Rationalizing Capitalist Democracy: The Cold War Origins of Rational Choice Liberalism

"It’s a really fascinating story and it’s not very well known, particularly by economists who use these tools all the time. When you see things like game theory or social choice theory—the very technical high-end economics that you study as a graduate student—nowadays in a textbook, it’s very mathematical stuff. You see these beautiful, serene equations on the page and it all seems very neutral. But it all comes out of this very tempestuous intellectual environment that Amadae describes, this intellectual battle we were talking about earlier. It was about trying to find a new intellectual underpinning for market capitalism—in the face of this terrible threat from the Soviet Union. This alternative way of trying to do it was using rational choice, and these new disciplines were based around rational choice. “Marx said that the introduction of machines would lead to de-skilling so that, in a sense, knowledge would become less important. In fact, the opposite seems to have happened.” There’s often an idea that there is a clear linear progression from the late 19th century—which is people like Marshall, with their demand curves and their utility functions—up to the present. She’s arguing no. A lot of this stuff, the new phase of it, started during the Cold War and it didn’t necessarily come out of economics. It came out of defence think tanks and simultaneously spread through lots of different disciplines—not just economics but political science. This was also the roots of the discipline of public policy, and of some public policy schools. It’s an amazing story, actually. So if you think of classical liberalism or even the Enlightenment tradition, there is this idea of some kind of general will, or of the public interest. We can somehow aggregate all of us together and say, ‘Okay, this is what we should do and the government should do that.’ That’s implicit in classical utilitarianism. People like Hayek started to doubt this and say, ‘What is this general will? This is just a kind of tyranny.’ Then, as you say, Arrow came along and mathematically nailed it. What he said was, ‘Okay, you’ve got all these individuals.’ Let’s say you’ve got ten individuals. They’ve each got their own preference. You’re trying to decide between more swimming pools, more hospitals or more football pitches. They’ve each got slightly different preferences. One would prefer a swimming pool. One would prefer more football pitches. If you’re Rousseau or Kant , you believe there is some way of taking all of those preferences and saying, ‘This is what the collective would actually want.’ What Arrow did was say, ‘Actually, if you impose even what seem like very innocuous restrictions—for example that people are consistent: so, if you prefer apples to peaches and peaches to grapes, you prefer apples to grapes. That’s what they call transitivity and a few others—you find that it’s mathematically impossible. Or another way of putting it is that you’ll end up with one person who decides, whose preference counts above all others. You’ll end up with a dictator. The whole idea of a general will is incoherent, according to Arrow. There are problems with this. This is getting out of the book, but the little mathematical set-up that Arrow creates doesn’t actually convey what politics is about, because politics is about debate and changing people’s minds and all that sort of stuff. The idea that we’ve all got these fixed preferences that we’re aggregating together makes a nonsense of what the political process and civic life is about, but anyway, it’s a very powerful and neat result. It completely destroyed the idea that there was a general will and the idea of classical welfare economics, which is all about saying, ‘Okay, we can redistribute some money from a rich person to a poor person, because that poor person will gain more utility from the money than the rich person loses. Therefore, in terms of the general will, there will be an increase in social happiness.’ It destroyed that whole idea. So, that’s a big part of the book and a big part of this intellectual thrust, which was, in a sense, restating the complete and total sovereignty of the individual. The individual and individual preferences are all that matter. This was a new way of thinking about capitalism and capitalist democracy. It didn’t depend on these vague emergent ideas of a general will and what have you. One public choice response to this was just to say, ‘The whole idea of a public interest is nonsense. All that we have are these contracting individuals who are in a market, and hence that’s all that politics is. Politics is just another market.’ It undermined the idea of social welfare liberalism and Keynesianism. Politicians are just performing within a market. Hence you’ll get these socially damaging things like rent-seeking. These books are all connected because these are the ingredients that went into neoliberalism, in a way. Public choice theory is one strand of neoliberalism. Absolutely. Game theory is a really critical part of this. With the prisoner’s dilemma, you’ve got these two sovereign individuals with these fixed preference functions interacting and you essentially use that structure to analyse all sorts of aspects of social and political life. That was another really important strand to it. Absolutely. Under the consumer sovereignty view it’s as if we’re just these little individual preference functions. Let’s all retreat back into these little bubbles of our preferences that are disconnected from other people’s preferences, basically. I think it predates even the Cold War. It probably goes to the context of the creation of America—as this last open space that rugged individualists could come and fill up, create their own little micro-communities and be very autonomous. I think there’s something deeper in the culture there. Yes. That’s why, coming back to what I said earlier, when you open a textbook on game theory, everything looks so serene, but it comes from this sort of environment. An interesting point she makes actually there is that Arrow himself, with this impossibility theorem, stressed that it is a very abstract, general theory. It applies to markets just as much as it does to a planning system. But that bit of the message kind of got lost. Going back to Mirowski, these are highly politicised environments. It’s not a laissez-faire emergence of ideas. This is highly political stuff, although actually Arrow’s politics were fairly liberal/left-ish."