Economics as causal science (as distinguished from political arithmetic) is currently split between an orthodox, neoclassical mainstream and its heterodox dissidents. Their disputes originate in two contending premises:
1. Neoclassicism attributes the orderliness of a macroeconomic system to the mutual affinity between marginal revenues and marginal costs that induces general optimality. This contention has begotten what we might observe to be the conjoined conceptual twins of utility/optimality: neither can survive the other’s demise because each descends computationally from the other. Optimizing behavior presumes the activity of an ‘economic man’ devoted entirely to gain and endowed with perfect knowledge.
2. Scientific analysis of human behavior has established that neoclassicism’s ‘economic man’ does not occur in sufficient proportions for his behaviors to register in studies of familiar, everyday interactions.1 And actual businesses have long been observed operating at considerable distances from the condition of marginal revenues equaling marginal costs.2,3While economic orthodoxy struggles to dissemble the second observation above, heterodoxy asserts that it is sufficient to falsify the first.
One resolution of this impasse challenges an axiom tacitly accepted by both sides in these disputes, viz.: foundational microeconomics, a presumption that the behaviors observed for interpersonal and business relations must also govern the macroeconomic whole. If this presumption is valid, then orthodox macroeconomics is falsified by behavioral psychology’s inability to produce a specimen of neoclassicism’s economic man.
Foundational microeconomics continues a habit of medieval thought: the scholastic mind longed for God-like truth in which the universe might be viewed as unified; in which any truth, to be true, had to be operative in application to phenomena when viewed at any level of abstraction.
Science outside of economics has long contented itself with creating metaphors that are valid in certain degrees for certain applications. They accept that observations taken by instruments having different lengths of focus will reveal different phenomena requiring their specific, unique, explanatory models, e.g.: Schrödinger’s wave equation explains the periodic chart of elements; but it has no grasp of the Newtonian world that is familiar to us; and Newton’s mechanics have no application in the sub-atomic world.(While it is true that unified field theories are sought-for in the hard sciences, these efforts have yet to be productive, and might never constitute anything more than an acceptably modern way of seeking after the Deity.)
The absence of orthodoxy’s economic man among the subjects of behavioral studies (usually college sophomores) might be reasonably attributed to economic man’s comparative rarity among the population. It is not difficult to imagine these searches being productive if conducted on Wall Street or in the City of London, where a minute labor specialty’s placements of capital operate to create overall efficiency in the macroeconomic system.
Accepting that capitalism is a means for coordinating a great many labor specialties, with each having a personality of its own, it should not be difficult to project the securities analyst into the role of homo economicus: he is preoccupied by gain; his placements of capital among sectors are undertaken exclusively for the sake of maximal returns; and he has proprietary knowledge of the firms in his sector because he is inevitably among these firms’ directors.
Thus neoclassical causality does not by any means require that everyone embody his own specimen of economic man — only that such creatures exist in the comparatively small numbers required at those places where general economic optimality can be created.