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4. 'homo economicus'
The much talked about homo economicus of the classical theory is the personification of the principles of the businessman. The businessman wants to conduct every business with the highest possible profit: he wants to buy as cheaply as possible and sell as dearly as possible. By means of diligence and attention to business he strives to eliminate all sources of error so that the results of his action are not prejudiced by ignorance, neglectfulness, mistakes, and the like.
Therefore, the homo economicus is not a fiction in Vaihinger's sense. Classical economics did not assert that the economizing individual, whether engaged in trade or as a consumer, acts as if the greatest monetary profit were the sole guiding principle of his conduct. The classical scheme is not at all applicable to consumption or the consumer. It could in no way comprehend the act of consumption or the consumer's expenditure of money. The principle of buying on the cheapest market comes into question here only in so far as the choice is between several possibilities, otherwise equal, of purchasing goods; but it cannot be understood, from this point of view, why someone buys the better suit even though the cheaper one has the same "objective" usefulness, or why more is generally spent than is necessary for the minimum—taken in the strictest sense of the term—necessary for bare physical subsistence. It did not escape even the classical economists that the economizing individual as a party engaged in trade does not always and cannot always remain true to the principles governing the businessman, that he is not omniscient, that he can err, and that, under certain conditions, he even prefers his comfort to a profit-making business.
On the contrary, it could be said that with the scheme of the homo economicus classical economics comprehended only one side of man?the economic, materialistic side. It observed him only as a man engaged in business, not as a consumer of economic goods. This would be a pertinent observation in so far as the classical theory is inapplicable to the conduct of the consumers. On the other hand, it is not a pertinent observation in so far as it is understood as meaning that, according to classical economic theory, a person engaged in business always acts in the manner described. What classical economics asserts is only that in general he tends to act in this way, but that he does not always conduct himself, with or without such an intention, in conformity with this principle.
Yet neither is the homo economicus an ideal type in Max Weber's sense. Classical economics did not want to exalt a certain human type—for example, the English businessman of the nineteenth century, or the businessman in general. As genuine praxeology—and economics is a branch of praxeology—it aspired to a universal, timeless understanding that would embrace all economic action. (That it could not succeed in this endeavor is another matter.) But this is something that can only be indicated here. To make it evident, it would have to be shown that an ideal type cannot be constructed on the basis of a formal, theoretical science like praxeology, but only on the basis of concrete historical data.16 However, such a task goes beyond the scope of this discussion.
By means of its subjectivism the modern theory becomes objective science. It does not pass judgment on action, but takes it exactly as it is; and it explains market phenomena not on the basis of "right" action, but on the basis of given action. It does not seek to explain the exchange ratios that would exist on the supposition that men are governed exclusively by certain motives and that other motives, which do in fact govern them, have no effect. It wants to comprehend the formation of the exchange ratios that actually appear in the market.
The determination of the prices of what Menger calls "imaginary goods" follows the same laws as that of "real goods." Bbhm-Bawerk's "other motives" cause no fundamental alteration in the market process; they change only the data.
It was necessary to expressly point out these mistakes of Menger and Böhm-Bawerk (which, as we have noted above, are also encountered in other authors) in order to avoid misinterpretations of the theory. But all the more emphatically must it be stated that neither Menger nor Böhm-Bawerk allowed themselves to be misled in any way in the development of their theory of price determination and imputation by consideration for the differences in the motives that lie behind the action of the parties on the market. The assertions that were designated as erroneous in the preceding remarks did not in the least detract from the great merit of their work: to explain the determination of prices in terms of the subjective theory of value.
- 16. Ibid., pp. 75 ff.