The Institutional Preconditions of Homo Economicus

Abstract

Most economists are aware that homo economicus is not a 'conception of man,' but only a useful assumption. Still, homo economicus is usually interpreted as an assumption about individual agents. It is individuals who are assumed to be perfectly informed and rational. Homo economicus, however, should not be understood as an assumption about individuals as such. The assumption is only applicable where human action takes place under certain institutional preconditions. It can be applied usefully when we are dealing with legally separate individuals who interact in a monetized market economy where the production process is guided by capital-based enterprises. In short, the institutions characterizing capitalism are also those that allow for the application of the homo economicus assumption. It is necessary to make these institutional preconditions explicit because they are not natural constants and, depending on their design, some of them have ambiguous effects on the market process.

Full text

1
This is an Accepted Manuscript of an article published by Taylor & Francis in the Journal of
Economic Methodology and is available online at:
https://www.tandfonline.com/doi/full/10.1080/1350178X.2021.1898659
The Institutional Preconditions of Homo Economicus
Eduard Brauna
Clausthal University of Technology
Institute of Management and Economics
Julius Albert Str. 2
38678 Clausthal-Zellerfeld
Germany
eduard.braun@tu-clausthal.de
Abstract:
Most economists are aware that homo economicus is not a ‘conception of man,’ but only a useful
assumption. Still, homo economicus is usually interpreted as an assumption about individual agents. It
is individuals who are assumed to be perfectly informed and rational. Homo economicus, however,
should not be understood as an assumption about individuals as such. The assumption is only
applicable where human action takes place under certain institutional preconditions. It can be applied
usefully when we are dealing with legally separate individuals who interact in a monetized market
economy where the production process is guided by capital-based enterprises. In short, the institutions
characterizing capitalism are also those that allow for the application of the homo economicus
assumption. It is necessary to make these institutional preconditions explicit because they are not
natural constants and, depending on their design, some of them have ambiguous effects on the market
process.
Keywords:
capitalism; economic man; economic methodology; institutions; neoclassical economics;
a Eduard Braun is Privatdozent (associate professor) at Clausthal University of Technology (Germany). He was
previously research assistant at the University of Passau (Germany). He earned his PhD at the University of
Angers (France).

2
1. Introduction
As long as there is the science of economics, economists will be accused of an unrealistic
“conception of man.” I think it is a pious hope that anybody will ever be able to clear up this
confusion for good. Already Walter Bagehot (1885, p. 8) argued that economists are “not
speaking of real men, but of imaginary ones,” when they assume that the agents in their
models are homines economici. Later, Friedman (1953, p. 14) made the famous point that
“[t]o be important […], a hypothesis must be descriptively false in its assumptions.” Homo
economicus (HE), in other words, is not a conception of man, but simply a useful, yet
unrealistic assumption about human behavior.
However, and this is the main starting point of the present paper, economists suppose
commonly that HE is an assumption about the behavior of individual agents. That is, the
faculties that are necessary to solve the complicated models used in economics are supposed
to reside in the (hypothetical) individuals. As they are assumed to be perfectly rational and
completely informed, they are able to solve all problems that are posed to them
instantaneously and with mathematical precision, which, in turn, justifies the models that
economists construct in order to analyze the consequences of human behavior. That
economists have laid these faculties into the individuals, independent of the prevailing
historical or institutional environment, has led some of them to believe that HE is “invariably
applicable everywhere, to everyone, and at all times” (Streeck, 2010, p. 390). If it is fine to
assume perfectly rational agents in our models of the market economy, they argue, why
should it not be fine to apply similar models to social issues like marriage, drug abuse, or
politics (Kirchgässner, 2008)? The individuals are the same, so why should we not be able to
apply the same models?
I argue in this paper that the reason why economists may assume perfectly rational behavior
in some of their economic models has nothing to do with the faculties of individuals. The
point is rather that economists usually focus on human actions that take place against the
backdrop of certain institutions. To name the most important ones, they analyze (1) market
transactions (2) denominated in money between (3) legally separate individuals or entities
where (4) at least one contract partner in almost all transactions is or represents a profit-
oriented enterprise. Under these circumstances, there is a strong tendency towards a final
state of affairs that can be modelled and predicted with models that employ the rationality
assumption. But this is not due to any kind of super-human rationality and information on the
side of the agents, but to the institutional setting. HE, in other words, is not an assumption
about individual behavior as such. Rather it is an assumption that is only applicable where

3
human action takes place under certain institutional preconditions. “[C]ontext rather than
cognitive capacity is important for determining behavior” (Coyle, 2019, p. 2). I concur with
Kristol (1980, p. 206) that HE “was never thought to be a whole man, only a man-in-the-
marketplace.” The HE concept, in other words, is a product of the market society (Scott,
1996, p. 97).
Economic theory would profit if the institutional preconditions of its models were stated
explicitly instead of being hidden in the assumption that agents are HEs. After all, institutions
are not self-contained natural constants. They are complex and subject to variation due to
societal and legislative processes. The relationship between the (market) processes described
in economic models and the institutions mentioned earlier is not a simple one. If some
regulatory details concerning these institution change, this may imply that the requirements of
economic models are no longer met. As long as economists employ HE and bypass the
institutions that justify the use of HE, they may end up in a situation where their models have
lost any relation to the reality they are supposed to reflect. The inability of economists to
predict the financial crisis of 2007/08 may serve as an example. In the years leading to this
event, the Glass-Steagall Act had been repealed and the system of financial accounting for
capital-market-oriented firms had changed fundamentally. Yet, the structure of
macroeconomic models did not react to these changes. The relationship between the
explanatory power of those models and the institutional setting of the situation they were
applied to was not regarded as a problem. If the institutional preconditions of economic
models were made explicit, however, changes in the real-life institutional setting would
automatically force economists to check whether and in how far their models are still
applicable.
Section 2 defines HE as understood in this paper. Section 3 demonstrates that HE is not an
assumption about individual behavior as such. Rather, it is only applicable where human
action takes place under certain institutional preconditions. The following two sections are
dedicated to the institutions that allow for the application of HE. Section 4 shows that even
the mere existence of the legally separate individual has institutional preconditions. Only with
the advent of a centralized legal system during the era of mercantilism did the individual
become a relevant unit. Section 5 then goes on to develop the institutional preconditions of
the rationality that individuals are supposed to display according to the HE approach
underlying economic models. Central to the assumed rationality of human action are the
property rights in the means of production, the money-based market, and the capitalistic
enterprise. Section 6 explains why it is necessary to discuss the institutional preconditions of

4
economic theory in their own right and not to hide them by assuming that individuals are HEs.
The institutions that justify the use of HE in economic models are no natural constants and,
depending on their design, some of them may also have detrimental effects on the market
process.
2. Homo economicus defined
Despite the huge amount of effort and time that has been invested by numerous economists
and philosophers in explaining the role and nature of homo economicus (HE), there is still no
consensus on what is the exact rationale of HE (Vanberg, 2004, p. 1). Within one section of
an article it is impossible to provide an overview of the vast literature that deals with
economic man directly or indirectly. Most of the methodological work done on economics
would have to be accounted for. That is why I start directly with the definition of HE as used
in this paper.
Economists employ the HE assumption when they wish to use logical deduction in their
theories and models about human behavior. If an economist says “I assume that all agents are
homines economici,” or, equivalently, that “all agents act perfectly rational,” what is meant is
that the economist deduces the outcome of his or her model according to established rules of
logic.
What is important here is that to be able to build deductively valid models or theories about
human action, economists also assume that human action itself conforms to the rules of logic.
They assume, in other words, that the agents in their models act according to “deductive
rationality” (Arthur, 1994, p. 406).
A similar point has been made by several scholars. According to Snooks (2000, p. 100),
economists assume that agents act entirely according to logic “not because it is a realistic
model of human behavior, but because it enables the mathematical solution of economic
theories based on it.” Kristol (1980, pp. 208 f.) adds that agents’ preferences are assumed to
be transitive and complete simply because this “permitted the economist to apply mathematics
as both an analytic and descriptive tool in his work, so that economics achieved an intellectual
rigor that soon made it the envy of the other social sciences.” Further, Hargreaves-Heap and
Hollis (1985, p. 55) state that, through the HE assumption, we “make possible the analytic
insights got by use of calculus.”
It does not matter for the concept of HE, however, whether economists’ deductive arguments
use mathematical or non-mathematical terms. The arguments of mathematics may be “the
most notable examples of extended deductive arguments” (Urmson, 2005, p. 96), but they are

5
not the only ones. Classical economists such as Ricardo and Senior were clearly pursuing
deductivist methods, but they did so verbally and without employing mathematical tools
(Hodgson, 2013, p. 28). Today, mathematics has become the “principal ‘engine of enquiry’
within the discipline” (Hodgson, 2013, p. 34) and drives a large amount of economists’
deductive argumentations. Very often, but certainly not always, HE is, as Streeck (2010, p.
390) indicates, a conceptual device that enables the use of calculus and simultaneous
equations in the analysis of social problems.
It must be added, though, that HE is directly related to the equilibrium concept. If we assume
rational choice, Kirzner (2000, p. 267) argues, “we are also, at the same time, assuming the
equilibrium state,” the reason being that perfect rationality implies that the world is “in a
perennial state of optimality.” According to Arthur (2010, pp. 153 f.), the HE concept is an
outflow of economists’ concentration on equilibria. Economists focus on equilibria because
they seek analytical solutions. The price that they have to pay for the “simplicity that makes
such analytical examination possible” is the assumption that “human behavior […] can be
captured by simple mathematical functions” (p. 154).
I will argue in this paper that the applicability of deductively valid models about human action
has certain institutional preconditions and that economists bypass the discussion of these
preconditions by assuming that the agents themselves display the necessary deductive
rationality. There are three groups of models that I would like to address with my critique and
suggestions for improvement.
First, there is a group of models that deduce equilibrium values based on the explicit
assumption that agents are perfectly rational. Obviously, neoclassical economics and game
theory belong to this group. However, a case can also be made for new Keynesian economics
whose dynamic stochastic general equilibrium models stress the importance of neoclassical
micro-foundations and assume rational expectations (Kirchgässner, 2008, p. 82, Vercelli,
2016, p. 161). According to Spahn (2009, p. 188), new Keynesian macroeconomics even
“restores the supremacy of the ‘homo oeconomicus.’”
A second group of models for which my arguments are relevant is subsumed under the label
of new institutional economics. This tradition criticizes neoclassical economists for making
overly heroic assumptions. It objects to the neoclassical general equilibrium model on the
grounds that it assumes that information is a free good and that there are no search costs or
transaction costs. However, new institutional economics continues to stick to HE (Bowles &
Gintis, 1993, pp. 84 f.). It adds further constraints to the optimization models, but the results
are deduced logically. In particular, the principal–agent models are typical examples where at

6
least one party is not fully informed but where the outcome can still be calculated exactly by
the economist. Like in neoclassical economics, the economist is able to jump to the
conclusion because the agents are supposed to adopt suitable means to their ends
(“instrumental rationality,” see Wilson and Dixon, 2012, p. 3) and act according to the laws of
logic. We will see in section 4 that, despite its name, new institutional economics does not
address the institutional preconditions of its use of HE.
It is more complicated to explain the third group of models for which my arguments are
relevant. It comprises a subset of models that do not explicitly make the HE assumption or
even reject it as unrealistic and/or useless. The point is that there are models that introduce
assumptions about human behavior that are incompatible with the HE concept, but despite
this, they continue to employ the neoclassical framework.
Many Keynesian models, for example, do not explicitly assume that agents are fully informed
or that they maximize an objective function. HE is not usually claimed to be a part of these
models. Rather, they are supposed to be a bastion of an economics that does not start from
hypothetical rational economic agents (Bresser-Pereira, 2009).
However, the Keynesian and, partly also, the Post Keynesian approaches do not break
fundamentally with neoclassical economics. Their models typically analyze in isolation the
forces that are at work after certain exogenous shocks. Apart from these shocks – and certain
behavioral assumptions – the economic system is supposed to work perfectly. As Schumpeter
(1954, p. 1175) noted, “Keynesian analysis […] presupposes ‘free,’ if not actually ‘pure,’
competition in all commodity and factor markets.” It is embedded in a neoclassical
framework, so to speak. The result of these models can, therefore, be deduced in the same
way as those of neoclassical theory.
To give a well-known example, the outcome of the Keynesian multiplier process is simply an
equilibrium that is calculated by the economist. The data of the model determines its outcome.
If in a closed economy the propensity to consume is 0.75, an increment of investment ∆𝐼 =
100 will supposedly increase income by the factor 
. = 4.
The multiplier model itself does not contain an objective consumption function that is
somehow optimized by consumers (Boulding, 1948, p. 194). Consumers are characterized by
a propensity to consume, which stipulates how they allocate their expenditures. This
propensity is determined outside the model. However, given this exogenous variable – the
propensity to consume – the rest of the economy works perfectly according to neoclassical
principles. Therefore, the modeler is able to apply rules of logic in order to deduce the
outcome of his or her model.

7
One could say that the theories in the third group introduce “irrational” elements into an
economy that is otherwise characterized by HE. These irrational elements may be, e.g.,
certain propensities by the agents, sticky prices, or adaptive expectations, such as in the
cobweb model. As long as the rest of the economy is assumed to work like in neoclassical
economics, what I have to say about the institutional preconditions of HE also applies to these
models.
3. Is homo economicus an assumption about the individual agents?
I will argue in this section that the applicability of the HE assumption is bound to a certain
institutional environment. HE is, therefore, not applicable to the analysis of all kinds of
human action or interaction. It is on this point that I disagree with the concept of HE as it is
used by many other economists and social scientists and, instead, agree with Satz and
Ferejohn (1994, p. 72) who claim that “rational-choice explanations gain their explanatory
power from features of the agent’s environment.” Depending on the institutional framework,
there are areas where rational logic can be applied to accurately describe or predict human
behavior, but there are others where this procedure does not deliver reliable results. Following
Hodgson (2003, p. 163), institutions are here understood as durable systems of established
and embedded social rules and conventions that structure and stabilize social interactions.
Examples of institutions are language, money, laws, systems of weights and measures, table
manners, firms and other organizations.
HE is often interpreted as an ahistorical concept, as an assumption about the behavior of
individual agents, independent of the institutional context. This, of course, is in accordance
with the generally accepted method of economics, namely to explain all events as the result of
acting individuals and their characteristics. Arrow (1994, p. 1), for example, states that it “is a
touchstone of accepted economics that all explanations must run in terms of the actions and
reactions of individuals.”
Many economists and other social scientists consider HE to be a context-free assumption
about the behavior of individual agents. As such, they have made numerous attempts, known
as economic imperialism, to apply this concept outside of their discipline, and many game
theorists and political theorists have adopted its use in their own disciplines (Hodgson, 1996,
p. 383). For Gary Becker, Gordon Tullock, and other representatives of economic
imperialism, rational choice appears to be a universal concept, and many explanations in
social science seem to be reducible to applications of the tools of standard economics
(Brennan & Buchanan, 1985, ch. 4; Kirzner, 2000, p. 259; Rosenberg, 1979, p. 514).

8
This position implies that HE does not have institutional preconditions that would restrict its
application to certain historical contexts like market-settings. Whether we deal with racial
discrimination, family planning, suicide, the consumption of drugs, or politics in general,
most problems of the social sciences can supposedly be analyzed by means of individual
agents whose choices and actions can be depicted by the economic model of human behavior
(Kirchgässner, 2008, p. 11).
By interpreting the rational HE as a universal concept, economic imperialists have depleted
the concept of any empirical content (Vriend, 1996, p. 269). Or, perhaps better, they have thus
demonstrated that HE is generally understood by economists to be but a universally applicable
formal device that allows for rational (and often mathematical) treatment by the scientist.
They have thus overlooked the possibility that there is a reason why economists may use HE
in some of their theories, which is not present in other social sciences. Kirzner (2000, p. 264)
rightly observes that economic models are usually bound up with the institutional setting of a
commercial society, a market economy with a developed price system where production is
accomplished by businesses. Kirzner (2000, p. 264 f.) summarizes this idea in the following
statement:
It is markets, under institutional arrangements which include especially the possibility
of buying at a low price in order to resell at a higher price, which are responsible for
the initiation of those systematic processes of error-correction which we understand as
making up the process of equilibration. While interaction between alert human beings
can be expected to result in some relevant gradual mutual discovery under any
institutional circumstances, the speed of such discovery processes within markets is
clearly of an entirely different order of magnitude than is conceivable outside markets.
Kirzner is clearly aware that if economists apply HE, they are usually implicitly assuming the
social context and institutions of the market economy. In the market economy, many
decisions boil down to making binary choices between different numbers, i.e., prices, and it is
easy for most people, especially for entrepreneurs, to act quick and well-informed within the
framework provided by the price system. Such a system is missing in most or all other
sections of the social sciences. Therefore, attempts at subordinating explanation in other areas
of social science to the hegemony of economic theory are “flawed” because the “assumption
of universal rationality” rests on the idea of “complete market equilibrium” (Kirzner, 2000, p.
268). It may well be a workable analogy to speak of the “marriage market,” but on this kind

9
of market no easily determinable and interpretable one-dimensional signals exist that could
help the market participants to make quick and well-informed choices. Therefore, this kind of
“market” will never be able to react as quickly and predictably to new information as does a
commodity market (Kirzner 2000, p. 267).
The results that economists derive from their models that assume HE only apply to real-world
settings where certain institutions are in place. This point is clearly confirmed by the research
of Vernon Smith (2003) and Gode and Sunder (1993). In their respective experiments and
computer models, these authors have shown that even irrational, badly informed, or zero-
intelligent traders are able to achieve an allocative efficiency of almost 100 percent. But it is
not the calculation powers of the participating agents that allows for this effect, but the
environment, for instance the double auction or similar arrangements. Kesten-Kühne (2020, p.
445) demonstrates that in agent-based models general equilibrium can be achieved easily and
efficiently with agents that are far from rational. Further, Smith (2005, p. 137) reports that the
equilibrium price is found even in experiments where subjects in “debriefings deny that there
is any kind of quantitative model that could predict their market price and exchange volume,
or that they were able to maximize their profits.” Under certain institutional arrangements,
even persons who do not want to be HEs and who deny that they are anything like HEs
generate rational results as if they were HEs.
This research shows that it does not suffice to criticize neoclassical economics merely on the
grounds that HE is not an accurate description of human behavior. HE is not a conception of
man. It is not even an assumption about the faculties of individuals. It is rather an assumption
about the institutional environment of human action. That we are sometimes allowed to apply
logical deduction in economic models has nothing to do with the logical capabilities of agents.
Only if a certain environment is given, we may model agents as if they were able to solve
complicated mathematical problems perfectly and instantaneously. But, again, this is not
really an assumption about the agents, but about the institutional framework. In making this
whole idea an assumption about human behavior, economists have, in the words of Mitchell
(1910, p. 212), absorbed “the essence of pecuniary rationality into their tacit assumption of
hedonic psychology.”
Behavioral economists are therefore on solid ground when they claim that in most economic
analyses individual agents are “assumed to be rational decision makers and to have purely
self-regarding preferences” (Camerer & Fehr, 2006, p. 47). Behavioral economists have good
reason to put this assumption to the test by examining the behavior of actual individuals in all
sorts of circumstances (e.g., Henrich et al., 2001). They have established numerous effects

10
that show that people are often motivated by objectives that differ from rational maximization
of well-behaved utility functions. Phenomena such as inequity aversion and altruism often
explain human behavior much better than the assumption of rational agents who maximize
their pay-offs (Thaler, 2000; 2016). By assuming a certain type of behavior that hardly exists,
neoclassical economists have made their assumptions vulnerable to the behavioral
economists’ criticism.
However, as the HE assumption is usually interpreted as an assumption about human action,
independent of the institutional framework, behavioral economists who criticize this
assumption tend to pay no more attention to this framework than neoclassical economists.
There are, of course, instances in which individual market participants or the market as a
whole act irrationally, but rational choice assumptions are, as Gintis (2000, p. 313) remarks,
“relatively unproblematic in a market setting, but have potentially seriously misleading
implications when applied outside this sphere.” The predictions of game theory generally fail
in cases where few agents engage in strategic interaction with the power to punish or reward
the behavior of other players.
There is more to the assumption that individual agents are HEs than neoclassical economists,
game theorists, or, for that matter, behavioral economists seem to realize. Arrow, who can
hardly be accused of being a critic of deduction and mathematical models in economics, is of
the opinion that economic theorists, despite their explicit conviction to the contrary, actually
do not at all explain by means of individuals alone. Arrow (1994, p. 1) states
that a close examination of even the most standard economic analysis shows that
social categories are in fact used in economic analysis all the time and that they appear
to be absolute necessities of the analysis, not just figures of speech that can be
eliminated if need be.
Arrow speaks of “absolute necessities” of the analysis. So he does not simply have constraints
or incentives in mind that determine the choice set of the agents. His point is more
fundamental. Among these social categories, Arrow (1994, pp. 4 f.) mentions social
institutions like markets and the constituting rules of the game. Thus, even Arrow (1994, p. 8)
admits that social or institutional variables are essential preconditions for meaningfully
studying society and the economy with the standard methods of economics. But what are
these absolutely necessary institutional preconditions of economic analysis?

11
4. The institutional preconditions of the legally separate individual
There are of course a number of current economic theories where “institutions” play an
important role. These are known under the title of “(new) institutional economics” (Erlei et
al., 2016; Furubotn & Richter, 2005). Nevertheless, in this string of literature, institutions are
not regarded as preconditions of the application of the HE assumption to human (inter-)
action. Institutions are here rather a different word for the constraints and incentives that
determine the choice set of agents such that transactions costs are minimized (McCloskey,
2016, pp. 3 f.). Institutions do not play a constitutive role for the analysis. One and the same
behavioral model is applied to different constraints and incentive structures (“institutional
settings”) so that, first, the effect of certain constraints can be analyzed, and second, a
comparative analysis of different constraints becomes possible (Brennan & Buchanan, 1985,
ch. 4).
The idea that the applicability of deductive reasoning to human (inter-)action might itself be
bound to institutional preconditions has not garnered much attention. For new institutional
economists, the ability of economic agents to act strictly in conformity with logic resides in
the agents themselves, not in their environment.
The institutions under which the use of deduction in economic theory can be considered
applicable are the same as those that, according to Hodgson’s (2015) book “Conceptualizing
Capitalism,” constitute capitalistic society. Hodgson does not construct models where
individuals make decisions on the basis of their individual utility functions and only interact
with each other if and so far as it serves their personal interests. Instead, he systematically
deals with those institutions that make rational and peaceful exchange possible and thus cause
the success (and the down sides) of capitalism. These institutions are law and the state, private
property rights, markets, money, capital, and enterprises. Although it is obvious on plain sight
that these institutions are essential components of the capitalist system, standard economists
take them for granted. They do not analyze them and oftentimes do not even mention them
explicitly as preconditions of economic theory. Hodgson turns the tables and argues the other
way round. It is these institutions – the social context of people acting in capitalism – that
should be the starting point of economics. It is for this purpose that he conceptualizes them.
In a sense, Hodgson’s book could also be entitled “Conceptualizing Homo Economicus.” For
it is exactly the institutions that constitute the market economy that justify why economists
analyze the market economy by means of rational models. According to Kristol (1980, p.
206), “to have an economic theory, you need a market economy.” The said institutions allow
for two aspects that are crucial for the concept of HE: First, they are the precondition of the

12
amount of rationality in economic life that justifies the application of logical deductions by
economists. Second, and more fundamental, these institutions are the precondition of the
existence of legally separate individuals. In other words, not only does the rationality of
human action depend on institutional preconditions, so, too, does individualism, a central
dimension of HE (Urbina and Ruiz-Villaverde 2019, pp. 65 f.). Section 5 will deal with the
institutional preconditions of the rationality that individuals are supposed to display according
to the HE-approach. The remainder of section 4 is dedicated to the more basic preconditions
of individual human action as such.
When it comes to these preconditions, one could say that economists assume no less than a
perfectly functioning legal system that does nothing but to secure the property rights of
individuals participating in market transactions. As Kaulla (1916, pp. 300 f.) noted, tacit
assumption like that seem to be a widespread procedure among economists:
The logical precondition of [economists’] reasoning, abstracting as it does from the
state, is in reality not a stateless, anarchic state of affairs; on the contrary, their
reasoning presupposes the existence of a state whose entire institutions and functions
are perfectly stable, so that it is possible to stipulate the latter’s influence on the
economy as a permanently constant factor and therefore to eliminate it from the
discussions.
That individuals are free to act and choose according to their preferences is nothing less than
self-explanatory. Even the mere existence of individuals as separate legal entities whose
choices are analyzed by economists has institutional preconditions. The legally separate
individual only came into being during the transition of medieval to modern Europe. Before,
the life of individuals was not autonomous, but was determined by groups such as the
patriarchal family, the gild, the church, feudal class, and the village community. Neither the
separate, autonomous individual nor centralized political power existed in the modern sense.
Both developed in parallel in a centuries-long fight to get rid of the fetters of medieval group
life (Nisbet, 1990, pp. 73 f.). The concept of the separate individual is therefore linked to the
modern, centralized state that monopolized the legal system and thus erased the older
medieval bonds and commitments.
This link between the individual and the state has been discussed by several historians of
economic thought. According to Gonnard (1941, pp. 61 f.) and Schmoller (1884, p. 43), the
state and the individualistic society originated side by side in the era of mercantilism and

13
depend mutually on each other. Still, economists continue to start their deliberations with the
isolated decisions of individuals as if the existence of freely choosing individuals were not
depending on a certain social framework. Nisbet (1990, p. 202) criticizes the classical
economists and liberals for originating this way of reasoning:
Man, abstract man, was deemed to be inherently self-sufficing, equipped by nature
with both the instincts and the reason that could make him autonomous. […] [The
classical liberals] abstracted certain moral and psychological attributes from a social
organization and considered these the timeless, natural, qualities of the individual, who
was regarded as independent of the influences of any historically developed social
organization.
HE, in other words, does not in any way describe individual human behavior as such.
Implicitly, economists only deal with the behavior of people who live in modern,
individualistic societies where the state guarantees – or is at least supposed to guarantee – the
legal autonomy of the individual and where all other communities or groups that used to have
legal or moral power over the individual have disappeared.
Only the centralization of power in the modern state has paved the way for the modern
anonymous market economy, for capitalism. Through its efforts at territorial consolidation of
law, the state offered “a scene increasingly impersonal and calculable” (Nisbet, 1990, p. 95)
where consumers, workers, and entrepreneurs were considered as individuals that cooperated
voluntarily on the basis of contracts.
Only in such a society – where the modern state constitutes the legal equality of individuals
and thus generates the preconditions of the market economy – is it possible to apply
Newtonian mechanics to the modelling of human action and to reduce “everything to human
atoms in motion, to natural individuals driven by impulses and reason deemed to be innate in
man” (Nisbet, 1990, p. 202).
5. The institutional preconditions of economic rationality
The very existence of legally separate individuals has institutional preconditions. Even on this
basic level, the concept of HE depends on the institutional framework: We do not even know
if individuals are able to make legally relevant choices based on their individual preferences
before we have clarified their legal status in society.

14
All the more does the rationality that individuals are assumed to display in economic models
have institutional preconditions. If economists may sometimes assume that agents are able to
solve the most complicated equations instantaneously, the reason is that the environment they
are analyzing has certain institutional features. The most important institutions in this regard
are discussed below, each of which is complex and could itself be analyzed as a set of
institutions. The purpose of this discussion can only be to provide a first survey of the
institutions that make the rationality assumption applicable.
Private Property Rights
Although Ludwig von Mises was otherwise not very outspoken when it came to outline the
concrete institutional preconditions of economic theory, he brought the issue to the forefront
in the socialist calculation debate. What he showed in his famous contribution (Mises 1920)
was that private property rights in the means of production are indispensable for a large,
modern society if it wants to allocate its resources rationally. Socialist societies that abandon
these property rights, Mises argued, would have to do without prices for the means and factors
of production. Economic calculation would be impossible under these circumstances.
During the socialist calculation debate, Oskar Lange and Abba Lerner opposed this point of
view. It is important for us to note that they did so by backing their position with
mathematical standard models. The Lange-Lerner theorem basically applied neoclassical
economics to a socialist system (Boettke et al., 2014, p. 283). In a nutshell, these authors and
their followers argued that a central planning board could act as Walrasian auctioneer by
announcing and adjusting prices until equilibrium is achieved. In their point of view, the
neoclassical general equilibrium model not only describes capitalist economies, but socialist
economies as well. In contrast, Mises argued that the rational allocation of resources,
described by this model, is contingent on a certain social context, namely the market economy
with private property rights in the means of production and the institutions of monetary
calculation, e.g. double-entry bookkeeping.
The debate shared the fate of most debates in the social sciences – both sides claimed victory.
Still, it has raised awareness of the role that the underlying institutional framework has for the
standard economic equilibrium models. It has made clear to socialists that they must
substitute an alternative institutional framework if they want to achieve results similar to
capitalist economies in producing rationally. Even economists otherwise sympathetic to the
socialist case admit that this is not at all an easy task and has not been accomplished yet
(Hodgson, 2015, ch. 12).

15
In short, this famous debate has shown that our familiar neoclassical models of the economy
cannot be applied to socialist societies. The rationally choosing HE, in other words, is bound
to societies where private property rights in the means of production exist.
Money-based market economy
It is well known that for John Stuart Mill the existence of money only obscured the truly
important “realities of the phenomena.” According to Mill, economists should be careful not
to make the mistake of attending “only to the outward mechanism of paying and spending”
(both quotes from Mill, 1965, p. 89). The later Arrow-Debreu general equilibrium models are
constructed according to Mill’s advice. For them, relative, not nominal, prices are relevant,
and therefore “money can play no essential role” in them (Hahn, 1971, p. 417). Money is not
considered as a necessary, institutional precondition in these popular models (Ingham, 2004,
p. 7). Mitchell (1916, p. 141) gave utterance to the paradoxical situation of economic science
when it comes to the role of money: “Political economy, then, is the science of business, and
economic men are money-makers; nevertheless, the use of money is a fact of no importance
for economic theory.”
True, since the time Mitchell and other institutional economists wrote, economic science has
changed considerably. Most importantly, the whole discipline of macroeconomics has
evolved originally as an analysis of the role and influence of money in the economy
(Schumpeter, 1954, pp. 278 f.). However, current macroeconomic research has abandoned the
concept of money almost completely. Already Friedman (1970, p. 217) argued that money has
no influence on real variables in the long run, stating that “nonmonetary forces are ‘all that
matter’ for changes in real income over the decades and money ‘does not matter’.” With the
advent of Dynamic Stochastic General Equilibrium models that assume perfectly creditworthy
representative agents there is at best a periphery role left for money in macroeconomics
(Goodhart, 2009, p. 826). But even in so far as money is actually analyzed, macroeconomics
is concerned with the way money influences an already existing economy. The constitutive
role of money for rational transactions among individuals does not fall within the scope of
macroeconomics.
Although economists tend to skate over the fundamental role of money for their rational
models, it must be clear that without the existence of money, there would be no real-life
object to apply equilibrium theories to in the first place. There would be no price system, or
only a primitive one at best. Any form of sophisticated transactions would be extremely
difficult without the existence of a medium of exchange and a common denominator (Lewin,

16
1997, pp. 260 f.). In other words, the rational human behavior that is assumed in economic
models has an institutional basis in the money price system (Ingham, 2004, p. 4). Hayek
(1945) famously made a similar point when he argued that the price system is a sine qua non
if society wants to allocate its resources rationally. A system of money prices reduces the
amount of knowledge that each individual agent needs dramatically and thus helps consumers
and producers to orient their actions. Society is able to react rationally to changes even if only
few people know the details of the actual causes.
The whole acts as one market, not because any of its members survey the whole field,
but because their limited individual fields of vision sufficiently overlap so that through
many intermediaries the relevant information is communicated to all. The mere fact
that there is one price for any commodity – or rather that local prices are connected in
a manner determined by the cost of transport, etc. – brings about the solution which (it
is just conceptually possible) might have been arrived at by one single mind
possessing all the information which is in fact dispersed among all the people involved
in the process (Hayek, 1945, p. 526).
Without money, such a price system where information about scarcity, needs, and costs is
communicated throughout society seems to be unthinkable. In a money-less society, our
sophisticated models could not be applied.
Money makes the market economy possible, one could say, and therefore it is also a
constituting institution for HE. Without money and money prices, the processes whose final
states we deduce logically would simply not exist. Also capitalism as a rational organization
of the production process via anonymous market transactions would not exist. Only if both
inputs and outputs can be expressed as money prices does it become possible on such a
market to decide whether what one has done or is planning to do makes “economic” sense.
Without money, there were no rational reactions to changes in demand or costs on a societal
level. In fact, it would be difficult to detect these changes in the first place.
Capital and business enterprise
However, money is but one of the institutions that are necessary to make complicated
transactions and economic calculation possible. Even in a market economy people do not
usually focus exclusively on maximizing money profits (Regalia, 2013, p. 808). We all know
the numerous effects found by behavioral economics which show that people are motivated

17
by all sorts of goals that differ from making money (see section 3). The existence of the
system of money prices alone is not enough to explain the rationality assumed in economic
models.
But there is an institutional arrangement that explains why there is an almost undisturbed
tendency towards the elimination of price spreads nonetheless. There are agents in the market
economy who focus exclusively on actual or expected price spreads, and they generate a
tendency towards equilibrium strong enough to override other, non-economic tendencies. This
equilibrating force is created by entrepreneurs and their vehicles – business enterprises.
Enterprises are artificial agents who focus exclusively on making economic profit. They are
founded on capital and it is their purpose to increase the amount of capital invested in them.
They do so by entering those lines of business where the spread between input and output
prices is or is expected to be large enough to make the investment pay off. It is businesses in
monetized market economies that generate the strong tendency towards equilibrium that
economists usually attribute to the rationality of individual agents.
The standard definitions of economic terms have made it very difficult for economists to deal
with these self-evident relationships. In order that business enterprises are able to invest
wherever price spreads exist, capital must be free to move. Yet, economists define capital
usually as a physical factor of production, as an aggregate of tools, buildings, and machines
(Hodgson, 2015; Braun, 2017; Lewin and Cachanosky, 2019). Based on this terminology, it is
difficult to analyze how capital intensifies and accelerates the equilibrating market forces. It is
only because businesses are allowed to conduct the production process according to the logic
of capital – spend money in order to make more money – and because capital is free to move
wherever profits are to be expected that the market forces are strong enough to generate a
tendency towards one uniform equilibrium price throughout the economy.
A number of important institutional requirements must be met before the production process
can be managed according to the logic of capital. First of all, in order that enterprises are able
to guide their actions systematically by money prices, they need a developed system of
managerial and financial accounting. Sombart (1919) famously argued that it is the purpose of
financial accounting to separate capital from its owners so that business enterprises are able to
manage their funds exclusively according to the profit motive. It is the existence of these
accounting methods that make for the rationality of the production process in market
economies. Without them, the tendency towards one price would be much weaker and the
direction of capital and the factors of production to those areas where expected profits are
high would be much less efficient. These processes would be overridden by other

18
developments so that it would not make sense to depict their results with (mathematical)
precision in rational models.
Furthermore, in order that capital is free to flow wherever it can be applied profitably, a
financial market must exist. Although the existence of such a market seems to be a matter of
fact to us, it must be remembered that the existence of a developed financial market depends
on certain legal stipulations. Most notably, it would be impossible to collect and pool all the
small savings dispersed among the citizens in order to invest them in businesses if it were not
for the institution of limited liability. Due to limited liability, corporations do not have to
make a background check of their investors, and the investors do not have to go into too many
details of the financial conduct of the corporations and their fellow-investors. With limited
liability, the solvency of the shareholders does not influence the value of the shares they are
holding, and therefore the shares are homogenous and fungible (Easterbrook & Fischel, 1985,
p. 96). A liquid stock exchange market would be unthinkable if background checks were
necessary before each and every share transaction (Manne, 1967, pp. 262 f.). In addition,
limited liability, by promoting the easy transfer of shares, allows for the complete separation
of the two functions of management and ownership. This important materialization of the
division of labor is possible because the shareholders are able to judge the performance of the
managers by the price of the shares on the stock market. Managers are thus motivated to act in
the interest of shareholders and to maximize profits (Easterbrook & Fischel, 1985, p. 95). Due
to the limited risk of the shareholders, managers will also tend to focus more on the net
present values of projects and less on the personal risk involved (Easterbrook & Fischel,
1985, p. 97).
With the spread of corporations the logic of capital tended to govern or at least influence
many production and distribution processes in the capitalist world. It is under the institutional
preconditions discussed above that perfect rationality, assumed by economists to be a
characteristic of individual agents, becomes a fairly accurate description of reality, and
therefore, models based on HE become applicable.
6. Implications for economic theory
By assuming that their agents are HEs, economists get rid of the necessity of defining the
institutional environment that makes for the rationality that they assume in their models. If
they wanted to make visible the institutional environment they assume, they would have to be
clear on the specific nature of the property rights regime, the monetary system, and the capital
market regulations they have in mind. I do not deny that there may be other institutional

19
arrangements that allow for the application of deductive logic in models about human action;
however, if these arrangements do exist, they would also have to be spelled out.
Economics would profit in at least three different ways if economists elaborated the
institutional preconditions of their models:
First, every student of economics would be made aware of the scope and the limits of
economic models. Everybody who would want to apply the methods of economics in different
institutional environments would have to explain why the respective relationships are so
strong that they justify the application of logical deductions. This way, economists could put a
stop to undue economic imperialism that has sometimes damaged the reputation and standing
of the discipline.
Second, by focusing on the underlying institutions it might become easier to conciliate
different streams of economic thought. After all, it was shown that the work of institutional
economics is not diametrically opposed to neoclassical or other branches of economics that
apply deductive methods. Instead, the different research agendas of these schools can be
interpreted as an intellectual division of labor, where the institutionalists determine the
preconditions of economic analysis and define its scope, whereas neoclassical economists
apply this analysis to concrete problems.
Third, and most importantly, with the institutional requirements being stated explicitly, it
becomes possible to isolate and analyze their influence on the market process. The ongoing
discussion of “varieties of capitalism” (Hall and Soskice, 2001) could furnish us with a list of
institutional arrangements whose influence on the efficiency and rationality of market
processes deserve to be discussed.
A few preliminary remarks may suffice here. Dore et al. (1999, p. 102) wrote that British and
American institutions “most closely confirm to” and German and Japanese institutions “most
significantly deviate from the prescriptions of neo-classical textbooks.” The reason for this
judgement seems to be that the Anglo-Saxon “liberal market economies” are characterized by
market relationships in a context of competition and formal contracting, whereas in the
“coordinated market economies” of Germany and Japan, firms depend (or at least used to
depend) more on non-market relationships with more extensive relational or incomplete
contracting, inside networks, and strategic interaction among firms (Hall and Soskice, 2001,
p. 8).
Given that neoclassical economists usually skip over the institutional preconditions of their
models and instead simply assume that agents are HEs, this viewpoint is too narrow. Once the
institutional preconditions of economic analysis are stated explicitly, it may well be the case

20
that some of the apparently non-neoclassical institutions of coordinated market economies are
actually quite relevant to rational market processes. Albert (1993, ch. 6), for instance,
famously argued that the coordinated market economies of Germany and Japan are
economically superior to Anglo-Saxon capitalism.
Let us look at some cases in which institutions are not usually included in the assumptions of
economic models but are quite relevant when it comes to explain the rationality or
irrationality of market processes. In section 5, I argued that the institution of limited liability
was an important factor explaining the efficiency of the financial market. This institution
partly explains why economists are sometimes right in assuming that the market reacts so fast
that the use of rational models (and mathematical treatment) is in order. By making this
institutional precondition explicit, economists would become able (and forced) to evaluate its
overall consequences. After all, limited liability has also been said to be one reason for the
instability of market economies. Peukert (2012, pp. 337 f.) and Sinn (2010) have indicated
that it might have curbed excessive risk taking in the period before the financial crisis of
2007/08 if the liability of the decision-makers had not been limited. The institution of limited
liability, in other words, is ambiguous.
The laws that prevented a market for corporate control from developing in Germany and that
instead promoted long-term corporate ties partly arose because the German public was critical
of limited-liability companies (Hecker, 2015, p. 154). Eucken (2004), one of the intellectual
fathers of the German Wirtschaftswunder, cautioned emphatically against the limitation of
liability for corporations and other agents. It seems as if the German laws were a compromise
between the two aspects of the institution of limited liability. They granted limited liability
and thus allowed for sufficiently efficient allocation and pooling of capital, but they also
limited excessive short-term risk taking and highly leveraged hostile takeovers by promoting
long-term relationships between companies.
This is not the place to decide whether Germany was right to limit the institution of limited
liability. Yet it should be clear that, without making institutions explicit, the important
relationship between the limitation of liability and the working of the market process cannot
be addressed reasonably by economists. As was shown in section 5, limited liability is a tacit
precondition of HE. It thus permeates economic model building as such, and therefore these
models are of limited use when it comes to discussing and differentiating between varieties of
capitalism.
Similar analyses can be and have been applied to other institutional preconditions of
economic models. Financial accounting rules, for example, can be set up in many different

21
ways. The rules that are currently endorsed by international standard setters (fair-value
accounting) were designed to fit into the neoclassical model of markets, and they actually
favor the liberal over the coordinated market economy (Perry and Nölke, 2006, p. 560). Braun
(2019) demonstrates, however, that the fair-value approach has tacit institutional
requirements. Paradoxically, the fair-value approach presupposes a market process in which
the net income of firms is determined with the help of the traditional accounting rules that
international standard setters have abandoned. Fair-value accounting on its own incites market
participants to take excessive risks and declare excessive dividends, thus creating instability in
the economy. As long as economists remain silent on the institutional preconditions of their
models, these and other problems remain concealed.
To give a final, short yet well-known, example, the same is true for the monetary system.
Certain stipulations may influence or even cause the boom-bust-cycle (Bagus and Howden,
2016). This is a very important issue for economists, but they are in danger of losing track of
this relationship if they take money for granted and ignore it in their theories.
7. Conclusion
It was the purpose of this paper to show what is behind the rationality assumption employed
by economists. The perfectly rational homo economicus (HE) who underlies most economic
models is not an assumption about individual agents as such. Even the mere existence of
legally separate individuals in the first place has institutional preconditions, particularly the
modern, centralized state that has monopolized the legal system. The fact that the interactions
of those legally separate individuals can be described rationally by economists is all the more
linked to a certain institutional environment. It is not the faculties of the agents themselves
that allow for deductions and mathematical equilibrium models, but the institutions of
property rights, money, capital, and enterprises. Therefore, it only makes sense to apply HE
where the allocation of resources is accomplished by capital-based, profit-oriented enterprises
that operate in a market economy with a developed money price system (or where other
institutional arrangement have similarly rational results).
I argued that economic science would profit from making the institutional preconditions of its
models explicit. This step would help to (1) define the scope and limits of economic theories,
(2) analyze the positive and negative consequences which certain institutions, taken for
granted by economists, have on the market process, and (3) clarify the relationship between
different schools of thought.

22
This paper does not contain a critique of economists who apply HE. In certain circumstances
it makes perfect sense to apply HE. Yet, economists should be aware that HE is not a
universal phenomenon characteristic of each individual. HE is a historically specific concept
that is tied to certain institutional preconditions. Therefore it is crucial for economists not to
neglect the analysis of those institutions. Only in this way are they able to determine whether
and in how far their models are applicable to real-life problems or not.
References
Albert, M., 1993. Capitalism vs. Capitalism. New York : Four Walls Eight Windows.
Arrow, K. J., 1994. Methodological Individualism and Social Knowledge. American
Economic Review 84(2), 1-9.
Arthur, W. B., 1994. Inductive Reasoning and Bounded Rationality. The American Economic
Review 84(2), 406-411.
Arthur, W. B., 2010. Complexity, the Santa Fe Approach, and Non-Equilibrium Economics.
History of Economic Ideas 18(2), 149-166.
Bagehot, W., 1885. The Postulates of English Political Economy. London: Longmans, Green,
and Co.
Bagus, P., Howden, D., 2016. The economic and legal significance of “full” deposit
availability. European Journal of Law and Economics 41(1), 243-254.
Boettke, P. J., Coyne, C. J., Leeson, P. T., 2014. Hayek versus the neoclassicists: lessons from
the socialist calculation debate. In: Garrison R. W., Barry, N. (Eds.). Elgar companion to
Hayekian economics. Cheltenham et al.: Elgar, 278-293.
Boulding, K. E., 1948. Samuelson’s Foundations: The Role of Mathematics in Economics.
The Journal of Political Economy 56(3), 187-199.

23
Bowles, S., Gintis, H. 1993., The Revenge of Homo Economicus: Contested Exchange and
the Revival of Political Economy. The Journal of Economic Perspectives 7(1), pp. 83-102.
Braun, E., 2017. The theory of capital as a theory of capitalism. Journal of Institutional
Economics 13(2), 305-325.
Braun, E., 2019. Accounting for Market Equilibrium – Comparing the Revenue-Expense to
the Balance-Sheet Approach. Accounting, Economics, and Law: A Convivium, ahead of
print, https://doi.org/10.1515/ael-2018-0024.
Brennan, G., Buchanan, J. M., 1985. The reason of rules. Constitutional Political Economy.
Cambridge: Cambridge University Press.
Bresser-Pereira, L. C., 2009. The Two Methods and the Hard Core of Economics. Journal of
Post Keynesian Economics 31(3), 493-522.
Camerer, C. F., Fehr, E., 2006. When Does “Economic Man” Dominate Social Behavior?, in:
Science 311(5757), 47-52.
Coyle, D., 2019. Homo Economicus, AIs, humans and rats: decision-making and economic
welfare. Journal of Economic Methodology 26(1), 2-12.
Dore, R., Lazonick, W., O’Sullivan, M., 1999. Varieties of Capitalism in the Twentieth
Century. Oxford Review of Economic Policy 15(4), 102-120.
Easterbrook, F. H., Fischel, D. R., 1985. Limited Liability and the Corporation. University of
Chicago Law Review 52(1), 89-117.
Erlei, M., Leschke, M., Sauerland, D., 2016. Institutionenökonomik, 3rd edition. Stuttgart:
Schäffer-Poeschel.
Eucken, W., 2004. Grundsätze der Wirtschaftspolitik, 7th edition. Tübingen: Mohr Siebeck.
Friedman, M., 1953. Essays in positive economics. Chicago: University of Chicago Press.

24
Friedman, M., 1970. A Theoretical Framework for Monetary Analysis. Journal of Political
Economy 78 (2), 193-238.
Furubotn, E. G., Richter, R., 2005. Institutions and economic theory: the contribution of the
new institutional economics, 2nd edition. Ann Arbor (MI): University of Michigan Press.
Gintis, H., 2000. Beyond Homo economicus: evidence from experimental economics.
Ecological Economics 35 (2), 311-322.
Gode, D. K., Sunder, S., 1993. Allocative Efficiency of Markets with Zero-Intelligence
Traders: Market as a Partial Substitute for Individual Rationality. Journal of Political
Economy 101(1), 119-137.
Gonnard, R., 1941. Histoire des doctrines économiques. Paris: Pichon und Durand-Auzias.
Goodhart, C. A. E., 2009. The Continuing Muddles of Monetary Theory: A Steadfast Refusal
to Face Facts. Economica, New Series 76, Supplement 1, 821-830.
Hahn, F. H., 1971. Equilibrium with Transaction Costs. Econometrica 39(3), 417-439.
Hall, P. A., Soskice, D., 2001. Varieties of Capitalism: The Institutional Foundations of
Comparative Advantage. Oxford: Oxford University Press.
Hargreaves-Heap, S., Hollis, M., 1987. economic man. In Eatwell, J., Milgate, M., Newman,
P. (Eds.). The New Palgrave: A Dictionary of Economics, Vol. 2, 1st edition. London et al.:
Macmillan, 54-55.
Hayek, F. A., 1945. The Use of Knowledge in Society. The American Economic Review
35(4), 519-530.
Hecker, C., 2015. Werte und Institutionen im Wettbewerb. Zeitschrift für Wirtschaftspolitik
64(2), 139-170.

25
Henrich, J., Boyd, R., Bowles, S., Camerer, C., Fehr, E., Gintis, H. McElreath, R., 2001. In
Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies. American
Economic Review 91(2), 73-78.
Hodgson, G. M., 1996. Varieties of Capitalism and Varieties of Economic Theory. Review of
International Political Economy 3(3), 380-433.
Hodgson, G. M., 2003. The hidden persuaders: institutions and individuals in economic
theory. Cambridge Journal of Economics 27(2), 159-175.
Hodgson, G. M., 2013. On the Complexity of Economic Reality and the History of the use of
Mathematics in Economics. Filosofía de la Economía 1(1), 25-45.
Hodgson, G., 2015. Conceptualizing Capitalism, Chicago and London: University of Chicago
Press.
Ingham, G., 2004. The Nature of Money. Cambridge and Malden, MA: Polity Press.
Kaulla, R., 1916. Das Objekt des Tauschwerts. In: Festschrift für Lujo Brentano zum
Siebzigsten Geburtstag. Berlin and Leipzig: Duncker & Humblot, 297-309.
Kesten-Kühne, J., 2020. EconSim. Wiesbaden: Springer.
Kirchgässner, G., 2008. Homo Oeconomicus. The Economic Model of Behaviour and Its
Applications in Economics and Other Social Sciences. New York: Springer.
Kirzner, I. M., 2000. Rationality, Entrepreneurship, and Economic ‘Imperialism’. In: Kirzner,
I. M. (Ed.). The Driving Force of the Market. London and New York: Routledge, 258-271.
Kristol, I., 1980. Rationalism in economics. The Public Interest (Fall 1980), 201-218.
Lewin, P. 1997. Hayekian equilibrium and change. Journal of Economic Methodology 4(2),
245-266.

26
Lewin, P., Cachanosky, N., 2019. Austrian Capital Theory. A Modern Survey of the
Essentials. Cambridge (UK) et al.: Cambridge University Press.
Manne, H. G., 1967. Our Two Corporation Systems: Law and Economics. Virginia Law
Review 53(2), 259-284.
McCloskey, D. N., 2016. Max U versus Humanomics: a critique of neo-institutionalism.
Journal of Institutional Economics 12(1), 1-27.
Mill, J. S., 1965. Collected Works of John Stuart Mill, Vol. 2: Principles of political
economy: with some of their applications to social philosophy, books I – II. Toronto et al.:
University of Toronto Press.
Mises, L. v., 1920. Die Wirtschaftsrechnung im sozialistischen Gemeinwesen. Archiv für
Sozialwissenschaft und Sozialpolitik 47(1), 86-121.
Mitchell, W. C., 1910. The Rationality of Economic Activity. Journal of Political Economy
18(3), 197-216.
Mitchell, W. C., 1916. The Role of Money in Economic Theory. The American Economic
Review 6(1), 140-161.
Nisbet, R., 1990. The Quest for Community. Oakland (CA): ICS Press.
Perry, J., Nölke, A., 2006. The political economy of international accounting standards.
Review of International Political Economy 13(4), 559–586.
Peukert, H., 2012. Dysfunctional aspects of contemporary financial markets: diagnosis and
prescription. European Journal of Law and Economics 33(2), 321-342.
Regalia, I., 2013. On Geoffrey M. Hodgson From Pleasure Machines To Moral Communities.
An Evolutionary Economics without Homo Economicus. Chicago,University of
Chicago Press, 2013). Socio-Economic Review 11(4), 805-819.

27
Rosenberg, A., 1979. Can Economic Theory Explain Everything? Philosophy of the Social
Sciences 9(4), 509-529.
Satz, D., Ferejohn, J., 1994. Rational Choice and Social Theory. The Journal of Philosophy
91(2), 71-87.
Schmoller, G., 1884. Studien über die wirtschaftliche Politik Friedrichs des Großen und
Preußens überhaupt von 1680 bis 1786. Jahrbuch für Gesetzgebung, Verwaltung und
Volkswirtschaft im Deutschen Reich 8(1), 1-61.
Schumpeter, J. A., 1954. History of Economic Analysis. New York: Oxford University Press.
Scott, A., 1996. Bureaucratic revolutions and free market utopias. Economy and Society
25(1), 89-110.
Sinn, H.-W., 2010. Casino Capitalism: how the financial crisis came about and what it needs
to be done now. Oxford et al.: Oxford University Press.
Smith, V. L., 2003. Constructivist and Ecological Rationality in Economics. The American
Economic Review 93(3), 465-508.
Smith, V. L., 2005. Behavioral economics research and the foundations of economics. The
Journal of Socio-Economics 34, 135–150.
Snooks, G. D., 2000. Longrun Dynamics. A General Economic and Political Theory.
Houndsmill and London: MacMillan.
Spahn, P., 2009. The New Keynesian Microfoundations of Macroeconomics. Jahrbuch für
Wirtschaftswissenschaften, 60(3), 181-203.
Sombart, W., 1919. Der modern Kapitalismus, Volume 2,1. München and Leipzig Duncker &
Humblot.

28
Streeck, W., 2010. Does ‘behavioural economics’ offer an alternative to the neoclassical
paradigm? Socio-Economic Review 8(2), 387-397.
Thaler, R. H., 2000. From Homo Economicus to Homo Sapiens. The Journal of Economic
Perspectives 14(1), 133-141.
Thaler, R. H., 2016. Behavioral Economics: Past, Present, and Future. American Economic
Review 106(7), 1577–1600.
Urbina, D. A., Ruiz-Villaverde, A., 2019. A Critical Review of Homo Economicus from Five
Approaches. American Journal of Economics and Sociology 78(1), 63-93.
Urmson, J. O., 2005. Deduction. In: Ree, J., Urmson, J. O. (Eds.). The Concise Encyclopedia
of Western Philosophy and Philosophers. 5th edition. Abingdon and New York: Routledge,
95-96
Vanberg, V. J. 2004. The rationality postulate in economics: its ambiguity, its deficiency and
its evolutionary alternative. Journal of Economic Methodology 11(1), 1–29.
Vercelli, A., 2016. Microfoundations, Methodological Individualism and Alternative
Economic Visions. Review of Political Economy 2(1), 153-167.
Vriend, N. J., 1996. Rational behavior and economic theory. Journal of Economic Behavior
and Organization 29(2), 263-285.
Wilson, D., Dixon, W., 2012. A History of Homo Economicus. New York: Routledge.