The Evolution of Economic Thought: Robbins' Paradigm Shift in Defining Economics
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In 1932, Robbins redefined the field of ‘Economics’ as essentially a series of relationships. To distance himself from “psychological hedonism” of wants and desires, he explicitly used Max Weber’s analysis of means–ends rationality: “Economics . . . is concerned with that aspect of behaviour which arises from the scarcity of means to achieve given ends” (Robbins 1932: 24; cf. Maas 2009: 511). Nonetheless, the foundation of his anti-hedonistic argument is unreservedly Paretian: “All that we need to assume as economists is the obvious fact that different possibilities offer different incentives, and that these incentives can be arranged in order of their intensity”. The idea of ordering preferences is derived directly from the conception of scarcity of means, assuming [that] for each individual, goods can be ranged in order of their significance for conduct; and that, in the sense it will be preferred, we can say that one use of a good is more important than another.
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Following Pareto, he believes that […] individuals can arrange their preferences in an order, and in fact they do so. As he explains, individuals do make rational disposal of goods in a consistent manner, but their respective rankings are only a matter of normative valuation. Robbins recognizes that individual choices are not always consistent, since exchange, production, fluctuation – all take place in a world in which people do not know the full implications of what they are doing. This is why it is assumed that people act purposively, in a perfectly rational manner, by knowing everything they need to know in order to take the right decision. These assumptions are made to enable us to study, in isolation, tendencies which, in the world of reality, operate only in conjunction with many others.
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Yet, the justification of the assumption of rationality differs significantly from the one that was made in classical political economy. It is no more the result of a long and accurate observation, an empirical generalization established by the science of psychology, but an obvious and self-evident proposition based on introspection in the pure marginalist tradition.
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Even so, he does not endorse Pareto’s definitive divorce from psychology either, recognizing that the very structure of means–ends rationality is “psychical not physical”. Let us explain why there is no discrepancy here: challenging Pareto’s views, he affirms that “it is really not possible to understand the concepts of choice, of the relationship of means and ends, the central concepts of our science, in terms of external data”. The assumption of completely rational conduct is after all a psychological assumption showing how people behave in situations of scarcity. The problem is that psychology has failed, according to Robbins, to measure empirically “the scales of relative valuation” of individual feelings. We can only feel an individual’s subjective valuation process without being able to observe it as a fact. Economists should therefore abandon this Sisyphean task which finally leaves the door open to subjective, i.e. normative judgments. Hence, Robbins minimized the importance of psychology to the simple and indisputable facts of experience in order to understand economizing behaviour under scarcity.
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