chapter  6
12 Pages

Neoclassical rationality under fire: theoretical, methodological and empirical critique in the late 1930s

From 1937 to 1939 both the concepts of rationality as consistency and that

of maximization under constraint were severely criticized from every pos-

sible point of view: theoretical, methodological and empirical. In 1937, a

year after the publication of his masterpiece, Keynes contested the assump-

tion of certain knowledge, just as Hayek did in the same month, from his

own angle. In the very same year, a young scholar, Ronald Coase (aged

27) in his pioneering article criticized the neoclassical theory of the firm

and particularly the lack of definite statements about the costs of acquiring

all relevant information. In 1938, another young scholar, Terence

Hutchison (aged 26) attacked the methodological foundations of neoclassi-

cal theory by introducing the Popperian criterion of testability in eco-

nomics. He skilfully demonstrated that the assumption of maximizing

behaviour is unworkable without the secondary but restrictive assumption

of “perfect expectation” that guarantees that this behaviour will indeed

result in a situation whereby the economic agent will attain a maximum.