Economic Man

Throughout the history of economics, there has existed a debate regarding the concept of the economic man (homo economicus). According to this concept, human beings are unwaveringly rational and self interested economic actors. The goal of the economic man is to maximize his or her own utility. The concept of an economic man was first mentioned by Adam Smith in two of his well known pieces, Theory of Moral Sentiments and the Wealth of Nations. Smith argued for the existence of “rational and narrowly self-interested actors who have the ability to make judgments toward their subjectively defined ends” <ref>http://en.wikipedia.org/wiki/Homo_economicus</ref>. We began the class with a debate over slavery and an economists’ opposition to slavery, based on a violation of the notion of an economic man.

Some thinkers, notably Thomas Carlyle, believed that some groups did not possess the intelligence or reasoning abilities necessary to govern themselves. Therefore, other more “advanced” races should be in charge in order to ensure their wellbeing and to maximize world productivity. In opposition to this line of thinking was J.S. Mill and a long list of abolitionists who believed that Thomas Carlyle’s desire to create a ruling race to subject all “sub-human” races was a direct violation of the principle of the economic man. Mill's belief was that regardless of race or education level, people have the ability as economic actors to make the rational decisions that will maximize their own utility and thereby ensure their well-being.

Capabilities Approach

First developed by Amartya Sen in the 1980s as part of welfare economics, capabilities is described by Sen as a "reflection of the freedom to achieve valuable functionings."<ref name="Reexamined">Inequality Reexamined, Amartya Sen, Harvard University Press, 1992.</ref> The theory assesses:

well-being
1. This measure of well-being includes being healthy, well-fed, clothed, and housed.
freedom to pursue well-being
1. This measure examines the influence that the the capability to pursue well-being may have on the person's well-being. For example, a person may be healthy, fed, clothed, etc, but barred from pursuing education, such as is the case for females in some cultures. If the economic actor does not have the freedom to pursue his or her desired goal, well-being suffers.<ref name="Reexamined">Inequality Reexamined, Amartya Sen, Harvard University Press, 1992.</ref>

According to the theory, this freedom can be limited by a variety of factors, including government intervention, accessibility of education, economic situations, etc. Using Sen's capabilities approach, we can deduce that Sen believes that as economic actors, human beings have the theoretical ability to make the decisions that will bring them to whatever state of being they regard as wellbeing. However, humans require freedom to make the aforementioned decisions. However, Sen is unclear about what freedom entails.

Sen on Capabilities

Sen developed the capabilities approach with the goal of developing a framework that could assess and measure poverty in terms of well-being, in the hopes of ultimately influencing governments to introduce policy specifically designed to rectify the pinpointed issues. However, the theory has proven difficult to translate into actual policy.

In his writings, Sen talked a lot about the advantages of human capabilities. In the Capabilities and Resources chapter of his book Idea of Justice, he pointed out that everyone is capable of making rational choices in the economy. These rational choices that actors make will lead to the well-being of society as well as the individual <ref name="IdeaOfJustice">Sen, Amartya. Idea of Justice. Penguin Group, 2009.</ref>

What's wrong with the Rational Agent?

Bounded Willpower/Bounded Rationality

People may not choose the rational choice due to the fact that they have an inability to be focused in seeking information that allows for an accurate pursuit of rationality.
“The failure of people to act in a fully rational way, but these departures … idea of rationality or its demands should themselves be modified” <ref name="IdeaOfJustice" />

According to both of these subjects, an individual’s focus on information may be due to the lack of resources they are given based on life circumstances. These resource factors include many different things. Factors such as sickness, access to education, gender, and most importantly time constraint. Essentially variations of these capabilities stunt the growth of an individual from making certain rational choices. In much simpler terms, if a man has no time to gain certain kinds of information then it will be hard for him to make such rational choices. However, on the contrary, Sen does mention another form of rationality behavior. The sense of rationality may appear to be irrational for some. Inside this idea, Sen discusses the notion of irrationality and how it may appear to others. For instance “what appears to others as hugely irrational and even downright stupid might not actually be so inane” <ref name="IdeaOfJustice" /> The idea is that if someone displays imprudent behavior based on reasoning of their consensus, then it may be rational according to them; but it may be considered irrational to others. This display of rational behavior is due to the lens of the impartial spectator (a term used by Adam smith in the early 1700’s) <ref>Smith, Adam. Theory of Moral Sentiments. n.d.</ref>. The nature of these conclusions is to understand that these lenses either stem from personal expectations or through acceptance by the institutions.

What are the demands of Rational Choice?

Sen answers this question in a more careful way than do most economists. Sen noted the popular answer that most people think of, which is the sole motive of self-interest. However, Sen states that the rational choice theory can arise due to self-interest maximization, but also reason beyond the rational choice. For example, agents may not act self interested if there is no actual choice, because an actual choice is not a rational choice. So, it must be that agents can arrive at a choice even going through the motions of rationality. The following scenario represents an easier way to understand this concept:

Team A is down by two points in a basketball game with five seconds on the clock. Team A has one timeout left and if they call it they will advance the ball into the half court to save time running up the full court length. However, Team A decides to skip out on the timeout and rush the ball up the full court length to throw off the defense of Team B.

The rational choice in this scenario will be to call the timeout to advance the ball into the half court because there will be a better shot selection given the fact that two seconds will be saved from running it up through the full court. In this case, the rational choice has a self interest for Team A because this gives them time to intelligently draw up a play and execute it. The actual choice for Team A was to skip the timeout, but because of that choice this has less of a self-interest motive to it because the chances of winning the game or tying it are very slim compare to taking a timeout. This actual choice differs from rational choice by the lack of benefits team A can gain from their actual choice. Essentially this idea would be based on the link between what is considered rational and what we have reason to choose.

Other people and Rationality

Sen also discusses the notion of actual choice being invariable in relation to choice being scrutinized. In his book (the idea of justice) Sen states “Even if every actual choice happens to be invariably rational in the sense of being sustainable by critical scrutiny, the plurality of rational choice makes it hard to obtain a unique prediction about a person’s actual choice from the idea of rationality alone” . This statement is often difficult to digest, however Sen is reasonably saying that even when people scrutinize the rational choice it is still hard to predict the separation from rationality to actual choice. Take for instance; let us compel ourselves to the example of John Doe having to make an important choice. This choice is whether or not John Doe wants to give millions of dollars to the relief fund in Japan. In this case what are the rational choice and the actual choice? Some may say that the rational choice can be to give a million dollars to Japan because they need it. Not only does Japan need it, if John Doe has the money for a big donation then why not use it for that cause. Also the institutions view this as the right thing to do and so one does it then all does it. The problem in this situation is that how do we resolve the difference between the two types of choices.

J.S. Mill and Sen

J.S. Mill (May 20, 1806 – May 8, 1873) was a British economist who, in addition to making significant contributions to the field of political economy, focused on the liberties of the individual versus the control of the state.<ref name="MillAndSen">MOZAFFAR QIZILBASH (2006). Capability, Happiness and Adaptation in Sen and J. S. Mill. Utilitas, 18, pp 20-32</ref>. In classical economist fashion, Mill posited that the wealth or poverty of nations should be attributed to institutions rather than to the race of ethnicity of inhabitants. <ref>David M. Levy, Sandra J. Peart, "The Secret History of the Dismal Science. Part I. Economics, Religion and Race in the 19th Century." January 22, 2001. Library of Economics and Liberty. 3 May 2011. <http://www.econlib.org/library/Columns/LevyPeartdismal.html></ref>

Differences Between Mill and Sen

While both Sen and Mill are both strong proponents of individual liberties, differences do exist between their works. To Mill, happiness plays a central role in determining the degree of liberty that an individual possesses. Happiness is defined as a the degree to which one enjoys "pleasure and the absence of pain" and unhappiness as the degree to which one suffers "pain and the privation of pleasure"<ref name="MillAndSen">MOZAFFAR QIZILBASH (2006). Capability, Happiness and Adaptation in Sen and J. S. Mill. Utilitas, 18, pp 20-32</ref>. Mill believes happiness to be a key measure of quality of life. While Sen is also concerned with quality of life as a measure of capabilities, he places little emphasis on happiness as a useful measure of capability.

Fleming Jenkins's sketch depicting exchange in circular form

Similarities Between Mill and Sen

Mill and Sen are both proponents for the improvement of capabilities - that is, the power of human beings to improve their lives and pursue the lifestyles and careers that they desire. Both Mill and Sen have written extensively on the issue of inequality impacting the capabilities of women. In a paper titled Missing Women - Revisited, Sen argued that up to 100 million "missing women" had disappeared due to glaring inequalities regarding access to resources such as healthcare and education as well as employment opportunities. In the article, he posits that "sex selective abortions" have played a significant role in the disappearance of women in his native India.<ref name="MissingWomenRevisited">Missing Women-Revisited: Reduction In Female Mortality Has Been Counterbalanced By Sex Selective Abortions, Amartya Sen, BMJ: British Medical Journal, Vol. 327, No. 7427 (Dec. 6, 2003), pp. 1297-1298</ref>. Similarly, Mill noted in The Subjection of Women that women are disadvantaged in terms of their accessibility to "higher social functions" that are made accessible by education. He was clearly dissatisfied with the inequalities existing between the capabilities of men and women, and expressed a desire for women to be "brought up equally capable of understanding business, public affairs, and the higher matters of speculation, with men." While is it clear that Mill is concerned with women's capabilities, he is addressing the inequality in terms of education-given abilities as opposed to Sen's focus on accessibility of opportunities <ref name="MillAndSen" />. Specific focuses aside, both Mill and Sen are clearly concerned with the capability of human beings to pursue freedom and success. Neither thinker believes that one race, sex, or ethnicity is any more "capable" than another, simply that socioeconomic conditions often prevent economic actors from realizing their full potential.

Smith According to Sen

According to Amartya Sen, Smith takes on this notion of self love and fellow feeling as the underlying pursuit of self–interested behavior. Smith names clearly the differences for going against self-love.

1. Sympathy: “the most humane actions require no self-denial, no self command, no great exertion of the sense of priority , and consist only in doing what this exquisite sympathy would of its own accord prompt us to do”

2. Generosity: When humans sacrifice their own interest for the interest of their friend.

3. Public Spirit: When the economic man views an object with another in the light in which they appear to the rest of the agents instead of himself.

In light of these three dictates of self-love, sympathy (in simpler terms) is the act of doing good deeds to others with self-sacrificing involved. The generosity is much simpler. Generosity is when the human actor no longer uses his self needs to do good, he will prove the best interest for another person. Finally Public spirit is generally referred to the “Impartial Spectator” . The impartial spectator is the thought that the human actor inserts himself in the shoes of another actor to determine some sort of perspective. For instance if John Doe gets hit with a bullet then I would envision myself getting hit by the same bullet and telling myself that I feel his pain.

The Famous Quote

In the Wealth of Nations Adam Smith stated one of the most famous quotes in the economic discipline. From a homoeconomic standpoint Smith states “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard of their own interest. We address ourselves not to their humanity but to their self-love” . The idea of this quote is that the butcher and the baker both want their money or some form of mutual exchange. Better explained by Sen, he quotes, “The butcher, the brewer and the baker want to get our money by giving us the meat, the beer and the bread they make, and we - the consumers – want their meat” . Homoeconomic man becomes visible in this quote because it stresses the fact that agents engage in self interest behavior in order to raise their utility. If agent A has 5million dollars and agent B wants that 5million, agent B will have to have some sort of product valued at 5million dollars in order to raise his utility. So both agents engage in a trade where they are both attempting to maximize their utility.

Thomas Carlyle and Sen

Thomas Carlyle lived from 1795-1881. He was an essayist, historian and greatest speaker for hierarchy in his era (Levy & Peart). It is Carlyle who originally created the term the “dismal science. “ This story has been misinterpreted for generations. In actuality, Carlyle was attacking J. S Mill on his assumption that people were the same and entitled to liberty. In Carlyle’s essay entitled “An Occasional discourse on the Negro Question” he claims that “[liberating black people] will give birth to progenies and prodigies; dark extensive moon-calves, unnamable abortions, wide-coiled monstrosities, such as the world has not seen hitherto!” Carlyle’s overarching argument as seen in his quote was that all men are not created equal. In fact he believed that “blacks were sub humans who needed the tutelage of whites wielding the beneficent whip if they were to contribute good to society” (Levy & Peart). While this may seem like an outrageous argument today, it is important to note that Carlyle and other thinkers were instrumental in reviving the pro-slavery movement in England. Carlyle’s argument was not specific to blacks. He also attacked the Irish and other so called “sub humans.” When attacking J.S Mill for his anti-slavery agenda, Carlisle gives us an insight into how his thinking affects the notion of the economic man. He states that “Mr. Mill never deigns to consider that and Irishman is an Irishman, and not an average human being-an idiomatic and idiosyncratic, not an abstract man.”

Carlyle’s Argument for Re-Enslavement

According to Carlyle and other pro-slavery proponents, the aftermath of emancipation in the West-Indies was a prime example of why the “beneficent whip” was necessary to make lesser humans productive members to society. For Carlyle the poor economic conditions in the West Indies were a direct result of blacks’ laziness and unwillingness to work. According to Carlyle,

“if the Quashee (a derogatory term meaning a Negro of the West Indies) will not honestly aid in bringing out those sugars, cinnamons, and nobler products of the West Indian islands, for the benefit of all mankind, then I say neither will the Powers permit Quashee to continue growing pumpkins there for his own lazy benefit; but will sheer him, by and by, like a lazy gourd overshadowing rich ground; him and all that partake with him, -perhaps in a very terrible manner.”

Carlisle ignored that the British and other colonial powers had a history of imposing harsh economic conditions on their former colonies as precursors to emancipation. Instead he blamed the innate laziness of the “Qhashee’s” for the massive unemployment and lack of production of the goods that the British wanted.

Relation to Market Oriented Economics

Carlisle supported a hierarchical worldview where the “competent ruled the less competent.” According to Carlyle this was necessary because in a free-market context, the less competent individuals would be taken advantage of. So in actuality, Carlyle believed that paternalism and re-enactment of slavery would actually protect the subjugated and enslaved from exploitation by the more advanced races.

Amartya Sen: Rational Fools: A Critique of Behavioral Foundations of Economic Theory

Sen’s major question is “in what sense and to what extent would egoistic behavior achieve general good.” Sen tries to decipher if a person who is acting in his or her own self interest can actually benefit the economy. Economists from Adam Smith to present day thinkers have argued that a “decentralized economy motivated by self-interest and guided by price signals would be compatible with a coherent disposition of economic resources.” Sen challenges this argument by insinuating that people are trying to simplify economics “in such a way that no matter what he does he can be seen to be furthering his own interests in ever isolated act of choice.” This goes back to the previous section that people have rational choices and actual choices. According to Sen’s model, examining a person’s choices to determine preference is an inaccurate way to describe economic activity. In Rational Fools, Sen discusses the notion of sympathy and defines it as “the case in which the concern for others directly affects one’s own welfare.” Interestingly enough Sen believes that sympathy is an egoistic in nature because “oneself is pleased at other’s pleasure and pained at other’s pain.” Sen finally comes to the conclusion that “the purely economic man is indeed close to being a social moron.” He encourages economics to move away from models dependent on “the economic man” because they are too simple and do not adequately describe human behavior. Instead he echoes the writings of John Harsanyi’s distinction between ethical and subjective preferences. Ethical preferences “must express what this individual prefers (or, rather would prefer), on the basis of impersonal social considerations alone.” Subjective preferences “must express what he actually prefers, whether on the basis of his personal interests or on any other basis.” These two considerations when examining one’s choices allow us to distinguish between economic actors' personal motivations and societal motivations.

Comparing Sen and Thomas Carlyle

Thomas Carlyle and Amartya Sen have very little in common. As shown, Amartya Sen is a champion of welfare and development economics. He believes in increasing one’s well being through being “healthy, well fed, clothed, and housed.” According to Sen people should have the freedom to pursue well being without being barred from their goals. On the other hand, Carlyle believed in the “beneficent whip.” He believed that black people, Irish, and other “sub humans” needed to be subjugated in order to become contributors to society. Obviously this is very contradictory to Sen’s beliefs. Even though these two thinkers vary in their beliefs of creating freedom and autonomy for people, they have similar views of sympathy and the role of the economic man. As previously stated Sen defines sympathy as “the case in which the concern for others directly affects one’s own welfare.” Sympathy is a scenario where “oneself is pleased at other’s pleasure and pained at other’s pain.” You may be asking, “how can someone who is a proponent of slavery be sympathetic toward the people he is trying to oppress?” If Carlyle truly believed that whites needed to yield the “beneficent whip” in order to make whites and other “races” better off, then he was sympathetic to their situation. In his “Gospel of Work” Carlyle explains that “true liberty of man, you would say, consisted in his finding out, or being forced to find out the right path, and walk thereon.” Paternalism can be defined as “father like control over subordinates.” In situations where paternalists like Carlyle were truly concerned with the other “races” welfare, then they showed aspects of sympathy. Amartya Sen is also similar to Carlyle in parts of his understanding of the economic man. As previously discussed, Sen believed that the concept of an economic man neglects the difference between social and personal preferences. According to Sen, the economic man is too simple of a model to truly describe human behavior and incentives. To assume a person is going to act the same way regardless of their race, education, or social status ignores the very structures that allow people to be capable of making decisions. Similarly, As Levy and Peart point out, “like most classical economists, Mill treated such characteristics as race as analytically irrelevant,” whereas Carlyle did not. They also state that “by and large the economists who defended a race-blind attitude toward the Economic Man, while the Sages (Carlyle & Co) argued for racial explanations of human behavior.” Even though Thomas Carlyle and Amartya Sen believed that race played a significant factor in ones decision making, these two thinkers come to very different conclusions. Carlyle concludes that whites must subjugate the other “races” in order to teach them how to be productive members of society. Sen believes that in order to enhance a person’s opportunities that may be constrained by race, sex, education etc., his or her well being must be improved by increase access to services and resources that will allow them to be “healthy, well fed, clothed, and housed.”

Conclusion

Throughout the history of economic thought the economic man has played a key role in developing models and economic theories. In recent years due to the financial crisis, more attention has been paid to heterodox economic thought which sometimes includes a rethinking of the economic man, and its relevance to economic theory. Behavioral Economics and Radical Political Economics are two branches that pay particular attention to reforming this aspect of economic theory. While this is an important aspect of today’s economic discourse, it is essential for economists to understand where this idea came from, and how it has evolved over the years. Thinkers like J.S Mill, Thomas Carlyle, Adam Smith, and of course Amartya Sen have offered important commentary on this notion of the economic man. This commentary is instrumental in today’s debate which is still an important aspect of the economics community.

References

Template:Reflist <references/> Robeyns, Ingrid, "The Capability Approach", The Stanford Encyclopedia of Philosophy (Summer 2011 Edition), Edward N. Zalta (ed.), forthcoming URL = <http://plato.stanford.edu/archives/sum2011/entries/capability-approach/>.

generate citations:

http://www.unicef.org/socialpolicy/files/Human_Rights_and_Capabilities.pdf