From Rational Economic Man to Social, Adaptable Human
Economic models are created around a Rational Economic Man; however, this is not who we are nor how we interact with the economy.
During the early part of the Industrial Revolution — a time of massive economic growth and turmoil — economists and prominent thinkers developed simple models to understand the boom-and-bust nature of the economy. At the centre of these models was us, described as an individual who later became known as Rational Economic Man or Homo Economicus. This portrays him as self-interested, isolated, calculating, fixed in tastes, and dominant over nature.
“[Political economy] is concerned with him solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end.” — John Stuart Mill, 1836.[1]
“By the end of the nineteenth century, the caricature clearly depicted a solitary man, ever calculating his utility, and insatiable in his wants,” says Kate Raworth in her book Doughnut Economics.[3] Rational Economic Man can calculate the utility of every purchase and integrate this over his lifetime. He is a person who expresses himself only in the market. This caricature is what we now call a consumer. The current economic system is a consumer society based on the idea that there are no limits to our so-called needs.
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” — Adam Smith, 1776.[2]
The problem is Rational Economic Man does not represent us. Do we only express ourselves in the market? Are any — let alone all — of our decisions entirely rational? No, of course not.
If we are going to have a sustainable economy, we need to redraw the self-portrait at the heart of economic theory. We thrive by connecting with each other and with the living planet we call home. We are anything but wholly rational and ever-calculating. Our values are fluid and ever-changing.
This calls for a new representation, one that Kate Raworth calls Social, Adaptable Human.[3] I keep the name Raworth gave it but propose my own version. Rational Economic Man needs two changes to become Social, Adaptable Human. We are not self-interested material payoff-maximising people. Our interactions in everyday life shape our economic decisions.
The first change is incorporating Elkington’s Triple Bottom Line[5] to add interaction with society and the environment. Where Rational Economic Man is isolated, dominant over nature, and expresses himself only in the market. Social, Adaptable Human is social, interdependent, and expresses themselves in society, the environment, and the market.
The second change is incorporating Schwartz’s Value Circumplex[6] in the decision-making. Where Rational Economic Man is ever-calculating and fixed in tastes — shown by dollar and per cent symbols in the head. Social, Adaptable Human has fluid values and is an approximating person — shown by the adaptation of Schwartz’s Value Circumplex in the head.
Our decision-making is governed by fluid values, not by rationality and calculated utility. Emeritus Professor of Psychology Shalom Schwartz describes ten universal aspects of values that are present between people and across the 20 countries he studied. Schwartz concludes that the dynamic relationship between these aspects determines the content and structure of our values.
Shifting from Rational Economic Man to Social Adaptable Humans can lead to a significant paradigm shift.
The new economic system requires a shift away from the “growth will fix it” paradigm. Nobel Prize winner Simon Kuznets warned, “the welfare of a nation can scarcely be inferred from a measure of national income.”[7] While there are correlations between economic performance and quality of life, the tunnel-vision focus on it has led us astray from what the economy should be.
There will be a shift away from consumerism. In our consumer-driven culture, wealthy people spend money for no reason but to show their wealth and status. Conspicuous consumption has been an issue for more than the last two centuries.[8] Consumer-driven culture urges us to keep spending to “keep up with the Joneses” to the point that it isn't rational anymore (was it ever rational?). In this new model, with Social, Adaptable Humans at the centre, consumers will still act in the market. But, when they do, their decisions will be influenced by their interdependence and reliance on society and the environment.
Economic activity should operate within the environmental limits; be inclusive and benefit everyone equitably; have transparent and participatory decision-making; build strong and place-based economies; and work in solidarity with First Nations Peoples’. Moving to an economic model with Social, Adaptable Humans at the centre can help us — as consumers, policy-makers, and business people, and in everything we do — make sustainable decisions that benefit us, our society and the environment. This paradigm shift will help us realise our economy's true purpose and potential.
[1] John Stuart Mill, ‘On the Definition of Political Economy, and on the Method of Investigation Proper to It’, London and Westminster Review (1836) 4 October, p. 120–164. Essays on Some Unsettled Questions of Political Economy (Longman, Green, Reader & Dyer, 2nd edition, 1874) essay 5, paragraph 48
[2] Adam Smith, The Wealth of Nations (Penguin Classics, 1986) p. 119
[3] Kate Raworth, Doughnut Economics: seven ways to think like a 21st century economist (Chelsea Green Publishing, 2017) p.85
[4] Joseph Henrich, ‘In search of Homo Economicus: Behavioural experiments in 15 small-scale societies’, American Economic Review (2001), volume 91, issue 2, pp. 73–78
[5] John Elkington, Cannibals with forks: the triple bottom line of 21st Century business (Capstone, 1997)
[6] Shalom Schwartz, ‘Universals in the Content and Structure of Values: Theoretical Advances and Empirical Tests in 20 Countries’, Advances in Experimental Social Psychology (1992), volume 25, pp. 1–65
[7] Simon Kuznets, report to the US Senate, 73rd Congress, 2d Session, National Income, 1929–1932, Washington DC (1934)
[8] Thorstein Veblen, The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions (The Macmillan Company, 1899)
