Beyond the Market: The Social Foundations of Economic Efficiency

By Jens Beckert; Barbara Harshav | Go to book overview

ONE
THE LIMITS OF THE RATIONAL-ACTOR
MODEL AS A MICROFOUNDATION OF
ECONOMIC EFFICIENCY

The most intellectually exciting question on our subject
remains: Is it true that the pursuit of private interests
produces not chaos but coherence and if so,
how is it done?

—Frank Hahn

WHEN modern economics was founded in the late eighteenth century, two axioms that still constitute the paradigmatic core of the discipline were established: the action-theoretical assumption that actors maximize their utility or their profit in their actions; and the idea that decentralized economic processes exist in, or at least strive for, an equilibrium in which the independently acting economic subjects can achieve an optimal realization of their economic plans. Ever since Adam Smith, the theoretical concept of order expressed in the notion of market equilibrium and the action-theoretical concept of choices of actors as oriented to the optimization of utility or profit have been considered together: the concept of order has its microeconomic base in the rational model of action; the “magic” connecting limb is the metaphor of the invisible hand.1 Later on, the first theorem of welfare theory was formulated from this postulate, which says that, given a sufficient number of markets, the competitive action of all producers and consumers, and the existence of an equilibrium, the allocation of resources is Pareto-optimal in this equilibrium: none of the actors can enhance his utility by a change in the allocation of goods without impairing that of at least one other actor.

It can hardly be denied that a sturdy paradigmatic core for scholarly research is inherent in the two axioms and their connection: if the order of preferences is known, the normative premise of the maximization of utility on the basis of any set of preferences allows the anticipation of choices of the actors and their mathematical modeling; the concept of homeostasis refers to the socially desirable consequences of action oriented toward self-interest with the immense moral philosophical significance of the connection of a morally indifferent motive of action and a

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