Origin of the Homo economicus
The label means “Economic Man” and was applied to a fictional entity, the purely rational actor in the pretend model realms of certain economists: as buyer of consumer goods and services, as the seller in a labour market, and as merchant or maker a seeker of profits, the larger the better.
This stripped down entity without encumbrances was described by J. S. Mill in an 1836 article as being what Economics dealt with: whole persons not being the stuff of economics. Someone critical of this approach gave this fictitious creature the label of Homo economicus.
Later, with the marginalist revolution and its metaphysical notion of utility, the creature would necessarily be an ideal reactor to pleasure and pain stimuli, seeking always the best deal, the least awful employment.
A recent definition is succinct: a ‘super·rational money·chasing individual whom neoclassical economics believes we all resemble at heart, like wanna·be bankers…..’ no doubt meaning the top ones, who are hugely compensated for their efforts. (As are currency market traders for banks, who also obtain huge amounts in their often short careers.)
The Homo economicus must surely be an eternal entity, for it is notorious that among economists most old notions, no matter how often discredited, seem never to die, but have an endless cycle of minor (mostly cosmetic) alterations and resurrections.
The creature now
And yet …… the demise of this fictional creature has been proclaimed in a recent book entitled The Death of Homo Economicus by one Peter Fleming, a business school professor, oddly enough. (Pluto Press, London UK 2017 – above quote is on p11)
But death does not really fit an idealisation that is surely more real as a dream, and hardly a role model for anyone negotiating reality — not today, nor in that time long since when the creature first appeared…. Perhaps another book title would suit: Absurdities Facing the Homo economicus Today.
Poor creature! (Oh, I know I shouldn’t say that: it is not as if it has ever come alive, been animated like Frankenstein’s monster. But then that tale was concocted by a girl in her teens who wanted her creature erect. And so perhaps may be Homo economicus, though the sub·species we may label as the Homo financialus most likely slithers.)
Professor Fleming’s book put me in mind of the famous Das Kapital by Karl Marx, volume one, for both ooze outrage throughout. Open the Marx book at random and within a page or two some awful tale confronts the reader. Professor Fleming’s effort is a bit more stretched out, but he does find today’s irresponsible parasitic “Capitalism” pretty awful — “Financialism” is a better descriptor.
Fleming’s book is considerably shorter, but even so it is rather longer than need be. The concluding chapter does not satisfy: for it does not amount to much in way of resolution, nor a likely solution to the absurdities so comprehensively related throughout.
A crucial distinction – Financialism
This is because he fails to make the crucial distinction between financialism – which has triumphantly held sway for some decades – and productive capitalism, which it feasts upon parasitically, unashamedly, and lethally in many instances.
Too often, by design, financial types leave an emaciated carcass where a living company once was, having so thoroughly feasted upon it with abandon. While many of their methods today are new, or seem so, the attitude and intent are not.
Financial types aggrandising themselves by nefarious means are old news. The sad history of the Erie Railroad in the USA is one case in point. ..For in 1868 ruthless financiers of poor reputation and very considerable greed got control of it, then so larded it with debt before bowing out that the company went bankrupt when business slowed — as does happen periodically – and its burden of fixed payments on debt ruined it.
Additional financing via fixed debt was a common business practice prior to the financial crises of the 1930s, when so many companies foundered that it was largely abandoned for many decades.
None the less, ‘junk bonds‘ (so-called) were in vogue for a time not so long ago, until their evident absurdity made ‘investors’ leery of them. They became too large a gamble for the buyers, who found fewer and fewer ‘greater fools‘ to offload them to. Then junk bonds fell out of favour with the ‘investing community’, largely fund managers of some stripe.
Thwarting it
Today, financialism is all about stock prices, so much so that even the profitability – or the likely profitability – of listed companies often means little.
So long as it appears the stock of a listed company is likely to rise in price, then the investment community will embrace it. Until suddenly they won’t, and the prices of some sector’s stocks collapse: the dot·com bubble circa 1991 is a most notorious example. Real estate bubbles in several parts of the world are another such, some already having burst, others awaiting that fate.
There is hope. There is always hope, for are we not inclined by genetics to mostly be optimistic? ..Financialism relies on its ability to take over companies as once pirates took over ships: usually now without bloodshed, but still. So remove or significantly alter that, and financialism will be thwarted. Productive capitalism needs such protection from parasites of the financial variety.
Financing and ownership need to be divorced: for then secure owners taking a longer view and desirous of handing what they inherit, or create, to their own inheritors, will act responsibly in a manner that once was quite common yet now seems uncommon, simply because the antics and braying of the financial types occupy so much media attention. And that of the politicians, trend followers that they are. _see item*: Financing by Revenue Sharing
Miseducation
I am rather taken with Thorstein Veblen, despite his flaws and rococo writing style. His last book is full of insights into the early stages of what has now become entrenched reality. He is ignored, of course, by the orthodox economists clinging to their beliefs, their dogma, with a devotion so typical of the truly religious. Such firm believers!
It is why rational argument hardly affects the orthodox, who as students suspended their disbelief, but since having graduated, forgot it ever had been necessary to do so. Now they disbelieve in the need to disbelieve as the initial step in accepting the dogma they since made such efforts to learn.
That initial disbelief got swamped by an acquired ability to ‘think like an economist‘, all the while being either aggressive or defensive about it.
“It works and is scientific” they will state in all sincerity, though neither claim is valid. ..True belief blinds them to this reality: for reasoned argument is not how they came by such belief, nor will reasoned argument of any description bump them off belief in the orthodox doctrine in Economics.
Most graduate economists are well indoctrinated these days, yet poorly educated. ..Most do not know the history of their own discipline.