Did Rationality Assumption
Contribute to the Emergence of
Economic Science?
Oleg Ananyin
National Research University “Higher School of Economics”
(Moscow, Russia)
Rationality – sine qua non for economics?
 Economics is notoriously associated with Homo
oeconomicus…
 Contestable assumption was defended:
 by J.S. Mill (for restricted area)
 by A. Marshall (on average)
 by M. Friedman (as useful “as if”) etc.
 New (behavioural) wave of critique: is it more powerful?
 Looking historically…
Rationality of what?
 When economic science was just emerging…
(W.O. Coleman’s classification of rationalities):
 rationality of the Universe?
 rationality of human behaviour?
 rationality of science (cognition)?
 matter of God!
 no! - passions!
 beyond current topic
Interests as passions
 Hobbes’ legacy portraying humans as passionate beings.
 Mandeville’s summary of common opinion “identifying
“Virtue” with “Rational Ambition of being good”, and
“Vice” with gratifying one’s appetites “without Regard to
the Publick”.
 Hirchman’s account of how “interest” was gradually
reassessed as peculiar passion and governance tool
applicable to neutralize other passions.
 Cheap labour thesis
 Demand as a product of irregular desires
 Landowners as prodigals
Were Smith’s agents rational?
 Land proprietors “[h]aving sold their
birth-right, not like Esau for a mess
of pottage in time of hunger and
necessity, but in the wantonness of
plenty, for trinkets and baubles,
fitter to be the playthings of children
than the serious pursuits of men,
they became as insignificant as any
substantial burgher or tradesman in
a city”
R. Coase: «In the regulation of behaviour Adam Smith put little
confidence in human reason… Adam Smith would not have
thought it sensible to treat man as a rational utility-maximiser»
John Stuart Mill?
 J.S. Mill’s ‘economic man’:
bright anticipation, wrong description
 Two economic methodologies: “Principles” contra early
“Essays” – from behavioral science to physics-like
(immutable laws) theory of wealth
o “Whether they [mankind] like it or not, their productions will be
limited by the amount of their previous accumulation, and, that
being given, it will be proportional to their energy, their skill, the
perfection of their machinery, and their judicious use of the
advantages of combined labour... Whether they like it or not, the
unproductive expenditure of individuals will pro tanto tend to
impoverish the community, and only their productive
expenditure will enrich it”.
Competition!
 J.S. Mill :“only through the principle of competition has
political economy any pretension to the character of a
science. So far as rents, profits, wages,
prices, are determined by competition,
laws may be assigned for them…
 Two implications:
 The claim to objectivity was based not on rational
ity
of agents’ behaviour, but on spontaneity of the
underlying process independent of subjective intentions of agents.
 This idea implied adaptation process when prices are gravitating
around their “natural” levels before resting at equilibrium, i.e. an
evolutionary process allowing for mistakes and other adjustments to
select those who are most adaptive to current environment.
Mainstream – a regrettable deviation?
 Two regrettable simplifications in economic theorizing:
 Adam Smith and other classics merged positive and normative
dimensions of equilibrium theorizing.
 Walrasian auctioneer was imputed with the ability to coordinate a
priori expectations and plans of all economic agents.
 Thus an ex post analysis of real economic phenomena was
replaced with an ex ante analysis of economic decisionmaking concerning expected events. Assumptions were
tightened: competition was now assumed to be not just free,
but perfect; behaviour – not just self-interested, but
maximising, etc.
 Vulnerability for criticism: Lester’s critique
in the 1940s, behavioral critique now...
Is Economics a behavioral science?
 Milton Friedman’s (1953/1966) defence of economic theory was
ambiguous. It was in fact a return to a kind of pre-neoclassical
economics founded not on rational choice, but on evolutionary
logic.
 Friedman was right not because realisticness of theoretical
assumptions as such is irrelevant, but because behavioural
assumptions, in general, and rationality assumption in
particular, were never crucial in economic theorising, except
for the specific case of neoclassical theory.
 The area of research grown under the umbrella of neoclassical
economics and inquiring into individual rational decisionmaking appeared to be a successful undertaking.
 Yet the question is whether it is about economy?