Homo Economicus vs. True Selfishness

Tibor R. Machan

For a year now much abuse has been heaped upon homo economicus or "economic man." The abuse got exacerbated when former Federal Reserve Bank Chief Alan Greenspan claimed that he had too much confidence in the idea. But what he said was very misleading despite the fact that he had been closely associated with Ayn Rand and her Objectivist philosophy, the ethical portion of which considers selfish conduct morally virtuous.

Greenspan's reference to "self-interest" is radically different from Ayn Rand's. The latter means by self-interest "whatever will enhance the objective well being of an agent." It calls to mind the exchange between Crito and Socrates in one of Plato's dialogues, the Phaedo, where Crito asks, "When you are gone, Socrates, how can we best act to please you?" and Socrates replies: "Just follow my old recipe, my friend: do yourselves concern yourselves with your own true self-interest; then you will oblige me, and mine and yourself too."

This is pretty much the substance of Ayn Rand's ethics of Objectivism: Do what in fact advances your best interest as the individual human being you are! In contrast, Greenspan was talking about the contemporary idea prominent in neo-classical economics, namely, homo economicus, according to which every free person always acts in his or her interest which is simply whatever anyone does if one is free to choose for oneself. The former idea of self-interest or selfishness requires of people to adhere to strict standards of conduct while the latter requires no standards for them to follow only to choose to do whatever they want to do.

Once again it is evident that the enemies of human liberty are desperately trying to stick it to the free market system by claiming that the empty homo economicus idea underlies it. In fact that idea underlies nearly all economics in our time, including that of John Maynard Keynes who is paraded around now as the great sage whose advices we did not follow and for which we are now paying with the current economic fiasco. Both Keyneseans and non-Keyneseans accept the "everyone is always selfish" view of market agents, the one Greenspan claims misled him.

That idea is in point of fact nearly useless since what it produces is vacuous claims, such as "Everyone will do whatever he or she will do if left alone, unregulated by the government." This is a wholly uninformative claim and that is, in fact, its main merit as far as many economist claim. Economists tend to stay away from morally or otherwise evaluating how people act in the free market. At least as economists they have no concern about that--as fathers, friends, citizens and so forth they may very well make such judgments but as economists all they care about is to explain what happens in markets. And they believe that assuming the truth of their idea of self-interested conduct, they can provide such explanations. This very, very broad "explanation" amounts, in essence, to the claim, "People do what they do in the free market because that is what they want to do."

The proper defense of the free market system is far more substantial than this. It states that if people aren't pushed around by governments and criminals, they will most likely do their best at figuring out what they should do, including how to earn and spend their resources. What the "best" is, however, cannot be told in general terms. But it can be told in particular cases, if one knows the agent well. And free men and women tend, in the main, to figure out what is best for them to do and pursue, objectively.

Whether the above is true is an important matter to determine but it isn't what Greenspan and other economists advance in defense of the free market place. (I think they should but that's another issue entirely.) Greenspan and most other prominent economists who favor markets tend to say simply that in free markets people are able to seek whatever they want. That is all they claim for freedom. But there is far more to it than this.