Capitalism is not driven by rational homo economicus, but by power, greed and vested interests. Neoclassical economists' tidy models still shape policy, but other insights into conspicuous consumption, monopoly and political capture better explain today's world—and remind us economics must face reality, not fantasy, if it is to serve society.
The audio version is available here:
This is the summary of our discussion:
Homo Economicus or Savage Capitalism? A Conversation with John Christensen
In this latest podcast, I was joined once again by my long-time colleague John Christensen, co-founder of the Tax Justice Network and one of the most perceptive critics of modern capitalism I know. Our subject was the idea of homo economicus – the supposed rational economic actor at the heart of mainstream economics – and its critics. What emerged was a story of two very different ways of looking at human behaviour in the economy, and why it matters so much for the world we live in.
The rise of homo economicus
John began by tracing the origins of the concept back to the late nineteenth century, when economics shifted from being a branch of moral philosophy into the mathematically-driven neoclassical framework most of us were taught at university.
One of the key figures was Francis Ysidro Edgeworth, a mathematician and economist at Oxford. Drawing on Jeremy Bentham's utilitarian philosophy – the idea that human beings are rational calculators of pleasure and pain – Edgeworth sought to create a perfectly tidy model of human behaviour. We were, he argued, calculating machines engaged in constant cost-benefit analysis, each of us pursuing our own utility.
This was the world of homo economicus: the rational, self-interested individual whose actions, when aggregated, supposedly created the best of all possible outcomes for society. Edgeworth's major work, Mathematical Psychics (1881), presented this as a vision of “heaven on earth” – a world where enlightened self-interest guaranteed social efficiency.
But as John pointed out, this was a closed world. Edgeworth and his successors ignored questions of power, inequality, exploitation or even slavery. Their models assumed away the messy realities of economic life, and in doing so, defined out of existence the human complexity that earlier economists like Adam Smith had at least acknowledged.
A very different view: Thorstein Veblen
In contrast, across the Atlantic, a very different figure was developing his own critique of capitalism. Thorstein Veblen, a Norwegian-American economist and social observer, rejected the neat abstractions of Edgeworth and his peers. He was not content with blackboard models. Instead, he walked about, observed real behaviour, and asked awkward questions.
Veblen grew up in Minnesota in a Norwegian immigrant community, and saw at close quarters the realities of late nineteenth-century America: robber barons blowing up rivals' factories, bankers rigging markets, monopolists gouging prices, and the brutal exclusion of black Americans under Jim Crow. This was not the world of rational calculators. It was a world of predators, brutes, and sociopaths elevated to positions of power.
Veblen poured scorn on the idea of enlightened self-interest. His most famous book, The Theory of the Leisure Class (1899), argued that the wealthy were not civilised maximisers of social utility, but plunderers who used cunning, guile and brute force to extract wealth. They surrounded themselves with lawyers, bankers and politicians – paid retainers in suits – and displayed their dominance through conspicuous consumption: private jets, super yachts, and their early-twentieth-century equivalents.
What shocked him most was that ordinary people often sought to emulate this behaviour. The working classes, far from rising up in Marxist fashion, aspired to copy the lifestyles of the rich. Conspicuous consumption pacified the discontented, keeping the pitchforks off the streets.
Political economy versus economics
This contrast highlights a crucial point: the difference between economics and political economy. Economics, as it developed under Edgeworth and the marginalists, claimed neutrality. It modelled a world that did not exist, assuming away power and inequality. Political economy, by contrast – Veblen's discipline – recognised that the allocation of resources is shaped by relationships of power. Who owns, who controls, who can bend the rules: these are the questions that matter.
Veblen's later work, The Theory of Business Enterprise (1904), drove the point home. He argued that many businesspeople thrived not by increasing productivity or efficiency, but by deliberately disrupting supply chains, restricting output, or sabotaging rivals in order to extract rents. Far from being heroic entrepreneurs, they were often parasites on the productive economy.
Examples abound today. As John and I discussed, supermarkets act as monopoly buyers, squeezing farmers and workers alike, restricting supply and promoting unhealthy ultra-processed diets that damage public health. Energy companies, water utilities and tech giants all use their dominance to limit competition, extract rents, and influence weak politicians.
Lessons for today
If Edgeworth saw a benign world of rational agents, Veblen saw a savage world where the strong exploit the weak and then disguise their predation with civility. Which view fits our present better?
Look to Donald Trump flogging dubious coins, or to the tech billionaires who backed him at his inauguration. Look at corporate lobbying that captures governments, from Washington to Westminster. Or look at today's economic models – the DSGE models used by the Bank of England and the Office for Budget Responsibility – which still rest on the fiction of a single rational agent - or homo economicus - who knows everything and always restores balance.
These models, descendants of Edgeworth's homo economicus, continue to shape policy. They produce neat forecasts that always return to equilibrium, because the assumptions guarantee that outcome. But they are blind to the lived reality of power, inequality, exploitation and environmental breakdown.
Meanwhile, the world of Veblen is all around us: monopolists manipulating markets, vested interests capturing politicians, corporations pushing unhealthy products, and a public seduced into aspiring to the lifestyles of the rich even as inequality deepens.
Why this matters
The tragedy, as John put it, is that the “mathematical geeks” won. Economics turned its back on political economy, preferring models of a world that does not exist. And in doing so, it sidelined the richer, more human vision.
Real people are not rational calculators. They are complex beings who care, who love, who sometimes act generously, and who sometimes act brutally. Any economics that ignores this complexity cannot help us understand the world we live in, let alone help us build a better one.
That is why revisiting Veblen matters today. He reminds us that capitalism is not a natural order of rational optimisers, but a political economy shaped by vested interests. To understand it, we need to start not with abstract models, but with real observation – economics as “walking about”, as David (Danny) Blanchflower has more recently put it.
And to change it, we need to confront the realities of power: how monopolists distort markets, how wealth buys impunity, how politicians are captured. Without that, we will remain trapped in the tidy but false world of Edgeworth, while the brutes of Veblen's world continue to dominate ours.
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“human beings are rational calculators of pleasure and pain”………&……..”ordinary people often sought to emulate this behaviour (of the rich)”
The element that links the two (& which transformer “rational calculators” into groomed consumers) is…..advertising, @ the end of the 19th cent, in newspapers but now on the Internet.
Empirical evidence to negate the 1st point and validate the 2nd: 4x4s aka wanks (Toyota literally called their’s – The Pajero – Spanish-Mexican slang for masturbator).
The companies that promote 4x4s do so because they are very profitable – thus do robber corps, replace 19th cent robber barons – with mainstream economists as handmaidens.
Good blog btw – hope the above & below is relevant.
“Capitalism …..a political economy shaped by vested interests” and dependent on advertising to groom the underclasses & corrupted economists to issue incantations believed by incurious politicians (who are selected for that trait or lack thereof).
Economist Tony Myatt writes:
“The typical introductory economics textbook teaches that economics is a value-free science; that economists have an agreed-upon methodology; and they know which models are best to apply to any given problem. They give the impression that markets generally are sufficiently competitive that (for the most part) they lead to efficient outcomes; that minimum wages and unions are harmful to workers themselves; and that government regulation is either ineffective or harmful. [..] The Microeconomics Anti-Textbook points out that all this is a myth.” —
The Microeconomics Anti-Textbook: A Critical Thinker’s Guide – second edition (20210 by Rod Hill and Tony Myatt.
https://amzn.eu/d/eGX6A1c
Thanks
“government regulation is either ineffective or harmful.”
1986/87 – EU govs decided on a common mobile phone standard (tech details agreed by companies – gov owned telecos agreed to adopt it). Ta-Da – 1991 GSM is lauched.
If you read this blog on a mobile phone – you are using a device based on government initiated standards.
Human farts contain more useful information than the opening quote above.
Thanks for the comment about farts! That’s excellent quality contempt!
I think this from MIchael Husdon and Richard Wolff, is saying something similar with respect to the development of BRICS
https://michael-hudson.com/2025/06/the-value-war/
So thinking that economics is analogous to physics has caused all sorts of problems, eh ? (Sorry !)
I am not sure I follow this one. You will need to be less cryptic.
There is nothing rational about what I see in modern economies. Is it rational to hoard wealth exponentially, despite only a fraction of it being enough? Is it rational to demand perpetual growth in a finite system? And today I see our government selling us out to American tech giants, despite their consistently dishonest behaviour and flaunting of the law. Is it rational to expect them to deliver 10% growth to our economy when we know they will take that growth for themselves, and anything else that isn’t nailed down? I would be completely irrational to believe in this system, and our leaders.
Hi Tom — I share your views how modern economics has lost its way partly due its assumption that people act in rational ways, which they clearly do not. Veblen’s fascinating contribution, at least as far as I’m concerned, is that he debunked this nonsense and pointed to the narcissistic hoarding and flaunting of wealth as akin to the behaviour of alphas and some betas in other primate species. Sadly, too many people who don’t fall into the super-rich category and never will seem to think that their behaviour, which is rapidly destroying the planet, is laudable. I hope you enjoy listening to the conversation.
Dear Sirs,
Thank you so much for the fascinating and educational discussion! Do please have another very soon!
We are recording next week.
The book by the Post Crash Economics team which takes apart how economics is mostly taught is an eye opener. The assumptions that mainstream economists make that seem non-sensical to anyone living in the real world who has seen how real people behave. Its a belief system and certainly not a science.
And even the maths is rubbish. The work at the Santa Fe Institute applying complexity and chaos thinking is far more relevant and has been much more successful in predicting. Steve Keen is fan and also Eric Beinhocker at Oxford where one of the real Gurus, Doyne Farmer, is now based.
As a readable introduction Id recommend the summary of discussions at a Santa Fe conference a few years back.
https://www.sfipress.org/books/complexity-economics
Thanks.
I have ordered a Kindle copy
This was a very interesting video poking around at the myths of modern economics.
Since looking in to real world economics myself, I have always found it odd that economists assume that consumers are these perfectly functioning rational entities, when marketing men assume the opposite. They can’t both be right.
🙂
Math, science, data analysis: they give back only as much as one puts into them. If the underlying premises and assumptions are wrong; if the data quality is bad; if one’s conclusions and certainty exceed the scope of the analysis, all the tools in the world won’t help. Garbage in, garbage out.
One wonders what Edgeworth would make of the enormous amount of research into the ties between reason and emotion (the latter of which is now believed to have a great impact on decision making). Is there such a thing as an emotional calculator? Seems contradictory.
10/10 wonderful discussion. You’ve added to my reading pile.
Thanks
Richard,
I enjoyed this… it took me back a few decades.. Thornstein Veblen came to my world after a degree in Social Anthropology when I (pragmatically because of being lucky enough to get one of the grants for this Master) diverted to do a Master in Science and Technology Policy.. ..my struggle with mainstream economics… I struggled a lot (lol) with ‘money’…. and the myths of mainstream economics…!!
I remember hanging on to the work of economic anthropologists, and the one that popped up from my memories during your talk, was Maurice Godelier and his writings on “Salt Money” – the Baruya People…!!!
So this is just a note of appreciation this morning, for this podcast! I thoroughly enjoyed this talk…..it triggered so many things, a window onto and down the memory lane of my student days!
Thank you
Joh. And I are economic geeks. It’s good to know there are others.