Rationalizing Capitalist Democracy: The Cold War Origins of Rational Choice Liberalism

by S. M. Amadae

In Rationalizing Capitalist Democracy , S. M. Amadae tells the remarkable story of how rational choice theory rose from obscurity to become the intellectual bulwark of capitalist democracy. Amadae roots Rationalizing Capitalist Democracy in the turbulent post-World War II era, showing how rational choice theory grew out of the RAND Corporation's efforts to develop a "science" of military and policy decisionmaking. But while the first generation of rational choice theorists—William Riker, Kenneth Arrow, and James Buchanan—were committed to constructing a "scientific" approach to social science research, they were also deeply committed to defending American democracy from its Marxist critics. Amadae reveals not only how the ideological battles of the Cold War shaped their ideas but also how those ideas may today be undermining the very notion of individual liberty they were created to defend.

Genres: Economics, Politics, History, Sociology, The United States Of America, Philosophy, American

408 pages, Paperback

First published October 15, 2003

Reviews

[Tommy · Rating 5 out of 5]

History of 20th century revisions of the notion of "rationality". Claims "social choice theory"/"public choice theory"/"positive political theory" grew out of thinking at the RAND corporation, when they went from hardware concerns to dealing more with pure abstract scenarios, as a sort of bizarro-Marxism for technocrats to replace democratic decision-making. From the RAND corporation to the Ford Foundation to the budgeting reforms starting during the Kennedy administration. Kenneth Arrow's search for a universal notion of efficiency instead of incommensurable consumers utility. James Buchanan's demonstration only private gain exists and the notion of a public good is a ruse following from his scientific analysis and his resort to normative morality to support the status quo nonetheless. William H. Riker recasting rational actors as ex post facto winners and his induction into the National Academv of Sciences in 1974 signalling a shift towards more axiomatic science. Mancur Olson demonstration collective action was irrational so collusion shouldn't be feared. The degree of (in)commensurability with Adam Smith who was still very much in the civic virtues tradition [the impartial spectator] and also the more minimalist axioms public choice theory needs than marginalist economics by ignoring scarcity. Also John Rawls and all that.

The Gaither Report, the CED policy statement, Hitch's and McKean's The Economics of Defense, and McNamara were agreed on in­ verting the policy process: instead of fiscal appropriations being handed down from Congress to meet operational needs, defense planners would articulate their needs using presumptively objective and thus incontro­ vertible cost-effectiveness studies. Instead of Congress' determining how much national security the nation could afford, national defense impera­tives should determine defense allocations on the principle that "there . . . [be] no presumption that the defense budget is now, or should be, near any immovable upper limit." Hitch and McKean further authoritatively observed that " [a]s far as physical and economic feasibility is concerned, national security expenditures could be raised . . . by, say, $30 billion per year."

The conceptual framework for rational choice theory was initially developed to solve strategic, military problems and the­ problems of economic modeling, even though its potential usefulness in economics and other social sciences was later recognized. Furthermore, this idea set was developed to inform policy decisions, not merely retro­spectively to analyze behavior as the social sciences often claim of their own methodology. Thus, the first strategic "ration actor" as concepalized in game theory and the decision sciences was a nation-state in the icy and treacherous grip of the Cold War.

Arrow's two axioms of rationality only demand that between any two potential social states, an individual is able to specify that one outcome is either equivalent or superior to another outcome, in such a fashion that no logical inconsistencies result when all the potential out­ comes are aligned in a single ordering. Gone are the complex demand functions and, in their place, is the comparatively simple requirement that individuals know what they like and dislike; gone are the references to ratios of commodities and equivalent satisfaction derived from each final unit purchased, and instead there are simple pair-wise comparisons be­tween potential end states in the world. In Arrow's new formulation the individual need only know what she prefers among two outcomes, with­out engaging in activity entailed by the more laborious calculation of "maximizing utility given a budget constraint." Whereas Samuelson is abundantly clear in not attributing the laws of "rational economics" to anything occurring in a consumer's head, Arrow has a different take on the proposition of rationality. He deems mathematics to be the "acme of consciousness," and suggests that a rational individual reasons in accor­dance with the rules of logic.
One consequence of Arrow's reformulation of "rational action" in terms of set theory, instead of the calculus-based demand functions cap­turing the economics of constrained maximization, is that he generalized the principles of reason so that consumer economics mandating that more is always better to less may be considered a special case. Arrow observes that the "representation of the choice mechanism by ordering relations . . . has certain advantages . . . over the more conventional representations in terms of indifference maps or utility functions ." One advantage is that Arrow's method accommodates more dimensions than is possible in graphically illustrated "indifference maps." The usual assumption of continuity required for indifference maps is rendered su­perfluous . In addition to these important differences between marginalist economists' "rational consumer" and Arrow's "rational choice" theory, the logical relations among preferences implied by the set-theoretic for­mulation of rationality differ from the relations implied by the mathe­matical relations structuring marginalist economics.

The combination of individuals' status as the final arbiter of personal prefer­ences with the logical requirement that individuals' preferences should be permitted any range of expression save that violating transitivity is op­posed to the type of restriction on preferences Arrow's deems to be characteristic of these political theories. Rousseau postulates a "general will" that transcends individual desires to achieve a consensual agreement of ends; Kant orders his society in accordance with the "categorical imper­ative," which similarly restricts the expression of individual preferences to achieve a societal consensus on ends; Marx's dictum "from each ac­cording to his ability, to each according to his needs" replaces individu­als' unfiltered preferences with "objective needs" that presumably are de­termined by a source external to subjective desire, thereby violating citizens' sovereignty.

Marginalist economists are unable to say anything about consumer valuations or choices in a world without scarcity. It is specifically this world without scarcity -- of nonmarket decisions -- that interests rational choice theorists. Preference in the rational choice world takes on an ab­solute quality independent from public ratios of exchange and quantities consumed: an individual has preferences over steak, beer, or potatoes; the individual can decide between a given commodity bundle or, for instance, increasing his mother's life expectancy by a given percentage over the next three years. In unremitting contrast, the marginalists concept of " rational action" hinges on the diminishing marginal utility of scarce goods and their ratios of exchange. A marginalist is concerned only with the rela­tive valuation of steak after the consumption of, say, ten beers in view of its ratio in exchange. The worlds of scarcity and nonscarcity are wholly distinct, and navigating between the two systems is mathematically feasi­ble but requires one hundred pages of advanced mathematics.

[Vincent Fong · Rating 4 out of 5]

The comparison between 1984 and Rational Choice Theorists is powerful: Whether men should overcome authoritarianism by passion or reason.

I started reading this book after reading Marcuse's "One-Dimensional Man", so that is very interesting for me to compare the lefts (?) and rights (?) from the same ideological clan.

Sometimes it is hard to choice only one side of the clan, especially politics is about managing people in a large area. Theories need to compromise under practical concerns. The question is: What to keep and what to lose?

I think that facing transnational problems (pandemic, global warming....) and the reality of ever-increasing specialization of social management, it is hard for us to still believe in small government as suggested by the Austrian School, but since "scientific method" has inherently strong tendencies to undermine the value of man in order to suit themselves in the theoretical reality, comprehensive but frequently "updating" constitutional framework is a better option. Plus, morals should be upheld.

I may laugh at my comment 1-2 years from now, after reading deeper in economics.

[William O. II · Rating 5 out of 5]

Excellent