Page 64 - Global Political Economy_Understanding The International Economic Order

NEO CLASS ICAL C ONCEP T OF AN ECONO MY
the utility of models is strictly limited. Economists must deal with a
large number of variables andmust employ simplifying assumptions.

Economics as the Universal Social Science
For many economists, economics is better defined by its methodologi-
cal approach than by its precise subject matter. As Krugman has
noted, the tools define the subject for the economist, and the domain
of economics is determinedby the range andapplicability of its meth-
ods. Gary Becker, an influential proponent of this view, sets forth in
his book, The Economic Approach to Human Behavior (1976), the
basic assumptions underlying economics methodology and, thus, the
economic approach to the study of social, political, and all other
forms of behavior. The assumptions he discusses are:
(1) Economics assumes rational end/means calculations, or “maxi-
mizing behavior more extensively andexplicitly” than do other
social sciences.
(2) Rational or maximizing behavior guides efforts to obtain or
maintain “stable preferences.” These preferences are not for spe-
cific items such as oranges versus apples, but for such basic as-
pects of life as food, honor, prestige, health, benevolence, and
especially wealth. Economics assumes that people everywhere, re-
gardless of their social condition, differ little on these basics. Eco-
nomics is therefore considered to be a universal science of human
behavior, andits methods andassumptions are believedapplica-
ble to all times andto all places, whether fifth-century Greece or
contemporary industrial Japan.
(3) Markets develop naturally in order to coordinate, with varying
degrees of efficiency, the actions of different participants. 10
The methodology based on these assumptions is known as method-
ological individualism or the rational-choice model of human behav-
ior. Economic analysis assumes that individuals (individual consum-
ers, producers, and households) are the only social reality. These
individuals are further assumed to be rational optimizers; that is to
say, they are individuals who make conscious choices to maximize
(or at least satisfy) their interests at the lowest possible cost to them-
selves. 11 According to this doctrine of “constrained optimization,”
10
Becker, The Economic Approach to Human Behavior, 3–14.
11
In the economic universe composedof supply anddemandfactors andprices and
quantities, individual economic actors are treated as the bearers of these abstract vari-
ables or of processes explainedby a formal model. For example, a worker is the bearer
of a wage demand.
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