“On the Definition of Economics,” R. Backhouse & S. Medema (2009)

This interesting little article appeared recently in the JEP. What, exactly, do we mean when we say “economics”? Most economists know that in Adam Smith’s day, there was no such thing as economics: Smith held chairs in Logic and Moral Philosophy. Malthus famously held the first chair in Political Economy in Britain, but as far as I can tell, it was an obscure French Revolutionary named Vandermonde, and not Jean-Baptiste Say, who was the first to hold such a position in any country. Economics splintered from the other social sciences around the turn of the 20th century, and by Marshall’s time, we taught in departments called by their modern name. But did Marshall and Say and Malthus and the rest mean what we mean when we say “economics”? Do we even know what we mean today, or is economics, as the great Jacob Viner put it, simply the study of what economists do?

Backhouse and Medema began with Smith, and Smith certainly didn’t use the modern definition. In The Wealth of Nations, unsurprisingly, political economy is the art of enriching the nation and sovereign. In the early 19th century, ethical considerations were generally removed from the definition, and political economy was rather seen as dealing with the distribution and sum of wealth, full stop. Mill was closer to the modern definition: he allowed for tracing “the laws [that] arise from the combined operation of mankind for the production of wealth…,” implying a deduction of behavior from general tendencies that looks a lot like the modern economic method. The Austrians sought to focus on exchange, rather than on wealth alone. All of these definitions look fairly macro-focused, however.

Unsurprisingly, the marginalists focused more on the individual. Jevons recounts, in a great turn of phrase, that economics is “the calculus of pleasure and pain,” essentially making economics a branch of psychology. Marshall, no lover of Jevons by any means, nonetheless kept the focus on psychology; his legendary textbook begins by saying that “economics is the study of the ordinary business of life…that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing…on the one side, a study of wealth; and on the other, and more important side, a part of the study of man.”

The real modern definition, though, comes from Lionel Robbins, a professor at that Fabian upstart LSE, adversary of Marshall’s Cambridge. In his Essay on the Nature and Significance of Economic Science (1932), Robbins defines economics as the “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses”; that is, economics studies production and allocation under scarcity. Note that this definition, for example, leaves out any role for ethics and focuses heavily on individual action; the broad social forces of the German Historical School and the sociologists are not included. Robbins’ definition was not immediately accepted: American Institutionalist textbooks kept definitions like “the subject matter of economics is industry, the process by which men get a living.” A group emerging in the 20s and 30s, under Frank Knight, uses much more restrictive definitions than Robbins: they wanted economics to focus and markets and the price system, not human behavior and rationality more generally.

Backhouse and Medema credit the acceptance of Robbins’ definition as a product of the technocratic involvement of economists in World War II. Samuelson’s 1948 1st edition of his textbook just says that economists study What, How and For Whom, but that by the 1970s, even Samuelson was focused more on how individual actions in a market facing scarcity lead to certain results, rather than wartime planning of such results. A number of economists in the 1960s and 1970s, such as Becker, began to define economics in terms of its methodology – individuals maximizing under constraints – rather than in terms of subject matter. Such focus on rational choice theory as the defining characteristic of economics seems necessary to explain so-called academic imperialism, whereby economists have gone on to study politics, games, mechanisms, social forces, etc.

So where does that leave us? Clearly neither of the three modern-looking definitions – allocation under scarcity, rational choice theory, or the study of markets and prices – is altogether accurate. Flip open an AER or Econometrica and you will see very few markets, basically no prices or money, many articles with non-maximizing behavior, and a lot of philosophizing that can’t be called allocation under scarcity except in the most broadly meaningless senses of those words. For example, allocation under scarcity puts far too much emphasis on static allocation and far too little on growth. Perhaps, “Economics is the study of the actions of agents in the social world, and the outcomes of those interactions”? Too broad? Suggestions are gladly taken in the comments for a better definition!

http://www.rau.ro/intranet/JEP/2009/2301/23010221.pdf (Final JEP version. Another great history of economics terms article is David Card’s article on the modern definition on unemployment which appeared in the May P&P issue of the AER: http://emlab.berkeley.edu/~card/papers/origins-of-unemployment.pdf)

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