I was having a cuppa in a supermarket the other day and was drawn to consider the blatant irrationality of our modern society when I saw two very attractive girls dressed in denim jeans that were all torn and had no knees as they had been deliberately cut and frayed by the manufacturer. From my perspective two very attractive people were choosing to make themselves less attractive, although I am sure they have the opposite perspective. I have never understood fashion, and cannot understand the trend for wearing clothing that I would automatically consign to the bin. Why would anyone consciously choose to spend good money on something that has been debased? I accept that I am probably missing something. I have mentioned before how I always marvel at people who will quite consciously spend time clearing a table in a supermarket café, or some other eating place, transferring the used plates etc.to a clean table because they want to sit at that particular table in preference to simply choosing the clean table in the first place. This is the first clue if you wish to understand the failure of free market economics. If you base your theories on false assumptions then you will reach false conclusions, and the false assumption that lies at the heart of modern economics is that the human being is a rational consumer. There is nothing rational about buying torn clothing. I am reminded of Thomas Carlyle who told us that if we teach a parrot the terms 'supply and demand' we will get an economist, and Albert Einstein who reminds us that the difference between genius and stupidity is that genius has its limits.
Modern economics are based upon the theoretical assumptions that each individual who goes out to purchase any good, product or service exhibits a thorough knowledge of the market and makes rational consumption decisions on matters such as price, quality and alternatives. Market economics assumes a rational economic decision maker who is well-informed and who makes judgements on economic information before applying logical and reasonable conclusions about consumption. In other words, when I go shopping for anything in particular, I ensure that I know all of the shops and businesses who are offering the goods I am seeking, I am fully aware of the prices each seller is charging for such goods, I am aware of the different prices and quality of the different alternatives available for any particular good and I make my purchase after taking all of that information into account and reaching a rational conclusion as to what is in my best interest. In other words, as we are all rational consumers, no-one simply goes into a supermarket and purchases all of their weekly needs in that one shop unless they can get everything in that one shop that meets their rationally motivated conclusions as to price, quality, alternatives etc. However, if there are cheaper alternatives that satisfy our needs at a quality we desire in other stores, then we will purchase those particular commodities elsewhere and therefore our weekly shopping will be a series of transactions in different stores. What is important for this discussion is that those assumptions about human behaviour resulting from the rational nature of consumption patterns are built into the mathematical models that dominate modern economics.
I trust the reader, contemplating their own experience of shopping and consumption, may be prepared to agree with me that all of the above are actually ideal constructs that quite obviously bear little or no relation to reality, and that, at the very beginnings of an analysis of free market economics, it is obvious, even to someone who knows nothing about the discipline of economics, that such assumptions are quite divorced from the real world. For example, I have two nieces who each have around 200 pairs of shoes. I know many other people who have similar completely irrational consumption obsessions, indeed I display some of them myself; although not as extreme as my nieces (I have, at the time of writing, 25 hats, but can assure the reader that I have only one head). The irrational nature of the human becomes very dominant when they go shopping, and a whole industry called marketing has developed to exploit that very irrational behaviour. Marketing strategies do not produce irrationality; they only encourage it, because that is the default position of the human being, and one of the primary encouragements directly aimed at exploiting our irrational nature is advertising which excels at convincing us that we need something that we don’t actually want. People have the capacity for rationality and reason, but they do not start from that position. Everyone loves a bargain, but a bargain is not a bargain unless you actually need the thing you are buying, it is pleasant and satisfying to get a ‘bargain’ but to call it a bargain is an abuse of language unless you needed it in the first place, and, if I see a bargain in a hat, then I commit myself to the self-delusion that I ‘need’ it to justify that I simply want it, just as my nieces are totally convinced that they need every single pair of their shoes. As I said, I recognise such irrational behaviour in myself. However, it is taken for granted by economic theorists that the human economic actor is rational, understands the market and seeks to maximise utility (satisfaction). When economists call economic decision-making rational they mean that whenever people make such decisions they weigh the costs against the benefits, and, if the benefits outweigh the costs they will act positively and if the costs outweigh the benefits they will act negatively. However, if I was to apply rational decision-making to buying a new hat when I already have over two dozen but have only one head then it is inconceivable that I could ever conclude that the benefits will outweigh the costs. That however has never stopped me from buying a hat.
My rejection of the fundamental premise of free market economics with respect to the concept of the rational consumer, is just one of several objections I harbour towards the premises that underpin market economics, premises I consider to be false hypotheses. I also reject the modern economic interpretation of utility, the nature of the individual, the concept of diminishing marginal utility, and I have many issues with their various interpretations of the writings of Adam Smith. Should anyone be interested in my thoughts on such matters, I would be delighted to share them with you. Unless the foundations of free market economy are shown to be intellectually barren then our world will continue its slide into barbarism. You have been warned.
Your Servant
Doktor Kommirat
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