The Psychological Aspect

The Psychological Aspect

In a sense the "neo-classical" phase of the history or development of economic theory involved not only the beginning of the still continuing, progressive "mathematicization" of much economic theory, but also the beginning of the trend, which I have just been deploring, toward general prevalence of the mistaken view or supposition that all eco­nomic theory

could be made mathematical in nature, or reduced en­tirely to precise and rigorous, logical theorizing about, only, the relations among economic quantities or variables and among their changes.


 And this I think was responsible for the limitations (as well as the achieve­ments) of the so-called "psychological" part or aspect of all neo-classical theory—the new "utility analysis" which played so great a role within it. There is almost a paradox in the dual contrast between Ricardian-classical and neo-classical economics. The former, although it lacked the latter's calculus-born conceptual tools, gave most of its attention to the related changes of the objective, physical-quantitative, economic variables and, though in a general way recognizing and assuming the existence and roles of the subjective-value or "utility" variables, had very little to say about them. The neo-classical theory, on the other hand, applied its new conceptual tools first of all to the task of analyzing the behavior of those subjective variables, and stressed this part of its work as its most fundamental new achievement and the very basis of its renovation of the science. It often tended even to reverse the Ricar-dian-classical one-sidedness or go too far toward die opposite extreme, i.e., give insufficient attention to the purely objective part or side of the subject matter—although the new conceptual tools were really more fully adequate for study of the latter. It is true, however, that the new (calculus) concepts were also needed for achieving, and in this use did achieve or yield, a systematic, general, abstract, or formal analysis of the "quantitative" variations of experienced "utility" or want-satis­factions with the physical quantities of desired goods or services acquired and enjoyed; and the general forms of the patterns of the economic choices and behavior of all human actors in the economy, in their various situations, which would maximize their satisfactions; and the effects of such human behavior on the "behavior" of all market demands, prices, supply adjustments, etc., or the functioning of the economy. And all this "utility analysis" had real validity and a substan­tial though limited significance and value, as far as it went. It was a real gain for economic science to be dius enabled to resolve the old, false "paradox of value," or to discover and establish the real relations of dependence of exchange values or prices on use values or the rela­tions of the things priced, to human wants and satisfactions; and to get some new light on not only the effects of human actions on the physical variables, but the responses to the latter, the motivation, and the likely directions of the human actions themselves. But the narrow limitations of the real significance of the new "psychological" part or component thus introduced into economic theory must be fully recognized, as they generally were not in the heyday of neo-classical theory.


As "psychology" this merely formal, abstract analysis of the diminish­ing intensities of -"wants" as they become more nearly satisfied, and the patterns of allocation and use of incomes or resources required to maxi­mize men's total satisfactions of their constellations of "wants" of all kinds—as "psychology" it is all very superficial. It is only an extremely simple and abstract schema which conveys virtually no information about or insights into men's specific psychological make-ups and proc­esses and behavior-patterns, or the sources and likely developments and changes of particular "wants," etc. Moreover, the ambiguous notion of "rational" behavior involved in that of "maximizing satisfactions" made it too easy to confuse the "psychology" with the logic involved in the analysis, and either falsely impute a real and significant, ideal "rational­ity" to all actual economic behavior or else, as the one sure way of avoiding that error, so define the terms and construe the analysis as to make it simply tautological, and hence "true" about all possible be­havior, and entirely devoid of information about any actual behavior. Too often, the neo-classical theorists did both of those things at different points in their discussions. First, they carefully used the safe or neutral, tautological version of this theory about human wants, behavior, and satisfactions, as long as they were engaged only in "explaining" (not evaluating) the operation of the economic system. But then, in arguing the case for economic liberalism or faith in the virtues of the "free' competitive system, they slipped into the assumption that all actors in it would behave with perfect, real "rationality" in their own best in­terests. Thus they reached tlie conclusion that the system would work perfectly to maximize the economic welfare of the population. Nor is die normative interpretation of this formal theory of "rational," utility-maximizing conduct any more useful than its positive interpretation as a formal analysis of actual behavior. The positive economist needs to make real psychological studies, and the "welfare" economist needs to work out real, reflective, and consistent "value-judgments." Both need to go beyond the mere introduction to these provinces afforded by the utility calculus, on further into these provinces themselves, where in great degrees the logical security but empirical (experimental) empti­ness of mathematics must give way to vague, insecure gropings for more