The global financial crisis and the science of economics

Their economic systems are natural but their ultimate explanation involves understanding the initial cognitive and genetic state.

Put in these terms for humans we have two possible approaches before us: that of empiricism and that of rationalism.

Empiricism we associate with the blank slate or tabula rasa theory of the mind of John Locke. However, Locke's view is extreme. Empiricism, basically, has come to mean that the mind consists of a central rational faculty based on inductive reasoning. Rationalism, by contrast, is a theory that posits that the mind is composed of innate structures, faculties, organs or "modules" that are domain specific and unique, for instance we have the faculties of vision and language.

The cognitive revolution in the sciences strongly suggests that the rationalist view is correct. If so we must also have a faculty or module of social cognition.

The rational expectations hypothesis or Homo economicus assumptions of economic theory are heavily associated with empiricism. Here we would have a central faculty of inductive reasoning that accounts for instrumental rationality and from this central faculty we can go and build-up a theory of human economics based upon "rational" behaviour.

We know that this picture is false. Indeed, it is the results of experimental behavioural economics that tells us this. Experimental economists have demonstrated that reciprocity plays a crucial role in human economic behaviour. There are two key experiments that underpin this, namely the Ultimatum Game and the Public Goods game. These experiments show that the notion of Homo economicus is false.

Human economic behaviour is explicable by way of a dedicated social faculty. Understanding how such a module works is also an empirical question and one ultimately for the cognitive sciences. It is the behavioural economists, who seek to uncover universals in human economic behaviour through experiment, who are best able to contribute to the development of a cognitive theory of economics from within the discipline as it is currently configured.

Plainly human economic systems are not genetically determined, for instance we do not have a capitalism gene. However, the range of systems that humans can form would be innately determined. Unlike with ants, human economic systems have varied over time. Our innate mental structure must involve a strong element of creativity which must be based on some innate system of rules and representations.

Our cognitive theory of economics would be a theory concerned with uncovering this innate structure. Whatever that cognitive theory may be it would be that theory that constitutes a scientific theory of economics. I do not see why such a theory is not a priori impossible for us to formulate.

Let us call this "bioeconomics".

We might note that the same conclusions would apply to other disciplines such as political theory, moral theory and social theory more broadly. There is such a thing as "biopolitics" already, but this is mostly nonsense for it merely consists of the application of pop evolutionary psychology to political problems.

If what I have said here about standard economic theory is correct it might well be the case that our dominant economic categories are in some fundamental sense unnatural. A self-operating free market economy is a "stark utopia" and whenever implemented has led to collapse amid much suffering, for instance during the radical neoliberal reforms implemented in Russia during the 1990s.

A free market society might be unstable precisely because such a society is one that humans are unable to form through free choice. We already have good grounds for believing that Marxist central planning is also a non-human economic system, for its stability, such as it was, basically was achieved through force and violence.

A truly natural economic system would be a system that does not depend upon the state for its stability. Industrial civilisation has not yet constructed such a system, but I rather suspect that such a system would exhibit a very high level of industrial democracy.