THE RESEARCH ON PHILOSOPHY OF ECONOMIC BEHAVIOR
The history of humanity and economy is written with the same feather pen; speaking of the first implies on describing the second. The trajectory of the human being is narrated through pleasures, pain, desires, passions, games of power and domination, fights, addictions and virtues in its double relationship with itself and with the world. Economy, as an exchange activity, being so outdated, lost its origin, for it began when the first human being had the desire to own something possessed by someone else. Exchanging necessarily implies on a minimum relationship between two people who bring with themselves, the spirit filled with sentiments, desires and emotions which follow the action, whether it is a fair exchange or authoritative. For this very reason, economy has the sense of purpose of being the individual in a social-economic interaction in his activities as a member of a group. Where there is desire and necessity, there is economy. Therefore, this is the reason for its pertaining classification to a complex world of human sciences.
Talking about human progress also means talking about its economic development which has reached a high standard of sophistication in the current context. However and not uncommon, the expected results are not achieved or partially met after the implantation of certain economic measures. Over the 25 years that I have worked as an economist in private companies and for the Brazilian government, they were not able to make me understand the cause of the problem. I then realized that economy would not be able to answer the ever present question: why do the economic models still fail despite the increasing sophistication of their methods?
Economy is a double sided science. Amartya Sen named the section of economy related to mathematics and econometrics “engineering” as the basis of modeling of this science, precisely that area which should be considered its exact part, able to make predictions but none the less, not able to perfectly accomplish this last function. Therefore, it was clear that it was not in its eminently scientific part that I would find the answers I was searching for. I could only hope to immerse into the more instable aspect, and for this very reason, the one with more possibility of pointing out the causes: in economy yet as a science, although, focused on that which is its ultimate purpose, the individual as a member of a group united by the same purpose. It was then that the research in philosophy emerged which resulted in the thesis I presently defend, using the hypothesis of the fact that economy, being a science which has interactions as a basis within a social economic context, makes its human side interfere with its part that should be exact.
The starting point of my research was defined exactly at the moment considered to be the birth of economy as a science, although this was discussed long before in a non-systematic way with respect to inherent specific topics. And this is how the choice of the proposed authors came about. Adam Smith, considered the father of modern economy, systemized political economy in The Wealth of Nations and John Stuart Mill, configured it as a science by defining its objectives, methodologies, scope and limits in his book On the Definition of Political Economy and the Method of Investigation Proper to It.
What drew attention in the study of both authors is that, despite the logic of their arguments and differences in approaches, there was a common point where the certainties of assumptions became more unstable, in other words, where operationalization of economy depended on the action of human beings or in current terms, where the success of the applications of the models depended on the fact that the diverse actors behaved within an expected and pre-established standard. Adam Smith, as a moral professor, had already demonstrated the power of sentiments in the process of social interaction in his book Theory of Moral Sentiments and Stuart Mill states that the logic of the models could be disturbed because of human nature. Based on the standing hypothesis, the overall objective was to determine how the human being in his economic activities could cause instability in the models, the so called “disturbing causes” by John Stuart Mill.
It was established, as the first specific objective, to understand how Mill characterized economy as a human science despite supporting mathematical models. Nevertheless, the abstract and arbitrary definition of the homo oeconomicus, that is, how a completely rational human being who deals with and handles economy on a daily basis with actions exclusively focused on maximizing his profit could cause instability to the models. The denomination “homo oeconomicus” was given by Vilfredo Pareto in order to designate the human facet aimed at the search for richness. Therefore, it is a concept which encompasses the “homo”, that is, an individual in all his psychological complexity, allegedly acting rationally in search of richness, that is, as an “oeconomicus”. As verified in the course of the research, what causes disturbance in this concept is that there is always a greater impact towards the “homo”.
As a disturbing cause in the economic models, Stuart Mill argued that human nature can act as a contradictory force in search of wealth when expressed in a manner of desires for expensive goods and aversion to work. Consequently, the whole research was aimed toward the binomial science – the economic man, aiming to understand how someone else’s behavior could interfere with his modeling. As a science, despite all “mathematisation” (or engineering), economy has shown to be inexact for defining a tendency in its models instead of defining a precise direction. On the other hand, it is not a science that treats the human being as an isolated individual but as an individual living in a social interaction.
Thus, a second specific purpose was established, to wit, to understand how an individual comes to interact with others and how this reflects on his social economic behavior. Hence, the importance of Adam Smith as a philosopher and economic systematizer, to illuminate the alleged rational actions of the oeconomicus based on the concept of “sympathy” shown in the analyses described in his books. As far as we know, the “disturbing causes” by Stuart Mill had not yet been studied under the light of thought by Adam Smith as expressed in his Theory of Moral Sentiments.
The homo oeconomicus had been studied within the scope of economy and psychology, but not within a philosophical perspective. We can point out this aspect as the second point of originality of the research. Therefore, there was the necessity of the historic research of the origin and the course of construction of the basic concepts which resulted in the thought of the two philosophers previously mentioned specifically within the limits established by the problem and hypothesis. I am referring to the concepts of sympathy, self-interested actions, passions, desires, vanity, pride, human nature, causes and effects, theorization of economy, society, wealth and psychological law. The results served as a basis for the argument that the economic man defined by Mill did not only have logical aspects but assumed nuances of behavior also motivated by sentiments, or quasi rational, as Richard Thaler, the Nobel Prize in economics would say.
For Stuart Mill and Adam Smith, society is understood as the sum of each member separately considered and not as part of a total unified entity, which means that each one could be the ignition which would start the process of the coordinated action which would lead to a change in social behavior. In the economic field, the various homo oeconomicus driven by the desire of wealth and acting within their personal interest would take the richness from their social group or from the nation as claimed by Adam Smith. Stuart Mill stated that actions from the economic man are under the impulse of the psychological law which states that “a greater gain is better than a smaller”, but he did not specify how he reached this law. Not having found psychological and economic literature that could explain how the philosopher established the principles of the referred law, the research sought to determine its origins and reasons. It was in the book Analysis of Human Mind written by James Mill and edited by and with notes from his son John Stuart Mill, where the explanation was found, that is, in the sense of pride when realizing that the possessed wealth is greater than that of others but even more, the satisfaction when realizing that the possessed wealth of someone else is smaller. Such sentiment, the pride of comparison, makes the individual constantly search for a greater gain. The development of the argument can be pointed out as the third point of contribution of the thesis.
For Adam Smith, the essence of the economic man is in the activity of exchanges in all its meanings, which made the research investigate whether the philosopher had also pointed out any psychological law that would guide its action. Starting from Smith’s statement in which humanity is more determined to sympathize with the sense of joy than with the sense of sadness and being so, we look for pleasure and avoid pain, the research entered into the universe of interpersonal relationships already described in the aforementioned work in order to not only determine the psychological law described by Smith but also to list the involved basic emotions. The philosopher in his work, in a non-systematic way, left clues on how to characterize the economic man, that is, the one who performed mercenary activities propelled by the law of “pursuing wealth and avoiding poverty”, having the emotion of vanity as a basis. These issues had not yet been discussed in the academy.
From the joining of Mil’s and Smith’s psychological laws, from the study of the involved emotions (mainly pride and vanity), the research took a defined course from the importance of sympathy as a mechanism of social interaction, resulting in the updated conclusions in the contemporary context of mindreading, vicarious theories, emotions, inaccuracy of the economic theories, commonsensible, I and We intentions and conspicuous consumption. The performed studies demonstrate that by the act of sympathy allied to the imagination, the individual projects himself in someone else’s position, however, using his own psychological standard for the interpretation of the observed situation. Likewise, also by force of the sympathy mechanism, a prior standard of behavior from the group can be altered. The change of a consumption behavior not foreseen in the models applied, for example, leads to disturbing occurrences in the expected results.
As mentioned previously, until then, the behavior of the individual had been studied in psychology and in economy respectively in the areas of economic psychology and behavioral economy whose obtained results earned two Nobel Prizes in economy. The objective of both studies was to understand how people reach decisions and make their choices having as a focus, to guide the actions of the market and of the government in management and implementation of public politics. But as for the homo oeconomicus, here understood as one being of flesh and blood, who pays his bills, takes loans, saves money, provides services, researcher, scientist, financier, worker, investor, banker, ultimately any member of a group who deals with financial economic affairs on a daily routine. Little clarification is provided in the study so that he may understand what prompt him to make decisions (why and not how), many times in a way different from the one imposed by reason. Hence, the proposal of adding philosophy of studies and conclusions of psychology and economy associated to the behavior of the individual as a member of a group emerged. Something which had not yet been done.
Therefore, the main purpose of the thesis was to establish the fundaments for the creation of philosophy of economic behavior, a union of researches in psychology, economy and philosophy focusing on the individual and not the market nor the government. The conclusions drawn in the thesis simply indicate the starting point as a basis for the outcome of many possible approaches.
Pareto reminded us that the individual is many in one, homo economicus, homo eticus, homo religiosus, etc., which means they all act as composed causes for the manifestation of the person as a being who lives in a social state, a state which presently exceeds the limits of the language, culture and religion. Nowadays, someone’s action has a much greater scope to the extent of altering the action of many others, which means that the concept of the rational act is incomplete if it is not allied to the concept of the conscious act.
The society of market is above all, as known by Adam Smith, a moral mechanism. It works by distributing responsibilities and partnerships, a process which demands maturity and liberty of action. How can we be independent in the action in a society of market under the action of the psychological laws of human nature emphasized by Adam Smith and Stuart Mill? In other words, how can we pursue richness while always preferring a greater gain without falling into pride and vanity and without entangling in the nets of corruption and lack of ethics when taking action? To think of the homo oeconomicus behavior so that, despite emotions, he can be capable of making choices, which will lead to wealth of Nations within a society that is economically fairer in a global context. This is what philosophy of economic behavior reflects upon, in the economy based on the individual’s ethos as a subject who is in the world, despite the world.