Capitalism is just not pushed by rational homo economicus, however by energy, greed and vested pursuits. Neoclassical economists’ tidy fashions nonetheless form coverage, however different insights into conspicuous consumption, monopoly and political seize higher clarify in the present day’s world—and remind us economics should face actuality, not fantasy, whether it is to serve society.

The audio model is out there right here:

That is the abstract of our dialogue:

Homo Economicus or Savage Capitalism? A Dialog with John Christensen

On this newest podcast, I used to be joined as soon as once more by my long-time colleague John Christensen, co-founder of the Tax Justice Community and one of the crucial perceptive critics of recent capitalism I do know. Our topic was the thought of homo economicus – the supposed rational financial actor on the coronary heart of mainstream economics – and its critics. What emerged was a narrative of two very other ways of taking a look at human behaviour within the financial system, and why it issues a lot for the world we dwell in.

The rise of homo economicus

John started by tracing the origins of the idea again to the late nineteenth century, when economics shifted from being a department of ethical philosophy into the mathematically-driven neoclassical framework most of us had been taught at college.

One of many key figures was Francis Ysidro Edgeworth, a mathematician and economist at Oxford. Drawing on Jeremy Bentham’s utilitarian philosophy – the concept human beings are rational calculators of enjoyment and ache – Edgeworth sought to create a wonderfully tidy mannequin of human behaviour. We had been, he argued, calculating machines engaged in fixed cost-benefit evaluation, every of us pursuing our personal utility.

This was the world of homo economicus: the rational, self-interested particular person whose actions, when aggregated, supposedly created one of the best of all doable outcomes for society. Edgeworth’s main work, Mathematical Psychics (1881), introduced this as a imaginative and prescient of “heaven on earth” – a world the place enlightened self-interest assured social effectivity.

However as John identified, this was a closed world. Edgeworth and his successors ignored questions of energy, inequality, exploitation and even slavery. Their fashions assumed away the messy realities of financial life, and in doing so, outlined out of existence the human complexity that earlier economists like Adam Smith had not less than acknowledged.

A really completely different view: Thorstein Veblen

In distinction, throughout the Atlantic, a really completely different determine was growing his personal critique of capitalism. Thorstein Veblen, a Norwegian-American economist and social observer, rejected the neat abstractions of Edgeworth and his friends. He was not content material with blackboard fashions. As an alternative, he walked about, noticed actual behaviour, and requested awkward questions.

Veblen grew up in Minnesota in a Norwegian immigrant group, and noticed at shut quarters the realities of late nineteenth-century America: robber barons blowing up rivals’ factories, bankers rigging markets, monopolists gouging costs, and the brutal exclusion of black Individuals below Jim Crow. This was not the world of rational calculators. It was a world of predators, brutes, and sociopaths elevated to positions of energy.

Veblen poured scorn on the thought of enlightened self-interest. His most well-known guide, The Principle of the Leisure Class (1899), argued that the rich weren’t civilised maximisers of social utility, however plunderers who used crafty, guile and brute drive to extract wealth. They surrounded themselves with legal professionals, bankers and politicians – paid retainers in fits – and displayed their dominance by conspicuous consumption: non-public jets, tremendous yachts, and their early-twentieth-century equivalents.

What shocked him most was that atypical folks usually sought to emulate this behaviour. The working courses, removed from rising up in Marxist trend, aspired to repeat the life of the wealthy. Conspicuous consumption pacified the discontented, retaining the pitchforks off the streets.

Political financial system versus economics

This distinction highlights an important level: the distinction between economics and political financial system. Economics, because it developed below Edgeworth and the marginalists, claimed neutrality. It modelled a world that didn’t exist, assuming away energy and inequality. Political financial system, in contrast – Veblen’s self-discipline – recognised that the allocation of assets is formed by relationships of energy. Who owns, who controls, who can bend the principles: these are the questions that matter.

Veblen’s later work, The Principle of Enterprise Enterprise (1904), drove the purpose dwelling. He argued that many businesspeople thrived not by rising productiveness or effectivity, however by intentionally disrupting provide chains, proscribing output, or sabotaging rivals to be able to extract rents. Removed from being heroic entrepreneurs, they had been usually parasites on the productive financial system.

Examples abound in the present day. As John and I mentioned, supermarkets act as monopoly consumers, squeezing farmers and staff alike, proscribing provide and selling unhealthy ultra-processed diets that injury public well being. Power corporations, water utilities and tech giants all use their dominance to restrict competitors, extract rents, and affect weak politicians.

Classes for in the present day

If Edgeworth noticed a benign world of rational brokers, Veblen noticed a savage world the place the sturdy exploit the weak after which disguise their predation with civility. Which view matches our current higher?

Look to Donald Trump flogging doubtful cash, or to the tech billionaires who backed him at his inauguration. Have a look at company lobbying that captures governments, from Washington to Westminster. Or have a look at in the present day’s financial fashions – the DSGE fashions utilized by the Financial institution of England and the Workplace for Funds Accountability – which nonetheless relaxation on the fiction of a single rational agent – or homo economicus – who is aware of every part and all the time restores stability.

These fashions, descendants of Edgeworth’s homo economicus, proceed to form coverage. They produce neat forecasts that all the time return to equilibrium, as a result of the assumptions assure that end result. However they’re blind to the lived actuality of energy, inequality, exploitation and environmental breakdown.

In the meantime, the world of Veblen is throughout us: monopolists manipulating markets, vested pursuits capturing politicians, companies pushing unhealthy merchandise, and a public seduced into aspiring to the life of the wealthy at the same time as inequality deepens.

Why this issues

The tragedy, as John put it, is that the “mathematical geeks” received. Economics turned its again on political financial system, preferring fashions of a world that doesn’t exist. And in doing so, it sidelined the richer, extra human imaginative and prescient.

Actual individuals are not rational calculators. They’re complicated beings who care, who love, who generally act generously, and who generally act brutally. Any economics that ignores this complexity can’t assist us perceive the world we dwell in, not to mention assist us construct a greater one.

That’s the reason revisiting Veblen issues in the present day. He reminds us that capitalism is just not a pure order of rational optimisers, however a political financial system formed by vested pursuits. To know it, we have to begin not with summary fashions, however with actual remark – economics as “strolling about”, as David (Danny) Blanchflower has extra lately put it.

And to alter it, we have to confront the realities of energy: how monopolists distort markets, how wealth buys impunity, how politicians are captured. With out that, we’ll stay trapped within the tidy however false world of Edgeworth, whereas the brutes of Veblen’s world proceed to dominate ours.

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