1 - The Problem of Economic Organization

Summary

Most theories of economic organization, regardless of discipline, involve a sleight of hand. Theorists begin by assuming the existence of decision-making individuals. They then provide these actors with inner motivations: desire for gain, for power, or for social honor and reputation. Driven by these motivations, economic actors are then set in motion. They plot strategy; they use guile. They act on their interests; they interact in trusting ways. Seeking to maximize, they also respond to incentives and constraints put in place by powerful people, such as state planners or heads of state banking systems or the CEOs of the largest firms. Whatever these actors do and however they respond shape the calculations and subsequent actions of others. Assuming all similarly motivated individuals act more or less alike, economic theorists then posit an orderly, organized economy, conceived, for example, as a capitalist economy composed of independent and competitive firms. When theorized in this fashion, economic organization is pulled, like a rabbit from a hat, out of aggregated individual decisions.

Attempts to induce societal level organization from individual actions are common enough in every social science. In sociology, anthropology, and political science, theorists often, in a single bound, make the same leap from individual behavior to social and political structure. In these disciplines, however, the reverse trick is equally widespread: The inner motivations and actions of individuals are produced, as if by magic, from descriptions of the whole.