Egonomics in One Lesson


For much of human history before the Enlightenment and the birth of economic science in the 18th Century, power, pretense, and superstition plagued the thinking of men. Some people today, often under the banner of “socialism” or “progressivism,” seem determined to turn the clock back to those benighted times.

Pick a century before 1700. Any of them after the fall of the Western Roman Empire would suffice for my purpose here. In terms of ideas about society, what makes it tick, and who should be in charge of it, the changes over those centuries were painfully glacial compared to the explosion of intellectual liberation and creativity in the 18th.

The consensus in the Middle Ages held that certain men (and occasionally some women too) were meant to rule and everyone else was meant to take orders. If the king or queen or their minions didn’t run our lives for us, chaos would reign. Where there was order, it wasn’t of the peaceful, Hayekian “spontaneous” variety; it tended to be the result of fear of those with political or ecclesiastical power.

Then along came the thinkers of the Enlightenment—men with names like Diderot, Bacon, Descartes, Locke, Hume, Ferguson, Spinoza, Montesquieu, Voltaire, and Smith. They stressed reason over the irrational; proof and evidence over baseless assumption; the sanctity of the individual and his rights over the arbitrary dictates of monarchs and priests. The “Century of Philosophy” bequeathed to the world a new understanding of things like liberty, markets, science, human potential, toleration, separation of church and state, and limited, representative government.

Economics as a discipline of its own was born in this period. In France, the philosophes pioneered in suggesting that the clock of society need not be wound by presumptuous government, that there are natural forces at work that can propel us to progress without the ham-handedness of despots playing God. Adam Smith pulled it all together in The Wealth of Nations, wherein he explained the marvelous mechanism of “the invisible hand” and proclaimed that “in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”

Before Smith and the Enlightenment, pompous men who rationalized power for themselves over society believed in what I call “Egonomics”—or what F. A. Hayek might call “the fatal conceit” or “a pretense to knowledge.” Whatever they wanted was what the rest of us should get. They were, after all, the ones smart enough to put themselves in the driver’s seat. They could provide the order that society craved. And they convinced a lot of people that this was perfectly natural, beneficial, and indisputable.

After Smith and the Enlightenment, the pseudo-science of Egonomics gave way to the genuine science of Economics. To apply Hayek again, this time with a little license, the curious task of Egonomics was to fool men into believing far more than they know about what they dreamed they could plan, whereas “it’s the curious task of Economics to demonstrate to men how little they really know about what they imagine they could design.”

And so with the flowering of Economics in the two centuries since Smith, the world began to learn some very important truths. Here are a few:

  1. Kings and queens really don’t know what they’re doing most of the time (and modern Congresses aren’t much better) and they make needlessly miserable the lives of others upon whom they impose whims and schemes.
  2. Information is decentralized, not concentrated in the minds of a few. Wisdom begins, the old saying goes, in the admission by each of us of how little we actually know. In free markets, information is coordinated from disparate sources by the interplay of supply and demand as reflected in flexible prices.
  3. Value is a very personal, subjective matter. It is not inherent in a thing; it’s “attached” to things by individuals, each of whom acts in the marketplace to improve his well-being. That, in turn, generates a usually-unintended improvement in the well-being of others in the process.
  4. A spontaneous order arises naturally from market participants that is infinitely more “orderly” and conducive to wealth creation than any plan of the power-wielders could ever hope to be. (As Austrian economist Murray Rothbard pointed out, this was actually a resurrection of a notion put forward at least as far back as the 4th Century B.C. by the Chinese philosopher Zhuangzi, who wrote that “good order results spontaneously when things are let alone”).

Economists Frédéric Bastiat in the 19th Century and Henry Hazlitt in the 20th showed us that if our economic thinking is enlightened, each of us will be humble enough to recognize that planning our own life is a full-time job; planning the lives of others is futile and destructive. If our economic thinking is thorough, we will consider the effects of any proposal, act, or policy on the long run and all people, not just the short run and a few.

The Swiss psychologist Jean Piaget, the father of the study of “cognitive development,” argued that children are “egocentric” because they contemplate the world from their own perspective exclusively. A child fails to realize that others might not enjoy or value things the same way or to the same extent that he does. He does not comprehend that others may have very different values, so the thought that it might be wrong to impose his on them doesn’t enter his mind.

As the child grows up, he doesn’t shed his self-interest but to be a responsible adult he must come to understand that it should be satisfied only by respecting others. To assume one’s own superiority and seek to impose it is to practice Egonomics well past when it should be jettisoned as toddlerism.

There’s so much that the world of Economics has taught us that the Egonomics of earlier times obscured or opposed.

So what about the statement from my first paragraph, Some people today, often under the banner of “socialism” or “progressivism,” seem determined to turn the clock back to those benighted times?

I see the recent resurgence of socialism and its euphemistic-sounding sister called progressivism as the reincarnations of medieval Egonomics. Listen to every presidential candidate who labels himself one or the other. Each has a litany of society-bending proposals and virtually every one of them is compulsory. Bernie Sanders declares the dire necessity of “fundamentally transforming our culture” through new programs and mandates from on high.

The “Green New Deal” of Alexandria Ocasio-Cortez is chock-full of proposed edicts that get right down to even the nitty-gritty of retrofitting your house with environmental gimmicks. In her infinite wisdom, she knows which industries should be suppressed and which ones should be subsidized. She just knows. Everything. She also declares that she’s “in charge” even though she’s not. And these two people are not isolated; they are cheered on by the mainstream media and large swaths of at least one major political party.

Take the matter of wealth creation, an utter necessity if poverty and distress are to be reduced. As they teach us much about where wealth comes from, serious economists use terms like entrepreneurship, investment, return on capital, risk-taking, division of labor, innovation, customer service, incentives, etc. The egonomists of the socialist/progressive persuasion seem to have no theory whatever of wealth creation. They have only endless schemes to grab it and divvy it up. They talk and act as if wealth materializes magically just so they can personally redistribute it.

This is not science. It’s not Economics. It’s medieval Egonomics rearing its ugly head again. It’s coming from people, supremely confident in their ignorance, who have overdosed on self-esteem. They fancy themselves as scientists for society. In the most egregious cases, it’s an illustration of the Dunning-Kruger Effect on steroids.

Economics teaches us to be mindful of what things cost and who pays for them. Socialists and progressives are allergic to such matters. Even in the face of massive annual budget deficits and a national debt exceeding $22 trillion here in America, they propose “free” stuff by the boatload.

They make almost no effort to cost it out. How can it all be paid for? It’s the same line every time: soak the rich.

Never mind that you could take every penny the rich have and fund but a fraction of their proposals, and the government could only do that a single time before the rich would flee or quit. The egonomists essentially say, “Have faith in us. We have good intentions. It’ll all turn out OK, somehow. And if you keep asking us about the numbers and why they don’t add up, it’s because you’re greedy, racist, selfish, or you don’t want people to have health care.”

As I watch these antics on the nightly news, I think to myself, “Intellectually speaking, this is what the Dark Ages must have been like.”

Austrian economist Ludwig von Mises nailed it when he wrote in Bureaucracy in 1944,

The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau. What an alluring utopia! What a noble cause to fight!

Socialists and progressives should be showered with honorary degrees in Egonomics but any they may have “earned” in Economics should be returned to sender.

Egonomics or Economics. It’s like alchemy vs. physics. They’re not compatible so take your pick. Do you want to be an egonomist or an economist? A single letter makes all the difference in the world.


Lawrence W. Reed

Lawrence W. Reed is president of the Foundation for Economic Education and author of Real Heroes: Incredible True Stories of Courage, Character, and Conviction and Excuse Me, Professor: Challenging the Myths of ProgressivismFollow on Twitter and Like on Facebook.

This article was originally published on FEE.org. Read the original article.

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