August 1, 2007

Economics and Freud

Filed under: Economics — duncan @ 7:23 pm

“There cannot be a completely consistent meaning to collective rationality. We have at some point a relation of pure power.”

Pop quiz: who said dat? Some post-humanist enemy of the enlightenment, attacking the Hegelian idea of the liberal state? A Foucauldian theorist of power relations? Nope: it’s Kenneth Arrow, discussing his impossibility theorem. It is impossible, Arrow argued (given certain more or less plausible assumptions) to derive a rational group choice from individual preferences. “What all of this means is that, while economics can explain individual choices, it cannot explain group decision making.”

That’s Steven Pressman, in my trusty Routledge guide to ‘Fifty Major Economists’. He goes on: “Robert Paul Wolff (1970) has drawn out the implications of the impossibility theorem for political philosophy… Wolff argues that, by removing the philosophical backing for democratic decision-making, Arrow has inadvertently provided a philosophical justification for political anarchism.”

Well I’ve read Wolff’s 1970 ‘In Defense of Anarchism’ – I had to write an essay on it at university. It’s a piece of nonsense; and Wolff is certainly no anarchist. He’s a Kantian, and his so-called anarchism has precisely no political component.

Still – isn’t it strange what economics is prepared to give time to? The idea that group decision making is necessarily irrational causes not a whimper of protest from the economic mainstream; but the idea that individuals might not themselves be rationally self-interested is still a form of heresy.

It takes only the smallest modification to Arrow’s argument to transform its conclusion. Say we treat individuals not as indivisible atoms but as actors who are themselves the products of conflicting forces. Let’s say that, instead of treating a group as a collection of conflicting preferences, we see an individual in this way. Arrow’s theorem would then apply to the rationally self-interested monads of economic theory: we are all at war against ourselves, and there cannot be a completely consistent meaning to any rationality.

Would this be such a grievous admission? Wouldn’t it fit rather neatly with, you know, the world as we know it? Come on, be honest. Was Kenneth Arrow himself always of one mind?

For most economists, I’d imagine, Freudianism is one step away from voodoo. And let’s be clear – I’m not altogether impressed with penis envy or the patriarchal horde myself. But for Christ’s sake. Where did we get the idea that treating individuals as ‘rational’ was rational? Doesn’t the idea of conflicting drives within the human psyche fit better with, like, science? Isn’t that what modern evolutionary biology teaches us?

Arrow’s formula shows us how close and how distant mainstream economics is from other significant trends in modern thought. A little miscegenation, please.

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