In physics, one of the attempts to solve the fact that the mathematics that explains the behavior of macro-phenomena is incompatible with that which explains micro-phenomena is called string theory. In neoclassical economics, which is not a natural science but a social one, the attempt to solve an imagined incompatibility between macroeconomics and microeconomics is called "the representative agent."

For the purpose of modeling economic activity, and models are what replaced planning in the neoliberal moment (1973 to 2008), neoclassical economics reduces the complicated business of market deals, bonds, banks, imports, exports, balance of payments, production of products, wages, unions, research and development, financial innovations, technological innovations, insurance policies, storage of goods, interest rates, and so on into one individual: the representative agent. The French economist Alan Kirman (who also happens to be one of the few French intellectuals whose command of English is impeccable) was so startled by this solution to the macroeconomic/microeconomic question that he had to ask: "Whom or what does the representative agent represent?" In the essay, Kirman dismantles the fiction but, sadly, only for the purpose of improving agent modeling. Models that are based on one individual, he argues, will only result in a weak or poor image of this or that state of economics, which as an aggregate corresponds to an emergent event. And the law of emergent events is that they have different properties from their constituent elements or parts—in the case of economics, individuals and their activities.

But Kirman has to also recognize that the neoclassical invention of an individual representative has almost everything to do with the ideological and political project of normalizing what is for many not a normal mode of being in the world: the entrepreneur. The representative agent is in essence a man with money, with capital, with a surplus of resources, and must therefore rationalize along the lines of that very specific and very limited social context. Because money equals social power, this kind of individual has the ability to generalize this limited context: everyone becomes (sees herself/himself as) an entrepreneur. You are human capital, you invest in your children, your home is an investment; and if you dance beautifully, you have lots of cultural capital to exploit. And if you are doing nothing with your life, it is because you're too lazy to exploit yourself. Self-help becomes a big industry in this regime of things and also game theory. Why? Because the rationality of the self-interested entrepreneur is expanded into a universal rationality. But this rationality is precisely what collapses the minute there is panic in the market. It is at this point, the crash of the rational actors, that behavioral economics attempts to clean the mess.

My next post in this series will concern the limits of entrepreneurial reason and the current response to these limits, behavioral economics, which has its roots in two brilliant Israeli social psychologists.