On Human Rationality and Government Control

Procesos de Mercado: Revista Europea de Economía Política, XI, 2, 2014, 137-181

46 Pages Posted: 15 Sep 2015

See all articles by Emile Phaneuf

Emile Phaneuf


Carmelo Ferlito

INTI International University and Colleges; Institute for Democracy and Economic Affairs (IDEAS)

Date Written: 2014


In this paper we first address a long-standing criticism of human rationality and what that means for the role of government. We review and compare much of the literature on rationality and demonstrate that various authors within various fields often mean very different things by the word "rational." While we make no claims as to whether or not humans always behave rationally, we point out the flawed logic for what is suggested for the role of government as a way of addressing the human irrationality problem. Building on the Mises-Rothbard-Huerta de Soto tradition, we argue that what is more important than perfect rationality is purposeful action. We explain the dynamic nature of the market in which time plays an important role, and humans act with expectations to accomplish goals, learn from past mistakes, discover new information and modify their plans accordingly. Using Hayek’s approach, we discuss the knowledge problem in which data is dispersed among millions of individuals (unknown in its entirety to any central authority) as well as the problems with applying the scientific method exactly as it is used in the natural sciences to the human behavioral sciences. These problems combined, we argue, make for a much more disastrous system than would be a system in which often irrational individuals would be free to make mistakes for themselves, discover new information and take actions for their own betterment.

Keywords: Rationality, Government Intervention, Equilibrium, Human Action, Purposeful Behaviour.

JEL Classification: B53, D80, D84, H10, H30

Suggested Citation

Phaneuf, Emile and Ferlito, Carmelo, On Human Rationality and Government Control (2014). Procesos de Mercado: Revista Europea de Economía Política, XI, 2, 2014, 137-181, Available at SSRN: https://ssrn.com/abstract=2660136

Emile Phaneuf

Independent ( email )

Carmelo Ferlito (Contact Author)

INTI International University and Colleges ( email )

No. 3, Jalan SS15/8
Subang Jaya, Selangor 47500

Institute for Democracy and Economic Affairs (IDEAS) ( email )

F4 Taman Tunku, Bukit Tunku
Kuala Lumpur, 50480

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