WHAT IS ECONOMICS?
There is a strong relationship between economics and politics we will discuss one by one. First, we will see what is economics.
Economics is a social science, not physical science. (Unfortunately, many economists are confused on this point! They foolishly try to describe human economic activity with as much mechanical precision as physicists describe the behaviour of atoms.) Economics is the study of human economic behaviour: the production and distribution of the goods and services we need and want.
This broad field encompasses several sub-disciplines. Economic history; money and finance; household economics; labour studies and labour relations; business economics and management; international economics; environmental economics; and others. A broad (and rather artificial) division is often made between MICROECONOMICS (the study of the economic behaviour of individual consumers, workers, and companies) and MACROECONOMICS.
This all seems relatively straightforward. Unfortunately, the dominant stream in modern economics (NEOCLASSICAL ECONOMICS) makes it more complicated than it needs to be. Instead of addressing broad questions of production and distribution, neoclassical economics focuses narrowly on markets and exchange. The purpose of economics, in this mindset, was defined by one of its leading practitioners (Lord Lionel Robbins) back in 1932, in a definition that is still taught in economics courses today:
“Economics is the science which studies human behaviour as a relationship between given ends and scarce means which have alternative uses.”
Embedded in this definition is a very peculiar (and rather dismal) interpretation of economic life. Scarcity is a normal condition. Humans are “endowed” with arbitrary amounts of useful resources. By trading through markets, they can extract maximum well-being from that endowment – just like school kids experience greater happiness by trading their duplicate superhero cards with one another in the playground. An “efficient” economy is one which maximizes,
through trade, the usefulness of that initial endowment – regardless of how output is distributed, what kinds of things are produced, or how rich or poor people are at the end of the day. (This curious narrow concept of efficiency is called ALLOCATIVE EFFICIENCY.)
I prefer to keep things simple. We’ll stick with a much broader definition of economics: the study of how humans work, and what we do with the fruits of our labour. Part of this involves studying markets and exchange – but only part. Economics also involves studying many other things: history, technology, tradition, family, power, and conflict.
ECONOMICS AND POLITICS
Economics and politics have always gone hand-in-hand. Indeed, the first economists called their discipline “political economy.” The connections between economics and politics reflect, in part, the importance of economic conditions to political conditions. The wellbeing of the economy can influence the rise and fall of politicians and governments, even entire social systems.
But here, too, the influence goes both ways. Politics also affects the economy – and economics itself. The economy is a realm of competing, often conflicting interests. Determining whose interests prevail, and how conflicts are managed, is a deeply political process. (Neoclassical economists claim that anonymous “market forces” determine all these outcomes, but don’t be fooled: what they call the “market” is itself a social institution in which some people’s interests are enhanced at the expense of others’.) Different economic actors use their political influence and power to advance their respective economic interests. The extent to which groups of people tolerate economic outcomes (even unfavourable ones) also depends on political factors: such as whether or not they believe those outcomes are “natural” or “inevitable,” and whether or not they feel they have any power to bring about change.
Finally, the social science which aims to interpret and explain all this scrabbling, teeming behaviour – economics – has its own political assumptions and biases.
Modern economics is no different: economics is still a deeply political profession.
For more details please read the book Economics for Everyone – a Short Guide to the Economics link is given below.