The show business economy, and its discontents

Economists, like all historians, make assumptions. One of their favorite assumptions concerns a hypothetical but ubiquitous entity called homo economicus (“economic man”), who makes rational choices to maximize his or her own profit within the organized chaos that is called a marketplace, buyers seeking to pay low prices and sellers trying to get high prices. When homo economicus is present, the degree of maneuverability on prices is determined by the scarcity of what is being sold. While this may be too reductive to encompass the entire range of human choices, economists nevertheless recommend that historians test the concept against the evidence. Historians often balk at the abstraction of homo economicus motivated exclusively by material advantage. After all, we do not live by bread alone. True enough. But admit that most people devote a considerable proportion of their energies to seeking material gain, especially in the realm of activity that deals with producing, earning, buying, and selling, and you open the intellectual door to homo economicus. Let’s temporarily ignore non-pecuniary motivations, construct a model featuring economic man, take it for a ride, and see whether the results (in terms of predictive power) justify such an extreme assumption. Furthermore, don’t forget that economics makes no predictions about the uses to which homo economicus puts his wealth; grasping merchants may use their profits to support the church, to build monuments to themselves, or to endow homes for stray cats – the economist pays no heed.