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Article Excerpt
Abstract
In this paper we discuss the fundamental inconsistency that results from employing the two traditional concepts of rationality as the basis of selecting social goals. We then consider the possibility that the selection of social goals must be based on explicitly ethical criteria. To do so a third concept of rationality namely, ontological rationality, should be adopted. Moreover, we argue that J. M. Keynes in A Tract Monetary Reform based his public policy recommendations on a modified version of ontological rationality, thereby introducing ontological rationality into economics as the basis for selecting social goals. (JEL B00)
Introduction
Previously, two of the authors examined alternative concepts of rationality and the determination of social goals [Ley and Johnson, 1990]. In this paper, we discuss the fundamental inconsistency that results from employing the two traditional concepts of rationality [Simon, 1985] as the basis of selecting social goals. We are, therefore, led to consider the possibility that the selection of social goals must be based on explicitly ethical criteria. To do so, a third concept of rationality, namely, ontological rationality, should be adopted. Moreover, we argue that J. M. Keynes in A Tract Monetary Reform [1924] based his public policy recommendations on a modified version of ontological rationality, thereby introducing ontological rationality into economics as the basis for selecting social goals.
The Traditional Concepts of Rationality
Simon [1985] distinguished between the two traditional concepts of rationality. The broader of the two notions of rationality is procedural rationality, which is often utilized in the behavioral sciences. Here, rationality is defined as any thoughtful, reasoned recommendation or action [Simon, 1985, p. 293]. (1) Procedural rationality is satisfied when behavior follows appropriate deliberation, rather than impulse. It focuses on cognitive processes, especially the computational efficiency with which the decision-maker proceeds to resolve a problem. Limited decision making capacity requires economy in selecting the information that is used to guide choices, and to be skillful in relating present circumstances to past patterns in order to predict the outcome of our choices [Simon, 1985, p. 293]. This concept of rationality implies a limited ability to predict choice since specific decisions will be influenced by the available information, limitations on decision making capacity, and the agent's preferences. Since all of these may vary, different individuals may choose differently in identical circumstances. (2)
The neoclassical orthodoxy employs what Simon refers to as substantive rationality [Simon, 1985, p. 296]. Here, rationality is determined by the appropriateness of the outcome arrived at. Substantive rationality assumes that people's choices are well informed and directed towards unambiguous goal involving individual maximands. (3) Substantive rationality assumes maximization is achieved and, thus, has strong ethical implications. It amounts to asserting that maximizing one's self-interest is at once a proper and descriptive end for human action [Sen, 1987, p. 15]. Moreover, nothing including freedom and life itself has intrinsic value, things being valued only for the utility they provide. Self-interest becomes a tautology, i.e., if I make a choice it must be because I expect it to maximize my well-being. At this level of generality, the hypothesis is untestable and explains nothing. (4)
Fundamental Inconsistency in the Neoclassical Concept of Rationality
Despite the long standing critique of the neoclassical concept of substantive rationality, (5) we argue that a more substantial problem results when substantive or procedural rationality are employed in evaluating social goals because to do so involves a fundamental inconsistency. Neither the neoclassical concept of substantive rationality, nor the somewhat broader concept of procedural rationality, provides a rational basis for evaluating alternative social goals.
The selection of social goals requires that we be able to explain the origin of values, and provide criteria for evaluating alternative values before social goals can be evaluated, hence, selected. Despite some differences in procedural and substantive rationality, neither concept of rationality provides an acceptable basis for objectively evaluating social goals. Since goals are taken as given, arising outside the analysis used by the neoclassical notion of substantive rationality, social goals remain unexamined. Substantive rationality simply assumes the form of the utility function, while procedural rationality holds that goals must be derived from observation. However, neither concept provides any basis for evaluating the arguments included in the utility function. (6) Goals based on procedural rationality are subject to the same critique as the neoclassical orthodoxy's notion of substantive rationality since the social goals sought remain meta-economic. Thus, the outcomes of economic choice cannot be viewed as fully rational, even if goals are pursued in a procedurally rational manner.
Irrespective of neoclassical counter-arguments, the goals sought by economic agents in orthodox theory are conditioned by perception...
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