Homo Oeconomicus vs Homo Socialis: The Anthropology of Neo-Classical Econ
I have been working (in my head) on a wonkish, fully cited, post on the fundamental fallacy embedded at the basis of neo-classical econ. But I am still engaged on reading the ur-texts (hint Karl Polanyi and a revisit to E.P. Thompson) so instead will just throw out my thesis and let the thoughtful critics (and jackals) gnaw on it.
It is simple really. If you ignore the complexities. Neo-Classical Economics following Adam Smith, Ricardo and Malthus assumes that Man is a free actor, autonomous and engaged in transparent market actions ultimately derived from a barter economy. As such his freedom is only (or should be) constrained only by freely entered contractual obligations, which obligations ultimately comprise society held large. As such we hear talk about the ‘social contract’ which restrains us collectively from a previous existence of ‘nature red in tooth and claw’. Moreover this free man is motivated by a desire to maximize his own self-interest, which desire is only mediated by those contractual obligations, but which is itself virtuous. Hence such works as motivate the American version of this which include Friedman’s “Capitalism and Freedom” and Ayn Rand’s “The Virtue of Selfishness”.
A lot follows upon adoption of this view as Man as “Home Oeconomicus” including the validity of the so-called Iron Law of Wages and critiques of the Modern Welfare State and even Benthamite Utilitarianism (like I said I am doing some reading). But a lot falls apart if you reject the idea that primitive society was ever really based on barter and maximizing self-interest by free and autonomous actors. If instead you adopt the proposition that Man has always been a social animal and more intent on maximizing approbation by others in the family, clan, tribe, Executive Suite, Ski Slope and Country Club than actual accumulation and consumption then whole quarters of the foundation underlying Neo-Classical Econ fail and the superstructure crumbles.
And yes this is a pretty far cry from the kind of stuff Ed and Steve have been publishing here recently. “Unleash the Hyenas!”
In some previous posts at Angry Bear I noodled some on the nature of “Conservatism” and found reasons to place its foundations in a pre-capitalist setting that valorized the protection of “household” “family” and “personal property” and fell squarely in the label ” traditional patriarchy”. And I don’t think I was wrong about that.
But a lot of modern American “Conservatism” includes what it’s own practitioners call “Classical Liberalism” of the Milton Friedman variety. Hence perhaps the tension between “Social Conservatives” and “Economic Conservative” where the latter blend into “Libertarians”.
That is to say John Galt ain’t got no eff’ing time for your Family Values. And face it it is not like Atlas Shrugged and the Fountainhead don’t have passages that wouldn’t pass muster at your average Southern Baptist Sunday School. “Free People and Free Sex” is kind of a theme in Randite thinking and practice.
Bruce, are you aware of the contemporary work on homo socialis? For instance, Bowles and Gintis, A Cooperative Species. There’s even an article entitled Homo Socialis: An Analytical Core for Sociological Theory by Gintis and Helbing in the latest J of Behavioral Econ. More to read….
Right now I am reading Polanyi’s “The Great Transformation” in an edition published while WWII was still raging (1944). So no.
But I am more than happy to take reading suggestions for stuff in this century. I have to admit that most of what I have read on all of this dates back to my graduate student days at latest. Which ended in 1993.
So there is a lot to catch up on. Or I could just talk out my ass and fake it. Like a good Blogospher-itzen.
Just looking to provoke conversation. (Not that I don’t take this all seriously).
This is not economics but philosophy of economics, which is grounded in ethics and social & political philosophy, which in turn are grounded in ontology and epistemology. Economic liberalism based on methodological individualism assumes ontological individualism, which characteristic of the Lockean branch of 18th century British thought. This is coupled with the positivist assumption of a distinction between the positive and the normative, such that science is entirely positivistic and objective reality can be isolated from subjective influence.
The thrust of the neoclassical and Austrian foundations of economics in individualism is an aping of atomism in classical physics, taken as being self-evident without regard for evidence. It’s basically dogmatism philosophically, especially when the view becomes dominant culturally and its chief exponents declare that the methodological issues have been settled once and for all, end of discussion.
These are huge assumptions that became major cultural influences in the UK and America, shaping social thought. However, they are uncharacteristic of most of history. They are even minority views in today’s world. They are simply assumed and unproven. But in fact, developments in life science and social science call these assumptions into question.
Opposed to the neoclassical and Austrian approaches to economics based on methodological individualism are the Marxist and Marxian, the institutionalist, and the systems views, all of which are more in tune with contemporary life and social science, as well as more traditional views regarding the theory of human nature in being holistic rather than atomistic. Albert Einstein spoke to this simply and brilliantly in “Why Socialism?” (reprinted in Monthly Review, Volume 61, Issue 01, May 2009).
In contrast to social atomism, these views are also dynamic, non-ergodic, and complex rather than static, ergodic and simple albeit complicated. Moreover, neoclassical economics is largely formal, while these approaches integrate formalism with empirical evidence and pragmatic results, which are standard criteria in scientific method.
Look to Edmund Burke for the attempt to reconcile traditional views with the rising tide of liberalism. This is project that the contemporary conservatives are struggling with. Libertarians made their choice and prioritized economic liberalism over political liberalism.
It’s not only difficult to harmonize traditional conservatism with liberalism, but also to resolve the trifecta of social political and economic liberalism. Inevitably contradictions and dilemmas or trilemmas arise. Liberalism is paradoxical if not contradictory.
Neither conservatives nor Libertarians are fans of democracy, which they view as the “tyranny of the majority” aka the “rule of the rabble.” This underlies Garrett Hardin’s “tragedy of the commons” that is really a justification for enclosure of the commons. Elinor Ostrom (Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009) showed it is false.
What an interesting read and explanation.
I also wandered over to your blog and found this: http://investmentresearchdynamics.com/a-liquidity-crisis-hit-the-banking-in-september/ to be interesting also. “a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the ‘Lehman moment’ that triggered the 2008 collapse.”
It would be a great cross post at AB
Echoing Run. Tom I would happily play second fiddle in the Hickey Orchestra if you wanted to work up a self-contained guest piece on this topic. Just drop me a line at socsec dot defender at gmail with or without a submission and we can arrange for publication at your convenience.
Of course I am interested in more on the topic you have written about as developed by Tom; but, I am also immensely interested in what Tom said on his blog concerning the recent blip we just experienced in the market, its relevance to Fed Rates, and the Glencore Credit derivatives. If what he says is true and I have no reason to suspect it is not true, we have still not corrected the gambling occurring on Wall Street causing the 2008 recession. We are still in a situation where we may slip back into another catastrophic financial event.
What is a CDS accident???
“aping of atomism in classical physics”
Yes, yes, yes! I had this exact metaphor in mind! Thanks Tom, this is exactly the kind of detailed thoughtful response I hoped for. Please everybody pile on here.
Actually classical physics rejected atomism. But I know what you meant. Pour it on!
Forget the blog posts – write a book !
You can do a better job of it than this guy :
Marko I am finding out that the books have already been written. Just ignored. For all the wrong reasons.
It is often said that “In the Land of the Blind, the One-Eyed Man is King”. When history shows us that the actual result is too often the One-Eyed Man stoned to death for seeing things that “just cannot be”. I am reading a book right now that is making three quarters of the arguments I have been making about three times better than I ever have or could and I am only on chapter four. And it was first published in 1944. That is I don’t need to write a book, I need to promote a bibliography.
Looking forward to reading the post when it is ready. Here is a mouth full: “a free actor, autonomous and engaged in transparent market actions ultimately derived from a barter economy.”
Do capital gains taxes disincentivize investment?
Traditional neo-classical thinking says yes. Based on the “scientific” principle that “if you tax something, people will do it less”.
But look at the axiom packed into this. That people are fundamentally motivated by ROI in the interest of maximizing total return. Homo Oeconomicus. Thus taxing the investment induces people to do less of it.
But turn around and assume Homo Socialis, that people are motivated by ability to maintain their ability to consume, and more particularly conspicuously consume (paging Veblen). In this case a tax on returns will induce an intensification of investment. That is a pursuit of efficiency to maintain the same level of conspicuous consumption or alternately a deferral of that consumption until the return justifies it.
This without actually having to resort to examination of actual history or actual anthropology and even with adopting the rather dubious assumption that taxing something disincentvizes someone from doing “it”. We are left with the question of the “it” we are are taxing when taxing capital gains: the investment and its gains? or the consumption of those gains? If the former then tax will lessen investment, if the latter then tax will intensify investment. In the interest of maintaining consumption or having to defer it.
As such a tiny switch in assumptions about human nature: motivated by accumulation or motivated by consumption totally flips ideas about ideal public policy. If people are fundamentally motivated by consumption and its marginal cost then reducing tax on capital gains makes it easier to justify that consumption. And so reduce the need for efficiency in investment. Whereas increasing the tax on capital gains increases the cost of that consumption and so induces either an intensification of investment to maintain consumption levels or a deferral of that consumption.
Are people chasing ROI? Homo Oeconomicus? Then taxing the return induces less of the activity.
Are people chasing current or deferred consumption? Home Socialis? Then taxing the return induces more of the activity.
And frankly the history of the 35 years since the Reagan Revolution has shown clearly that reducing the tax on investment returns has NOT induced intensification of investment but instead allowed for every greater conspicuous consumption. Donald Trump anybody?
Note in passing that this change in framing, this gestalt switch, argues for tax on realized income rather than wealth as such. You want a tax high enough to encourage reinvestment but not so high as to choke off all consumption. Because people will consume, people will engage in display, the key is to make its marginal cost such that people will have incentives to maintain efficiency in investment.
Just a silly thought popped into the pea brain. How does one enter into a contract with your children pre-conception? If a fertilized egg has the right to life then it should the egg agree to be fertilized??? Are sperm and eggs Free To Chose? The World Wonders.
Not silly at all. In classical theory the parent, or at least the father, is perfectly free to enroll his children into contractual obligations at any time before they enter “legal maturity”. In Republican Rome (i.e. pre-Empire) this could be as late as 40 years old. I am old enough to remember the days when my mother was legally “Mrs. George Webb” and signed checks and contracts as such. It was only a few years before I entered college that college administers officially lost their legal status as “in loco parentis”. Because anyone under the age of 21 was not legally an adult and so had to be under someone else’s legal control. Like Dean Wormer of Animal House.
Patriarchy may be stultifying. But it is legally pretty simple.
It sounds like something Joan Robinson would have and quite possibly might have written. She frequently pointed out that the science of economics was something that people did and that those people were typically trying to advance the goals of the rentier class.
I would like to offer an anthropological description of homo-privitus as an alternative to your homo-oeconomicus. I posit homo-privitus as the parent of homo-oeconomicus.
The history I read has homo-privitus predating the industrial revolution but coming out of the devolution of kings and emperors. The control over land and finance went from being more singularly held to being somewhat distributed to individuals and their offspring under the protection of the “state”.
The existence of homo-privitus has neutered any attempts to move to totally sovereign finance and homo-oeconomicus was created as the religious myth of cover for those families at the top of the class structure that homo-privitus necessitates.
So what do you think of China asking the IMF on Friday to have the yuan included in the formula? Given that changes to the IMF distribution have to go thru Congress, how long before China (and others) push the AIIB as a “better” alternative to the IMF?
P-historian interesting but not backed by any particular version of history I am aware of. And I was a drop-out from Cal’s PhD program in History where one of my foci was medieval British agrarian economics.
There really was no time in the history of Medieval Europe that kings or emperors had anything like ”singularly held” control over either land or finance. And if anything the pattern went from less control to more control over the 1000 year period in question.
Certainly the powers of individual monarchs and dynasties over economic resources including land ebbed and flowed over time and from place to place. But I know of no overall tendency for that power to “devolve” from emperors to “homo privitus”.
Which is to say I would be interested to see cites to that “history I read”.
I only have a BA but am 67 and have been reading and watching for many years.
I will cite Secrets of the Temple by Greider as proof of private finance in our lifetime. Is there a comparable book about the Bank of England?
I think it would be grand to see a comprehensive cite for global inheritance rules, and exceptions for those at the top end. How about the history of private finance and the people who have owned it over the centuries…..and own it now…..nope, no cite.
After I published my comment I thought that an apt anthropological view of the current conflict in international finance would be better cast as homo-privitus vs homo-sovereign ( MMT if you want to be PC)
I am quite the admirer of Greider and am the farthest thing from an expert in “private finance in our lifetime”.
That said I was reacting specifically to this: “The history I read has homo-privitus predating the industrial revolution”.
Like you I am no spring chicken (being 58) but I am pretty confident that equating “in our lifetime” and “predating the industrial revolution” is a mistake. Got another author?
I found the following two quite enlightening:
Debt, The First 5000 Years by Graeber
Monsters of the Market by David McNally
The original motto of the US was E Pluribus Unum. The current motto, In God We Trust, was changed in my lifetime.
My favorite anthropological theory has a Devils Pact (grin) being made around the Enlightenment period we haven’t quite made it through. The pact is between the Xtian religious types who were losing relevance and the folks of finance and ownership of the period. The agreement was to guarantee relevance for the religions in exchange for support of private finance, inheritance and emerging private ownership of property/magna carta.
The Magna Carta was first issued in 1216. I’d fact check the rest but you have given me nothing to work with. I will say that during the immediate Enlightenment (wherever you want to date it) that the fundamental relation ship between land owners and banking was unrelentingly hostile. Nor were bankers at that time particularly Xtian. Or in important cases even nominally Xtian.
A minor correction: the journal the recent paper by Gintis and Helbing on Homo Socialis appeared in is the Review of Behavioral Economics (ROBE), which I happen to edit. The paper, which is quite long and makes many controversial claims, is followed by 14 commentaries by reasonably well-known economists who engage them on a variety of serious points. The provide individual rejoinders to these comments.
Homo economicus is a Neanderthal:
Using classical physics to understand human beings? Like phrenology?
Think twice about Econospeak bloggers who seem to get it but don’t quite have the courage of their convictions:
As you suggest with the comment about a bibliography, the interesting/potentially revolutionary issue is the meta one: how is it the case that Veblen destroyed 20th Century Econ writing at the end of the 19th Century and Polyani in 1944 expose errors that define post-war “truth”?
the field of economics is inhabited by genetic outliers who are selected on the basis of talents and interests that are linked to behaving like (and believing falsely that others behave like) homo economicus.
-the central error is imagining that science writ large is identical with Newtonian science, but the vast majority of critics (especially Marx influenced) share the same confusion about science.
-eating the critics: behavioral insights are adopted just enough to make the formalism palatable but not enough to get close to truth. The data says: Rationality is the exception and is a dumb place to start any theory of human behavior. “Bounded rationality” is still wrong, but disarms the attack.
Thornton by the 1880s and after and under the influence of Alfred Marshall clearly the answer is Newtonian science. But from the 1770s and Adam Smith to the say 1860s and latish Marx I would say it was some toxic mix of Natural Law and Historicism.
That is Economists in the age of Smith did not dub themselves as Scientists but instead as Moral Philosophers. Deductionists and not would be Inductionists..
If you are interested in advancing the discussion it’s important to face up to the situation: despite many critiques on homo oeconomicus or other aspects of Neo-liberalism, economics of virtually every stripe has been actively antagonistic to reality since Hicks misread Keynes.
The question isn’t “is economics broadly misguided?” Lars Syll’s blog is a daily exercise in the infinite permutations of the answer: “Yes.”
The question, then, is the persistence of economics.
One part of the answer, IMHO, is the laundry list of standard misinterpretations of critiques, some of which I believe you employ.
My points about Newton vs. Darwin are not a rehash of debates about Popper. (Also, beware, I have never, ever seen anyone who had anything to do with economics who had even the slightest understanding of what Adam Smith wrote, so secondary sources are pretty useless) They aren’t subject to historical questions of who Adam Smith was reading. They aren’t the accusation that economics has “physics envy”.
The persistence of economics is in itself an inductive argument that the critics are missing something. I think that something is a failure to recognize their own unconscious Newtonism.
Ruminate on this, perhaps: Jane Goodall is a great scientist.
Thornton ruminate on this. I have no obligation or particular interest in advancing the discussion along lines you think important. You on the other hand are free to present any thesis you like relating to the broad topic of economic history or the state or sterility of modern economics. Hey AB is Liberty Hall, spit on the rug and call the cat a bastard. But it is not for you to judge what is “important” for me “to face up to”.
You presented your “points” in the form of a question addressed to me along the lines of Perry Mason’s trademark line “Mr. Smith, isn’t it true —” Well unlike Perry Mason you don’t get to script my answers. If you don’t like them, don’t ask.
But since you bring it up. Popper did not invent historicism, he diagnosed it. And in the case of Marx self-evidently correctly, dialectical materialism is historicist from stem to stern and it was Marx I was referencing. And while you have never seen anyone actually familiar with Smith, this may be because you are not a contemporary of Malthus, Ricardo, and Say who certainly were and who collectively established the theoretical basis for Home Oeconomicus.
But feel free to ignore this, just as you were free to ignore the post to begin with. Because you don’t answer to me any more than your response to my post makes me answerable to you. I’ll chew my own cud thank you.
I’m sorry I came off like that, Bruce. My ire was misdirected. I apologize.
You will understand, I hope, my search for a chink in the armor of the econoblogosphere. Humans are suffering and dying. But because the folks who really need the message are quite immune, I sometimes abuse the people like yourself who are smart and intellectually flexible. You are not the problem, but rather a potential vector for the solution. But I have no right to make demands.
By the by, I didn’t ignore your post, I anticipated it by several months, as you’d know if you read my first link.