What is human about economics?
The economy is a human construct. Without human thought and action, there wouldn’t be an economy. People develop systems of rules, e.g. for the exchange that takes place at markets and free books in public bookcases, such as on Poppelsdorfer Allee, and they set up and manage organizations, i.e. households, businesses and clubs. Naturally, all human thought is prone to error, and all human action has the possibility of going wrong.
Let’s stick with the errors for the moment. You talk of a truncated understanding, because the focus is often just on the corporate sector.
Private households are the fundamental organizations in economic life. It is here that the economic process begins – with thoughts and actions for meeting our needs. This doesn’t just mean acquiring money and consumer goods but also cooking, cleaning and washing as well as making investments, such as in your own home. The German Federal Statistical Office has published evidence showing that over half the time the population spends working goes on unpaid work, mainly in private households.
What needs to change?
Modern economics, as an academic discipline of economics, looks primarily at money-brokered processes of exchange via markets and the economic activities of the state. This gives the impression that the economy only happens when money flows from one place to another. This view excludes many activities of households and clubs. We need to realize that the vast majority of companies do not supply perfect consumer goods, they merely do the preliminary work for us. Even a ready-made pizza still has to be finished off in the oven. In clubs, services can be rendered via communal production, like in carnival clubs or soccer clubs, where it’s about pitching in rather than buying something.
We can arm ourselves with knowledge and help shape the economy – this is the main idea of the book. Would you be able to illustrate that with an example?
When it comes to setting up a business, people often think of big corporations. However, most companies are set up as “microenterprises” by a single individual retaining a close connection with their own household, without stumping up a lot of capital and without entering their details in the commercial register. Over half even begin life as an additional or side project run part-time. Analyses by the Federal Statistical Office show that, for 2016 for example, 49 percent of companies in Germany had no employees subject to social security contributions and a further 41 percent had fewer than ten.
You talk about the stubborn nature of outdated ways of thinking, particularly in terms of the model of the human being acting purely rationally. What needs to be tweaked in this regard?
The model of the Homo economicus who acts in a strongly rational fashion actually became obsolete a long time ago. Reinhard Selten, our illustrious Nobel Prize winner in Economics from Bonn, who I studied under in Berlin, helped advance the concept of bounded rationality. However, economics textbooks still talk about the model assumption of strong rationality – not as a statement on reality but as a preliminary methodological decision. But when deviations from this model are identified as anomalies rather than the normal scenario, that’s irritating.