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Homo Oeconomicus and Economic Theories

The neoclassical theory dominant today is different from the Keynesian theory that defined the decades after the 2nd World War. "Bad ideas flourish becaused they are in the interest of powerful groups" (Paul Krugman).

By Prof. Andrew Novy, Vienna

[This article is translated from the German on the World Wide Web,  http://www.lateinamerika-studien.at/content/wirtschaft/ipo/ipo-380.html.]

Learning something about the economy is an indispensable necessity nowadays. In the past, training in one's technical area was enough. A physician, German teacher, blacksmith and accountant had their own skills enabling them to do their job. The ability to set fees and prices, to buy cheaply and manage the household money - all this was learned in everyday life, not in the school or university. Life taught how to be economical in a supermarket, in one's kitchen or in one's business.

Today this is different. Hospitals are not led by medical persons. The success of a school no longer depends only on the quality of the education. The health economy has to interest physicians today. The education market is a reality for teachers. Students learn in psychology and marketing courses how they can sell themselves and that self-confidence is valuable. "Money rules the world" is the dominant slogan. This "economizing of the social" leads the thinking of economists far beyond the circle of economic practitioners.

Important economic theories reinforce the virtual script. The history of economic thinking is a history of ideas where different worldviews, theoretical approaches and political goals are in conflict. Conventional economic textbooks often stand in the tradition of positivism and take the natural sciences as an ideal type of successful knowledge production.

Economic theory is described as the result of the accumulation of knowledge. It is assumed that the opinions dominant today represent the highest stage of knowledge about the economy as today's physics is superior to that of the 19th century. This superiority can be questioned. Theories are always embedded in certain paradigms, worldview and perspectives that change on account of political-economic developments. Thus the neoclassical theory prevailing today is different than the Keynesian theory that marked the decades after the 2nd World War. However it is not inevitably better.

"Bad ideas flourish because they are in the interest of powerful groups." (Paul Krugman)


The homo oeconomicus is usually mocked as absurd by non-economists. Economists often understand it as the highest form of rational human life, as an ideal type of the instrumentally rational individual. It optimizes by weighing in every isolated case what something brings and what something costs. Costs are compared with benefits and expenditures with revenue. In a business, the profit must be maximized; benefits must be maximized for consumers. The homo oeconomicus is a perfect machine. Its criticism often concentrates on the fact that people are not sufficiently perfect. Information and time to optimally decide are lacking.

The homo oeconomicus is the focus of attention of the neoclassical market-model; it forms the basis of the pure economy. If it were only this, it would not interest us. But the homo oeconomicus does not only describe a person. As the core element of the liberal world of thought, it is the example for forming the person: as a selfish and benefit-maximizing being. In the course of the 20th century, more and more people began to orient themselves in the role model of the homo oeconomicus. The calculus of optimizing is in no way limited merely to the economic realm as entrepreneurial action in the narrow sense. Rather the charm of the homo oeconomicus is its application to all fields of human conduct.

In the 1990s, the socially engaged demystified the homo oeconomicus in the framework of social liberalism. Social entrepreneurial-ship, the efficient liquidation of income support and optimized development assistance created countless homines oeconomici, striving - in Adorno's sense - to maximize the net profit of their project or their life. Can the state orchestra in London calculate what brings Nigeria a university and why money should be wasted in Zambia for heart attack patients - where it is lacking for basic health care institutions?

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