The relationship between economics and business?

Given an email discussion I was having with a friend (another economist) recently, I was reminded of something I wrote back in 2012. It seems my view of economics is out of step with other views of the subject. I see it as a social science with a close relationship to moral and political philosophy, political science, psychology etc. But this it seems is a minority view. Many people, economists included, seem to see the subject as simply being part of business, its sole role is to train better businessmen (whatever "better" may mean in this context).

Of course, I would ask, What use is general equilibrium theory or the theory of the firm or time-series econometrics or experimental economics or ..... to a businessman? Does your local dairy owner really need to know about Granger causality or the second fundamental theorem of welfare economics to run a successful business? I would say not, but it seems I'm wrong. Others believe these to be vitally important for the success of the enterprise.

Now I would argue that a basic knowledge of economics is valuable and useful for all people be they businessmen, school teachers, truck drivers or whatever. What I don't see is why businessmen need more economic knowledge than other people. ,p>Oh well, like on so many things, it looks like I'm wrong yet again :-(

What would Adam "Moral Philosopher" Smith say?

I should add that I was not the first person to think economics is of little use to businessmen. A. C. Pigou got there well before me, in 1922 in fact:

"[ . . . ] it is not the business of economists to teach woollen manufacturers to make and sell wool, or brewers how to make and sell beer, or any other business men how to do their job. If that was what we were out for, we should, I imagine, immediately quit our desks and get somebody - doubtless at a heavy premium, for we should be thoroughly inefficient - to take us into his woollen mill or his brewery".

Lionel Robbins followed up in 1935 by arguing that running a business is beyond the competence of economists,

"[t]he technical arts of production are simply to be grouped among the given factors influencing the relative scarcity of different economic goods. The technique of cotton manufacture [ . . . ] is no part of the subject-matter of Economics [ . . . ]".

Ronald Coase notes that when he went to the LSE to study for the Bachelor of Commerce, specialising in the Industry Group,

"It will have been noticed that during my two years at LSE I studied a great variety of subjects, devoting therefore very little time to each and inevitably doing no systematic reading. I took no course in economics [...]" Obviously, in Coase's day economics was not seen as vital to business.

Ulrich Witt notes that early in the history of economics in Germany economic theory was separated from business economics,

"There, economic theory (Volkswirtschaftslehre) and business economics (Betriebswirtschaftslehre) were institutionally segregated as early as at the turn of the century to a degree still unknown today in the Anglo Saxon world. As Lachmann once conjectured, Austrian writers therefore considered the organizational form of entrepreneurial activities to be a topic best left to their business economics fellows."

May be my view is just old fashioned.

Latest Blogwatch column

 My Blogwatch column from the latest issue (Issue 70, April 2021) of the NZAE magazine Asymmetric Information.

Published!!

My latest book is finally published!! The publisher's page for the book is here.

Foundations of Organisational Economics: Histories and Theories of the Firm and Production delves into a range of key topics to do with the history of the mainstream approach to the theory of production and the theory of the firm. This includes the frameworks used to analyse production, the division of labour and its application to the firm and the development of the neoclassical model of production. The first topic explored is the change from a normative approach to a largely positive approach to the analysis of the theory of production, which occurred around the seventeenth century. The next topic is an examination of the relationship (or the lack of a relationship) between the division of labour and the theory of the firm. In the fourth chapter, the focus is on the development of the proto-neoclassical approach to production. Here, the development of the theories of monopoly, oligopoly and perfect competition are discussed, as well as the theory of input utilisation. Chapter 5 looks at Marshall’s idea of the representative firm, which was the main early neoclassical approach to the theory of industry-level production. The penultimate chapter considers the criticisms made of the neoclassical model between 1940 and 1970. This work is an illuminating reference for students and researchers of the history of economic thought, industrial organisation, microeconomic theory and organisational studies.

Table of Contents 1 Introduction 2 Normative versus positive analysis in the history of the theory of production 3 The division of labour and the theory of the firm 4 Proto-neoclassicals and the theory of production Appendix: a very brief history of perfect competition 5 The representative firm 6 The neoclassical model under fire 1940–1970 7 Conclusion

Latest Blogwatch column

My Blogwatch column from the latest issue (Issue 69, December 2020) of the NZAE magazine Asymmetric Information.

Latest Blogwatch column

My Blogwatch column from the latest issue (Issue 68, August 2020) of the NZAE magazine Asymmetric Information.

Thomas Sowell: Common Sense in a Senseless World

Thomas Sowell: Common Sense in a Senseless World traces Sowell’s journey from humble beginnings to the Hoover Institution, becoming one of our era’s most controversial economists, political philosophers, and prolific authors. Hosted by Jason Riley, a member of The Wall Street Journal editorial board, the one-hour program features insights from Sowell and interviews with his close friends and associates, revealing why the intensely private Thomas Sowell is considered by many to be “one of the greatest minds of the past half-century” and “the smartest person in the room.”

The Theory of the Firm: An Overview of the Economic Mainstream, Revised Edition

This is a revised edition of Walker (2017). New sections or subsections have been added on the X-inefficiency model, the division of labour and the firm - both pre and post-1970, ownership of the firm and the human capital based firm. Additions have been made to sections on entrepreneurship, the incomplete contracts approach to the firm, the discussion of Coase’s paper on the ‘The Nature of the Firm’, the discussion of industry-level analysis versus intra-firm analysis, reasons for ignoring firm, a small addition has been made to the Sreni material in section 2.1 and material on Commenda, Waqf and the Clan Corporation has also been added to section 2.1. Appendix 4 has been deleted.

Walker, Paul (2017). The Theory of the Firm: An overview of the economic mainstream, London: Routledge.

The Theory of the Firm: An ... by Paul Walker