The first question you get when you decide to apply for an economics bachelor’s is how good you are in mathematics. As you go through the courses you understand the origin of the preoccupation quite well: at a certain point, mathematics no longer has numbers, only letters. You study statistics, econometrics, calculus, linear algebra, and everything imaginable or not, see the irrational numbers, regarding exact sciences. In the midst of studying so many exact science courses, you have different ones which focus on the abstract theory of economics itself, the perspective which sees the subject as a social science. It’s impossible not to feel strangled between two opposite, yet complementary views. With that being said, we lay out the situation in which most great economists found themselves at some point in their lives: is economics a science that should be analyzed as natural sciences are—or is it more subjective, having closer ties to sociology, philosophy and so on?
Even though economists lost their prestige after the 2008 crisis, most of what they predict or analyze is still regarded as scientific. As an article from Wendy Carlin in the Financial Times Magazine said: “This could be a golden age for economics. Recent advances in theory, economic history and quantitative methods have provided tools to address pressing issues of inequality of opportunity, financial instability and climate change. At airport bookshops, Freakonomics, Why Nations Fail and Irrational Exuberance compete with John Grisham’s latest. Students flock to introductory courses.”
To better understand the rise of economics as a “star” subject, we first have to understand the history of economic thought. Only in the end of the 19th century and beginning of 20th century was economics extensively analyzed mathematically. Before this tsunami of models, graphs and functions, economics was regarded as a philosophical subject. Take for instance authors such as Adam Smith and David Ricardo. One considered the founding father of economics, and the other a classic in the area, yet neither of their most famous papers had an extensive focus on mathematics or logical reasoning. They founded their theories based on observations, inferences and intuition, yet without making any further mathematical analysis they proved the importance of their papers with striking innovative theories.
Only further down on the path of economics was mathematics introduced as a key point in its analysis, and to better understand how that happened, it’s necessary to look back into the history of economic thought and methodology.
The first group to think about economic methodology as a whole was the logical positivists. They made use of the methods followed in natural sciences to set rules and procedures that would dictate a way of exercising economics. They were known for their descriptive models and their love for numbers. I like to see them as that student who is doing economics simply because he likes maths. Of course, he will excel at explaining the models we use mathematically and logically, but most of the times, when something goes out of the normality and requires the least bit of out of the box thinking, he will flank.
What followed the logical positivists’ ideas was a major turn towards the need of making economics as close to natural sciences as possible. As a bachelor of economics, I believe this happened for a simple reason: in a world where natural sciences are taken as the most relevant type of knowledge, economists have an individual motivation to drive economics as close as possible from that path. After all, if economics is regarded as an important subject, the monetary compensation for the professionals in the area will be higher, as well as their feeling of self-accomplishment and prestige within society.
To finish this history class, which might be boring for you if you are an economics student that loves maths, I would like to point out the name of what I believe are the greatest economists of the past century: Milton Friedman and John Maynard Keynes.
Friedman was the father of microeconomics, a precursor of neoliberal ideas, and a huge protector of capitalism during the cold war. He is the one that gave the final touch to a lot of theories heavily used in our daily life, especially the ones regarding firms. The biggest criticism towards his work pointed out the ridiculous assumptions taken by Friedman in order to support his theory: one of which assumes that information is free to everyone in the world. Yes, that’s right—this assumption holds that a poor kid in Africa living on one dollar a day has the same access to information as you do, dear reader, where you are probably reading this on your smartphone, tablet or laptop. Was that considered absurd at the time? Not at all; Friedman believed that the assumptions which supported his models were only accessories to the theory, as the important part was the predictive power of models. As long as the model could predict what was going to happen, it didn’t matter what assumptions he would take. Or as Machiavelli once said, the end justifies the means.
Now I’m a bit subjective in talking about Keynes since I believe he was the greatest economists of all times, but I will do my best to keep it in my pants. Keynes gave a different approach to economics, as most of his observations didn’t include extensive statistical and analytical data. His papers were similar to the ones developed by Smith and Ricardo in a sense that they included intuitive and logical aspects of economics, which made his ideas much closer to a social analysis. On the contraty to what Friedman believed, Keynes did not believe in the free market ideas, and had big criticism towards capitalism, even though he believed it was the optimum economic system. He once said, “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”
Once the historical aspect of economic thinking and methodology is taken into consideration it’s logical to see why the extensive discussion regarding how to view economics as a science exists until today. It’s a fact that both logical positivists, Friedman and Keynes failed in observing and predicting multiple economic phenomena, and that the models used so far, especially with respect to economic policy, aren’t as precise as they should be.
What we learn today, as bachelors of economics, is poorly related to any aspect of economics as a social science. Economics bachelors are stripped down, filled with models and numbers, wrapped around in a financially focused foil and shipped to the greatest hedge funds and banks in the world.
Economics cannot be interpreted, nor used, as a natural science, as it cannot predict the aspects of something flexible as human behavior. The job of the economist is to describe, to analyze and understand the motivations behind human actions, interpreting them and unravelling information that might be useful for further research. We cannot forget that economics is a social science, and as such, it should focus on the problems of our societies.