Tuesday 18 September 2012

Economics: social science or business subject? (updated x 2)

Given the debate that I have been having this morning it seems my view of economics is out of step with all other views of the subject. I see it as a social science with close relationship with moral and political philosophy, political science, psychology etc. But this it seems is a minority view. A minority of one in fact! Everybody else sees the subject as simply being part of business, it 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 its 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.

Oh well, like on so many things, it looks like I'm wrong yet again :-(

What would Adam "Moral Philosopher" Smith say?

Update: I should have remembered before 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.

Update 2: 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."
So business and economics do not mix.


Tim Worstall said...

As someone who knows a bit of economics and also is in business. Economics can hinder a business performance.

It's certainly happened to me: you can get hung up on "Well, yes, of course this is a bubble" and thus avoid it. When the proper business response is to ride it....making sure you get out 10% before the top of course.

As to the German thing. One recent project I was in Germany and needed to get the costings for the project done. I was looking around for someone to do them. The Germans knew (well, thought) I was an economist and couldn't understand why I wasn't doing them.

Their meaning of "economist" came much closer to the English meaning of "cost accountant" than the English meaning of economist. That last being of course someone who is sometimes right about prices and incentives and almost never so about the whole economy.

Matt Nolan said...

Who were you talking to? Sounds like they were not people who have ever studied economics.

Paul Walker said...

Matt: the really sad bit here is that they are all members of the econ department at Canterbury!!!

Matt Nolan said...

Potentially the area they are focused on looks at that area?

Your description of "economics" is infinitely more accurate than seeing it as a business'esque discipline though - and this coming from a business analyst.

Seamus Hogan said...


Don't take Paul's word for what the Economists here were saying!

Paul Walker said...

As Dr Hogan seems so keen on calling me a lair I look forward to him providing evidence to backup his claim.

Unknown said...

Economics is a main part of the business. It is not as a steady position in the market, it always goes ups and down in the market. Business always faced certain risk through the market scenarios.

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