea also restated by such neoclassical economists as Marshall and Pigou. Pareto regards economic analysis in relation to sociological theory by analogy to viewing economic phenomena relative to social ones. This is indicated by his plea for economics’ “synthesis in sociology” on the grounds that economic analysis “cannot be made without the aid of sociology” (Pareto, 1963:1415). In contrast to the economy, in society the hypothesis of rationality in the form of utility optimization is, as Pareto (1963:1442) put it, “far removed from realities”, because of the primacy of non-rational variables, viz. residues and derivations (rationalizations). As a result, a rational choice theory seeking to apply the economic approach to all social life has “little or no contact with reality--it would be a sociology like a non-Euclidean geometry” (Pareto, 1963:1315).
An epistemological implication of Pareto’s view of economic and social phenomena is his treating the economic or rational choice approach as narrower than sociology rather than subsuming the latter under the former. Another implication is Pareto’s distinction between the utility (ophelimité) of society--an assumed impossibility of concern for economics with its attention in aggregating individual utilities--and the ophelimité for society, a possibility of interest for sociology with its focus on collectivities. Specifically, “in pure economics a community cannot be regarded as a person. In sociology it can be considered, if not as a person, at least as a unit. In pure economics there is no danger of mistaking the maximum of ophelimité for a community for a non-existent maximum of ophelimité of a community. In sociology they are both there” (Pareto, 1963:1472). This implies another delimitation of the scope of rational choice, namely the ophelimité for a community, vis-à-vis sociological analysis, i.e. the ophelimité for and of society.
Summarizing, Pareto assumes that rational elements (interests) govern the economy only, with non-rational elements (residues and derivations) being prevalent in society. Second, Pareto treats the market-economic system and its equilibrium/optimum as a constitutive component of the social system and its equilibrium/optimum. Next, Pareto defines economic equilibrium by rational variables (e.g. tastes and obstacles), and social equilibrium by non-rational ones (sentiments). Then, Pareto views economic well-being as an element of social welfare, and rational choice (ophelimité maximization) as relevant for economics rather than sociology. Finally, Pareto assumes economic markets and market prices, not non-economic markets with imputed prices. Overall, Pareto entertains strong reservations and even opposition as regards extending the neoclassical theory of the market into a comprehensive economic paradigm of social behavior.
Certain reservations also come from some unexpected sources, such as Jevons, Wicksteed, and Edgeworth, as putative exemplars of utilitarian economics. No doubt, Jevons finds in principle of utility optimization, via equalization of the final degrees of utility (marginal utilities), a driving force of rational economic behavior. Still, Jevons makes no explicit or consistent efforts to at expand this principle to all social behavior in the form of a universal economic approach. This is suggested by Jevons’ conception of economics as in essence a limited theory of economic value, prices and market exchange, or as pure catallactics 17 (Edgeworth, 1967:108-116). Particularly, Jevons (1965:19) urges that economic (or rational choice) theory “must begin with an exact theory of consumption [of economic goods and services]”. He makes no suggestions for some rational choice theory dealing with non-economic goods subject to the operation of implicit markets (e.g., marriage markets) and to valuations in shadow prices (the “prices” of spouses or children).
Further, Jevons mitigates the adequacy of the rationality (marginal utility) principle for explaining the operation of the economy itself, let alone society. This is indicated by Jevons’ suggestion for economic sociology as an alternative to pure economic analysis or rational choice and thus an indispensable discipline of economics. In Jevons’ view, economic sociology, defined by implication as the analysis of the social conditions and relations in the economy, would make a significant contribution to and even revive economics. Admittedly, “it is only by subdivision, by recognising a branch of Economic Sociology [...], that we can rescue our [economic] science from its confused state.” (Jevons, 1965:20-1). Giving to it such a messianic mission, Jevons places economic sociology alongside such branches of economics as economic theory, systematic economics, descriptive economics, the science of finance, and economic statistics. Moreover, Jevons can in retrospect be credited with coining the term economic sociology (Swedberg, 1998). In turn, Jevons understands general sociology in largely evolutionary, Spencerian terms, i.e. as the science of the evolution of social relations. The above suggests that Jevons proposes a societal conception of the economy or sociological economics rather than an economic-utilitarian approach to society or rational choice.
Jevons’ early enthusiasm for economic sociology almost overwhelms Wicksteed, who goes further by suggesting that economics rely on sociology. Being considered a pure marginalist or rational choice theorist notwithstanding, Wicksteed (1933:783) states that “economics must be a handmaid of sociology.” This surprising statement by an early neoclassical economist is probably an anathema for modern mainstream economists and rational choice theorists. In retrospect, Wicksteed’s position was likely affected by Comte’s views on the relations between economy and society and between economics and sociology. For illustration, in his key work (The Common Sense of Political Economy), Wicksteed (1933:1) even quotes as a prologue (in French with no English translation) the following statement by Comte: L’analyse économique proprement dite ne me semble pas devoir finalement être conçue ni cultivée, soit dogmatiquement, soit historiquement, à part de l’ensemble de l’analyse sociologique, soit statique, soit dynamique (“Economic analysis proper ultimately must not be conceived nor cultivated, whether theoretically or empirically, apart from the whole of sociological analysis, be it static or dynamic”).
The ontological rationale for such epistemological relations between economics and sociology lies in the fact that economic laws or rational principles are subsets of the laws of human behavior (Wicksteed, 1933:783). Notably, economic laws represent ones of complex social facts, not simple laws of human nature (Keynes, 1955:87-9)--i.e. special cases of sociological rather than of psychological laws. Since economic laws are social-psychical rather than physical and technological in character, sociology or socio-psychology—though not the folk psychology (Somers, 1998) of homo economicus construed as human nature--enters political economy “at more than equal conditions” (Wicksteed, 1933:767) vis-à-vis natural science, a view contrasting with the current notion of economics as applied physics/mathematics (Mirowski, 1989). Notably, while economic laws describe or predict inevitable implications, they, as stated by some of Wicksteed’s followers, “have their limits, as an effect of irrational [or sociological] elements in human behavior” (Robins, 1952:126). Finally, Wicksteed (1933:36/147) seems to view individuals’ “preference schedules” as variable and heterogeneous rather than constant and homogenous in contrast to the rational choice argument of de gustibus non est disputandum (Stigler and Becker, 1977). Unlike Wicksteed, this argument entails taking preferences as parametric (givens) or alternatively, in response to criticisms of such an approach, “accounting for tastes” (Becker, 1996) in rationalist utility-disutility, cost-benefit terms (as noted by Elster, 1998).
Similarly like Wicksteed, another marginalist, Edgeworth (1967:109), characterizes the calculus of variations in utility at the heart of marginalism and thus (marginal) economics as the “most sublime branch” of sociology . la Comte (whom he cites in an approving manner as well). Then, properly interpreted what Edgeworth denotes as mathematical psychics is less some universal economic-rational choice approach to human behavior than marginalist catallactics, i.e. a narrow model of market exchange predicated on the concept of marginal utility. Mathematical psychics is admittedly no more than the “mathematics of a perfect market” (Edgeworth, 1967:30), with moral or social science being understood chiefly as and reduced to economics (alongside utilitarian ethics) conceived after physics and mathematics. The same can be said of what Edgeworth (1967:3-6) designates as “mathematical sociology”. His mathematical sociology is premised on differential quantitative relations or marginal laws--defined as decreases of rates of increase in quantities--viz. the “law of diminishing returns to capital and labour, the law of diminishing utility, the law of increasing fatigue” (Edgeworth, 1967:6). Hence, this mathematical sociology appears as homologous to Edgeworth’s (1967:33) “mathematical theory of catallactics”, as a well-delimited analysis of the market, rather than a general sociological paradigm of rational choice.
To recap, Jevons, Wicksteed and Edgeworth (despite his idiosyncratic ideas of mathematical psychics/ sociology), locate the principle of utility optimization or self-interest primarily in the economic realm, and only secondarily in the non-economic. Then, they recognize the social conditions of the economy, and thus economic sociology as a legitimate branch of economic science. Further, they see pure economics or the rational choice model as a branch of general sociology, viz. evolutionary sociology in Jevons’ case and psycho-sociology or socio-psychology in that of Wicksteed and Edgeworth. Finally, they, particularly Wicksteed, regard individual preferences, tastes and values as subject to variation and heterogeneity rather than constancy, as well as not necessarily accountable for in rational (cost-benefit) terms.
Considered next is the bearing of Austrian marginalist economics on the economic approach to human behavior. While viewing the pursuit of well-being as the most common and prolific human impulse, Menger (1963:87) does not treat non-economic goods and their shadow prices imputed in implicit markets as objects of the individual’s economizing or rational choice. Simply, “non-economic goods are not objects of his economy, and must not be regarded as parts of his wealth” (Menger, 1950:109), a position embraced by most Austrian economists. Moreover, whereas the Austrians view the social economy as constituted of individual economies (Menger, 1950:187), they do not dissolve social welfare into material well being or wealth, nor human motivation into the profit motive. For illustration, Wieser (1967:324) regards the “joyful power to create” for the sake of creation irrespective of material rewards as the driving force of economic behavior, particularly entrepreneurship. Most Austrian economists do not view wealth as the exclusive criterion of individual well-being, especially in cases of material abundance found in industrial societies: In short, wealth “is never an absolute measure” of welfare (Menger, 1950:110).
Though rational choice, with its typical value assumption (Hechter, 1994) of wealth optimization, makes most headway in affluent societies like the U.S., one wonders whether the theory will make sense in a modern society characterized by material abundance and, consequently, by post-materialistic tendencies (Abramson and Inglehart, 1995) reducing the import of this assumption. At this juncture, Menger et al. and J. M. Keynes meet. Keynes (1972:325-6) restates Menger’s expectation by predicting that the economic problem will be solved in a foreseeable future, and hence the economic approach to human behavior become theoretically and practically irrelevant.
In the Austrian framework, the analysis of economic phenomena presupposes sociology seen as a complete theory of society or of the fundamental types of social activity (Wieser, 1967:152-3). A necessary preliminary to an understanding of the economic process is the explanation of social phenomena. As an “inquiry into the social relations of the economy” (Wieser, 1967:151-3), economic sociology supplies such an explanation. In economic sociology thus understood, economic value or price would be the most promising subject. For value, including market price, is seen as the outcome of socio-economic “intercourse” (Wieser, 1967:153) that expresses certain underlying motives and evaluations, including marginal utilities. Such value of economic goods—divided into lower- and higher-order ones (products and production factors)--is not to be confused with the values held by actors (including scientists and policy-makers). Yet, contemporary (rational choice) economists usually conflate the value of economic goods with social values, in accordance with the dictum that an economist knows the price of everything, and the (non-monetary) value of nothing.
Further, by virtue of its focus on economic value, including its sociological variables, economics is considered what Wieser (1967:153) calls an advance guard of sociology. In this view, economics is only one phase of sociology as the “main body” of the science and theory of society, though the former is more developed and gives more than receives from the latter. The link of sociology and economics is logically established by social economics or/and economic sociology as an analysis of the “sociological problems of economic theory” (Wieser, 1967:152-3). In sum, economics and sociology have the same logical character, because the first is the “most elaborated branch” of the second as a more comprehensive science (also called praxeology) with broader scope (Mises, 1960: 68-9).
Parenthetically, the aforesaid of the Austrian school applies . fortiori to Weber, a historical economist-turned sociologist, both influenced by its early members such as Menger and influencing its later ones, especially Mises and Hayek. Notably, Weber (1949:64-66) includes economic theory in social economics as an overarching discipline that also incorporates economic sociology (as well as economic history). In this connection, Weber (1968:63-8) defines economic sociology as a “sociological theory of economic action”, i.e. an inquiry into the “sociological categories of economic action” or “sociological relationships in the economic sphere”. Generally, since the early 1900s the Historical economic school “has broadened out, particularly in Germany, under such leaders as Max Weber and Weber Sombart into what is often called sociological economics, a position also well presented in France” (Knight, 1958:18-19), viz. Durkheim-inspired sociologie economique. In retrospect, Weber’s views probably affected the view of such Austrian economists as Schumpeter, Wieser and Mises that pure economics or catallactics as a theory of the market is a branch of sociology in the sense of general social science.
To summarize, Austrians economists, influencing and influenced by Weber, treat utility optimization as a principle of economic conduct rather than all social action, and allow for both instrumental-formal and value-substantive rationality in human behavior. Then, they view economics as a branch of a broader social science called sociology, and establish a bridge between the two in the form of economic sociology as a study of “sociological relations in the economy.” Also, they limit their analysis to economic goods, markets and prices, observe these as results of social conditions, including power relations, and thus distinguishes economic value (and marginal utility) from social values.
Next, Marshall and Pigou consider economics a study of economic laws, prices, and material welfare, and see societal laws, non-economic values and non-material well-being as being outside its purview. Economic laws, characterized as certain tendencies to be distinguished from physical laws, are “those social laws which relate to the branches of conduct in which the force of motives can be measured in money price” (Marshall, 1961:27). This view of economic laws as special cases of social ones implies no dissolution of the latter into the former. In particular, economic welfare is seen as the subject-matter of economics (Pigou, 1960:11). Economic welfare is characterized as consisting of the material prerequisites of well-being (Marshall, 1961:1), or as that “part of social welfare which can be brought in relation to the measuring rod of money” (Pigou, 1960:11). In this regard, no equation between economic and social welfare is posited, thus avoiding the reduction of the latter into the former in modern economics and rational choice. Overall, since material interests, market behaviors and economic variables are particular forms of social phenomena, rational choice is to a limited hypothesis rather than a general explanation.
Further, Marshall and Pigou take into account the impact of non-economic phenomena on economic processes. The impact of traditions and customs is particularly pertinent in the sense that the “indirect effects of custom in preventing the methods of production and the character of producers to develop freely are not obvious; but they are cumulative, and herewith, exercise a deep and control influence. If custom prevents the progress of one generation, the next generation would start from the lower level than otherwise” (Marshall, 1961:465). Given such extra-economic influences on economic processes, the theory of economic development and progress would be admittedly “more subordinate than are other portions of economic doctrine to general sociology” (Keynes, 1955:148). In sum, Marshall et al. treat economic laws and material well-being as special cases of societal laws and social welfare respectively, limit the domain of rational choice to the first class, and recognize the influence of non-economic factors on the economy.
Also, some early American marginalist economists like Fisher echo Mill’s view of wealth distribution as a matter of “human institution” and thus of some discretion or freedom in contrast to production governed by “natural laws.” Fisher observes that this discretion is higher in non-productive activities such as consumption and by implication distribution than in production to the effect that “freedom to leave off consuming [and distributing] at any point is greater than for producing.” Notably, he acknowledges that “social organization intensifies this distinction” (Fisher, 1965:105-6) between the nature and degree of freedom in distribution and consumption and in production. Paradoxically, this implies a proposition of economic sociology rather than rational choice, for the former assumes the social organization of the economy, and the latter the economic determination of society. Overall, Fisher does not urge that (marginal) economics extend the principle of maximization of utility—defined in terms of desires and preferences--to all social life. Instead, he implies limiting its scope of application to economic and measurement variables such as supply, demand, and price with a tendency to market equilibrium, while warning that the “actual world has no equilibrium” (Fisher, 1965:106). Further implications of the bearing of classical political economy and neoclassical economics on rational choice are discussed below.
The preceding shows that the narrow scope of classical political economy and neoclassical economics “contrasted starkly with the universalism” (Lewin, 1996:1298) that rational choice, as general social theory, claims. Orthodox economic science, first denoted political economy and then (neoclassical) economics, is an inquiry into the wealth of nations, i.e., the production, distribution and consumption of commodities. Thus understood, economics is often viewed as a sub-discipline of what Mill calls the science of social economy in the sense of Comtean sociology, a study of societal laws or the conduct and condition of man in society. In this view, economics is a branch of that science concerned with those human phenomena arising from the rational pursuit of wealth, i.e., the economic types of social action.
By contrast, sociology takes into consideration the full range of social phenomena, particularly what Pareto denotes logico-rational and non-rational actions. Hence, despite extending the rationality principle of wealth maximization as the end of action (Hechter, 1994) to non-economic realms, rational choice is limited to the economy. The reason why a universal economic approach is dubious lies in that the evaluation of the “comparative efficacy of means for attaining that end” (Mill, 1968:137) of wealth or profit is confined to the economic sphere. In consequence, classical and neoclassical economics “did not aspire to be a universal social science” (Lewin, 1996:1298).
In particular, many (neo) classical economists restrict the operation of economic rationality and motivation, as expressed in the desire for wealth or profit maximization, to the market. As a result, economics, especially marginalism, becomes catallaxy in the sense of a theory of market exchange, especially perfect markets (Edgeworth, 1967:30-4). The existence of what Mill and Cairnes term a plurality and infinity of motives and preferences beyond wealth is then postulated for social life and thus by implication for sociology. In this regard, the following admonition seems instructive in light of current extensions of the economic approach beyond the economy: “with respect to those parts of human conduct of which wealth is not the principal object, to those political economy [rational choice] does not pretend that its conclusions are applicable” (Mill, 1884:139-40).
As mentioned, many (neo) classical economists explicitly or implicitly distinguish wealth or material well-being from, and include it in, social welfare rather than dissolving the latter in former. Insofar as rational choice performs this dissolution, it glosses over what has been referred to as “disturbing causes” of an exogenous, non-economic character (Mill 1884:150-1), or treats them as if they were economic. Neglected is thereby the possibility that these phenomena can be better or complementarily treated by approaches other than the economic one or market catallaxy. As a limited theory of market processes, orthodox economics applies the rational choice principle to wealth, profit, utility, material interest, tastes (demand) and obstacles (supply), economic welfare, instrumentally behavior, calculable action, etc. And, since sociology deals with both rational and non-rational social phenomena, it incorporates or complements the economic approach rather than the latter subsuming all social theory (Pareto, 1963:20-1).
Consequently, it may be more sensible to view the economic or rational choice paradigm as an integral element of the sociological perspective (Coleman, 1994)—i.e. (in Mill’s words) political economy as a branch of the science of social economy. The economic paradigm thus makes sense as a depiction, explanation and prediction of reality solely in conjunction with the other parts of the sociological perspective. An enlightened neoclassical argument is that because the economic problem is “subordinate” to the sociological, in analyzing social phenomena one should “consider not just the economic phenomenon taken by itself, but also the whole social situation, of which the economic situation is only a phase” (Pareto, 1963:1406-15). This suggests that many economic variables cannot be adequately explained without the aid of sociology. Apparently, this neoclassical argument provides no theoretical grounds for the rational choice assumption that economic or rational variables are primary in relation to sociological or economically non-rational ones. Thus, modern economists make an insidious equation between sociological and non-rational variables, thus disqualifying the former as irrelevant (Samuelson, 1983:90-92.)
In an ironic twist, the above implies a proposal for economic sociology in the sense of a social conception of the economy, including the market, rather than a rational choice paradigm applying the economic approach to all society. The proposal for economic sociology as an interdisciplinary bridge between economics and sociology contradicts the recourse of rational choice theorists to pure theory free of non-economic, social considerations. To that extent, rational choice, characterized as the analytical economic approach to social theory (Hedstrom and Swedberg, 1998), seems even narrower than orthodox economics. At the same time, rational choice uses orthodox economics’ core principles, viz. self-interest, utility and profit maximization, cost-benefit calculus, free competition, market equilibrium, optimum, etc., as universal explanatory mechanisms for social phenomena.
Further, the plea for economic sociology implies that the rational choice paradigm is often insufficient vis-à-vis market phenomena, let alone all social processes. By its emphasis on rational variables, this paradigm appears unable to provide a full account of markets themselves insofar these represent social structures or institutions affected by non-rational factors rather than automatic economic mechanisms. Hence, the need for combination of this paradigm with non-economic, especially sociological, approaches arises. Namely, the rational choice paradigm “must be combined with another more general science that would emphasize the multiplicity and great variety of the forces that were really determining phenomena which, though strictly economic to all appearances, actually depended upon other social phenomena” (Pareto, 1963:1551).
In particular, the (neo)classical position on the relationship between economic and social variables applies to that between economic and social equilibrium. Modern economists and rational choice sociologists (e.g. Coleman, 1990) are prone to conceive social equilibrium (society) in terms of market-economic equilibria (the economy). By contrast, the neoclassical (Paretian) conception treats economic equilibrium as a subset of social equilibrium by recognizing that the economy is a constituent of society. Specifically, economic equilibrium is the outcome of the operation of such variables as wants and resources or tastes and obstacles, the scarcity and utility of goods or marginal utility as the synthesis, supply and demand or aggregate production and consumption, etc. However, social equilibrium is more comprehensive and complex, involving not only rational economic variables but also their opposites. Variables in social equilibrium include dualities or pluralities such as: rational behavior driven by interests and non-rational conduct induced by sentiments, including what Keynes (1960:162) calls “animal spirits”; instrumental as well as value-driven, affective and traditional actions; material and non-material welfare; calculable and noncalculable action, economic and noneconomic ends, and so on. Orthodox economics in essence restrains the application of rational choice to the first classes of these variables of social equilibrium. The aforesaid about equilibrium holds true of economic and social systems. The social system is ontologically characterized by the broader domain and greater heterogeneity in relation to its economic subsystem. As a result, epistemological complexity in sociology vis-à-vis economics “is “greater still and by far” (Pareto, 1963:1733).
The above suggests that orthodox economics premised on a narrow principle of market exchange (catallaxy) has well-defined domain relative to a comprehensive economic paradigm of social life inflating its scope. Extending the limited model of rational choice beyond the market domain may not result in a unifying structure of social theory because of the narrow theoretical basis of the model even for explaining economic action, as implied by the proposals for economic sociology in (neo) classical economics. Paradoxically, rational choice has turned this inadequacy of the orthodox economic paradigm into a solution for all social science. The paradigm initially advanced to account for economic processes has mutated into an explanatory panacea for all social life, despite many neo-classical economists’ suspicion of its inadequacy even in economics. For instance, this is probably the key reason why a pure, mathematical economist of rational-choice categories--e.g. ophelimité (marginal utility), interests, markets, tastes (demand) and obstacles (supply), economic system and equilibrium (optimum)--has become a sociologist of non-rational variables (residues and derivations). This is the career path of Pareto 18 , and those of Weber as well as Veblen, Wieser, Schumpeter, Parsons, Myrdal, Polanyi and others show an identical pattern. Their underlying position seem to be that “you cannot first ignore the enormous impact of sociological factors in economics and think that you have succeeded with the economic analysis, and then try to apply this narrow economic analysis outside the field of economics” (Sen, 1990:264). This implies that rational choice may become a candidate for paradigm shift even in economics rather than the most promising general social theory (Kiser and Hechter, 1998).
The preceding discussion suggests that, upon a reconsideration of orthodox economics, the latter can hardly be used to theoretically found 19 rational choice as a universal economic paradigm of human behavior. In essence, rational choice is far from being the logical extension of classical and neoclassical economics. Traditional economics is primarily an analysis of the operation of the economy, not all society-- i.e., the production, distribution and consumption of wealth, exchange, market equilibrium, price determination under free competition, economic welfare, and the like. As such, it is confined to the domain of economic actions and outcomes and leaves the analysis of the non-economic realm to other social science, including sociology. As a theory of the market economy (catallaxy), orthodox economics is premised on the narrow rational choice model and has well-defined scope. By contrast, comprehensive rational choice theory purports to embrace all social phenomena, by applying orthodox economic principles. Scope specification of the broader version of rational choice, as the candidate for general social theory, is unsatisfactory, so one wonders what its domain of application really is. Its adherents do not provide much help insofar as they avoid accurate scope definition by assuming that their theory is able to explain and predict “everything and therefore nothing” (Smelser, 1992:403). This tendency increases the theoretical indeterminateness and decreases the rigor and testability of rational choice seen by its proponents as a universal paradigm and a theoretical cure-all rather than a narrow and insufficient principle of orthodox economics.
Particularly, the foregoing discussion indicates that for many classical and neoclassical economists, homo economicus is far from being an actual agent in historical-empirical terms. In retrospect, the concept of economic man is “one way of emphasizing the abstract and simplified character of the premises of [economic] science” (Knight, 1964, n. I.5). Admittedly, the “presumed homo economicus is a complete abstraction. One understands by homo economicus a men dominated by the economic motive. In reality, such a man does not exist” (Seligman, 1918:4). And, if such a creature does exist, “economic man need not be conceived as a pure egoist” (Keynes, 1955:128). However, it is the concept of (slightly modified) homo economicus that constitutes the micro-foundation of rational choice to the point of becoming a “presentation of economics uncritically rationalized and devitalized to the point of approximate chemical purity” (Knight, 1964: n. II, 3). Reformulations of the concept include plain economic man (Homans, 1961), rational man (Coleman, 1986), rational egoist (Hechter and Kanazawa, 1997; Macy, 1995), the opposite of homo sociologicus (Abell, 1992), or some acronym thereof, viz., the model of RREEMM, Restricted, Resourceful, Expecting, Evaluating, Maximizing Man (Lindenberg, 1992). Along with mainstream economics since the 1970s, much of rational choice is reportedly characterized by the revenge of homo economicus (Bowles and Gintis, 1993), i.e. the revival of the presumed “dead hand of the past” with a vengeance. Thus, while the “old economists employed the concept of an economic man deliberately and intelligently; for [modern economists and rational choice theorists] he is literally the man in the street” (Knight, 1964:n.II, 3).
Finally, the objective of rational choice’s founding in orthodox economics appears to be deriving a general economic conception of society, or justifying such a conception. However, this seems dubious insofar as classical/neoclassical economics is in essence a limited analysis of “price determination [in] free competition” (Walras, 1952:xi) or “perfect” markets (Edgeworth, 1967:30) rather than an all-encompassing economic approach to social life. Since the paper has mostly compared classical political economy and neoclassical economics with rational choice, a further direction for theoretical analysis may be a comparison of the latter to contemporary economics. One starting point for this purpose can be the 1930s redefinition of economic science as the “science which studies human behavior as a relation of ends and means which have alternative uses” (Robbins, 1952:6). Economic science thus redefined may display stronger theoretical foundations for rational choice than does earlier economics, but this is a topic for another work.
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1. A referee commented that Gary Becker received his Nobel Prize in 1992 (as stated by the Bank of Sweden Prize in Economic Science) “for having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including nonmarket behavior”—i.e. for assuming some universal economic rationality. Paradoxically, in receiving this prize it seemed as if Becker (1993:385) had some second thoughts about this extension by admitting that he “may have sometimes assumed too much rationality”.
2. Ostrom (2000:139) remarks that most rational choice theorists “assume a standard model of rational individual action—what I will call a rational egoist.”
3. Ostrom (2000:137) observes that the zero contribution thesis of collective action, as advanced by some economists (e.g. Olson), “contradicts observations of everyday life.” Namely, a “substantial gap exists between the theoretical prediction that self-interested individuals will have extreme difficulty in coordinating collective action ad the reality that such cooperative behavior is widespread although far from inevitable” (Ostrom, 2000:138).
4. Unlike many rational choice theorists in economics, Buchahan particularly (and the Virginia School generally, as suggested by a referee) acknowledges the importance of extra-economic variables, including social institutions, policies, and norms, in economic and political life. Thus, Buchanan (1991b:208-12) seems to deplore the neglect of moral and other “transcendental values” in the standard rational choice model of economics. Further, he has some misgivings about what he calls extreme rationality assumptions, or the penchant of modern economists to “attribute rationality to everyone, as though all individuals act like highly trained economists” (Buchanan, 1991a:62-3).
5. Since orthodox economics here incorporates classical political economy and neoclassical economics or marginalism, this avoids reducing conventional economic theory to the latter, as sometimes done by contemporary economists and rational choice theorists.
6. For instance, Veblen (1919:171) states that the neoclassical economics of Marshall “excellently exemplifies the best work that is being done under the guidance of the classical antecedents.”
7. Myrdal (1958) detects and analyzes the switch from value to utility in neoclassical economics. He seems to understand the first term mostly in extra-economic terms as “transcendental values” (Buchanan, 1991b:208), viz. what Weber termed the “ethic of absolute ends”, and Parsons “conceptions of the desirable.” In this regard, Myrdal (1958) suggests that a “value premise should not be chosen arbitrarily: It must be relevant and significant in relation to the society in which we live. It can, therefore, only be ascertained by an examination of what people actually desire.”
8. This evolution apparently involves coming full circle back to (Benthamite) utilitarianism and hedonism, which, incidentally, induced Veblen’s designation of marginalist economics as neo- rather than anti-classical.
9. To be sure, for Bentham (1970:1-5) the “interest of the community” represents the “sum of the interests” of its members, thus the former being attained via aggregation of the latter.
10. Edgeworth (1967:104) adds that one “cannot disapprove of the authority of Utilitarianism by proving the utility of egoistical, or any other, practice.” Then, he predicts that the “reconciliation between egoism and altruism” will lead to the “transformation of mixed into pure utilitarianism” (Edgeworth, 1967:104).
11. Parenthetically, Bentham may overstate the difference between asceticism and rationality as expressed in the principle of utility if utility-maximizing behavior, as the bedrock of rational choice, entails asceticism, of which the Protestant entrepreneurs’ behavior is a prototypical case.
12. A critique of the axiomatic approach positing an equation of rationality and consistency is that this approach is too formal in that it reduces choices to problems of pure logic and thus represents an instance of “bounded vision” (Gerard, 1993:56-65). In its formal-axiomatic version, rational choice is a “very weak hypothesis [which] says relatively little [namely] that there is consistency in choices made under different circumstances” (Arrow, 1990:148). This formalism devoid of content is especially pronounced in relation to the ‘Durkheiman [Weberian] problem of substantive rationality” (Fararo, 1989:223) associated with pursuing ends, especially ultimate values, of a non-economic character. The consistency-rationality equation is often empirically false given that people can be consistent not only in their rational choices or preference orderings, but also in their non-rational behavior, e.g., the social and personal formation of beliefs, values, rules, and even sentiments. Moreover, rationality (= consistency) “in belief formation is a stronger and more meaningful hypothesis than rationality in choice” (Arrow, 1990: 148). If so then this consistency in non-rational behavior would effectively do away with any intrinsic linkage between consistency, including transitivity, and rationality. Finally, if, as Bentham (1970:5) observes, consistency is the “rarest” of human attributes, then people are at best consistent in inconsistency.
13. In passing, Senior’s view of abstinence contrasts with Bentham’s treatment of asceticism as an opposite of the rational principle of utility insofar as abstinence and asceticism are seen as isomorphic.
14. The original Walrasian formulation of pure economics or catallactics is the following: “L’economie politique pure est essentiellement la theorie de la determination des prix sous un regime hypothetique de libre concurrence absolue” (Walras, 1952:xi).
15. Weber’s depiction of the early Protestant entrepreneurs elaborates this point, as their actions are motivated by a variety of incentives, material and ideal, such as profit and the prospect of religious salvation. Further, the material incentives are reportedly secondary to the ideal ones to the effect that profit-seeking is an instrument or intermediate goal to attaining religious grace as the ultimate end.
16. Pareto “argued that people’s social actions are not necessarily rational, but driven by emotion and impulse, and sometimes even self-destructive [and] for that reason the line of thought of the kind used in economics, which lays down axiomatic ways of thinking, could not be adopted in sociology”(Morishima, 1998:xxiv-v).
17. Edgeworth (1967:109) comments that the “Jevonian ‘Law of Indifference’ [uniform price] has place only where there is competition, and indeed perfect competition [so the origin of] ‘Indifference’ [is] in an ‘open market’.”
18. Morishima (1998:xxiv-v) comments that economists like “Pareto and Schumpeter, who took an interest in sociology, made a major contribution in the direction of fusing the two disciplines [unlike Marx who] did not seek to fuse economics with sociology which was essentially the study of the superstructure.”
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