THE ANALYTICAL FOUNDATIONS OF CONTEMPORARY POLITICAL ECONOMY: A COMMENT ON HUNT Herbert Gintis I do not disagree with E. K. Hunt's admirable description of analytical Marxism, nor do I differ strongly with his characterization of its differences with traditional Marxism. These differences are deep and fundamental, to the point that rational choice Marxism can indeed be considered hostile to many of traditional Marxism's most basic tenets. In this essay I will neither attempt to defend analytical Marxism against Hunt's critique nor will I endorse this critique. I am not analytical Marxist, although I have sympathy with some of its positions. Nor am I a traditional Marxist, having made my peace with Marxism in my joint work with Samuel Bowles, Democracy and Capitalism: Property, Community, and the Contradictions of Modern Social Thought (1986). Marxism, I believe, has given us many important insights into the operation of society, but has no monopoly on truth. Rather than take sides, I propose here to elucidate the differences between the two, and offer an perspective missing in Hunt's critique: the venerable opposition between neoclassical and Marxian economic theory is antiquated and is increas­ ingly of purely historical interest This is true because both Marxism and neoclas­ sical economics are disintegrating in the face of contemporary political and theo­ retical concerns. Coming years will involve vast changes in all of economic theory, blurring the old distinctions, validating some concerns traditionally held by Marx­ ists, others conventionally identified with supporters of laissez-faire capitalism, and yet others novel and conflicting with both. The bulk of my remarks deal with two aspects of Hunt's critique of analytical Marxism: its "acceptance of methodo­ logical individualism," and its "belief that all human actions and interactions can be reduced to a single common denominator-rational, calculated, utility-maximizing exchanges." Other aspects of his critique, as well as a brief discussion of political implications, will be addressed in the concluding section. B. Roberts et al. (eds.), Radical Economics © Kluwer Academic Publishers 1992 ANALYTICAL MARXISM 109 METHODOLOGICAL INDIVIDUALISM Methodological individualism is a philosophical position holding that all soc~l action should be derived from the atomistic behavior of prima facie isolated social agents. Many neoclassical economists have professed a faith in this philosophical position, and Jon Elster espoused methodological individualism in several of his most influential writings. Yet the position is untenable, I believe, and Marx was quite justified in his derision of the methodological individualists of his day. In particular, no one has ever, to my knowledge, shown that market exchange, pri­ vate property, or prices, as they are modeled in economic theory, emerge from the atomistic behavior of economic agents. More generally, no one has shown that any particular social institutions are the logical implication of individual action. Economic theory is not alone in its inability to derive macrostructure from microstructure. Quantum mechanics cannot be used to generate automobiles or computers, microbiology cannot show the necessity of the frog or the tree, and linguistic theory cannot produce syntax and semantics from the linguistic behavior of individuals. The quest for the spontaneous emergence of structure has, by and large, eluded modern science, natural and behavioral alike. Yet traditional neoclassical economics is not methodologically individualist, despite the frequent lip-service paid to the doctrine by neoclassical economists. The actual methodology of neoclassical theory is to posit the existence of certain insti­ tutions (prices, markets, etc. ) and attempt to show that they are compatible with the actions of individual agents. This is the overt position of analytical Marxists in their more recent writings, and Elster's work is an effective defense of this position. This position, which I accept, may be understood as asserting that economic theory must have logically consistent microfoundations. In other words, we can­ not have a model of individual action and one of institutional structure that are mutually inconsistent. This appears obvious, but it is often violated in traditional Marxian economic theory. For instance, as Roemer has stressed, the Marxian theory of the falling rate of profit contradicts the assumption that capitalists max­ imize profits. Similarly, the Marxian premise that labor-power is a commodity subject to the normal laws of market supply and demand is inconsistent with the existence of unemployment as a more than a temporary phenomenon, and the Marxian notion that capital is a commodity is inconsistent with the Marxian assertion that the firm is controlled by owners of capital. Of course, it may be possible to develop more sophisticated Marxian models that avoid these problems. The point that the analytical Marxists are attempting to make in their demand for rigorous thinking is nevertheless incontrovertibly correct: no economic model is acceptable unless its micro and macro reasoning are logically consistent.! Hunt is not sympathetic to this position, arguing that "One person's rigor appears as another's mortis." But are political models based on microanalytic reasoning really dead? I think not. Roemer's opus, which contains some of the most interesting work in modern economic theory, is a case in point. There are, 110 RADICAL ECONOMICS moreover, many further microanalytic contributions to modern political economy based on assumptions different from those of the analytical Marxists (e.g., Aoki 1984; Bowles and Gintis 1988; 1990; Dow 1986; Epstein and Gintis 1990; Gintis 1989a; 1989b; 1989c). There will doubtless be many more. SELF INTEREST AND ECONOMIC POWER It may be thought that affmning the need for microfoundations is a concession to neoclassical economics, and will inexorably lead to the pacification of political economy and its incorporation into neoclassical economics. But neoclassical econ­ omics has been just as guilty of microfoundational inconsistency as has Marxian economics. I could give many examples of this, but I will focus on one that I consider of particular importance for political economy: the microeconomic as­ sumption that individuals are self-interested, and the institutional assumption that contracts can be assumed to be enforceable by the state (Bowles and Gintis 1988). It is clear that many of the most common market exchanges occurring in a capitalist economy cannot be enforced by the state, either because the state does not have the jurisdiction, the proper information, or the incentive to do so. Take, for instance, a typical credit transaction: an agent borrows a sum of money and agrees to repay the loan at a later date. Can the lender depend upon the judicial system to enforce the resulting contractual agreement? If the loan is fully collateralized, the answer is "Yes." But the function of credit in a capitalist economy is to transfer purchasing power from wealth holders to wealth users, and this is possible only if loans are not collateralized. By the legalities of limited liability, the state cannot attach a debtor's assets beyond the contractually stipu­ lated forms of collateral. Therefore the state cannot enforce capital market trans­ actions (Gintis 1989a). For another example, take the labor market. A worker agrees, in return for a wage, to submit to the authority of the employer (Gintis 1976). The contract does not specify with any clarity (even ifit is negotiated with a labor union) the task to be performed, with what care, and with what intensity. If the employer feels the worker has violated the contract, can she take the worker to court for reparations? The idea is absurd, of course, since such an event almost never occurs. First, the cost of pursuing a worker in court would be prohibitive for all but the most highly­ paid workers (e.g., the agents of famous actors or musicians). Second, the judicial system lacks the relevant information (the "evidence"). Indeed, if such information were easily available, the employer would have been able to write a more specific contract and to hire an independent agent to carry it out (independent agents are, of course, regularly sued in court for breach of contract). Conclusion: the state cannot enforce labor market transactions. The above remarks are well-known and not subject to much serious dispute. How then does neoclassical economics manage to render the issue of the violation ANALYTICAL MARXISM 111 of the terms ofexchange unproblematic? It simply assumes that people are "honest" and spontaneously fulfill their contractual obligations! The homo economic us of neoclassical theory, far from being a self-interested brute, is in fact a perfectly socialized Victorian gentleman, acting from a fundamental sense of honor (Bowles and Gintis 1991). It follows that neoclassical theory must either drop the assumption of self­ interest or that of unproblematic contract enforcement In realization of this fact, economists in the neoclassical tradition have made important contributions to a theory of endogenous contract enforcement (Stiglitz 1987; Williamson 1985). Similarly, Bowles and I have used models of endogenous contract enforcement to provide the microfoundations for the theory of unemployment, the role of the welfare state in the distribution of income, the existence of economic power in competitive equilibrium, and the basis for the relationship