1 Rationality and Economics
“Rationality” has played a central role in shaping and establishing the hegemony of contemporary mainstream economics. As the specific claims of robust neoclassicism fade into the history of economic thought, an orientation toward situating explanations of economic phenomena in relation to rationality has increasingly become the touchstone by which mainstream economists identify themselves and recognize each other. This is not so much a question of adherence to any particular conception of rationality, but of taking rationality of individual behavior as the unquestioned 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.

Grounding economics in the concept of rationality connects economics firmly to the Hobbesian-Lockean tradition of political philosophy, which purports to explain the political and economic organization of modern society as the necessary result of the interaction of naturally constituted rational individuals confronting each other as competitors for scarce resources. To avoid the terrible consequences of anarchic struggle, these rational individual actors are supposed, according to this “just-so” story, to agree to institutions of property and political authority, which constitute the framework of modern society. A hallmark of these institutions is that they are in themselves in principle democratic and egalitarian (everyone has an equal right to vote or to hold property) but lead inexorably to sharp inequalities in economic well-being. It is not hard to  see that an economic science whose philosophical starting point was not rational individual action would create an embarrassing discord with this political tradition. The whole point of the Hobbes-Locke “discourse” (to use the jargon of post-modernism) is to rationalize the existing inequalities of power and economic well-being that arise from the institutions of modern society as being unavoidable consequences of the interaction of naturally constituted rational individuals confronting each other as equals, given the natural and unalterable conditions of human existence. Economic science has a place in this grand project only insofar as it can relate itself to the same philosophical foundations.

As we shall see, this ideological imperative imposes a series of unresolvable
contradictions 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 the discussion of and proposals for the (inevitably unsatisfactory) resolution of these contradictions. I would like to use this paper to review this story and suggest where the fundamental source of this impasse lies.

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