Because the other social/behavioral science fields, such as Economics, are so great. The reason for the greatness of economics and the failings of sociology lie in the scientific method which economics adhears to. True science forms the foundation, while with sociology not so much.
Sociology (from Latin: socius, "companion"; and Greek: λόγος, logos, "knowledge") is an academic and applied discipline that studies society and human social interaction. Sociological research ranges from the analysis of short contacts between anonymous individuals on the street to the study of global social processes. The field focuses on how and why people are organized in society, either as individuals or as members of associations, groups, and institutions. As an academic discipline, sociology is typically considered a social science.
One useful way to describe the discipline is as a cluster of sub-disciplines (sometimes called fields) that examine different dimensions of society. For example, social stratification studies inequality and class structure; demography studies changes in a population size or type; criminology examines criminal behavior and deviance; political sociology studies government and laws; and the sociology of race and sociology of gender examine the social construction of race and gender as well as race and gender inequality. New sociological fields and sub-fields—such as network analysis and environmental sociology—continue to evolve; many of them are cross-disciplinary in nature.
Sociological research provides educators, planners, lawmakers, administrators, developers, business leaders, and people interested in resolving social problems and formulating public policy with rationales for the actions that they take.
History
Main article: History of sociology
Social interactions and their consequences are the subject of sociology. (Image: Field Museum of Natural History in Chicago.)Sociology, in studying society, including economic, political and cultural systems, has origins in the common stock of human knowledge and philosophy. Social analysis has been carried out by scholars and philosophers at least as early as the time of Plato. In the 14th century, Ibn Khaldun, who is sometimes considered the "father of sociology",[1][2] in his Muqaddimah, the introduction to a seven volume analysis of universal history, advanced social philosophy in formulating theories of social cohesion and social conflict. (See Early Muslim sociology.)
Sociology emerged as a scientific discipline in the early 19th century as an academic response to the challenges of modernity and modernization, such as industrialization and urbanization. Sociologists hoped not only to understand what held social groups together, but also to develop responses to social disintegration and exploitation.
The word sociology was coined by French thinker Auguste Comte in 1838 from Latin socius (companion, associate) and Greek λóγος, lógos (word). Comte hoped to unify all studies of humankind - including history, psychology and economics. His own sociological scheme was typical of the 19th century; he believed all human life had passed through the same distinct historical stages (theology, metaphysics, positive science) and that, if one could grasp this progress, one could prescribe the remedies for social ills. Sociology was to be the 'queen of positive sciences.'
Karl Marx"Classical" theorists of sociology from the late 19th and early 20th centuries include Karl Marx, Ferdinand Tönnies, Émile Durkheim, Vilfredo Pareto, Georg Simmel, and Max Weber. Like Comte, these figures did not consider themselves only "sociologists". Their works addressed religion, education, economics, law, psychology, ethics, philosophy, and theology, and their theories have been applied in a variety of academic disciplines. Their influence on sociology was foundational.
[edit] Institutionalizing Sociology
The discipline was taught by its own name for the first time at the University of Kansas, Lawrence in 1890 by Frank Blackmar, under the course title Elements of Sociology (the oldest continuing sociology course in America). The Department of History and Sociology at the University of Kansas was established in 1891 [1],[2], and the first full fledged independent university department of sociology was established in 1892 at the University of Chicago by Albion W. Small, who in 1895 founded the American Journal of Sociology [3].
Max WeberThe first European department of sociology was founded in 1895 at the University of Bordeaux by Émile Durkheim, founder of L'Année Sociologique (1896). The first sociology department to be established in the United Kingdom was at the London School of Economics and Political Science (home of the British Journal of Sociology) [4] in 1904. In 1919 a sociology department was established in Germany at the Ludwig Maximilians University of Munich by Max Weber and in 1920 in Poland by Florian Znaniecki.
International cooperation in sociology began in 1893 when René Worms founded the small Institut International de Sociologie that was later on eclipsed by the much larger International Sociological Association [5] starting in 1949 (ISA). 1905, the American Sociological Association, the world's largest association of professional sociologists, was founded; in 1909 as well the Deutsche Gesellschaft für Soziologie (German Society for Sociology) by Ferdinand Tönnies, Max Weber et al.
[edit] Positivism and anti-positivism
Articles: Positivism, Sociological positivism, and Antipositivism.
Early theorists' approach to sociology, led by Comte, was to treat it in much the same manner as natural science, applying the same methods and methodology used in the natural sciences to study social phenomena. The emphasis on empiricism and the scientific method sought to provide an incontestable foundation for any sociological claims or findings, and to distinguish sociology from less empirical fields such as philosophy. This methodological approach, called positivism aspires to explanation and prediction. A non-trivial share of sociologists reject these goals.
One push away from positivism was philosophical and political, such as in the dialectical materialism based on Marx's theories. A second push away from scientific positivism was cultural, even sociological. As early as the 19th century, positivist and naturalist approaches to studying social life were questioned by scientists like Wilhelm Dilthey and Heinrich Rickert, who argued that the natural world differs from the social world because of unique aspects of human society such as meanings, symbols, rules, norms, and values. These elements of society inform human cultures. This view was further developed by Max Weber, who introduced antipositivism (humanistic sociology). According to this view, which is closely related to antinaturalism, sociological research must concentrate on humans' cultural values (see also: French pragmatism).
[edit] Twentieth century developments
In the early 20th century, sociology expanded in United States, including developments in both macrosociology interested in evolution of societies and microsociology. Based on the pragmatic social psychology of George Herbert Mead, Herbert Blumer and other later Chicago school inspired sociologists developed symbolic interactionism.
In Europe, in the inter-war period, sociology generally was attacked both by increasingly totalitarian governments and rejected by conservative universities. At the same time, originally in Austria and later in the U.S., Alfred Schütz developed social phenomenology (which would later inform social constructionism). Also, members of the Frankfurt school (some of whom moved to the U.S. to escape Nazi persecution) developed critical theory, integrating critical, idealistic and historical materialistic elements of the dialectical philosophies of Hegel and Marx with the insights of Freud, Max Weber (in theory, if not always in name) and others. In the 1930s in the U.S., Talcott Parsons developed structural-functional theory which integrated the study of social order and "objective" aspects of macro and micro structural factors.
Since World War II, sociology has been revived in Europe, although during the Stalin and Mao eras it was suppressed in the communist countries. In the mid-20th century, there was a general (but not universal) trend for American sociology to be more scientific in nature, due partly to the prominent influence at that time of structural functionalism. Sociologists developed new types of quantitative research and qualitative research methods. In the second half of the 20th century, sociological research has been increasingly employed as a tool by governments and businesses. Parallel with the rise of various social movements in the 1960s, theories emphasizing social struggle, including conflict theory (which sought to counter structural functionalism) and neomarxist theories, began to receive more attention.
In the late 20th century, some sociologists embraced postmodern and poststructuralist philosophies. Increasingly, many sociologists have used qualitative and ethnographic methods and become critical of the positivism in some social scientific approaches. Much like cultural studies, some contemporary sociological studies have been influenced by the cultural changes of the 1960s, 20th century Continental philosophy, literary studies, and interpretivism. Others have maintained more objective empirical perspectives, such as by articulating neofunctionalism and pure sociology. Others began to debate the nature of globalization and the changing nature of social institutions. These developments have led some to reconceptualize basic sociological categories and theories. For instance, inspired by the thought of Michel Foucault, power may be studied as dispersed throughout society in a wide variety disciplinary cultural practices. In political sociology, the power of the nation state may be seen as transforming due to the globalization of trade (and cultural exchanges) and the expanding influence of international organizations (Nash 2000:1-4).
However, the positivist tradition is still alive and influential in sociology, as evidenced by the rise of social networks as both a new paradigm that suggests paths to go beyond the traditional micro vs. macro or agency vs. structure debates and a new methodology. The influence of social network analysis is pervasive in many sociological subfields such as economic sociology (see the work of Harrison White or Mark Granovetter for example), organizational behavior, or historical sociology.
Throughout the development of sociology, controversies have raged about how to emphasize or integrate concerns with subjectivity, objectivity, intersubjectivity and practicality in theory and research. The extent to which sociology may be characterized as a 'science' has remained an area of considerable debate, which has addressed basic ontological and epistemological philosophical questions. One outcome of such disputes has been the ongoing formation of multidimensional theories of society, such as the continuing development of various types of critical theory. Another outcome has been the formation of public sociology, which emphasizes the usefulness of sociological analysis to various social groups.
[edit] Scope and topics of Sociology
Selected general topics: Discrimination, Deviance and social control, Migration, Social action, Social change, Social class, Social justice/injustice, Social order, Social status, Social stratification, Socialization, Society, Sociological imagination, Structure and agency, Subfields of sociology
Sociologists study society and social action by examining the groups and social institutions people form, as well as various social, religious, political, and business organizations. They also study the social interactions of people and groups, trace the origin and growth of social processes, and analyze the influence of group activities on individual members and vice versa. The results of sociological research aid educators, lawmakers, administrators, and others interested in resolving social problems, working for social justice and formulating public policy.
Sociologists research macro-structures and processes that organize or affect society, such as race or ethnicity, gender, globalization, and social class stratification. They study institutions such as the family and social processes that represent deviation from, or the breakdown of, social structures, including crime and divorce. And, they research micro-processes such as interpersonal interactions and the socialization of individuals. Sociologists are also concerned with the effect of social traits such as sex, age, or race on a person’s daily life.
Most sociologists work in one or more specialties, such as social stratification, social organization, and social mobility; ethnic and race relations; education; family; social psychology; urban, rural, political, and comparative sociology; sex roles and relationships; demography; gerontology; criminology; and sociological practice. In short, sociologists study the many faces of society.
Although sociology was informed by Comte's conviction that sociology would sit at the apex of all the sciences, sociology today is identified as one of many social sciences (such as anthropology, economics, political science, psychology, etc.). At times, sociology does integrate the insights of various disciplines, as do other social sciences. Initially, the discipline was concerned particularly with the organization of complex industrial societies. Recent sociologists, taking cues from anthropologists, have noted the "Western emphasis" of the field. In response, sociology departments around the world are encouraging the study of many cultures and multi-national studies.
[edit] Sociological theory
Main articles: sociological theory and social theory
Sociological theory refers to the use of abstract and often complex theoretical frameworks to explain and analyze social action, social processes and social structures. Sociological theory refers to theories developed by sociologists, though the term has been used synonymously with social theory, as in Swingewood (2000) and Ritzer and Goodman (2004). Social theory is interdisciplinary as it generally includes ideas from multiple fields, such as anthropology, economics, theology, history, philosophy, and others. Many sociologists use both sociological theory and interdisciplinary social theory. The boundaries between these are sometimes fuzzy due to overlaps in origins and content.
Social theories developed almost simultaneously with the birth of the sociology itself. In the 19th century three great, classical theories of social and historical change were created: social evolutionism (of which social Darwinism is a part), social cycle theory and Marxist historical materialism. Although the majority of 19th century social theories are now considered obsolete, they have spawned modern social theories, including multilineal theories of evolution (neoevolutionism, sociobiology, theory of modernisation, theory of post-industrial society) or the theory of subjectivity.
In the 20th century, sociologists developed sociological theories which were based in the institutions and literature of professional sociology. Modern sociological theories include conflict theory, structural functionalism (and more recently neofunctionalism), and symbolic interactionism. At the same time, sociologists have continued to use and contribute to interdisciplinary social theories. Some types of social theory commonly used in sociology include feminist theory, neomarxism, network theory, postmodern theory, poststructuralist theory, rational choice theory, and systems theory (Ritzer and Goodman 2004:185-225).
There is a tension in the discipline between more abstract theory and more empirical theory. Some social and sociological theories tackle very large-scale social trends and structures using hypotheses that cannot be easily falsified and require support by historical or philosophical interpretations. Social theories about modernity or globalization are two examples. Some theorists, such as deconstructionists or postmodernists, may argue that any systematic type of social scientific research theory is inherently flawed.
In empirical social research, empirical findings can provide support for sociological theories and vice versa. For instance, statistical research grounded in the scientific method may find a severe income disparity between women and men performing the same occupation. This finding supports the complex social theories of feminism or patriarchy. A sociological perspective (see sociological imagination) has through the years appealed to students and others dissatisfied with the status quo because it carries the assumption that societal structures may be arbitrary or controlled by specific powerful groups, thus implying the possibility of change.
[edit] Sociological research
Main article: social research
The basic goal of sociological research is to understand the social world in its many forms. Quantitative methods and qualitative methods are two main types of social research methods. Sociologists often use quantitative methods -- such as social statistics or network analysis - to investigate the structure of a social process or describe patterns in social relationships. Sociologists also often use qualitative methods - such as focused interviews, group discussions and ethnographic methods - to investigate social processes. Sociologists also use applied research methods such as evaluation research and assessment.
[edit] Methods of sociological inquiry
Sociologists use many types of social research methods, including:
Archival research - Facts or factual evidences from a variety of records are compiled.
Content Analysis - The contents of books and mass media are analyzed to study how people communicate and the messages people talk or write about.
Historical Method - This involves a continuous and systematic search for the information and knowledge about past events related to the life of a person, a group, society, or the world.
Interviews - The researcher obtains data by interviewing people. If the interview is non-structured, the researcher leaves it to the interviewee (also referred to as the respondent or the informant) to guide the conversation.
Life History - This is the study of the personal life trajectories. Through a series of interviews, the researcher can probe into the decisive moments in their life or the various influences on their life.
Longitudinal study - This is an extensive examination of a specific group over a long period of time.
Observation - Using data from the senses, one records information about social phenomenon or behavior. Qualitative research relies heavily on observation, although it is in a highly disciplined form.
Participant Observation - As the name implies, the researcher goes to the field (usually a community), lives with the people for some time, and participates in their activities in order to know and feel their culture.
The choice of a method in part often depends on the researcher's epistemological approach to research. For example, those researchers who are concerned with statistical generalizability to a population will most likely administer structured interviews with a survey questionnaire to a carefully selected probability sample. By contrast, those sociologists, especially ethnographers, who are more interested in having a full contextual understanding of group members'lives will choose participant observation, observation, and open-ended interviews. Many studies combine several of these methodologies.
The relative merits of these research methodologies is a topic of much professional debate among practicing sociologists.
[edit] Combining research methods
In practice, some sociologists combine different research methods and approaches, since different methods produce different types of findings that correspond to different aspects of societies. For example, quantitative methods may help describe social patterns, while qualitative approaches could help to understand how individuals understand those patterns.
An example of using multiple types of research methods is in the study of the Internet. The Internet is of interest for sociologists in various ways: as a tool for research, for example, in using online questionnaires instead of paper ones, as a discussion platform, and as a research topic. Sociology of the Internet in the last sense includes analysis of online communities (e.g. as found in newsgroups), virtual communities and virtual worlds, organisational change catalysed through new media like the Internet, and societal change at-large in the transformation from industrial to informational society (or to information society). Online communities can be studied statistically through network analysis and at the same time interpreted qualitatively, such as though virtual ethnography. Social change can be studied through statistical demographics or through the interpretation of changing messages and symbols in online media studies.
[edit] Sociology and other social sciences
Sociology shares deep ties with a wide array of other disciplines that also deal with the study of society. The fields of economics, psychology, and anthropology have influenced and have been influenced by sociology and these fields share a great amount of history and common research interests.
Today sociology and the other sciences are better contrasted according to methodology rather than objects of study. Additionally, unlike sociology, psychology and anthropology have forensic components within these disciplines that deal with anatomy and other types of laboratory research.
Sociobiology is the study of how social behavior and organization has been influenced by evolution and other biological processes. The field blends sociology with a number other sciences, such as anthropology, biology, zoology, and others. Although the field once rapidly gained acceptance, it has remained highly controversial within the sociological academy.[3] Sociologists often criticize the study for depending too greatly on the effects of genes in defining behavior. Sociobiologists often respond by citing a complex relationship between nature and nurture.
Sociology is also widely used in management science, especially in the field of organizational behavior.
Recent best-selling books such as The Tipping Point by Malcolm Gladwell show a revived popular interest in the discipline of sociology.
Economics is the study of how to satisfy unlimited wants with limited resources. It is the social science that studies the production, distribution, and consumption of goods and services, and the theory and management of the scarce goods, resources, and services.
The word 'economics' is from the Greek for οἶκος (oikos: house) and νόμος (nomos: custom or law), hence "rules of the house(hold)."
A definition that captures much of modern economics is that of Lionel Robbins in a 1932 essay: "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." Scarcity means that available resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no economic problem. The subject thus defined involves the study of choice, as affected by incentives and resources.
Areas of economics may be divided or classified in various ways, including:
microeconomics and macroeconomics
positive economics ("what is") and normative economics ("what ought to be")
mainstream economics and heterodox economics
fields and broader categories within economics.
One of the uses of economics is to explain how economies work and what the relations are between economic players in the larger society. Methods of economic analysis have been increasingly applied to fields that involve people (officials included) making choices in a social context, such as crime [1], education [2], the family, health, law, politics, religion [3], social institutions, and war [4].
In the beginning
Main article: History of Economics
Although discussions about production and distribution have a long history, economics in its modern sense is conventionally dated from the publication of Adam Smith's The Wealth of Nations in 1776. In this work Smith defines the subject in practical terms:
Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to supply a plentiful revenue or product for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.
Smith referred to the subject as 'political economy', but that term was gradually replaced in general usage by 'economics' after 1870.
Areas of study
Areas of economics may be divided or classified in various ways; however, an economy is usually analyzed in either of two ways:
Microeconomics examines the economic behavior of agents (including businesses and households) and their interactions through individual markets, given scarcity and government regulation. Within microeconomics, general equilibrium theory aggregates across all markets, including their movements and interactions toward equilibrium.
Macroeconomics examines an economy as a whole "top down" with a view to understanding interactions between the broadest aggregates such as national income and output, employment and inflation and broad aggregates like total consumption and investment spending and their components.
Since at least the 1960s, macroeconomics has been characterized by further micro-based modeling as to rationality of players and efficient use of market information. Today a consensus view is that good macroeconomics has solid microeconomic motivation as to theory and evidence.
The vast majority of economic theory is in terms of either macro or micro economics. However, a few authors (for example, Kurt Dopfer, Stuart Holland and Markos Mamalakis also argue that 'mesoeconomics', which considers the intermediate level of economic organization such as markets and other institutional arrangements, should be considered an additional branch of economic study. Mamalakis claims that mesoeconomics "unifies and reconciles the macro and micro approaches and is a "richer" way of studying the dynamics of economics than the two traditional models.[1])
Another division of the subject distinguishes positive economics, which seeks to predict and explain economic phenomena ("what is"), from normative economics ("what ought to be"), which orders choices and actions by some criterion; such orderings necessarily involve value judgments, including selection from criteria.
Another more recent trend, closer to microeconomics, is to use social psychology concepts (behavioral economics) and methods (experimental economics) to understand deviations from the predictions of neoclassical economics. Economic history is the study of economic change, and of economic phenomena in the past.
Financial economics has traditionally been considered a part of economics, as its body of results emerges naturally from microeconomics. However, today Finance effectively established itself as a separate, though closely related, discipline.
Economics can also be divided into numerous sub disciplines including: international economics, development economics, labor economics, environmental economics, industrial organization, public finance, economic psychology, economic sociology, institutional economics, economic geography, information economics and economics of security, experimental economics.
Separate from mainstream or neoclassical economics, which underlies most of the assumptions and techniques described in this entry, is heterodox economics. Heterodox economics refers to approaches or schools of economic thought that do not conform to mainstream economics, which has largely developed from neoclassical economics in the late 19th century. While mainstream economics may be defined in terms of the "rationality-individualism-equilibrium nexus", heterodox economics may be defined in terms of a "institutions-history-social structure nexus".
The JEL classification codes provide a comprehensive, detailed way of classifying and searching for economics articles by subject matter. An alternative classification of often-detailed entries by mutually-exclusive categories and subcategories is The New Palgrave: A Dictionary of Economics (1987).[2]
Techniques
Specialized techniques may be used in the subject. These include the following:
mathematical economics for representing economic theories with simplicity, generality, and precision.
econometrics, which applies statistical methods to analyze economic data for the purpose of drawing fact-based generalizations and testing theories as to acceptance, rejection, or refinement.[3]
computational economics, which encompasses both computational economic modeling and the computational solution of analytically and statistically formulated economic problems.
Another important technique is national (or social) accounting, which summarizes economic activity for a nation (or other geographic area). The national accounts are double-entry accounting systems that provide detailed underlying measures of such information. These include national income and product accounts, balance sheets, accounts of capital accumulation and finance, and input-output tables.[4]
Language and reasoning
Economics relies on rigorous styles of argument. Economic methodology has several interacting parts:
Collection of economic data. This data consists of measurable values of price and changes in price, for measurable commodities. For example: the cost to hire a worker for a week, or the cost of a particular commodity, and how much is typically used.
Formulation of models of economic relationships, for example, the relationship between the general level of prices and the general level of employment. This includes observable forms of economic activity, such as money, consumption, preferences, buying, selling, and prices. Economics typically employs two types of equations:
1) Identity equations are used to explain how certain economic values are calculated. An example is the relationship of the quantity theory of money as expressed in Irving Fisher's theory of the price level, which is shown by the equation of exchange . This is often used to find how fast money circulates in the economy and can be considered an accounting measure. Another example is national income. Identity equations are tautological in that the purpose is to define rather than to explain.
2) Descriptive equations are used to describe how an economic agent behaves. For example, utility and budget equations describe the desires and limitations of consumers. When combined, these yield demand equations which describe the quantities of product consumers will seek to purchase at various prices. Similarly, profit and production equations describe the desires and limitations of firms. When combined, these yield supply equations. Combining demand and supply equations yields equilibrium equations that describe the prices and quantities that will prevail in the markets.
This article will refer to such models as formal models, although they are not formal in the sense of formal logic. Economists often formulate very simple models in order to define the impact of just one variant changing. This is called the ceteris paribus ("other things equal") assumption, meaning that all other things are assumed not to change during the period of observation: for example, "If the price of movie tickets rises, ceteris paribus the demand for popcorn falls." However, it is possible with the use of econometric methods to determine one relationship while removing much of the noise caused by other variables.
Production of economic statistics. Taking the data collected, and applying the model being used to produce a representation of economic activity. For example, the "general price level" is a theoretical idea common to macroeconomic models. The specific inflation rate involves taking measurable prices, and a model of how people consume, and calculating what the "general price level" is from the data within the model. For example, suppose that diesel fuel costs 1 euro a litre: to calculate the price level would require a model of how much diesel an average person uses, and what fraction of their income is devoted to this, but it also requires having a model of how people use diesel, and what other goods they might substitute for it.
Reasoning within economic models. This process of reasoning (see the articles on informal logic, logical argument, fallacy) sometimes involves advanced mathematics. For instance, an established (though possibly unexamined) tradition among economists is to reason about economic variables in two-dimensional graphs in which curves representing relations between the axis variables are parameterized by various indices. A good example of this type of reasoning in Keynesian macroeconomics is the still commonly-used IS/LM model. Paul Samuelson's treatise Foundations of Economic Analysis examines the class of assertions called operationally meaningful theorems in economics, which are those that can be conceivably refuted by empirical data.[5] As usual in science, the conclusions obtained by reasoning have a predictive as well as confirmative (or dismissive) value. An example of the predictive value of economic theory is a prediction as to the effect of current deficits on interest rates 10 years into the future. An example of the confirmative value of economic theory would be confirmation (or dismissal) of theories concerning the relation between marginal tax rates and the deficit.
Formal modeling, which has been adapted to some extent by all branches of economics, is motivated by general principles of consistency and completeness. It is not identical to what is often referred to as mathematical economics; this includes, but is not limited to, an attempt to set microeconomics, in particular general equilibrium, on solid mathematical foundations. Some reject mathematical economics: The Austrian School of economics believes that anything beyond simple logic is often unnecessary and inappropriate for economic analysis. In fact, the entire empirical-deductive framework sketched in this section may be rejected outright by that school. However, the framework sketched here accurately represents the current predominant view of economics.This being the predominant view only because not enough economists appreciate the implications of Gödel's incompleteness theorems for formal modelling.
Many mainstream economists feel that the combination of rigorous theory and empirical data ultimately gives the best understanding of real-world phenomena. Towards this end, economics has undergone a massive formalization of its ideas, concepts and methods. According to critics, sometimes to the detriment of its real-world relevance. This creates a tension in the profession on what economists should do. The traditional Chicago School, with its emphasis on economics being an empirical science aimed at explaining real-world phenomena, has insisted on the power of price theory as the tool of analysis. On the other hand, some economic theorists have formed the view that a consistent economic theory may be useful even if at present no real world economy bears out its prediction.
Schools of thought
Modern mainstream economics
Mainstream economics begins with the premise that resources are scarce and that it is necessary to choose between competing alternatives. That is, economics deals with tradeoffs. With scarcity, choosing one alternative implies forgoing another alternative—the opportunity cost. The opportunity cost creates an implicit price relationship between competing alternatives. In addition, in both market oriented and planned economies, scarcity is often explicitly quantified by price relationships. Alfred Marshall in the late 19th century informally described economics as "the study of man in the ordinary business of life".
Understanding choices by individuals and groups is central. Economists believe that incentives and desires play an important role in shaping decision making. Concepts from the Utilitarian school of philosophy are used as analytical concepts within economics, though economists appreciate that society may not adopt utilitarian objectives. One example of this is the idea of a utility function, which is assumed to represent how economic agents rank the choices given to them. The utility function ranks available choices from best to worst, and the agent gradually learns to choose the best-ranked choice in the feasible set of his alternatives.
On a microeconomic level, some economists extend economic analysis to all personal decisions. An alternative can be thought of as a vector where the entries are answers not only to questions like "How many eggs should I buy?", but also "How many hours should I spend with my kids?" and "Which candidate should I vote for?"
Modern mainstream economics builds primarily on neoclassical economics, which began to develop in the late 1800s and models choices made in the allocation of scarce resources. Mainstream economics also acknowledges the existence of market failure and some insights from Keynesian economics. It looks to game theory and asymmetric information to solve problems on a microeconomic level. Many important insights on collective behavior (for example, emergence of organizations) have been incorporated from institutional economics via new institutionalism.
Alternative approaches
Neoclassical economics as part of a Neo-classical synthesis with Keynesian macro-economics is the dominant form of economics used today, and is the main source of theory for mainstream economists. It is often referred to by its critics as Orthodox Economics. The more specific definition this approach implies was captured by Lionel Robbins in 1932: "the science which studies human behavior as a relation between scarce means having alternative uses." Scarcity means that available resources are insufficient to satisfy all wants and needs; if there is no scarcity and no alternative uses of available resources, then there is no economic problem.
Classical economics: Also called political economy, this was the original form of mainstream economics of the Eighteenth and Nineteenth Centuries. Classical economics focuses on the tendency of markets to move to equilibrium and on objective theories of value. Neo-classical economics differs from classical economics primarily in being utilitarian in its value theory and using marginal theory as the basis of its models and equations. Marxist economics also descends from classical theory.
Keynesian economics: This school has developed from the work of John Maynard Keynes and focused on macroeconomics in the short-run, particularly the rigidities caused when prices are fixed. It has two successors:
Post-Keynesian economics: An alternative school - one of the successors to the Keynesian tradition with a focus on macroeconomics. They concentrate on macroeconomic rigidities and adjustment processes, and research micro foundations for their models based on real-life practices rather than simple optimizing models. Generally associated with Cambridge, England and the work of Joan Robinson (see Post-Keynesian economics).
New-Keynesian economics: The other school associated with developments in the Keynesian fashion. These researchers tend to share with other Neoclassical economists the emphasis on models based on micro foundations and optimizing behavior but focus more narrowly on standard Keynesian themes such as price and wage rigidity. These are usually made to be endogenous features of these models, rather than simply assumed as in older style Keynesian ones (see New-Keynesian economics).
Marxian economics: Descended from the work of Karl Marx, this school focuses on the labor theory of value and what Marx considered to be the exploitation of labour by capital. Thus, in Marxian economics, the labour theory of value is a method for measuring the exploitation of labour in a capitalist society, rather than simply a theory of price.[6][7]
Austrian economics: This school focuses on the role of the entrepreneur creating temporary market power and being the drive for economic growth.
Complexity economics: One of the more recent schools of thought in modern economics (dating from the late 1970s early 1980s), complexity economics views economic systems as complex adaptive systems rather than as closed equilibrium systems. Some of the earliest studies in this new field were done by researchers at the Santa Fe Institute in New Mexico, USA.
Agent-Based Computational Economics (ACE): ACE is the computational study of economic processes modeled as dynamic systems of interacting agents. Here "agent" is broadly interpreted as a bundle of data and methods representing a social, biological, or physical entity constituting part of a computationally constructed "virtual world."
Eclectic Economists: The term 'eclectic' means selecting and using what seems best from various sources, systems or schools of thought. Eclectic economists tend to economize to get an optimal result for the problem at hand. The assumption of utility can for example be used, not to imply that people really have such a utility, but as an efficient approximation. Such economists might be 'main stream' or neoclassical in one publication and do political economy in another publication.
heterodox economics: Many schools of thought at variance with some or all of the particular microeconomic formalism of neoclassical economics have, in the past, been lumped together in this category. These include: institutional economics, Marxist economics, feminist economics, socialist economics, and green economics.
Famous schools or trends of thought referring to a particular style of economics practiced at and disseminated from well-defined groups of academicians that have become known worldwide, may be generally summarized as follows:
Austrian School
Chicago School
Freiburg School
Keynesian economics
Post-Keynesian economics
School of Lausanne
Stockholm school
Economics and ecology
Another premise is that economics fits within a finite ecosystem where there are at least some abundant resources. For instance, when fueling a fire, people are usually concerned with finding the wood, and not with finding the air to burn it with. Traditional economics explicitly does not deal with free or abundant natural inputs. One criticism is that it often conflicts with ecology's view of what affects what.
Ecological economics attempts to address this criticism by calculating the financial contribution of nature's services, adding environmental considerations such as biodiversity to traditional list of human wants and needs, and proposing policy tools to address the negative impacts of economic growth on the environment. Green economics is a closely related field which views the human economy as a subset of the larger ecosystem.
Alternative definitions
This section extends the discussion of the definitions of Economics at the beginning of the article.
Wealth definition
The earliest definitions of political economy were simple, elegant statements defining it as the study of wealth. The first scientific approach to the subject was inaugurated by Aristotle, whose influence is still recognized, inter alia, today by the Austrian School. Adam Smith, author of the seminal work The Wealth of Nations and regarded by some as the 'father of economics', defines economics simply as "The science of wealth."[8] Smith offered another definition, "The Science relating to the laws of production, distribution and exchange."[8] Wealth was defined as the specialization of labor which allowed a nation to produce more with its supply of labor and resources. This definition divided Smith and Hume from previous definitions which defined wealth as gold. Hume argued that gold without increased activity simply serves to raise prices.[9]
John Stuart Mill defined economics as "The practical science of production and distribution of wealth"; this definition was adopted by the Concise Oxford English Dictionary even though it does not include the vital role of consumption. For Mill, wealth is defined as the stock of useful things.[10]
Definitions in terms of wealth emphasize production and consumption. The accounting measures usually used measure the pay received for work and the price paid for goods, and do not deal with the economic activities of those not significantly involved in buying and selling (for example, retired people, beggars, peasants). For economists of this period, they are considered non-productive, and non-productive activity is considered a kind of cost on society. This interpretation gave economics a narrow focus that was rejected by many as placing wealth in the forefront and man in the background; John Ruskin referred to political economy as a "bastard science"[11] and "the science of getting rich."[12]
Welfare definition
Later definitions evolved to include human activity, advocating a shift toward the modern view of economics as primarily a study of man and of human welfare, not of money. Alfred Marshall in his 1890 book Principles of Economics wrote, "Political Economy or Economics is a study of mankind in the ordinary business of Life; it examines that part of the individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being."[13]
The welfare definition was still criticized as too narrowly materialistic. It ignores, for example, the non-material aspects of the services of a doctor or a dancer. A theory of wages which ignored all those sums paid for immaterial services was incomplete. Welfare could not be quantitatively measured, because the marginal significance of money differs from rich to the poor (that is, $100 is relatively more important to the well-being of a poor person than to that of a wealthy person). Moreover, the activities of production and distribution of goods such as alcohol and tobacco may not be conducive to human welfare, but these scarce goods do satisfy innate human wants and desires.
Marxist economics still focuses on a welfare definition. In addition, several critiques of mainstream economics begin from the argument that current economic practice does not adequately measure welfare, but only monetized activity, which is an inadequate approximation of welfare.
Scarcity definition
Scarcity suggests all things in the world are in finite supply. People therefore have to make choices.
Scarcity too has its critics. It is most amenable to those who consider economics a pure science, but others object that it reduces economics merely to a valuation theory. It ignores how values are fixed, prices are determined and national income is generated.[citation needed] It also ignores unemployment and other problems arising due to abundance. This definition cannot apply to such Keynesian concerns as cyclical instability, full employment, and economic growth.
The focus on scarcity continues to dominate neoclassical economics, which, in turn, predominates in most academic economics departments. It has been criticized in recent years from a variety of quarters, including institutional economics and evolutionary economics and surplus economics.
Core concepts
Value
The concept of value is central to economics. An observable measure of it is market price.
Representative money like this 1922 US $100 gold note could be exchanged by the bearer for its face value in gold.Adam Smith defined labor as the underlying source of value,[8] and the "labor theory of value" underlies the work of Karl Marx, David Ricardo and many other classical economists. This theory argues that a good or service is worth the labor that it takes to produce. For most, this value determines a commodity's price. This labor theory of price and the closely related cost-of-production theory of value dominates the work of most classical economists, but those theories are far from the only accepted basis for "value". For example, Austrian School economists use the marginal theory of value.
Neoclassical economics, as in John R. Hicks's book Value and Capital, distinguishes value (as determined on the demand side) from cost (on the supply side), with price determined by supply and demand.[14] In a competitive market, demand and supply interact to determine price and equate cost and value. Economic analysis considers not only the allocation of output for different uses but the distribution of income to the factors of production, including labour and capital, through factor markets.
Supply and demand
The supply and demand model describes how prices vary as a result of a balance between product availability and demand. The graph depicts a right-shift in demand from D1 to D2 along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve (S).Main article: Supply and demand
In microeconomic theory supply and demand attempts to describe, explain, and predict the price and quantity of goods sold in perfectly competitive markets. It is one of the most fundamental economic models, ubiquitously used as a basic building block in a wide range of more detailed economic models and theories.
To define, demand is the quantity of a product that a consumer or buyer would be willing and able to buy at any given price in a given period of time. Demand is often represented as a table or a graph relating price and quantity demanded. Most economic models assume that consumers make rational choices about how much to buy in order to maximize their utility - they spend their income on the products that will give them the most happiness at the least cost. The law of demand states that, in general, price and quantity demanded are inversely related. In other words, the higher the price of a product, the less of it consumers will buy.
Supply is the quantity of goods that a producer or a supplier is willing to bring into the market for the purpose of sale at any given price in a given period of time. Supply is often represented as a table or a graph relating price and quantity supplied. Like consumers, producers are assumed to be utility-maximizing, attempting to produce the amount of goods that will bring them the greatest possible profit. The law of supply states that price and quantity supplied are directly proportional. In other words, the higher the price of a product, the more of it producers will create.
The theory of supply and demand is crucial to explaining the market economy in that it explains the mechanisms by which prices and levels of production are set.
Price
Main article: Price
In order to measure the ebb and flow of supply and demand, a measurable value is needed. The oldest and most commonly used is price, or the going rate of exchange between buyers and sellers in a market. Price theory, therefore, charts the movement of measurable quantities over time, and the relationship between price and other measurable variables. In Adam Smith's Wealth of Nations, this was the trade-off between price and convenience.[8] A great deal of economic theory is based around prices and the theory of supply and demand. In economic theory, the most efficient form of communication comes about when changes to an economy occur through price, such as when an increase in supply leads to a lower price, or an increase in demand leads to a higher price.
Exchange rates are determined by the relative supply and demand of different currencies — an important issue in international trade.In many practical economic models, some form of "price stickiness" is incorporated to model the fact that prices do not move fluidly in many markets. Economic policy often revolves around arguments about the cause of "economic friction", or price stickiness, and which is, therefore, preventing the supply and demand from reaching equilibrium.
Another area of economic controversy is about whether price measures the value of a good correctly. In mainstream market economics, where there are significant scarcities not factored into price, there is said to be an externalization, which is a cost or benefit to actors other than the buyer and seller, of which many examples exist, including pollution (a cost to others) and education (a benefit to others). Market economics predicts that scarce goods which are under-priced because of externalities are over-consumed (See social cost), and that scarce goods that are over-priced are under-consumed. This leads into public goods theory. Governments often tax and otherwise restrict the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods that have positive externalities in an effort to correct the distortion in price caused by these externalities.
Scarcity
Main article: Scarcity
Neoclassical economics is characterized by maximization (leisure time, wealth, health, and other sources of happiness - all commonly reduced to the concept of utility) subject to constraints. These constraints - or scarcity - inevitably define a trade-off. For example, one can have more money by working harder, but less time (there are only so many hours in a day, so time is scarce). One can have more radishes only at the expense of, for example, fewer carrots (you only have so much land on which to grow food - land is scarce).
All economies in the world face scarcity
Scarcity is defined as: when the price is zero, the quantity demanded exceeds the quantity supplied. Price is a measure of relative scarcity. If all other market variables are held constant. When the price is rising, this indicates the commodity is becoming relatively scarcer. When the price is falling, this indicates the commodity is becoming relatively less scarce.
Adam Smith considered, for example, the trade-off between time, or convenience, and money. He discussed how a person could live near town, and pay more for rent of his home, or live farther away and pay less, "paying the difference out of his convenience".[8]
Marginalism
Main article: Marginalism
In marginalist economic theory, the price level is determined by the marginal cost and marginal utility. The price of all goods will be the cost of making the last one that people will purchase, and the price of all the employees in a company will be the cost of hiring the last one the business needs. Marginalism looks at decisions based on "the margins", what the cost to produce the next unit is, versus how much it is expected to return in profit. When the marginal return of an action reaches zero, the action stops. Marginal utility is how much more happiness or use a person receives from a purchase in contrast with buying less. Marginal rewards are often subject to diminishing returns: Less reward is obtained from more production or consumption. For example, the 10th bar of chocolate that a person consumes does not taste as good as the first, and so brings less marginal utility.
Marginalism became increasingly important in economic theory in the late 19th century, and is a tool which is used to analyze how economic systems will react. Marginal cost of production divides costs into "fixed" costs which must be paid regardless of how many of a commodity are produced, and "variable costs". The marginal cost is the variable cost of the last unit. Marginalism states that when the profit from the next unit will be zero, that unit will not be produced. This is often termed the marginal revolution in economic thought.
The marginalist theory of price level runs counter to the classical theory of price being determined by the amount of labor congealed in a commodity.
Development of economic thought
Adam Smith, generally regarded as the Father of Economics, author of An Inquiry into the Nature and Causes of the Wealth of Nations, commonly known as The Wealth of Nations.Main article: History of economic thought
The term economics was coined around 1870 and popularized by influential "neoclassical" economists such as Alfred Marshall (Welfare definition), as a substitute for the earlier term political economy, which referred to "the economy of polities" – competing states.[citation needed] The term political economy was used through the 18th and 19th centuries, with Adam Smith, David Ricardo and Thomas Malthus as its main thinkers and which today is frequently referred to as the "classical" economic theory. Both "economy" and "economics" are derived from the Greek oikos- for "house" or "settlement", and nomos for "laws" or "norms".
Economic thought may be roughly divided into three phases: premodern (Greek, Roman, Arab), early modern (mercantilist, physiocrats) and modern (since Adam Smith in the late 18th century). Systematic economic theory has been developed mainly since the birth of the modern era. Joseph Schumpeter specifically credits the development of the scientific study of economics to the Late Scholastics, particularly those of 15th and 16th century Spain (see his History of Economic Analysis).
There have been different and competing schools of economic thought pertaining to capitalism from the late 18th Century to the present day. Important schools of thought include Mercantilism, Kameralism, physiocracy, classical economics, Manchester school, Austrian school, Marxian economics, and Chicago school.
Within macroeconomics there is, in general order of their appearance in the literature; classical economics, Keynesian economics, neo-classical synthesis, post-Keynesian economics, monetarism, new classical economics, and supply-side economics. New alternative developments include evolutionary economics, dependency theory, and world systems theory.
Criticism and contrarian perspectives
Is economics a science?
One of the marks of a science is the use of a scientific method and the ability to establish hypotheses and make predictions which can then be tested with data and where the results are repeatable by others. Unlike some natural scientists and in a way similar to what happens in other social sciences, it is difficult for economists to conduct formal experiments due to moral and practical issues involved with human subjects. Experimentation, however, has been conducted in a number of applied fields in economics: this includes the sub-fields of experimental economics and consumer behavior, focused on experimentation using human subjects; and the sub-field of econometrics, focused on testing hypotheses when data are not generated via controlled experimentation.
The status of social sciences as an empirical science has been a matter of debate in the 20th century, see Positivism dispute.[15] Unlike the natural sciences, economics yields no natural laws or universal constants due to its reliance on non-physical arguments, so this has led some critics, like Dick Richardson, Ph.D., Professor of Integrative Biology at the University of Texas at Austin, to argue economics is not a science.[16] In general, economists reply that while this aspect presents serious difficulties, they do in fact test their hypotheses using statistical methods such as econometrics and data generated in the real world[17]: a problematic statement considering the implications of Gödel's incompleteness theorems.The field of experimental economics has seen efforts to test at least some predictions of economic theories in a simulated laboratory setting – an endeavor which earned Vernon Smith the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 2002.
Criticisms of economic theory and practice
Economics has been criticized for its reliance on unrealistic, unobservable, or unverifiable assumptions. One response to this criticism has been that the unrealistic assumptions result from abstraction from unimportant details, and that such abstraction is necessary in a complex real world. Rather than unrealistic assumptions compromising the epistemic worth of economics, such assumptions are essential for economic knowledge. One study has termed this explanation the "abstractionist defense". The study concludes that that this "abstractionist defense" does not invalidate the criticism of the unrealistic assumptions.[18] However, it is important to note that while one school does have a majority in the field, there is far from a consensus on all economic issues and multiple alternative fields claim to have more empirically-justified insights.
Economics is a field of study with various schools and currents of thought. As a result, there exists a considerable distribution of opinions, approaches and theories. Some of these reach opposite conclusions or, due to the differences in underlying assumptions, contradict each other.[19][20]
Criticism on several topics in economics can be found elsewhere, in both general and specialized literature. See, for example: general equilibrium, Pareto efficiency, marginalism, behavioral finance, behavioral economics, feminist economics, Keynesian economics, monetarism, endogenous growth theory, comparative advantage, Kuznets curve, Laffer curve, economic sociology, agent-based computational economics, et al..
McCloskey critique
Main article: McCloskey critique
Although the conventional way of connecting an economic model with the world is through econometric analysis, Professor Deirdre McCloskey cites many examples in which professors of econometrics were able to use the same data to both prove and disprove the applicability of a model's conclusions. She argues the vast efforts expended by economists on analytical equations is essentially wasted effort.
McCloskey's Critique is closely related to Gödel's incompleteness theorems, since econometric analysis as a discipline does not always start from a consistent set of axioms, but changes the axioms applied to fit the data, due to the fact of incompleteness.
Common Fallacies in the Homo Economicus model
Rationality=Self-Interest: This refers to the common axiom or belief shared by many mainstream economists that rationality implies self-interest and vice-versa.
Well-Being=Consumption: This refers to the common axiom or belief shared by many mainstream economists that human beings are happy when they consume, and unhappy when not consuming.
Atomism: This refers to the common axiom or belief shared by many mainstream economists that human beings are atomistic, ie.their preferences are independant. This axiom ignores among other things: education, conditioning, advertising, marketing, conspicuous consumption, and modern quantum mechanics etc.
The most common defense of the above axioms is that they make the problem tractable.
Ethics and economics
The relationship between economics and ethics is complex. Many economists consider normative choices and value judgments, like what needs or wants, or what is good for society, to be political or personal questions outside the scope of economics. Once a person or government has established a set of goals, however, economics can provide insight as to how they might best be achieved.
Others see the influence of economic ideas, such as those underlying modern capitalism, to promote a certain system of values with which they may or may not agree. (See, for example, consumerism and Buy Nothing Day.) According to some thinkers, a theory of economics is also, or implies also, a theory of moral reasoning.[21]
The premise of ethical consumerism is that one should take into account ethical and environmental concerns, in addition to financial and traditional economic considerations, when making buying decisions.
Effect on society
Some would say that market forms and other means of distribution of scarce goods, suggested by economics, affect not just their "desires and wants" but also "needs" and "habits". Much of so-called economic "choice" is considered involuntary, certainly given by social conditioning because people have come to expect a certain quality of life. This leads to one of the most hotly debated areas in economic policy, namely, the effect and efficacy of welfare policies. Libertarians view this as a failure to respect economic reasoning. They argue that redistribution of wealth is morally and economically wrong. Socialists view it as a failure of economics to respect society. They argue that disparities of wealth should not have been allowed in the first place. This led to both 19th century labor economics and 20th century welfare economics before being subsumed into human development theory.
The older term for economics, political economy, is still often used instead of economics, especially by certain economists such as Marxists. The use of this term often signals a basic disagreement with the terminology or paradigm of market economics. Political economy explicitly brings social political considerations into economic analysis and is therefore openly normative, although this can be said of many economic recommendations as well, despite claims to being positive. Some mainstream universities (many in the United Kingdom) have a "political economy" department rather than an "economics" department.
Marxist economics generally denies the trade-off of time for money. In the Marxist view, concentrated control over the means of production is the basis for the allocation of resources among classes. Scarcity of any particular physical resource is subsidiary to the central question of power relationships embedded in the means of production.