Biology and Economics: Using Science to Understand Human Choice

 By - May 12, 2005

The economics that is widely accepted and taught in the Western world today is generally known as Neoclassical economics. Neoclassical economics can be considered to cover a relatively wide range of economic thought ranging from the pure “free-market” economics of those like Milton Friedman to the Keynesian economics of John Keynes.

What virtually all of the Neoclassical schools of thought share, is a view of human beings as rational informed value judging individuals, whose behaviors can be modeled by mathematical formulas.

In the latter part of the 20^th century, American Economist Paul Samuelson, one of America’s leading economics textbook authors, and arguably the most influential economist of the post-war era in the West, furthered the view of economics as a type of mathematical science. For Samuelson and other Neoclassical economists, economics is a subject to be studied with graphs and formulas.

While math has always played some role in the study of economies, Samuelson and other Neoclassical economists greatly elevated the role of math, turning economics predominately into a study of numbers.

Interestingly, however, Neoclassical economists continue to define economics along traditional lines, as the study of human choice in relation to resources:

Economics: The study of how people use their scarce resources to satisfy their unlimited wants. [1]
- Economics 6e, A Contemporary Introduction

Actually, though, Neoclassical economics leaves out all study of human beings. Neoclassical economics, i.e. the school of economics taught in virtually every school from Tokyo to San Francisco to New York to London to Paris to Berlin and now into Prague and even Moscow, completely leaves the study of human beings out of the study of human choice.

Marketers, however, do study human beings, and do study how and why human beings make choices.

The not so secret "dirty little secret", however, is that there is somewhat of an implicit agreement between economists and marketers not to share information that would invalidate standard economic assumptions. Even so, students in business school or marketing go to economics classes and learn about the laws of supply and demand, utility theory, etc, then they go to marketing classes and learn how to influence human choices.

In economics class they learn that people make choices based on their personal assessment of perceived utility and that people are autonomous rational utility calculating individuals. Then they go to marketing class and learn how to break all those “rules” and "manage perceptions".

The economics class, however, provides the justification for the marketing class. The marketing student learns that markets operate according to mathematical formulas, people make rational decisions, everyone is responsible for their own decisions, and everyone maximizes their own utility.

All the marketer is doing, according to this school of thought, is helping people to maximize their utility.

Indeed several studies, including a 1993 study published in the Journal of Economic Perspectives, Does Studying Economics Inhibit Cooperation?, found that students studying economics at American universities actually become more self-centered and less concerned with fairness or community interests.

The unscientific doctrine of Neoclassical economics rationalizes the use of science to manipulate human behavior.

Marketing is based on real science because there is a direct demand for marketing to produce real-world results. The demand for real-world results means that marketers base their studies on real science, because only real science can produce an accurate model of reality, and only an accurate model of reality can inform people so that real-world decisions can be made that produce predictable results.

Interestingly, marketing uses science to understand the real-world in order to present an artificial world to other people.

What the marketers know, of course, that they “secretly” agree not to tell the economists, is that human beings are not rational, they are not well informed, and they don’t always have a good concept of how to "maximize utility".

As a true science, marketing is advancing well beyond the school of economics. Marketing currently employs the use of biologists, anthropologists, sociologists, psychologists, evolutionary behaviorists, medical doctors, and a host of scientific and medical equipment. In fact, a new term is being used to describe the science of marketing: "Buyology".

Marketers need real ways to determine how people think and make decisions so that they can determine how to influence what people think and, therefore, how to influence their decision making processes.

The problem, of course, is that marketing is not a study of systems, per se, although it’s arguable that as marketing becomes more advanced it is becoming a study of entire social systems. Marketing is the study and practice of influencing human behavior in ways that maximize the interests of one side of a transaction. In other words, marketing is the practice of making economic transactions as one sided as possible. As such, marketing cannot, and does not, serve the broader interest of understanding economic systems, and does not take a balanced view of economic transactions.

It does, however, illustrate the major difference in how human choice is understood by two schools of thought that are very closely related. Marketing uses science to understand the reality of human choice - Neoclassical economics works from broad and unsupported assumptions about human choice.

There is much more to this story than first meets the eye however. Why should such a major school of thought be so deeply and obviously flawed? After all, we are talking about how millions of people around the world have been instructed to think about economics for the better part of the 20^th century through to today.

In order to understand why economics is the way that it is today you have to understand the history of economic thought.

A Brief History of Economic Thought

Many people consider Adam Smith to be the father of modern economics. Of course he wasn’t the very first economic thinker, economic thinkers date back to antiquity, and include such men as Aristotle and Plato. Men like Thomas Hobbes and John Locke predate Adam Smith by a short time as well, and formed a part of the philosophical foundation upon which Smith and others built. The field of "political economy" grew substantially after Adam Smith with many people contributing economic ideas and models. David Ricardo is the most well know Classical economist to come after Smith.

Both Adam Smith and Ricardo shared an opposition to the wealthy, and sought to develop an understanding of business systems in such a way as to provide direction and benefit for the common man. The works of both Smith and Ricardo are tinged with disdain for the rich and use an outright definition of society along class lines. Both Smith and Ricardo saw class antagonism as a part of the world and inherent in economic systems.

The different orders of people who have ever been supposed to contribute in any respect towards the annual produce of the land and labour of the country, they divide into three classes. The first is the class of the proprietors of land. The second is the class of the cultivators, of farmers and country labourers, whom they honour with the peculiar appellation of the productive class. The third is the class of artificers, manufacturers, and merchants, whom they endeavour to degrade by the humiliating appellation of the barren or unproductive class.

The unproductive class, that of merchants, artificers, and manufacturers, is maintained and employed altogether at the expence of the two other classes, of that of proprietors, and of that of cultivators. They furnish it both with the materials of its work and with the fund of its subsistence, with the corn and cattle which it consumes while it is employed about that work. The proprietors and cultivators finally pay both the wages of all the workmen of the unproductive class, and of the profits of all their employers. Those workmen and their employers are properly the servants of the proprietors and cultivators. They are only servants who work without doors, as menial servants work within. Both the one and the other, however, are equally maintained at the expence of the same masters. The labour of both is equally unproductive. It adds nothing to the value of the sum total of the rude produce of the land. Instead of increasing the value of that sum total, it is a charge and expence which must be paid out of it.
- Adam Smith; The Wealth of Nations, 1776

Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.
- Adam Smith; The Wealth of Nations, 1776

The produce of the earth — all that is derived from its surface by the united application of labour, machinery, and capital, is divided among three classes of the community; namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated.
- David Ricardo; The Principles of Political Economy and Taxation, 1817

When wages rise, it is always at the expense of profits, and when they fall, profits always rise.
- David Ricardo; The Principles of Political Economy and Taxation, 1817

If the corn is to be divided between the farmer and the labourer, the larger the proportion that is given to the latter, the less will remain for the former. So if cloth or cotton goods be divided between the workman and his employer, the larger the proportion given to the former, the less remains for the latter.
- David Ricardo; The Principles of Political Economy and Taxation, 1817

The work of Smith and Ricardo, as well as other Classical economists, was heavily structured around both logic and observation of human life. The Classical economists were largely observers of men and of business. They based their work on what they could discern about human behavior. There is almost no math in the works of Adam Smith. His works are discussions of how various practices and regulations affected people’s daily lives.

For example, Smith dedicated significant portions of his works to the effects of taxes and how different taxes influenced people’s decisions. One case that he discussed was the use of the window tax in England. The Crown of England instituted a tax that was based on how many windows a person had in their house. The idea was that wealthier people had bigger houses and more money to build more windows. The reality was somewhat different, as Adam Smith noted:

The principal objection to all such taxes of the worst is their inequality, an inequality of the worst kind, as they must frequently fall much heavier upon the poor than upon the rich. A house of ten pounds rent in a country town may sometimes have more windows than a house of five hundred pounds rent in London; and though the inhabitant of the former is likely to be a much poorer man than that of the latter, yet so far as his contribution is regulated by the window-tax, he must contribute more to the support of the state. Such taxes are, therefore, directly contrary to the first of the four maxims above mentioned.
- Adam Smith; The Wealth of Nations, 1776

Smith's most famous statement, though, was his statement about how the pursuit of self-interest can serve the common good:

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.
- Adam Smith; The Wealth of Nations, 1776

These are the types of things that Adam Smith wrote about, how policies and practices affect people’s choices, and Smith promoted the view that government policies and practices should be designed to minimize the impact on people's economic decisions, which developed into the concept of the “free market”.

David Ricardo included a little more math in his discussions of economics, but not much. His works, again, were primarily studies of human behavior, business practices, and government policies. Both Smith and Ricardo agreed that there was a fundamental contradiction between the interests of wage-laborers and capital owners, and both Smith and Ricardo concluded that industry was ultimately doomed to fail and come to ruin on its own accord due to inherent contradictions within economic systems. They did both, however, proscribe as many ways as possible to improve industry as much as possible in the mean time.

Neither Smith nor Ricardo were scientists, but at this point economics (which was not a term that was actually used at that time) was on its way to becoming a true science and to adopting scientific approaches to problem solving - it was in the process of becoming more scientific.

Despite this move toward science, however, “economics” was still very much influenced by the dominant worldview of the West at that time: Christianity.

The world operated, according to most people at that time, according to God’s plan, and in ways that were influenced by God’s continuing intervention. In fact, men like John Locke used the philosophical implications of a world created by a perfect god to support calls for economic and social liberalism. Many the Enlightenment thinkers used the concept of a just god to oppose the control of the Catholic dominated political systems of Europe. God was in charge, so why did we need popes and kings?

For many people poverty was a sign that someone was a spiritually insufficient or bad person. Wealth was a blessing from God and a sign that someone was a good person. The mind was insubstantial, i.e. supernatural, and not completely influenced by physical reality. People were, ultimately, their souls. Who you were and what type of decisions you made were viewed as a product of your soul. Your soul was what dictated your personality and was seen as the root motivator in decision-making. Therefore, the decisions that you made as an individual were a reflection, directly, of who you were spiritually. Bad people made bad decisions, and good people made good decisions. Good people had blessings bestowed upon them, and bad people were subjected to suffering by God as a penance for their sins. Success was proof of godliness.

While Smith and Ricardo were beginning to break away from these views, they had still not fully done so. God doesn’t play a role in Adam Smith’s The Wealth of Nations, but the idea of the soul as decision maker still implicitly exists. Smith and Ricardo didn’t take the moralistic view of economics: That poor people were poor because God wanted them to be poor or because they were bad people. In fact, what is so striking and so magnificent about Adam Smith’s work is his clear position that poverty was a condition to be solved. In many ways, his book was a study of how to eliminate poverty and create a “fair” system of opportunity for everyone. The Wealth of Nations was indeed a controversial book in its day; it criticized the government, reprimanded the aristocracy, and took the side of the poor and disenfranchised, stating that their poor conditions were a product of bad policy and that the rich profited from the exploitation of the poor.

The rise of profit operates like compound interest. Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.
- Adam Smith; The Wealth of Nations, 1776

Adam Smith was clearly a genius, who was a very progressive thinker and who greatly advanced how society and industry were viewed. Smith did, however, live in the 1700s. A scientific understanding of human beings and how people function mentally simply didn’t exist during his lifetime. Adam Smith was pushing the envelop of understanding of human behavior and society, but he had to operate within the realm of knowledge that existed in his time, obviously. Like virtually everyone else in his time, Smith viewed the mind as supernatural. Smith, like many during the Enlightenment, viewed the supernatural human mind as rational.

Smith was of the Enlightenment school of thought that what “made us human” was our rationality, and that the worldly desires and emotions that people had were what we shared in common with the animals, and that these irrational aspects of thought could be, and would be, overcome by the rational supernatural mind. It was these "animalistic" desires that we were supposed to overcome spiritually.

The train of regulated thoughts is of two kinds: one, when of an effect imagined we seek the causes or means that produce it; and this is common to man and beast. The other is, when imagining anything whatsoever, we seek all the possible effects that can by it be produced; that is to say, we imagine what we can do with it when we have it. Of which I have not at any time seen any sign, but in man only; for this is a curiosity hardly incident to the nature of any living creature that has no other passion but sensual, such as are hunger, thirst, lust, and anger.
- Thomas Hobbes (early Enlightenment thinker); The Leviathan, 1660

Throughout history the supernatural mind has been seen as the origin of free will. This, according to many throughout the ages, is what separated people from all other forms of life. From Greek and Roman thinkers to the Christians who took over the Roman Empire, animals have been largely viewed as machines, unthinking, unfeeling, without a soul, and thus without free will. Interestingly, many major Christian thinkers have viewed the world in strikingly deterministic ways throughout history, with human thought being the only earthly exception to the laws of nature.

This does come in part from the Greek and Roman roots within early Christianity, a major difference, however, is that some schools of Greek and Roman thought didn’t make exception for humans in the deterministic universe. The existence of “free will” was always in question in Greek and Roman philosophy - some believed in it, some did not.

The worldview of Adam Smith, unlike some of his predecessors, involved a world where God wasn’t directly meddling in the affairs of men, and poverty wasn’t a sign of spiritual deficiency but rather a product of bad economic policy. Wealth wasn’t a blessing from God but rather a product of good planning, hard work, and good social policy. Every individual had a rational free will, which was an immaterial product of the soul. God took care of the universe, but man took care of man.

This is generally the view that persisted into the 1800s among the majority of educated thinkers. The “older”, more conservative view, however, still persisted - that God was taking an active role in life and that a person’s economic condition was a reflection of their spiritual condition. A strikingly different view came to prominence in the 1800s as well though.

This "new" view was a purely “material” view, known as Materialism. Philosophical Materialism had been around in Western society since the time of the Greeks, but was mostly vanquished by the Christian Church once Rome became Christianized, although, as has been mentioned, some aspects of Greek and Roman Materialism were incorporated into both Judaism and Christianity.

The Materialist philosophy that reemerged during the 1600s and came to prominence during the 19^th century was largely atheistic. This view held that there is no soul and there is nothing supernatural, and thus there is no supernatural aspect to the mind - the mind is purely a product of the physical brain and is completely governed by the laws of nature, and thus able to be studied by science.

This was a view shared by the 19^th century’s most famous philosopher-economist, Karl Marx.

Karl Marx

Marx was a strict Materialist, and as such he framed economics in the light of history and science. As a Materialist and Humanist, Marx viewed the objective of economics to be the establishment of complete justice.

For Marx, justice is the central human quality - it is what makes us human. Our humanity is defined by our justice. Nature is without cause, without purpose, and, most importantly, without justice. The only meaning in life is the meaning that we impart to it, and the only justice in the world is the justice that human beings create. Therefore, according to Marx, the goal of life is to create justice, and for Marx this meant economic justice.

Marx lived during the time when Darwin published his Theory of Natural Selection. Marx viewed Darwin’s theory of evolution as a validation of his worldview, and as a compliment to his theory of “social evolution”: The Class Struggle.

Of Darwin's works Marx wrote:

During my time of trial, these last four weeks I have read all sorts of things. Among others Darwin's book on Natural Selection. Although it is developed in the crude English style, this is the book which contains the basis in natural history for our view.
- Karl Marx; Letter to Frederick Engels, 1860

Darwin’s work is most important and suits my purpose in that it provides a basis in natural science for the historical class struggle. One does, of course, have to put up with the clumsy English style of argument. Despite all shortcomings, it is here that, for the first time, ‘teleology’[2] in natural science is not only dealt a mortal blow but its rational meaning is empirically explained.
- Karl Marx; Letter to Ferdinand Lassalle, 1861

A critical history of technology would show how little any of the inventions of the 18th century are the work of a single individual. Hitherto there is no such book. Darwin has interested us in the history of Nature's Technology, i.e., in the formation of the organs of plants and animals, which organs serve as instruments of production for sustaining life. Does not the history of the productive organs of man, of organs that are the material basis of all social organisation, deserve equal attention? And would not such a history be easier to compile, since, as Vico says, human history differs from natural history in this, that we have made the former, but not the latter?
- Karl Marx; Das Capital, 1867

Marx, of course, lived before the discovery of DNA and the understanding of genetics and biology that we have today. In Marx’s time biology was still mostly a study of what things existed - it was mostly just a practice of naming and cataloging “species”.

Marx obviously did not have as advanced a scientific understanding of life and of how the mind works as we have today, but he did put science at the forefront of his worldview and did advocate a scientific approach to the study of all things, including economics and human behavior.

While Marx didn’t apply science to economics or the study of human behavior himself, he, like Adam Smith, Ricardo and others before him, made a number of observations about life and human behavior in very detailed and profound ways. He made claims which could be verified by science, although he didn't perform the science to verify them. Some of his claims have proven true, some of his claims have proven false, and a number of them have never been verified either way.

Regardless, Marx brought economics further into the realm of science. Just as Western views of economics had been integrated with a Christian worldview prior to Marx, Marx integrated economics with a Materialist worldview, i.e. a purely natural worldview, where “free will” was once again in question, and people’s choices were seen purely as natural processes that are governed by the laws of nature. Marx also took people’s emotions into greater consideration as well, which played a major role in his theories on commodity fetishism, human social identity, and religion.

The basis of irreligious criticism is: Man makes religion, religion does not make man. Religion is the self-consciousness and self-esteem of man who has either not yet found himself or has already lost himself again. But man is no abstract being encamped outside the world. Man is the world of man, the state, society. This state, this society, produce religion, an inverted world-consciousness, because they are an inverted world. Religion is the general theory of that world, its encyclopedic compendium, its logic in a popular form, its spiritualistic point d'honneur, its enthusiasm, its moral sanction, its solemn complement, its universal source of consolation and justification. It is the fantastic realization of the human essence because the human essence has no true reality. The struggle against religion is therefore indirectly a fight against the world of which religion is the spiritual aroma.

Religious distress is at the same time the expression of real distress and also the protest against real distress. Religion is the sigh of the oppressed creature, the heart of a heartless world, just as it is the spirit of spiritless conditions. It is the opium of the people.

...

The task of history, therefore, once the world beyond the truth has disappeared, is to establish the truth of this world. The immediate task of philosophy, which is at the service of history, once the holy form of human self-estrangement has been unmasked, is to unmask self-estrangement in its unholy forms. Thus the criticism of heaven turns into the criticism of the earth, the criticism of religion into the criticism of law and the criticism of theology into the criticism of politics.

...

But for man the root is man himself. The evident proof of the radicalism of German theory, and hence of its practical energy, is that it proceeds from a resolute positive abolition of religion. The criticism of religion ends with the teaching that man is the highest being for man, hence with the categorical imperative to overthrow all relations in which man is a debased, enslaved, forsaken, despicable being;... 
- Karl Marx; Introduction to A Contribution to the Critique of Hegel’s Philosophy of Right, 1844

For Marx, people were not rational beings, nor were they machines like the Greek or Christian view of animals, but both humans and animals were complex emotional beings, whose desires and decisions were influenced by thousands of years of social practices and millions of years of natural evolution. People were products of nature and could be affected by nature, i.e. their environment. For Marx, the real world was the key to understanding human behavior, not the “spiritual world”.

This was the key to Marxism: The idea that people are products of their environment, and that the natural world is fundamentally without justice.

The task of mankind, therefore, was to overcome nature, establish justice for every person, and put an end to the cycle of “evolutionary favoritism”. After all, if there is no just god, and there is no supernatural purpose to life, then the fact that one person happens to be born with qualities that make him or her superior to another is just a “freak of nature” - it’s just chance. The individual has done nothing to “earn” the “blessing”, it’s just a "random" part of how the material universe works.

Hence the categorical Marxist imperative: “From each according to his ability, to each according to his needs! ”

More specifically, Marx stated:

But one man is superior to another physically, or mentally, and supplies more labor in the same time, or can labor for a longer time; and labor, to serve as a measure, must be defined by its duration or intensity, otherwise it ceases to be a standard of measurement. This equal right is an unequal right for unequal labor. It recognizes no class differences, because everyone is only a worker like everyone else; but it tacitly recognizes unequal individual endowment, and thus productive capacity, as a natural privilege. It is, therefore, a right of inequality, in its content, like every right. Right, by its very nature, can consist only in the application of an equal standard; but unequal individuals (and they would not be different individuals if they were not unequal) are measurable only by an equal standard insofar as they are brought under an equal point of view, are taken from one definite side only -- for instance, in the present case, are regarded only as workers and nothing more is seen in them, everything else being ignored. Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal amount in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal.

What Marx is saying here is that labor must be the standard by which everyone's contribution to society is measured. By using labor as the standard measure, everyone's contribution would be judged equally, as opposed to the variety of financial means by which people acquire wealth, such as capital gains, inheritance, etc. He recognized, however, that even if everyone were judged by the same standard, i.e. the value produced by their labor, the fact that everyone is different and has a different ability to contribute labor would still result in inequality. So he says that the first stage of communism would be to establish an equal measure of contribution, even though it will still result in inequality, because at least people would all be judged on an equal basis, according purely to the value of their labor. He goes on to state:

But these defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth pangs from capitalist society. Right can never be higher than the economic structure of society and its cultural development conditioned thereby.

In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life's prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly -- only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!
- Karl Marx; Critique of the Gotha Programme, 1875

Life was not fair, but we could make it that way, at least according to Marx.

Well, as we all know, Marxism upset a great many people and there was a concerted effort to disprove or contradict every aspect of Marxist economics and thought. The first reaction by Marx’s opponents to his Das Kapital, which was the first major book to use the term “capitalist”, was to ignore it.

The book was large, complicated, and hard to read, so the hope was that his intended audience, miners and factory workers, etc, wouldn’t be able to make much of it anyway. The book caught on however, and many other writers, including Marx himself and his associate Engels, wrote companion pieces that broke down the major points into more easily digestible bits.

Eventually, the opponents of Marxism had to present counter arguments and develop their own counter school of economic thought because Marx, it was widely acknowledged, had indeed exposed major flaws in existing "capitalist" economic theory.

The first group of people to counter Marx were members of the Austrian School of economics. Many concepts from the Austrian School have become integrated into Neoclassical economics, but other economists, businessmen, clergymen and politicians contributed to the countering of Marxism as well.

One aspect of Marxism is that everything is integrated. Marxism is a fully integrated holistic worldview and system of analysis. Therefore you cannot separate Marxist economics from Marxist views on religion or science or philosophy or history or anything else. Every school of thought in Marxism plays a supporting role for other schools of thought.

This, of course, made Marxism attackable on multiple fronts. In order to attack Marx’s economics one could just as easily attack Marx’s view on religion or history or anything else, and that is exactly what happened.

After over one hundred years of progress in the school of economics as a science, “Neoclassical” economists in the late 1800s took a big step backward in time and made a fundamental, and unverifiable, assertion: That people have an autonomous rational free will. Members of the Austrian School, such as Ludwig von Mises in the 20th century, directly denied the role of observation in economics, stating that human behavior was too difficult to study scientifically, and instead that human behavior models should be derived logically. Specifically Mises stated:

The science of human action that strives for universally valid knowledge is the theoretical system whose hitherto best elaborated branch is economics. In all of its branches this science is a priori, not empirical. Like logic and mathematics, it is not derived from experience; it is prior to experience. It is, as it were, the logic of action and deed.

...

The popular epistemological doctrines of our age do not admit that a fundamental difference prevails between the realm of events that the natural sciences investigate and the domain of human action that is the subject matter of economics and history. People nurture some confused ideas about a "unified science" that would have to study the behavior of human beings according to the methods Newtonian physics resorts to in the study of mass and motion. On the basis of this allegedly "positive" approach to the problems of mankind, they plan to develop "social engineering," a new technique that would enable the "economic tsar" of the planned society of the future to deal with living men in the way technology enables the engineer to deal with inanimate materials.

These doctrines misrepresent entirely every aspect of the sciences of human action.

As far as man can see, there prevails a regularity in the succession and concatenation of natural phenomena. Experience, especially that of experiments performed in the laboratory, makes it possible for man to discern some of the "laws" of this regularity in many fields even with approximate quantitative accuracy. These experimentally established facts are the material that the natural sciences employ in building their theories. A theory is rejected if it contradicts the facts of experience. The natural sciences do not know anything about design and final causes.[2]

Human action invariably aims at the attainment of ends chosen. Acting man is intent upon diverting the course of affairs by purposeful conduct from the lines it would take if he were not to interfere. He wants to substitute a state of affairs that suits him better for one that suits him less. He chooses ends and means. These choices are directed by ideas.

The objects of the natural sciences react to stimuli according to regular patterns. No such regularity, as far as man can see, determines the reaction of man to various stimuli. Ideas are frequently, but not always, the reaction of an individual to a stimulation provided by his natural environment. But even such reactions are not uniform. Different individuals, and the same individual at various periods of his life, react to the same stimulus in a different way.

As there is no discernible regularity in the emergence and concatenation of ideas and judgments of value, and therefore also not in the succession and concatenation of human acts, the role that experience plays in the study of human action is radically different from that which it plays in the natural sciences. Experience of human action is history. Historical experience does not provide facts that could render in the construction of a theoretical science services that could be compared to those which laboratory experiments and observation render to physics. Historical events are always the joint effect of the cooperation of various factors and chains of causation. In matters of human action no experiments can be performed. History needs to be interpreted by theoretical insight gained previously from other sources.

This is valid also for the field of economic action. The specific experience with which economics and economic statistics are concerned always refers to the past. It is history, and as such does not provide knowledge about a regularity that will manifest itself also in the future. What acting man wants to know is theory, that is, cognition of the regularity in the necessary succession and concatenation of what is commonly called economic events. He wants to know the "laws" of economics in order to choose means that are fit to attain the ends sought.

Such a science of human action cannot be elaborated either by recourse to the methods praised—but never practically resorted to—by the doctrines of logical positivism, historicism, institutionalism, Marxism and Fabianism or by economic history, econometrics and statistics. All that these methods of procedure can establish is history, that is, the description of complex phenomena that happened at a definite place on our globe at a definite date as the consequence of the combined operation of a multitude of factors. From such cognition it is impossible to derive knowledge that could tell us something about the effects to be expected in the future from the application of definite measures and policies, e.g., inflation, price ceilings, or tariffs. But it is precisely this that people want to learn from the study of economics 
- Ludwig von Mises; Epistemological Problems of Economics, 1933

Understanding human action, according to von Mises, is beyond the realm of science. This view, either implicitly or explicitly, is prevalent throughout Neoclassical economic thought.

Because opposition to Marxism at the same time embodied an opposition to his economics and to his views on religion, religious thinkers became more involved in the school of economics, and philosophically religious concepts began working their way back into major elements of major economic theory. I say philosophically religious concepts, because we are not talking about Biblical principles or codes of religious law, but logical derivations based on the idea that people are the creations of a perfect universal god and the assumption of a supernatural soul as the source of free will. (In fact, however, Neoclassical economics contradicts many Biblical principles)

Once again, people’s economic conditions and economic choices were seen as a judge of their spiritual character. Wealth was seen as a sign of virtue and piety, and poverty was seen as a sign of sinfulness and divergence from God. This is not to say that all Neoclassical economists held this view, but that the popular acceptance of Neoclassical economics was greatly bolstered by this view.

Economists, however, still viewed their work as a science and, for a number of reasons, sought to bolster its scientific aroma. The attempt to make economics appear to be a science resulted in a school of thought that more closely resembled physics than anything else. As von Misis stated, economics was to be viewed like mathematics, and Neoclassical economists have treated it as such.

In addition, the opponents of Marx were largely businessmen, so the economics that was developed in opposition to Marxism was largely concerned with the functions of business and with metrics that were viewed as useful to businessmen.

What the Neoclassical economists were not is they were not scientists, they were not sociologists, they were not psychologists. In general, they were not people concerned with the functioning of human beings - they were people concerned with the functioning of business.

The Science of Human Behavior vs. Neoclassical Assumptions

It is impossible to remove the study of human behavior from economics, but Neoclassical economists have effectively done just that. Neoclassical economics makes major assumptions about human behavior, then dismisses the subject as a topic of study. Instead, Neoclassical economics is filled with graphs and formulas that are useful in making business decisions, managing money supplies and interest rates, etc. Neoclassical economics employs the use of self-defining non-verifiable concepts such as “maximizing utility”. In fact, even the definition of rational self-interest has become devoid of meaning in the economic textbooks of today.

In general, rational self-interest means that individuals try to maximize the benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit. [1]
- Economics 6e, A Contemporary Introduction

This statement is essentially meaningless, and says nothing about how or why people make decisions. It basically just says that any decision a person makes is the decision that they thought was the best decision to make. Of course.

Choices in food, body art, music, clothing, reading, movies, TV - indeed, all consumer choices - are influenced by tastes. Tastes are nothing more than your likes and dislikes as a consumer. What determines tastes? Who knows? Economists certainly don't, nor do they spend much time worrying about the question. They recognize, however, that tastes are important in shaping demand. [1]
- Economics 6e, A Contemporary Introduction

Neoclassical economists may not spend much time worrying about what determines tastes, but marketers sure do. So much for rational self-interest.

In terms of justice, again the Neoclassical economists turn to self-defining concepts. For Neoclassicals the Market is just. Neoclassical economists will tell you that the Market is the definition of economic justice, and that economic injustice comes from human "interference" in “the Market”. Of course it's impossible to even have a market with human “interference”, but never mind that.

The previously mentioned article, Does Studying Economics Inhibit Cooperation?, reported on an experiment conducted by Marwell and Ames, stating :

On completion of each replication of the experiment, Marwell and Ames asked their subjects two followup questions:

1. What is a "fair" investment in the public good?

2. Are you concerned about "fairness" in making your investment decision?

In response to the first question, 75 percent of the noneconomists answered "half or more" of the endowment, and 25 percent answered "all." In response to question 2, almost all noneconomists answered "yes." The corresponding responses of the economics graduate students were much more difficult to summarize. As Marwell and Ames wrote,

.... More than one-third of the economists either refused to answer the question regarding what is fair, or gave very complex, uncodable responses. It seems that the meaning of 'fairness' in this context was somewhat alien for this group. Those who did respond were much more likely to say that little or no contribution was 'fair.' In addition, the economics graduate students were about half as likely as other subjects to indicate that they were 'concerned with fairness' in making their decisions.

The significance of this study is the finding that individuals' views on "economic fairness" actually changed due to studying Neoclassical economics, becoming less concerned with fairness after studying economics at American universities.

Neoclassical economics partially developed as a contradiction to everything Marxist. Whatever Marx said, Neoclassical economists said the opposite purely out of opposition. Perhaps the most prominent message of Marxist economics was that the economy should be fair. Fair was the buzzword of Marxists so it became the bane of Neoclassicals.

Likewise, the Marxist focus on human behavior, and the view of the mind as a product of the material nature of the brain that is heavily influenced by emotions and the environment, contributed to the Neoclassical acceptance of the mind as an isolated agent of rational free will and a lack of focus on human behavior.

Neoclassical economics, therefore, is ultimately reliant on faith, and on an acceptance of a supernatural concept of the mind. Neoclassical economics is rooted in teleology.

In a strange irony, by basing economics on the assumption that people operate according to independent rational free will, Neoclassical economics results in the promotion of irrational economic development.

By taking the position that people act in their rational self-interest and that this is a good thing, so that nothing needs to be done other than "get out of the way" and let “the Market” operate, the door is opened for the manipulation of the way that people really do make decisions. People actually are irrational, ill informed, emotional and heavily influenced by their environment.

People are animals that are products of millions of years of evolution. Our brains, and our mind, are subject to the laws of nature. Many behaviors, preferences and patterns, etc are inherent in who we are - they are a product of our genetics. All other behaviors, preferences and patterns are the result of our environment, or more precisely, are the result of how our genetically determined material body interacts with the environment.

There are all manner of triggers and conditions that influence our decision-making processes. These things have nothing to do with “souls”, nothing to do with “free will”, nothing to do with an inherent intangible self, nothing to do with rationality, and nothing to do with morality.

By ignoring all of these things economists fail to describe or understand how people make decisions.

For example, different colors stimulate different emotions and assumptions in humans, as well as other animals. Color, therefore, impact our decision-making processes for completely irrational reasons. Many of the ways that color impacts our decision-making processes are a product of millions of years of evolution in “the wild”, and have no direct bearing on the modern world.

In certain contexts humans are attracted to bright colors, and tend to shy away from dull colors such as brown.

One reason for this is that the primary sources of bright colors in the wild are flowers and fruits. In the past humans relied on the use of color to determine if fruits were ripe and in good condition to eat. Brown indicates that a fruit is rotten or diseased, and brown plant material is dead plant material that has no nutritional value to people.

Economics is all about decision-making processes. In nature, the primary decision-making processes are about the acquisition of food. Therefore, most of our decision-making thought processes in relation to the acquisition of resources for consumption are related to the thought processes that evolved to make decisions about food.

When a person is “shopping” they are heavily using the centers of the brain that originally evolved to make decisions about what foods to choose.

Those centers of the brain have evolved to be highly sensitive to color and highly selective based on color. A million years ago in the wild, homo-sapiens “shopping” for food that were on the lookout for brightly colored objects were more likely to survive and be successful because they would be more likely to find food.

There was an evolutionary advantage to being attracted to bright shiny fruits and an evolutionary advantage to being turned off by dull brown fruit. Therefore, people have evolved to generally be attracted to bright shiny colors when in “resource acquisition mode".

There is nothing rational about this behavior today, it’s simply a vestige of our evolutionary heritage. Obviously, millions or thousands of years ago people didn’t shop for clothes or cars or little trinkets. Our ancestors’ lives were primarily concerned with looking for food, staying away from danger, and having sex.

Today, however, marketers make use of brightly colored signs because they trigger a fundamental and deeply instinctive response in the majority of human beings. A bright colored sign stimulates the region in the brain that says “hey, there is something good over there, go check it out”.

Is it rational to make a judgment about the “utility” of a good because it is sold under a red sign vs. under a brown sign? No, of course not. The color of the sign advertising the product has nothing at all to do with the quality or usefulness of the product, but studies have shown that if you put two booths up with the same exact product, but one booth has a red or yellow sign (common colors of fruits and flowers) and one has a brown sign, then the booth with the red or yellow sign will do more business.

It’s a decision making process that is totally irrational and heavily influenced by our biological makeup.

Food provides other excellent examples. Humans have four types of taste: sweet, sour, salty and bitter. These tastes have evolved to tell us about what we are eating. Our eating preferences have evolved over millions of years based on the dietary requirements and living conditions of the wild. In the wild it’s very hard to get enough to eat so people, along with essentially all animals, have evolved a very strong appetite that drives us to eat as much as possible.

Interestingly, mammal babies have a natural control mechanism to their appetite. This has likely evolved because babies have always had a ready supply of food that is essentially always available, and over-feeding by babies is taxing on the mother who has to supply the milk that feeds them. Therefore, babies that regulated their own caloric intake were naturally selected for.

At any rate, once mammals are past the breast-feeding age their caloric intake becomes unregulated. Animals will generally try to consume as much as they can hold because in the wild every meal is hard to come by and no future meal is certain.

In addition, taste heavily influence choice about which things to eat. People’s tastes have evolved to guide them to eat the most nutritious and high calorie things, while avoiding poisonous things.

This is why people are highly attracted to both sweet food and fatty food, while turned off by bitter foods. Sugar is basically the plant form of fat. Fat and sugar are compounds that are used by living things to store energy, which is why eggs are high in fat and fruits are high in sugars. They both serve as sources of energy for newly developing life forms that do not yet have the means to acquire their own resources. It's also why sugar is easily transformed into fat by animals - the compounds are very similar.

In nature, sweet things are typically highly dense in nutrients and relatively high in calories. This again is because sweet things in nature are almost always part of a nutrient packet that is intended to supply the needs of a developing life. Our sweet-tooth evolved to guild us toward fruits and honey, etc (fruits evolved to feed plant seeds and honey is produced by bees to feed their young). Both fruits and honey are high in calories and high in vitamins and minerals when compared to other plant material, such as leaves or wood or grass, etc.

Fatty materials, such as meats, were also highly advantageous for survival as well, because they provide a high source of energy and protein.

Many poisonous plants and insects, however, have a bitter taste. Not all bitter foods are poisonous, and not all poisonous foods are bitter, but it was a good enough rule of thumb to provide an evolutionary advantage for those individuals that avoided bitter foods, and were thus less likely to die from food poisoning.

Today, we still have these same tastes and we still have basically the same brain that influences our decision-making processes and instinctively favors sweet and fatty foods over other foods. The problem, however, is that today, thanks to “advances” in technology, food producers are able to isolate flavors and we have an abundant supply of food that is almost always available.

What “the Market” has seized on, or rather what producers have seized on, is the fact that people have a high affinity for sweet and fatty foods. The result is that, in order to maximize profits, they produce foods that are purely just sweet and have zero nutritional value or are very fatty. Nutrients, of course, are expensive.

Our brain has no way to determine how nutritious a food actually is, and we certainly can’t taste “nutrition”. What has happened is that our brain evolved a system over millions of years that provided a guide to direct us towards nutritious foods in the wild. Now, that same instinctive guide is “abused” by many food producers to effectively “trick” our brains into thinking that we are eating nutritious food, when in fact we are eating food that may be completely devoid of any redeeming value, or actually bad for our health.

At an even more fundamental level, the hormone oxytocin, which stimulates trust, is naturally produced by humans and other animals in a variety of situations, such as after sex and in infants after child birth. In reality the hormone is produced at various levels in response to a wide range of stimuli, but the afore mentioned situations are times when some of the highest concentrations are produced.

The scientific journal Nature recently published new finds about oxytocin. Reporting on the Nature publication,  Building trust via nasal spray stated:

Commentators say that the study has implications for just about everyone who takes an interest in any human behavior -- from love, to politics, to marketing and beyond.

"Some may worry about the prospect that political operators will generously spray the crowd with oxytocin at rallies of their candidates," said University of Iowa neurologist Antonio Damasio in a commentary in Nature.

"The scenario may be rather too close to reality for comfort, but those with such fear should note that current marketing techniques... may well exert their effects through the natural release of molecules such as oxytocin in response to well-crafted stimuli."

How can Neoclassical economics possibly take these types of factors into account? Quite simply, it can’t.

The basic examples given above only scratch the surface of the scientific understanding human choice.

Not only does Neoclassical economics assert that we are rational beings, but Neoclassical economists have by and large completely removed human beings from our evolutionary context. Indeed, many Neoclassical economists, either explicitly or implicitly, put people in the Christian context of a world created by a just god. This view of a world created by a just god implies, of course, that the natural state of the world is just, and that it is human activity that creates injustice (original sin). This, as has been noted, is the diametrical opposite of the Marxist worldview, that the natural world is inherently without justice and that it is humanity that creates justice.

The Neoclassical view is inherently rooted in the view of a created world and created people, where humans have no historical development, no evolutionary narrative, and no social context. According to the Neoclassical view we aren’t all unique complex organic beings with a common evolutionary line whose cognitive processes reside in, and are affected by, the real world. Instead, we are all rational creations that have been flawed by original sin, meaning that any non-rational behavior is the result of moral flaw, and thus acceptably outside the parameters of market theory. Why worry about "bad people" anyway?

With this view, non-rational and social behavior is not something to be incorporated into the economic model, but rather the individual is to be “blamed” for lack of rationality; thus non-rational behavior becomes fair game to “exploit”. Social considerations are outside the scope of “rational self-interest”.

Conclusion

The result of this view is clear in America today. Almost every day some statement or report is issued telling us that Americans are saving too little, spending too much, and are too deep in debt.

Yet, at the same time, the amount of resources spent on advertising every year continues to increase. Over $100 billion a year is used in America to persuade people to engage in the very same behavior that virtually every economist is telling us is the wrong behavior to engage in.

At what point will economists be forced to acknowledge that using an economic model predicated on the assumption that all people are rational and informed about every decision they make results in a nonworking model, upon which it is impossible to structure our economy and our lives? Furthermore, Neoclassical economics makes the basic assumption that self-interest is the appropriate basis for all decisions. Ironically, this is a view that goes contrary to virtually every religion and social system in the history of mankind, and is indeed contrary to our social evolutionary development.

Thus far, at the microeconomic level these concerns have been generally dismissed for decades. If someone is “suckered” by advertising or product placement then it’s “their own fault”. If someone doesn’t control their spending and goes massively into debt then it’s “their own fault”.

The problem, however, is that on a macroeconomic level, when these conditions become prevalent throughout the population, the entire economy runs into trouble. It is no longer an “individual” problem; it is a problem for everyone.

The problem arises, in part, because of an economic system that does not recognize human beings for what we really are: intelligent animals. Intelligent, but animals nonetheless, with an evolutionary and social history that greatly influences our decision-making processes.

In addition, free market theory is highly dependant upon the assumption that people are fully informed about the decisions that they make. This is clearly not the case, and indeed free-market practice results in the development of an economic system where sellers of goods and services use every means possible to skew the perception of buyers, and are able to develop substantial advantages in information management over individual buyers. Free-market theory basically states that if individuals are rational and informed then the decisions that they make will always be the "best" decisions, and this will result in the success of businesses that best serve the "social good". The problem, of course, is that people aren't rational, and not only do people make uninformed decisions, but indeed the very businesses that are active in the markets work to undermine our ability to make informed decisions. Virtually all businesses present very one sided views of their products and they hide as much information about how their business operates as possible. This is a fundamental contradiction in free-market theory. Businesses themselves work to undermine the very principles of the system.

This problem is exacerbated by the fact that the acceptance of Neoclassical economic theory tends to make people more self-centered, less honest, less concerned with fairness, and more likely to pursue "free rider" behavior. Free rider behavior is defined as taking private advantage of public resources. This makes perfect sense, because it is in one's rational self-interest to take advantage of public resources for personal gain. Average people, non-economists, live by many principles regarding public good and community values.  These principles may be learned or instinctive, but Neoclassical economics teaches a disdain for these principles and espouses the virtue of pure self-interest and competition.

The result is that not only economists, but all of those people who study Neoclassical economics, such as marketers, businessmen and executives, have fundamentally different sets of priorities and norms by which they operate, which are outside the norms of the broader community.

Other scientific fields of human study have proven, and now accept, that human choice is governed by our genetics and by our environment. The mind is material, and is increasingly being accepted as such by many schools of study and the general public. Our brains and our thoughts are affected by chemicals, developmental processes, social interactions, and by the very structure of the brain itself. The human mind can be studied by science. Right now industry and marketing are playing a double game. They study the human mind scientifically in order to understand how to influence human choice, but continue to espouse an economic model that denies the ability of the human mind to be studied by science. The result is that the public is continually led to believe that their choices cannot be influenced by marketing, etc, while in fact the the marketers, etc are studying and practicing increasingly effective ways to influence human choice.

Neoclassical economics is predicated on an assumption that has been outdated for over 100 years, and it's time that we base our economics on reality.

Footnote:

[1] Economics 6e, A Contemporary Introduction; William A. McEachern, 2003. This is a popular college level macroeconomics and microeconomics textbook that is endorsed by The Wall Street Journal.

[2] Teleology: Philosophy or doctrine that attempts to explain the universe in terms of ends or final causes. Teleology is based on the proposition that the universe has design and purpose. In Aristotelian philosophy, the explanation of, or justification for, a phenomenon or process is to be found not only in the immediate purpose or cause, but also in the "final cause"—the reason for which the phenomenon exists or was created. In Christian theology, teleology represents a basic argument for the existence of God, in that the order and efficiency of the natural world seem not to be accidental. If the world design is intelligent, an ultimate Designer must exist.

Teleologists oppose mechanistic interpretations of the universe that rely solely on organic development or natural causation. The powerful impact of Charles Darwin's theories of evolution, which hold that species develop by natural selection, has greatly reduced the influence of traditional teleological arguments. Nonetheless, such arguments were still advanced by many during the upsurge of creationist sentiment in the early 1980s.