Why markets do not require existence of Homo Economicus and central planners do…

Few students studying economics question the presence of this homo economicus/rational man.  Those who do are told this is how economics has always been and not to waste time on it and instead think of bigger questions. But how does one move to bigger questions when answers to all questions begin from assuming this rational person?

Ryan McMaken looks at this issue and says if we look at history of thought, there is no reason why we should assume this rational being:

In the minds of the left-wing market critics such as Brown and Monbiot, the whole market system relies on an imposed view of human nature to make it work. The anti-capitalist fable goes like this: once upon a time, all human beings recognized that humanity was naturally community-minded and motivated by pursuits other than monetary profits. But then came the economists who created a new “normative,” “hegemonic,” and “imposed” world view in which human being are all selfish profit maximizers. Thanks to generations of brainwashing by capitalist economists, people now really believe that the relentless competition in the marketplace is the way to happiness, and all other human institutions are secondary at best. Society has been destroyed as a result. 

In truth, of course, the market does not depend on any imposed ideology whatsoever, and Mises and the Austrians have never based their analysis on any such assumption. No good economist denies that human beings tend to be social, and Mises himself writes that “[m]an appeared on the scene of earthy events as a social being.” Far from depending upon the existence of anti-social or atomistic human beings, the market economy simply responds to human beings as they are. Indeed, it is the consumers who impose on the market by deciding what is produced by the marketplace and when. 

Moreover, far from being a foundation of market economies, homo economicus is far more useful in providing theoretical help to enemies of markets. After all, in opposing the construct of homo economicus, Mises notes that human desires are far too diverse to allow for generalization about what can and should be produced by markets, or what consumers should do. By extension, given the unpredictable nature of human wants and talents, it is impossible to centrally plan an economy, or even intervene in an economy, without impoverishing the consumers who may want something different than what is assumed by government planners. Homo economics in many ways buttresses the conceit that we can know ahead of time what consumers and producers will want and what they will do. 

When anti-capitalists think they are somehow striking at the heart of laissez faire liberalism when they denounce homo economicus, they are doing nothing of the sort. 

All this is so opposite of what we are made to think..

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: