Who is homo economicus?

In part two of his series on neoliberalism, Aidan Regan asks who, exactly, is homo economicus, and finds that he's a mythical beast composed mostly of bits and pieces of brus from the bottom of an ideological barrel.

In the beginning there were ‘markets’ – then came the humans.

In neoclassical and neoliberal economics markets are assumed to be the primary constitutive force upon which everything else was built. It is therefore unsurprising that they view all forms of collective organisation, particularly the state, as an intrusion. I mean, they were here first! The state is considered a contractual relationship amongst fully informed rational-utility maximisers that cordially sought to put in place a system of rules, laws and social order to ensure the freedom of markets. There is not a single economic historian who could say this without laughing. Capitalism is premised on accumulation and in the beginning there was war, rape, pillage, hoarding and land grabbing that ultimately gave rise to the structured geographical space of the world as we now know it.

When markets were designed they occurred not through the free association of men at the edge of a forest selling fruit and nuts. The concentration of power in the political elite determined, structured and conditioned the rules of private market exchange. It is true, the liberal movement reacted against this and civil society agitated for the freedom to own, sell and buy property. But this was long after the enclosure movements. The market was not natural and it did not emerge spontaneously, it has always been dominated by those with the most capital. Historically, this happened to be political elites in what later became the state. Furthermore, in terms of the ‘price mechanism’ (the central tool for competitive markets to function) it is rare if ever that prices are not influenced by political decisions. Interest rates and wage labour affect the price of everything and these are rarely if ever set by markets. Central banks are independent in theory but rarely in practice. The current wave of "quantitative easing" or "printing money" in the US Fed is a contemporary example. This is the result of political pressure to tackle unemployment (and risking inflation).

For neoliberals all economic problems can be resolved by depoliticising them. Economics then becomes a simply task of technocratic determination rather than political or democratic deliberation. The attempt to depoliticise the market (think finance, banking, regulation, central banks etc) is an attempt to refine the boundaries as to what is politically contestable. Given their assumptions of the free market they are in a position to dictate what constitutes a legitimate boundary between the "market" and "state". This is being played out across Europe at the moment. People are told that the austerity measures (informed by neo-liberal orthodoxy) are the "only game in town". Politicians themselves buy-into the assumption that they are incapable of proposing democratic alternatives to the bailout of European banks with public money.

But, in contemporary terms, markets were only made possible through the establishment of property rights and the provision of physical, technological, industrial and communicative infrastructure. The internet was made possible through US state funding of research and development. This was a point made by Mícheál Martin recently. He made the argument (and, despite my differences with the minister he was correct) that during the boom years Irish capitalists were focused on making a quick fix in the property market (facilitated by domestic tax policies enacted by his government) and it was the state who set up capital venture funding for indigenous enterprise.

That the state is so central to industrial policy, economic planning and the trajectory of growth in an economy it defies belief that we still use neo-classical assumptions of "free markets" in analysing and proposing public policy. No country in the world has achieved industrial development by the "free market". It necessitates developmental efforts and substantial "state intervention". Until this assumption of the state is abandoned there will be no improvement in that aspect of society called "the economy".

Who is this homo economicus in the theory of markets?

Central to the politics of neoliberalism is an assumption that people are greedy, selfish, self-seeking and pretty much horrid social creatures. The only reason why someone would get involved in politics is to satisfy their thirst for power. They will allow sectional interests rule policy formation, particularly trade unions and organised labour. All neoclassical economics is premised on "homo economicus". Humans are rationally and narrowly self-interested and have full capacity to make calculated decisions as to what is in their interest. In game theory this means that actors will rarely if ever co-operate. Co-operation is unnatural. In reality, human societies have evolved and become successful by virtue of our capacity to co-operate. If we really were homo economicus we would probably be still fighting with the chimps.

In fairness, the assumption of a rational calculator by economists is probably not meant to be an anthropological description of human action but an analytic tool to build fancy mathematical models. But do we really want an economy that is designed for humans as rational calculators but emotional orang-utans? Even though it is an analytic device it is has led to the economisation of what constitutes human action. It has evolved into a substantive anthropology that assumes the unfettered pursuit of materialistic wealth, the accumulation of more and more money, is the defining characteristic of what it means to be human.

This is despite the fact that there are thousands of published papers, in a whole variety of scientifically established journals, that argue in favour of a much more nuanced concept of rationality. Most people have a deep intuitive sense of right and wrong when it comes to the distribution of resources that completely contradicts the notion of rational egotism. But, more importantly, most research on human action has shown that it is not timeless and ahistorical. It is deeply affected by the socio-cultural and historical context within which it is situated.  Reductionist explanations of human action (which includes the more esteemed neurosciences as well) are premised on a methodological individualism that enable, facilitate and ultimately prescribe a particular type of behaviour.

Rational choice is always embedded in moral choice. Even Adam Smith recognised this. Whilst it is rarely mentioned in economic textbooks The Wealth of Nations was premised on a book he completed earlier in his career called The Moral Sentiments of Markets. This book, while not exactly convincing, accepted that markets are political constructs and require a foundation of trust, communication and social solidarity that markets ultimately cannot provide. Neoclassical economics and the politics of neoliberalism is a failed strategy because it is premised on a conception of markets, state, and individual human action that is simply not true. It is not a science but a normative theory. The only way to challenge it is to develop an alternative framework based less on dubious scientific reasoning but moral reasoning, collective action and political mobilisation.