Dominic Lawson: Why Windsor's Poundland turns economics on its head

The chain's decision to open its newest store in one of the wealthiest boroughs in the land is much less paradoxical than it seems

Who would have thought it? In affluent Windsor – the royal seat that provided a conveniently English surname for the grandest family in the land – a shop apparently catering for the financially hard-up is all the rage. According to Amanda Cable, writing in yesterday's Daily Mail, "My mother, a jeweller working opposite, rang me in horror. 'I've never seen anything like it,' she said. 'There are women in pearls elbowing each other out of the way'."

What Ms Cable's appalled mother had been describing was the scene at the recent opening of the Windsor branch of Poundland, the store chain in which every item sells for £1 – a singular offer which has remained unchanged during the 21 years of the company's existence, despite all the depredations of fiscal duties and inflation. Yet, for all that time, it has by no means been just poorer families who shop there: according to Poundland, more than 10 per cent of its habitual customers come from the A/B socio-economic group. So the company's decision to open its newest store down the road from Eton College, and in one of the wealthiest boroughs in the land, was much less paradoxical than it appeared.

My mother died in 1985, five years before Poundland opened its doors, but its success among the haute bourgeoisie of Windsor made me think of her. She came from quite a wealthy family, but regarded any kind of unnecessary expenditure as a kind of madness. If we went to a store and the price tag on an item struck her as excessive, she would shout out the price, in a half-laugh, half-snort, to the clear discomfiture of the shop's assistants.

Among the many forms of spending that she regarded as inherently absurd was that of paying to have a haircut. She insisted on cutting all the family's, including my father's: I'm afraid it showed. When colour television came in, she was for some time implacably opposed to her children's demands that we buy this modern miracle. It was partly that she didn't see the point of it, but also that the whole notion of spending more than the minimum on any device was to her almost morally offensive.

It was her influence, I suppose, which made me reel in astonishment when an acquaintance who I knew to have very little income – he was a Russian poet – told me that he was staying at Claridge's during his visit to London. He quite rightly told me it was his business how he spent what little money he had and that even if he went into debt as a result of staying at London's grandest hotel, at least he would have enjoyed the experience, which would stay with him for the rest of his life.

The poet's response was also a rebuke to the notion of man as a purely rational judge of his own economic wellbeing or, as John Stuart Mill originally put it, man "as a being who desires to possess wealth and who is capable of judging the comparative efficacy of means for obtaining that end". Modern economics has taken that theory and, on the back of it, developed an entire branch of mathematics which purports to predict the behaviour of markets based on the notion that man is a creature who analyses risk and reward rationally, and acts accordingly.

This was the bizarre but fashionable concept which completely failed to anticipate the credit crunch, and which may even have caused it. Mathematical economists at the big investment banks – usually described as "rocket scientists" – had constructed computer models which assumed that in any given situation, there would be a predictable price at which this or that sliver of securitised debt would rationally trade.

Yet these mathematical models, being in essence the discourse between computers, took no account of the effect of such a basic human emotion as fear. So when, at the time of the collapse of Lehman Brothers, fear became endemic, no price for its "toxic" assets could be found at all, even when the "rational" computers would have come up with a number around which all could agree, and calm equilibrium could be rapidly restored.

It is hardly surprising that those events have led to a dramatic increase in the credibility (and book sales) of so-called "behavioural" economists, just as the reputation of the mathematical branch of the dismal science has imploded. The behavioural economists lean heavily on psychology rather than mathematics, since they have accepted the psychologists' assertion – based on experimentation as well as neuro-science – that risk detection and risk avoidance are not assessed just by the "thinking" part of the brain, but also by the part in which emotions are felt and generated. What this in turn means is that it is our emotions more than our reason which govern our attitudes to the spending and saving of money.

Seen in this context, Poundland's decision to open in Windsor was thoroughly scientific rather than an inspired punt. The fact is that many affluent people have the fear of poverty, even if on a rational assessment of their life-chances they have nothing to be worried about. Such people will feel that in spending the absolute minimum on basic items they are storing up money for when they might really need it. When I come to think about it, that was probably my mother's cast of mind. Her hunt for the cheapest was not so much born of a positive delight in bargain-hunting, but an almost superstitious need to ward off the evil day when an unspecified disaster might befall us – as to some extent it did in the property crash of the mid-1970s.

Perhaps her anxieties were also a function of having been a small child during the Second World War. The most famous resident of Windsor, otherwise known as Elizabeth II, has a frugality that is frequently attributed to being part of the generation that grew up in the era of food rationing – a generation which to this day tends to look upon its successors as wilfully extravagant.

So although the Queen has a private fortune estimated at around £350m, I can imagine her paying a visit to her new local branch of Poundland – or at least sending the footman there for provisions. These days, cheap is posh.