This is a single-author methodological essay whose scope is the history, logical status, and theoretical function of Economic Man. Machlup’s thesis is that homo oeconomicus is not a moral portrait of humanity but a deliberately narrow premise for economic explanation. He begins with comic bluntness, treating the figure as a target onto which critics projected hostility to abstraction, deductive theory, and liberal political economy.
The ‘bogey’ to whom this essay will be devoted is Economic Man.
The essay first samples denunciations by Barton, the Historical School, Carey, Thompson, and Ruskin. Machlup does not deny that economists often formulated the construct badly, especially by equating “wealth” with material goods, “gain” with money, and maximization with selfishness. But the catalogue of abuse prepares the distinction that governs the essay: poor descriptions of a model do not refute the need for a model. Critics demand “Whole Man” where theory requires a “Partial” or abstract man.
The historical middle reconstructs a methodological argument among Mill, Senior, Bagehot, Cairnes, and Wicksteed. Mill defended political economy as hypothetical reasoning from simplified premises; Senior wanted positive truths rather than suppositions; Bagehot accepted useful fictions; Cairnes allowed experiential premises but hypothetical conclusions; Wicksteed rejected egoism and materialism while resisting simplified psychology. Machlup uses this genealogy to show that the same alternatives recur: axiom, fact, fiction, ideal type, introspective datum, or rule.
His own clarification is twofold. First, maximization is not egoism: people may optimize with familial, charitable, artistic, patriotic, or other-regarding aims. Second, Economic Man is not a theory of the whole person, but a proposition within a deductive system, stating how agents respond when opportunities, prices, incomes, or costs change.
Homo oeconomicus is the metaphoric or figurative expression for a proposition used as a premise in the hypothetico-deductive system of economic theory.
Machlup’s terminological joke is therefore serious. The construct is not a debased “man” without affection, knowledge, or conscience; it is an artificial device for limited analytical work.
Thus, he is not a homo but a homunculus.
The decisive section asks not what Economic Man “is” but what he does for theory. Economics chiefly explains changes in output and prices, and such explanations must specify both changed conditions and the motives that make suppliers, buyers, producers, or households react predictably. If every case required a fresh psychology, there would be no general theory.
No theoretical system, however, can be built if all premises vary from case to case; at least one premise must be found that can serve to deduce applicable conclusions in a very large number of cases.
Machlup’s key conceptual move is the distinction between action and reaction. People pursue knowledge, music, leisure, vanity, travel, and many other ends. Yet economists usually explain increases in research employment or professional musicianship by changed opportunities, funding, wages, and openings, not by sudden collective changes in the love of science or art. Preference shifts and new information can matter, but they are exceptions that clarify theory’s normal condition: preferences and information are held stable while incentives vary.
The preceding three examples should have illuminated the clue for solving the issue: the economist’s chief task is not to explain or predict human action of every sort, or even all human action related to business, finance, or production, but instead only certain kinds of people’s reactions (responses) to specified changes in the conditions facing them.
The essay remains relevant as a defense of abstraction without overclaiming. Economic Man supports chiefly qualitative, directional predictions, not exact prophecy. Machlup avoids both naïve realism and pure fictionalism: whether the premise is called fact, convention, or useful fiction matters less than the explanatory work it performs. His final resolution gives the essay its pragmatic methodological conclusion.
I move the following resolution: The fundamental assumption — whether it be regarded as a conventional postulate, a useful fiction, or a well-known fact of experience — of maximising behaviour, that is, of utility-maximising reactions of households and firms, is recognised as a useful and probably indispensable part of the theoretical system of economics.
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