The Ethical Economy and Competitive Markets: Reconciling, Altruistic, Moralistic and Ethical Behaviour with the Rational Economic Agent and Competitive Markets: A Commentary

There is a recognised caricature at the heart of modern economic theory. "Homo economicus" is generally described by reference to three axioms: (i) the individual is "rational"; (ii) the individual is egoistic; (iii) egoism takes the form of economic self-interest in narrowly defined terms (i.e. homo economicus is a personal wealth or income maximiser) (e.g. see Brennan & Lomasky (1993) [Democracy and decision; the pure theory of electoral preference. Cambridge: Cambridge University Press]). Rational behaviour is consistent behaviour; this requirement enables theory to yield prediction. "Homo economicus" is instrumental; rationally incurring costs only to maximise a narrowly conceived of notion of self-interest. This caricature, coupled with around a half a dozen assumptions that essentially create a "frictionless" world, generate the benchmark form of economic organisation in the shape of perfect competition. This outcome defines the content of consumer sovereignty, namely: cost structures will be as low as they can be; firms of optimal scale will be operated at their economic capacity; no abnormal profits will be earned by producers; output price will be as low as possible being equal to the marginal cost of production and the pattern of output is that which consumers demand at the marginal cost prices. Altman (2005) is effectively asking the question as to how much of this picture is preserved if the actors are allowed to have a broader, more realistic, set of motivations? The issues raised below follow the author's headings.