Friday, 24 September 2021

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.

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