The Passive Nature of Homo Economicus

Abstract

One of the central problems with orthodox growth theory is that it lacks an endogenous driving force. This is the legacy not only of the attempt to construct a dynamic model from pre-existing static production theory, but also of the use of an unrealistic and inappropriate model of human decision-making. These two issues are closely related. While the concept of homo economicus, which requires economic agents to make unerringly rational decisions, may be an appropriate assumption for shortrun static theory, it is a liability when modelling longrun dynamics. Even the modifications suggested by psychologists (bounded rationality), institutionalists (transaction costs), and evolutionists (passive selectivity) do not render homo economicus suitable as the driving agency in dynamic theory. But then neither does neoclassical production theory provide appropriate building blocks for such an enterprise. In this chapter I will outline the orthodox theory of human decision-making and how this has led to the omission of an endogenous driving force.