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On the Fallacy of Rationalism in Economics and the Law
– September 19, 2012

This is intended not as a full essay, but more as a note, an stating of an observation about economics and the law spurred on by what was read in the abstract of an essay. It is not a full explication; nor is it intended to be. Nor can it be said to be elegantly stated. It is, in it’s purest, a blurting out of ideas. (Originally from the Tennyson blog.)


Because I rarely have time to look at the articles within, these days I rarely open my emails from the Legal Scholarship Network (LSN). I do not generally want to be tempted (or should I say tormented) by a fascinating article for which I have no time to dedicate. But today I dared to look at Emory Law’s giftbox of articles, and there, to my chagrin, I found “Beyond Individualism in Law and Economics,” by Robert B. Ahdieh (appearing also in Boston Law Review 91). (For those unaware, Law and Economics is a single term, a sub-field of economics – or, alternatively, a sub-field of law But, here, I break the term, and apply my thoughts both to law and to economics.)

The opening sentences of the abstract (repeated in the article) read:

The study of law and economics was built upon two pillars. The first is the familiar assumption of individual rationality. The second, less familiar, is the principle of methodological individualism.

And right there, the issue. The biggest, systemic failure of economics as it exists today – and as well a similar failure in law – lies in the assumption of the rational individual: an assumption that is wholly fallacious. The idea of the rational actor is a hold-over (or perhaps it is better said clung-to golden calf) from Enlightenment hyper-rationality, maintained today through that two-fold, argumentative necessity for the continued existence and functioning of positivism: if at all possible, replace the irrational ‘reality’ with a functional rational construct (one that eliminates irrationality from the matrix, one that works to maintain the social nomos); and if it is not possible to do such, simply ignore that aspect of being as irrelevant.

(I should say that Ahdieh’s essay’s purpose lies in the latter pillar: methodological individuals, and it does point out the attacks that are going on against the assumption of the rational individual. And while I could put forward a critique of the article, it is one that really moves beyond the articles intent, which I enjoyed; I am here merely using the article, specifically the opening abstract, as a launch point.)

Rationalism, like mathematics, is an abstract construct. To wit, like the apocryphal straight line, it does not exist in nature: only in the minds of humans. It is an inherent part of the human psyche, one of the constitutive elements of the ego – and, moreso, the super-ego. Rationalism is in turn (as they are interwoven) an inherent part of the nomos, and inherent part of the convention-tradition oriented weave of the social fabric. It is the mechanism by which rules, mores, laws, etc. maintain applicability and legitimacy within society: “A law,” we say, ‘is a rational product of society aimed at a rationally conceived and (presumably) beneficial end.” Ergo, the law is a good law. Ergo, the law, the custom, the social more, may be applied to maintain the nomic social order.

But it is, yet, an abstraction. While people may follow a law, to say that the reason a law is followed is through wholly rational analysis of the law and its applicable situations is beyond nonsense. There may be as many reasons for following (or not following) a law at any moment as there are people who are in a situation which begs obedience of the law – and I guarantee you that none of them, when probed in depth, is truly rational in origin.

(I recently posted a link to an article on this topic: “The Emotional Dog and its Rational Tail,” by Jonathan Haidt, here. If you have not read it yet, what is your problem? Read it. It is that worthwhile that you can put down everything else to make way for it without fear of emotional compromise.)

This construct-aspect of rationalism is greatly why, as the Anglo-American legal system developed long ago, back across the pond, courts of equity grew to exist side by side with courts of law – and even held a superiority over its rationalist sister. With courts of equity, even if by the law you were inarguably guilty, you could still go to the courts of equity and plead that that result was, nonetheless, essentially, unfair, and should be vacated. It is this same vein of distrust of the rational over the real (to use a word) that brought about the original idea of the jury of one’s peers, of jury nullification, even of such aspects of the law as non-guilt by reason of insanity.

(To note: the courts of equity are mostly gone in the U.S., having been ‘unified with’ the courts of law, but really absorbed into near extinction; the concept of “jury of one’s peers” is so far removed from the original purpose of the idea as to make it pointless, constitutional jibberish; every effort is made to conceal the idea of jury nullification from juries, even to the point of making it impermissible for a lawyer to speak of it in court; and the history of non-guilt by insanity is plagued with continuous and unending assault. Which, I believe, says much about U.S. society, none of which I would consider a moral positive.)


Whether viewed in law or in economics, the fallacy of which I speak is essentially the same. Economics bases itself upon the rational individual, assuming that the noble nature of an individual – a nobility that is entirely derived from and a natural extension of a rationally-knowable reality – will lead it to act nobly rational. In the Enlightenment basis of rationality, the rational is equated – is equated – with the higher nobility of the individual and society. (In Enlightenment Christianity, God is pure rationality – something that still greatly influences the Christianity of today.) The more the individual is rational in thought and action, the higher up the Great Chain of Being they may climb. This is the concealed notion of the rational actor in economics.

Law, likewise, assumes a nobility in the rational individual, though as expressed through rationally derived and instituted law. (And you do extend law out into the social realm in more and custom: they are different only the source and power of the enforcing authority. Functionally they are equivalent, even more so when you recognize that they both are functions of the greater nomos.)

To attempt a short aphorism: Economics derives its theory from extrapolating out the noble actions of the rational individual; Law is the codification of the noble actions of the individual.

What both miss – or, more accurately, ignore by necessity, ignore through the functioning of the veiling legitimatizations of the nomos – is that the perceived nobility derived from rationality is itself a construct, one which may be defended and derived through rationality, but which is ultimately a priori to the rational defense and derivation. That is, rationality functions within the nomos as justification for what are, in the end, always a priori constructs, however completely rationality may appear to ‘make real’ their bases.