Rationality and Ideology in Economics

Duncan K. Foley Rationality and Ideology in Economics ROBERT H EILBRO NER HAS HAD A LONG-STANDING IN TEREST IN THE issues of rationality and ideology in shaping economic theory (see, particularly, Heilbroner, 1988, chaps. 1 and 8, and Heilbroner, 1999, chap. 11). Heilbroner argues that the conception of rationality under­ lying economic theory is specific to the emergence of capitalism as a mode of production and that economics as a science cannot avoid confronting issues (especially the distribution of material wealth and power) that are inherently political and ideological. This essay explores these issues in the spirit of Heilbroner’s concerns. RATIONALITY AND ECONOMICS “Rationality” has played a central role in establishing the hegemony of contemporary mainstream economics. As the specific claims of robust neoclassicism fade into the history of economic thought, an orientation toward explaining economic phenomena as “rational” has become the touchstone by which mainstream economists recognize each other. This is not so much a question of adherence to any particular conception of ratio­ nality, but of taking the rationality of individual behavior as the unques­ tioned starting point of economic analysis. As we shall see, mainstream economics has room for various concepts of rationality (“full rationality,” “bounded rationality,” “substantive rationality,” “procedural rationality,” to list a few) and for vigorous debates over their relative merits. The concept of rationality connects economics firmly to the Hobbesian-Lockean tradition o f political philosophy, which purports social research Vol 71 : No 2 : Summer 200 4 329 to explain the political and economic organization o f modern soci­ ety as the necessary outcome o f the interaction o f naturally consti­ tuted rational individuals confronting each other as com petitors for scarce resources. To avoid the terrible consequences of anarchic struggle, these rational individual actors are supposed, according to this “ju st so” story, to agree to the institutions o f property and political authority that constitute the framework o f modern society. A hallm ark o f these institutions is that they are in principle demo­ cratic and egalitarian (everyone has an equal right to vote or to hold property) but lead inexorably to sharp inequalities in economic well­ being. An economic science whose philosophical starting point was not rational individual action would create an em barrassing discord with this political tradition. The whole point o f the Hobbes-Locke “discourse” (to use the jargon o f postm odernism ) is to rationalize real inequalities o f power and economic well-being as unavoidable consequences o f the interaction o f naturally constituted rational individuals confronting each other as equals. Economic science has a place in this grand project only insofar as it can relate itself to the same philosophical foundations. This ideological imperative imposes a series ofunresolvable contra­ dictions on rational-choice economics. Much of the energy of the most imaginative and energetic scholars who have been drawn to economics has been devoted to proposals for the (inevitably unsatisfactory) resolu­ tion ofthese contradictions. I would like to review this story and suggest where the fundamental source of these contradictions lies. The diffi­ culty is that in seeking to explain how naturally constituted rational individuals might invent the institutional structures of modem society (largely capitalist structures of what Marx called “bourgeois” society, though that characterization has lost some of its sting with the passage of time), mainstream economics tells at best half the story. The other half, without which the whole project tends to become lost in a mass of unresolvable methodological problems, is to explain how m odem society constitutes human beings as individuals who see themselves in conflict with others over scarce resources. 330 social research VARIETIES OF RATIONALITY One of the tricky aspects of the discussion of rationality is that the word “rational” is used in many different ways. Economists use “rationality” in a rather peculiar and technical sense. In ordinary language, to be “rational” means to act consistently and instrumentally to achieve some well-defined end. “Irrational” behavior is behavior that appears to be inherently self-defeating or pointless. Thus, it is rational to pile up stones to make a wall, if you want to build a wall, but irrational to pile stones up in one place...