An Analysis on Neoclassical and Schumpeterian Approaches: Competition and Human Behavior

Abstract

The aim of this study is to scrutinize the close relationship between the type of competition and the conceptualization of human behavior by taking into consideration neoclassical and Schumpeterian competition approaches. To this end, the linkages between static competition and methodological individualism, and dynamic competition and institutional individualism are discussed. While methodological individualism is embraced by the neoclassical approach in parallel to the static analysis of perfect competition, Schumpeter analyzes human behavior within the framework of institutional individualism, and embraces dynamic competition. This study shows that perfect competition of the neoclassical approach does not take into consideration the very crucial characteristics of capitalism, and its conceptualization of human behavior falls short of explaining real world phenomena and cannot link social, historical and economic reality. Most importantly, the human being wih his/her real incentives and motives are absent from the analysis in the neoclassical approach. Since economic reality cannot be analyzed independent of society, history and social individual, Schumpeter's institutional individualism provides a richer analytical framework. To our knowledge, the relationship established in this study between competition and human behavior is a novel approach and contribution.