THE PSYCHOLOGICAL BASIS OF ECONOMIC BEHAVIOUR

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The right of Yu.Ya. Olsevich is identified as author of this work.




ISBN 10: 1 4946 0002 1
ISBN 13: 978 1 4946 0002 0
DOI 10.12737/10433




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                Table of Contents





   Annotation.......................................... 7
   Introduction....................................... 12
      Social Sciences on the Verge of Youth........... 12
   Foreward .......................................... 28

   Chapter 1       31
      The Psychology about the Structure and Types of
      Human Psyche ................................... 31
        1.1.   Philosophical Approaches to Psychological Structure..................................... 32
        1.2.   Typologies of the Psyche............... 41
        1.3.   The Reasons for Disagreements.......... 65
        1.4.   I.P. Pavlov on Instincts and the Role of
        Institutions («Rules»)........................ 78

   Chapter 2   85
      The Role of the Psyche in the Economic System: N.D.
      Kondratiev, T. Veblen, V. Pareto, V. Sombart, A.
      Marshall, and J. M. Keynes ..................... 85
        2.1.   N.D. Kondratiev: the Psyche as a Reflection
        and Regulator of the Satisfaction of Requirements .. 86
        2.2.   T. Veblen: The Psychic Bases of Capitalism 98
        2.3.   V. Pareto: the Psychology of the "Elite" as a
        Source of Economic Progress and Stagnation ... 108
        2.4.   W. Sombart: the Deheroisation of the «Capitalist Spirit» ......................... 122
        2.5.   A. Marshall: a Semi-Marxist View of the
        Psyche 129
        2.6.   J.M. Keynes: «The Psychology of the Market» 134

   Chapter 3       141
      The Human Psyche from the Point of View of New
      Economic Nobel Laureates....................... 141


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        3.1.   The Contemporary Crisis of Mainstream Axiomatics.................................. 141
        3.2.   Two Views on the Psychological Bases of Economic Choice: D. McFadden and A. Sen ....... 146
        3.3.   The Psyche and Informal Rules of Economic Behaviour:.................................. 156
        3.4.   «Bifurcation» of Economic Knowledge: Daniel Kahneman and Vernon Smith ........... 164

   Chapter 4   175
      Psychogenomics: the Start of a New Stage in Studying Economic Behaviour............................ 175
        4.1.   Questions that Economic Theory Cannot Answer...................................... 175
        4.2.   A Permanent Basis of Behaviour - Heredity 179
        4.3.   The Environment: Instilled Instincts, Adaptation, and Habits...................... 187
        4.4.   The Unresolved Problem of the Mechanisms of Memory and Training...................... 192
        4.5.   Rationality: Abstract or Evolutionary? . 198


   Chapter 5   207
      The Structure and Types of Psyche: from the Socioeconomic Point of View ................. 207
        5.1.  Inborn Requirements, Abilities, and Instincts 209

      5.2.   The Instilled and Developed Properties of the
      Psyche, Adaptation, and Habits ................ 213
        5.3.   The Role of Consciousness - Cognitivism . 218
      5.4.   The Constituent «Blocks» of the Psyche and its
      Social Types................................... 224
        5.5.   The «Homo Economicus» and the «Real» Person: Does Everyone Wish to Become a Capitalist?


         231

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         5.6.   The Psyche of the «Elite» and the Psyche of

        the «Masses»................................ 236
        5.7.   The Psyche of Extremists............. 242
        5.8.   Psyche and Religion.................. 245

   Chapter 6   254

      Underlying Psychological Background of Institutions and Organisations................................ 254
        6.1.   Institutions, Organisations, and Typologies of
        the Psyche .................................... 255
        6.2.   Shifts in the Psyche and the Transformation of
        Institutions................................... 259
        6.3.   The Psyche and «Human Capital»........... 262
        6.4.   The Market and Organisations: Two types of
        Relations ..................................... 265
        6.5.   Questions Regarding «Proto-Institutions».. 269
        6.6.   Structures of the Psyche and Social-Economic
        Systems ....................................... 275

    Chapter 7   282
      Market Categories: the Psychological Aspect ..... 282
        7.1.   The Institution of Trust and the Trust Instinct
               282
        7.2.   Wage Psychology......................... 288
        7.3.   Does the Instinct of Thrift Exist?....... 293
        7.4.   Psychological Aspects of the Securities Market
               297


    Chapter 8   301
      Psychological Foundations of the General Interrelation of Markets ....................................... 301
        8.1.    Partial Markets in a System of General Market
        Equilibrium .................................... 301
        8.2.    The Standard of Living and the SelfPreservation Instinct........................... 306
        8.3.    The Boundaries of Interchangeability.... 309


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        8.4.   The Psychological Determinants of the Structure of Demand........................ 311
        8.5.   Social Requirements and the Markets of Social
        Goods 316
        8.6.   Types of Psyche and Forms of Competition319


   Chapter 9   327
      Modern Innovations: the Conflict of Different Types of
      Entrepreneurial Psyche ......................... 327
        9.1.    N. Kondratiev’s «Waves» and R. Foster’s
        «Eras» 327
        9.2.    Conservatism and Innovation in American Corporations.................................. 331
        9.3.    Conservatism and Innovation in Science. 339

   Chapter 10                                           342
      The National Psychology and the National Economy 342
        10.1.    Understanding the National Psyche..... 342
        10.2.   The Genetic Roots of the National
        Psychology: A. Marshall and J. Priestley ..... 350
        10.3.   Capitalistic and Non-Capitalistic
        Nationalities - W. Sombart.....................361
        10.4.    Modern National Models of the Economy in
        the West - the Psychological Aspect............ 370
   Chapter 11                                           382


      The Specificity of the National Psychology in Russia 382

        11.1.     History of the Country and the Contradiction in the National Psychology......... 382
        11.       2. The Elite and Non-Elite: the Genetic Roots of Psychological Alienation..................... 389
        11.3.     .Specific Features of the National Psyche and the Economic Behaviour of Russians ................. 396
    Chapter 12                                            402


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      Psychological Factors of the Institutional Transformation

      and Economic Development of the USSR........... 402
        12.1.    Pitirim Sorokin on the Psychology of the
        Revolution of 1917 .......................... 403
        12.2     Extremism as the Prepotent Psyche of the State’s Socialist Transformations ........... 408
        12.3.    Dynamics of the Psyche and Institutional Adaptation in the Economy of the USSR after the
        Second World War............................. 417
   Conclusion ....................................... 439

6

                Annotation





   This book proposes and proves a general hypothesis: social and economic evolution and modern society are the result of the expansion in time and space of genetic bases of the human psyche.
   The decoding of the molecular structure of the human genome and the identification of many genes, responsible for its psyche, mark a new stage in the development of the science about human behaviour. Geneticists have established that behaviour is 50% defined by hereditary factors and the remaining 50% by upbringing, experience, and consciousness. Psychogenomics - a science about the genes governing the psyche - has provided me with the starting point for revealing the structure of the human psyche and for the allocation of the invariant types of the psyche of participants in economic activities. Such an approach allows me to explain in a new way the structure and functioning of social and economic systems in the book: in particular, the direction of the evolution of the market capitalist economy, the rise and collapse of state socialism, modern global crises, and the prospects of national economies.
   In the book, the attempts of the most well-known psychologists and economists, including recent Nobel Laureates in economics, to account for the independent role of the psychological factor in social and economic development, are illustrated. In this context, one can divide psychologists and economists into three groups. The first group recognises the genetically caused features of the psyche, but treats them in a simplified and one-sided way. The second group considers the human psyche as something completely derived from the «environment». The third group has come closest to the truth. These psychologists and economists consider the complex, genetic-social nature of the psyche, and its heterogeneity in different groups of individuals. However, as psychogenomic data was not available to them, they therefore could not explain the division and interaction between elements that were genetically inherited from those that were obtained «from outside» of the psyche of participants in the economy. Nevertheless, in the works of this group of authors, a vast layer of knowledge has been accumulated, and the first three chapters of this book are devoted to a brief analysis of their points of views.

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    In the following two chapters (chapters 4 and 5), a comparison of these views with the achievements of psychogenomics has allowed me to fill the division of the psyche accepted in psychology between the unconscious (genetic memory), preconsciousness (long-term and operative memory), and consciousness, with specific content, directly linked with social-economic activities. They allocate genetically inherited existential requirements, abilities, and instincts, on the one hand, and requirement and instincts, instilled since early childhood, on the other hand, as well as habitual forms of thinking and behaviour.
    This essentially new approach, which is defined throughout the rest of the analysis, consists of the allocation of three groups of requirements and instincts in the psyche of each person: (1) Individualism (directed towards the survival of the individual); (2) Sociality (directed towards the survival of kin); (3) Developments: In this way, unilateral characteristics of human nature as «individualistic» or «collectivistic» are refuted. In the psyche of the majority of people, the allocated groups of requirements and instincts counterbalance and supplement each other. At the same time, during millions years of evolution have also led to the development of such types of the human psyche, which, deviating from «equilibrium», were called on to contribute flexibility and variety to primitive society. These are the types of the psyche directed along one way, dominated by requirements and instincts of individualism, sociality, or development.
    In the book, the differentiation of types of psyche from the point of view of inborn and instilled requirements and instincts is combined with differentiation according to the character and level of the inborn and developed abilities - both general (intelligence, will, psychic energy, memory, attention, etc.) and specific.
    The interaction of people with different types of psyche, level, and character of abilities, allows one to explain both the genesis of the market capitalist system and its modern institutional structure.
    The combination in the inborn psyche of the majority of people of requirements and instincts - individualistic, on the one hand, and socialitarian, on the other hand, as well as requirements for development - has resulted, through their economic interaction over the course of thousands of years, in a combination of market (not personalised) and non-market (personalised) forms of exchanges of activities and distribution of goods and services.

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   The concentration of individuals with an individualistic type of psyche, dominated by requirements and instincts of appropriation, accumulation, and aggression, in combination with high psychic energy potential and organisational abilities, has led to the formation of a class of businessmen. Large sums of capital, firms, and enterprises have emerged. Psychogenomics has provided the general foundation for the systematisation of different types of businessmen, characterised by T. Veblen, J. Schumpeter, W. Sombart, V. Pareto, J. M. Keynes, and other economists. In the book four basic types of capitalist-businessmen have been allocated: (1) The predatory type, accumulating wealth through the redistribution of wealth that had been saved up by others; (2) The innovator, creating new effective combinations of factors of production, technology, and products, and discovering new resources and markets; (3) The slave to routine, following the existing norms of management, technologies, and methods of production; (4) The opportunist, aspiring to benefit in any possible way, including through the infringement of rules and contracts.
   In order to protect their existential requirements from the aggressive pressure of businessmen, hired workers, the majority of whom consists of people with a balanced psyche, unite for the purpose of concluding agreements on the restriction of the length of the working day, wage increases, and improvements in working conditions. As a rule, movements for the introduction at enterprises of these social institutions, resisting the institutions of profit and private appropriation, are organised and headed by people with a dominant socialitarian psyche. For this type of people there is also another important field of activity - the management of organisations in the social sphere, in which social norms and rules are given priority over institutes of private appropriation (public health services, education, science, culture, the mass-media, social security, etc.).
   In chapters 6, 7, and 8 it is shown that on the basis of informal (and, in the end, also formal) institutions of the market capitalistic economy, their combination in the framework of the market system, makes up the interaction of the different types of psyche of market participants. This defines the heterogeneity of the partial markets, and the discrepancy and instability of the general market equilibrium.

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   From the analysis of psychogenetic and psychosocial typology, it follows that in a normal social-economic system, the following should apply:
   1.       Individuals with an individualistic psyche, aspiring to profit and accumulation, should head organizations in the commercial sphere; social norms and rules in this sphere have a «protective» limiting character.
   2.       Individuals with a socialitarian mentality should head organizations in the social sphere; here, institutions (norms and rules), focused on private benefit, should play the limiting role.
   If organisations in the commercial sphere turn out to be in the control of individuals with a socialitarian psyche, guided primarily by social aims, it will undermine profitability; if individuals, aspiring for private benefit, are at the head of organisations in the social sphere, it leads to the degradation and even destruction of the given sphere.
   For the preservation of social-economic balance, it is vital that the legislative, executive, and judicial authority is held by persons with a balanced psyche, ready to counteract any specific «distortions» within organisations in both spheres.
   At the same time, psychogenetic and psychosocial analysis has shown that the structure of «the body of businessmen» is critically important for the dynamic development of a nation; only the fact that is dominated by «innovators» ensures steady progress. In order to push aside the «predators» and «opportunists», one needs to block all the paths of enrichment available to businessmen, except for technical-organisational progress. These predators and opportunists should be pushed aside through tax and antimonopoly laws, support for trade unions, environmental protection, stimulation of science, innovations, and venture capital projects.
   In the book, chapter 9 is devoted to the psychology of technical-economic innovation, revealing the leading part played by leaders of large corporations in the organisation of mass innovation activities in corporations and in their environment (consumers, suppliers, competitors, etc.).
   In chapters 10, 11, and 12, a new approach is proposed regarding the concept of a nation, national psychology, and its influence on the development of the national economy. The identification of the essence of the nation with historical factors (geographical, economic, political, etc.), which have shaped it, is rejected. This identification

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leads to an erroneous understanding of modern globalisation as a process of the liquidation of national economies. The specificity of the national-institutional systems of the economies of the United States, Western Europe, and Russia is considered from these positions. By considering psychological factors of the economic transformation of the former Soviet Union and Russia, special attention is given to the role of the extreme (extremely dominant) psyche of the governing kernel of the party in power. The psychological roots of the universal «disease», called the «cult of personality», and its dangerous influence on economic and social development, are investigated.
    In the conclusion, I have noted that the current crisis has sharply revealed the structural psychogenetic and psychosocial discrepancy between the current ruling elite of Russia and the tasks of economic development in Russia. Attention was drawn to this problem in the Presidential message to the Federal Assembly of the Russian Federation, where it was specified that neither business nor the administration has justified the hopes of the Russian citizens. The problem of the regulation of the structure of the ruling elite is the most important and the most complex challenge faced by any democratic nation.
    The book helps us to understand the underlying psychological background of the current financial and economic crisis: in conditions of excessive liberalisation, controlling positions in global financial institutions were grasped by individuals with an extreme and predatory psyche, which led to the destruction of the financial markets.
    As the book contains a fundamentally new statement of a series of basic problems of the social-economic structure of the economy and society, it will be of interest to teachers, researchers in science, and journalists in the economic sector, social psychology, philosophy, and other humanities.
    It is written in a simple and lively style and contains a systematic consideration of a wide range of actual problems of social development, and will be useful to students, studying social science.

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                Introduction





            Social Sciences on the Verge of Youth


    Man’s potential for adaptation seems to be unlimited. He is capable of surviving in the deserts of Africa, in Arctic conditions, in wild jungles, in high tech cities, in mountains, in swamps, in submarines and space shuttles. People become accustomed to living in small hovels and luxurious palaces, to a peaceful mode of life and to war, as well as to hard work and idleness. In everyday life they have to adapt their behaviour to social norms, to federal laws, and to company and institutional rules. Finally, people have to constantly adapt to each other everywhere - at home and at work.
    This has given rise to the opinion that the human psyche is extremely supple, that it can change depending on changes in natural, technological and social conditions. If these conditions change cardinally, then man himself changes cardinally, if not immediately, then over time. Therefore, one can hope that with the establishment of specific ecological and technological preconditions and the construction of the required social system «the New Person» can also appear; that is, a person, who in his behaviour acknowledges only principles of freedom, equality, brotherhood, fairness, humanity, progress, and peace.
    However, there exist many other observations. In all the endlessly different conditions, in which people from different parts of the world live and to which they adapt, their behaviour has inherently common characteristics. Almost everywhere, people try to cooperate with each other and at the same time exploit each other, desire freedom for themselves but want to rule others, value peace, however, are prepared to go to war in order to solve disputes. These contradictory general traits are inherent in the psyche of people, regardless of whether they live in Amazonian jungles, New York or Chukotka.
    Furthermore, the basic parameters of the psyche of people change little over thousands of years. This can be seen in the endless repetition of historical themes and types of historical figures and in the mass reactions to economic, political and ideological events by sectors

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of society. Modern man, reading the works of authors that were written two or three thousand years ago (the Old Testament, the Mahabharata, the poems of Homer, and the works of other ancient Greek and Roman authors), understands perfectly the motives behind the deeds of the characters in these works and empathises with them as he recognises his deep psychological link with them. The New Testament, which is about two thousand years old, contains norms of acceptable behaviour, extracted from the experience of ten thousand years of civilisation, which are generally accepted (although often infringed) in the modern world.
   Does this mean that man outwardly adapts to any change and changes his behaviour accordingly, however, at the same time, remains unchanged inside?
   There exists a third series of facts, which imply that not only people’s habits can change, but also their inflexible individual characteristics related to their internal psyche. Depending on the conditions in which the genesis and evolution of a specific nation takes place, in the psyche of its members, certain traits may be reinforced, others weakened, and certain specific characteristics may appear. However, these changes occur extremely slowly over centuries and generations.
   The psyche of individuals varies. Philosophers, psychologists, sociologists and economists have made considerable efforts to separate the types of people’s psyche and illustrate the role of each type in society. However, opinions vary widely on this issue, as scholars have not yet been able to express a definitive opinion on the nature of man’s psyche. This is why there are different opinions on the structure of the psyche of society and on the factors concerning the mass behaviour of people in different spheres of life.
   At the same time, there are no shortages of attempts at constructing a theory about the psyche of man and of society as a whole. These attempts are based on the historical sciences such as history, archaeology and anthropology; on the research of the contemporary behaviour of people carried out in sociology and social and economic psychology; and on the research in psychology and psychiatry.
   All these theories have a common weakness: their authors are forced to make conclusions on the internal nature and on the structure of the human psyche based on people’s behaviour and their opinion about themselves. This appears to be a very strong foundation.

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However, people’s behaviour is contradictory, varied, and changeable. In order to explain it, it is not enough to simply describe and systematise facts about people’s behaviour. One needs to supplement them with knowledge about psychophysical processes and about the mechanisms of man’s higher nervous function. In this way, we can understand why, under the same circumstances, some people act in one way and others in a completely different way, and the reactions that can be expected when the initial conditions change quickly or slowly.
   Ivan Sechenov’s research as well as the studies of the Nobel Laureate (1904), Ivan Pavlov, on the link between the signalling system in complex reflexes (instincts) and the functioning of different parts of the human brain contributed significantly to the progress made in the science of the internal mechanisms of the higher nervous function. They were applied in neurophysiology with the use of methods used in electroencephalography and biochemistry.
   However, the true revolution in the research of the internal mechanisms of the human psyche began at the end of the 20th and the beginning of the 21st centuries, as a result of works on decoding the molecular structure of the human genome and the determination of the functions of separate genes. A new branch of genetics called psychogenomics was formed. This branch is engaged in revealing the genes that control various aspects of the human psyche and studying the biochemical interaction that takes place in this «management» process.
   Only knowing the natural (genetic and neurophysiologic) basis of a person’s psyche, enables one to understand the influence of external (natural, technogenic, and social) factors on this basis, and thereby understand the formation of the human psyche as a whole.
   Economists (like any other social scientists) are interested in the human psyche primarily from two fundamental points of view: firstly, the relation (interaction, link) between the structure and dynamics of people’s psyche, on the one hand, and the formation and transformation of the system of social (primarily, economic) institutions, on the other; secondly, they are interested in the role of the psyche in decision-making (and in behaviour as a whole) within the limits of the given institutions. In other words, they are interested in the relation between psychodynamics and institutional dynamics, on the one hand, and the relation between the psyche and rational

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goal-oriented behaviour, in conditions of relative institutional inertia, on the other hand.
    Regarding the first fundamental position, one of the great Russian economists, Nikolai Kondratiev, formulated the following general law: «Although the influence of social conditions in life on the psychophysical organisation of a person is both considerable and deep, nonetheless it has its limits. What a person is not capable of achieving on the basis of his natural organic conditions, clearly, cannot be achieved under the influence of social conditions. Conversely, events that are inevitable in the course of the life of a person by virtue of the same natural-organic conditions cannot be prevented by the conditions prevalent in social life. In this sense, nature places maximal and minimal limits on the influence of culture and public conditions on a person and accordingly on the amplitude of the course of social life itself. That is why, in considering society as the real totality of people and in analyzing a person as an element of society, one needs to consider strictly the dual natural and social nature of a human being.»¹
    Thus, the amplitude of social life has maximal and minimal limits, which are defined by the psychophysical organisation of a person. The maximal limit regarding the influence of culture and social conditions on this organisation is limited by the natural-organic potential of a person. The minimal limit is determined by the fact that the psychophysical organisation of a person makes demands on society and its institutions, which have to be implemented. Thus, the dynamism of the progress of social institutions is limited from above by the degree of elasticity of the psychophysical organisation of a person, and from below by the stability of his natural and organic nature and his demands regarding social conditions. In other words, there exists a maximum possible degree of culturalisation of a person, beyond which his natural basis collapses, and a minimally admissible degree of culturalisation, below which a human being’s behaviour ceases to differ from his savage ancestors.

¹ N.D. Kondratiev, “The Basic Problems of Economic Statics and Dynamics: A Preliminary Sketch.” M., “Nauka”, 1991, p. 33. This work has been written by Kondratiev in 1930-1932 in Butyrskaya Prison where N.D. Kondratiev was being held and questioned on a forged charge of the Peasant Labourers’ Party. It was published for the first time 60 years later.

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