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Economic Storytelling [2]: Hail the Conquering Capitalist Comes

handel    hail the conquering

Handel wrote “See, the Conquering Hero Comes!” for his oratorio Judas Maccabaeus, created to commemorate the Duke of Cumberland’s stomping out of the Jacobite rebellion at the Battle of Culloden in 1746.

Two hundred years later, hay fever stricken non-hero Woodrow Lafayette Pershing Truesmith rode a myth of his own heroism, fabricated by well-intentioned friends, to a public moment of truth in the 1944 film Hail the Conquering Hero. But that was Hollywood, and everybody was happy in the end as Woodrow lived out the popular “redemption” narrative that Silicon Valley loves, as we’ve seen previously. As for the Jacobites, their story became a cautionary tale — a more sobering narrative genre.

These two conquering hero stories illustrate why non-narrative economists think we’re better off leaving stories at the water cooler:  narratives contain too much subjectivity, interpretation, cognitive bias, self-deception, and wishful thinking to be trusted, and therefore add nothing to economic policy-making, which is all those things already. You can talk “normative” all you like, but narrative policy will end up being a matter of power, not plot.

Plus, narratives can have unexpected outcomes. This article chronicles the pendulum swings that have characterized political/economic narratives for the past century, and warns that popular narratives of economic doom can have catastrophic consequences because they’re forged in simplistic thinking to the exclusion of more complex analysis:

 “[Catastrophe narrative favor] the politics of the strong man glaring down the nation-doubters… It’s globalism or ‘nation first’, jobs or climate, friend or foe.

“The alternative is not to be wistful about flat-world narratives that find solace in technical panaceas and market fundamentalisms; the last thing we need is a return to the comforts of lean-in fairy tales that rely on facile responses to a complicated world.

“Nowadays, the chorus of catastrophe presents differences as intractable and incompatible, the choice between them zero-sum.

“We need to recover our command over complex storytelling, to think of tensions instead of incompatibilities, to allow choices and alternatives, mixtures and ambiguities, instability and learning, to counter the false certainties of the abyss.”

Why We Need To Be Wary Of Narratives Of Economic Catastrophe, Aeon Magazine (Jan. 22, 2019)

I.e., if we’re going to have economic narratives at all, they need to be complex, not simplistic, and take into account the full range of “positive” and “normative” ethical judgments, as well as both mathematical modeling and fundamental human behavior. Anything short of that promotes polarized thinking, which is not only the standard of the day, but might be inescapable as long as the human brain is in charge. Coach, consultant, and author Karl Albrecht wrote the following in Psychology Today iun 2010 — before discourse disappeared entirely from American public life:

“Recent research suggests that our brains may be pre-wired for dichotomized thinking. That’s a fancy name for thinking and perceiving in terms of two – and only two – opposing possibilities.

“These research findings might help explain how and why the public discourse of our culture has become so polarized and rancorous, and how we might be able to replace it with a more intelligent conversation.

“The popular vocabulary routinely signals this dichotomizing mental habit: ‘Are you with us, or against us?’ ‘If you’re not part of the solution, you’re part of the problem.’’

Albrecht goes on to say that “imagination, creativity, and innovation all thrive in the ‘twilight zone,’ not at the poles of opinion,” and offers these seven antidotes to the plague of silo-building:

  1. Have fewer opinions.
  2. Keep your opinions and conclusions on probation.
  3. Let go of the need to be certain about everything.
  4. Seek the “third hand”- and any other “hands” you can discover.
  5. Modify your language.Replace the word “but” with “and” as often as you can, even if it sounds weird at first.
  6. Remind yourself every day that your “truth” is not the same as any other person’s truth.
  7. Avoid head-butting contests with opinionated people.

Good advice no doubt, but storytelling or not, these days capitalists and capitalism are the conquering heroes making their grand entrances. In fact, they’re so powerful that they’re eclipsing the historic “nation-state” in size and influence.

We’ll look at that next time.

Economic Storytelling

story telling

Last time, we heard Nobel Prize winner Robert Shiller promote the use of narratives in economic policy-making, on the theory that it would produce more humane outcomes than mathematical modeling — for example, reversing trends such as soaring economic inequality, loss of upward mobility, stagnant purchasing power,  and declining cultural wellbeing.

Narratives are up to the challenge, proponents say, because:

  1. Humans are natural storytellers.

 “Our storytelling ability, a uniquely human trait, has been with us nearly as long as we’ve been able to speak. Whether it evolved for a particular purpose or was simply an outgrowth of our explosion in cognitive development, story is an inextricable part of our DNA.”

The Power Of Story, Aeon Magazine (Jan. 12, 2015)

  1. There’s nothing like a good story to make you rethink your life.

“The careers of many great novelists and filmmakers are built on the assumption, conscious or not, that stories can motivate us to re-evaluate the world and our place in it.

 “New research is lending texture and credence to what generations of storytellers have known in their bones – that books, poems, movies, and real-life stories can affect the way we think and even, by extension, the way we act.

“Across time and across cultures, stories have proved their worth not just as works of art or entertaining asides, but as agents of personal transformation.”

The Power Of Story

  1. Narratives supply a welcome sense of meaning:

“Each of us has a story we tell about our own life, a way of structuring the past and fitting events into a coherent narrative. Real life is chaotic; life narratives give it meaning and structure.”

Silicon Phoenix:  A Gifted Child, An Adventure, A Dark Time, And Then … A Pivot? How Silicon Valley Rewrote America’s Redemption Narrative, Aeon Magazine (May 2, 2016)

  1. Stories are catchy: brain scans show that listeners’ and readers’ brains mirror the storyteller’s — another reason why they make good change agents.

“fMRI data [shows] that emotion-driven responses to stories… [starts] in the brain stem, which governs basic physical functions, such as digestion and heartbeat. So when we read about a character facing a heart-wrenching situation, it’s perfectly natural for our own hearts to pound.

“Just when the speaker’s brain lit up in the area of the insula – a region that governs empathy and moral sensibilities – the listeners’ insulae lit up, too. Listeners and speakers also showed parallel activation of the temporoparietal junction, which helps us imagine other people’s thoughts and emotions. In certain essential ways, then, stories help our brains map that of the storyteller.”

Silicon Phoenix

  1. American capitalism already has an established story genre — the “redemption narrative” — that it can rely upon to good effect.

“For Americans, the redemption narrative is one of the most common and compelling life stories. In the arc of this life story, adversity is not meaningless suffering to be avoided or endured; it is transformative, a necessary step along the road to personal growth and fulfilment.

“For the past 15 years, Daniel McAdams, professor of psychology at Northwestern University in Illinois, has explored this story and its five life stages: (1) an early life sense of being somehow different or special, along with (2) a strong feeling of moral steadfastness and determination, ultimately (3) tested by terrible ordeals that are (4) redeemed by a transformation into positive experiences and (5) zeal to improve society.

“This sequence doesn’t necessarily reflect the actual events of the storyteller’s life, of course. It’s about how people interpret what happened – their spin, what they emphasise in the telling and what they discard.”

Silicon Phoenix

  1. Redemption narratives make good citizens, and never mind if there’s some ego involved:

“In his most recent study, the outcome of years of intensive interviews with 157 adults, McAdams has found that those who adopt [redemption narratives] tend to be generative – that is, to be a certain kind of big-hearted, responsible, constructive adult.

“Generative people are deeply concerned about the future; they’re serious mentors, teachers and parents; they might be involved in public service. They think about their legacy, and want to fix the world’s problems.

“But generative people aren’t necessarily mild-mannered do-gooders. Believing that you have a mandate to fix social problems – and that you have the moral authority and the ability to do so – also requires a sense of self-importance, even a touch of arrogance.”

Silicon Phoenix

  1. Stories are good for the American capitalist ideal.

“From a more sociological perspective, the American self-creation myth is, inherently, a capitalist one…. The sociologist Paul du Gay [believed that most people] craft outward-looking ‘enterprising selves’ by which they set out to acquire cultural capital in order to move upwards in the world, gain access to certain social circles, certain jobs, and so on. We decorate ourselves and cultivate interests that reflect our social aspirations. In this way, the self becomes the ultimate capitalist machine.”

Silicon Phoenix:

But of course, not everyone shares these rosy opinions of narrative economics, or of the current practice of American capitalism. We’ll hear from the naysayers next time.

The End is at Hand

the end is at hand

… but you still might want to check out the bus schedule for your ride home.

I’ve been studying jobs and the new economy for nearly three years, and blogging about them for two. For reasons I’ll talk about later, I’ll be drawing this blog series to a close at the end of September. In the meantime, I thought this might be a good time to invite you to check out my other blog — here’s a link to its About page.

I say that because I just started a new “consciousness and the self” series there, and today I’m drafting an installment that borrows from an earlier post here, on the topic of “finding your true calling” in your vocation.

The other blog has a different focus than this one, but there’s some overlap in content, and I write it in the same style, with a commitment to research and letting the pros offer their opinions. If you like that approach, you might like what you find over there.

That’s all. Just wanted to give you a heads up. See you on Thursday with the next installment of “homo economicus.”

Homo Economicus [5]: Ethics and Economics

homo economicus

This Harvard Crimson op-ed argues that that economic policy-making doesn’t embrace the full human story because what’s missing in free market self-interested capitalism is due regard for “normative ethics” :

“Economists distinguish between ‘positive’ and ‘normative’ judgments. Positive judgments are testable and predicated on objective facts. Normative judgments weigh those facts according to subjective personal values.

“Although Enlightenment-era economics was normative and philosophical, contemporary economics is a precise and quantitative science that seeks to determine what happens in the world under a particular set of assumptions. Policymakers, political philosophers, and ordinary citizens can then evaluate those occurrences according to their own normative judgments and determine whether they find them desirable.

“Responsible economic scholarship requires assigning positive and normative judgments separate roles in the policymaking process. They do not simply trade off; they have entirely different jobs.”

 “[Economists] are often characterized as robots completely devoid of ethics, chasing professional ambitions that are as sterile and soulless as they are. Authors, including in these pages, have written that human ethics are incompatible with good economic policy. This line of argument claims that our economic logic should be free from our personal values, and we must prevent our moral judgments from “getting in the way” of objective decisions…  this logic is flawed… It is not the strength of one’s feelings that matters, but rather that they fulfill their proper role in the decision making process.”

The article urges policy-makers to give equal time to both positive and normative judgments. This commentator agrees, but admits that normative  concerns — the province of behavioral economics — can be messy:

“[In economics], the beauty of a mathematical model may have little to do with the complexity of local institutions and other bottlenecks to getting prices to work or markets to clear without externalities.  Behavioral economics is far messier than standard models of rationality.”

Yale economics professor and Nobel Prize winner Robert Shiller advocates for “narrative economics” — a practice driven by the human love of storytelling  — to bring a human touch to the profession. “Not everyone is equally proficient at understanding narratives,” he says, “and economists are among the worst at appreciating them.” He thinks economists need to fix that.

“Twenty-five years ago, Chicago Booth’s Dick Thaler and I set up a series of workshops at the National Bureau of Economic Research on what we called “behavioral economics.” Behavioral economics was economics with an input from the psychology department. Every department has its own tool kit for approaching research; we were very much influenced by psychology. Maybe a little sociology, maybe a little anthropology, but nevertheless all social-science fields. I’m starting now, with my more recent work, to think that we have to look at the humanities as well.

“There is something difficult to formalize about human beings, but something that we nonetheless have to understand, and I think one way to do that is with an approach that I’m calling “narrative economics”: taking economics and adding the study of the narratives that people transmit.

“The human brain is built around narratives. We call ourselves Homo sapiens, but that may be something of a misnomer…. The evolutionary biologist Stephen Jay Gould said we should be called Homo narrator. Your mind is really built for narratives.”

Economics And The Human Instinct For Storytelling, Robert Shiller, Chicage Booth Review (May 8, 2017)

As usual, Silicon Valley is ahead of the game, having already embraced the power of story as its own cultural norm:

“In Silicon Valley these days, you haven’t really succeeded until you’ve failed, or at least come very close. Failing – or nearly failing – has become a badge of pride. It’s also a story to be told, a yarn to be unspooled.

“The stories tend to unfold the same way, with the same turning points and the same language: first, a brilliant idea and a plan to conquer the world. Next, hardships that test the mettle of the entrepreneur. Finally, the downfall – usually, because the money runs out. But following that is a coda or epilogue that restores optimism. In this denouement, the founder says that great things have or will come of the tribulations: deeper understanding, new resolve, a better grip on what matters.

“Unconsciously, entrepreneurs have adopted one of the most powerful stories in our culture: the life narrative of adversity and redemption.”

Silicon Phoenix:  A Gifted Child, An Adventure, A Dark Time, And Then … A Pivot? How Silicon Valley Rewrote America’s Redemption Narrative, Aeon Magazine (May 2, 2016)

More on economic narratives coming up.

For more on ethics and economics, see Ethics and Economics (The Library of Economics and Liberty), The Economics of Ethics and the Ethics of Economics:  Values, Markets and the State (2010), and Ethics in Economics: An Introduction to Moral Frameworks (2015).

Homo Economicus [4]: Enlightened Self-Interest

homo economicus

The concept of “homo economicus” captures the belief that the rigorous pursuit of self-interest in a free market improves things for everyone. This belief powered Milton Friedman’s famous dictum that “the social responsibility of business is to increase profits,” and finds a philosophical ally in Ayn Rand’s “objectivism”:

“The core of Rand’s philosophy… is that unfettered self-interest is good and altruism is destructive. [The pursuit of self-interest], she believed, is the ultimate expression of human nature, the guiding principle by which one ought to live one’s life. In “Capitalism: The Unknown Ideal,” Rand put it this way:

‘Collectivism is the tribal premise of primordial savages who, unable to conceive of individual rights, believed that the tribe is a supreme, omnipotent ruler, that it owns the lives of its members and may sacrifice them whenever it pleases.’

“By this logic, religious and political controls that hinder individuals from pursuing self-interest should be removed.”

What Happens When You Believe in Ayn Rand and Modern Economic Theory, Evonomics (Feb. 17, 2016)

Thus Ayn Rand became the patron saint of American capitalism in its current iteration. This is from a 2017 Atlantic article:

“’I grew up reading Ayn Rand,’ … Paul Ryan has said, ‘and it taught me quite a bit about who I am and what my value systems are, and what my beliefs are.’ It was that fiction that allowed him and so many other higher-IQ Americans to see modern America as a dystopia in which selfishness is righteous and they are the last heroes. ‘I think a lot of people,’ Ryan said in 2009, ‘would observe that we are right now living in an Ayn Rand novel.’”

Critics point out that there is no such thing as a free market or objectively rational self-interest, arguing instead that the market is inescapably skewed toward policy-makers’  beliefs and values — i.e., their particular interpretations of what “self-interested” behavior looks like.[1] As a result, economic policy always comes laden with ethical and moral beliefs about “good” vs. “bad” outcomes, which the not-so-free market then dutifully delivers:

“Milton Friedman argued that competition between big businesses suffices to safeguard the public interest, but in practice it is almost always insufficient, especially where there is collusion among the players to safeguard their market dominance – and their political influence.

“Free-market economists have an unwarranted faith in the capacity of price adjustments to produce technological changes in production and patterns of consumer demand. Their theories imply that the price system has infinite capacity to shape sustainable outcomes.

“But if the self-interested market behaviours continue to seek an unchanged goal – more personal incomes with which to purchase more material goods – ultimately they cannot be fulfilled.

 “Ultimately, the short-term self-interested economic arrangements are not sustainable anyway. As the US economist Kenneth Boulding once said: “Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist”.

“Economic inequalities also predictably widen where self-interested market behaviours dominate. Capital makes capital, while those without capital often remain consigned to poverty. Certainly, the very rich have become notably much wealthier during the last three decades while neoliberal ideologies and policies have been dominant. In the absence of strong unions and governments committed to some degree of egalitarian redistribution, the unequalising tendency is inexorable. The result is predictably unhappier societies that experience a higher incidence of social problems, as empirical research complied by Richard Wilkinson and Kate Pickett clearly demonstrates.

“Something has to give. An economic system that rewards amoral self-interest creates economic instability, fractures economic insecurity, fosters concentrations of economic power, exacerbates economic inequality and violates ecological sustainability. So much for the self-regulating market economy!

“There is currently much talk of ‘social responsibility’ in business and of ‘triple bottom line accounting’ that emphasises the use of social and environmental criteria, as well as a financial criterion, in assessing business performance… Indeed, businesses developing reputations for responsible behaviours may reap benefits in the form of worker and customer loyalty. But unless and until ethical behaviours become integral to how markets function – by directly affecting ‘shareholder value’, for example – it is hard to see the overall effect as much more than window dressing for ‘business as usual’.”

Oh, The Morality: Why Ethics Matters In Economics, The Conversation (in partnership with the University of Sydney) (March 22, 2012)

More on ethics and economics next time.

[1] For more on whether the market is truly “free,” see this article and this one. Or if you prefer, here’s a short video and here’s a TEDX talk.

Homo Economicus [3]: Capitalism For Capitalists

homo economicus

Homo Economicus is alive and well where capitalism and capitalists are prospering  most:  in the USA. We know that because U.S. GDP is going up, and has been since the 2007-2008 financial crash, That’s the perspective of this Bloomberg piece:  Capitalism Is Working in the U.S.: From Warren Buffett to Jeff Bezos, today’s American capitalists are proving Adam Smith’s claim that free markets produce investment and growth (Nov., 2018)

“So where is capitalism succeeding in a world roiled by kleptocrats, simmering trade wars, and the xenophobia that inspired Brexit? That would be the U.S.

“American free enterprise is achieving the greatest growth in the developed world, posting annual gross domestic product gains since 2009. Within just eight years of the global financial crisis, the U.S. was the only non-emerging-market economy with record GDP. The nation’s growth has exceeded the Group of Eight leading industrial countries’ average every year since 2012, a trend that economists surveyed by Bloomberg forecast to continue through 2020.”

Bloomberg is bullish on American capitalism, but the Nobel prizewinning economist who created the concept of GDP had his reservations about its proper use:

“GDP’s inventor Simon Kuznets was adamant that his measure had nothing to do with wellbeing. But too often we confuse the two… If something has to be sacrificed to get GDP growth moving, whether it be clean air, public services, or equality of opportunity, then so be it.”

“GDP is how we rank countries and judge their performance. It is the denominator of choice. It determines how much a country can borrow and at what rate. But GDP is well past its sell-by date, as people are starting to realise. However brilliant the concept, a measure that was invented in the manufacturing age as a means of fighting the Depression is becoming less and less capable of imparting sensible signals about complex modern economies.

5 Ways GDP Gets It Totally Wrong As A Measure Of Our Success, World Economic Forum (Jan. 17, 2018)

The ideological clash between the two articles cited above couldn’t be more striking.

The Bloomberg’s article extols capitalism as a “moral force” to match the American Revolution:

“The founder of modern capitalism, Adam Smith, published The Wealth of Nations in 1776, the same year 13 colonies declared their independence from Great Britain. It remains the most referenced guide to prosperity because of its moral force: Smith said the freest markets are led by an invisible hand benefiting everyone, not just the individuals and companies motivated by their own profit.”

The article then lauds the big capitalist growth winners — Jeff Bezos, Elon Musk, Warren Buffet, Facebook, Amazon, Paypal, Apple, etc. — singling out Musk for special praise, saying “[Adam] Smith would relish the example of Musk,” who “might be the archetype of Smith’s capitalist,” despite his having to “give up his position as Tesla chairman and pay a $20 million fine to settle fraud charges.”

Finally, after a few paragraphs acknowledging there’s still work to be done, the article soars to a grand finale that quotes Abe Lincoln on upward mobility:

“Quoting Lincoln in her summer 2010 Marquette Law Review essay, Heather Cox Richardson wrote: “A healthy American society worked so that ‘[t]he prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him.’ This was the idea behind free labor, ‘the just and generous, and prosperous system, which opens the way for all—gives hope to all, and energy, and progress, and improvement of condition to all.’ ”

By contrast, the World Economic Forum article is having none of Bloomberg’s enthusiasm:

“GDP is a gross number. It is the sum total of everything we produce over a given period. It includes cars built, Beethoven symphonies played and broadband connections made. But it also counts plastic waste bobbing in the ocean, burglar alarms and petrol consumed while stuck in traffic.

“Kuznets was uneasy about a measure that treated all production equally. He wanted to subtract, rather than add, things he considered detrimental to human wellbeing, such as arms, financial speculation and advertising. You may disagree with his priorities. The point is that GDP makes no distinction. From the perspective of global GDP, Kim Jong-un’s nuclear warheads do just as well as hospital beds or apple pie.

“Pointing out the defects of GDP and even tentatively suggesting alternatives is no longer controversial. Former French President Nicolas Sarkozy commissioned a panel led by Joseph Stiglitz, a Nobel economist, to examine the issue. It was creating a dangerous ‘gulf of incomprehension,’ Sarkozy said, between experts sure of their knowledge and citizens ‘whose experience of life is completely out of sync with the story told by the data.’”

The two articles are talking past each other, which allows both to be correct:  (a) capitalism is in fact good for capitalists, and (b) obsessing over GDP ignores general societal wellbeing. Squeezed between the two is the philanthrocapitalist vision of better world. We looked at that previously; we’ll look again next time.

Homo Economicus [2]

homo economicus

Despite its detractors, the concept of homo economicus is a mainstay of economic theory and policy-making because it has become a cultural myth, and cultural myths hold tight even if they perpetuate societal ill health. That’s is the perspective offered by London economist and Guardian columnist Peter Fleming in his book The Death of Homo Economicus: Work, Debt and the Myth of Endless Accumulation (2017). This is from the book blurb:

“In today’s workplaces we work harder and longer, labouring under the illusion that this will bring us more wealth. As this myth becomes increasingly preposterous, it’s time to understand why we believe in it, and where it came from.

“The Death of Homo Economicus explores the origin of this oppressive myth, in order to destroy it. The story begins with the creation of a fake persona labelled the ‘dollar-hunting man’, invented by economists Adam Smith and Friedrich Hayek. Today, this persona, driven by competition and ego, is used by politicians and managers to draw a veil over the terrible reality of work under capitalism.

“Creeping into all aspects of life, the desire to constantly compete and accumulate must be resisted if we are to create a better way of life for all.”

In this short book promo video, Prof. Fleming challenges the notion that humans are “a money-chasing animal” and that society as a whole prospers when dominated by “self-interested individualism.”  “The [homo economicus] ideal never really gained traction from the beginning.” he says, “because we don’t act as individual self-seeking beings, we live in a society and we live in communities.”

Author and entrepreneur Jeremy Lent agrees:

“Capitalism is based on the premise that the most desirable state of affairs is economic growth, which can be attained most effectively through free markets in which assets are privately owned. Based on this credo, the primary responsibility of government is to provide the infrastructure necessary for the free market to conduct its business with minimal constraints.

“Some important assumptions about human nature underlie these beliefs. Individuals are understood to be motivated primarily by financial self-interest. They are assumed to be rational in pursuit of this goal, and their “rationality” is believed to lead them to act competitively rather than cooperatively in the marketplace.

“Another crucial assumption holds that the aggregation of all these individuals competitively their own financial gain leads to the most beneficial outcome for society.

“These assumptions about human nature are not self-evident truths; however, the money-based system constructed by capitalism encourages and rewards these traits over other traditional, community-oriented values, creating a self-fulfilling prophecy about the nature of human behavior.”

The Patterning Instinct:  A Cultural History of Humanity’s Search for Meaning, Jeremy Lent (2017)

As The Guardian said in its review of The Death of Homo Economicus:

“‘Homo economicus’ is the totally made-up creature who is the proletarian hero of mid-20th-century economics: going about his daily life with unimpeachable rationality, efficiently calculating ways to maximise his self-interest.

“But people don’t actually live like that, as the behavioural economists Amos Tversky and Daniel Kahneman pointed out. It is a refuted model, yet its malign influence persists.”

“Malign” or not, competitive capitalism has become a cultural norm. Again from The Guardian’s book review:

“Our entire lives, [Fleming] argues, have been economified. The ruling narratives of work and commerce hypnotise us into thinking of our very selves as micro-businesses, so that it becomes ever harder to imagine life outside the paradigm of capital investment, productivity and profit.”

Free market champion Mises Institute agrees that economics would be better off if homo economicus went extinct.

“The problem … is that homo economicus is not actually necessary to understanding human behavior or how markets work. In fact, understanding of markets would be improved by not resorting to the homo economicus model at all… because it fails to provide a useful or accurate metric or model for human behavior.

“Thus, Ludwig von Mises noted that the homo economicus model described behavior for only one small type of human action, and failed to account for the behavior of consumers:

‘The much talked about homo economicus of the classical theory is the personification of the principles of the businessman. The businessman wants to conduct every business with the highest possible profit: he wants to buy as cheaply as possible and sell as dearly as possible. By means of diligence and attention to business he strives to eliminate all sources of error so that the results of his action are not prejudiced by ignorance, neglectfulness, mistakes, and the like…

‘The classical scheme is not at all applicable to consumption or the consumer. It could in no way comprehend the act of consumption or the consumer’s expenditure of money. The principle of buying on the cheapest market comes into question here only in so far as the choice is between several possibilities, otherwise equal, of purchasing goods; but it cannot be understood, from this point of view, why someone buys the better suit even though the cheaper one has the same “objective” usefulness, or why more is generally spent than is necessary for the minimum — taken in the strictest sense of the term — necessary for bare physical subsistence.’

“If an economics model tells us very little about consumer behavior, then its value is limited, to say the least.”

The Homo Economicus Straw Man, Mises Institute (Oct. 26, 2016).[i]

Curiously, von Mises’ argument suggests why homo economicus persists in capitalism theory:  it may not describe consumer behavior but it does describe his prototypical “businessman,” who is also his prototypical capitalist.

Continued next time.

[i]  The image above is from this article.