Greenspan, Philosophy, and Homo Economicus

I am braking my pre-election-political-activism hiatus from this blog because something happened today that merits blogging about.

Former US central banker Alan Greenspan, the public figure most closely - and falsely - associated in the minds of many Americans with the intellectual legacy of Ayn Rand, admitted his - and nearly the entire economic profession's - error in assuming that economic actors will act, automatically and intuitively, without any need for principled thought or for philosophy, in their actual self-interest. This has been the most fundamental assumption of economics for centuries: that Man is Homo Economicus, given to automatic optimization of his actions, in any context, for his own interest. According to the thesis of Homo Economicus, the economist need not concern himself with questions of cognition, conceptual skill, principles, epistemology. The Central Banker needs only to create a catallactic context in which economic actors can maximize their returns by acting as the Central Banker wishes them to act, and they will automatically do so.

What is wrong with this picture?

Ayn Rand's most profound insight is that Homo Sapiens does not have any kind of inborm "ethical intuition" or "economic instinct" that would enable humans to maintain and enhance our lives automatically. To act in the best interest of one's life requires cognition: focus, measurement, concepts, principles, logic. To do cognition right, requires philosophy: ontology, epistemology, ethics. Yet nothing, absolutely nothing in philosophy and cognition applicable to life on Earth is inborn, intuitive, or automatic.

The thesis of "Homo Economicus," the idea that right, self-interested action requires neither cognitive skill nor philosophical knowledge, was not truly tested until recent times. Between the birth of the science of economics, a child of the Enlightenment, and the last quarter of the twentieth century, few people were wealthy enough to influence economic calculations who did not have some education in conceptual thought. It was only the generation of what Randian philosopher Leonard Peikoff calls "Johnny can't think" that brought about the tragedy of a country whose citizens, bankers and business leaders would test the thesis of "Homo Economicus" upon themselves. Now that experiment is over. And we know the result: Rational self-interest is not automatic. It requires reason. It requires focus. It requires principles. And it requires philosophy.

Apart from "educators" raising a nation of Johnnies who can't think, the worst result of the anti-conceptual pseudo-philosophy of Pragmatism is that it brought philosophy into disrepute in America. Americans, bankers and all, and (especially) American economists, have come to believe that philosophy does not matter, that it is not needed in "real life." We are now living the result of that belief.

Ayn Rand asked, "Philosophy, Who Needs IT?" Alan Greenspan, I hope, just found out that he does. So does the science of Economics. So does America, and, come to think of it, so does the entire human civilization on Earth.