Key Takeaways
- Economic models aren't reality: The "desert island" thought experiment beloved by economists strips away everything that makes economies actually work—institutions, power, history, and collective action.
- Productivity is constructed: What counts as "productive" depends on who's measuring and what they value. Colonial powers called Africans and Asians "lazy" while exploiting their labor.
- Rational choice is a myth: Humans don't optimize utility functions. We're social beings embedded in institutions, making decisions shaped by culture, habit, and limited information.
- Simple models serve powerful interests: Stripping economics to "individual choice" conveniently ignores collective action, power dynamics, and structural inequality.
The Island Fantasy
Every economics student encounters Robinson Crusoe. Stranded alone on an island with coconut palms, he must decide how to allocate his time between gathering coconuts and leisure.
This scenario is supposed to illustrate the fundamental economic problem: scarcity requires choice.
But what does it actually teach?
That economies can be understood by imagining a single person alone with one resource. That choice is individual. That preferences are given. That there’s no society, no institutions, no power—just a man and some coconuts.
This isn’t economics. It’s fantasy. And like all fantasies, it reveals more about the fantasist than about reality.
The Convenience of Simplification
Economists defend the Robinson Crusoe model as a “simplifying assumption.” Start with one person, they say, then add complexity.
But the complexity never gets added. Or when it does, it’s just more individuals making individual choices—like adding Friday to the island, which introduces trade but not power, exchange but not exploitation.
The fundamental move—treating the economy as reducible to individual choice—was baked in from the start. Everything that comes after is elaboration on that foundation.
What got left out?
Institutions
Real economic activity happens within institutions: firms, governments, unions, families, markets themselves. These aren’t just aggregations of individuals—they have their own logic, rules, and power dynamics.
The coconut model has no institutions. There’s just a person and nature.
Power
In real economies, some people command others’ labor. Employers and employees don’t meet as equals in a marketplace of free choice. They meet with radically different options if negotiations fail. The employer loses one worker; the worker loses their income.
The coconut model has no power. Every choice is free.
History
Today’s economic position depends on yesterday’s—and on centuries of accumulated advantage and disadvantage. The person born wealthy has options the person born poor doesn’t.
The coconut model has no history. Robinson arrived with nothing but his naked rational capacity.
The Lazy Native
Colonial powers had a problem. They wanted cheap labor to work their plantations. But the people they wanted to exploit often preferred their existing way of life—growing their own food, maintaining their own communities.
The colonizers called this “laziness.”
If Malayans could feed themselves from coconut palms and rice paddies, why would they work brutal hours in rubber plantations? If Africans had land and cattle, why would they labor in mines?
Colonial authorities understood this perfectly. So they created conditions that forced labor:
Head taxes payable only in cash
Land seizures that eliminated subsistence options
Pass laws that controlled movement
Minimum wage laws (yes, minimum wage—set low to ensure cheap labor while preventing “unfair” competition)
The “lazy native” wasn’t lazy. They were rationally refusing exploitative labor when better options existed. The colonizers’ solution was to eliminate those options.
What Is “Productivity”?
The coconut gatherer who provides for their family and community is, in colonial accounting, “unproductive.” They’re not generating exports. They’re not earning wages that can be taxed. They’re not participating in the cash economy.
But by any reasonable measure, they’re being productive. They’re producing food, shelter, community—the things that actually sustain human life.
The problem is definitional. “Productivity” in economic statistics means market productivity: goods and services that get bought and sold.
This creates absurdities:
A parent raising children is “unproductive”
A subsistence farmer feeding their family is “unproductive”
A community maintaining shared resources is “unproductive”
But:
A company selling bottled water that was freely available is “productive”
A hospital treating diseases caused by pollution is “productive”
A prison holding people for minor offenses is “productive”
Productivity isn’t an objective measure. It’s a choice about what to count.
The Rational Actor
Economics builds on the assumption of homo economicus—rational economic man, who maximizes utility given his preferences and constraints.
This creature:
Knows his preferences perfectly
Calculates optimal choices efficiently
Responds to incentives predictably
Is unaffected by framing, emotion, or social context
No actual human has ever resembled this description.
Behavioral economics has documented dozens of ways humans systematically deviate from rational choice:
We’re loss-averse (losing $100 hurts more than gaining $100 helps)
We discount the future hyperbolically (we’ll diet tomorrow, just not today)
We’re influenced by anchoring, framing, and social proof
We satisfice rather than optimize—choosing “good enough” rather than “best”
Economists know this. But the models persist because they’re mathematically tractable. It’s easier to model a world of rational calculators than to model actual humans.
Why Desert Islands Matter
The Robinson Crusoe model isn’t just wrong—it’s strategically wrong. The things it excludes are precisely the things that might justify collective action, redistribution, or limits on markets.
If economies are just individuals making choices, then:
Inequality is the result of different choices (not different opportunities)
Markets are natural (not constructed institutions requiring regulation)
Government is interference (not collective action for shared goals)
Power doesn’t exist (just “free” exchange)
This is an ideological choice disguised as simplification.
Real economies feature:
Collective action problems: Markets alone can’t provide public goods, prevent pollution, or coordinate complex production.
Power imbalances: The “free choice” of the hungry person to accept any wage isn’t really free.
Path dependence: Today’s options depend on yesterday’s investments—in education, infrastructure, institutions.
Collective knowledge: Economic capability is social, not individual. Robinson Crusoe alone couldn’t invent modern medicine or manufacture a smartphone.
The Coconut’s Perspective
If we could ask the coconut palm, it might note that it doesn’t exist to serve Robinson Crusoe’s utility function.
It’s part of an ecosystem—pollinated by specific insects, its seeds dispersed by specific animals, growing in specific conditions that took millennia to develop.
From the coconut’s perspective, Crusoe is a recent arrival exploiting a system he didn’t create and doesn’t understand.
This is also true of humans in economies. We didn’t create the institutions, knowledge, and infrastructure we use. We inherited them. And we’ll pass them on (or fail to).
The individual-choice model obscures this inheritance. It treats each person as a self-made optimizer, ignoring the social conditions that make individual achievement possible.
Beyond the Island
Better economic thinking starts with:
Institutions first: Economies are institutional structures. Markets are one type of institution among many. Understanding economies means understanding institutions.
Power matters: Economic outcomes reflect power relationships. The “free market” result is whatever those with market power can extract.
History shapes possibility: Current options reflect past investments and deprivations. Economic analysis without history is like physics without time.
Knowledge is collective: Individual productivity depends on social knowledge. The most productive person on a genuine desert island couldn’t create modern prosperity alone.
Values are contested: What counts as “productive” or “valuable” or “efficient” depends on what we’re trying to achieve. Economics can’t answer value questions; it can only illuminate trade-offs.
The Real Coconut Economy
Actual coconut economies—in the Philippines, Indonesia, Sri Lanka, and elsewhere—feature:
Millions of small farmers with limited land
Middlemen capturing most of the value
Export orientation that makes local prices hostage to global markets
Colonial-era ownership patterns persisting decades after independence
Processing that happens elsewhere, leaving farmers with raw material prices
None of this appears in the desert island model. But this is what coconut economics actually looks like.
Robinson Crusoe’s coconuts were free goods from nature. Real coconuts are embedded in social relations that determine who works, who profits, and who goes hungry.
Economic Theory vs. Economic Reality
The model says: Individual choice determines outcomes
Reality: Power, institutions, and history shape choices
The model says: Markets emerge naturally from exchange
Reality: Markets are constructed, regulated, and enforced by governments
The model says: Preferences are given
Reality: Preferences are shaped by culture, marketing, and circumstance
The model says: Information is available
Reality: Information is asymmetric, costly, and strategically deployed