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2010 | OriginalPaper | Buchkapitel

5. Rationality in Economic Thought: Frank Knight, Ludwig von Mises, Friedrich Hayek, and James Buchanan

verfasst von : Prof. Richard B. McKenzie

Erschienen in: Predictably Rational?

Verlag: Springer Berlin Heidelberg

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Abstract

The discipline of economics includes severe critics of rational behavior as postulated by modern neoclassical economists. These critics, mainly among economists with a decidedly subjectivist orientation, disagree with the proposition that economics’ main concern is (or should be) with the allocation of scarce and known means of production among essentially unlimited but known human wants. Generally, if subjectivists accept a role for rationality in economic inquiry, they see the analytical role as strictly, but imprecisely, limited, and they posit that the discipline’s real core concern is the development of principles on the efficient allocation of scarce resources among competing wants that emerge from individuals’ explorations into the field of potential values and as they interact with others (with the wants never given to external observers-qua-economists) and that are known only to the individuals themselves. Subjectivists reject the strictly self-interested model of human behavior captured in homo economicus. Such a construction of human decision making is excessively narrow and confining. Subjectivists tend to insist that wants involve evaluations of real-world goods that are the objects of trades conducted to serve the larger and more ephemeral ends of individuals. People might participate in markets to buy goods based on evaluations not only of the goods but also the ends the goods might serve. Such evaluations of both the goods and the ends require individualized evaluative, mental processes that are extraordinarily difficult, if not totally impossible, to measure in a way that allows for scientifically valid empirical assessments of any theoretically derived predictions. Subjective evaluations, which imply the conception of some action (a key behavioral consideration) that results in improvement for the acting individuals, necessarily mean, according to subjectivists, that any attempt to transfer the analytical methods of the hard sciences to human behavior involves a grave misunderstanding of human behavior, including the more narrowly focused subset of human behavior, economic behavior, that emerges from action (as Ludwig von Mises would define action).

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Vorheriges Kapitel Rationality in Economic Thought: From Thomas Robert Malthus to Alfred Marshall and Philip Wicksteed

Nächstes Kapitel Behavioral Economists, and Psychologists’ Challenges to Rational Behavior

Knight wrote, “A scientific world view has no possible place for the intuitive, or any other foresight of new truth, in advance of perception. Its fundamental assumption is that truth is always the same and is known through perception and memory. But, that truth is always the same is equivalent to saying that the world is always the same. Change is unreal, or in so far as there is real change, the world is knowable only historically, the future is unpredictable” (1935, p. 110).

On the difficulty of making specific predictions, Knight wrote, “Who is to say whether a specified punishment will reduce a particular crime? Whether dropping bombs on any enemy population will weaken or strengthen their military morale? Whether raising wages will cause men to work harder or to loaf, or what the effect of a change in the price of diamonds will be upon sales? It depends” (1935, p. 122).

On the conflict between understanding and enjoying, Knight elaborated, “We strive to understand the how and why of our actions, to analyze the technique; and yet when this process is carried too far and it becomes altogether a matter of routine manipulation of means to produce an effect preconceived and foreseen, there is loss of interest in the action.” For that matter, Knight continued later, the process of analysis “centers attention on the results of the activity, weakening or destroying the value of the process” (1935, p. 107).

Knight wrote on the power of common sense, To repeat, it is possible for a good judge of human nature to form opinions with a high degree of validity as to what individuals or groups are likely to do under conditions present to observation. But none of this is done by methods of science. It is all in the field of art, and not of science, of suggestion and interpretation, and not accurate, definite, objective statement, a sphere in which common sense works and logic falls down, and where, in consequence, the way to improve our technique is not to attempt to analyze things into their elements, reduce them to measure and determine functional relations, but to educate and trim our intuitive powers (1935, p. 125).

On human action grounded in perfect selfishness, Mises observed, “It is generally believed that economists, in dealing with the problems of a market economy, are quite unrealistic in assuming that all men are always eager to gain the highest attainable advantage. They construct, it is said, the image of a perfectly selfish and rationalistic being for whom nothing counts but profits. Such a homo economicus may be a likeness of stock jobbers and speculators. But the immense majority are very different. Nothing for the cognition of reality can be learned from the study of the conduct of this delusive image” (1949, Sect. 4.XIII.6).

On the coincidence of “economic” and “rational” activity, Mises mused, “It is, therefore, illegitimate to regard the ‘economic’ as a definite sphere of human action which can be sharply delimited from other spheres of action. Economic activity is rational activity. And since complete satisfaction is impossible, the sphere of economic activity is coterminous with the sphere of rational action. It consists firstly in valuation of ends, and then in the valuation of the means leading to these ends. All economic activity depends, therefore, upon the existence of ends. Ends dominate economy and alone give it meaning” (1951, Sect. II.5.39).

Mises added in another book,

“The spheres of rational action and economic action are therefore coincident. All rational action is economic. All economic activity is rational action. All rational action is in the first place individual action. Only the individual thinks. Only the individual reasons. Only the individual acts. How society arises from the action of individuals will be shown in a later part of our discussion” (1951, Sect. II.5.8).

Mises observes, “Hence, all talk about the primacy of irrational elements is vain. Within the universe the existence of which our reason cannot explain, analyze, or conceive, there is a narrow field left within which man is capable of removing uneasiness to some extent. This is the realm of reason and rationality, of science and purposive action. Neither its narrowness nor the scantiness of the results man can obtain within it suggests the idea of radical resignation and lethargy. No philosophical subtleties can ever restrain a healthy individual from resorting to actions which – as he thinks – can satisfy his needs. It may be true that in the deepest recesses of man’s soul, there is a longing for the undisturbed peace and inactivity of a merely vegetative existence. But in living man, these desires, whatever they may be, are outweighed by the urge to act and to improve his own condition. Once the forces of resignation get the upper hand, man dies; he does not turn into a plant” (1949, Sect. 7.XXXIX.6).

Mises recognized the usefulness and limitations of empirical data in this way:

“The booking-office clerk at Paddington can discover, if he chooses, what proportion of travelers from that station goes to Birmingham, what proportion to Exeter, and so on, but he knows nothing of the individual reasons that lead to one choice in one case and another in another. But, Russell has to admit that the cases are not “wholly analogous” because the clerk can, in his nonprofessional moments, find out things about human beings that they do not mention when they are taking tickets, while the physicist in observing atoms has no such advantage” (1962, p. 25).

On the selection process for thinking, Mises wrote, “Experience is a mental act on the part of thinking and acting men. It is impossible to assign to it any role in a purely natural chain of causation the characteristic mark of which is the absence of intentional behavior. It is logically impossible to compromise between design and the absence of design. Those primates who had the serviceable categories survived, not because, having had the experience that their categories were serviceable, they decided to cling to them. They survived because they did not resort to other categories that would have resulted in their own extirpation. In the same way in which the evolutionary process eliminated all other groups whose individuals, because of specific properties of their bodies, were not fit for life under the special conditions of their environment, it eliminated also those groups whose minds developed in a way that made their use for the guidance of conduct pernicious” (1962, p. 15).

Ariely D (2008) Predictably Irrational: The Hidden Forces that Shape Our Decisions. HarperCollins Publishers, New York

Becker GS (1993) A Treatise on the Family expanded. Harvard University Press, Cambridge, Mass

Hayek FA (1967) Studies in Philosophy, Politics and Economics. University of Chicago Press, Chicago

Knight FH (1933) The Economic Organization. University of Chicago, Chicago

Schumpeter JA (1954) History of Economic Analysis. Oxford University Press, Oxford, U.K

Titel: Rationality in Economic Thought: Frank Knight, Ludwig von Mises, Friedrich Hayek, and James Buchanan
verfasst von: Prof. Richard B. McKenzie
Verlag: Springer Berlin Heidelberg
Buch: Predictably Rational?
Print ISBN: 978-3-642-01585-4

Electronic ISBN: 978-3-642-01586-1

Copyright-Jahr: 2010
DOI: https://doi.org/10.1007/978-3-642-01586-1_5

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