This is an interesting read. I do think you are overthinking the debate between rational expectations and normative values. There is a whole branch of economics called normative economics, which deals with how people make choices when non-economic values are calculated. You seem to assume that rational choice and such values are opposed to each other, but empathetic decisions carry their own utility, and most people weigh such considerations along with their normative values.

For example, consider your own daily decisions. When you make a choice to buy a product, the vast majority of the time you will make your decision by weighing your own personal utility for the product against the price. In most cases that economics deals with empathy has little utility, as your purchase does not exclude others from purchasing it if they choose. One of the selling points of capitalism is that more effective production creates more choices and less scarcity. This model of economics is nearly infallible in explaining how people make choices in their daily lives. In fact, economic models can be valuable in explaining how people make all kinds of non-economic choices - such as how long you will search for a mate, for example.

But, that is not true at all times and not true for every economic actor. Take for example the decision to buy a new car - do you go electric, or stay with the ICE? You take a test drive of an EV, you consider the price, maintenance, a number of factors. One of the factors you consider is that you will be doing your share to save the planet. Some people will place a high weight on the moral factor, and they buy the first EV available and are willing to pay a higher price than they would for a similar gas vehicle. That is because they gain utility from the knowledge that they are doing good. Other consumers will place a lower weight on morality, and will not want to sacrifice their physical utility and will go with the ICE.

Note how the EV market is now taking off. Before long EV purchases will outnumber gas vehicles. That is not because people have more empathy and concern for the planet than they used to, although the increasingly visible effects of global warming play a factor. It is mostly because the choices are better and provide greater physical utility. When it became possible for EV trucks to compare favorably with gas trucks the demand exploded like a Yellowstone geyser.

This also works on the production side. The possibility of EVs has been around for decades, but it wasn't until battery technology improved to make such vehicles profitable, along with government financial incentives to make the price more competitive, that major producers began to shift their focus. Carmakers are not shifting to EVs because of concerns about global warming.

This applies also to the labor market. People weigh all kinds of factors when choosing which employer to work for, including the moral footprint of the business. Some people will choose to beat themselves up on Wall Street because the utility they gain from a high salary outweighs both the moral considerations and the value of their personal time. Some will even engage in corrupt or criminal activity that hurts others if their own personal utility is satisfied. Others will work for peanuts for nonprofits, or teaching, or nursing, because they get greater utility from doing work that helps other people than they get from salary or perks.

So it is not just rational choice versus moral choice. They are both considerations that consumers, producers, and workers all consider simultaneously. The problem with moral factors is that they are impossible to measure accurately. Economics is in the business of making forecasts of human behavior so that public policy can be more effective. The most effective models are explained mathematically. To make them work, moral considerations have to be excluded. But economics does not deny that norms are important, just that they would be exceptions to the original model.

A couple of other points. The discussion in your article, and the wisdom of the economists you quote, are about competitive capitalism. A competitive market model requires several assumptions, such as perfect information between buyer and seller, perfect freedom of entry and exit for producers, etc. Most of these assumptions are not being satisfied in today's economy. Competition would fit the model that Smith describes - in a perfectly competitive market, producers have to accept the market price, and long term industry profits average out to zero. Society is served better than if distribution were made perfectly equal in a centrally planned economy.

But the form of capitalism that dominates the world today is monopoly capitalism (including oligarchies). Production is increasingly concentrated in fewer and fewer producers, which are also increasingly public corporations, which gives them market power and they can set the price to maximize profit. In this kind of capitalism, moral considerations by the producer are slim to none. The shareholder is king, and it is rare for moral considerations to be given much weight at shareholder meetings.

Early economists did not spend much time on monopoly capitalism. Large monopolistic corporations were expected to be rare. The only examples of such historically were government-licensed monopolies such as the East India Company. But the way our economy has evolved, Smith's idea of an invisible hand is completely discredited. His point was about producers, that they would naturally and unknowingly create an ideal distribution of products and wealth, has been proven completely false for monopoly producers. If Smith was right, income inequality would be minor, and businesses would not make it a central function to avoid paying taxes.