Liberty Matters

The Centrality of Human Purposiveness


Regarding Fred’s comment,  I will be brief, precisely because Fred and I are the co-editors of Kirzner’s collected works and share many of the same intellectual positions on Kirzner. Fred raises a central question about the role of purposiveness.  I agree with him that this is the critical distinction of the Mises-Hayek-Kirzner depiction of the competitive market process.  A major problem with the way folks interpret Hayek’s 1937 paper, “Economics and Knowledge,” and his claim that he was criticizing Misesian a priorism is that they then believe Hayek is rejecting the pure logic of choice. Yet this is clearly not the case.  In the most extreme interpretation, what you can say is that Hayek argued that the pure logic of choice is a necessary but not a sufficient component of an explanation of the market process.  The pure logic of choice must be supplemented with an empirical examination of how alternative institutional arrangements impact economic learning among agents so they may coordinate their plans with one another. 
The other major problem is to interpret the Mises argument for purposiveness as a robotic optimization machine, but again nothing could be farther from the textual evidence.  To Mises man is forever hovering between alluring hopes and haunting fears, plagued by uncertainty and ignorance, yet capable of charting a new course for himself. He strives continuously to substitute a more satisfactory state of affairs for his current unsatisfactory one.  He may stumble and even fall along the way, but in Mises’s intellectual system this does not make him less “rational,” only not very competent at the tasks under examination.   Rationality in the Mises-Hayek-Kirzner system is a very weak form of rationality, and one must always be mindful of the distinction between the rationality of the individual and the rationality of the system.
In the original neoclassical and behavioral debate, the defenses offered by Armen Alchian, Fritz Machlup, and Gary Becker took on a certain form -- in Machlup it was widely interpreted as an “as if” defense, but that really wasn’t his argument. His argument was instead consistent with Hayek’s 1937 paper: actors in the economy may adopt various rules of thumb to aid them in making choices, but in the filter of competition the rules of thumb that will survive will be those that approximate the optimality conditions given the constraints.  Becker would take the approach further, squeezing out for sake of argument that the rationality of the actor was even a necessary condition and demonstrating that in a competitive environment the budget constraint would do all the work and weed out any behavior not consistent with an efficient equilibrium.  Alchian is often interpreted along Becker lines, but his position is actually closer to Machlup’s than most understand.  But there is no doubt that Alchian does invoke the survivorship principle in a more explicit way than Machlup.
The evolutionary metaphor has been attractive to economists since it became en vogue in science in the 19th and especially 20th century. This makes perfect intellectual sense because Darwin himself was greatly influenced by economists in developing the theory, so economists are simply incorporating back into their discipline ideas that are familiar.  But the metaphor has also always generated contestation.  Economics is a human science, and thus the purposes and plans of economic actors are at the center of the analysis from Adam Smith onward.
Machlup’s student at John Hopkins, Edith Penrose, argued in response to Alchian that the evolutionary depiction of the market economy missed the central agent in the story.  She argued that the use of “biological analogies in economics is to suggest explanations of events that do not depend upon the conscious willed decisions of human beings.” (“Biological Analogies in the Theory of the Firm.” The American Economic Review 42, no. 5 [1952]: 808.) The notion that firms merely “adopt” profit-maximizing strategies misses the fact that the selection of such strategies must be preceded by an entrepreneurial discovery of a previously unnoticed profit opportunity to satisfy previously unknown consumer preferences. She goes further to state that “paradoxically, where explicit biological analogies crop up in economics,” about the “survival” of particular types of utility-maximizing behavior, “they are drawn exclusively from that aspect of biology which deals with the non-motivated behavior of organisms or in which motivation does not make any difference.” It is only within an open-ended nature of choice that the discovery of new applications of means to ends occurs. This discovery process generates adjustments in the constellation of prices in the market process, which in turn generates greater coordination of plans between buyers and sellers, and as a consequence alters the survival conditions of firms.
And as Fred points out, this position is one Penrose shared with Kirzner in his dialogue in the journals with Becker and then James Buchanan.  Kirzner argued that without reference to the purposive action of human participants in the process, the discovery and learning required to generate and adjust the constellations of prices that results in a dovetailing of plans would not emerge.  A theory of the market process relies crucially on the purposiveness of human actors as the animating figures: they interact within alternative institutional environments which dictate how and what they learn about how best to pursue their ends, what are the most efficacious means in that pursuit, and how best to interact with others. Purposiveness accounts for their natural striving to achieve their ends. This brings me back to why in my essay I quoted Kirzner’s foreword to Mises’s The Ultimate Foundations.  Any method and set of analytical tools that squeezes out human purposiveness will ultimately prove unfit to the task of explaining how markets work, and without an understanding of how markets work, our understanding of a society of free and responsible individuals will be without any grounding in social science.  Kirzner’s work compels the reader to not only think through the nature of the competitive market process -- the role that property, prices and profit and loss play in coordinating human economic activity -- but also the institutions that make possible economic progress upon which modern civilization depends.