[Essay] The 10 Core Myths Still Taught in Business Schools

This essay is adapted from the Frankly episode posted on June 20th, 2025 titled, “The 10 Core Myths Still Taught in Business Schools.”

---

30 years ago, I graduated with honors from the University of Chicago with a master’s degree in finance. At that time, it was one of the best business schools in the world, and I haven’t looked lately but I believe it still is. I learned a lot while I was there – mostly about how to deal with other 25-year-olds, how to get lots of job interviews, and how to tell a narrow-boundary story of finance and economics that, on the surface, ran the human economic system around the world.

In the intervening years, I’ve been on a curiosity quest to understand the reality of how the human animal – eight billion of us today – fits into this expanding metabolic, economic system that runs on energy, technology and a complex web of global supply chains. I have found the things they’re teaching in business schools and economics classes around the world – the same things I was taught three decades ago – are quite flawed.

Many of the things they’re teaching are accurate, but those details relative to the fundamental truths I’m about to outline are trivial. It was difficult to parse these, but I’ve come up with ten myths that are still being taught in business schools globally.

Before I get into them, I would like to make a qualifying statement.

I care about a lot of things, but I care most of all about the natural world that we are a part of on this Earth – and about the truth. So what follows is values-neutral. It’s not about what I think should be, or what I would prefer – it’s about describing the myths, realities, and implications of the rules, guidelines, and laws that are part of the economic theory underpinning our current system.

Price and Value

Let’s start with a simple question: What is something worth?

If you’ve taken an economics class or an MBA seminar, the answer you’ve heard is pretty straightforward – something is worth what someone is willing and able to pay, also referred to as the “market price.” If there’s a painting for sale, and you’re willing to pay $100 for it while I’m only willing to pay $7, the logic says that you must value it more. From there, if you decide to buy it, society will value that painting at a hundred dollars. Price equals value. Simple, right?

The story is clean and measurable…yet totally blind to the real world.

The price we choose to pay isn’t just about how much we want something, it’s also about how much we can pay. That depends on income, wealth, and other factors – not actual need or importance of the issue.

Imagine a scenario with me. A poor villager needs clean drinking water but is only able to pay 20 cents for it. A billionaire wants a third yacht and drops $20 million on it without blinking. According to the market, the yacht has massively more utility to the world and to our economic system than the clean water. But does this make sense to you? It doesn’t really make sense to me – or to reality – but this is essentially what’s taught in our economic textbooks.

The belief that price equals value is not just wrong, it’s also dangerous. It pushes us to overproduce luxuries for wealthy humans while underproviding basics for everyday people. This is how we end up with $10,000 handbags in the same world where kids are forced to drink from polluted streams.

But wait, there’s more!

Markets also ignore what can’t be bought or purchased.

According to the market, a forest that protects a village from flooding is worthless unless the trees are cut down and sold for timber. This is a type of blindness that economists refer to as “externalities,” but are in reality often the foundations of life: breathable air, drinkable water, a stable climate, or ecosystem functionality. The market’s measuring stick in today’s economy doesn’t see them at all.

So what do we get? An economic system with a broken compass that tells us a luxury watch is more valuable than a wetland or a stock buyback is more valuable than a coral reef. And if we’re not careful, in the process of producing for the smallest, richest demographic of society, we’ll probably also destroy the shared foundations of life – just because no one paid to protect them.

As the author Oscar Wilde once said over a century ago, “These days, people know the price of everything and the value of nothing.” Reality-grounded economics would weigh not just what’s profitable, but also what’s necessary – what sustains, heals, and uplifts. Not just what sells, because not everything that matters can be bought, and not everything with a price is worth the cost.

Irrational Humans

The next myth is one of the oldest and most persistent assumptions in economics: that humans are rational utility maximizers. In theory, it says that we make decisions by calmly weighing costs and benefits and calculating what gives us the most value or utility. In other words, that humans act logically, consistently, and selfishly – like well-behaved agents in a spreadsheet.

Here’s the thing: this model, taught in Economics 101, doesn’t describe people. It describes robots. Real humans are messy, emotional, and deeply social creatures. Decades of research, from neuroscience to behavioral economics to evolutionary psychology, paint a very different picture than what is called “Homo economicus.”

We don’t act on spreadsheets, we act on instincts and copy what others are doing. We avoid losses more than we seek gains. Maybe most importantly, we care what other people think. We are not isolated utility engines, we are social primates wired to belong, and we are intensely other-regarding. We are incredibly social – so much that sometimes we’ll even act against our own interest just to fit in with a group.

So when we build systems based on the idea that humans are completely rational and self-interested, we get structures that don’t fit the creature that lives inside them – us. We get fragile markets, shallow and isolated relationships, and a culture that thinks more stuff will actually fix the need for deeper social connections.

If we want a model of economics in the future that reflects reality, it needs to reflect the real human animal – not “Homo economicus,” the calculating individualist consumer, but Homo sapiens: emotional, tribal, and beautifully irrational.

Understanding how we actually tick is not solely a philosophical question, it’s a design question, and right now, we are solving for the wrong species.

Supply Curve Slopes

The next myth has to do with the upward sloping supply curve, which is still taught in economics classes around the world.

The story we’re taught goes like this: as a firm scales up production, each additional unit costs a bit more to make. So to justify expanding production, the economy needs to have higher prices. This is why the demand curve slows down the supply curve. It’s simple, clean, and intuitive – and almost completely divorced from how the modern economy works.

In reality, most production today doesn’t get more expensive as a firm grows, it actually gets cheaper.

Thanks to automation, global supply chains, and digital infrastructure when a business scales, marginal costs fall – especially in the case of technology and manufacturing. The more copies of a software program you sell, the lower your average cost. The more smartphones you produce, the less you need to sink into production.

Alan Blinder is a very famous economist who served as Vice Chairman of the Board of Governors of the Federal Reserve System and was a member of President Bill Clinton’s Council of Economic Advisers. In his economic textbook, he wrote that only 11% of firms actually have upward sloping supply curves. I don’t even think that’s true anymore – I think it’s close to zero. His description of supply curves as upward sloping is a throwback to a world of local shops and hand tools – useful for teaching, but less useful for describing the reality of our world. That’s because when the cost of scaling drops, the advantage of being big grows. Many industries, especially digital ones, don’t trend toward healthy competition. They trend toward winner-take-all or winner-take-most situations – not because of cheating or corruption – but because math rewards scale.

That’s how we’ve ended up with a handful of players dominating entire sectors. Logistics, media, policies, regulations, and even antitrust frameworks still operate as if competition is the norm and monopoly is a bug. In reality, scale-driven concentration is a feature of the system. It doesn’t mean the system is good or bad, but it does mean it’s predictable.

If we want to understand the terrain we’re actually operating on – whether as citizens, policymakers, or entrepreneurs – we need to let go of the old curves and look at the new landscape. Because when costs fall as scale rises, the curve doesn’t slope up anymore. It bends sharply toward power – concentrated power.

Energy Is More Than an Input

The next myth is one I’ve spent pretty much the last two decades unpacking and understanding. In fact, I wrote my PhD thesis on it.

This myth says that capital and labor are what drive productivity and wealth creation and energy is just another commodity. Like copper, wheat, or sand, energy is substitutable and exchangeable. It’s not special, it’s just one of the inputs into the production function. This is catastrophically and demonstrably wrong.

Let’s start with a reality check: Energy underpins everything else.

In business school, the foundational model of economic productivity is called the Cobb-Douglas function, where output equals capital multiplied by labor with some vague ‘total-factor productivity’ asterisk in there. But energy isn’t even in the equation – despite the fact that it is required for everything in the formula. Machines need energy to function. Human labor needs energy for food, heat, mobility, infrastructure, and communication. None of this works without energy.

No energy? No economy. Less available, more costly energy? Smaller, more expensive economy.

Steve Keen has famously said that, “Labor without energy is a corpse, and technology without energy is a sculpture.” I would add that, “A city without energy is a museum.” We have seen staggering economic growth the last two centuries, but it wasn’t based on magic. It also wasn’t simply borne out of innovation, ingenuity, or capital. This economic growth was primarily due to cheap, abundant, and powerful fossil energy.

Let me spell this out in raw numbers. For any of the business school professors, MBA teachers, or economics professors that are reading this – all six of you – I ask you to just read through this section, pause, and Google it yourself. Spend five minutes verifying what I’m about to say.

One barrel of crude oil, which has the market price of around $95 in March 2026, contains 5.7 million thermal units worth of energy potential – if you translate that into work potential, it’s around 1700 kilowatt-hours. The average human working 40 hours per week generates 0.6 kilowatt hours per day of work. So one barrel of oil does the physical work equivalent of 11 years of a full-time human.

But machines are not as efficient at converting our muscle labor into work – we’re about two and a half times more efficient, so we have to handicap that by 40% because. That still means that we’re looking at four to five years of work replaced by a barrel of oil when combined with a machine.

In one year, humans currently use 30 billion barrels of oil, and coal and natural gas add another 70 billion barrel-of-oil-equivalents. In total, that means we’re using the fossil hydrocarbon equivalent of around 100 billion barrel-of-oil-equivalents each year. This effectively means we’re adding a 500 billion army of workers to the global economy of around 5 billion real workers – and yet none of this is in our textbooks nor our business schools. Instead, we treat energy as a footnote, a cost, and as something to be replaced when the price gets too high.

That brings us to the second energy reality check: Energy is not substitutable unless it’s by another energy of similar quality.

We’re taught that if oil or any other energy commodity becomes scarce or expensive, price signals will take care of it. We’ll substitute, we’ll innovate, and we’ll find alternatives. But this misunderstands what energy is – you cannot replace energy with money or cleverness, you can only replace it with other energy. And even then, it needs to be the right quality in terms of energy density, scale, and duration.

So when we imagine that we can swap out oil for some mystery technology or that the market will figure it out, we’re misunderstanding the most fundamental input to our civilization.

This brings us to the third, and perhaps most sobering truth about energy: We are drawing down energy stocks millions of times faster than they were formed, and we’re treating them in our economic system as if they were flows.

Fossil fuels are not income, they are capital. They are a trust fund, and we’ve been burning through that inheritance as if it were a weekly paycheck. Even Exxon – yes, Exxon – admits we’re facing a global oil base decline rate of 15% per year, and I have to believe that is quite conservative. So everything else being equal, we’ll be down to 10% of our current oil in 30 years if we only maintain the world’s existing oil fields and drill no new wells.

Yes, we will find new fields and will have better technology to extract other resources. But current fields are constantly depleting in the United States – production from existing fields is declining faster and faster, and the data shows a clear steepening curve. There are still a lot of oil molecules in the ground, but they’re harder to reach, lower quality, and more expensive – both in dollar and energy terms. And unless artificial intelligence does miracles for extraction, we are about to leave our plateau at the peak of energy and go downhill.

On top of that, because we’ve added technology and vast amounts of energy to processes that humans used to do manually, we’ve created an economy that’s incredibly sensitive to energy price upticks. A doubling or tripling of energy costs destroy a lot of our economic model, leaving us in a precarious position as energy becomes more expensive to extract.

This all points to the fact that we are at the apex of what I call the Carbon Pulse, a one-time, once-in-a-planet, historical spike in energy availability – and it’s peaking.

What’s the takeaway? If we ignore energy – its centrality, limits, depletion, and non-exchangeability – we are flying blind. We are designing economic systems that assume infinite growth from a finite inheritance. Capital and labor matter, but without energy they don’t function at all. When we forget that, which most people in business schools have, we end up with a mythological economy – one where wealth comes from cleverness and energy is just an afterthought. In reality, when the fuel runs low, the machine doesn’t care how smart the operator is.

---

---

Money Creation

Most young people, teenagers in most cases, eventually learn where babies come from – I got that talk from my dad (even though I already knew the answer). But here’s the twist: My dad, who’s now in his eighties, still doesn’t understand where money comes from, even though I’ve tried to explain it like a dozen times.

So Dad, if you’re watching, here goes take #13 on explaining money creation.

The standard story still taught in business school textbooks goes something like this: people save money, banks gather up that saved capital in people’s bank accounts, and they lend that out to others who need it while charging interest for the service. It’s a nice story, and it gives us the sense that money is grounded in something real, like thrift or discipline. But, of course, that is not how money works at all.

In the modern financial system, most money and circulation wasn’t saved first, it was created instantly when someone took out a loan.

Here’s how it works: When you walk into a bank and sign up for a mortgage or business loan, the bank doesn’t hand you money that someone else deposited. The bank teller types a number into your account – but that money didn’t exist a moment before.

At that moment, there’s the simultaneous creation of an asset and a liability. The asset, which is your loan, automatically comes with the liability that you owe the bank that money. From the perspective of the world’s financial system, everything is in balance – but until that loan is repaid, the money that was added to your account exists for you to spend in the real world. And just like that, new money was created – not from savings, but from debt.

This is called endogenous money creation, and it’s not some fringe theory – it is actually how commercial banking works by design. Even central banks like the Bank of England and the Federal Reserve have publicly confirmed that this is what’s happening (which they hadn’t done 20 years ago when I was telling this story).

So what does this mean?

It means the world’s money is not a fixed pool of capital, it’s a dynamic flow created by private banks, constrained only by regulation, capital buffers, and a borrower’s ability to repay.

Debt as Leverage

The next myth is also related to money, specifically debt.

Business schools around the world still teach that debt is a neutral tool – an intertemporal transfer of consumption preferences from the future to the present (or from the present to the future, in terms of a creditor). If you spend a million dollars from your bank account to build a business, the impact on the economy is identical to someone else who starts that business by borrowing a million dollars. So they treat debt as neutral to an economy.

Let’s back up to energy for a moment. Every time we spend money, whether it’s for a phone, a sandwich, or to build a road, energy is part of the transaction. When we spend every dollar, rupee, and euro in our pockets or our bank accounts, we are buying something with energy embedded in it. Full stop.

In effect, money is a claim on energy and materials. And if money is a claim on energy, then debt is a claim on future energy. But in today’s economic textbooks, debt is presented as a neutral mechanism that just moves money from the future to the present. As long as returns exceed the interest, it’s seen as a win – governments do it, corporations do it, households do it. Debt is really just leverage amplifying an opportunity – or so we’re told.

But that framing leaves something out. Debt is not just a financial promise, it’s a bet on the future of real world inputs – energy, labor, materials, and ecosystem stability and functions. Because when someone borrows today, including central banks, they’re not just assuming there will be money to repay that loan, they’re assuming the real world will be able to supply the physical goods and services needed to fulfill it.

What happens if the future doesn’t show up as expected, potentially due to global heating, oil depletion, or the fact that lithium and many rare earth metals aren’t in places that particularly like the West?

If energy becomes more scarce or expensive, then these debt-based systems start to weaken. This isn’t theoretical, it’s already showing up in the data. Since the 1970s, the United States and the world have grown their debt more than they’ve grown their GDP every single year. Right now, we are doubling our debt every nine years or so, and doubling our GDP – the income stream needed to replace the debt – every 25 years or so. This is all while we’re still on an energy plateau, and everything is still running. Debt productivity, or how much additional GDP we get for an additional unit of debt, has been declining for decades.

In other words, we’re borrowing more and more, but getting less and less impact for each additional dollar of debt. This isn’t leverage, this is diminishing returns with enormous risk.

The low hanging fruit – the cheap oil and most fertile soil – have already been picked, so we’re getting the less good stuff. And yet we continue to build an economic system of expectations as if the good stuff was still coming. We just write a check and (no matter which administration is in the White House, Republican or Democrat) raise the debt ceiling again, because debt allows us to consume energy and materials today – the future be damned.

Eventually though, this illusion will run into biophysical reality. In 2009, we had a “too big to fail” situation and let Lehman Brothers go under while bailing out Bear Stearns. At some point, almost certainly in the next decade by my estimates, we will have a “too big to save” moment where Japan, France, or another entity will have accumulated monetary claims and debt so large relative to the real world, no other group of central banks will be able to bail them out. And that’s when The Great Simplification – the name of this platform – begins in earnest.

What Does GDP Track?

The next myth revolves around a metric you’ve probably heard your entire life (including previously in this essay): GDP.

GDP stands for “gross domestic product” and is the total monetary value of all the goods and services a country produces in a given quarter or year. In news reports, political speeches, and business forecasts, GDP is held up as the main headline indicator of national success. If GDP is going up, we are doing well as a nation. If it’s flat or declining, it’s a warning sign. And in business schools and economic pundit circles, the assumption often follows: GDP growth is not just a signal of success, it is the goal that we should aspire to, because GDP means more progress, more jobs, and more prosperity.

But what does GDP actually measure? GDP counts monetary transactions – if money changes hands, it shows up in the number. It doesn’t ask whether those transactions are good or bad, helpful or harmful, or even necessary. So by definition, GDP adds up everything that we spend money on: building a hospital, cleaning up an oil spill, fighting a war, or treating cancer – it’s all counted as economic activity.

This brings us to the core insight: GDP is often a better measure of cost than benefit. It’s like judging the health of your car by how much you spend at the auto mechanic – if you spend $3,000 on engine repair this month, GDP reads that as a positive. But does it mean your car is working and thriving?

You could also imagine a society that’s getting sicker, more polluted, and more anxious – medical costs, disaster recovery, and security spending go up. GDP rises. But are people better off? 17% of U.S. GDP today goes to healthcare – and not because of better health outcomes. This is insane. But if it keeps rising to 30%, that’s technically good for GDP right?

To be fair, GDP is a useful accounting tool. It tells us how busy our economic engine is, but it doesn’t tell us where the engine is headed, whether it’s overheating, or whether it’s chewing through parts faster than it can replace them. It also leaves out some of the really important parts of real wealth in our world: healthy ecosystems, clean air and water, time with family, mental health of our citizens, education, biodiversity, community trust, and safety. None of these are properly counted in GDP. If you cut down a forest and sell the timber, GDP goes up. If you leave the forest standing to provide flood protection, shade, and carbon storage, GDP sees nothing.

So GDP growth can easily mask real declines in wellbeing, resilience, and ecological functioning and integrity. It’s a tally of throughput, not of outcomes, and yet our global society continues to treat GDP like the scorecard of modern civilization. The reality is much more nuanced. GDP measures economic motion – not direction, not quality, and definitely not sustainability. It adds up transactions, but it doesn’t ask what we’re gaining or losing in the process as a society.

It is worth recognizing that what we measure tends to shape what we pursue. GDP, as it stands, is a blunt instrument. It is not a measure of progress, it is a speedometer without a map.

The Economy Within the Environment

There are three myths left – and this is the one (along with energy) that caused me to leave Wall Street.

The myth still taught in business schools is that the environment is a subset of the economy. And a tiny, puny, and irrelevant subset at that. In most policy debates and business textbooks, this framing is so implicit that we hardly even notice it. The economy is the main event and the environment is a side issue – something to manage with regulations, fix with carbon offsets, or fund with profits once growth is secured. This flips the real relationship in our world on its head, because the environment isn’t a subset of the economy – the economy is a wholly-owned subset of the broader environment where we all live.

Everything we buy, sell, build, or consume relies on flows from the natural world: sunlight, water, minerals, soil, energy, pollinators, and climate stability. These aren’t optional inputs to an economic system. They’re the preconditions for any long-term or intermediate-term activity. Yet our economic models treat these real world foundations as externalities, which are outside the pricing, incentives, and behaviors of the economic equation.

So we build our forecast on lines and charts that stretch out forever, assuming stable climate, infinite water, and fertile soil – all priced at zero. But physics doesn’t negotiate, and ecosystems don’t do bailouts. If the biosphere frays, the economy eventually follows…not the other way around.

Yes we can print money, and we are going to increasingly do so, but we can’t print topsoil. We can issue bonds, but we can’t restock fossil aquifers. We can do IPOs, but we cannot recover dead coral reefs.

These are not theoretical risks – these are real trends happening today. So when we treat the environment as a footnote to the economy, we end up measuring short-term profits while eroding long-term viability and capacity. That logic only works in the very short term… or in an economics textbook. In reality, the economy is fully embedded within, and entirely dependent on, the natural world.

---

---

What Do Markets Miss?

The second-to-last myth says that the “invisible hand” will always result in the best outcomes.

The invisible hand is one of the most enduring ideas from economist Adam Smith, even though he only mentioned the term once and in a different context. It refers to the notion that individual humans, while pursuing their own self-interest, will unintentionally and in aggregate produce the best outcomes for society as a whole. It’s an elegant and appealing argument that has lasted centuries – and it works, but only under very, very specific conditions. When it’s stretched to a universal law, it breaks down.

Markets are incredibly powerful at allocating certain kinds of resources. Especially things that are rival, excludable, and can be priced – like shoes, cars, or apples. But many of the most important things in life, and on this planet, do not fit that simple model: clean air, trust, climate stability, ocean vitality, and biodiversity are public goods, and you cannot sell them in tidy units.

As I mentioned earlier regarding price versus value, markets tend to undervalue or ignore what can’t be owned or priced, and they do it by design. So instead of optimizing outcomes, the invisible hand often leaves critical systems degraded, neglected, or undervalued. Even when markets do function well, the outcomes depend heavily on the rules of the game – regulations, property rights, externalities, and who holds the power.

There is no law of nature that says markets will align with justice, equity, or sustainability. Sometimes the invisible hand gives us useful gadgets and affordable bread. Other times it gives us clear-cut forests, sweatshops, and melting glaciers. So this invisible hand has successes and failures, and I think we’re starting to see more of the failures.

Day-by-day in our world, the belief that self-interest always guides us to collective wellbeing is no longer just incomplete, it also acts as a blindfold to our whole cultural story. Markets are tools, and they reflect the incentives and boundaries that are built into them. Without guardrails that account for shared costs and long-term impacts, the invisible hand tends to direct us to short-term gains and long-term loss.

Laws Shaped by Abundance

Last but not least in this list of things being taught in business schools around the world, is the myth that these economic laws are even laws. People in business schools are taught that these things are timeless and universal – that supply and demand, marginal cost, equilibrium, and rational economic actors are as immutable as the laws of nature, like gravity or thermodynamics.

But here’s the reality: These laws were developed, enacted, supported, and advocated for during an incredibly specific and unique moment of human history.

If we look at the last thousand years, all of these economic laws were invented during this tiny little period of the last five to seven decades, which has been an extraordinary Carbon-Pulse-supported smorgasbord of stimulation and consumption. And that context shaped how we thought about value, labor, capital, and growth.

But now we live in a different world – one facing resource limits, climate and ecosystem instability, and a contracting ecological base. In this new context, many of these old assumptions break down. Economic systems ultimately aren’t static – they evolve and change based on energy flows, technological capabilities, and environmental conditions.

So what’s the implication? We are part of an economic system that has been adopted to maintain the current social-stratified economic structure. And we need an economics that fits the world that we’re entering, not the one we’re leaving. We need some sort of a system that’s grounded in history, ecology, complexity, and systems – not in math and in metaphor. If we treat 20th-century ideas as eternal truths, we’re going to miss the signals that are needed in the 21st-century reality.

I’m just an observer of all this, but I’ve done the business school thing, then the ecological economics thing, and now I’m interviewing world experts on all the things that are relevant to our future.

Here’s a bonus myth, which I guess is just my opinion: I don’t think that our economic system, or the economic laws that I’ve just outlined, were ever expected to be true. I don’t think they were based on science. I think they were based on people figuring things out and applying them in the real world. And what seemed to make sense during this orgy of consumption, energy availability, and productivity – where all the rising tides lifted all boats in the world – was never really based on truth.

An economic system based on truth would probably look incredibly different than the one we have today. Even if business school students and teachers take to heart what I’ve outlined here, I doubt it’s gonna change anything at all because there’s so much at stake embedded in the current system.

Milton Friedman, who I’m not a huge fan of, did write, “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” I agree with that.

I think we need to very seriously assess these ten myths, their implications, and their corresponding realities if we want to make a future economic system that’s more tethered to the human, animal, and natural reality we live in.

Thank you for reading.

---

Want to Learn More?

If you would like to see a broad overview of The Great Simplification in 30 minutes, watch our Animated Movie.

You can also find additional resources on our website.

---

If you want to support The Great Simplification podcast…

The Great Simplification podcast is produced by The Institute for the Study of Energy and Our Future (ISEOF), a 501(c)(3) organization. We want to keep all content completely free to view globally and without ads. If you’d like to support ISEOF and its content via a tax-deductible donation, please use the link below.

---

Want to connect with other TGS listeners?

---